As filed with the Securities and Exchange Commission on December 21, 2006.
Registration No. 333-                          
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM SB-2
 
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(Amendment No. ___)
 
ACCELERIZE NEW MEDIA, INC.
(Name of Small Business Issuer in Its Charter)

DELAWARE
7371
20-3858769
(State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)

6477 HIGHWAY 93 SOUTH
SUITE 303
WHITEFISH, MONTANA 59937
(406) 892-2161
(Address and Telephone Number of Principal Executive Offices)

MR. BRIAN ROSS
ACCELERIZE NEW MEDIA, INC.
6477 HIGHWAY 93 SOUTH
SUITE 303
WHITEFISH, MONTANA 59937
(406) 892-2161
(Name, Address and Telephone Number of Agent For Service)

with a copy to:
J. TRUMAN BIDWELL, JR.
SULLIVAN & WORCESTER LLP
1290 AVENUE OF THE AMERICAS
NEW YORK, NY 10104
Telephone: (212) 660-3032
Telecopier: (212) 660-3031


Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after the effective date of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. |X|
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [  ]
 
CALCULATION OF REGISTRATION FEE  

Title of each class of
securities to be
registered
Amount to be
registered
Proposed maximum
offering price per
Share (1)
Proposed maximum
aggregate offering
price
Amount of
registration fee
Common Stock, par
value $.001 per share
9,140,027 (2)
$0.15
$1,371,004
$146.70
Common Stock, par
value $.001 per share
5,400,000 (3)
$0.15
$810,000
$86.67
Common Stock, par
value $.001 per share
936,492 (4)
$0.15
$140,474
$15.03
Common Stock, par
value $.001 per share
1,350,000 (5)
$0.15
$202,500
$21.67
Total
16,826,519
 
$2,523,478
$270.07

All shares of common stock being registered hereunder are being offered by selling stockholders of Accelerize New Media, Inc.

(1) Offering price computed in accordance with Rule 457(c). The price of $0.15 is a fixed price at which the selling stockholders identified herein may sell their shares until the Registrant's common stock is quoted on the OTC Bulletin Board, at which time the shares may be sold at prevailing market prices or privately negotiated prices.

(2) Represents 5,500,000 shares of common stock, par value $.001 per share issued in January 2006 to consultants for services rendered; 3,500,000 shares of Common Stock par value $.001 per share purchased by accredited investors in a private placement offering conducted on January 2006 at a price of $0.10 per share for an aggregate purchase price of $350,000 (the “Common Stock Offering”); and 140,027 shares of Common Stock par value $.001 per share issued to holders of the Series A Convertible Preferred Stock as dividends.

(3) Represents shares of Common Stock issuable upon conversion of shares of 10% Series A Convertible Preferred Stock, par value $.001 per share, purchased in a private placement offering conducted in August 2006 and October 2006 at a price of $0.15 per share of Preferred Stock for an aggregate purchase price of $810,000 (the “Preferred Stock Offering”)

(4) Represents a good faith estimate of the number of shares of Common Stock to be received by the holders as pay-in-kind, or PIK dividend in connection with their ownership of 10% Series A Convertible Preferred Stock during the period between September 1, 2006 and August 31, 2008.

(5) Represents shares of Common Stock underlying warrants purchased in the Preferred Stock Offering, which warrants are exercisable at a price of $0.15 per share.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
 
SUBJECT TO COMPLETION, DATED DECEMBER 21 , 2006
 
PROSPECTUS
 
ACCELERIZE NEW MEDIA, INC.
 
16,826,519 SHARES OF COMMON STOCK
 
This prospectus relates to periodic offers and sales of 16,826,519 shares of common stock by the selling security holders, which consists of:
 
·
9,140,027 shares of common stock which are presently outstanding;
 
·
5,400,000 shares of common stock underlying our 10% Series A Convertible Preferred Stock, and issueable upon conversion;
 
·
936,492 shares of common stock to be received by holders of the 10% Series A Convertible Preferred Stock as dividends; and
 
·
Up to 1,350,000 shares of common stock underlying warrants.
 
We will not receive any proceeds from the sale of the shares by the selling security holders. The shares of common stock are being offered for sale by the selling security holders at prices established by them. There are no minimum purchase requirements. Prices will fluctuate based on the demand for the shares of common stock. Our common stock is not yet publicly traded. An application will be filed for the public trading of our common stock on the OTC Bulletin Board following the effectiveness of the registration statement of which this prospectus forms a part.
 
For a description of the plan of distribution of these shares, please see page 46 of this prospectus.
 
Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 4 of this prospectus to read about the risks of investing in our common stock.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The date of this Prospectus is       , 2006.
 

 
TABLE OF CONTENTS
Page
 
 
Prospectus Summary
3
 
 
Risk Factors
4
 
 
Forward Looking Statement
12
   
Use of Proceeds
12
   
Market for Common Equity and Related Stockholder Matters
12
   
Dividend Policy
13
   
Securities Authorized for Issuance Under Equity Compensation Plans
13
   
Selected Consolidated Financial Data
13
   
Capitalization
16
   
Management’s Discussion and Analysis or Plan of Operations
16
   
Business
26
   
Management
35
   
Executive Compensation
37
   
Certain Relationships and Related Parties Transactions
38
   
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
39
   
Description of Securities
40
   
Selling Security Holders
43
   
Plan of Distribution
46
   
Shares Eligible for Future Sale
49
   
Legal Matters
50
   
Experts
50
   
Where You Can Find Additional Information
50
   
Index to Financial Statements
F-1

 
PROSPECTUS SUMMARY
 
Our Company
 
We offer a comprehensive online media solution for clients to reach their target audience on the internet. We provide lead generation and customer acquisition solutions via our network of financial, news and social networking portals, and also through real simple syndication, or RSS feeds, blogs, targeted e-mail, banners, search engine optimization, and purchase of key words. We primarily make money by charging vendors to place advertisements that are accessed through this network. When users take specified actions as a result of clicking through these ads go into our network, we receive a fee. We also provide our content to companies in a variety of formats including re-branded portals, investor relations pages, and RSS feeds. In December 2006 we entered into an agreement to acquire substantially all assets of The Debt Reduction Group, or TDRG, a Delaware limited liability company. TDRG primarily provides sales and marketing support for debt settlement solutions offered by debt settlement agencies to consumers in the United States. The acquisition is subject to customary closing conditions and we expect to close in January 1, 2007.
 
Accelerize New Media, Inc. owns and operates a large network of consumer-based portals, microsites and landing pages with an extensive portfolio of domains to drive high-end, highly relevant leads to our advertisers. Our web properties are the primary source for our lead generation and social networking traffic. The websites are designed to connect and/or “point” to each other with the goal of keeping the user within our network. The longer the user stays within the network, the more valuable that user becomes to potential advertisers.
 
We were incorporated on November 22, 2005 under the laws of the State of Delaware, through the combination of the business operations of EDGAR Index and MapGui, both of which had operated since 2001 as private entities owned by our current management team. Prior to our incorporation, we operated as a sole proprietorship doing business as Accelerize New Media.
 
Financial Information
 
For the nine months ended September 30, 2006, the company reported a net loss of approximately $1.9 million. Our revenues may not be adequate to fund future operations. See “Management Discussion and Analysis or Plan of Operation - Going Concern.”
 
Our Contact Information and Website
 
Our principal executive offices are located at 6477 Highway 93 South, Suite 303, Whitefish, Montana 59937. Our telephone number at this location is (406) 892-2161. Our corporate website is www.accelerizenewmedia.com. The information which appears on our web site is not part of this prospectus.
 
When used in this prospectus, the terms “Accelerize”, “the company”, “we”, “our”, and “us” refers to Accelerize New Media, Inc., a Delaware corporation.
 
The Offering
 
Securities Offered
 
16,826,519 shares of common stock, $.001 par value, consisting of: 9,140,027 shares of common stock $.001 par value per share; 5,400,000 shares of common stock, underlying our 10% Series A Convertible Preferred Stock; U p to 936,492 shares of common stock to be received as dividend on our preferred stock; and 1,350,000 shares of common stock underlying warrants.
 
Common Stock Outstanding
 
19,140,027 shares as of December 21, 2006, not including 5,400,000 shares underlying the 10% Series A Convertible Preferred Stock, 936,492 shares of common stock to be received as PIK dividend, and 1,350,000 shares underlying warrants.
 
Use of proceeds
 
We will not receive any of the proceeds from the sale of the shares by the selling stockholders, although we may receive up to approximately $203,000 upon the exercise of the warrants in full at the current exercise price. These proceeds, if any, are expected to be used for working capital. We will pay all of the expenses of this offering, including, without limitation, professional fees, printing expenses and registration fees.
 
Risk factors
 
The offering involves a high degree of risk. Please refer to ‘‘Risk Factors’’ beginning on page 4 for a description of the risk factors you should consider.
 

 
RISK FACTORS
 
An investment in our shares involves a high degree of risk. Before making an investment decision, you should carefully consider all of the risks described in this prospectus. Each of the following risks could materially adversely affect our business, financial condition and results of operations, which could cause the price of our shares to decline significantly and you may lose all or a part of your investment. Prospective investors should fully understand and evaluate these risks before making an investment decision. Our forward-looking statements in this prospectus are subject to the following risks and uncertainties. Our actual results could differ materially from those anticipated by our forward-looking statements as a result of the risk factors below. See “Forward-Looking Statements.”

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

We were incorporated 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.

4
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. From our inception in November 2005 through September 30, 2006, we had cumulative net losses of approximately $1.9 million. Our operations have been financed primarily through the issuance of equity. On September 30, 2006, we had approximately $500,000 in cash. We expect that our expenses will increase substantially as we continue to develop and market our products and services. In addition, we expect that as a public company our general and administrative expenses will increase significantly. 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 2008, 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.
 
Our quarterly financial results will fluctuate, making it difficult to forecast our results of operation.
 
We expect 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 product and services;
 
·
Market acceptance of new and existing services offered by us, our competitors and potential competitors; and
 
·
Governmental regulations affecting the use of the Internet, including regulations concerning intellectual property rights and security features.
 
5
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 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.

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.
 
6
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.
 
7
Our servers are hosted in San Antonio, Texas.  Rackspace Managed Hosting, of Dallas Texas, handles the failover process we have put in place. We intend to notify Rackspace immediately of any outage and upon such notice they are supposed 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, and our Chief Technology Officer, Chris Meredith, and with the completion of the acquisition of TDRG, we will be dependent also on the continued active participation of Damon Stein and Daniel Goldberg. 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. Currently, we do not have a written employment agreements with any of our employees except Messrs Ross and Meredith.
 
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. We expect that participants in our markets will 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 can not 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.
 
8
Dilutive securities may adversely impact our stock price.

As of December 21, 2006, 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 dated August 2006 and October 2006;
 
·
936,492 shares of common stock issuable upon receipt of PIK dividends;
 
·
warrants to purchase up to a total of 1,350,000 shares of our common stock at a price of $0.15 per share; and
 
·
Up to 4,300,000 shares of common stock issuable under our stock option plan.
 
We have included the shares of common stock issuable upon receipt of the PIK dividend and shares of common stock underlying outstanding warrants and preferred stock in the registration statement of which this prospectus is a part. These securities represent approximately 38% of our common stock on a fully diluted as converted basis. The exercise of these warrants and the conversion of the 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 December 2006 we entered into an agreement to acquire substantially all of the assets of TDRG, and we expect to complete this transaction by January 1, 2007. 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 will do with the TDRG acquisition when we expect to issue approximately 18% of our 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;
 
9
·
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.
 
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. Specifically, if we fail to integrate TDRG’s 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.
 
  We may be exposed to potential risks relating to our internal control over financial reporting and our ability to have those controls attested to by our independent registered public accounting firm.
 
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the company's internal control over financial reporting in their annual reports, including Form 10-KSB. In addition, the independent registered public accounting firm auditing a company's financial statements must also attest to and report on management's assessment of the effectiveness of the company's internal control over financial reporting as well as the operating effectiveness of the company's internal controls. We were not yet subject to these requirements. We have not yet begun evaluating our internal control systems in order to allow our management to report on, and our independent registered public accounting firm attest to, our internal controls as a required part of our Annual Report on Form 10-KSB beginning with our report for the fiscal year ending December 31, 2007 in the case of management’s report and for our fiscal year ending December 31, 2008 in the case of our accounting firm’s attestation.
 
While we expect to expend significant resources over the next few months in developing the necessary documentation and testing procedures required by Section 404 of Sarbanes-Oxley Act of 2002, there is a risk that we will not be able to comply with all of the requirements imposed by this rule. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner or we are unable to receive an unqualified attestation from our independent registered public accounting firm with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.
 
In addition, 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.
 
10
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 any of these corporate governance measures and, since our securities are not yet 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, 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.
 
11
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.
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
Certain statements in this prospectus contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Whenever we use words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” or similar expressions, we are making forward-looking statements. These forward-looking statements are based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to implement our strategic initiatives, our ability to complete our acquisition of TDRG, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this prospectus in its entirety, including the risks described in "Risk Factors." Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this prospectus, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
 
USE OF PROCEEDS
 
All shares of our common stock offered by this prospectus are being registered for the account of the selling stockholders. We will not receive any proceeds upon the sale of shares by the selling security holders. We would receive up to approximately $203,000 upon the exercise of all of our warrants at their current exercise prices. The actual allocation of proceeds realized from the exercise of these warrants will depend upon the amount and timing of such exercises, our operating revenues and cash position at such time and our working capital requirements. There can be no assurances that any of the outstanding warrants will be exercised.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
Our common stock is not quoted and not traded. As of December 1, 2006 we had 54 registered stockholders. Following the completion of the acquisition of TDRG we expect to have 56 registered stockholders. After the registration statement of which this prospectus forms a part is declared effective by the Securities and Exchange Commission, we plan to have our common stock traded on the Over-The-Counter Bulletin Board (OTC.BB.)
 
12
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, commencing September 1, 2006.
 
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
 
On December 15, 2006, the company's Board of Directors and shareholders 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 is 4,300,000 shares of our 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. As of December 1, 2006, the company has not granted any options to purchase shares of common stock.

SELECTED CONSOLIDATED FINANCIAL DATA
 
The following selected financial information has been derived from the financial statements that are included elsewhere in this prospectus. Because this is only a summary, t he financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto appearing elsewhere in the prospectus.
 
13
ACCELERIZE’S STATEMENT OF OPERATIONS DATA:
 
   
For the nine
months ended
September 30, 2006
 
For the nine
months ended
September 30, 2005
 
For the year ended December 31, 2005
 
For the year ended December 31, 2004
 
   
(unaudited)
 
(unaudited)
 
(audited)
 
(audited)
 
                           
Net revenues
   
$159,052
   
$7,911
   
$9,526
   
$16,564
 
                           
Operating Expenses
   
$2,086,576
   
$3,688
   
$6,971
   
$10,130
 
                           
Net income (loss)
   
($1,927,524
)
 
$4,223
   
$2,555
   
$6,434
 
                           
Basic and diluted net income
(loss) per share
   
($0.10
)
 
$0.00
   
$0.00
   
$0.00
 
                           
Weighted average common
shares outstanding
   
18,748,958
   
18,748,958
   
0
0

 
ACCELERIZE’S BALANCE SHEET DATA:
 
   
For the nine
months ended
September 30, 2006
 
For the
year ended
December 31, 2005
 
   
(unaudited)
 
(audited)
 
               
Cash and cash equivalents
   
$498.883
   
$20,224
 
               
Total assets
   
$602,923
   
$20,224
 
               
Working capital
   
$525,947
   
$18,037
 
               
Current liabilities
   
$6,344
   
$2,187
 
               
Total liabilities
   
$6,344
   
$2,187
 
               
Stockholders’ equity
   
$596,579
   
$18,037
 

 
14
TDRG’S STATEMENT OF OPERATIONS DATA:
 
   
For the nine
months ended
September 30, 2006
 
For the nine
months ended
September 30, 2005
 
For the
year ended
December 31, 2005
 
For the
year ended
December 31, 2004
 
   
(unaudited)
 
(unaudited)
 
(audited)
 
(audited)
 
                           
Net revenues
   
$596,805
   
$774,226
   
$1,001,242
   
$1,618,093
 
                           
Operating Expenses
   
$605,679
   
$606,531
   
$827,950
   
$1,405,659
 
                           
Net income (loss)
   
($11,033
)
 
($52,147
)
 
($50,143
)
 
($36,350
)
                           
Basic and diluted net income
(loss) per share
   
$0.00
   
$0.00
   
$0.00
   
$0.00
 
                           
Weighted average common
shares outstanding
   
0
   
0
   
0
   
0
 

 
TDRG’S BALANCE SHEET DATA:
 
   
For the nine
months ended
September 30, 2006
 
For the
year ended
December 31, 2005
 
   
(unaudited)
 
(audited)
 
               
Cash and cash equivalents
   
$61,105
   
$26,526
 
               
Total assets
   
$112,544
   
$107,887
 
               
Working capital
   
($38,124
)
 
($106,440
)
               
Current liabilities
   
$105,399
   
$153,736
 
               
Total liabilities
   
$169,425
   
$153,736
 
               
Member's deficit
   
($56,881
)
 
($45,849
)

 
15
 
CAPITALIZATION
 
The following table sets forth our capitalization as of September 30, 2006. The table should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus.
 
Stockholders' Equity:
       
         
Preferred Stock, $.001 par value; 2,000,000 shares authorized, 49,100 shares issued and outstanding
   
$661,067
 
         
Common stock, $.001 par value; 100,000,000 shares authorized, 19,014,005 shares issued and outstanding
   
19,014
 
         
Additional paid-in capital
   
1,847,851
 
         
Accumulated deficit
   
(1,931,353
)
         
Total stockholders’ equity
   
$596,579
 

 
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
 
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements. See ‘‘Forward Looking Statements’’ elsewhere in this prospectus. Because this discussion involves risk and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements.

Background

We were originally formed on November 22, 2005 under the laws of the State of Delaware, to begin exploiting the company’s products and to serve as a vehicle to effect a merger, exchange of common stock, asset acquisition or other business combination with other similar businesses. We were formed through the combination of the business operations of EDGAR Index and MapGui, both of which had operated since 2001 as private entities owned by our current management team. Prior to our incorporation, we operated as a sole proprietorship doing business as Accelerize New Media.
 
Business Overview
 
We offer a comprehensive online media solution for clients to reach their target audience on the Internet. We provide lead generation and customer acquisition solutions via our network of financial, news and social networking portals, and also through RSS feeds, blogs, targeted e-mail, banners, search engine optimization, and purchase of key words. We also provide our content to companies in a variety of formats including re-branded portals, investor relations pages, and RSS feeds. In December 2006, we entered into an agreement to acquire substantially all of the assets of TDRG, a provider of sales and marketing support for debt settlement solutions offered by debt settlement agencies to consumers in the United States.  
 
16
We own and operate a large network of consumer-based portals, microsites and landing pages with an extensive portfolio of domains to drive high-end, highly relevant leads to our advertisers. Our web properties are the primary source for our lead generation and social networking traffic. The websites are designed to connect and/or “point” to each other with the goal of keeping the user within our network. The longer the user stays within the network, the more valuable that user becomes to potential advertisers.
 
How We Generate Revenues
 
Our proprietary traffic revenues are generated from our portfolio of owned websites which are monetized with pay-per-click, cost-per-action listings, and banner ad sales. When an online user navigates to one of our owned and operated websites and clicks and or visit on a particular listing/web page or completes the specified action, we are entitled to receive an agreed-upon fee. We may in the future explore other revenue models such as charging users a subscription fee to obtain the content we provide.
 
Our 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 websites, and other targeted Web-based content. We generate 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.
 
TDRG generates a substantial portion of its revenues from commissions fees earned from the sale and marketing of debt reduction solutions offered to consumers by DebtXS, a large debt settlement agency. The consumers generally enter into a debt program with the debt settlement agency, which provides for monthly payments by the consumers over a period ranging between 1 to 3 years. The commission amounts to 40% of the total compensation earned by the debt settlement agency for its services to the consumers. TDRG earns its fees upon payment by consumers to the debt settlement agency within the first 8 months of the debt program, assuming that all consumers will make their payments. The average commission per consumer is approximately $1,600.

How we support our services
 
Web development, server and database development/maintenance and financial data processes are carried out in-house and via a number of partners described below:

17
Web development, server and database development/maintenance and financial data partners:

·
Try Catch Consulting Inc. (www.trycatchconsulting.com) is based in Torrington Connecticut, and supports our portals and web-based solutions, our financial/customer/alert data and our technical infrastructure through development, database/server administration, and ongoing maintenance. Try Catch Consulting Inc. was instrumental in helping us to develop several pivotal technologies, including our e-mail alert engine, financial data, our extract, transform and load application, or ETL, which takes data from one format, processes it, and converts it to another format, and the core web portal platform which is the basis for all of our web-based solutions. We pay Try Catch either on an hourly or a per-project basis.
 
·
SecureNext (www.securenext.com) is a company based in India with offices in California, and provides development solutions that support our web-based portals and solutions, with a focus on data presentation and social features including web-based financial reporting, sophisticated charts and graphs, company/executive directories and user-based rating systems. We pay SecureNext on a per-project basis.
 
·
RackSpace (www.rackspace.com) concentrates solely upon managed hosting, an advanced type of dedicated hosting. Unlike basic dedicated hosting, managed hosting offers system level administration and support, comprehensive Internet infrastructure and extensive services that relieve IT departments of many critical, but costly responsibilities. These services typically include advanced monitoring, load balancing, elevated security, data storage, stress testing, industry-leading technical expertise and content delivery. We pay RackSpace on a monthly basis for hosting services.
 
·
Zerolag (www.zerolag.com) provides secure, managed web hosting, server collocation, and IT security to select clients. Zerolag provides TDRG with data back up, elevated security, data storage, email, and hosting. Chosen for their security due to TDRG’s financial data, they provide three core layers of protection for TDRG’s server: regular software updates, firewall protection, and intrusion detection systems (IDS). In addition, all of TDRG’s data is backed up remotely on a daily basis to prevent data loss. We pay Zerolag on a monthly basis for hosting services.
 
Financial data used to support web properties and products:

·
Hemscott Inc. (www.hemscottdata.com) is a leading independent provider of financial data in the U.S. and Canada. They deliver detailed numerical, statistical and general business information to clients such as us, to help them meet their analytical, compliance and research needs. We pay Hemscott on a one-year renewable contract with them.
 
·
GSI Online (www.gsionline.com) is helping legal and financial firms like us to fulfill their research requirements. We use GSI's SEC filing service, which is a real time data feed of SEC filings submitted to the SEC via EDGAR service. This relationship ensures that we have the most up-to-date SEC filing data possible with no downtime or missed filings. We retreive this feed on a regular basis, identify any new SEC filings and add them to our system. Our own supporting processes then retreive additional information based on the core SEC filing data provided by GSI. We pay GSI Online on an annual basis.
 
18
Advertising Partners:

·
Zacks Investment Research Inc., sells all 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. Their methodology for selling ad inventory is by cost per mille (one-thousand) impressions, or CPM. This type of advertising system most closely resembles print and television advertising and is usually used online for pricing banner ads. Generally, a fixed price is determined in which the advertiser pays the online publisher for 1,000 impressions of a banner. This type of system is most advantageous to the publisher.
 
·
Co-Registration Partnership with Zacks and Opt-Intelligence.   Opt-Intelligence is the leader in real-time consumer opt-in advertising (commonly called co-registration). Their website 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, of offering subscriptions, memberships or leads to another organization. According to the Internet Advertising Bureau, co-registration is the fastest-growing segment of Internet advertising. Co-Registration's market-share tripled from 2% in 2004 to 6% in 2005, making it online advertising's fastest growing sector with a $1 billion market.
 
Market Trends
 
The market in which we are active has grown substantially in recent years, and we expect that this trend will continue in the foreseeable future. According to the Interactive Advertising Bureau, or the IAB, and PricewaterhouseCoopers, or PwC, US online advertising revenues for the first six months of 2006 were approximately $7.9 billion, a 37% increase over the first half of 2005. In addition, according to the same sources, Internet advertising revenues totaled nearly $4.1 billion for the second quarter of 2006, representing a 36% increase over the same period in 2005 and a 5.5% increase over the first quarter of 2006.
 
Those sources reported that paid search advertising, accounted for 40% of online ad revenues and continued to be the most popular online ad format, followed by display and classified advertising.
 
The favorite pricing method continued to be CPM which was followed closely by performance deals. The CPM model refers to advertising bought on the basis of number of impressions. This is in contrast to the various types of pay-for-performance advertising, whereby payment is only triggered by a mutually agreed upon activity, for example, click-through, registration, sale, and other forms.
 
Recent Developments
 
In December 2006 we entered into an agreement to acquire substantially all of the assets, and assumed some, but not all of the liabilities, of TDRG. The acquisition is planned to be closed on January 1, 2007. TDRG is 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 delivering them to independent contractors for processing in connection with TDRG’s contracts with DebtXS, LP. The most valuable assets which were acquired from TDRG are its domain names and accounts receivable.
 
19
The total purchase price that we will pay for the acquisition will be a combination of shares of our common stock, options and assumption of certain liabilities as follows: (i) 3,500,000 shares, of which 1,750,000 shares will be held back in escrow for a period of one year to secure payment of any claims for losses under indemnification provisions under the purchase agreement, (ii) the assumption of certain operating liabilities (iii) 400,000 options issued to each of the principals of TDRG, namely Damon Stein and Daniel Goldberg, and (iv) the issuance of earn-out warrants with vesting tied to the achievement of certain performance targets. Depending on what targets are hit, 400,000, 450,000 or 500,000 earn-out warrants may vest eighteen months from the closing date. The shares and options issued to TDRG will not be included in this prospectus, and we have no obligation to register the offering or re-sale of such shares. The sellers have the right to repurchase the domain names for $1 if we do not achieve one of the two defined investment events within one year of the closing date. The investment events are raising $500,000 or registering our shares under the Securities Act. We did not assume the lease (and the sublease) of TDRG, which will remain as primary tenant on the lease. We will use and occupy the space and pay the rent on a pass through basis. TDRG also sublets a portion of the premises. Amounts received by TDRG under the sublease will offset amounts owing by us under the lease pass through. In connection with the acquisition, Mr. Stein will become our General Counsel on a full time basis, and Mr. Goldberg will become a consultant, on a part time basis.
 
In November 2006, we launched our financial internet portal ExecutiveDisclosure.com, offering a window into executive compensation, stock awards, option grants, bonuses, insider transactions, and other perks. The free web service allows users to track compensation amounts with E-mail alerts and RSS feeds, compare compensation with performance, view industry compensation data, rate and review executives, and view specific SEC filings. Advanced tools individually track various forms of compensation, including: long-term incentive plans, securities underlying options, restricted stock, and board position changes. Users interested in insider trading can be alerted via e-mail when insiders buy or sell stock, or receive or exercise options, via SEC filing Forms 3, 4, and 5.
 
On August 3, 2006 we initiated our first blog site titled SEC Investor. SEC Investor uncovers information about companies inside SEC Filings so readers can make more informed choices about their investments. We expect this service to increase subscriptions to SECfilings.com and generate advertising revenues. In November, 2006 we also launched an additional blog, Executive Investigator which Tracks and Analyzes Executive Salaries, Bonuses, and Perks.
 
Revenues and revenue recognition
 
We have generated minimal revenues since inception. Revenues recognized were generated from the lead generations and, to a lesser extent, from traffic revenues generated from our portfolio of web sites.
 
20
Results of Operations Nine months ended September 30, 2006 and 2005

Revenues

Revenues primarily consist of fees generated from lead generations and, to a lesser extent, from traffic revenues generated from our portfolio of web sites. Our increase in revenues during the nine-month period ended September 30, 2006 when compared to the prior year period is primarily due to the launch of our lead generation network during the first half of 2006.

We believe that our revenues will increase in 2007, primarily resulting from the acquisition of the assets of TDRG, from increased fees generated from lead generations and from traffic revenues generated from our portfolio of web sites.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses primarily consists 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. The increase in selling, general and administrative expenses during the nine-month period ended September 30, 2006 when compared to the prior year period is primarily due to the issuance of shares of our common stock valued at approximately $1.5 million to certain employees as compensation for services, advertising to promote our portfolio of websites who were launched in 2006, and payroll expenses associated with personnel which were hired in the first half of 2006. No such expenses occurred during the nine-month period ended September 30, 2005.

We believe that our selling, general and administrative expenses will increase by at least approximately $800,000 during 2007 following the consummation of the acquisition of TDRG. The increase is commensurate with the current level of expenses incurred by TDRG prior to the acquisition.

ACCELERIZE NEW MEDIA, INC.
RESULTS OF OPERATIONS
 
           
Increase/
 
Increase/
 
   
For the nine month period ending
 
(Decrease)
 
(Decrease)
 
   
September 30,
 
in $ 2006
 
in % 2006
 
   
2006
 
2005
 
vs 2005
 
vs 2005
 
                   
Net Revenues
 
$
159,052
 
$
7,911
 
$
151,141
   
NM
 
                           
Operating expenses:
                         
Selling, general, and administration expenses
   
2,086,576
   
3,688
   
2,082,888
   
NM
 
                           
Net (loss) income
 
$
(1,927,524
)
$
4,223
   
(1,931,747
)
 
NM
 
                           
Less dividend issued for preferred stock A
   
2,101
   
-
   
2,101
   
NM
 
                           
Net (loss) gain attributable to common stock
 
$
(1,929,625
)
$
4,223
 
$
(1,933,848
)
 
NM
 
                           
NM: Not Meaningful
                         

 
21
Results of Operations 2005 compared to 2004

Revenues

Revenues primarily consist of fees generated from the sale of maps. We generated minimal revenues during 2005 and 2004. The revenues during 2005 compared to the prior period are substantially at the same level.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses primarily consist of consultaning fees and other general and administrative expenses. The decrease in selling, general and administrative expenses during 2005 when compared to the prior period is primarily due to a decrease in our corresponding revenues.

ACCELERIZE NEW MEDIA, INC.
RESULTS OF OPERATIONS
 
           
Increase/
 
Increase/
 
     
(Decrease)
 
(Decrease)
 
   
Year ended December 31,
 
in $ 2005
 
in % 2005
 
   
2005
 
2005
 
vs 2004
 
vs 2004
 
                   
                   
Net Revenues
 
$
9,526
 
$
16,564
 
$
(7,038
)
 
-42.5 %
 
                           
Operating expenses:
                         
Selling, general, and administrative expenses
   
6,971
   
10,130
   
(3,159
)
 
-31.2 %
 
                           
Net income
 
$
2,555
 
$
6,434
 
$
(3,879
)
 
-60.3 %
 
                           
                           
NM: Not Meaningful
                         
 
 
Liquidity and Capital Resources

At December 31, 2005, our cash amounted to $20,000 and our working capital amounted to approximately $18,000.

During 2005, we generated cash from operating activities amounting to approximately $5,000. Our cash generated from operating activities was comprised of our net income of approximately $3,000 adjusted for an increase in accounts payable of approximately $2,000.

During 2005, we generated cash from financing activities of approximately $15,000, which primarily consisted of an initial contribution of $20,000 offset by a distribution to a member of approximately $5,000.

During 2004, we generated cash from operating activities amounting to approximately $6,000. Our cash generated from operating activities is comprised of our net income of approximately $6,000.

During 2004, we used cash in financing activities of approximately $6,000, which primarily consisted of a distribution to a member of approximately $6,000.

At September 30, 2006, our cash amounted to approximately $500,000 and our working capital amounted to approximately $530,000.
22

During the nine-month period ended September 30, 2006, we used cash in our operating activities amounting to approximately $378,000. Our cash used in operating activities was comprised of our net loss of approximately $1.9 million adjusted for the following:

 
·
Fair value of shares issued to employees hired in the first half of 2006 for services of approximately $1.6 million;
 
·
Depreciation of website development costs of approximately $29,000; and
 
·
Increase in accounts receivable of approximately $31,000 resulting from a corresponding increase in revenues.

During the nine-month period ended September 30, 2006, we incurred website development costs of approximately $99,000 in connection with the launch of our portfolio of websites during the first half of 2006.

During the nine-month period ended September 30, 2006, we generated proceeds from the issuance of shares of our common and preferred stock of $330,000 and $736,500, respectively, which funded our operating and investing activities during the same period. We also paid closing costs of approximately $110,000 in connection with the issuance of the shares of common and preferred stock.

During the nine-month period ended September 30, 2005, we generated cash from our operating activities amounting to approximately $4,000. Our cash used in operating activities is comprised of our net income of approximately $4,000
 
During the nine-month period ended September 30, 2005, we made a distribution to our sole owner at the time, of approximately $5,000.

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.

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.
23
Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Revenue Recognition
 
We believe that with the acquisition of TDRG we will make certain significant accounting estimates upon recognizing revenues and estimated a reserve for refunds.

TDRG generates a substantial portion of its revenues from commissions fees earned from the sale and marketing of credit solutions offered to consumers by a debt settlement agency. The consumers will generally enter into a debt solution program with the debt settlement agency which provides for monthly payments by the consumers over a period ranging between 1 to 2 years. The commission is based on a predetermined percentage of the total compensation earned by the debt settlement agency for its services to consumers. TDRG earns its fees upon payment by consumers to the debt settlement agency within the first 8 months of the debt solution program, assuming that all consumers will make their payments. During June 2005, TDRG outsourced the debt solution administration of its existing clients to DebtXS, a debt settlement agency. Pursuant to the outsourcing arrangement, the debt settlement agency pays the Company a predetermined percentage of the monthly payments made by the consumers to the debt settlement agency.

TDRG waits until the collection of the consumers monthly payments by the debt settlement agency occur before recognizing revenue because it is not yet realized or realizable until such time. Furthermore, no amount of the commission fee is fixed or determinable or collectible until the debt agency collects the monthly fee from the consumers.

The agreement between TDRG and the debt settlement agency provides for a refund by TDRG to the debt settlement agency for any excess of the total commission fees paid to TDRG over the amount they should have received over the actual amount earned based upon the actual amount received by the debt settlement agency from the consumers. TDRG uses judgment in estimating such refundable amount based on historical rates, economic conditions, and other factors. The estimate of refunds is recorded as reserves for refunds. TDRG recorded a reserve for refunds of approximately $70,000 at September 30, 2006.

Website Development Costs

We capitalized certain internal use software and website development costs totaling approximately $99,000 during the nine-month period ended September 30, 2006. We use judgment in estimating the useful life of the costs capitalized for each specific project which is one year.

Capital Raising Transactions
 
We have undertaken the following transactions to provide working capital for our company:
 
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. We issued the holders of the 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. The shares of preferred stock are convertible into shares of our 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 Preferred Stock, subject to anti-dilution provisions in the case of stock splits, dividends or if we issue shares of our common stock or other securities convertible into shares of our common stock at an effective price less than $0.15 per share. In the event a public market is established for our common stock, the 10% Series A Preferred Stock are subject to mandatory conversion by the company upon a 30 day notice if the average closing price of our 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.
 
24
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, commencing September 1, 2006.
 
Skyebanc, Inc. acted as placement agent in the transaction and were paid a commission of 10% of the total amount raised by us. In addition, we issued to Skyebanc and certain of its employees and affiliates warrants to purchase 540,000 shares of our common stock with an exercise price of $0.15 per share as compensation. The common stock underlying Skyebanc’s warrants are being registered in the registration statement of which this prospectus is a part. Skyebanc is a registered broker-dealer, and as such is considered an “underwriter” as this term is defined in the Securities Act.
 
We agreed not to issue additional debt securities in excess of $100,000 so long as the 10% Series A Convertible Preferred Stock is outstanding without the prior consent of the holders of a majority of the Series A Convertible Preferred Stock issued and outstanding.
 
We granted the Preferred Stockholders piggyback registration rights covering the common shares underlying the Series A Preferred Stock and common stock underlying warrants. We have included shares of common stock issuable upon conversion of the Preferred Stock, as well as the shares of common stock issuable upon the exercise of the warrants, in the registration statement of which this prospectus is a part in satisfaction of those piggy-back registration rights.
 
Common Stock
 
Between January 1, 2006 and January 31, 2006 we sold an aggregate of 3,500,000 shares of common stock for $0.10 per share, resulting in gross proceeds to us of $350,000. There were no options or warrants associated with this common stock offering. There was no placement agent involved with this offering. On and before January 1, 2006 we issued a total of 15,500,000 shares of common stock $0.001 par value to founders and consultants for services rendered.
 

 
25
OUR BUSINESS
Overview
 
We provide lead generation and customer acquisition solutions via our network of financial, news and social networking portals, and also through RSS feeds, blogs, targeted email, banners, search engine optimization, and purchase of key words. We also provide our content to companies in a variety of formats including re-branded portals, investor relations pages, and RSS feeds.
 
We own and operate a large network of consumer-based websites, portals, micro-sites and landing pages with an extensive portfolio of domains to drive high-end, highly relevant leads to our advertisers. Our web properties are the primary source for our lead generation and social networking traffic. The websites are designed to connect / “point” to each other, with the goal of keeping the user within our network. The longer the user stays within the network, the more valuable that user becomes to potential advertisers.
 
How we generate revenues
 
Our proprietary traffic revenues are generated from our portfolio of owned websites which are monetized with pay-per-click, cost-per-action listings, and banner ad sales. When an online user navigates to one of our owned and operated websites and clicks and or visits on a particular listing/web page or completes the specified action, we are entitled to receives an agreed-upon fee. We may in the future explore other revenue models such as charging users a subscription fee to obtain the content we provide.
 
Our 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 websites, and other targeted Web-based content. We generate 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.
 
TDRG generates a substantial portion of its revenues from commissions fees earned from the sale and marketing of debt reduction solutions offered to consumers by DebtXS, a large debt settlement agency. The consumers generally enter into a debt program with the debt settlement agency, which provides for monthly payments by the consumers over a period ranging between 1 to 3 years. The commission amounts to 40% of the total compensation earned by the debt settlement agency for its services to the consumers. TDRG earns its fees upon payment by consumers to the debt settlement agency within the first 8 months of the debt program, assuming that all consumers will make their payments. The average commission per consumer is approximately $1,600.
 
How we market our services
 
We market our services via organic and search engine marketing, or SEM, direct sales by our sales team, financial data portals, blogs and RSS feeds.

26
 
·
organic search listings 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 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.

 
·
our blog sites are complements to our financial portals, delivering up-to-date news and analysis which then refers 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.

 
·
our financial portals generate sales leads for complementary financial services including our investor relations web solutions, financial data feeds and debt consolidation services. Our IR web solutions and debt consolidation sales teams market and sell our products directly to public companies and consumers through traditional sales channels including phone and email. We market our financial portals via free RSS feeds of financial information that are widely disseminated throughout the internet in traditional and blog search engines and websites.

TDRG markets its services through online advertising in search engines, web portals, email newsletters, and other financial-related websites. The ads drive interested consumers to TDRG’s portfolio of websites. If interested, the consumer will submit information and request a free consultation from one of TDRG’s debt consultants. The debt consultant will contact the consumer to discuss in more detail the services offered by the debt settlement agency. If the consumer is interested, the debt consultant will prepare a detailed proposal outlining a debt reduction solution for the consumer. Once a consumer signs up for the program, the debt settlement agency takes over ownership of the client and handles all customer service and implementation of the debt program.

How we support our services
 
Web development, server and database development/maintenance and financial data processes are carried out in-house and via a number of partners described below:

Web development, server and database development/maintenance and financial data Partners:

·
Try Catch Consulting Inc. (www.trycatchconsulting.com) is based in Torrington Connecticut, and supports our portals and web-based solutions, our financial/customer/alert data and our technical infrastructure through development, database/server administration, and ongoing maintenance. Try Catch was instrumental in helping us to develop several pivotal technologies, including our e-mail alert engine, financial data ETL processes, and the core web portal platform which is the basis for all of our web-based solutions.
 
27
·
SecureNext (www.securenext.com) is based in India with offices in California, and provides development solutions that support our web-based portals and solutions, with a focus on data presentation and social features including web-based financial reporting, sophisticated charts and graphs, company/executive directories and user-based rating systems.
 
·
RackSpace (www.rackspace.com) concentrates solely upon managed hosting, an advanced type of dedicated hosting. Unlike basic dedicated hosting, managed hosting offers system level administration and support, comprehensive Internet infrastructure and extensive services that relieve IT departments of many critical, but costly responsibilities. These services typically include advanced monitoring, load balancing, elevated security, data storage, stress testing, industry-leading technical expertise and content delivery.
 
·
Zerolag (www.zerolag.com) provides secure, managed web hosting, server collocation, and IT security to select clients. Zerolag provides TDRG with data back up, elevated security, data storage, email, and hosting. Chosen for their security due to TDRG’s financial data, they provide three core layers of protection for TDRG’s server: regular software updates, firewall protection, and intrusion detection systems (IDS). In addition, all of TDRG’s data is backed up remotely on a daily basis to prevent data loss.
 
Financial data used to support web properties and products:

·
Hemscott Inc. (http://www.hemscottdata.com) is a leading independent provider of financial data in the U.S. and Canada. They deliver detailed numerical, statistical and general business information to clients such as us, to help them meet their analytical, compliance and research needs.
 
·
GSI Online (www.gsionline.com) is helping legal and financial firms like us to fulfill their research requirements. We use GSI's SEC filing service, which is a real time data feed of SEC filings submitted to the SEC via EDGAR service. This relationship ensures that we have the most up-to-date SEC filing data possible with no downtime or missed filings. We retreive this feed on a regular basis, identify any new SEC filings and add them to our system. Our own supporting processes then retreive additional information based on the core SEC filing data provided by GSI.
 
Advertising Partners:

·
Zacks Investment Research Inc., sells all 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. Their methodology for selling ad inventory is by cost per Mille (one-thousand) impressions, or CPM. This type of advertising system most closely resembles print and television advertising and is usually used online for pricing banner ads. Generally, a fixed price is determined in which the advertiser pays the online publisher for 1,000 impressions of a banner. This type of system is most advantageous to the publisher.
 
·
Co-Registration Partnership with Zacks and Opt-Intelligence.   Opt-Intelligence is the leader in real-time consumer opt-in advertising (commonly called co-registration). Their website 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, of offering subscriptions, memberships or leads to another organization. According to the Internet Advertising Bureau, co-registration is the fastest-growing segment of Internet advertising. Co-Registration's market-share tripled from 2% in 2004 to 6% in 2005, making it online advertising's fastest growing sector with a $1 billion market.
 
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Acquisitions
 
In order to increase our offering of products and services, we may from time to time consider to engage in acquisitions of existing businesses which are synergetic to our current business.
 
In December 2006 we entered into an agreement to acquire substantially all of the assets, and assumed some, but not all of the liabilities, of TDRG. We expect to complete this acquisition by January 1, 2006. TDRG is 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 delivering them to independent contractors for processing in connection with TDRG’s contracts with DebtXS, LP. The most valuable assets which were acquired from TDRG are its domain names and accounts receivable.
 
The total purchase price we paid for the acquisition was a combination of shares of our common stock, options and assumption of certain liabilities as follows: (i) 3,500,000 shares, of which 1,750,000 shares will be held back in escrow for a period of one year to secure payment of any claims for losses under indemnification provisions under the purchase agreement, (ii) the assumption of certain operating liabilities (iii) 400,000 options issued to each of the principals of TDRG, namely Damon Stein and Daniel Goldberg, and (iv) the issuance of earn-out warrants with vesting tied to the achievement of certain performance targets. Depending on what targets are hit, 400,000, 450,000 or 500,000 earn-out warrants may vest eighteen months from the closing date. The sellers have the right to repurchase the domain names for $1 if we do not achieve one of the two defined investment events within one year of the closing date. The investment events are raising $500,000 or registering our shares under the Securities Act. We did not assume the lease (and the sublease) of TDRG, which will remain as primary tenant on the lease. We will use and occupy the space and pay the rent on a pass through basis. TDRG also sublets a portion of the premises. Amounts received by TDRG under the sublease will offset amounts owing by us under the lease pass through. In connection with the acquisition, Mr. Stein will become our General Counsel on a full time basis, and Mr. Goldberg will become a consultant, on a part time basis.
 
No other acquisitions are currently pending.
 
Web Properties
 
Our web properties include financial data portals and investor relations portals as described below:
 
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Financial Data Portals
 
We offer several free, pre-defined alerts with respect to, among other things, initial public offerings, annual and quarterly reports, insider trading filings and a free customizable alert service that requires registration. Real-time alerts of SEC filings and relevant news are delivered to users via email, RSS and wireless application protocol, or WAP. The alert service allows the user/customer to create unlimited alerts using a number of different filters and combinations of filters. Alerts can contain notifications of any filing type, data tables from select filing types, company summaries, and news/press releases about specific companies.
 
Our financial data portals include:
 
·
www.SECFilings.com, a financial social networking portal offering free, accurate SEC data and user-generated content. Users can subscribe to free email alerts and RSS feeds, and can track SEC filings by company, industry or person; and
 
·
www.ExecutiveDisclosure.com, which is currently in beta stage, will be a financial social networking portal offering in-depth executive compensation data including salaries, bonuses and stock options. Users will be able to subscribe to email and RSS alerts, and research executives by name, company or industry.
 
Domain Portfolio
 
We own and plan to utilize our several thousand financial related domain names, including over 500 domain names that are “SECfiling form type related” such as: www.10ksb.com, www.def14a.com and www.form20f.com.
 
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 several thousand "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.
 
Investor Relations Portals
 
Our Investor Relations (IR) solution provides web-based tools which enable a public company to stay in touch with its stockholders via real time email alerts, real time press releases, RSS feeds, SEC filings and more. We offer our investor relations clients the opportunity to mix and match modules to quickly create custom solutions. www.ShareHolderTools.com is our web-based portal for managing IR module subscriptions.
 
Hosting
 
Our IR solutions are host applications residing on our web servers. Each IR solution customer is provided with a sub-domain on the www.SECFilings.com domain.
 
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Online Marketing
 
We help our clients to achieve revenue, profit, market share, and customer loyalty objectives through Internet strategies and systems. We have the knowledge and tools available to deliver cost effective solutions that can assist our clients in achieving their online marketing goals, including:
 
·
Web Marketing Services, which consists of web design and development of websites;
 
·
Paid Search, which consists of placing ads for products or services on search engines and on content websites across the Internet;
 
·
Publisher Network; and
 
·
Search Engine Optimization, which consists of a set of methods aimed at improving the ranking of a website in search engine listings.
 
Financial Data Solutions
 
We plan to syndicate share with others a wealth of public topical financial data in a variety of formats, including company profiles, financials, SEC filings, annual and quarterly reports, executive compensation, press releases, and news.
 
EDGAR Filing Services
 
We are a reseller of PublicEase, Inc. (www.publicease.com), and through these relationships we can deliver fast, cost-effective SEC EDGAR® filing services for publicly traded companies. PublicEase is a full-service EDGAR filing agent that strives to offer the most technological filing methods available.
 
RSS Solutions
 
Utilizing our financial portal network technology we offer a robust set of tools to use RSS in order to assist our clients in reaching shareholders with new information and also to utilize RSS feeds within our clients' own organization. RSS, or Real Simple Syndication, is a simple Extensible Markup Language, or XML- based system that allows users to subscribe to their favorite websites. Using RSS, a webmaster can put their content into a standardized format, which can be viewed and organized through a RSS-aware software.
 
Our website properties are the primary source for our lead generation and advertising. The websites are designed to connect / “point” to each other, with the goal of keeping the user within our network. The longer the user stays within the network, the more valuable that user becomes to potential advertisers.
 
Other Products and Services
 
·
MapGui - through our website www.accelerize.com we sell Flash-software maps. These are electronic map-based reporting interfaces, which are easy to implement using basic HTML skills and allow the user to display interactive data. Uses of our MapGui products can range from a simple brochure-ware website to various business applications.  
 
31
Industry/Market Trends
 
We believe that our business depends upon three separate industries/market trends:
 
·
RSS (Real Simple Syndication)
 
·
Social Networking
 
·
Internet Content Providers
 
RSS (Real Simple Syndication) . We believe that RSS has significant potential from a marketing perspective. According to Forrester's Marketer Online Survey from February 2005, 57% of marketers are interested in using RSS as a marketing channel. According to the Pew Internet and American Life Project survey from January 2005, as of the end of 2004 about 6,000,000 U.S. adults subscribe to RSS feeds, and in a study by Slashdot from March 2005, as of March 2005 73% of RSS subscribers said they will increase their use of RSS. We believe that user growth is also expected to come from new RSS subscribers when the next version of Internet Explorer 7 launches later this year with an RSS reader built in.
 
Social Networking . As the Internet becomes a more integrated part of consumers’ everyday lives, it is no surprise that its use as a communication and networking vehicle continues to flourish. Today, social networking sites provide consumers, especially those in the younger demographics, a way to connect with like-minded individuals to share their opinions and their passions. We believe that savvy marketers, from various industries, such as entertainment, consumer goods and automotive, are taking note of the social networking phenomenon, and tapping the power of these wired influencers to spread their messages.
 
Internet Content Providers . According to a February 2004 study by Outsell, Inc., a research and advisory firm, the top information content providers, which include large companies such as Reuters, Reed Elsevier, Thomson, AOL, Pearson, Gannett, McGraw-Hill, Wolters Kluwer and Gartner, had aggregate revenues of approximately $196 billion. Furthermore, according to the same study by Outsell, businesses and other users spend approximately $50 billion a year to acquire information online. Financial and business information includes the profile, history, ownership, financial reporting, sales, marketing and business development of a company, as well its regulatory filings, analyst coverage, research reports, news alerts and stock quotes. Much of this information is required to be filed with the SEC.
 
We believe that we have positioned Accelerize to be the source for accurate, financial content distribution. Accelerize New Media Inc.'s content network of Financial Information Portals allows professionals and investors to research and track corporate intelligence, executive compensation data and real-time SEC filings.
 
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Intellectual Property
 
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.

Competition
 
Our primary competitors include:
 
Edgar Online, Inc. (Nasdaq GM: “EDGR”), which provides financial and business information of global companies contained in their SEC filings in a user-friendly format.
 
TheStreet.com, Inc. (Nasdaq GM: “TSCM”), which provides financial news and analysis to individual and professional investors, through electronic publishing, and securities research and brokerage.
 
Other large competitors in the business information industry are Reuters, Standard & Poor’s and Thomson 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.   
 
We believe that we can compete in attracting users who are individual investors to our sites, because our services are free to the user. 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 as well as the overall user experience on our website.  In the case of attracting advertisers, the principal competitive factors are the reach, effectiveness and efficiency of our marketing services as well as the creativity of the marketing solutions that we offer. The majority of our competitors, however, have significantly greater resources, brand recognition and operating history than we do, and most of our competitors offer more extensive search features than we presently offer. We believe, however, that based on our free use, content and features of the products and services that we provide, we remain highly competitive in the financial and business information market.
 
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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 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 1, 2006 we had 4 full-time employees, and 2 consultants, including all of our executive officers. As a result of the TDRG acquisition, we expect to hire 2 additional employees. None of our employees are covered by collective bargaining agreements, and we believe our relationships with our employees to be good.
 
Property
 
We do not own or lease any real property. Our operations are carried out from the employees’ and consultants’ respective homes and offices. We will not assume the lease (and the sublease) of TDRG, which will remain as primary tenant on the lease. We will use and occupy the space and pay the rent on a pass through basis. TDRG also sublets a portion of the premises. Amounts received by TDRG under the sublease will offset amounts owing by us under the lease pass through.
 
Legal Proceedings
 
We are currently not a party to any pending litigation, government investigation or any other legal proceedings.
 

34

MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
The following table sets forth the names, ages and principal position of our executive officers and directors as of December 21, 2006:

 
Name
Age
Position
Brian Ross
31
President, Chief Executive Officer, Treasurer, Secretary, Director
Chris Meredith
36
Chief Technology Officer, Assistant Treasurer, Assistant Secretary, Director
Daniel Minton  
29
Vice President
 
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. Chris 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. Daniel attended Washington State University, where he studied English and Philosophy. Mr. Minton’s responsibility at Accelerize will include all lead generation initiatives, as well as on line advertising and media purchasing.
 
35
 
Directors Compensation
 
Our directors do not receive cash compensation for their services as directors but are reimbursed for their reasonable expenses for attending board and board committee meetings.
 
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 functions of such committees are currently being undertaken by the entire board as a whole. Currently no member of our board is an audit committee financial expert. We do not have the resources to recruit a board member which would also be a financial expert. We may start our recruiting process for such board member during 2007 assuming that our financial position improves.
 
Code of Ethics

We have not adopted a Code of Business Conduct Ethics. Due to our small number of employees and limited history, we do not believe a Code of Ethics adds significant benefit to our operations, though we plan to consider this further as we grow.

Employment Agreements

Currently, none of our employees, including executive employees have employment agreements with us, except Brian Ross, our President, Chief Executive Officer and Director, and Chris Meredith, our Chief Technology Officer and Director.
 
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.
 
36
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.
 
EXECUTIVE COMPENSATION
 
The following table provides certain summary information concerning the compensation earned for services rendered to us in all capacities during each of the fiscal years indicated by the persons who served as our Chief Executive Officer and our three other most highly compensated executive officers other than the CEO who were serving as executive officers at the end of the last completed fiscal year. No other executive officer earned salary and bonus in excess of $100,000 during the fiscal year ended December 31, 2005 or during the period ending December 21, 2006.

Summary Compensation Table:

 
Annual
Compensation
Long-Term
Compensation
 
 
Name and Principal Position
 
Year
 
Salary ($)
Restricted Stock Awards ($)
Securities Underlying
Options (#)
All Other
Compensation ($)
Brian Ross, President, Chief
Executive Officer, Treasurer
and Secretary
 
2005(1)
 
--
 
--
 
--
 
--
 
2006
 
--
 
6,100,000
 
--
 
--
Chris Meredith, Chief Technology
Officer, Assistant Treasurer
and Assistant Secretary
 
2005
 
--
 
--
 
--
 
--
 
2006
 
127,000
 
3,050,000
 
--
 
--
Daniel Minton, President of
Accelerize.com
 
2005(2)
 
--
 
--
 
--
 
--
 
2006
 
--
 
600,000
 
--
 
--
Darren Dayton, Director of
Investor Relation Services
 
2005
 
--
 
--
 
--
 
--
 
2006
 
60,000
 
250,000
 
--
 
--

37
(1)   Mr. Ross presently provide his services to our company without compensation. Under the terms of his employment agreement, Mr. Ross will be entitled to an annual salary of $90,000 commencing January 1, 2007, provided, that if we do not make monthly salary payments to Mr. Ross during the term of his employment, his salary will accrue without interest.

(2)   Mr. Minton presently provide his services to our company without compensation. Beginning January 1, 2007 we will begin compensating him for his services. The amount of his annual compensation will be $60,000.

 
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.
 
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 Securities and Exchange Commission, such limitation or indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
None
 
 
38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
As of December 1, 2006 we had 19,140,027 shares of our common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of December 21, 2006 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; and
 
·
our executive officers and directors as a group.
 
 
Amount and Nature of Beneficial Ownership (2)
 
Name and Address of
Beneficial Owner (1)
Common Stock
 
Preferred Stock
 
Percent of Vote
 
 
# of Shares
 
% of Class
 
# of Shares
 
% of Class
 
 
Brian Ross
 
6,100,000
 
31.9%
 
0
 
n/a
 
24.8%
 
Chris Meredith
 
3,050,000
 
15.9%
 
0
 
n/a
 
12.4%
 
Daniel Minton
 
600,000
 
3.1%
 
0
 
n/a
 
2.4%
 
All officers and directors as a
group (four persons)
 
9,750,000
 
50.9%
 
0
 
n/a
 
39.6%
 
Sharon Standowski
307 Wildflower Ct.
Jackson, NJ 08527
 
1,750,000
 
9.1%
 
0
 
n/a
 
7.1%
 
Camien Advisors LLC (3)
2166 East 2 nd Street
Brooklyn, NY 11223
 
1,750,000
 
9.1%
 
0
 
n/a
 
7.1%
 
Jill Lamberson
P.O. Box 2924
Columbia Falls, MT 59912
1,050,000
 
5.5%
 
0
 
n/a
 
4.3%
 

 
39
(1) Unless otherwise indicated, the business address of each person listed is in care of Accelerize New Media, Inc. 6477 Highway 93 South, Suite 303, Whitefish, Montana 59937.
 
(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.
 
(3) 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.

 
DESCRIPTION OF SECURITIES
 
Common Stock
 
We are authorized to issue 100,000,000 shares of common stock, par value $.001 per share. As of December 1, 2006 we had 19,140,027 shares of common stock issued and outstanding. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders, including the election of directors. There is no right to cumulate votes in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available for payment of dividends subject to the prior rights of holders of preferred stock and any contractual restrictions we have against the payment of dividends on common stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights and have no right to convert their common stock into any other securities.
 
Preferred Stock
 
We are authorized to issue 2,000,000 shares of preferred stock, $.001 par value, and as of December 1, 2006 we have issued 54,000 shares of 10% Series A Convertible Preferred Stock. In addition, our Board of Directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. The rights, preferences, limitations and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. Our Board of Directors may authorize the issuance of preferred stock, which ranks senior to our common stock for the payment of dividends and the distribution of assets on liquidation. In addition, our Board of Directors can fix limitations and restrictions, if any, upon the payment of dividends on our common stock to be effective while any shares of preferred stock are outstanding. The rights granted to the holders of any series of preferred stock could adversely affect the voting power of the holders of common stock and issuance of preferred stock may delay, defer or prevent a change in our control. The designations, rights and preferences of the Series A Convertible Preferred Stock provide:
 
40
·
the stated value of each share is $15.00,
 
·
the shares pay cumulative dividends of 10% per annum payable quarterly on each of September 1, December 1, March 1 and June 1 beginning on September 1, 2006. Dividends are payable at our option in cash or shares of our common stock valued at $0.15 per share;
 
·
the shares carry a liquidation preference equal to the stated value plus any accrued but unpaid dividends;
 
·
the shares are entitled to vote together with our common stock on all matters submitted to a vote of our stockholders. Each share of Series A Convertible Preferred Stock is entitled to a number of votes equal to the number of shares of our common stock issuable upon the conversion of the Series A Convertible Preferred Stock;
 
·
we cannot sell any shares of common stock for a consideration per share less than $0.15, nor issue any securities that are convertible into or exchangeable for common stock at an exercise or conversion price below $0.15 per share, without the prior written consent of the holders of a majority of the shares of Series A Convertible Preferred Stock then issued and outstanding. Excluded from this limitation is the issuance of stock options to our management under a qualified stock option plan.
 
·
the shares are not redeemable by us nor are they subject to any call option, and
 
·
each share of Series A Convertible Preferred Stock is convertible at the option of the holder into shares of our common stock at an initial conversion price of $0.15 per share subject to adjustment for stock splits, dividends and reclassifications. In the event a public market is established for our common shares, the shares of Series A Convertible Preferred Stock are subject to mandatory conversion by us upon 30 days notice if the average closing price of our 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 issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by stockholders and could adversely affect the rights and powers, including voting rights, of the holders of common stock. In certain circumstances, the issuance of preferred stock could depress the market price of the common stock.
 
Warrants
 
As of December 1, 2006 we issued warrants to purchase an aggregate of 1,350,000 shares of our common stock as follows:
 
41
In connection with the sale of the 54,000 shares of Series A Convertible Preferred Stock, we issued the holders seven year warrants to purchase an aggregate of 810,000 shares of our common stock at an exercise price of $0.15 per share. The Warrants contain a cashless exercise provision, which permits the holder, rather than paying the exercise price in cash, to surrender a number of Warrants, the shares underlying which have a market value equal to the exercise price of the Warrants being exercised. 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 our 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.
 
Options
 
On December 15, 2006 our board of directors and shareholders adopted the Accelerize New Media, Inc. Stock Option Plan, or the Plan. As of December 21, 2006 we did not issue any options under the Plan.
 
The purpose of the Plan, is to encourage employees, directors and other individuals (whether or not employees) who render services to Accelerize and its subsidiaries. The Plan is administered by the board of directors. The Board determines to whom options shall be granted under the Plan, whether options granted are intended to be incentive stock options, or ISOs, or nonqualified stock options, or NSOs, the terms of the options and the number of shares of common stock that may be granted under the Plan. The Board may delegate to the Compensation Committee of the Board , if any, the authority of the Board to make determinations and to take the aforementioned actions.
 
The total number of our shares that may be subject to options under the Plan is 4,300,000 shares of our common stock. In certain circumstances, the maximum number of shares of common stock subject to options that may be granted to any individual in the aggregate in any calendar year may not exceed 2,000,000 shares. Shares of common stock subject to an option that is not fully exercised prior to its expiration or other termination shall again become available for grant under the terms of the Plan. Each option will expire ten years from its date of grant, provided that no ISO granted to an employee who owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the company or any subsidiary will expire later than five years from its date of grant.
 
The exercise price of each option will be set by the Board in its discretion; provided that the price will be at least 100 percent of the fair market value of the shares on the date on which the Board awards the option, which shall be considered the date of grant of the option for purposes of fixing the price. The price with respect to an ISO granted to an employee who at the time of grant owns stock representing more than 10 percent of the voting power of all classes of stock of the company or of any subsidiary will be at least 110 percent of the fair market value of the shares on the date of grant of the ISO.
 
42
Transfer Agent
 
Our transfer agent is Florida Atlantic Stock Transfer, with an address at: 7130 Nob Hill Road, Tamarac, FL 33321; Phone: 954-726-4954 Fax: 954-726-6305.

SELLING SECURITY HOLDERS
 
The common stock being offered by the selling stockholders were issued pursuant to the transactions described above under Management Discussion and Analysis or Plan of Operations: Capital Raising Transactions, and include shares issuable upon the conversion of preferred stock, payment of dividends thereon, and exercise of warrants. We are registering the common stock in order to permit the selling stockholders to offer the shares for resale from time to time. Except as otherwise indicated in this prospectus, and for the ownership of the common stock, the preferred stock and the warrants issued pursuant to the securities purchase agreement, the selling stockholders have not had any material relationship with us within the past three years. To our knowledge, except as otherwise indicated, none of the selling stockholders is a broker-dealer or an affiliate of a broker-dealer.
 
The table below lists the selling stockholders and other information regarding the beneficial ownership of the common stock by each of the selling stockholders. The second column lists the number of common stock beneficially owned by each selling stockholder, based on its ownership of the common stock, preferred stock and warrants, as of the date of this prospectus, assuming conversion of the preferred stock and exercise of the warrants held by the selling stockholders on that date, without regard to any limitations on exercise. The third column lists the common stock being offered by this prospectus by the selling stockholders. The fourth column assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.
 
 
Name of Selling
Stockholder
Number of Shares
Common of Stock
Beneficially Owned
Prior to Offering (1)
Percentage of Shares
of Common Stock
Beneficially Owned
Prior to Offering (2)
Maximum Number
of Shares of Common
Stock to be sold
Pursuant to this
Prospectus
Number of Shares
of Common Stock
Beneficially Owned
after Offering
Percentage of Shares
of Common Stock
Beneficially Owned
After Offering
James Adametz
80,934 (3)
*
80,934
0%
Michael Bruno
100,000
*
100,000
 
0%
Leonard Cohen
135,356 (4)
*
135,356
 
0%
Elicia David
640,767 (5)
3.3%
640,767
 
0%
Phillip David
100,000
*
100,000
 
0%
Richard David
100,000
*
100,000
 
0%
Robert Gerola
525,000
2.7%
525,000
 
0%
Dr. Austin Gleason
520,712 (6)
2.7%
520,712
 
0%
Georgeanna Gleasson
50,000
*
50,000
 
0%
Chris Gordon
200,000
1.0%
200,000
 
0%
Dr. Wilfred Huse
100,000
*
100,000
 
0%
Gad Janay
634,630 (7)
3.2%
634,630
 
0%
Dr. Michel Janis
100,000
*
100,000
 
0%
Brian Kandel
100,000
*
100,000
 
0%
Patrick Keating
80,802 (8)
*
80,802
 
0%
 
43
Jill Lamberson
1,050,000
5.5%
1,050,000
 
0%
Dan Lee
641,425 (9)
3.3%
641,425
 
0%
Frank Lee
15,000
*
15,000
 
0%
Gregory Menillo
280,255 (10)
1.5%
280,255
 
0%
Jeff Miller
270,219 (11)
1.4%
270,219
 
0%
Andrew Moley
539,123 (12)
2.7%
539,123
 
0%
Russ Moore
200,000
1.0%
200,000
 
0%
David Mulkey
200,000
1.0%
200,000
 
0%
Mario Novogrodski
100,000
*
100,000
 
0%
Victor Novogrodski
100,000
*
100,000
 
0%
Pierce D. Nunley
764,123 (13)
3.9%
764,123
 
0%
Dr Jayakumar Patil
354,774 (14)
1.8%
354,774
 
0%
Gail and Richard Ross
50,000
*
50,000
 
0%
Matt Rottenberg
10,000
*
10,000
 
0%
Len Schiller
370,767 (15)
1.9%
370,767
 
0%
Phil Schiller
370,603 (16)
1.9%
370,603
 
0%
Donald R. Smith
420,384 (17)
2.2%
420,384
 
0%
Sharon Standowski
1,750,000
9.1%
1,750,000
 
0%
David Stein
100,000
*
100,000
 
0%
Andy Taffin
100,000
*
100,000
 
0%
Linda Vanle
80,934 (18)
*
80,934
 
0%
Richard Viglione
25,000
*
25,000
 
0%
Johnny Walker
50,000
*
50,000
 
0%
Joyce Westmoreland
319,726 (19)
1.6%
319,726
 
0%
Doug Wertheimer
270,767 (20)
1.4%
270,767
 
0%
Wayne White
100,000
*
100,000
 
0%
Jan Zigler
100,000
*
100,000
 
0%
Camien Advisors LLC
1,750,000 (21)
9.1%
1,750,000
 
0%
J. Truman Bidwell Jr.
329,451 (22)
1.7%
329,451
 
0%
Jo-Bar Enterprises, LLC
640,767 (23)
3.3%
640,767
 
0%
Mulkey II Limited Partnership
539,562 (24)
2.7%
539,562
 
0%
Norman H. Cohen & S. Randall Partnership
184,890 (25)
1%
184,890
 
0%
Simon Asset Management
740,548 (26)
3.8%
740,548
 
0%
Skyebanc, Inc.
178,200 (27)
*
178,200
 
0%
Mario Marsillo Jr.
120,059 (28)
*
120,059
 
0%
Vincent LaBarbara
94,278 (29)
*
94,278
 
0%
Richard Galterio
77,422 (30)
*
77,422
 
0%
Peter Fulton
60,041 (31)
*
60,041
 
0%
Darlene Gaudios
10,000 (32)
*
10,000
 
0%
Total
16,826,519
86.9%
16,826,519
 
0%
 
* Less than 1 percent
 
(1) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to the shares shown. Except where indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them.
 
(2) Based on 19,140,027 shares outstanding as of December 1, 2006.
 
44
(3) Includes 60,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 9,000 shares underlying warrants and 10,405 shares to be received as PIK dividends.
 
(4) Includes 100,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 15,000 shares underlying warrants and 17,342 shares to be received as PIK dividends.

(5) Includes 400,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 60,000 shares underlying warrants and 69,370 shares to be received as PIK dividends.

(6) Includes 200,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 30,000 shares underlying warrants and 34,685 shares to be received as PIK dividends.

(7) Includes 400,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 60,000 shares underlying warrants and 69,370 shares to be received as PIK dividends.

(8) Includes 60,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 9,000 shares underlying warrants and 10,405 shares to be received as PIK dividends.

(9) Includes 400,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 60,000 shares underlying warrants and 69,370 shares to be received as PIK dividends.

(10) Includes 133,333 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 20,000 shares underlying warrants and 23,123 shares to be received as PIK dividends.

(11) Includes 200,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 30,000 shares underlying warrants and 34,685 shares to be received as PIK dividends.

(12) Includes 400,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 60,000 shares underlying warrants and 69,370 shares to be received as PIK dividends.

(13) Includes 400,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 60,000 shares underlying warrants and 69,370 shares to be received as PIK dividends.

(14) Includes 153,333 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 23,000 shares underlying warrants and 26,592 shares to be received as PIK dividends.

(15) Includes 200,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 30,000 shares underlying warrants and 34,685 shares to be received as PIK dividends.

(16) Includes 200,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 30,000 shares underlying warrants and 34,685 shares to be received as PIK dividends.

(17) Includes 200,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 30,000 shares underlying warrants and 34,685 shares to be received as PIK dividends.

(18) Includes 60,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 9,000 shares underlying warrants and 9,827 shares to be received as PIK dividends.

(19) Includes 200,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 30,000 shares underlying warrants and 34,685 shares to be received as PIK dividends.

(20) Includes 200,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 30,000 shares underlying warrants and 34,685 shares to be received as PIK dividends.

(21) 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.

45
(22) Includes 133,333 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 23,123 shares underlying warrants and 34,685 shares to be received as PIK dividends.

(23) Includes 400,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 60,000 shares underlying warrants and 69,370 shares to be received as PIK dividends. Mr. Joel Stone, Mr. Russell Stone and Mrs. Barbara Stone are the Managing Directors of Jo-Bar Enterprises, LLC, and have shared voting and investment powers with regard to the shares of Jo-Bar Enterprises, LLC.

(24) Includes 400,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 60,000 shares underlying warrants and 69,370 shares to be received as PIK dividends. Mr. David Mulkey is the General Partner of Mulkey II Limited Partnership, and has sole voting and investment powers with regard to the shares of Mulkey II Limited Partnership.

(25) Includes 100,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 15,000 shares underlying warrants and 17,342 shares to be received as PIK dividends. Mr. Norman H. Cohen & Mrs. Stephanie Randall are the General Partners of Norman H. Cohen & S. Randall Partnership, and have shared voting and investment powers with regard to the shares of Norman H. Cohen & S. Randall Partnership.

(26) Includes 400,000 shares issuable upon conversion of 10% Series A Convertible Preferred Stock, 60,000 shares underlying warrants and 69,370 shares to be received as PIK dividends. Mr. Howard Liebriech is the General Partner of Simon Asset Management, and has sole voting and investment powers with regard to the shares of Simon Asset Management.

(27) Includes 178,200 shares underlying warrants. Mr. Vincent LaBarbara is the Chief Executive Officer of Skyebanc, Inc. and has sole voting and investment powers with regard to the shares underlying Skyebanc’s warrants. Skyebanc, Inc. is a registered broker-dealer and considered an "underwriter" within the meaning of the Securities Act. Skyebanc informed us that the shares were acquired in the ordinary course of business, and at the time of acquisition thereof, they had no agreements, understandings or arrangements with any other persons, directly or indirectly, to dispose of our shares.

(28) Includes 120,059 shares underlying warrants. Mr. Marsillo is an affiliate of Skyebanc, Inc., a registered broker-dealer.  Mr. Marsillo informed us that the shares were acquired in the ordinary course of business, and at the time of acquisition thereof, he had no agreements, understandings or arrangements with any other persons, directly or indirectly, to dispose of our shares.

(29) Includes 94,278 shares underlying warrants. Mr. LaBarbara is an affiliate of Skyebanc, Inc., a registered broker-dealer. Mr. LaBarbara informed us that the shares were acquired in the ordinary course of business, and at the time of acquisition thereof, he had no agreements, understandings or arrangements with any other persons, directly or indirectly, to dispose of our shares.

(30) Includes 77,422 shares underlying warrants. Mr. Galterio is an affiliate of Skyebanc, Inc., a registered broker-dealer. Mr. Galterio informed us that the shares were acquired in the ordinary course of business, and at the time of acquisition thereof, he had no agreements, understandings or arrangements with any other persons, directly or indirectly, to dispose of our shares.

(31) Includes 60,041 shares underlying warrants. Mr. Fulton is an affiliate of Skyebanc, Inc., a registered broker-dealer. Mr. Fulton informed us that the shares were acquired in the ordinary course of business, and at the time of acquisition thereof, he had no agreements, understandings or arrangements with any other persons, directly or indirectly, to dispose of our shares.

(32) Includes 10,000 shares underlying warrants. Ms. Gaudis is an affiliate of Skyebanc, Inc., a registered broker-dealer. Ms. Gaudis informed us that the shares were acquired in the ordinary course of business, and at the time of acquisition thereof, she had no agreements, understandings or arrangements with any other persons, directly or indirectly, to dispose of our shares.

PLAN OF DISTRIBUTION

The selling stockholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

·
ordinary brokerage transactions and transactions in which the broker-dealer solicits Investors;
 
46
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
·
an exchange distribution in accordance with the rules of the applicable exchange;
 
·
privately negotiated transactions;
 
·
to cover short sales made after the date that the registration statement of which this prospectus is a part is declared effective by the SEC;
 
·
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
 
·
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
 
·
a combination of any such methods of sale; and
 
·
any other method permitted pursuant to applicable law.
 
The selling stockholders may also sell shares in transactions exempt from the registration requirements of the Securities Act, including under Rule 144 thereunder, as described below, if available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

47
Upon the company being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon the company being notified in writing by a selling stockholder that a donee or pledgee intends to sell more than 500 shares of common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.

The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be ‘‘underwriters’’ within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the selling stockholder and/or the purchasers. Each selling stockholder has represented and warranted to the company that it acquired the securities subject to this registration statement in the ordinary course of such selling stockholder’s business and, at the time of its purchase of such securities such selling stockholder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities. Skyebanc, Inc., one of the selling stockholders, is a registered broker-dealer and is an underwriter, as set forth above in note 27 under “Selling Security Holders.”
 
The company has advised each selling stockholder that it may not use shares registered on the registration statement of which this prospectus is a part to cover short sales of common stock made prior to the date on which the registration statement of which this prospectus is a part shall have been declared effective by the SEC. If a selling stockholder uses this prospectus for any sale of the common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The selling stockholders will be responsible for complying with the applicable provisions of the Securities Act and the Securities and Exchange Act of 1934, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such selling stockholders in connection with resales of their respective shares under the registration statement of which this prospectus is a part.

48
The company is required to pay all fees and expenses incident to the registration of the shares, but the company will not receive any proceeds from the sale of the common stock.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
We have 19,140,027 shares of common stock issued and outstanding, of which 9,140,027 shares were included in the registration statement of which this prospectus is a part and will be freely tradable shares, upon the effective date of the registration statement of which this prospectus is a part so long as we keep this prospectus current. In addition, the registration statement of which this prospectus is a part also registers 7,686,492 shares of our common stock issuable upon the exercise of outstanding warrants, the conversion of our 10% Series A Convertible Preferred Stock or the issuance of common stock under as dividends on the preferred stock. Upon the exercise or conversion of those securities in accordance with their respective terms, the underlying shares will be freely tradable by persons other than our affiliates providing that this prospectus is current.
 
In general, under Rule 144 under the Securities Act, as currently in effect, a person, or persons whose shares are aggregated, who owns shares that were purchased from us, or any affiliate, at least one year previously, including a person who may be deemed our affiliate, is entitled to sell within any three month period, a number of shares of our common stock that does not exceed the greater of 1% of the then outstanding shares of our common stock or the average weekly trading volume of our common stock during a specified four week period. The sales must be handled in all respects as routine trading transactions, and brokers may not receive more than a normal commission. Neither the seller nor the broker can solicit orders to buy the securities. At the time the order is placed, seller must file a notice with the SEC on Form 144, if the sale involves more than 500 shares or the aggregate dollar amount is greater than $10,000 in any three-month period. The sale must take place within three months of filing the Form and, if the securities have not been sold, seller must file an amended notice. There must be adequate current information about our securities before the sale can be made.
 
Any person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale, and who owns shares within the definition of "restricted securities" under Rule 144 under the Securities Act that were purchased from us, or any affiliate, at least two years previously, is entitled to sell such shares under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements.
 
As of December 21, 2006 none of our issued and outstanding shares were eligible for sale under Rule 144, because none of our shareholders meets the one year holding period.
 
Future sales of restricted common stock under Rule 144 or otherwise or of the shares which we are registering under this prospectus could negatively impact the market price of our common stock. We are unable to estimate the number of shares that may be sold in the future by our existing stockholders or the effect, if any, that sales of shares by such stockholders will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of our common stock by existing stockholders could adversely affect prevailing market prices.
 
49
LEGAL MATTERS
 
The validity of the securities offered by this prospectus will be passed upon for us by Sullivan & Worcester LLP, 1290 Avenue of the Americas, New York, NY 10104. Members and employees of this firm own an aggregate of 329,451 shares of our common stock, 1,333 shares of our 10% Series A Convertible Preferred Stock, and warrants to purchase 20,000 share of our common stock.
 
EXPERTS
 
Our financial statements as of and for the year ended December 31, 2005, included in this prospectus have been audited by Sherb and Co., LLP, independent registered public accounting firm, as indicated in their report with respect thereto, and have been so included in reliance upon the report of such firm given on their authority as experts in accounting and auditing.
 
WHERE YOU CAN FIND ADDITIONAL INFORMATION
 
We have filed with the SEC the registration statement on Form SB-2 under the Securities Act for the common stock offered by this prospectus. This prospectus, which is a part of the registration statement, does not contain all of the information in the registration statement and the exhibits filed with it, portions of which have been omitted as permitted by SEC rules and regulations. For further information concerning us and the securities offered by this prospectus, we refer to the registration statement and to the exhibits filed with it. Statements contained in this prospectus as to the content of any contract or other document referred to are not necessarily complete. In each instance, we refer you to the copy of the contracts and/or other documents filed as exhibits to the registration statement.
 
We will file annual and special reports and other information with the SEC. You may read and copy any document we file with the SEC at its public reference facilities:
 
Public Reference Room Office
100 F Street, N.E.
Washington, D.C. 20549
 
You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Callers in the United States can also call 1-800-732-0330 for further information on the operations of the public reference facilities.
 

50
ACCELERIZE NEW MEDIA, INC.
 
INDEX TO FINANCIAL STATEMENTS
 
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Page
   
Description of Transaction and Basis of Presentation F-2
Pro Forma Consolidated Balance Sheet for the nine month period ended September 30, 2006
F-3
Pro Forma Statements of Operation for the year ended December 31, 2005
F-4
Pro Forma Statements of Operations for the nine month period ended September 30, 2006
F-5
Notes to Unaudited Pro Forma Combined Financial Statements
F-6
   
ACCELERIZE NEW MEDIA, INC. -
NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005   (UNAUDITED)
 
   
Balance Sheet
F-7
Statements of Operations
F-8
Statements of Cash Flows
F-9
Notes to Financial Statements
F-10 to F-19
   
ACCELERIZE NEW MEDIA, INC. -
YEARS ENDED DECEMBER 31, 2005 AND 2004 (AUDITED)
 
   
Report of Independent Registered Public Accounting Firm
F-20
Balance Sheet
F-21
Statements of Operations
F-22
Statements of Changes in Stockholders' Deficiency
F-23
Statements of Cash Flows
F-24
Notes to Financial Statements
F-25 to F-31
   
THE DEBT REDUCTION GROUP LLC -
NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005   (UNAUDITED)
 
   
Balance Sheet
F-32
Statements of Operations
F-33
Statements of Cash Flows
F-34
Notes to Financial Statements
F-35 to F-40
   
THE DEBT REDUCTION GROUP LLC -
YEARS ENDED DECEMBER 31, 2005 AND 2004 (AUDITED)
 
   
Report of Independent Registered Public Accounting Firm
F-41
Balance Sheet
F-42
Statements of Operations
F-43
Statements of Changes in Stockholders' Deficiency
F-44
Statements of Cash Flows
F-45
Notes to Financial Statements
F-46 to F-51
 
 
F-1
 
Accelerize New Media, Inc.
 
PRO FORMA COMBINED FINANCIAL STATEMENTS
 
September 30, 2006 and December 31, 2005
 
DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
 
During December 2006, Accelerize New Media, Inc., (“the Company”) entered into an Asset Purchase Agreement to acquire a substantial portion of the operating asset of The Debt Reduction Group, LLC (“DRG”). Pursuant to the Asset Purchase Agreement, the Company is expected to acquire 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 DRG as well as granting 500,000 warrants to certain of DRG’s employees which may be earned based upon certain milestones related to target revenues and operating margins covering 18 months after closing. The Company expects that the Asset Purchase Agreement will be effective in January 2007.

The acquisition of the operations of DRG will be accounted pursuant to the Financial Accounting Standard (“FAS”) 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, FAS 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 acquiror.
 
The unaudited pro forma combined balance sheet as of September 30, 2006 presents the Company's financial position as if the acquisition of DRG's assets had been completed as of September 30, 2006.  The unaudited pro forma combined statements of operations for the nine months ended September 30, 2006 present the Company's results of operations as if the acquisition of DRG's assets had been completed as of January 1, 2006.  The unaudited pro forma combined statements of operations for the year ended December 31, 2005 present the Company's results of operations as if the acquisition of DRG's assets had been completed as of January 1, 2005.
 
These unaudited pro forma financial statements are based in part upon the Company's historical financial statements and the historical financial statements of DRG contained elsewhere in this prospectus and should be read in conjunction with those financial statements and the notes thereto.
 
The unaudited pro forma financial statements are not necessarily indicative of what the Company's actual financial position or results of operations would have been as of the date or for the periods indicated, nor does it represent the Company's financial position or results of operations for any future date or period.
 
 
F-2
 
ACCELERIZE NEW MEDIA, INC.
Pro forma Consolidated Balance Sheet
 
September 30, 2006
(Unaudited)
 
                           
   
Accelerize
 
The Debt Reduction
     
Pro forma
     
Pro forma
 
   
New Media, Inc.
 
Group, LLC
 
Combined
 
Adjustments
     
Consolidated
 
ASSETS
                                     
Current Assets:
                                     
Cash
 
$
498,883
 
$
61,105
 
$
559,988
 
$
(61,105
)
 
(a )
 
$
498,883
 
Accounts receivable
   
30,833
   
6,170
   
37,003
   
-
         
37,003
 
Prepaid expenses
   
2,575
   
-
   
2,575
   
-
         
2,575
 
Total current assets
   
532,291
   
67,275
   
599,566
   
(61,105
)
       
538,461
 
                                       
Property and equipment, net of accumulated
depreciation of $62,767
   
-
   
36,254
   
36,254
   
-
         
36,254
 
Website development costs, net of accumulated
depreciation of $28,545
   
70,632
   
-
   
70,632
   
-
         
70,632
 
Intangible assets
                     
111,094
   
(b )
 
 
111,094
 
Other assets
   
-
   
9,015
   
9,015
   
(9,015
)
 
(a )
 
 
-
 
                                       
Total assets
 
$
602,923
 
$
112,544
 
$
715,467
 
$
40,974
       
$
756,441
 
                                       
                                       
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
                                     
                                       
Current Liabilities:
                                     
Accounts payable and accrued expenses
 
$
6,344
 
$
34,718
 
$
41,062
 
$
-
       
$
41,062
 
Reserve for refunds
   
-
   
70,681
   
70,681
   
-
         
70,681
 
                                       
Total current liabilities
   
6,344
   
105,399
   
111,743
   
-
         
111,743
 
                                       
Payable to former member
   
-
   
64,026
   
64,026
   
(64,026
)
 
(a )
 
 
-
 
                                       
Stockholders' (Deficit) Equity:
                                     
Preferred stock, 2,000,000 shares authorized, 49,100
issued
   
661,067
   
-
   
661,067
   
-
         
661,067
 
Common stock, 100,000,000 authorized, 19,014,005
issued and outstanding
   
19,014
   
-
   
19,014
   
3,500
   
(a )
 
 
22,514
 
Members' deficit
   
-
   
(56,881
)
 
(56,881
)
 
56,881
   
(b )
 
 
-
 
Additional paid-in capital
   
1,847,851
   
-
   
1,847,851
   
101,500
   
(a )
 
 
1,892,470
 
                       
(56,881
)
 
(b )
 
     
Accumulated deficit
   
(1,931,353
)
 
-
   
(1,931,353
)
             
(1,931,353
)
                                       
Total stockholders’ (deficit) equity
   
596,579
   
(56,881
)
 
539,698
   
105,000
         
644,698
 
                                       
Total liabilities and stockholders’ (deficit) equity
 
$
602,923
 
$
112,544
 
$
715,467
 
$
40,974
       
$
756,441
 
 
 
See Notes to Unaudited Proforma Financial Statements
F-3
 
ACCELERIZE NEW MEDIA, INC.
Pro forma Statements of Operations
For the Year Ended December 31, 2005
(Unaudited)
 
 
   
Accelerize
 
The Debt Reduction
     
Pro forma
 
Pro forma
 
   
New Media, Inc.
 
Group, LLC
 
Combined
 
Adjustments
 
Consolidated
 
               
 
     
Revenues
 
$
9,526
 
$
1,001,242
 
$
1,010,768
 
$
-
 
$
1,010,768
 
                                 
Cost of revenues
   
-
   
215,936
   
215,936
   
-
   
215,936
 
                                 
Gross profit
   
9,526
   
785,306
   
794,832
   
-
   
794,832
 
                                 
Operating expenses:
                               
Selling, general and administrative
   
6,971
   
827,950
   
834,921
   
-
   
834,921
 
Total operating expenses
   
6,971
   
827,950
   
834,921
   
-
   
834,921
 
                                 
Operating income (loss)
   
2,555
   
(42,644
)
 
(40,089
)
 
-
   
(40,089
)
                                 
Other expenses:
                               
Interest expense-related party
   
-
   
(1,640
)
 
(1,640
)
 
-
   
(1,640
)
Interest expense
   
-
   
(5,859
)
 
(5,859
)
 
-
   
(5,859
)
 
    -    
(7,499
)
 
(7,499
)
 
-
   
(7,499
)
                                 
Net income (loss) before discontinued operations and
income tax
 
$
2,555
 
$
(50,143
)
$
(47,588
)
$
-
 
$
(47,588
)
 
 
 
F-4
 
ACCELERIZE NEW MEDIA, INC.
Proforma Statements of Operations
For the nine-month period ended September 30, 2006
(Unaudited)
 
   
Accelerize
 
The Debt Redution
     
Proforma
 
Proforma
 
   
New Media, Inc.
 
Group LLC
 
Combined
 
Adjustments
 
Consolidated
 
                       
Revenues
 
$
159,052
 
$
596,805
 
$
755,857
 
$
-
 
$
755,857
 
                                 
Cost of revenues
   
-
         
-
   
-
   
-
 
                                 
Gross profit
   
159,052
   
596,805
   
755,857
   
-
   
755,857
 
                                 
Operating expenses:
                               
Selling, general and administrative
   
2,086,576
   
605,679
   
2,692,255
   
-
   
2,692,255
 
Total operating expenses
   
2,086,576
   
605,679
   
2,692,255
   
-
   
2,692,255
 
                                 
Operating income (loss)
   
(1,927,524
)
 
(8,874
)
 
(1,936,398
)
 
-
   
(1,936,398
)
                                 
Other expenses:
                               
Interest expense-related party
   
-
   
(1,969
)
 
(1,969
)
 
-
   
(1,969
)
Interest expense
   
-
   
(190
)
 
(190
)
 
-
   
(190
)
-
         
(2,159
)
 
(2,159
)
 
-
   
(2,159
)
                                 
Net income (loss)
 
$
(1,927,524
)
$
(11,033
)
$
(1,938,557
)
$
-
 
$
(1,938,557
)
 

F-5
 
Accelerize New Media, Inc.
 
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
 
September 30, 2006 and December 31, 2005
 
NOTE 1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
 
During December 2006, Accelerize New Media, Inc., (“the Company”) entered into an Asset Purchase Agreement to acquire a substantial portion of the operating asset of The Debt Reduction Group, LLC (“DRG”). Pursuant to the Asset Purchase Agreement, the Company is expected to acquire 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 DRG as well as granting 500,000 warrants to certain of DRG’s employees which may be earned based upon certain milestones related to target revenues and operating margins covering 18 months after closing. The Company expects that the Asset Purchase Agreement will be effective in January 2007.

The acquisition of the operations of DRG will be accounted pursuant to the Financial Accounting Standard (“FAS”) 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, FAS 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 acquiror.
 
The unaudited pro forma combined balance sheet as of September 30, 2006 presents the Company's financial position as if the acquisition of DRG's assets had been completed as of September 30, 2006.  The unaudited pro forma combined statements of operations for the nine months ended September 30, 2006 present the Company's results of operations as if the acquisition of DRG's assets had been completed as of January 1, 2006.  The unaudited pro forma combined statements of operations for the year ended December 31, 2005 present the Company's results of operations as if the acquisition of DRG's assets had been completed as of January 1, 2005.
 
These unaudited pro forma financial statements are based in part upon the Company's historical financial statements and the historical financial statements of DRG contained elsewhere in this prospectus and should be read in conjunction with those financial statements and the notes thereto.
 
The unaudited pro forma financial statements are not necessarily indicative of what the Company's actual financial position or results of operations would have been as of the date or for the periods indicated, nor does it represent the Company's financial position or results of operations for any future date or period.
 
NOTE 2. UNAUDITED PRO FORMA ADJUSTMENTS
 
Adjustments included in the column under the heading "Pro Forma Adjustments" include the following:
 
(a) To reflect the deemed issuance of 3,500,000 shares of the common stock of the Company to the managing members of DRG, offset by the adjustments of certain assets and liabilities which are not assumed by the Company, as of September 30, 2006.
 
(b) To reclassify the accumulated members’ deficit of DRG as of September 30, 2006.
 
 
F-6
 
ACCELERIZE NEW MEDIA, INC.
BALANCE SHEET
September 30, 2006
(Unaudited)
 
ASSETS
     
Current Assets:
       
Cash
 
$
498,883
 
Accounts receivable
   
30,833
 
Prepaid expenses
   
2,575
 
Total current assets
   
532,291
 
         
Website development costs, net of accumulated depreciation of $28,545
   
70,632
 
         
Total assets
 
$
602,923
 
         
LIABILITIES AND STOCKHOLDERS' EQUITY
       
         
Current Liabilities:
       
Accounts payable and accrued expenses
 
$
6,344
 
Total current liabilities
   
6,344
 
         
Stockholders' Equity:
       
Preferred Stock, $.001 par value; 2,000,000 shares authorized, 49,100 issued
       
and outstanding
   
661,067
 
Common stock; $.001 par value; 100,000,000 shares authorized;
       
19,014,005 issued and outstanding
   
19,014
 
Additional paid-in capital
   
1,847,851
 
Accumulated deficit
   
(1,931,353
)
         
Total stockholders’ equity
   
596,579
 
         
Total liabilities and stockholders’ equity
 
$
602,923
 
 
See Notes to Unaudited Financial Statements.

 
F-7

ACCELERIZE NEW MEDIA, INC.
STATEMENTS OF OPERATIONS
 
 
   
For the nine month period ended
 
For the three month period ended
 
   
September 30,
 
September 30,
 
   
2006
 
2005
 
2006
 
2005
 
   
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
                   
Net revenues
 
$
159,052
 
$
7,911
 
$
99,671
 
$
2,263
 
                           
Operating expenses:
                         
Selling, general, and administration expenses
   
2,086,576
   
3,688
   
129,200
   
1,108
 
                           
Net (loss) income
 
$
(1,927,524
)
$
4,223
 
$
(29,529
)
$
1,155
 
                           
Less dividend issued for Series A preferred stock
   
2,101
   
-
   
2,101
   
-
 
                           
Net (loss) income attributable to common stock
 
$
(1,929,625
)
$
4,223
 
$
(31,630
)
$
1,155
 
                           
Basic and diluted earnings per common share
 
$
(0.10
)
$
0.00
 
$
(0.00
)
$
0.00
 
                           
Basic and diluted weighted average common
                         
shares outstanding
   
18,748,958
   
18,748,958
   
19,014,005
   
19,014,005
 
 
 
See Notes to Unaudited Financial Statements.
 
 
F-8
 
ACCELERIZE NEW MEDIA, INC.
STATEMENTS OF CASH FLOWS
 
 
   
For the nine month period ended
 
   
September 30,
 
   
2006
 
2005
 
   
(unaudited)
 
(unaudited)
 
           
Cash flows from operating activities:
             
Net income (loss)
 
$
(1,927,524
)
$
4,223
 
               
Adjustments to reconcile net (loss) income to net
             
cash used in operating activities:
             
Depreciation
   
28,545
   
-
 
Fair value of shares issued for services
   
1,550,000
   
-
 
Adjustments to reconcile net income to net cash provided by
             
operating activities:
             
Changes in operating assets and liabilities:
             
Accounts receivable
   
(30,833
)
 
-
 
Prepaid expenses
   
(2,575
)
 
-
 
Accounts payable and accrued expenses
   
4,156
   
-
 
               
Net cash (used in) provided by operating activities
   
(378,231
)
 
4,223
 
               
Cash flows from investing activities
             
Website development costs
   
(99,177
)
 
-
 
Cash flows used in investing activities
   
(99,177
)
 
-
 
               
               
Cash flows from financing activities:
             
Distribution to member of capital
   
-
   
(5,322
)
Proceeds from cash overdraft
   
-
   
546
 
Proceeds from issuances of common stock
   
330,000
   
-
 
Proceeds from issuance of preferred stock
   
736,500
   
-
 
Payment for closing costs
   
(110,433
)
 
-
 
Net cash provided by financing activities
   
956,067
   
(4,776
)
               
Net increase (decrease) in cash
   
478,659
   
(553
)
               
Cash, beginning of period
   
20,224
   
553
 
               
Cash, end of period
 
$
498,883
 
$
-
 
               
               
Supplemental disclosures of cash flow information:
             
Cash paid for income taxes
 
$
-
 
$
-
 
               
Cash paid for interest
 
$
-
 
$
-
 
 
See Notes to Unaudited Financial Statements
 
F-9
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:

Accelerize New Media, Inc. (“the Company”), a Delaware Corporation, incorporated on November 22, 2005, is an online based media and customer acquisition solutions provider that was formed through the combination of the business operations of EDGAR index and MapGui, both of which had been operating since 2001 as the private business entities of the Company’s current management team. Before the Company became incorporated, it was operating as a sole-proprietorship doing business as Accelerized New Media. The Company provides internet development services and turnkey customer acquisition solutions to small to medium size U.S. companies. The Company plans to focus much of its key web tool design using RSS, or Really Simple Syndication, technologies. RSS is a web content syndication format that is rapidly being adopted as a standard for use for Internet content query and customization.

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and the footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of recurring accruals, considered for a fair presentation have been included. Operating results for the nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2006.

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 could 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.

F-10
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (Continued)

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 a ccounts are held at financial institutions and are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. During the nine months ended September 30, 2006, 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 single customer, located in the United States. The Company determined that there was no need for an allowance for doubtful accounts.
 
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 collectibility 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.
 
 
F-11
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (Continued)

Customer Concentration

Two of the Company's customers accounted for approximately 49% and 42% of its revenues during the nine month period ended September 30, 2006. No customers accounted for more than 10% of the Company’s revenue during the nine month period ended September 30, 2005. The Company minimizes its customer concentration risks by diversifying its existing customer base.
 
Product Concentration

The Company collects revenues through three different forms. The first and main form is from using third-party distribution networks to deliver the merchant advertisers’ listings. The second p art of the Company's revenues are derived 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 last form of revenue generation is considered other revenue, and is from the Company’s lead generation web services, paid search optimization, landing page development services, and creative design.

Fair Value of Financial Instruments

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

  Advertising

The Company expenses advertising costs as incurred. Advertising expense for the period ended September 30, 2006 and 2005 were $135,617 and $1,689, respectively.

Website Development Costs
 
The Company has capitalized certain internal use software and website development costs amounting to approximately $100,000 during the nine month period ended September 30, 2006.  The estimated useful life of costs capitalized is evaluated for each specific project and is one year.  During the nine month period ended September 30, 2006, the amortization of capitalized costs totaled approximately $29,000. 
 
F-12
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (Continued)

Income Taxes

Income taxes are accounted for in accordance with the provisions of Statement of Financial Accounting Standards ("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. For the period ended September 30, 2005, the Company was operating as a sole-proprietorship and the total tax liability was assumed by a member of the management team on a personal basis. Therefore, no provision for income taxes has been recorded.

Stock Based Compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes Accounting Principles Board ("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 SEC issued Staff Accounting Bulletin No. 107, 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. On April 14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS 123R. 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 fully adopted the provisions of SFAS No. 123R and related interpretations as provided by SAB 107 prospectively. As such, compensation
 
 
F-13
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (Continued)

cost is measured on the date of grant as its fair value.   Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.

Segment Reporting

The Company operates in one segment, internet development services and turnkey customer acquisition solutions. The Company's chief operating decision-maker evaluates the performance of the Company based upon revenues and expenses by functional areas as disclosed in the Company's statements of operations.

Recent Accounting Pronouncements  

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment for APB Opinion No. 29". This statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS No. 153 are effective for the Company's year ending December 31, 2006. Management is currently evaluating the impact of the adoption of SFAS No. 153 on the Company's consolidated financial position, liquidity, or results of operations.

In July 2005, the FASB issued FASB Staff Position ("FSP") 150-5, "Accounting Under SFAS 150 for Freestanding Warrants and Other Similar Instruments on Redeemable Shares". FSP 150-5 clarifies that warrants on shares that are redeemable or puttable immediately upon exercise and warrants on shares that are redeemable or puttable in the future qualify as liabilities under SFAS 150, regardless of the redemption feature or redemption price. The FSP is effective for the first reporting period beginning after September 30, 2005, with resulting changes to prior period statements reported as the cumulative effect of an accounting change in accordance with the transition provisions of SFAS 150. We adopted the provisions of FSP 150-5 on July 1, 2005, which did not have a material effect on our financial statements.
 
 
F-14
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In July 2005, the FASB issued Emerging Issues Task Force ("EITF") 05-6, "Determining the Amortization period for Leasehold Improvements Purchased After Lease Inception or Acquired in a Business Combination", which addressed the amortization period for leasehold improvements made on operating leases acquired significantly after the beginning of the lease. The EITF is effective for leasehold improvements made in periods beginning after September 29, 2005. We adopted the provisions of EITF 05-6 on July 1, 2005, which did not have a material impact to the Company’s financial position, results of operations and cash flows.
 
In September 2006, the FASB issued FASB Statement No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is a relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practices. This Statement is effective for financial statements for fiscal years beginning after November 15, 2007. Earlier application is permitted provided that the reporting entity has not yet issued financial statements for that fiscal year. Management believes this Statement will have no impact on the financial statements of the Company once adopted.

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 warrants amounted to 810,150 at September 30, 2006. The warrants have been excluded from the earnings per share computation due to their anti-dilutive effect.


F-15
 
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (Continued)

The following sets forth the computation of basic and diluted earnings per share for the nine and three month periods ended September 30:

   
For the nine month period ended
 
For the three month period ended
 
   
September 30,
 
September 30,
 
   
2006
 
2005
 
2006
 
2005
 
Numerator:
                         
Net loss attributable to common stock
  $
(1,929,625
)
$  
4,223
  $  
(31,630
)
$  
1,155
 
                           
Denominator:
                         
Denominator for basic earnings per share-
                         
Weighted average shares outstanding
   
18,748,958
   
18,748,958
   
19,014,005
   
19,014,005
 
Denominator for diluted earnings per share-
                         
Weighted average shares outstanding
   
18,748,958
   
18,748,958
   
19,014,005
   
19,014,005
 
                           
Basic earnings per share
  $  
(0.10
)
$  
(0.00
)
$  
(0.00
)
$  
(0.00
)
Diluted earnings per share
  $  
(0.10
)
$  
(0.00
)
$  
(0.00
)
$  
(0.00
)



F-16
 
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 3 : WEBSITE DEVELOPMENT COSTS

Website development costs, net of depreciation are as follows at September 30, 2006:

   
September 30,
 
   
2006
 
Website development costs
 
$
99,177
 
Total
   
99,177
 
Less: accumulated depreciation
   
(28,545
)
         
Property and equipment, net
 
$
70,632
 

Depreciation expense amounted to $28,545 during the nine month period ended September 30, 2006.

NOTE 4: STOCKHOLDERS’ EQUITY

Common Stock

In January 2006, the Company issued 3,500,000 shares of common stock which generated net proceeds of $315,000, after closing costs of $35,000 .

In January 2006, the Company issued 15,500,000 shares for services to officers for compensation valued at $1,550,000 or fair market value of $.10 per share.

On September 1, 2006, the Company paid dividends on its preferred stock. The dividends amounted to 14,005 shares of the common stock, valued at $2,101.

Preferred Stock

In August 2006, the Company designated 49,100 shares as 10% Series A Convertible Preferred Stock with a par value of $0.001.

The holder of the Series A Preferred Stock is entitled to an accumulative 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 dated beginning September 1, 2006 in cash or shares of the Corporation’s Common Stock. If the Corporation elects to pay any dividend in shares of Common Stock, the number of shares of Common Stock to be issued to the Holder


F-17
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 4: STOCKHOLDERS' EQUITY-(Continued)

shall be an amount equal to the quotient of (i) the dividend payment divided by (ii) $0.15 per share.

The stock includes 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.

In August 2006, the Company issued 49,100 shares of preferred stock, which generated net proceeds of $661,067, after closing costs of $75,433.

Warrants

In connection with the issuance of the preferred stock, the Company also issued 736,500 warrants to purchase shares of common stock exercisable at a price of $0.15 per share to the investors. The warrants expire in September 2013.

The placement agent for the offering also received 484,667 seven year warrants to purchase shares of common stock at an exercisable price of $0.15 per share. The warrants expire in September 2013.



F-18
 
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2006 and 2005
(UNAUDITED)

NOTE 5: SUBSEQUENT EVENTS

During October 2006, the Company designated and issued an additional 4,900 shares of 10% Series A Convertible Preferred Stock, which generated net proceeds of $66,150, after closing costs of $7,350.

In connection with the issuance of the preferred stock, the Company also issued 73,500 warrants to purchase shares of common stock exercisable at a price of $0.15 per share to the investors. The warrants expire in October 2013.

The placement agent for the offering also received 55,333 seven year warrants to purchase shares of common stock at an exercisable price of $0.15 per share. The warrants expire in October 2013.

During December 2006, the Company entered into an Asset Purchase Agreement to acquire a substantial portion of the operating asset of The Debt Reduction Group, LLC (“DRG”). Pursuant to the Asset Purchase Agreement, the Company will acquire the accounts receivables and substantially all intangible assets of DRG in consideration of issuing 3,500,000 shares of its common stock to the managing members of DRG as well as granting 500,000 warrants to certain of DRG’s employees which may be earned based upon certain milestones related to target revenues and operating margins covering 18 months after closing. The Company expects that the Asset Purchase Agreement will be effective in January 2007. 

During December 2006, the Company adopted a stock option plan which provides for the grants of options exercisable in up to 4,300,000 shares of its common stock.
 
 
F-19
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Accelerize New Media, Inc.
Formerly “D/B/A Accelerize New Media, Inc.”
Whitefish, MT

We have audited the accompanying balance sheet of Accelerize New Media, Inc. formerly “D/B/A Accelerize New Media, Inc.” as of December 31, 2005 and 2004 and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 2005 and 2004. 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 is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly we express no such opinion. 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. formerly “D/B/A Accelerize New Media, Inc.” as of December 31, 2005 and 2004 and the results of their operations and their cash flows for the years ended December 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.



/s/ Sherb & Co., LLP
Certified Public Accountants

New York, New York
September 18, 2006

F-20

ACCELERIZE NEW MEDIA, INC.
 
formerly "D/B/A ACCELERIZE NEW MEDIA, INC."
 
BALANCE SHEET
 
December 31, 2005
 
ASSETS
 
CURRENT ASSETS:
       
Cash  
 
$
20,224
 
TOTAL CURRENT ASSETS
   
20,224
 
         
   
$
20,224
 
         
         
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
       
Accounts payable and accrued expenses  
 
$
2,187
 
TOTALCURRENT LIABILITIES
   
2,187
 
         
STOCKHOLDERS' EQUITY
       
Preferred stock, $.001 par value; authorized 2,000,000 shares;  
       
issued and outstanding -0- shares
   
-
 
Common stock, $.001 par value, authorized 100,000,000 shares;  
       
issued and outstanding -0- shares
   
-
 
Common stock to be issued  
   
20,000
 
Additional paid-in-capital  
   
(236
)
Accumulated deficit  
   
(1,727
)
STOCKHOLDERS' EQUITY
   
18,037
 
         
   
$
20,224
 
 

The accompanying notes are an integral part of the financial statements.
 
F-21

ACCELERIZE NEW MEDIA, INC.
 
formerly "D/B/A ACCELERIZE NEW MEDIA, INC."
 
STATEMENTS OF OPERATIONS
 
   
For the Years Ended December 31,
 
   
2005
 
2004
 
           
           
REVENUES
 
$
9,526
 
$
16,564
 
               
OPERATING EXPENSES:
             
Selling, general and administrative  
   
6,971
   
10,130
 
TOTAL OPERATING EXPENSES
   
6,971
   
10,130
 
               
INCOME BEFORE INCOME TAXES
   
2,555
   
6,434
 
               
PROVISION FOR INCOME TAXES
   
-
   
-
 
               
NET INCOME
 
$
2,555
 
$
6,434
 

 
The accompanying notes are an integral part of the financial statements.
 
 
F-22
 

ACCELERIZE NEW MEDIA, INC.
 
formerly "D/B/A ACCELERIZE NEW MEDIA, INC."
 
STATEMENT OF CHANGES IN STOCKHOLDERS'/MEMBERS' EQUITY (DEFICIT)
 
 
                       
Total
 
               
Additional
     
Stockholders'/
 
   
Common stock
 
Common stock
 
Paid-In
 
Retained earnings
 
Members'
 
   
Shares
 
Amount
 
to be issued
 
Capital
 
(Deficit)
 
Equity (deficit)
 
                           
                           
Balance, January 1, 2004
   
-
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
                                       
Member distribution
   
-
   
-
   
-
   
-
   
(5,881
)
 
(5,881
)
                                       
Net income
   
-
   
-
   
-
   
-
   
6,434
   
6,434
 
                                       
Balance, December 31, 2004
   
-
   
-
   
-
   
-
   
553
   
553
 
                                       
Capital contribution
   
-
   
-
   
-
   
-
   
-
   
-
 
                                       
Member distribution
   
-
   
-
   
-
   
-
   
(5,321
)
 
(5,321
)
                                       
Net income through November 21, 2005
   
-
   
-
   
-
   
-
   
4,282
   
4,282
 
                                       
Balance, November 21, 2005
   
-
   
-
   
-
   
-
   
(486
)
 
(486
)
                                       
Incorporation, November 22, 2005
   
-
   
-
   
-
   
-
   
-
   
-
 
                                       
Recapitalization
   
-
   
-
   
-
   
(486
)
 
486
   
-
 
                                       
Capital contribution
   
-
   
-
   
-
   
250
   
-
   
250
 
                                       
Common stock to be issued
   
-
   
-
   
20,000
   
-
   
-
   
20,000
 
                                       
Net loss from November 22, 2005 (inception)
                                     
through December 31, 2005
   
-
   
-
   
-
   
-
   
(1,727
)
 
(1,727
)
 
                                     
Balance, December 31, 2005
   
-
 
$
-
 
$
20,000
 
$
(236
)
$
(1,727
)
$
18,037
 
 
 
The accompanying notes are an integral part of the financial statements.
 
 
F-23

ACCELERIZE NEW MEDIA, INC.
 
formerly "D/B/A ACCELERIZE NEW MEDIA, INC."
 
STATEMENTS OF CASH FLOWS
 
           
   
For the Years Ended December 31,
 
   
2005
 
2004
 
           
CASH FLOWS FROM OPERATING ACTIVITIES:
             
Net income  
 
$
2,555
 
$
6,434
 
Adjustments to reconcile net income to net  
             
cash used in operating activities:
             
               
Changes in assets and liabilities:  
             
Accounts payable
   
2,187
   
-
 
TOTAL ADJUSTMENTS
   
2,187
   
-
 
               
NET CASH USED PROVIDED BY OPERATING ACTIVITIES
   
4,742
   
6,434
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
             
Common stock to be issued  
   
20,000
   
-
 
Member distribution  
   
(5,321
)
 
(5,881
)
Capital contribution  
   
250
   
-
 
               
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
   
14,929
   
(5,881
)
               
NET INCREASE IN CASH
   
19,671
   
553
 
               
CASH, BEGINNING OF YEAR
   
553
   
-
 
               
CASH, END OF YEAR
 
$
20,224
 
$
553
 
               
Cash paid for:
             
Interest  
 
$
-
 
$
-
 
Taxes  
 
$
-
 
$
-
 
 
The accompanying notes are an integral part of the financial statements.

F-24
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2005 and 2004

NOTE 1: DESCRIPTION OF BUSINESS

Accelerize New Media, Inc. (“the Company”), a Delaware Corporation, incorporated on November 22, 2005, is an online based media and customer acquisition solutions provider that was formed through the combination of the business operations of EDGAR index and MapGui, both of which had been operating since 2001 as the private business entities of the Company’s current management team. Before the Company became incorporated, it was operating as a sole-proprietorship doing business as Accelerized New Media. The Company provides internet development services and turnkey customer acquisition solutions to small to medium size U.S. companies. The Company plans to focus much of its key web tool design using RSS, or Really Simple Syndication, technologies. RSS is a web content syndication format that is rapidly being adopted as a standard for use for Internet content query and customization.


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 could 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.



F-25
 
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2005 and 2004

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)

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 a ccounts are held at financial institutions and are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. During 2005, 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 single customer, located in the United States. The Company determined that there was no need for an allowance for doubtful accounts.

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 collectibility 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.


F-26
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2005 and 2004

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)

Customer Concentration

None of the Company's customers accounted for more than 10% of its revenues during the fiscal years ended December 30, 2005 and 2004. The Company minimizes its customer concentration risks by diversifying its existing customer base.

Product Concentration

The Company collects revenues through three different forms. The first and main form is from using third-party distribution networks to deliver the merchant advertisers’ listings. The second p art of the Company's revenues are derived 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 last form of revenue generation is considered other revenue, and is from the Company’s lead generation web services, paid search optimization, landing page development services, and creative design.

Fair value of financial instruments

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

Advertising

The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2005 and 2004 were $1,690 and $922, respectively.


F-27
 
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2005 and 2004

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)

Income taxes

Income taxes are accounted for in accordance with the provisions of Statement of Financial Accounting Standards ("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. For the years ended December 31, 2005 and December 31, 2004, the Company was operated as a sole-proprietorship and the total tax liability was assumed by a member of the management team on a personal basis. Therefore, no provision for income taxes has been recorded.

Stock based compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes Accounting Principles Board ("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 SEC issued Staff Accounting Bulletin No. 107, 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. On April 14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS 123R. 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 will fully adopt the provisions of SFAS No. 123R and


F-28
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2005 and 2004

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)

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 of the option grant.

Recent Accounting Pronouncements  

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment for APB Opinion No. 29". This statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS No. 153 are effective for the Company's year ending December 31, 2006. Management is currently evaluating the impact of the adoption of SFAS No. 153 on the Company's consolidated financial position, liquidity, or results of operations.

In July 2005, the FASB issued FASB Staff Position ("FSP") 150-5, "Accounting Under SFAS 150 for Freestanding Warrants and Other Similar Instruments on Redeemable Shares". FSP 150-5 clarifies that warrants on shares that are redeemable or puttable immediately upon exercise and warrants on shares that are redeemable or puttable in the future qualify as liabilities under SFAS 150, regardless of the redemption feature or redemption price. The FSP is effective for the first reporting period beginning after September 30, 2005, with resulting changes to prior period statements reported as the cumulative effect of an accounting change in accordance with the transition provisions of SFAS 150. We adopted the provisions of FSP 150-5 on July 1, 2005, which did not have a material effect on our financial statements.
 
In July 2005, the FASB issued Emerging Issues Task Force ("EITF") 05-6, "Determining the Amortization period for Leasehold Improvements Purchased After Lease Inception or Acquired in a Business Combination", which addressed the amortization period for leasehold improvements made on operating leases acquired significantly after the beginning of the lease. The EITF is effective for leasehold improvements made in periods beginning after September 29, 2005. We adopted the provisions of EITF 05-6 on July 1, 2005, which did not have a material impact to the Company’s financial position, results of operations and cash flows.
 
 
F-29
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2005 and 2004

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)
 
In September 2006, the FASB issued FASB Statement No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is a relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practices. This Statement is effective for financial statements for fiscal years beginning after November 15, 2007. Earlier application is permitted provided that the reporting entity has not yet issued financial statements for that fiscal year. Management believes this Statement will have no impact on the financial statements of the Company once adopted.

NOTE 3: STOCKHOLDERS’ EQUITY
 
The Company incorporated on November 22, 2005, at which time the Company recapitalized its accumulated deficit of $486 into additional paid-in capital.
 
In connection with a private placement in January 2006, $20,000 was received by the Company in December 2005. The shares were issued in January 2006.

NOTE 4: SUBSEQUENT EVENTS - (Unaudited)

In January 2006, the Company issued 3,500,000 shares of common stock which generated net proceeds of $315,000, after closing costs of $35,000.

In January 2006, the Company issued 15,500,000 shares for services to officers for compensation valued at $1,550,000 or fair market value of $.10 per share.

On September 1, 2006, the Company paid dividends on its preferred stock. The dividends amounted to 14,005 shares of the common stock, valued at $2,101.

In August through October 2006, the Company designated 54,000 shares as 10% Series A Convertible Preferred Stock with a par value of $0.001.
 
 
F-30
ACCELERIZE NEW MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2005 and 2004

NOTE 4: SUBSEQUENT EVENTS - (Unaudited) - continued

The holder of the Series A Preferred Stock is entitled to an accumulative 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 dated beginning September 1, 2006 in cash or shares of the Corporation’s Common Stock. If the Corporation elects to pay any dividend in shares of Common Stock, the number of shares of Common Stock to be issued to the Holder shall be an amount equal to the quotient of (i) the dividend payment divided by (ii) $0.15 per share.

The stock includes 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.

In August, September, and October 2006, the Company issued 54,000 shares of such preferred stock, which generated net proceeds of $729,000, after closing costs of $81,000.

In association with the issuance of the preferred stock, the Company also issued 810,000 warrants to purchase shares of common stock exercisable at a price of $0.15 per share to the investors. The warrants expire in September 2013.

The placement agent for the offering also received 540,000 seven year warrants to purchase shares of common stock at an exercisable price of $0.15 per share. The warrants expire in September 2013.

During December 2006, the Company entered into an Asset Purchase Agreement to acquire a substantial portion of the operating asset of The Debt Reduction Group, LLC (‘DRG”). Pursuant to the Asset Purchase Agreement, the Company will acquire the accounts receivables and substantially all intangible assets of DRG in consideration of issuing 3,500,000 shares of its common stock to the managing members of DRG as well as granting 500,000 warrants to certain of DRG’s employees which may be earned based upon certain milestones related to target revenues and operating margins covering 18 months after closing. The Company expects that the Asset Purchase Agreement will be effective in January 2007. 

During December 2006, the Company adopted a stock option plan which provides for the grants of options exercisable in up to 4,300,000 shares of its common stock.
 
F-31
 
THE DEBT REDUCTION GROUP, LLC
BALANCE SHEET
September 30, 2006
(Unaudited)
 
       
ASSETS
     
       
Current Assets:
       
Cash
 
$
61,105
 
Accounts receivable
   
6,170
 
Total current assets
   
67,275
 
         
Property and equipment, net of accumulated depreciation of $62,767
   
36,254
 
         
Other assets
   
9,015
 
         
Total assets
 
$
112,544
 
         
LIABILITIES AND MEMBERS' DEFICIT
       
         
Current Liabilities:
       
Accounts payable and accrued expenses
 
$
34,718
 
Reserve for refunds
   
70,681
 
Total current liabilities
   
105,399
 
         
Payable to former member
   
64,026
 
         
Total liabilities
   
169,425
 
         
Members' deficit
   
(56,881
)
         
Total liabilities and members' deficit
 
$
112,544
 
 
 
See Notes to Unaudited Financial Statements.
 
 
F-32

THE DEBT REDUCTION GROUP, LLC
STATEMENTS OF OPERATIONS
 
           
   
For the nine-month periods
 
   
ended September 30,
 
   
2006
 
2005
 
   
(Unaudited)
 
(Unaudited)
 
           
Net revenues
 
$
596,805
 
$
774,226
 
               
Cost of revenues
   
-
   
215,936
 
               
Gross profit
   
596,805
   
558,290
 
               
Operating expenses:
             
Selling, general and administrative
   
605,679
   
606,531
 
               
Operating loss
   
(8,874
)
 
(48,241
)
               
Other income (expense):
             
Interest expense-related party
   
(1,969
)
 
(984
)
Interest expense
   
(190
)
 
(2,922
)
     
(2,159
)
 
(3,906
)
               
Net loss
 
$
(11,033
)
$
(52,147
)
 
 
See Notes to Unaudited Financial Statements.
 
F-33
 
THE DEBT REDUCTION GROUP, INC.
STATEMENTS OF CASH FLOWS
 
           
   
For the nine-months period ended
 
   
September 30,
 
   
2006
 
2005
 
   
(Unaudited)
 
(Unaudited)
 
           
Cash flows from operating activities:
             
Net loss
 
$
(11,033
)
$
(52,147
)
Adjustments to reconcile net loss to net cash provided by (used in)
             
operating activities:
             
Depreciation
   
15,322
   
18,293
 
Changes in operating assets and liabilities:
             
Accounts receivable
   
14,600
   
(11,975
)
Other assets
   
-
   
1,000
 
Accounts payable and accrued expenses
   
(1,288
)
 
(1,781
)
Accrued interest on due to former member
   
1,969
   
984
 
Reserve for refunds
   
35,292
   
8,255
 
               
Net cash provided by (used in) operating activities
   
54,862
   
(37,371
)
               
Cash flows from financing activities:
             
Proceeds from advance payable to a related party
   
-
   
5,000
 
Principal repayments of due to former member
   
(14,583
)
 
-
 
Principal repayments capital lease obligations
   
(5,700
)
 
(16,611
)
               
Net cash used in financing activities
   
(20,283
)
 
(11,611
)
               
Net increase (decrease) in cash
   
34,579
   
(48,982
)
               
Cash, beginning of period
   
26,526
   
65,856
 
               
Cash, end of period
 
$
61,105
 
$
16,874
 
               
Supplemental disclosures of cash flow information:
             
Cash paid for taxes
 
$
-
 
$
-
 
               
Cash paid for interest
 
$
190
 
$
2,922
 
               
               
Supplemental disclosures for non-cash financing activity:
             
               
Repurchase of member interest and corresponding increase in due to former member
 
$
-
 
$
75,000
 
 
 
See Notes to Unaudited Financial Statements.
 
F-34
 
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006 and 2005
(Unaudited)

NOTE 1- ORGANIZATION AND DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Nature of Operations

The Debt Reduction Group, LLC (the "Company") was incorporated in the state of Delaware as a Limited Liability Company. The Company primarily provides sales and marketing support for debt settlement solutions offered by debt settlement agencies to consumers in the United States.

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and the footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of recurring accruals, considered for a fair presentation have been included. Operating results for the nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2006.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

The Company considers all highly-liquid debt instruments with original maturities of three months or less to be cash equivalents. There were no cash equivalents at September 30, 2006.

Revenue Recognition

The Company generates a substantial portion of its revenues from commissions fees earned from the sale and marketing of debt reduction solutions offered to consumers by a debt settlement agency. The consumers generally enter in a debt solution program with the debt settlement agency which provides for monthly payments by the consumers over a period ranging between 1 to 3 years. The commission is based on a predetermined percentage of the total compensation earned by the debt settlement agency for its services to consumers. The Company earns its fees upon payment by consumers to the debt settlement agency within the first 8 months of the debt solution program, assuming that all consumers will make all their payments.

Prior to June 2005, the Company marketed and sold the debt solutions while also implementing the solution, providing customer service, and ultimately renegotiating the consumers’ debt with their creditors. The consumers entered in a debt solution program with the Company which provided for monthly payments by the consumers over a period ranging between 1 to 3 years. The Company’s fee was a percentage of the debt renegotiated on behalf of the consumers.

During June 2005, the Company 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
 
F-35
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006 and 2005
(Unaudited)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( continued)

pays the Company a predetermined percentage of the monthly payments made by the consumers to the debt settlement agency.

The Company waits until the collection of the consumers’ monthly payments by the debt settlement agency occur before recognizing revenue because it is not yet realized or realizable until such time. Furthermore, no amount of the commission fee is fixed or determinable or collectible until the debt agency collects the monthly fee from the consumers.

The agreement between the Company and the debt settlement agency provides for a refund by the Company to the debt settlement agency for any excess of the total commission fees paid to the Company over the amount they should have receive over the actual amount earned based upon the actual amount received by the debt settlement agency from the consumers. The Company estimates such refundable amount based on historical rates, economic conditions, and other factors. The estimate of refunds is recorded as reserve for refunds. The Company recorded a reserve for refunds of approximately $71,000 at September 30, 2006.

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 that appears on its network of web sites.

Customer Concentration Risk

One of the Company’s customers, a debt reduction agency, accounted for 100% and 11% of its revenues during the nine month periods ended September 30, 2006 and 2005, respectively.   However, the Company's ultimate customers are the consumers which are referred to the debt reduction agency, none of which account for more than 10% of its revenues.

Concentration of Credit Risk

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 ("FDIC") up to $100,000. 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. As of September 30, 2006 the Company had no deposits in excess of FDIC limits.

The Company's accounts receivable are due from a debt settlement agency located in the United States. Collateral is not required. One of the Company's customers accounted for 100% of its accounts receivable during the nine month periods ended September 30, 2006 and 2005.
 
F-36
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006 and 2005
(Unaudited)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(continued)

Product Concentration

The Company generates a substantial portion of its revenues from commissions fees earned from the sale and marketing of debt solutions offered to consumers by a debt settlement agency.

Depreciation

The Company's property and equipment are depreciated using straight-line and accelerated methods over the estimated useful lives of the assets, which range between three and five years.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 reported amounts of revenues and expenses during the reporting period. Actual results will differ from those estimates.

Advertising Costs

The Company conducts non-direct response advertising. These costs are expensed as incurred. Advertising costs amounted to $287,518 and $209,868 for the nine month periods ended September 30, 2006 and 2005, respectively.

Income Tax

As a limited liability company, the Company is treated as a partnership for Federal and State income tax purposes. Under subchapter K of the Internal Revenue Code, each member is taxed separately on his distributive share of the Company’s income whether or not that income is actually distributed. Accordingly, no provision for income taxes has been recorded in the accompanying statements of operations for the nine month periods ended September 30, 2006 and 2005, respectively.

Distributions to members of the Company during the nine month periods ended September 30, 2006 and 2005, which amounted to approximately $150,000 and $104,000, respectively, were recorded as compensation for financial reporting purposes and are included in the selling, general, and administrative expenses.

Segment reporting

The Company operates in one segment, sales and marketing support for debt settlement solutions offered by debt settlement agencies to consumers in the United States. The Company’s chief
 
F-37
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006 and 2005
(Unaudited)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(continued)

operating decision-making evaluates the performance of the Company based upon revenues and expenses by functional areas as disclosed in the Company’s statements of operations.

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standard Board ("FASB") issued Statement No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements" (SFAS 154). SFAS 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. We do not believe adoption of SFAS 154 will have a material effect on our financial position, results of operations or cash flows.

In July 2005, the FASB issued FASB Staff Position ("FSP") 150-5, "Accounting Under SFAS 150 for Freestanding Warrants and Other Similar Instruments on Redeemable Shares". FSP 150-5 clarifies that warrants on shares that are redeemable or puttable immediately upon exercise and warrants on shares that are redeemable or puttable in the future qualify as liabilities under SFAS 150, regardless of the redemption feature or redemption price. The FSP is effective for the first reporting period beginning after September 30, 2005, with resulting changes to prior period  statements reported as the cumulative effect of an accounting change in accordance with the transition provisions of SFAS 150. We adopted the provisions of FSP 150-5 on July 1, 2005, which did not have a material effect on our financial statements.

In September 2006, the FASB issued FASB Statement No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is a relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practices. This Statement is effective for financial statements for fiscal years beginning after November 15, 2007. Earlier application is permitted provided that the reporting entity has not yet issued financial statements for that fiscal year. Management believes this Statement will have no impact on the financial statements of the Company once adopted.


F-38
 
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006 and 2005
(Unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(continued)

Fair value of Financial Instruments
 
The carrying value of cash and cash equivalents, accounts receivables, accounts payable and accrued expenses, and payable to former member approximate their fair value due to their short-term maturities.

NOTE 3 - ACCOUNTS RECEIVABLE

Accounts receivable are reported at net realizable value. At September 30, 2006, a provision for doubtful accounts was deemed unnecessary.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment, which are reflected at cost, consist of the following at September 30, 2006:

   
September 30,
 
   
2006
 
Furnitures and fixtures
 
$
23,569
 
Computer equipment and software
   
34,408
 
Telephone equipment
   
41,045
 
Total property and equipment
   
99,022
 
Less: accumulated depreciation
   
(62,767
)
         
Property and equipment, net
 
$
36,255
 

Depreciation expense amounted to $15,322 and $18,293 during the nine month periods ended September 30, 2006 and 2005, respectively.

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at September 30, 2006 consist primarily of trade payables.


F-39
 
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006 and 2005
(Unaudited)


NOTE 6 - LEASE COMMITMENTS

The Company leases its facility under an operating lease with a term of three years, payable in monthly installments. Total lease expense for the nine month periods ending September 30, 2006 and 2005 were $57,697 and $56,011, respectively. The future minimum annual payment under operating leases is:

 
Operating Lease
Less: Sublease
Net Lease
2007
35,548
( - )
$ 35,548

The Company leases its phone equipment under a capital lease. The capital lease provides for a monthly payment of $1,536 and expired in April 2006. The Company exercised its option to purchase the equipment for $1 during 2006.

At September 30, 2006, there was no more future minimum lease payments under capital leases.

NOTE 7 - RELATED PARTY TRANSACTIONS

During May 2005, the Company repurchased one of its member’s membership interest for $75,000. The due to former member amounted to approximately $64,000 at September 30, 2006. The due to former member matures on December 31, 2008 and bears interest at a rate of 3.5% per annum. The due to former member is payable in 36 monthly installments beginning January 2006 if the monthly and cumulative net income, as defined, is greater than $22,500. The Company paid to the former member approximately $15,000 and $0 during the nine month periods ended September 30, 2006 and 2005, respectively. The accrued interest is waived if the former member is paid by January 10, 2009. The Company recorded interest expense of approximately $2,000 and $1,000 during the nine month periods ended September 30, 2006 and 2005, respectively, in connection with the due to former member.

NOTE 8 - SUBSEQUENT EVENT

During December 2006, the Company entered into an agreement to dispose of substantially of all its operating assets and intangible assets to Accelerize New Media, Inc. (“ANM”). In consideration of the disposition of the assets, the Company received 3,500,000 shares common stock of ANM. The Company will discontinue its operating activities once the disposition occurs, which is expected to be effective in January 2007.
 
 
F-40
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Members’
The Debt Reduction Group, LLC
Los Angeles, CA
 
We have audited the accompanying balance sheet of The Debt Reduction Group, LLC as of December 31, 2005 and 2004 and the related statements of operations, members' equity (deficit) and cash flows for the years ended December 31, 2005 and 2004. 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. 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 The Debt Reduction Group, LLC as of December 31, 2005 and 2004 and the results of their operations and their cash flows for the years ended December 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.
 

/s/ Sherb & Co., LLP
Certified Public Accountants

New York, New York
December 15, 2006


F-41
 
THE DEBT REDUCTION GROUP, LLC
BALANCE SHEET
December 31, 2005
 
       
ASSETS
       
Current Assets:
       
Cash
 
$
26,526
 
Accounts receivable
   
20,770
 
Total current assets
   
47,296
 
         
Property and equipment, net of accumulated depreciation of $47,445
   
51,576
 
Other assets
   
9,015
 
         
Total assets
 
$
107,887
 
         
LIABILITIES AND MEMBERS' DEFICIT
       
         
Current Liabilities:
       
Accounts payable and accrued expenses
 
$
36,085
 
Reserve for refunds
   
35,389
 
Capitalized lease obligation- short term
   
5,622
 
Payable to former member
   
76,640
 
Total current liabilities
   
153,736
 
         
Capitalized lease obligation, net of short term portion
   
-
 
         
Total liabilities
   
153,736
 
         
Members' deficit
   
(45,849
)
         
Total liabilities and members' deficit
 
$
107,887
 
 
See Notes to Financial Statements.
 
F-42

THE DEBT REDUCTION GROUP, LLC
STATEMENTS OF OPERATIONS
 
           
   
For the Year Ended
 
   
December 31,
 
   
2005
 
2004
 
           
           
Net revenues
 
$
1,001,242
 
$
1,618,093
 
               
Cost of revenues
   
215,936
   
245,916
 
               
Gross profit
   
785,306
   
1,372,177
 
               
Operating expenses:
             
Selling, general and administrative
   
827,950
   
1,405,659
 
               
Operating income
   
(42,644
)
 
(33,482
)
               
Other income (expense):
             
Interest expense-related party
   
(1,640
)
 
-
 
Interest expense
   
(5,859
)
 
(2,868
)
     
(7,499
)
 
(2,868
)
               
Net loss
 
$
(50,143
)
$
(36,350
)
 
 
See Notes to Financial Statements.
 
 
F-43
 
THE DEBT REDUCTION GROUP, LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
From January 1, 2004 to December 31, 2005
 
 
       
Opening balance, January 1, 2004
 
$
115,644
 
Net loss
   
(36,350
)
Balance at December 31, 2004
   
79,294
 
         
Repurchase of member's interest
   
(75,000
)
Net loss
   
(50,143
)
Ending balance, December 31, 2005
 
$
(45,849
)
 
 
See Notes to Financial Statements

F-44

THE DEBT REDUCTION GROUP, LLC
STATEMENTS OF CASH FLOWS
 
           
   
For the Year Ended
 
   
December 31,
 
   
2005
 
2004
 
           
Cash flows from operating activities:
             
Net loss
 
$
(50,143
)
$
(36,350
)
Adjustments to reconcile net income to net cash provided by
             
operating activities:
             
Depreciation
   
24,391
   
18,170
 
Changes in operating assets and liabilities:
             
Accounts receivable
   
(20,770
)
 
-
 
Other assets
   
1,115
   
(7,263
)
Accounts payable and accrued expenses
   
(8,889
)
 
12,145
 
Accrued interest- due to former member
   
1,640
   
-
 
Reserve for refunds
   
35,389
   
-
 
               
Net cash used in operating activities
   
(17,267
)
 
(13,298
)
               
Cash flows used in investing activity:
             
Purchases of property and equipment
   
-
   
(35,028
)
               
Net cash used in investing activity
   
-
   
(35,028
)
               
Cash flows from financing activities:
             
Proceeds from advance from a related party
   
5,000
   
-
 
Repayment of advance from a related party
   
(5,000
)
 
-
 
Principal repayments capital lease obligations
   
(22,063
)
 
(13,365
)
               
Net cash used in financing activities
   
(22,063
)
 
(13,365
)
               
Net decrease in cash
   
(39,330
)
 
(61,691
)
               
Cash, beginning of year
   
65,856
   
127,547
 
               
Cash, end of year
 
$
26,526
 
$
65,856
 
               
Supplemental disclosures of cash flow information:
             
Cash paid for taxes
 
$
-
 
$
-
 
               
Cash paid for interest
 
$
5,859
 
$
2,868
 
               
               
Supplemental disclosures for non-cash financing activity:
             
               
Repurchase of member interest and corresponding increase in due to former member
 
$
75,000
 
$
-
 
               
Purchase of fixed assets and corresponding increase in capital lease obligations
 
$
-
 
$
41,050
 
 
 
See Notes to Financial Statements.
 
F-45
 
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2005 and 2004

NOTE 1- ORGANIZATION AND DESCRIPTION OF BUSINESS

Nature of Operations

The Debt Reduction Group, LLC (the "Company") was incorporated in the state of Delaware as a Limited Liability Company. The Company primarily provides sales and marketing support for debt settlement solutions offered by debt settlement agencies to consumers in the United States.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

The Company considers all highly-liquid debt instruments with original maturities of three months or less to be cash equivalents. There were no cash equivalents at December 31, 2005.

Revenue Recognition

The Company generates a substantial portion of its revenues from commissions fees earned from the sale and marketing of debt reduction solutions offered to consumers by a debt settlement agency. The consumers generally enter in a debt solution program with the debt settlement agency which provides for monthly payments by the consumers over a period ranging between 1 to 3 years. The commission is based on a predetermined percentage of the total compensation earned by the debt settlement agency for its services to consumers. The Company earns its fees upon payment by consumers to the debt settlement agency within the first 8 months of the debt solution program, assuming that all consumers will make all their payments.

Prior to June 2005, the Company marketed and sold the debt solutions while also implementing the solution, providing customer service, and ultimately renegotiating the consumers’ debt with their creditors. The consumers entered in a debt solution program with the Company which provided for monthly payments by the consumers over a period ranging between 1 to 3 years. The Company’s fee was a percentage of the debt renegotiated on behalf of the consumers.

During June 2005, the Company 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 pays the Company a predetermined percentage of the monthly payments made by the consumers to the debt settlement agency.

The Company waits until the collection of the consumers monthly payments by the debt settlement agency occur before recognizing revenue because it is not yet realized or realizable until such time. Furthermore, no amount of the commission fee is fixed or determinable or collectible until the debt agency collects the monthly fee from the consumers.


F-46
 
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2005 and 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The agreement between the Company and the debt settlement agency provides for a refund by the Company to the debt settlement agency for any excess of the total commission fees paid to the Company over the amount they should have receive over the actual amount earned based upon the actual amount received by the debt settlement agency from the consumers. The Company estimates such refundable amount based on historical rates, economic conditions, and other factors. The estimate of refunds is recorded as deferred revenues. The Company recorded a reserve for refunds of approximately $35,000 at December 31, 2005.

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 that appears on its network of web sites.

Customer Concentration Risk

One of the Company’s customers, a debt reduction agency, accounted for 26% of its revenues during 2005. However, the Company's ultimate customers are the consumers which are referred to the debt reduction agency, none of which account for more than 10% of its revenues. None of the Company’s customers accounted for more than 10% of the revenues during 2004.  

Concentration of Credit Risk

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 ("FDIC") up to $100,000. 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. As of December 31, 2005 the Company had no deposits in excess of FDIC limits.

The Company's accounts receivable are due from a debt settlement agency located in the United States. Collateral is not required. One of the Company's customers accounted for 100% of its accounts receivable at December 31, 2005.

Product Concentration

The Company generates a substantial portion of its revenues from commissions fees earned from the sale and marketing of debt solutions offered to consumers by a debt settlement agency.

Depreciation

The Company's property and equipment are depreciated using straight-line and accelerated methods over the estimated useful lives of the assets, which range between three and five years.

F-47
 
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2005 and 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(continued)

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 reported amounts of revenues and expenses during the reporting period. Actual results will differ from those estimates.

Advertising Costs

The Company conducts non-direct response advertising. These costs are expensed as incurred. Advertising costs amounted to $344,714 and $383,948 during 2005 and 2004, respectively.

Income Tax

As a limited liability company, the Company is treated as a partnership for Federal and State income tax purposes. Under subchapter K of the Internal Revenue Code, each member is taxed separately on his distributive share of the Company’s income whether or not that income is actually distributed. Accordingly, no provision for income taxes has been recorded in the accompanying statement of operations for the 2005 and 2004, respectively.

Distributions to members of the Company during 2005 and 2004, which amounted to approximately $383,000 and $120,000, respectively, were recorded as compensation for financial reporting purposes and are included in the selling, general and administrative expenses.

Segment reporting

The Company operates in one segment, sales and marketing support for debt settlement solutions offered by debt settlement agencies to consumers in the United States. The Company’s chief operating decision-making evaluates the performance of the Company based upon revenues and expenses by functional areas as disclosed in the Company’s statements of operations.

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standard Board ("FASB") issued Statement No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements" (SFAS 154). SFAS 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes made in fiscal
 
F-48
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2005 and 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(continued)

years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. We do not believe adoption of SFAS 154 will have a material effect on our financial position, results of operations or cash flows.

In July 2005, the FASB issued FASB Staff Position ("FSP") 150-5, "Accounting Under SFAS 150 for Freestanding Warrants and Other Similar Instruments on Redeemable Shares". FSP 150-5 clarifies that warrants on shares that are redeemable or puttable immediately upon exercise and warrants on shares that are redeemable or puttable in the future qualify as liabilities under SFAS 150, regardless of the redemption feature or redemption price. The FSP is effective for the first reporting period beginning after September 30, 2005, with resulting changes to prior period statements reported as the cumulative effect of an accounting change in accordance with the transition provisions of SFAS 150. We adopted the provisions of FSP 150-5 on July 1, 2005, which did not have a material effect on our financial statements.

In September 2006, the FASB issued FASB Statement No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is a relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practices. This Statement is effective for financial statements for fiscal years beginning after November 15, 2007. Earlier application is permitted provided that the reporting entity has not yet issued financial statements for that fiscal year. Management believes this Statement will have no impact on the financial statements of the Company once adopted.

Fair value of Financial Instruments
 
The carrying value of cash and cash equivalents, accounts receivables, accounts payable and accrued expenses, and due to former member approximate their fair value due to their short-term maturities.

NOTE 3 - ACCOUNTS RECEIVABLE

Accounts receivable are reported at net realizable value. The Company has established an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At December 31, 2005, a provision for doubtful accounts was deemed unnecessary.


F-49
 
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2005

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment, which are reflected at cost, consist of the following at December 31, 2005:

   
December 31,
 
   
2005
 
Furnitures and fixtures
 
$
23,569
 
Computer equipment and software
   
34,408
 
Telephone equipment
   
41,044
 
Total property and equipment
   
99,021
 
Less: accumulated depreciation
   
(47,445
)
         
Property and equipment, net
 
$
51,576
 

Depreciation expense amounted to approximately $24,000 and $18,000 during fiscal 2005 and 2004, respectively.

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable at December 31, 2005 consist primarily of trade payables.

NOTE 6 - LEASE COMMITMENTS

The Company leases its facility under an operating lease with a term of three years, payable in monthly installments. Total lease expense for the year ended December 31, 2005 and the year ended December 31, 2004 were $74,833 and $62,514, respectively. The future minimum annual payment under operating leases is:

 
Operating Lease
Less: Sublease
Net Lease
2006
77,087
(21,600)
$55,487
2007
35,548
( - )
$ 35,548

The Company leases its phone equipment under a capital lease. The capital lease provides for a monthly payment of $1,948 and expires in April 2006. The Company exercised its option to purchase the equipment for $1 during 2006.


F-50
 
THE DEBT REDUCTION GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2005 and 2004

NOTE 6 - LEASE COMMITMENTS-continued

At December 31, 2005, the future minimum lease payments under capital leases are as follows:

   
Capital Leases
 
       
Total minimum lease payments- 2006
 
$
5,845
 
Less: amount representing interest
   
(223
)
         
Present value of net minimum lease payments
   
5,622
 
Less: current maturities
   
(5,622
)
Total long-term obligation
 
$
-
 


NOTE 7 - RELATED PARTY TRANSACTIONS

During May 2005, the Company repurchased one of its member’s membership interest for $75,000, which is due to the former member at December 31, 2005. The due to former member matures on December 31, 2008 and bears interest at a rate of 3.5% per annum. The due to former member is payable in 36 monthly installments beginning January 2006 if the monthly and cumulative net income, as defined, is greater than $22,500. No payments were made during 2005. The accrued interest is waived if the due to former member is paid by January 10, 2009. The Company recorded interest expense of $1,640 in connection with the due to former member at December 31, 2005.

NOTE 8- SUBSEQUENT EVENT - (Unaudited)

During December 2006, the Company entered into an agreement to dispose of substantially of all its operating assets and intangible assets to Accelerize New Media, Inc. (“ANM”). In consideration of the disposition of the assets, the Company received 3,500,000 shares common stock of ANM. The Company will discontinue its operating activities once the disposition occurs, which is expected to be effective in January 2007.
 
 
F-51
PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
Our Certificate of Incorporation and By-laws provide that we are authorized to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law ("DGCL").
 
Section 145 of the DGCL permits a corporation, under specified circumstances, to indemnify its directors, officers, employees or agents against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties by reason of the fact that they were or are directors, officers, employees or agents of the corporation, if such directors, officers, employees or agents acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors, officers, employees or agents in connection with the defense or settlement of any action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant directors, officers, employees or agents are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
 
Our Certificate of Incorporation contains a provision which eliminates, to the fullest extent permitted by the DGCL, director liability for monetary damages for breaches of the fiduciary duty of care or any other duty as a director.
 
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
The estimated expenses payable by Accelerize in connection with the offering of the securities being registered are as follows:

SEC Registration and Filing Fee
 
$ 270.07
 
Legal Fees and Expenses*
 
$40,000.00
 
Accounting Fees and Expenses*
 
$42,000.00
 
Financial Printing*
 
$1,500.00
 
Transfer Agent Fees*
 
$1,500.00
 
Miscellaneous*
 
$729.93
 
TOTAL
 
$86,000.00
 
 
* Estimated
 
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
 
Following are all issuances of securities by the small business issuer during the past three years which were not registered under the Securities Act of 1933, as amended (the "Securities Act"). In each of these issuances the recipient represented that he or it was acquiring the shares for investment purposes only, and not with a view towards distribution or resale except in compliance with applicable securities laws. No general solicitation or advertising was used in connection with any transaction, and the certificate evidencing the securities that were issued contained a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. Unless specifically set forth below, no underwriter participated in the transaction and no commissions were paid in connection with the transactions.
 
10% Series A Convertible Preferred Stock
 
Between August 2006 and November, 2006 we sold an aggregate of 54,000 shares of 10% Series A Convertible Preferred Stock resulting in gross proceeds to us of $810,000. We issued the holders of the stock seven-year warrants to purchase an aggregate of 810,000 shares of our common stock at an exercise price of $0.15 per share. The shares of preferred stock are convertible into shares of our 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 Preferred Stock, subject to anti-dilution provisions in the case of stock splits, dividends or if we issue shares of our common stock or other securities convertible into shares of our common stock at an effective price less than $0.15 per share. In the event a public market is established for our common stock, the 10% Series A Preferred Stock are subject to mandatory conversion by the company upon a 30 day notice if the average closing price of our 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 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, commencing September 1, 2006.
 
Skyebanc, Inc. acted as placement agent in the transaction and were paid a commission of 10% of the total amount raised by us. In addition, we issued to Skyebanc warrants to purchase 540,000 shares of our common stock with an exercise price of $0.15 per share as compensation. The common stock underlying Skyebanc’s warrants are being registered in the registration statement of which this prospectus is a part. Skyebanc is a registered broker-dealer, and as such is considered an “underwriter” as this term is defined in the Securities Act.
 
II-2
We agreed not to issue additional debt securities in excess of $100,000 so long as the 10% Series A Convertible Preferred Stock is outstanding without the prior consent of the holders of a majority of the Series A Convertible Preferred Stock issued and outstanding.
 
We granted the Preferred Stockholders piggyback registration rights covering the common shares underlying the Series A Preferred Stock and common stock underlying warrants. We have included shares of common stock issuable upon conversion of the Preferred Stock, as well as the shares of common stock issuable upon the exercise of the warrants, in the registration statement of which this prospectus is a part in satisfaction of those piggy-back registration rights.
 
Common Stock
 
Between January 1, 2006 and January 31, 2006 we sold an aggregate of 3,500,000 shares of common stock for $0.10 per share, resulting in gross proceeds to us of $350,000. There were no options or warrants were associated with this common stock offering. There was no placement agent involved with this offering.  On and before January 1, 2006 we issued a total of 15,500,000 shares of common stock $0.001 par value to founders and consultants for services rendered.
 
Exemptions

All of the above issuances were deemed to be exempt under Regulation D and Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of ours or our executive officers, and transfer was restricted by us in accordance with the requirements of the Securities Act.

 

II-3
 
ITEM 27. EXHIBITS.
 
Exhibit
Number
 
Description
 
2
 
Asset Purchase Agreement by and Between the Registrant and The Debt Reduction Group Inc., dated December 15, 2006.
 
3.1
 
Certificate of Incorporation dated November 22, 2005, as amended by Certificate of Designation dated August 8, 2006 and Certificate of Designation dated December 20, 2006
 
3.2
 
Bylaws
 
4.1
 
Form of Common Stock Certificate
 
4.2
 
Form of Preferred Stock Certificate  
4.3
 
Form of Warrant
 
5
 
Form of Legal Opinion of Sullivan & Worcester LLP
 
10.1
 
Accelerize New Media Inc. Stock Option Plan adopted December 15, 2006
 
10.2
 
Employment Agreement effective as of January 1, 2007 between the Registrant and Brian Ross
 
10.3
 
Employment Agreement effective as of January 1, 2007 between the Registrant and Chris Meredith
 
23.1
 
Consent of Sherb & Co., LLP
 
23.2
 
Consent of Sullivan & Worcester LLP (included in Exhibit 5)
 
24
 
Power of Attorney (included on the signature page hereof)
 

 

II-4
 
ITEM 28. UNDERTAKINGS.
 
The small business issuer will:

(1)   File, during any period in which it offers or sales securities, a post-effective amendment to this registration statement to:
 
(i)   Include any prospectus required by Section 10(a)(3) of the Securities Act;
 
(ii)   Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
 
(iii)   Include any additional or changed material information to the plan of distribution.
 
(2)   For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
 
(3)   File a post-effective amendment to remove from registration any of the securities that remain unsold at then end of the offering.
 
(4)   That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

Each prospectus filed by the Registrant pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however , that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

II-5
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933, may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
 
In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

 
SIGNATURES
 
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Whitefish, State of Montana on December 21, 2006.
 
Accelerize New Media, Inc.
 
By:  /s/ Brian Ross
Brian Ross
President, Chief Executive Officer, Treasurer, Secretary, Director,
Principal Executive Officer and Principal Accounting Officer

 
POWER OF ATTORNEY
 
The undersigned directors and officers of Accelerize New Media Inc. hereby constitute and appoint Brian Ross, with full power to act without the other and with full power of substitution and resubstitution, our true and lawful attorneys-in-fact with full power to execute in our name and behalf in the capacities indicated below any and all amendments (including post-effective amendments and amendments thereto) to this registration statement under the Securities Act of 1933 and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and hereby ratify and confirm each and every act and thing that such attorneys- in-fact, or any them, or their substitutes, shall lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.  
 
Signature
 
Title
 
Date
 
/s/ Brian Ross
Brian Ross
President, Chief Executive Officer, Treasurer,
Secretary and Director (Principal Financial Officer)
 
12/21/06
     
/s/ Chris Meredith
Chris Meredith
Chief Technology Officer and Director
 
12/21/06  

 
II-6
 

Exhibit 2

EXECUTION COPY
 
ASSET PURCHASE AGREEMENT
 
by and among
 
DEBT REDUCTION GROUP, LLC,
 
(“ Seller ”)
 
DAMON STEIN,
 
and
 
FACILITY CONSULTING, LLC
 
(together, the “ Principals ”)
 
and
 
ACCELERIZE NEW MEDIA, INC.
 
(“ Buyer ”)

 

 
Dated as of December 15, 2006
 


SCHEDULES AND EXHIBITS

Schedule A
 
-
 
Domain Names and Acquired Assets
 
Schedule 1.2
 
-
 
Transferred Contracts
 
Schedule 1.3
 
-
 
Options
 
Schedule 3.3
 
-
 
Allocation of Purchase Price
 
Schedule 5.3
 
-
 
Absence of Changes
 
Schedule 5.6
 
-
 
Material Contracts
 
Schedule 5.7
 
-
 
Permits
 
Schedule 5.8
 
-
 
No Conflict of Violation; Consents and Approvals
 
Schedule 5.9
 
-
 
Financial Statements
 
Schedule 5.10
 
-
 
Litigation
 
Schedule 5.12
 
-
 
Intellectual Property
 
Schedule 5.17
 
-
 
Customers
 
Schedule 5.18
 
-
 
Insurance
 
Schedule 5.19
 
-
 
Employees
 
Schedule 5.22
 
-
 
Bank Accounts
 
Exhibit 1.3(a)
 
-
 
Form of Non-Qualified Option Agreement
 
Exhibit 4.2(a)(i)
 
-
 
Bill of Sale
 
Exhibit 4.2(a)(ii)
 
-
 
Assignment and Assumption Agreement
 
Exhibit 4.2(a)(iii)
 
-
 
Domain Name Transfer Agreement
 
Exhibit 4.2(a)(iv)
 
-
 
Assignment of Intellectual Property
 
Exhibit 4.2(a)(v)
 
-
 
Stein Employment Agreement
 
Exhibit 4.2(a)(vi)
 
-
 
Goldberg Consulting Contract
 
 

ASSET PURCHASE AGREEMENT
 
This ASSET PURCHASE AGREEMENT, dated as of December 15, 2006 (this “ Agreement ”), is by and among THE DEBT REDUCTION GROUP, LLC, a Delaware limited liability company (“ Seller ”), FACILITY CONSULTING, LLC, a Nevada limited liability Company (“ FC ”), DAMON STEIN (“ Stein or together with FC, the “ Principals ”), on the one hand, and ACCELERIZE NEW MEDIA, INC., a Delaware corporation (“ Buyer ”), on the other hand. The Principals and Seller are hereinafter collectively referred to as the “ Selling Parties ”. Capitalized terms used in this Agreement and not otherwise defined have the meanings set forth in Section I.
 
RECITALS
 
WHEREAS, in the manner described herein and subject to the terms and conditions set forth herein, Buyer desires to purchase from Seller (subject to the assumption by Buyer of certain specifically enumerated Liabilities), and Seller desires to sell to Buyer (subject to the assumption by Buyer of such specifically enumerated Liabilities), the business, assets, properties and the goodwill associated with the foregoing, which constitute Seller’s internet marketing business, which is the business of identifying debt and mortgage leads from forms hosted on its network of sites and selling such leads to third parties or delivering them to independent contractors for processing in connection with Seller’s contracts with DebtXS, LP (collectively, the “ Business ”); and
 
WHEREAS, Daniel Goldberg (“ Goldberg ”) joins this Agreement for the sole purpose of guaranteeing the obligations of FC under this Agreement as set forth in Section 12.8.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements of the parties contained herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
 
SECTION I
DEFINITIONS
 
1.1.   Defined Terms . As used herein, the terms below shall have the following meanings. Any of such terms, unless the context otherwise requires, may be used in the singular or plural, depending upon the reference.
 
“ Acquired Assets ” means all of the right, title and interest in and to the business, properties, assets and rights of any kind, whether tangible or intangible, real, personal or mixed (wherever located), used primarily in connection with the Business that are owned by Seller or in which Seller has any direct or indirect interest, including, without limitation, all of Seller’s right, title and interest in and to the following:
 
(a)   all accounts receivable of Seller, arising in the ordinary course of the Business and outstanding on the Closing Date;
 
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(b)   all domain names listed on Schedule A hereto (the “ Domain Names ”);
 
(c)   all Transferred Contracts;
 
(d)   all Fixtures and Equipment;
 
(e)   all information and records relating to the debt and mortgage leads identified through Seller’s website including but not limited to the database of email information;
 
(f)   all Intellectual Property;
 
(g)   all Permits;
 
(h)   all supplies, sales literature, promotional literature, art work, display units, telephone and fax numbers and purchasing records relating to the Business;
 
(i)   all Claims against any Person or entity in respect of the Business, including, but not limited to breach of contract or other claims resulting from breaches or defaults under any of the Transferred Contracts prior to Closing;
 
(j)   (i) all records and lists pertaining to the Business or the Acquired Assets (including all manuals and service and maintenance records pertaining to the Fixtures and Equipment), (ii) all records and lists pertaining to the customers, suppliers or personnel of the Business, (iii) all product, business and marketing plans of the Business and (iv) all books, ledgers, files, reports, plans, drawings and operating records of every kind maintained by Seller and used primarily in connection with the Business, but excluding the originals of Seller’s minute books, stock ledgers and Tax Returns;
 
(k)   all assets (other than the Excluded Assets) reflected on the Balance Sheet relating to the Business that have not otherwise been sold or transferred in the ordinary course; and
 
(l)   all goodwill in the Business.
 
Notwithstanding the foregoing, the Acquired Assets shall not include any of the Excluded Assets.
 
“Action” means any action, Claim, suit, litigation, proceeding or investigation.
 
“Affiliate” means any Person that directly or indirectly controls, is controlled by, or is under common control with, a party.
 
“Ancillary Agreements” means any and all documents and agreements by and between Buyer and Selling Parties required to be executed and delivered in connection with the transaction contemplated hereunder, including the Bill of Sale, Assignment and Assumption Agreement, Domain Name Transfer Agreement, Assignment of Intellectual Property, Stein Employment Agreement and the Goldberg Consulting Contract.
 
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“Balance Sheet” means the audited balance sheet of Seller as of September 30, 2006, attached hereto as part of Schedule 5.9 which has been prepared in accordance with GAAP and consistent with past practice.
 
“Business Day” shall mean any weekday other than a weekday on which the banks in New York, New York are authorized or required to be closed.
 
“Claim” means any claim, demand, cause of action, chose in action, right of recovery or right of set-off of whatever kind or description against any Person.
 
“Client Acquisition Agreement” means that certain Client Acquisition Agreement effective as of June 20, 2005 by and among Seller and Debt XS, LP.
 
“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
 
“Code” means the U.S. Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.
 
“Contracts” means all written or oral agreements and contracts to which Seller or the Business is a party or is bound, excluding the Ancillary Agreements and this Agreement.
 
“Disclosure Schedule” means the disclosure schedule delivered by Seller to Buyer on the date hereof which sets forth, among other things, certain exceptions to the representations and warranties contained in Section V hereof. Each reference in this Agreement to any numbered schedule is a reference to that numbered schedule in the Disclosure Schedule.
 
“Employees” means the employees of Seller who are employed in the Business.
 
“Encumbrance” means any lien, pledge, charge, easement or other security interest.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.
 
“Excluded Assets” means the following assets of Seller and its Affiliates, which, notwithstanding any other provision of this Agreement, are expressly excluded from the Acquired Assets and are not to be acquired by Buyer pursuant to this Agreement:
 
(a)   all of Seller’s rights and remedies pursuant to this Agreement and the Ancillary Agreements;
 
(b)   all Tax Returns and records and any rights to Tax refunds or credits and current and deferred Tax assets,
 
(c)   any Contracts which are not assigned to Buyer;
 
(d)   the Lease and the Sublease and all deposits issued or collected in connection therewith;
 
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(e) the Money Market Funds; and
 
(f) any Online Marketing Refunds or Credits.
 
“Financial Statements” means, collectively, (a) the Balance Sheet and (b) the Income Statement, copies of which are attached as Schedule 5.9.
 
“Fixtures and Equipment” means all of the equipment, computers and other information technology equipment, phone systems, furniture, fixtures, furnishings, supplies and other tangible personal property located at the Seller Real Property and used in connection with the Business. For the avoidance of doubt, Fixtures and Equipment includes all of the tangible personal property located at the Seller Real Property but excludes Excluded Assets.
 
“GAAP” means United States generally accepted accounting principles.
 
“Governmental Authority” means any court, government (federal, state, local, foreign or multinational) or other regulatory, administrative or governmental agency or authority, including, without limitation, those of the federal government and any governmental subdivision of the United States.
 
“Governmental Order” means any judgment, decision, consent decree, injunction, ruling, writ or order of or entered by any Governmental Authority that is binding on any Person or its property under applicable Law.
 
“Income Statement” means the audited, income statement of Seller for the nine months ending September 30, 2006, attached hereto as part of Schedule 5.9 which has been prepared in accordance with GAAP and consistent with past practice.
 
“Income Taxes” means all taxes (including franchise taxes), charges, fees, levies or other assessments imposed by any Taxing Authority and based on or measured solely with respect to net income or profits, including any interest, penalties or additions attributable or imposed with respect thereto.
 
“Intellectual Property” means all assumed fictional business names, trade names, registered and unregistered trademarks, service marks and applications, common law trademarks, patents, patent applications and inventions and discoveries that may or may not be patentable, all registered and unregistered copyrights in both published works and unpublished works, all rights in mask works, all know-how, trade secrets, confidential or proprietary information, customer lists, Software, technical information, data, process technology, plans, drawings and blue prints, all rights in internet web sites and internet domain names, owned or licensed by any Selling Party and used primarily in connection with, and which relate primarily to, the Business.
 
“IRS” means the Internal Revenue Service.
 
“Laws” means any laws, statutes, ordinances, regulations, rules, court decisions and orders of any Governmental Authority.
 
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“Lease” means that certain lease between Maram Holdings LLC, as landlord, and Seller, as tenant, dated January 27, 2004, and relating to the Seller Real Property.
 
“Liabilities” means any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any Person of any type, whether, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including without limitation those Liabilities, indebtedness and obligations arising under any Laws, Action, threatened Action, Governmental Order or any award of any arbitrator of any kind, and those arising under any contract, agreement, commitment or undertaking.
 
“Losses” means, in respect of the indemnification obligations of any party pursuant to this Agreement, any and all actual costs, losses, Liabilities, obligations, damages, deficiencies and other reasonable out-of-pocket expenses, including without limitation interest, penalties, reasonable attorneys’ fees and all amounts paid in investigation, defense or settlement of Actions relating to Losses.
 
“Material Adverse Effect” means any effect or change that is or would reasonably be expected to be material and adverse to the Acquired Assets or the financial condition, or results of operations of the Business.
 
“Money Market Funds” shall mean all amounts held at Closing in that certain account in the name of Seller atBank of America bearing the account number 02189-04409.
 
“Multiemployer Plan" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA.
 
“Non-Qualified Stock Options” means options to purchase the Buyer’s common stock issued in the amounts and to the individuals as set forth on Schedule 1.3, in the form attached hereto as Exhibit 1.3(a) .
 
“Online Marketing Refunds or Credits” means any and all refunds or credits issued to seller from or by Yahoo, Overture, Google, Ask.com, or any other online marketing partners from marketing activity that took place on or prior to November 29, 2006. These refunds or credits may be in the form of cash, checks, or credits to credit cards (American Express or Chase) or credits to online marketing partner accounts.
 
“Options” means options to purchase the Buyer’s common stock.
 
“Order” means any order, injunction, judgment, decree, ruling, assessment or arbitration award of any Governmental Authority or arbitrator.
 
“ordinary course of business” or “ordinary course” or any similar phrase means the ordinary course of the Business, consistent with Seller’s past practice in operating the Business.
 
“Other Tax” or “Other Taxes” means all taxes, charges, levies, fees or other assessments, including, but not limited to, transfer, gross receipt, sales, use, service, occupation, ad valorem, property, payroll, personal property, excise, severance, premium, stamp, documentary, license, registration, social security, employment, unemployment, disability, environmental (including taxes under Section 59A of the Code), add-on, value-added, withholding (whether payable directly or by withholding and whether or not requiring the filing of a Tax Return therefor), commercial rent and occupancy taxes, and any estimated taxes, deficiency assessments, interest, penalties and additions to tax or additional amounts in connection therewith, imposed by any Taxing Authority, but specifically excluding Income Taxes.
 
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“Permits” means, collectively, all licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any Governmental Authority required in connection with the operation of the Business as presently conducted or in the ownership of the Acquired Assets.
 
“Permitted Tax Lien” shall mean (a) any lien securing the payment of Taxes which are either not delinquent or being contested in good faith by appropriate proceedings and (b) any lien for Taxes not yet due and payable.
 
“Person” means an individual, a partnership, a corporation, a limited liability company, a trust, an unincorporated organization, a government or any department or agency thereof or any other entity.
 
“Plan” means any employee pension benefit plan, as defined in Section 3(2) of ERISA, other than a Multiemployer Plan, any employee welfare benefit plan, as defined in Section 3(1) of ERISA, and any other written (and to the extent it provides material compensation or benefits, unwritten) agreement, plan, program, fund, policy, contract or arrangement providing compensation, pension, retirement, profit sharing, stock bonus, stock option, stock purchase, phantom or stock equivalent, bonus, deferred compensation, hospitalization, medical, dental, vision, vacation, life insurance, death benefit, sick pay, disability, severance, educational assistance, holiday pay, housing assistance, moving expense reimbursement or material fringe benefits to any Employee or the beneficiaries and dependents of any Employee, regardless of whether it is mandated under local law, voluntary, private, funded, unfunded, financed by the purchase of insurance, contributory or non-contributory; provided, however, that any governmental plan or program requiring the mandatory payment of social insurance taxes or similar contributions to a governmental fund with respect to the wages of an Employee shall not be considered a “Plan” for these purposes.
 
“Reasonable Efforts” means the efforts that a prudent Person wanting to achieve the result in question would take and that are commercially reasonable under similar circumstances to achieve that result as expeditiously as reasonably possible.
 
“Representative” means, with respect to any Person, any officer, director, principal, attorney, agent, employee or other authorized representative of such Person.
 
“Retained Liabilities” means all Liabilities of Seller other than the Assumed Liabilities, including, without limitation, the following:
 
(a)   any Liabilities of Seller for Taxes;
 
(b)   any Liabilities under Plans;
 
6
(c)   any Liabilities for legal, accounting, audit and investment banking fees, broker commissions and any other expenses incurred by Seller or any affiliate in connection with the negotiation or preparation of this Agreement and the transactions contemplated hereby;
 
(d)   any Liabilities for, or related to, indebtedness for borrowed money, other than with respect to the Assumed Liabilities;
 
(e)   any Liabilities to the extent they relate to the Excluded Assets (except with respect to the Lease and the Sublease);
 
(f)   all Liabilities relating to the Business or the Acquired Assets (or any other assets, properties, rights or interests associated, at any time prior to Closing, with the Business or the Acquired Assets), to the extent based on events or conditions occurring or existing prior to Closing and connected with, arising out of or relating to any dispute regarding services rendered;
 
(g)   any Liabilities to be paid or performed in respect of any Contract not included among the Transferred Contracts (except with respect to the Lease and the Sublease);
 
(h)   all Liabilities relating to are arising as a result of the failure of Seller to carry workers’ compensation insurance or to ensure that its independent contractors carry such insurance.
 
(i)   all Liabilities with respect to any fines or penalties imposed by any Governmental Authority arising out of the operation of the Business prior to the Closing Date; and
 
(j)   any Liabilities relating to any pending legal proceedings against Seller or any Affiliates of Seller or relating to the Business, including, without limitation, lawsuits, administrative agency proceedings, and demand letters threatening legal action.
 
“Seller Real Property” means Seller’s leasehold interest in the real property of the Business located at 12121 Wilshire Blvd., Suite 322, Los Angeles, CA 90025 together with all of Seller’s right, title and interest in improvements located thereon, and all rights, privileges, easements, hereditaments and appurtenances belonging to or for the benefit of such real property.
 
“Shares” means the Shares of Buyers common stock which constitute the Closing Share Payment.
 
“Software” means all computer software and subsequent versions thereof, including source code, object, executable or binary code, objects, comments, screens, user interfaces, report formats, templates, menus, buttons and icons and all files, data, materials, manuals, design notes and other items and documentation related thereto or associated therewith.
 
“Sublease” means that certain Sublease dated January 1, 2006 between Seller as Sublessor and Eden Tree Technologies, Inc., as Sublessee.
 
“Sublessee” means Eden Tree Technologies, Inc., the Sublessee under the Sublease.
 
7
“Tax” or “Taxes” means Income Taxes and Other Taxes.
 
“Taxing Authority” means any Governmental Authority (domestic or foreign) responsible for the imposition of any Tax or exercising Tax regulatory authority.
 
“Tax Return” means any return, report or similar statement or form required to be filed with respect to any Tax (including any attached schedules and related or supporting information), including without limitation any information return, claim for refund, amended return or declaration of estimated Tax.
 
“Tenant Improvement Settlement Agreement” means that certain letter agreement dated as of September 23, 2006 between Seller and Maram Holdings, LLC.
 
“Tier 1 DRG Performance Target” means aggregate revenues of $1,100,000 and aggregate Gross Profit of $330,000 produced by the Business in the Earn-out Period.
 
“Tier 2 DRG Performance Target” means aggregate revenues of $1,000,000 and aggregate Gross Profit of $300,000 produced by the Business in the Earn-out Period.
 
“Tier 3 DRG Performance Target” means aggregate revenues of $900,000 and aggregate Gross Profit of $270,000 produced by the Business in the Earn-out Period.
 
“Transferred Contracts” means the Contracts listed on Schedule 1.2.
 
1.2.   Other Defined Terms .   The following terms shall have the meanings defined for such terms in the Sections set forth below:
 
Term
Section
Accounting Firm
3.1(c)(ii)
Agreement
Preamble
Arbitration Act
13.12(b)(ii)
Arbitration Rules
13.12(b)(ii)
Assignment and Assumption Agreement
4.2(b)(ii)
Assignment of Intellectual Property
4.2(a)(iv)
Assumed Liabilities
2.3
Bill of Sale
4.2(a)(i)
Business
Recitals
Buyer
Preamble
Claim Notice
12.4(d)
Closing
4.1
Closing Date
4.1
Closing Share Payment
3.1
Dispute
13.12(a)
Domain Names
1.1 under Acquired Assets
Earn-out Dispute Notice
3.1(c)(i)
Earn-out Warrants
3.1(a)
Earn-out Period
3.1(a)
 
8
Earn-out Statement
3.1(c)(i)
Estoppel Certificate(s)
8.1(b)
FC
Preamble
Goldberg
Preamble
Goldberg Consulting Contract
4.2(a)(vi)
Gross Profit
3.1(c)
Hold Back
3.2(a)
Hold Back Termination Date
3.2(b)
Investment Event
10.3(a)
Liquidation Documents
8.1(i)
Material Contracts
5.6(a)
Principals
Preamble
Purchase Price
3.1
Repurchase Right
10.3(b)
Repurchase Notice
10.(b)
Securities Act
5.24
Seller
Preamble
Selling Parties
Preamble
Stein
Preamble
Stein Employment Agreement
4.2(a)(v)
Transferred Persons
11.1
Trigger
10.3(b)
 
SECTION II
PURCHASE AND SALE; ASSUMPTION
 
2.1.   Purchase and Sale of Acquired Assets . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase and acquire from Seller, all of the Acquired Assets, free and clear of all Encumbrances.
 
2.2.   Excluded Assets . Notwithstanding anything to the contrary contained in this Agreement, the Acquired Assets shall not include, and in no event shall Buyer acquire any right, title, benefit or interest in, to or under, any of the Excluded Assets. If there are any Online Marketing Refunds or Credits Buyer will promptly issue a check to Seller in an amount equal to the Online Marketing Refunds or Credits.
 
2.3.   Assumption of Liabilities . Upon the terms and subject to the conditions set forth in this Agreement at the Closing, Buyer shall assume, pay, perform and discharge in due course the following (and only the following) Liabilities (the “ Assumed Liabilities ”):
 
(a)   All Liabilities of Seller with respect to the Lease, Sublease and the Tenant Improvement Settlement Agreement that arise from and after the Closing Date;
 
(b)   all Liabilities of Seller with respect to the performance of the Transferred Contracts to the extent accruing after Closing and not related to a breach by Seller prior to Closing (except for those Retained Liabilities with respect to the Client Acquisition Agreement);
 
9
(c)   the payment of up to $150.00 per month per space for parking spaces for Goldberg, Stein and Phil Cefalu, for so long as each of the aforementioned individuals is employed by or consulting for Buyer;
 
(d)   all Liabilities of Seller with respect to the American Express and Chase credit cards held by Stein and Goldberg accruing from December 2006 forward. For the avoidance of doubt, Seller shall be responsible for paying the statements for each card in full with a payment due date in December 2006. Buyer is responsible for payment of all statements with a payment due date in January, 2007 and all statements thereafter.  
 
(e)   monthly cell phone bills of Goldberg and Stein for as long as each is a full-time employee (as defined in their respective consulting and employment agreements).
 
IN NO EVENT SHALL THE ASSUMPTION BY BUYER OF THE ASSUMED LIABILITIES IMPEDE BUYER’S RIGHT TO SEEK INDEMNIFICATION FROM SELLER WITH RESPECT TO ANY CLAIM OR LIABILITY CONSTITUTING A BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY SELLER HEREUNDER.
 
Buyer shall take, or cause to be taken, all actions necessary to cause the assumption on the Closing Date by Buyer of the Assumed Liabilities, including without limitation the execution and delivery at the Closing of the Assignment and Assumption Agreement.
 
2.4.   Retained Liabilities . Seller shall remain responsible for all Retained Liabilities.
 
SECTION III
PURCHASE PRICE AND ADJUSTMENTS
 
3.1.   Purchase Price . The aggregate purchase price for the Acquired Assets (the “ Purchase Price ”) shall be an amount equal to and payable in (i) 3,500,000 shares of common stock, $0.001 par value, of the Buyer (the “ Closing Share Payment ”), plus (ii) the Earn-out Warrants (defined below), plus (iii) the assumption of the Assumed Liabilities.
 
The Parties agree that, on the Closing Date, the Shares have a value of $.03 per share.
 
(a)   Earn-out Warrants . As part of the Purchase Price for the sale of the Acquired Assets, the Buyer shall issue to Seller 500,000 Warrants (the “ Earn-out Warrants ”) which shall vest if, and only if, at the end of the eighteen (18) month period from the Closing Date (the “ Earn-out Period ”), either the Tier 1 DRG Performance Target, Tier 2 DRG Performance Target or Tier 3 DRG Performance Target has been met.
 
(b)   Performance Targets . For purposes of Section 3.1(a):
 
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(i) If the Tier 1 DRG Performance Target is met, all 500,000 Earn-out Warrants shall vest.
 
(ii) If the Tier 2 DRG Performance Target is met, only 450,000 Earn-out Warrants shall vest.
 
(iii) If the Tier 3 DRG Performance Target is met, only 400,000 Earn-out Warrants shall vest.
 
(c)   For purposes of Section 3.1(b) “ Gross Profit ” means revenues of the Business minus expenses of the Business (including but not limited to taxes and amortization but specifically excluding the salary expense of Goldberg and Stein under their respective contracts referred to in Section 4.2).
 
(i) Within 60 days after end of each calendar quarter, beginning on the first calendar quarter end after the Closing Date, Buyer shall furnish to Seller a statement of the revenues and Gross Profit of the business (the “ Earn-out Statement ”) for the prior quarter; provided however that the Earn-out Statement for the first calendar quarter end shall only contain revenues and Gross Profit from the Closing Date to such calendar quarter end and the Earn-out Statement for the last calendar quarter in the Earn-out Period shall contain only revenue and Gross Profit from the start of such quarter to the end of the Earn-out Period. The Earn-out Statement delivered by Buyer to Seller shall be deemed to be final, binding and conclusive on the parties unless Seller notifies Buyer in writing (an “ Earn-out Dispute Notice ”) of a dispute of any amounts reflected on the Earn-out Statement within 15 days after Seller’s receipt of such Earn-out Statement. The Earn-out Dispute Notice shall state in reasonable detail the basis for Seller’s objection. In the event of such a dispute, Sellers and Buyer shall resolve such dispute in accordance with the provisions of Section 13.12 of this Agreement.
 
(ii) Within 30 days after receiving the Earn-out Statement for the entire Earn-out Period, Seller shall be permitted to appoint an accounting firm which is mutually agreeable to the parties (the “ Accounting Firm ”) to review and audit the work papers, and other supporting documentation as may be reasonably requested, of Buyer and Buyer’s accountants relating to the calculation of revenues and Gross Profit. The Accounting Firm shall have full access to all relevant books and records and employees of Buyer to the extent required to complete its review of the calculation of revenues and Gross Profit. The costs and expenses of such third-party auditor shall be borne by Seller unless (i) Buyer’s calculation of revenues and Gross Profit was more than 5% off the actual revenues and Gross Profit as finally agreed by Buyer or determined pursuant to Section 13.12, or (ii) Buyer’s calculation of revenues and Gross Profit was off by less then 5%, but the actual revenues and Gross Profit numbers cause Seller to meet any of the DRG Performance Targets, in which case such costs and expenses shall be borne by Buyer.
 
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(d)   The Buyer covenants that in order to aid in the achievement of any of the DRG Performance Targets, Buyer shall spend $45,000 on a paid search initiative each month following Closing, for the duration of the Earn-Out Period.
 
(e)   The Board of Directors maintains the right to issue Earn-Out Warrants to seller if in its opinion seller performance warrants the issuing of the options, even if performance targets are not met.
 
3.2.   Hold Back .
 
(a)   At Closing, fifty percent (50%) of the Closing Share Payment (the “ Hold Back ”) will be held by Buyer for a period of twelve (12) months from Closing to be set off against Losses, if any, incurred by Buyer arising from breaches of representations, warranties, covenants or agreements, as described in Section 12.4.
 
(b)   On or promptly after the close of business on the twelve month anniversary of the date of the Closing (the “ Hold Back Termination Date ”) the Hold Back (subject to any set-off per Section 3.2(a) above) shall be disbursed to Seller and/or the Principals, as the case may be; provided, however , that, to the extent necessary, a portion of the Hold Back necessary to satisfy any unsatisfied claims made known to Seller pursuant to the terms of this Agreement and prior to the Hold Back Termination Date shall remain in the Buyer’s possession until such claims have been resolved.
 
(c)   If any of the shares comprising the Hold Back are used to set-off against Losses pursuant to the provisions of this Section and Section 12.4, such shares shall be valued at their fair market value on the date of such set-off.
 
3.3.   Allocation of Consideration . The Purchase Price shall be allocated among the Acquired Assets for purposes of Tax Code Section 1060, as set forth on Schedule 3.3 . Except as otherwise required by Laws, Buyer and Seller agree to be bound by such allocation and to complete and attach IRS Form 8594 to their respective Tax Returns accordingly. In any proceeding related to the determination of any Tax, neither Buyer nor Seller shall contend or represent that such allocation is not a correct allocation. no Party shall make any written statements or take any position inconsistent with the allocation on any Tax Return, in any refund claim, during the course of any IRS audit or other Tax audit, for any financial or regulatory purpose, in any litigation or investigation or otherwise. Each Party shall notify the other Party in writing if it receives notice that the IRS or other governmental agency proposes any allocation different than that agreed upon pursuant to this Section 3.3.
 
SECTION IV
CLOSING
 
4.1.   Closing . The closing of the transactions contemplated herein (the “ Closing ”) shall occur at 10:00 a.m. EST on January 1, 2007 or the date which is one (1) Business Day following the day on which all of the conditions to Closing set forth in Section VIII hereof have been satisfied or waived, or such other date as Selling Parties and Buyer may mutually agree in writing (the “ Closing Date ”).
 
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4.2.   Deliveries at Closing .
 
(a)   To effect the transactions contemplated hereby, Seller shall, on or before the Closing Date, deliver or cause to be delivered to Buyer or Buyer’s counsel at the address set forth in Section 13.2 (unless previously delivered):
 
(i) one or more bills of sale in form reasonably acceptable to Buyer, executed by Seller and conveying all of the tangible personal property included in the Acquired Assets to Buyer in substantially the form attached hereto as Exhibit 4.2(a)(i) (the “ Bill of Sale ”);
 
(ii) an assignment and assumption agreement executed by Seller assigning the Transferred Contracts and the Assumed Liabilities to Buyer in substantially the form attached hereto as Exhibit 4.2(a)(ii) (the “ Assignment and Assumption Agreement ”);
 
(iii) an assignment of domain names executed by Seller and assigning all of Seller’s rights, title and interest in and to the Domain Names to Buyer in substantially the form attached hereto as Exhibit 4.2(a)(iii) (the “ Domain Name Transfer Agreement ”);
 
(iv) an assignment document executed by Seller and assigning the Intellectual Property to Buyer (which shall in any case be in recordable form to the extent necessary to assign such rights) in substantially the form attached hereto as Exhibit 4.2(a)(iv) (the “ Assignment of Intellectual Property ”);
 
(v) an employment agreement between Buyer and Stein in substantially the form of Exhibit 4.2(a)(v) (“ Stein Employment Agreement ”); executed by Stein;
 
(vi) a Consulting Contract between the Buyer and Goldberg in substantially the form of Exhibit 4.2(a)(vi) (“ Goldberg Consulting Contract ”); executed by Goldberg;
 
(vii) evidence that Seller has changed its name along with a consent to use the name “The Debt Reduction Group” executed by Seller on behalf of Buyer;
 
(viii) certified copies of Seller’s certificate of formation and operating agreement;
 
(ix) certificates of good standing of Seller, issued not earlier than 30 days prior to the Closing Date, by the Secretary of State of Delaware;
 
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(x) an incumbency and specimen signature certificate dated as of the Closing Date with respect to the officers of Seller executing this Agreement and each Ancillary Agreement to which Seller is a party;
 
(xi) copies of the resolutions and other requisite limited liability company actions authorizing the execution and delivery of this Agreement and the other documents and instruments to be executed and delivered pursuant to this Agreement, and the consummation by Seller of the transactions contemplated in such agreements, documents and instruments, which copies have been certified by an authorized officer of Seller and dated as of the Closing Date;
 
(xii) a certificate dated as of the Closing Date and duly executed by an authorized officer of Seller certifying that (i) Seller has complied with all agreements and obligations required by this Agreement to have been performed or complied with by it prior to the Closing, and (ii) the representations and warranties made by Seller hereunder are true at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date;
 
(xiii) where required, consents to the assignment of the Transferred Contracts;
 
(xiv) such other instruments executed by the relevant Selling Party as shall be reasonably requested by Buyer to consummate the transactions contemplated by this Agreement.
 
(b)   To effect the transactions contemplated hereby, Buyer shall, on or before the Closing Date, deliver or cause to be delivered to Seller or Seller’s counsel at the address set forth in Section 13.2 (unless previously delivered):
 
(i) the Closing Share Payment (minus the Hold Back);
 
(ii) the Non-Qualified Stock Options;
 
(iii) the Earn-out Warrants;
 
(iv) executed counterparts to each of the Ancillary Agreements;
 
(v) certified copies of Buyer’s articles of incorporation and bylaws;
 
(vi) a certificate of good standing of Buyer, issued not earlier than 30 days prior to the Closing Date, by the Secretary of State of Delaware;
 
(vii) an incumbency and specimen signature certificate with respect to the officers of Buyer executing this Agreement and each Ancillary Agreement to which Buyer is a party;
 
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(viii) copies of the resolutions and other requisite corporate actions of the Board of Directors of Buyer authorizing the execution and delivery of this Agreement and each Ancillary Agreement pursuant to this Agreement, and the consummation by Buyer of the transactions contemplated by such Agreements, which copies have been certified by the secretary of Buyer and dated as of the Closing Date;
 
(ix) a certificate dated as of the Closing Date and duly executed by an authorized officer of Buyer certifying that (i) Buyer has complied with all agreements and obligations required by this Agreement to have been performed or complied with by it prior to the Closing, and (ii) the representations and warranties made by the Buyer hereunder are true at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date; and
 
(x) such other instruments executed by Buyer as shall be reasonably requested by Seller to consummate the transactions contemplated by this Agreement.
 
(c)   To the extent that a form of any document to be delivered hereunder is not attached as an Exhibit hereto, such documents shall be in form and substance, and shall be executed and delivered in a manner, mutually satisfactory to the parties.
 
SECTION V
REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES
 
Except as otherwise set forth on the Disclosure Schedule, the Selling Parties represent and warrant to Buyer as follows. Whenever a representation or warranty is qualified by the knowledge of Seller or Seller’s knowledge such knowledge refers to the actual knowledge of Goldberg and Stein.
 
5.1.   Organization . Seller is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware and in each jurisdiction in which either the ownership or use of the properties owned or used by it, or the conduct of business by it, requires such qualification, with the requisite limited liability company power and authority to conduct the Business as it is presently being conducted and to own and lease the Acquired Assets.
 
5.2.   Authorization . Seller has all requisite limited liability company power and authority, and has taken all actions necessary, to execute and deliver this Agreement and the Ancillary Agreements, to consummate the transactions contemplated hereby and thereby and to perform the obligations hereunder and thereunder. This Agreement and each Ancillary Agreement has been duly executed and delivered by Seller and, assuming the due authorization, execution and delivery of this Agreement by Buyer and of each Ancillary Document by the other parties thereto, is a valid and binding obligation of Seller, enforceable against it in accordance with its terms, except as may be limited by the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws relating to or affecting creditors’ rights generally and general equitable principles (whether considered in a proceeding in equity or at law).
 
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5.3.   Absence of Certain Changes or Events . Since September 30, 2006, other than as set forth on Schedule 5.3 the Business has been operated by Seller, in the ordinary course of business, and there has not been any:
 
(a)   Material Adverse Effect;
 
(b)   change in accounting methods, principles or practices, affecting the Acquired Assets, the Assumed Liabilities or the Business;
 
(c)   revaluation of any of the Acquired Assets;
 
(d)   damage, destruction or loss (whether or not covered by insurance) adversely affecting the Acquired Assets or the Business;
 
(e)   cancellation of any indebtedness or waiver or release of any right or Claim of Seller relating to its activities or properties, which had a Material Adverse Effect on the Acquired Assets or the Business;
 
(f)   (i) increase in the base compensation payable or to become payable to any Employee, (ii) grant or accrual of any loan, bonus, fees, incentive compensation, service award or other similar benefit, to or for the benefit of any Employees, (iii) adoption or amendment in any material respect of any Plan (other than the extension of coverage to any Employee who became eligible under any such Plan following September 30, 2006), (iv) entry into any employment or consulting agreement with an Employee or consultant to the Business or any material amendment to any employment or consulting agreement with an Employee or consultant to the Business in effect as of the date hereof or (v) hiring of any Employee;
 
(g)   any material amendment cancellation or termination of any Material Contract or Permit relating to the Acquired Assets or the Business or entry into any contract, commitment, agreement, lease, transaction or permit that is not in the ordinary course of business;
 
(h)   mortgage, pledge or other Encumbrance of or on any of the Acquired Assets;
 
(i)   sale, assignment or transfer of any of the Acquired Assets;
 
(j)   capital expenditure or commitment therefor in excess of $5,000;
 
(k)   failure to pay or satisfy when due any Liability;
 
(l)   entry into, termination of or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit or similar Contract to which Seller is a party or (ii) any Contract or transaction involving a total remaining commitment by Seller of at least $5,000 and relating to the Business;
 
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(m)   notice received from any material customer stating an intention to discontinue or change the terms of its relationship with Seller and relating to the Business.
 
(n)   lawsuit, administrative agency charge or demand letter alleging liability against Seller; and
 
(o)   agreement to do any of the things described in the preceding clauses (a) through (n) other than as expressly provided for herein.
 
5.4.   Assets
 
(a)   Seller has good and transferable title to all Acquired Assets free and clear of any Encumbrances.
 
(b)   Each material item of tangible property comprising the Acquired Assets is in good operating condition, ordinary wear and tear excepted, is suitable for use as presently used by Seller, is free from latent or patent defects and has been maintained in accordance with commercially reasonable practices. All material items of tangible property comprising the Acquired Assets are in the possession of Seller and are located at the Seller Real Property.
 
5.5.   Seller Real Property . Other than the Lease and the Sublease, Seller has not entered into any contract or agreement with respect to the occupancy of the Seller Real Property which will be binding on the Buyer after the Closing. Seller is the record and beneficial owner of the tenant’s interest under the Lease and except for the Sublease, Seller has not assigned, subleased, conveyed, transferred or otherwise encumbered Seller’s interest under the Lease. The copies of the Lease and Sublease heretofore delivered by Seller to the Buyer are true, correct and complete copies thereof, and neither the Lease nor the Sublease has been amended.
 
(a)   The Lease and Tenant Improvement Settlement Agreement are in full force and effect on the terms set forth therein and constitute the entire agreement between Seller and the landlord with respect to the subject matter thereof. To Seller’s knowledge, there are no defaults or circumstances which with the giving of notice, the passage of time or both would constitute a default on the part of the landlord or Seller thereunder, and Seller is legally required to pay all sums and perform all material obligations set forth therein without concessions, abatements, offsets, defenses or other basis for relief or adjustment.
 
(b)   The Sublease is in full force and effect on the terms set forth therein and constitutes the entire agreement between Seller and Sublessee with respect to the subject matter thereof. There are no defaults or circumstances which with the giving of notice, the passage of time or both would constitute a default thereunder and the Sublessee is legally required to pay all sums and perform all material obligations set forth therein without concessions, abatements, offsets, defenses or other basis for relief or adjustment. The Sublessee has not asserted in writing and has no defense to, offsets or claims against, rent payable by it or the performance of its other obligations under the Sublease. The Seller has no outstanding obligation to provide the Sublessee with an allowance to construct, or to construct at its own expense, any tenant improvements. The Sublessee has not (i) prepaid any rent or other charges, with the exception of a security deposit equal to one months rent; (ii) filed a petition in bankruptcy or for the approval of a plan of reorganization or management under the Federal Bankruptcy Code or under any other similar state law, made an admission in writing as to the relief therein provided; (iii) otherwise become the subject of any proceeding under any federal or state bankruptcy or insolvency law; (iv) admitted in writing its inability to pay its debts as they become due; (v) made an assignment for the benefit of creditors; (vi) petitioned for the appointment of or had appointed a receiver, trustee or custodian for any of its property; or (vii) requested in writing a modification of its Sublease, or a release of its obligations under its Sublease in any material respect or given written notice terminating its Sublease, or been released of its obligations thereunder in any material respect prior to the normal expiration of the term thereof. All lease commissions due with respect to the Sublease have been paid in full.
 
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5.6.   Contracts and Commitments
 
(a)   Schedule 5.6 sets forth a complete and accurate list of Contracts in the following categories (collectively, the “ Material Contracts ”):
 
(i) all employment agreements and severance agreements, including, without limitation, agreements (A) to employ or terminate any Employee or (B) that will result in any severance, termination, “golden parachute,” or other similar payments to any present or former Employee following termination of employment or otherwise as a result of the consummation of the transactions contemplated by this Agreement;
 
(ii) all franchise, license, technical assistance, commission, consulting, agency or advertising contracts related to or useful in connection with the Acquired Assets and/or the Business;
 
(iii) all contracts or commitments relating to commission arrangements with others;
 
(iv) all promissory notes, loans, agreements, indentures, evidences of indebtedness, letters of credit, guarantees, or other instruments relating to an obligation to pay money, whether Seller shall be the borrower, lender or guarantor thereunder or whereby any Acquired Assets are pledged;
 
(v) any agreement concerning confidentiality or non-competition;
 
(vi) all purchase, supply, distribution and sales Contracts which are not cancelable on thirty (30) calendar days’ notice;
 
(vii) any other Contract involving payments in excess of $10,000 annually;
 
(viii) any Contract between Seller and any Affiliate, partner, officer, director, or employee of Seller;
 
(ix) any service Contract affecting any of the Acquired Assets which has an unexpired term as of the Closing Date in excess of 30 days;
 
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(x) any lease or sublease relating to the Business;
 
(xi) each Contract not denominated in U.S. dollars;
 
(xii) each written warranty, guaranty and/or other similar undertaking with respect to contractual performance extended by Seller other than in the ordinary course of business;
 
(xiii) any other Contract that was not entered into in the ordinary course of business; and
 
(xiv) each amendment, supplement and modification (whether oral or written) in respect of any of the foregoing.
 
(b)   Except as set forth on Schedule 5.6 , (i) all of the Material Contracts are in full force and effect and constitute legal, valid and binding obligations of Seller and the other parties thereto, (ii) Seller has fulfilled, or taken all action necessary to enable it to fulfill when due, all of its obligations under each such Material Contract and (iii) Seller is not in default under any of the Material Contracts. Seller has not received any notice of cancellation or termination or any notice of default under any Material Contract. Seller has furnished Buyer with true and correct copies of each of the Material Contracts set forth on Schedule 5.6 , together with all amendments and supplements thereto.
 
5.7.   Permits . Seller, holds, owns or possess all Permits required, or to the best of Seller’s knowledge, useful in order to conduct the Business and to own and use the Acquired Assets in the manner in which they are currently owned and used by Seller, and all such Permits are listed on Schedule 5.7 . Except as set forth on Schedule 5.7 , (i) such Permits are in full force and effect, and Seller is in compliance with the terms of, and has not received any notice of any claim of default with respect to, any such Permit; (ii) no event has occurred or circumstance exists that may (with or without notice or lapse of time) (A) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any Permit listed or required to be listed in Schedule 5.7 or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation or termination of, or any modification to, any Permit listed or required to be listed in Schedule 5.7 ; and (iii) all applications required to have been filed for the renewal of the Permits listed or required to be listed in Schedule 5.7 have been duly filed on a timely basis with the appropriate Governmental Authorities, and all other filings required to have been made with respect to such Permits have been duly made on a timely basis with the appropriate Governmental Authorities.
 
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5.8.   No Conflict or Violation; Consents and Approvals
 
(a)   Other than as set forth on Schedule 5.8(a) , neither the execution, delivery or performance by Seller of this Agreement or the Ancillary Agreements nor the consummation by Seller of the transactions contemplated hereby and thereby, will (i) violate or conflict with any provision of Seller’s organizational documents, (ii) violate, conflict with, or result in or constitute a breach or default under (with the giving of notice or passage of time or both), or result in the termination of, or permit the acceleration of, the performance required by, or result in a right of termination or acceleration under, any Material Contract to which Seller is a party or by which the Acquired Assets are bound or (iii) violate any Law or Governmental Order applicable to Seller.
 
(b)   Other than as disclosed on Schedule 5.8(b) , no consent, approval or authorization of or from, notice to or declaration, filing or registration with, any domestic or foreign Governmental Authority or any other Person is required to be made or obtained by Seller in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby.
 
5.9.   Financial Statements; Undisclosed Liabilities; Books and Records .
 
(a)   The Financial Statements are attached as Schedule 5.9 . The Financial Statements are true and complete. Except as otherwise set forth therein or on Schedule 5.9 , the Financial Statements have been prepared from the books and records of Seller, in accordance with GAAP consistent with past practice throughout the periods covered thereby and fully present in all material respects, the financial condition and result of operations of the Business as of the respective dates or periods indicated thereon.
 
(b)   Seller has no Liabilities except for: (i) Liabilities reflected or reserved against in the Balance Sheet in accordance with GAAP and current Liabilities incurred in the ordinary course of business of Seller, and consistent with past practices, since the date of the Balance Sheet; (ii) Liabilities that arise under this Agreement; and (iii) contractual Liabilities under executory contracts, including the Transferred Contracts.
 
(c)   The books of account and other financial records of Seller, all of which have been made available to Buyer, are complete and correct and represent actual bona fide transactions.
 
5.10.   Litigation . Except as set forth on Schedule 5.10 , (a) there is no Action pending or threatened (i) against or adversely affecting the Business or the Acquired Assets or (ii) seeking to delay, limit or enjoin the transactions contemplated by this Agreement, (b) Seller is not subject to any Governmental Order relating to the Business and (c) there are no unsatisfied judgments against the Business or the Acquired Assets. No event has occurred or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Action or Governmental Order. Seller has delivered to Buyer copies of all pleadings, correspondence and other documents relating to each Action or Governmental Order listed in Schedule 5.10 .
 
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5.11.   Compliance with Law . Seller is, in the conduct of the Business and the leasing of the Seller Real Property, in compliance with all applicable Laws and Governmental Orders relating to the Acquired Assets or the Business including without limitation any applicable bulk sales act or similar law. No event has occurred or circumstance exists that (with or without notice or lapse of time) (A) may constitute or result in a violation by Seller of, or a failure on the part of Seller to comply with, any Law or (B) may give rise to any obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. Seller has not received any oral or written notice from any Governmental Agency regarding any actual, alleged, possible or potential violation of, or failure to comply with, any Law.
 
5.12.   Intellectual Property
 
(a)   Schedule 5.12(a) sets forth all Intellectual Property.
 
(b)   Except as set forth in Schedule 5.12(b) , Seller (i) solely owns all right, title and interest in and to the Intellectual Property, (ii) has no obligation to compensate any Person for the use of any Intellectual Property and (iii) has not granted to any Person any license, option or other rights in or to any Intellectual Property. Except as set forth in Schedule 5.12(b) , Seller has not received any notice that any other Person is claiming any ownership of, or right to use, any Intellectual Property. There are no outstanding and, to Seller’s knowledge, no threatened disputes or disagreements with respec t to any Intellectual Property.
 
(c)   Set forth in Schedule 5.12(c) is a list of all former and current Employees of Seller who have executed written Contracts with Seller that assign to Seller all rights to any inventions, improvements, discoveries or information relating to the Business.
 
5.13.   Plans . Seller does not now have nor has it ever maintained a Plan (except for certain Pacificare medical benefits previously offered to employees).
 
5.14.   Tax Matters
 
(a)   Seller (and any affiliated group of which Seller is now or has been a member) has timely filed with the appropriate Taxing Authorities all Tax Returns with respect to the Acquired Assets and the Business required to be filed through the date hereof and will timely file any such Tax Returns required to be filed on, prior to or subsequent to the Closing Date (taking into account valid extensions) with respect to all periods prior to the Closing Date.
 
(b)   All Taxes with respect to the Acquired Assets and the Business, in respect of periods beginning before the Closing Date, have been timely paid, or will be timely paid.
 
(c)   No waivers of statutes of limitation with respect to any Tax Returns have been given by or requested from Seller.
 
(d)   There are no liens for Taxes on or against any of the Acquired Assets other than Permitted Tax Liens.
 
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(e)   None of the Acquired Assets is (i) property that is required to be treated as being owned by any other Person pursuant to the so-called “safe harbor lease” provisions of former Section 168(f)(8) of the Code; (ii) “tax-exempt use property” within the meaning of Section 168(h) of the Code; or (iii) property which directly or indirectly secures any debt the interest on which is tax-exempt under Section 103(a) of the Code.
 
(f)   There are no tax sharing agreements or similar arrangements currently in effect (whether written or unwritten) with respect to or involving Seller.
 
(g)   Seller is not a party to any agreements or arrangements that would result, individually or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Section 280G of the Code, including, without limitation, as a result of any event connected with the acquisition of the Acquired Assets by Buyer or any other transaction contemplated herein.
 
5.15.   Hazardous Substances . To knowledge of Seller’s none of Seller nor the Sublessee or any other occupant or user of the Seller Real Property, or any portion thereof, has stored or disposed of (or engaged in the business of storing or disposing of) or has released or caused the release of any hazardous or toxic substance, hazardous waste, contaminants, oil, radioactive or other hazardous material on the Seller Real Property or any portion thereof. To Seller’s knowledge, the Seller Real Property is free from any such hazardous or toxic substance, hazardous waste, contaminants, oil, and radioactive and other hazardous materials, except any such materials which are maintained in accordance with applicable Law.
 
The Seller Real Property does not contain any mold or underground storage tanks, polychlorinated biphenyl or friable asbestos.
 
5.16.   No Brokers or Finders . Seller has not engaged or made any agreement with any broker, finder or similar agent or any Person or firm which will result in the obligation of Buyer or any of its affiliates to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby.
 
5.17.   Customers . Schedule 5.17 sets forth a complete and accurate list of the names and addresses of the customers of the Business showing the approximate total sales in dollars by the Business to each such customer for the nine month period ended September 30, 2006.
 
5.18.   Insurance . Schedule 5.18 contains a complete list of the current insurance policies held by Seller in respect of the Business and the Acquired Properties. Seller has not received (i) any written notice of cancellation of any such policies or refusal of coverage thereunder, (ii) any written notice that any issuer of any of such policies has filed for protection under applicable bankruptcy laws or is otherwise in the process of liquidating or has been liquidated, (iii) any other written notice that such policies are no longer in full force and effect or that the issuer of any of such policies is no longer willing or able to perform its obligations thereunder or (iv) any written notice that any issuer of any such policies intends to substantially increase rates or that substantial capital improvements or other expenditures will have to be made in order to continue such insurance at present rates. There is no material claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid, and Seller is otherwise in compliance with the terms of such policies and bonds.
 
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5.19.   Employees
 
(a)   To Seller’s knowledge Seller is and has been in compliance with, with respect to all Employees and service providers, including independent contractors, all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including any such Laws respecting employment discrimination, including sexual harassment, occupational safety and health and unfair labor practices.
 
(b)   Seller is not delinquent in payments to any Employees or service providers, including independent contractors, for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by them or any amounts required to be reimbursed to such Employees or service providers including independent contractors.
 
(c)   Schedule 5.19 contains a true and complete list of all Employees and each such Employee’s salary. Seller does not owe any Employee, officer, director or independent contractor of the Business any sum in excess of $1,000 individually other than for accrued wages or salaries for the current payroll period.
 
5.20.   Labor Relations . Seller is not party to or bound by any collective bargaining agreement with respect to the Business or any of the Employees of the Business. There is no current union organizing campaign, including distribution of union authorization cards, employee home visits, or distribution of union literature encouraging Employees to join a union. There is no labor strike or other work stoppage due to labor disagreements pending or, to the knowledge of Seller, threatened against Seller with respect to the Business. There is no unfair labor practice charge or complaint pending against Seller before the National Labor Relations Board or any comparable state, local or foreign agency or administrative authority with respect to the Business, and there is no written grievance currently being asserted against Seller with respect to discrimination, safety, compensation or other issues related to Seller’s employment of Employees in the Business.
 
5.21.   Accounts Receivable . The accounts receivable included among the Acquired Assets: (i) are all of the accounts receivable relating to the Business; (ii) arose from bona fide transactions in the ordinary course of business; (iii) represent valid and binding obligations of the account debtors; and (iv) have historically been collected at a rate of approximately 60-70% (subject to any reserves therefore in the Financial Statements). There is no contest, claim, defense or right of setoff, under any contract with any account debtor of an account receivable relating to the amount or validity of such account receivable.
 
5.22.   Bank Accounts   Schedule 5.22 lists all accounts and safe deposit boxes at any bank or other financial institution of Seller, and the names of all Persons authorized to draw on or have access to such accounts and safe deposit boxes.
 
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5.23.   Sufficiency of Assets . The Acquired Assets constitute all of the assets, tangible and intangible, of any nature whatsoever, reasonably necessary to operate the Business in the manner presently operated by Seller.
 
5.24.   Investment . The Selling Parties (i) understand that neither the Shares, the Earn-out Warrants nor the shares subject such Options have been, and will not be, registered under the Securities Act of 1933, as amended (the “ Securities Act ”) or under any state securities laws, and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (ii) are acquiring the Shares solely for their own account for investment purposes and not with a view to the distribution thereof, except in compliance with applicable law, (iii) are sophisticated investors with knowledge and experience in business and financial matters, (iv) have received certain information concerning the Buyer and have had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding the Shares, (v) are able to bear the economic risk and lack of liquidity inherent in holding the Shares and (vi) are accredited investors as such term is defined in the Securities Act.
 
5.25.   Disclosure
 
(a)   No representation or warranty or other statement made by the Selling Parties in this Agreement, the Disclosure Schedule, any supplement to the Disclosure Schedule, the certificates delivered pursuant to this Agreement or otherwise in connection with the transactions contemplated by this Agreement contains any untrue statement or omits to state a material fact necessary to make any of them, in light of the circumstances in which it was made, not misleading.
 
(b)   The Selling Parties do not have knowledge of any fact that may materially adversely affect the assets, business, prospects, financial condition or results of operations of the Business or the Seller Real Property that has not been set forth in this Agreement or the Disclosure Schedule.
 
5.26.   No Additional Representations . The Selling Parties are not making any representations or warranties, express or implied, of any nature whatsoever, except for the representations and warranties expressly set forth in this Section V and in any Ancillary Agreements.
 
SECTION VI
REPRESENTATIONS AND WARRANTIES OF BUYER
 
Buyer hereby represents and warrants to the Selling Parties as follows:
 
6.1.   Organization of Buyer . Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full corporate power and authority to conduct its business as it is presently being conducted and to own and lease its properties and assets.
 
6.2.   Authorization . Buyer has all requisite power and authority, and has taken all corporate action necessary, to execute and deliver this Agreement and the Ancillary Agreements, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement has been duly executed and delivered by Buyer and, assuming the due authorization, execution and delivery of this Agreement by the Selling Parties, is a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except as may be limited by the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar Laws relating to or affecting creditors’ rights generally and general equitable principles (whether considered in a proceeding in equity or at law).
 
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6.3.   No Conflict or Violation; Consents and Approvals
 
(a)   Neither the execution, delivery or performance by Buyer of this Agreement or the Ancillary Agreements, nor the consummation by Buyer of the transactions contemplated hereby and thereby will (i) violate or conflict with any provision of the certificate of incorporation or bylaws of Buyer, (ii) violate, conflict with, or result in or constitute a breach or default under (with the giving of notice or passage of time or both), or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, any of the terms, conditions or provisions of any contract or agreement to which Buyer is a party or by which its assets are bound, or (iii) violate any Law or Governmental Order applicable to Buyer, except in the case of each of clauses (i) and (ii) above, for such violations, breaches, defaults, terminations or accelerations which would not reasonably be expected to have a Material Adverse Effect on Buyer or to materially adversely affect the ability of Buyer to consummate the transactions contemplated hereby.
 
(b)   No consent, approval or authorization of or from, notice to or declaration, filing or registration with any domestic or foreign Governmental Authority or any other Person is required to be made or obtained by Buyer in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, except where failure to obtain such consent, approval or authorization or to make such notice, declaration, filing or registration would not reasonably be expected to have a Material Adverse Effect on Buyer or to materially adversely affect the ability of Buyer to consummate the transactions contemplated hereby.
 
6.4.   Buyer Common Stock The Shares shall, upon issuance thereof, be validly issued, fully paid and nonassessable and free and clear of all Liens. [Dan to provide extra reps for Buyer to consider].
 
6.5.   No Brokers or Finders . Buyer has not engaged or made any agreement with any broker, finder or similar agent or any Person or firm which will result in the obligation of any Seller or any of its Affiliates to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby.
 
6.6.   No Litigation . There is no Action, proceeding or government investigation pending or, to the knowledge of Buyer, threatened against Buyer by or before any court or Governmental Authority that individually or in the aggregate would, or would reasonably by expected to, impede the ability of Buyer to complete the Closing.
 
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SECTION VII
PRE-CLOSING COVENANTS
 
7.1.   Pre-Closing Covenants of Selling Parties . Between the date of this Agreement and the Closing, the Selling Parties shall:
 
(a)   Access to Information. Provide to Buyer, its lenders and their respective counsel, accountants, consultants and other Representatives, full access during normal business hours, to such of the personnel, properties, books, accounts, contracts, records and such other information of Seller as Buyer may reasonably request;
 
(b)   Conduct of the Business . Except as permitted or required hereby or as Buyer may otherwise consent to in writing, operate the Business only in the ordinary course of business as such Business was conducted prior to the date hereof and shall use Reasonable Efforts to (i) preserve and keep intact its present business organization and (ii) preserve its relationships with customers, and others having business dealings with the Business;
 
(c)   Maintenance of Properties and Assets . Maintain the Acquired Assets, including any leased assets, in their current state of repair, order and condition, and the Business past practices, reasonable wear and tear excepted;
 
(d)   Maintenance of Books and Records . Maintain the books and records of the Business in the ordinary course of business on a basis consistent with prior periods;
 
(e)   Compliance with Laws . Comply in all material respects with all Laws applicable to the Acquired Assets and to the conduct of the Business;
 
(f)   Performance of Obligations . Perform all the obligations relating to the Business in the ordinary course of business in accordance with past practices;
 
(g)   Approvals and Consents . Use Reasonable Efforts to obtain in writing as promptly as possible and in any event before the Closing Date, all approvals and consents required to be obtained by Seller in order to effectuate the transactions contemplated hereby and deliver to Buyer copies of such approvals and consents;
 
(h)   Notice of Material Damage . Give to Buyer prompt written notice of any damage, by fire or other casualty, to the Acquired Assets or the Business;
 
(i)   Notification . Promptly notify Buyer in writing of any fact, condition, event or circumstance which (i) makes it necessary to correct any representation and warranty in Section V which has been rendered inaccurate thereby or (ii) arises after the date hereof and which, had it existed on or prior to the date hereof, would have resulted in any inaccuracy in a representation and warranty in Section V. In the event the occurrence of any fact, condition, event or circumstance requires any change to the Disclosure Schedule attached hereto, Seller shall promptly deliver to Buyer a supplement to such Schedule specifying such change. All such supplements shall be deemed to be accepted and made a part of this Agreement except as provided in the immediately following sentence. If the omission of such supplement would cause a material inaccuracy for purposes of Section 8.1 of a representation or warranty, in the absence of a waiver by Buyer, Buyer may elect, as its sole remedy, to (i) terminate this Agreement for non-satisfaction of Section 8.1, in which event, the Selling Parties shall have no liability to Buyer or (ii) negotiate an appropriate adjustment to the Purchase Price and consummate the transactions contemplated hereby, in which event any required amendments to any schedule shall be deemed accepted and waived by Buyer.
 
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(j)   Interim Financial Statements . Within five (5) days after the end of each calendar month from the date hereof, deliver to Buyer an unaudited balance sheet for the Business as of the last day of such prior month and the related statement of operations for such month and for that portion of such fiscal year ended with the last day of such monthly accounting period;
 
(k)   Standstill . Not, directly or indirectly, through any representative or otherwise, solicit, entertain any offers from, or negotiate or enter into an agreement with any other Person with respect to the sale, merger, consolidation, transfer or other conveyance of any of the Acquired Assets, except as expressly contemplated by this Agreement. Seller shall immediately notify Buyer regarding any contact between Seller, or its respective representatives and any other Person regarding any such offer, proposal or any related inquiry. All pending discussions, if any, which are inconsistent with the foregoing undertaking, will be immediately suspended; and
 
(l)   Satisfaction of Conditions . Use their Reasonable Efforts to cause each of the conditions set forth in Section 8.1 to be satisfied at or before the Closing.
 
7.2.   Pre-Closing Covenants of Buyer . Between the date of this Agreement and Closing, Buyer shall:
 
(a)   Satisfaction of Conditions . Use its Reasonable Efforts to cause each of the conditions set forth in Section 8.2 to be satisfied at or before the Closing; and
 
(b)   Notification . Promptly notify Seller in writing of any fact, condition, event or circumstance which (i) makes it necessary to correct any representation and warranty in Section VI which has been rendered materially inaccurate thereby or (ii) arises after the date hereof and which, had it existed on or prior to the date hereof, would have resulted in any inaccuracy in a representation and warranty in Section VI. If the omission of such supplemented information would cause a material inaccuracy for purposes of Section 8.2 of a represent or warranty, in the absence of a waiver by Seller, Seller may elect as its sole remedy to (i) terminate the Agreement for non-satisfaction of Section 8.2, in which event Buyer shall have no liability to the Selling Party or (ii) negotiate an appropriate adjustment to the Purchase Price and consummate the transactions contemplated hereby in which event such supplemented information shall be deemed accepted by Seller.
 
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SECTION VIII
CONDITIONS OF CLOSING
 
8.1.   Co nditions Precedent to Buyer’s Obligation to Close . Buyer’s obligation to purchase the Acquired Assets, and to take the other actions required to be taken by Buyer at the Closing, is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):
 
(a)   Accuracy of Representations . Except as provided herein, all of Selling Parties’ representations and warranties in this Agreement shall have been accurate in all material respects as of the date of this Agreement and shall be accurate in all material respects as of the time of the Closing as if then made ;
 
(b)   No Material Adverse Effect . Subsequent to the date hereof and prior to the Closing, there shall have been no occurrence of any event that, individually or in the aggregate, has had, or could reasonably be expected to have, a Material Adverse Effect upon the Acquired Assets or the Business, specifically including, but not limited to, the financial condition and operating results of the Business;
 
(c)   Selling Parties’ Performance . All of the covenants and obligations that a Selling Party is required to perform, or to comply with, pursuant to this Agreement at or prior to the Closing shall have been duly performed and complied with in all material respects;
 
(d)   Closing Deliveries . Seller shall have caused the documents and instruments required by Section 4.2(a) to be delivered (or tendered subject only to Closing) to Buyer;
 
(e)   Consents . All consents which are necessary to allow Buyer to own and operate the Business and the Acquired Assets from and after the Closing shall have been obtained and shall be in full force and effect;
 
(f)   No Proceedings . Since the date of this Agreement, there shall not have been commenced or threatened against Buyer, or against any Affiliate of Buyer, any proceeding involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated hereunder;
 
(g)   No Conflict . Neither the consummation nor the performance of any of the transactions contemplated hereunder will, directly or indirectly (with or without notice or lapse of time), contravene or conflict with or result in a violation of or cause Buyer or any Affiliate of Buyer to suffer any material and adverse consequence under (i) any applicable Law or Order or (ii) any Law or Order that has been published, introduced or otherwise proposed by or be fore any Governmental Authority; and
 
(h)   Financial Statements. The Financial Statements are attached hereto and are true and complete.
 
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8.2.   Conditions Precedent to Selling Parties’ Obligation to Close . Selling Parties’ obligations to sell and transfer the Acquired Assets, and to take the other actions required to be taken by any Selling Party at the Closing, or to cause the same to happen, is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part):
 
(a)   Accuracy of Representations . All of Buyer's representations and warranties in this Agreement shall have been accurate in all material respects as of the date of this Agreement and shall be accurate in all material respects as of the time of the Closing as if then made.
 
(b)   Buyer’s Performance . All of the covenants and obligations that Buyer is required to perform, or to comply with, pursuant to this Agreement at or prior to the Closing shall have been duly performed and complied with in all material respects;
 
(c)   Closing Deliveries . Buyer shall have caused the documents and instruments required by Section 4.2(b) to be delivered (or tendered subject only to Closing) to Seller;
 
(d)   No Proceedings . Since the date of this Agreement, there shall not have been commenced or threatened against any of the Selling Parties, or against any Affiliate thereof, any proceeding involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated hereunder; and
 
(e)   No Conflict . Neither the consummation nor the performance of any of the transactions contemplated hereunder will, directly or indirectly (with or without notice or lapse of time), contravene or conflict with or result in a violation of or cause Seller or any Affiliate of Seller to suffer any material and adverse consequence under (i) any applicable Law or Order or (ii) any Law or Order that has been published, introduced or otherwise proposed by or before any Governmental Authority, excluding bulk sales laws.
 
SECTION IX
TERMINATION
 
9.1.   Events of Termination . This Agreement may be terminated prior to Closing pursuant to any of the following:
 
(a)   Termination by Buyer . This Agreement may be terminated by Buyer’s written notice to Seller if (i) a material breach of any provision of this Agreement has been committed by a Selling Party and such breach has not been cured within five (5) days of receiving written notice from Buyer that such breach will not be waived by Buyer or (ii) any condition set forth in Section 8.1 has not been satisfied as of Closing or if satisfaction of such a condition by Closing is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement), and Buyer has not waived such condition before Closing ;
 
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(b)   Termination by Seller . This Agreement may be terminated by Seller’s written notice to Buyer if (i) a material breach of any provision of this Agreement has been committed by Buyer and Buyer has not cured such breach within five (5) days of receiving written notice from Seller that such breach will not be waived by Seller or (ii) any condition in Section 8.2 has not been satisfied as of Closing or if satisfaction of such a condition by Closing is or becomes impossible (other than through the failure of a Selling Party to comply with its obligations under this Agreement), and Seller has not waived such condition before Closing; or
 
(c)   Mutual Termination . This Agreement may be terminated by mutual written consent of Buyer and Seller.
 
9.2.   Effect of Termination . Each party's right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of such right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1, all obligations of the parties under this Agreement will terminate, except that the obligations of the parties in this Section 9.2 and Sections 13.4 and 13.12 will survive, provided, however, that, if this Agreement is terminated because of a willful breach of this Agreement by the non-terminating party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the party's willful failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired.
 
SECTION X
POST-CLOSING COVENANTS OF THE SELLING PARTIES AND BUYER
 
Selling Parties and Buyer each covenant with the other as follows:
 
10.1.   Further Assurances
 
(a)   Upon the terms and subject to the conditions contained herein, the parties agree, after the Closing, (i) to use Reasonable Efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, (ii) to execute any documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the transactions contemplated hereunder and (iii) to cooperate with each other in connection with the foregoing.
 
(b)   Each of the parties will give any notices to, make any filings with, and use its Reasonable Efforts to obtain any authorizations, consents, and approvals of any Governmental Authorities required in connection with the consummation of the transactions contemplated hereby.
 
10.2.   Liquidation of Seller . Seller shall consummate the liquidation of Seller within twenty-four (24) months after the Closing Date.
 
10.3.   Repurchase Right .  
 
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(a)   After the Closing, Buyer agrees to use its best efforts to seek public and private markets for its shares of common stock with a goal towards (i) registering its shares of common stock under the Securities Act and (ii) closing a transaction or transactions involving an aggregate investment of $500,000 in Buyer.
 
(b)   If Buyer fails to close a transaction or transactions involving an aggregate investment of $500,000 or misses an employment or consulting payment to Stein or Goldberg respectively, as defined in the compensation sections of Stein and Facility Consulting’s Agreements within one year of closing date (each, a “ Trigger”) , Seller shall have the option to repurchase the Domain Names for one dollar ($1.00) (the “ Repurchase Right ”) by giving written notice (“ Repurchase Notice ”) to Buyer that Seller intends to exercise its Repurchase Right. Seller’s Repurchase Right shall terminate if not exercised within ninety (90) days of the Trigger. Buyer shall have thirty (30) days from receipt of the Repurchase Notice to cure the event that caused the Trigger or execute and deliver an assignment of domain names assigning all of Buyer’s rights, title and interest in and to the Domain Names to Seller in exchange for one dollar ($1.00) in substantially the form of the Domain Names Transfer Agreement.
 
10.4.   Seller Real Property . Seller agrees that from and after the Closing:
 
(a)   Buyer shall have the right to occupy and use the premises covered by the Lease for any and all purposes allowed under the Lease. Buyer shall have all rights of Seller under the Lease and Seller shall have no rights with respect to the Lease or the use of the Seller Real Property except to the extent permitted by Buyer. Seller shall make all payments due under the Lease in a timely fashion and will not cause any default to exist or continue under the Lease. Seller shall not take any action or exercise any right under the Lease without first obtaining Buyer’s written consent. Seller shall notify Buyer of any circumstance which arises that could result in an event of default under the Lease.
 
(b)   Buyer shall reimburse Seller for all payments due under the Lease (minus any amounts paid to Seller under the Sublease). Seller shall invoice or notify Buyer of amounts due pursuant to this Section 10.3 (taking into account the offset relating to the Sublease) on a monthly basis at least fifteen (15) days prior to such amounts becoming due under the Lease. If Buyer is provided such advance notice, Buyer shall remit such payment to Seller at least five (5) days prior to such amounts becoming due under the Lease.
 
SECTION XI
EMPLOYEE MATTERS
 
11.1.   Employees and Offers of Employment .  
 
(a)   From and after Closing, the Buyer shall employ Stein and Goldberg pursuant to the terms of the Stein Employment Agreement and the Goldberg Consulting Contract, respectively. For the purposes of this Section XI, Goldberg, Stein and Jessica Kamerman shall be referred to as “ Transferred Persons ”.
 
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(b)   Buyer shall not assume responsibility for any Transferred Person until such person commences employment with or begins to perform services for Buyer, but in no event shall Buyer assume any responsibility for any commitment, obligation, duty or liability (i) of Seller to any Transferred Person or (ii) to any Transferred Person that arose prior to the Closing Date. Without limiting the generality of the foregoing, Seller shall remain responsible and pay, perform, in due course or make adequate reserves for, the Liabilities and obligations of Seller in respect of the Transferred Persons, including for salaries, wages, bonuses and incentive compensation, pension, retirement, savings, health, vacation, paid time off, sick pay, welfare and other benefits, severance payments or similar payments in respect of the Transferred Persons and other compensation or payroll items, including payroll taxes, that have accrued on or prior to the Closing Date.
 
(c)   Responsibility for workers’ compensation claims related to the Business arising out of events having a date   of injury on or before the Closing Date shall remain with Seller. The Buyer shall have sole responsibility for workers’ compensation claims related to the Business arising out of events having a date   of injury of an Person after the Closing Date. Responsibility for occupational disease claims alleging exposure before, on and after the Closing Date shall be determined and apportioned in accordance with applicable law.
 
11.2.   Salaries and Benefits . Seller shall be responsible for:
 
(a)   the payment of all wages and other remuneration due to Employees with respect to services provided through Closing, including pro rata bonus payments and all vacation pay earned prior to Closing;
 
(b)   any claims made or incurred by Employees and their beneficiaries through Closing under Plans; and
 
(c)   any claims for workers’ compensation injuries made or incurred by Employees through Closing.
 
For purposes of the immediately preceding sentence, a charge will be deemed incurred, in the case of hospital, medical or dental benefits, when the services that are the subject of the charge are performed and, in the case of other benefits (such as workers’ compensation disability or life insurance), when an event has occurred or when a condition has been diagnosed that entitles the Employee to the benefit.
 
11.3.   Tax Deposits and Returns Transferred . Seller shall make all required deposits for all withholding, social security, Medicare insurance, and unemployment insurance Taxes relating to Employees with respect to services rendered through the Closing Date and shall file timely quarterly and annual reports with respect to such Taxes in accordance with applicable Law whether such reports are due prior to or after the Closing.
 
11.4.   No Transfer of Assets . Seller will not make any transfer of Plans or the assets of Plans, to Buyer.
 
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11.5.   General Employee Provisions
 
(a)   Seller and Buyer shall give any notices required by Law and take whatever other actions with respect to the plans, programs and policies described in this Section XI as may be necessary to carry out the arrangements described in this Section.
 
(b)   Seller and Buyer shall provide each other with such plan documents and summary plan descriptions, employee data or other information as may be reasonably required to carry out the arrangements described in this Section XI.
 
(c)   If any of the arrangements described in this Section XI are determined by the IRS or other Governmental Agency to be prohibited by Law, Seller and Buyer shall modify such arrangements to as closely as possible reflect their expressed intent and retain the allocation of economic benefits and burdens to the parties contemplated herein in a manner that is not prohibited by Law.
 
(d)   Buyer shall not have any responsibility, liability or obligation, to Transferred Persons, Employees of Seller who are not hired by Buyer, former employees, their beneficiaries or to any other Person, with respect to any Plan, practices, programs or arrangements (including the establishment, operation or termination thereof and the notification and provision of COBRA coverage extension) maintained by Seller.
 
SECTION XII
ADDITIONAL COVENANTS
 
12.1.   Collection of Accounts Receivable . At the Closing, Buyer will acquire hereunder, and thereafter Buyer or its designee shall have the right and authority to collect for Buyer’s or its designee’s account, the accounts receivable of Seller acquired as part of the Acquired Assets. Seller covenants that it shall pay or transfer to Buyer, if and when received, any amounts which are received by Seller in respect of any such accounts receivable.
 
12.2.   Books and Records . Each party agrees that it will cooperate with and make available to the other party, during normal business hours, all books and records, information and Employees (without substantial disruption of employment) retained and remaining in existence after the Closing which are necessary or useful in connection with any Tax inquiry, audit, investigation or dispute, any litigation or investigation or any other matter requiring any such books and records, information or Employees for any reasonable business purpose. The party requesting any such books and records, information or Employees shall bear all of the out of pocket costs and expenses (including without limitation attorneys' fees, but excluding reimbursement for salaries and employee benefits) reasonably incurred in connection with providing such books and records, information or Employees. The parties agree that nothing in this Section shall obligate Seller to continue to employ any Employee after the Closing.
 
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12.3.   Survival of Representations, Etc . All of the representations and warranties made by each party in this Agreement shall survive the Closing for a period of twelve (12) months following the Closing, except (a) the representations and warranties contained in Sections 5.13 and 5.14 shall survive in accordance with the applicable statute of limitations; (b) the representations and warranties contained in Section 5.2 and Section 5.4(a) shall survive indefinitely (or if indefinite survival is not permitted by law, then for the maximum period permitted by applicable law). All covenants to be performed by the parties following the Closing for a specified period expressly set forth in this Agreement shall survive for such period and, if no period is specified, shall survive in accordance with the applicable statute of limitations for written contracts. Buyer’s indemnification obligation pursuant to Section 12.4(b)(iii) each shall survive indefinitely (or if indefinite survival is not permitted by law, then for the maximum period permitted by applicable law). Each party hereto shall be entitled to rely upon the representations and warranties of the other party set forth in this Agreement. The expiration of the representations and warranties provided herein shall not affect the rights of a party in respect of any Claim made by such party in a writing received by the other party prior to the expiration of the applicable survival period provided herein.   Notwithstanding the foregoing, Buyer shall not be entitled to indemnification pursuant to this Section 12.4 with respect to any representation or warranty as to which Buyer had knowledge of the breach of such representation or warranty by any of the Sellers.  
 
12.4.   Indemnification
 
(a)   From and after the Closing, the Selling Parties, jointly and severally, shall indemnify, defend, save and hold harmless Buyer, its Affiliates and subsidiaries, and its and their respective Representatives, from and against any and all Losses up to but not to exceed an amount equal to the Hold Back incurred in connection with, arising out of, resulting from or incident to:
 
(i) any breach of any representation or warranty or the inaccuracy of any representation, made by any Selling Party in or pursuant to Section V of this Agreement (after giving effect to any accepted or waived supplement to the disclosure schedules made by Seller on or prior to the Closing Date) or any of the Ancillary Agreements;
 
(ii) any breach of any covenant or agreement made by any Selling Party in or pursuant to this Agreement or any of the Ancillary Agreements;
 
(iii) any Retained Liability and/or third party claim made against Buyer (whether on the basis of successor liability or otherwise) relating to any Retained Liability and/or any liability arising out of the ownership or operation of the Acquired Assets or the Business prior to Closing other than the Assumed Liabilities; and
 
(iv) the Client Acquisition Agreement.
 
(b)   From and after the Closing, Buyer shall indemnify, defend and save and hold harmless the Selling Parties, their Affiliates and subsidiaries, and their respective Representatives from and against any and all Losses incurred in connection with, arising out of, resulting from or incident to (i) any breach of any representation or warranty or the inaccuracy of any representation made by Buyer in or pursuant to Section VI of this Agreement (after giving effect to any accepted or waived supplement to the disclosure schedules made by Buyer on or prior to the Closing Date) or any of the Ancillary Agreements; (ii) any breach of any covenant or agreement made by Buyer in or pursuant to this Agreement or any of the Ancillary Agreements; or (iii) any Assumed Liability.
 
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(c)   Notwithstanding any other provision herein contained, Buyer may (but shall not be required to), at any time during the applicable indemnity period and after compliance with Section 12.4(d), set-off against the Hold Back any amounts for which the Selling Parties are required to indemnify Buyer if and to the extent the Selling Parties have not previously paid any such amount. Buyer shall promptly notify Seller in writing with respect to any Hold Back applied to Losses, including reasonable detail concerning the facts or allegations related thereto. In the event that Buyer has notified Seller of a matter requiring indemnification hereunder, and such matter is not resolved prior to the Hold Back Expiration Date, Buyer may retain the reasonably estimated amount of the Losses related to such Claim until the Claim is resolved and paid. Upon such resolution and payment, such part of the Hold Back otherwise disbursable to Seller then held and not applied to such Losses shall be immediately paid to Seller.
 
(d)   If a Claim for Losses is to be made by a party entitled to indemnification hereunder against the indemnifying party, the party claiming such indemnification shall give written notice (a “ Claim Notice ”) to the indemnifying party as soon as practicable after the party entitled to indemnification becomes aware of any fact, condition or event which may give rise to Losses for which indemnification may be sought under this Section 12.4; provided, however, if any Action is filed against any party entitled to the benefit of and seeking indemnity hereunder, the applicable Claim Notice shall be given to the indemnifying party as promptly as practicable (and in any event within ten (10) days after the service of the citation or summons). Notwithstanding the foregoing, the failure of any indemnified party to give timely notice hereunder shall not affect rights to indemnification hereunder, except to the extent that the indemnifying party is actually prejudiced by such failure. The parties agree to resolve disputes relating to any Claim Notice pursuant to the provisions in Section 13.12.
 
(e)   After receiving a Claim Notice relating to a Claim by or against any third party, the indemnifying party shall be entitled, upon written notice to the indemnified party, at its own cost, risk and expense, (i) to take control of the defense and investigation of such lawsuit or action, (ii) to employ and engage attorneys of its own choice to handle and defend the same (unless the named parties to such Action include both the indemnifying party and the indemnified party and the indemnified party has been advised in writing by counsel that there may be one or more legal defenses available to such indemnified party that are different from or additional to those available to the indemnifying party, in which event the indemnified party shall be entitled, at the indemnifying party’s cost, risk and expense, to separate counsel of its own choosing), and (iii) to compromise or settle such claim, which compromise or settlement shall be made only with the written consent of the indemnified party, such consent not to be unreasonably withheld or delayed. In such circumstance, the indemnified party may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. If the indemnifying party fails to assume the defense of such claim within twenty (20) days after receipt of the Claim Notice, the indemnified party against which such claim has been asserted will (upon delivering notice to such effect to the indemnifying party) have the right to undertake, at the indemnifying party’s cost and expense, the defense, compromise or settlement of such claim on behalf of and for the account and risk of the indemnifying party; provided, however, that such Claim shall not be compromised or settled without the written consent of the indemnifying party, which consent shall not be unreasonably withheld. In the event the indemnified party assumes the defense of the claim, the indemnified party will keep the indemnifying party reasonably informed of the progress of any such defense, compromise or settlement. The parties shall cooperate in all reasonable respects with each other in the investigation, trial and defense of any such claim for Losses or Action and any appeal arising therefrom.
 
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12.5.   Treatment of Payments . It is the intent of the parties that any amounts paid under Section 12.4 will represent an adjustment of the Purchase Price, and the parties will report such paymen ts consistent with such intent.
 
12.6.   Non-Solicitation of Employees . The parties hereto agree that for a period of (i) two (2) years from the date of this Agreement, neither Seller nor any of its Affiliates will solicit, (or cause to be solicited) the employment of any Transferred Person who is then employed by Buyer or its Affiliates, and (ii) for a period of three (3) years from the date of this Agreement, neither Seller nor any of its Affiliates will solicit (or cause to be solicited) the employment of any Person who is then employed by Buyer in the Business.
 
12.7.   Exclusive Remedy . The parties hereby acknowledge and agree that, the sole and exclusive remedy of the parties with respect to any and all post-Closing Claims (other than any Claim arising for injunctive relief out of any alleged breach of Section 12.6 (Non-solicitation of Employees) or alleging fraud or intentional misrepresentation) relating to or arising under this Agreement and the transactions contemplated hereby shall be indemnification as provided in Section 12.4.
 
12.8.   Goldberg Guarantee . As a material inducement to Buyer to enter into this Agreement, Goldberg hereby guarantees to Buyer the full and prompt performance of all of the obligations and undertakings of FC under this Agreement prior to and after Closing, including, without limitation, the accuracy of the representations and warranties in Section V and the performance of FC’s pre and post-Closing covenants hereunder.
 
(a)   Goldberg’s obligations hereunder constitute the legal and valid obligations of Goldberg and are unconditional irrespective of (i) the absence of any attempt by or on behalf of Buyer to enforce its rights under this Agreement against FC or any other Selling Party, (ii) any bankruptcy, insolvency, receivership or similar law of any jurisdiction or any proceeding or condition hereunder or with respect thereto or (iii) any other occurrence or circumstance whatsoever, whether similar or dissimilar to the foregoing, that might otherwise constitute a legal or equitable defense or discharge of the Liabilities of Goldberg or that might otherwise limit recourse against Goldberg except to the extent any defense which FC may have had is available to Goldberg. Notwithstanding the foregoing, (1) any failure of a condition contained in this Agreement or of the Buyer to comply with the Agreement (whether such breach results from Fraud, intentional misrepresentation or otherwise) which would relieve FC of its obligations under the Agreement shall likewise relieve Goldberg of his obligations hereunder; and (2) Goldberg shall be entitled to the benefit of any defenses, limitations, caps or disclaimers of damages that may be available to FC under this Agreement.
 
(b)   The obligations of Goldberg hereunder shall continue in full force and effect in the event that the Closing does not occur; provided , however , that such obligations shall automatically terminate to the extent FC is finally relieved of its obligations hereunder.
 
 
36
SECTION XIII
MISCELLANEOUS
 
13.1.   Assignment . Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of the other parties, except that (i) Buyer may assign any of its rights and delegate any of its obligations under this Agreement to any Affiliate and may collaterally assign its rights hereunder to any financial institution providing financing in connection with the transactions contemplated hereunder, but such assignment or delegation shall not relieve Buyer of its obligations hereunder. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, and no other Person shall have any right, benefit or obligation under this Agreement as a third party beneficiary or otherwise.
 
13.2.   Notices . All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given (a) when received if personally delivered; (b) when transmitted if transmitted by telecopy, electronic or digital transmission; (c) the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service; and (d) upon receipt, if sent by certified or registered mail, return receipt requested. In each case any such notice, request, demand or other communication shall be sent to:
 
If to either Selling Party, to:
 
c/o The Debt Reduction Group, LLC
12121 Wilshire Blvd., Suite 322
Los Angeles, CA 90025
Attention: Damon Stein
Facsimile: (310) 820-3220

With a copy to:

Alschuler Grossman Stein & Kahan LLP
The Water Garden
1260 26 th Street
Fourth Floor, North Tower
Santa Monica, CA 90404
Attention: Stanton L. Stein
Facsimile: (310) 907-2000

37
If to Buyer, to:
 
Accelerize New Media, Inc.
1280 Helms Road
Columbia Falls, MT 59912
Attention: Brian Ross
Facsimile: (406) 862-2162

with a copy to:
 
Sullivan & Worcester LLP
1290 Avenue of the Americas
New York, NY 10104
Attention: J. Truman Bidwell, Jr.
Facsimile: (212) 660-3001


or to such other place and with such other copies as either party may designate as to itself by written notice to the others.
 
13.3.   Parties in Interest . This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, interests, benefits or remedies of any nature whatsoever under or by reason of this Agreement.
 
13.4.   Governing Law . This Agreement will be governed by and construed and enforced in accordance with the Laws of the State of Delaware, without regard to conflict of laws rules thereof.
 
13.5.   Entire Agreement; Amendments and Waivers . This Agreement (together with all Exhibits and Schedules hereto), the Ancillary Agreements and the Confidentiality Agreement constitute the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
 
13.6.   Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, binding upon the parties hereto.
 
38
13.7.   Expenses . Each party hereto shall pay its own legal, accounting, out-of-pocket and other expenses in connection with, arising out of or incident to this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby, including without limitation any action taken by such party in preparation for carrying this Agreement into effect.
 
13.8.   Severability . In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument.
 
13.9.   Titles; Gender . The titles, captions or headings of the Sections herein, and the use of a particular gender, are for convenience of reference only and are not intended to be a part of or to affect or restrict the meaning or interpretation of this Agreement. Unless the context requires otherwise, all references to the singular include references to the plural and vice versa.
 
13.10.   Publicity . Neither Buyer nor Seller or the Principals shall, without the prior written consent of the other party, issue any press release or make any public statement regarding the transactions contemplated hereby except as may be required by law; provided, however, that the parties may jointly issue or make an appropriate and mutually acceptable press release or public announcement following each of (a) the execution and delivery of this Agreement and (b) the Closing; provided Buyer, Seller and the Principals may disclose the terms hereof to Persons from which it must obtain consents or as otherwise required by Seller to perform its obligations hereunder; and provided further that Buyer and Seller may disclose the existence and consummation of this Agreement to their respective vendors and customers and other third parties (including creditors) to the extent necessary to consummate the transactions contemplated by this Agreement and the Ancillary Agreements.
 
13.11.   Incorporation of Exhibits and Schedules; Construction of Certain Provisions . The Exhibits and Schedules referred to in this Agreement shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth in their entirety herein. Each disclosure in the Disclosure Schedule shall be deemed to qualify only the ???representations and warranties of Seller to the extent there is a specific cross reference thereto in the Disclosure Schedule. It is understood and agreed that the specification of any dollar amount in the representations and warranties contained in this Agreement or the inclusion of any specific item in the Exhibits or Schedules is not intended to imply that such amounts or higher or lower amounts, or the items so included or other items, are or are not material, and no party shall use the fact of the setting of such amounts or the fact of the inclusion of any such item in the Schedules in any dispute or controversy between the parties as to whether any obligation, item or matter not described herein or included in an Exhibit or a Schedule is or is not material for purposes of this Agreement.
 
13.12.   Dispute Resolution
 
(a)   Hierarchy of Dispute Resolution Procedures . Any dispute, controversy, or claim, whether based on contract, tort, statute, fraud, misrepresentations, or any other legal theory (i) between Seller, the Principals and/or any of their Affiliates, on the one hand, and Buyer and/or any of its Affiliates, on the other hand (a “ Dispute ”), that arises out of or relates to this Agreement or any obligations or related services to be provided under this Agreement, shall be resolved in accordance with the procedures described in this Section 13.12. In the case of a Dispute, the parties shall establish an internal hierarchy to facilitate resolution of any Dispute as set forth below:
 
39
(i) Upon written request of Seller or Buyer, Seller shall appoint one designated representative and Buyer shall appoint one designated representative whose task it shall be to meet for the purpose of endeavoring to resolve such Dispute. Before any initial meeting, the designated representative shall provide to each party written notice of any Dispute, which notice shall include a detailed description of the claim or dispute sufficient to allow a full analysis and complete response. Each party shall exercise good faith in providing its response to any claim or dispute, in advance of the first meeting between designated representatives. The designated representatives shall meet as often as the parties reasonably deem necessary to discuss the Dispute in an effort to resolve the Dispute without the necessity of any further proceeding.
 
(ii) Seller and Buyer shall negotiate in good faith in an attempt to resolve the Dispute for a period of not greater than sixty (60) days after notice of the Dispute is received by the parties.
 
(b)   Arbitration .
 
(i) If the parties are unable to resolve any Dispute as contemplated by Section 13.12(a), such Dispute, excluding any matter relating to questions of arbitrability and any action for injunctive relief or specific performance, shall be submitted to arbitration.
 
(ii) Any arbitration hereunder shall be conducted as a self administered arbitration in accordance with and subject to the Federal Arbitration Act (9 U.S.C. § 1 et seq., the “ Arbitration Act ”) to the exclusion of any state arbitration laws, and to the extent not inconsistent with the Arbitration Act, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect (the “ Arbitration Rules ”). The arbitration shall occur in New York, NY.
 
(iii) The arbitration panel shall consist of a three (3) arbitrators, one chosen by each party to such arbitration proceeding and the third chosen by mutual agreement of the two (2) arbitrators selected by such parties. The arbitrators shall be lawyers, judges or mediators experienced in the resolution of commercial disputes. The relevant parties shall cooperate to select their respective arbitrators promptly after service of a document initiating arbitration and with the goal of swiftly constituting the full panel. Once the arbitration panel has been constituted, all arbitrators shall be treated as neutral arbitrators, and no ex parte communications shall be permitted.
 
40
(iv) The award of an arbitration panel shall be final and binding upon the parties to such arbitration proceeding, with only such rights of appeal or review as are available under the Arbitration Act.
 
(v) Except for the matters specifically addressed in the Arbitration Rules or hereafter in this Section 13.12(b) the procedural rules for the conduct of an arbitration under this Section 13.12(b) shall be established by the arbitration panel consistent with the parties' intent that any arbitration hereunder is to be conducted in a streamlined and expedited manner, with limited discovery, and as economically as practicable. In addition, the following shall apply:
 
(1)   All costs and fees of counsel and expert witnesses shall be borne by the party incurring the same; and
 
(2)   The costs of the arbitration panel shall be divided equally among the parties to any arbitration proceeding.
 
13.13.   Damages Limitations . Notwithstanding anything in this Agreement, no party hereto or other Person shall be entitled to consequential, collateral, special, incidental, multiple, indirect or punitive damages, lost profits or similar items in connection with any disputes, claims, damages or injuries arising under or in any manner related to this Agreement or any Ancillary Agreement, or any other agreement or document delivered pursuant hereto or thereto, including Schedules and Exhibits hereto or thereto.
 
[Signature page follows]
 

 
41

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their respective behalf, by their respective officers thereunto duly authorized, all as of the day and year first above written.
 
Seller:

THE DEBT REDUCTION GROUP, LLC
BY: Damon Stein, its Manager

By: /s/ Damon Stein
Name:  Damon Stein
Title:  Manager and President
 
 
Principals:
 
/s/ Daniel Goldberg
Facility Consulting, LLC
 
/s/ Damon Stein
Damon Stein

 
Buyer:

ACCELERIZE NEW MEDIA, INC.

By:  /s/ Brian Ross
Name:   Brian Ross
Title: Chief Executive Officer and President


For the purpose of the Guarantee set forth in Section 12.8
 
 
/s/ Daniel Goldberg
Daniel Goldberg


42
Schedule A
 
Domain Names and Acquired Assets
 
Domain Names
 
1.
creditcounselinggroup.com,
 
2.
credit-counseling-group.com,
 
3.
debt-consolidation-options.com,
 
4.
debt-management-consolidation.com,
 
5.
debt-management-experts.com,
 
6.
debt-management-pros.com,
 
7.
debtorsrelief.com,
 
8.
debtreductiongroup.net,
 
9.
debtreliefconsultant.com,
 
10.
erasecreditcarddebt.com,
 
11.
free-debt-consolidation-information.com,
 
12.
free-debt-consolidation-online.com,
 
13.
funditmortgage.com,
 
14.
funditmortgage.net,
 
15.
getdebtreduction.com,
 
16.
knockoutdebt.com,
 
17.
knockoutdebt.net,
 
18.
knockoutdebts.com,
 
19.
knockoutdebts.net,
 
20.
kodebt.com,
 
21.
my-debt-relief.com,
 
22.
thedebtreductiongroup.com,
 
43
23.
thedebtreductiongroup.net,
 
24.
usacreditcarddebt.com,
 
25.
consumercreditcounseling4u.com
 

 

44
 
Schedule 1.2
 
Transferred Contracts
 
1.   Buyer Agreement, dated as of May 16, 2005 by and between DRG and Sky Brook Ventures, LLC.
 
2.   Advertising Agreement dated as of January 18, 2005 by and between 411Web Interactive and DRG
 
3.   DirectTrack Purchase Order dated as of April 19, 2003 by and between Direct Response Technologies, Inc. and DRG
 
4.   Advertising Insertion Order dated as of October 9, 2006 by and between Bane Media, Inc. and DRG
 
5.   Advertising Insertion Order dated as of October 9, 2006 by and between Bane Media, Inc. and DRG
 
6.   Client Service Agreement made and entered into as of August 6, 2003 by and between Zerolag Communications, Inc. and DRG
 
7.   Lead Generation Advertising Agreement dated as of February 3, 2006 by and between Mira Outdoor Media and DRG
 
8.   Service Agreement dated as of March 29, 2004 by and between Mpower Communications and DRG
 
9.   Lead Insertion Order dated as of July 7, 2006 by and between LowerMyBills.com and DRG
 
10.   Lead Trading Agreement by and between LeadPoint and DRG
 
11.   Service Agreement by and between Atlas DMT LLC and DRG
 
12.   Service Agreement dated as of June 21, 2005 by and between Gsolutionz, Inc. and DRG
 
13.   Advertising Placement Order Agreement entered into as of December 8, 2005 by Diamond Marketing Solutions Inc. and DRG
 
14.   Education Funding Products and Services Agreement effective as of May 24, 2006 between NextStudent Inc. and DRG
 
15.   Referral Agreement made and entered into as of April 18, 2005 by and between DRG and Biz911, Inc.
 
16.   Affiliate Lead Generation Agreement made and entered into effective as of May 8, 2006 by and between CustomerFunding.com Inc. and The Debt Reduction Group, LCC.
 
17.   Lead Purchase Agreement made and entered into as of April 4, 2006 by and between CIQ, Inc. and DRG
 
 
45
18.   Lead Purchase Affiliate Agreement made and entered into effective July 13, 2006 by and between Bluesky Marketing Group, Inc. and DRG
 
19.   Advertising Agreement by and between Google AdSense and DRG
 
20.   Equipment Lease Agreement dated as of December 25, 2002 by and between Pitney Bowes Credit Corporation and DRG
 
21.   Postage Meter Rental Agreement dated as of December 25, 2002 by and between Pitney Bowes Credit Corporation and DRG
 
22.   Equipment Maintenance Agreement dated as of December 25, 2002 by and between Pitney Bowes Credit Corporation and DRG
 
23.   Soft-Guard Agreement dated as of December 25, 2002 by and between Pitney Bowes Credit Corporation and DRG
 
24.   Software Maintenance Agreement dated as of December 25, 2002 by and between Pitney Bowes Credit Corporation and DRG
 
25.   Purchase Power Agreement dated as of December 25, 2002 by and between Pitney Bowes Credit Corporation and DRG
 
26.   Equipment Lease Agreement dated as of September 14, 2004 by and between Citicorp Vendor Finance, Inc. and DRG
 
27.   Errors and Omissions Liability Policy dated as of April 21, 2004 by and between Tudor Insurance Company and DRG
 
28.   Certificate of Liability Insurance dated as of May 8, 2006 by and between Hartford Casualty Insurance Co. and DRG
 
29.   IMS and IDSA Agreement effective as of June 20, 2005 by and between DRG and Phil Cefalu.
 
30.   IMS and IDSA Agreement effective as of June 20, 2005 by and between DRG and Jesse Smith
 
31.   IMS and IDSA Agreement effective as of August 11, 2005 by and between DRG and Matt Fitzell
 
32.   IMS and IDSA Agreement effective as of December 12, 2005 by and between DRG and Aaron Englert.
 
33.   IMS and IDSA Agreement effective as of August 1, 2006 by and between DRG and Dennis Charnoff
 
 
46
34.   IMS and IDSA Agreement effective as of June 14, 2006 by and between DRG and Antoine Taylor
 
35.   Client Acquisition Agreement made and entered into as of June 20, 2005 by and among DebtXS, LP and DRG
 
36.   Independent Marketing Supervisor Agreement effective as of June 20, 2005 made and entered into by and between DebtXS, LP and DRG
 
37.   Corporate Bond Agreement with Western Surety Company extended through July 15, 2007.
 
 

 
47
Schedule 1.3
 
Options Payment

 
Non-Qualified Stock Options

Phil Cefalu
 
50,000
 
Jesse Smith
 
50,000
 
Matt Fitzell
 
15,000
 
Aaron Englert
 
12,500
 
Jessica Kamerman
 
10,000
 
Dennis Chernoff
 
10,000
 
Tommy Taylor
 
10,000
 
 
 
Pool of remaining 43,500 options to be used for new hires or employee bonuses at Mr. Stein’s and Mr. Goldberg’s discretion.
 
 
48
Schedule 3.3
 
Allocation of Purchase Price
 
 
 
49
Schedule 5.3
 
Absence of Changes
 

 
DebtXS-IMS Addendum (attached)
 
 
 
 

 
50
 
Schedule 5.6
 
Material Contracts
 
 
 
 
 
51
Schedule 5.7
 
Permits
 
 
 
 
 
 
52
Schedule 5.8
 
(a) No Conflict or Violation
 
(b) Consents and Approvals
 
 
 
 
 
53
Schedule 5.9
 
Financial Statements
 
(a) Balance Sheet
 
(b) Income Statement
 
 
 
 
54
Schedule 5.10
 
Litigation
 
 
 
 
55
Schedule 5.12
 
(a)
 
(b)
 
(c)
 
 
 
56
Schedule 5.17
 
Customers
 
 
 
 
57
Schedule 5.18
 
Insurance
 
 
 
 
58
Schedule 5.19
 
Employees
 
 
 
 
 
59
Schedule 5.22
 
Bank Accounts
 
 
 
 
60
Exhibit 1.3(a)
 
Form of Incentive Option Agreement
 
 
 
 
61
Exhibit 4.2(a)(i)
 
Bill of Sale
 
(attached)
 
 
 
 
62
Exhibit 4.2(a)(ii)
 
Assignment and Assumption Agreement
 
(attached)
 
 
 
 
63
Exhibit 4.2(a)(iii)
 
Domain Name Transfer Agreement
 
(attached)
 
 
 
 
64
Exhibit 4.2(a)(iv)
 
Assignment of Intellectual Property
 
(attached)
 
 
 
 
65
Exhibit 4.2(a)(v)
 
Stein Employment Agreement
 
(attached)
 
 
 
 
66
Exhibit 4.2.(a)(vi)
 
Goldberg Consulting Contract
 
(attached)
 

 
67


Exhibit 3.1
 
 
  Delaware
  PAGE 1
State of Delaware
Secretary of State
Division of Corporations
Delivered 08:18 PM 11/22/2005
FILED 08:18 PM 11/22/2005
SRV 050954878 - 4067019 FILE
 
  The First State
   
 
 
 
I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED ARE TRUE AND CORRECT COPIES OF ALL DOCUMENTS ON FILE OF "ACCELERIZE NEW MEDIA INC." AS RECEIVED AND FILED IN THIS OFFICE.
 
THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED:
 
CERTIFICATE OF INCORPORATION, FILED THE TWENTY-SECOND DAY OF NOVEMBER, A.D. 2005, AT 8:18 O'CLOCK P.M.
 
CERTIFICATE OF DESIGNATION, FILED THE EIGHTH DAY OF AUGUST, A.D. 2006, AT 1:11 O'CLOCK P.M.
 
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION, "ACCELERIZE NEW MEDIA INC.".
 
 
 

 
 
 

State of Delaware
Secretary of State
Division of Corporations
Delivered 08:18 PM 11/22/2005
FILED 08:18 PM 11/22/2005
SRV 050954878 - 4067019 FILE
 
 
 
CERTIFICATE OF INCORPORATION
 
OF
 
Accelerize New Media Inc.
 
FIRST. The name of the corporation is Accelerize New Media Inc.
 
SECOND. Its registered office in the State of Delaware is located at 25 Greystone Manor, in the City of Lewes, County of Sussex, Zip Code 19958-2677. The registered agent in charge thereof is Harvard Business Services, Inc.
 
THIRD. The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware.
 
FOURTH: The total number of shares of all classes of stock which the corporation shall have authority to issue is 102,000,000, of which 100,000,000 shares of par value $0.001 per share shall be designated as Common Stock and 2,000,000 shares of par value $0.001 shall be designated as Preferred Stock. Shares of Preferred Stock may be issued in one or more series from time to time by the board of directors, and the board of directors is expressly authorized to fix by resolution the designations and the powers, preferences and rights, and the qualifications, limitation and restrictions thereof, which are permitted by the Delaware General Corporation Law, of the shares of each series of Preferred Stock. Subject to the rights of the holders of any series of Preferred Stock, the number of authorized shares of any series of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding} by the affirmative vote of the holders of a majority of the outstanding shares of such series, voting together as a single class.
 
FIFTH. The incorporator of the corporation is LegalZoom.com, Inc., 7083 Hollywood Blvd., Suite 180, Los Angeles, CA 90028.
 
SIXTH. The board of directors of the corporation is expressly authorized to adopt, amend or repeal bylaws of the corporation.
 
SEVENTH. Elections of directors need not be by written ballot except and to the extent provided in the bylaws of the corporation.
 
EIGHTH. The personal liability of the directors of the corporation for monetary damages for breach of fiduciary duty shall be eliminated to the fullest extent permissible under Delaware law. The corporation is authorized to indemnify its directors and officers to the fullest extent permissible under Delaware law.
 
IN WITNESS WHEREOF,   the undersigned incorporator has executed this Certificate of Incorporation on the date below.
 
 
 
Date: November 22, 2005
 
LegalZoom.com, Incorporator
 
By: /s/ Kristin Howard
Kristin Howard, Asst. Secretary


 
CERTIFICATE TO SET FORTH DESIGNATION
 
PREFERENCES, AND RIGHTS OF
 
10% SERIES A CONVERTIBLE PREFERRED STOCK
 
It is hereby certified that:
 
1.   The name of the corporation is Accelerize New Media Inc. (the "Corporation"), a Delaware corporation.
 
II. Set forth hereinafter is .a statement of the voting powers, preferences, limitations, restrictions and relative rights of shares of 10% Series A Convertible Preferred Stock, hereinafter designated as a contained in a resolution of the Board of Directors of the Corporation pursuant to a provision of the Certificate of Incorporation of the Corporation permitting the issuance of said 10% Series A Convertible Preferred Stock by resolution of the Board of Directors:
 
Creation of 10% Series A Convertible Preferred Stock. Pursuant to   authority conferred   upon the Board of Directors by the Certificate of Incorporation, said Board of Directors adopt a resolution providing for the issuance of a series of 50,000 shares of 10% Series A Convertible Preferred Stock pursuant to action by the Board of Directors dated as of August 2, 2006, which resolution is as follows:
 
10% SERIES A CONVERTIBLE PREFERRED STOCK
 
1.    Designation: Number of Shares. The designation of said series of preferred stock shall be 10% Series A Convertible Preferred Stock (the "Series A Preferred Stock"). The number of shares of Series A Preferred Stock shall be 50,000. Each share of Series A Preferred Stock shall have a stated value equal to $15.00 (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the "Stated Value"), and $0.001 par value. The Corporation will not issue more than 50,000 shares of Series A Preferred Stock ("Original Issue").
 
2.    Dividends.
 
(a)    The Holders of outstanding shares of Series A Preferred Stock ("Holders") shall be entitled to receive preferential dividends out of any assets of the Corporation at the time legally available therefor, before any dividend or other distribution will be paid or declared and set apart for payment on any shares of any Common Stock, or other class of stock presently authorized or to be authorized (the Common Stock, and such   other stock being   hereinafter collectively the "Junior   Stock") dividends at the rate of 10% per annum on the Stated Value, payable quarterly in arrears on each of September I, December 1, March 1 and June 1, commencing on the first quarter after the issuance dated beginning September 1, 2006 in cash or shares of the Corporation's Common Stock. If the Corporation elects to pay any dividend in shares of Common Stock, the number of shares of Common Stock to be issued to the Holder shall be an amount equal to the quotient of (i) the dividend payment divided by (ii) $0.15 per share.
 
(b)    The dividends on the Series A Preferred Stock, at the rate provided above, shall be cumulative whether or not declared so that, if at any time full cumulative dividends at the rate aforesaid on all shares of the Series A Preferred Stock then outstanding, from the date from and after which dividends thereon are cumulative   to the end of the   quarterly dividend   period next preceding such time shall not have been paid or declared and set apart for payment, or if the full dividend on all such outstanding Series A Preferred Stock for the then current dividend period shall not have been paid or declared and set apart for payment, the amount of the deficiency shall be paid or declared and set apart for
 
 
payment before any sum shall be set apart for or applied by the Corporation or a subsidiary of the Corporation to the purchase, redemption or other acquisition of any Junior Stock.

(c) Dividends on all shares of the Series A Preferred Stock shall begin to accrue and be cumulative from and after the date of issuance thereof. A dividend period shall be deemed to commence on the day following a dividend payment date herein specified and to end on the next succeeding dividend payment date herein specified.

3. Liquidation.

(a)    Upon the dissolution, liquidation or winding-up of the Corporation, whether voluntary or involuntary, the Holders of the Series A Preferred Stock shall be entitled to receive before any payment or distribution shall be made on Junior Stock, out of the assets of the Corporation available for distribution to stockholders, the Stated Value per share of Series A Preferred Stock and all accrued and unpaid dividends to and   including th e year-end of the   year of redemption. Upon the   payment in full   of all amounts due to Holders of   the Series A Preferred   Stock, the holders of the   Common Stock of the Corporation and any other class of Junior Stock shall receive all remaining assets of the Corporation legally available for distribution. If the assets of the Corporation   available for   distribution to the Holders of the Series A Preferred   Stock shall be insufficient to permit payment in   full of the amounts payable as aforesaid to the Holders of Series A Preferred Stock upon such liquidation, dissolution or winding-up, whether voluntary or involuntary, then all such assets of the Corporation shall be distributed to the exclusion of the holders of shares of Junior Stock ratably among the Holders of the Series A Preferred Stock.

(b)    The purchase or the redemption by the Corporation of shares of any class of its stock, the merger or consolidation of the Corporation with or into any other corporation or entity (other than a merger in which the Corporation is the surviving or continuing corporation and which does not result in any reclassification, conversion, or change of the outstanding shares of Common Stock), or the sale or transfer by the Corporation of all or substantially all of its assets shall be deemed to be a liquidation, dissolution or winding-up of the Corporation for the purposes of this paragraph 3.

4. Conversion into Common Stock. Holders of shares of Series A Preferred Stock shall have the following conversion rights and obligations:

(a)    Subject to the further provisions of this paragraph 4 each Holder of shares of Series A Preferred Stock shall have the right at any time commencing after the issuance to the Holder of Series A Preferred Stock, to convert such shares, accrued and unpaid dividends on such shares, (collectively "Obligation Amount") into fully paid and non-assessable shares of Common Stock of the Corporation determined in accordance with the Conversion Price   provided in   paragraph 4(b) below   (the "Conversion Price"). All issued or accrued but unpaid dividends may be converted at the election of the Holder simultaneously with the conversion of principal amount of Stated Value of Series A Preferred Stock being converted at $0.15 per share, subject to adjustment as set forth in this section.

(b)    The number of shares of Common Stock issuable upon conversion of the Obligation Amount shall equal (i) the sum of (A) the Stated Value per share being converted, and (B) at the Holder's   election, accrued and   unpaid dividends on such share divided by (ii)   the Conversion Price. The Conversion Price shall be $0.15, subject to adjustment as described herein.

(c)    Holder will give notice of its decision to exercise its right to convert the Series A Preferred Stock or part thereof by telecopying an executed and completed Notice of Conversion (a form of which is annexed as Exhibit A to the Certificate of Designation) to the Corporation via confirmed
 
2
telecopier transmission or otherwise pursuant to Section 5.5 of the Subscription Agreement (the "Subscription Agreement") between the Holder and the Corporation which was entered into under the terms of the Corporation's Confidential Private Offering Memorandum dated August 3, 2006. The Holder will not be required to surrender the Series A Preferred Stock certificate until the Series A Preferred Stock has been fully converted. Each date on which a Notice of Conversion is telecopied to the Corporation in accordance with the provisions hereof shall be deemed a Conversion Date. The Corporation will itself or cause the Corporation's transfer agent to transmit the Corporation's Common Stock certificates representing the Common Stock issuable upon conversion of the Series A Preferred Stock to the Holder via express courier for receipt by such Holder within three (3) business days after receipt by the Corporation of the Notice of Conversion (the "Delivery Date"). In the event the Common Stock is electronically transferable, then delivery of the Common Stock must be made by electronic transfer provided request for such electronic transfer has been made by the Holder. A Series A Preferred Stock certificate representing the balance of the Series A Preferred Stock not so converted will be provided by the Corporation to the Holder if requested by Holder, provided the Holder has delivered the original Series A Preferred Stock certificate to the Corporation. To the extent that a Holder elects not to surrender Series A Preferred Stock for reissuance upon partial payment or conversion, the Holder hereby indemnifies the Corporation against any and all loss or damage attributable to a third-party claim in an amount in excess of the actual amount of the Stated Value of the Series A Preferred Stock then owned by the Holder.

In the case of the exercise of the conversion rights set forth in paragraph 4(a), the conversion privilege shall be deemed to have been exercised and the shares of Common Stock issuable upon such conversion shall be deemed to have been issued upon the date of receipt by the Corporation of the Notice of Conversion. The person or entity entitled to receive Common Stock issuable upon such conversion shall, on the date such conversion privilege is deemed to have been exercised and thereafter, be treated for all purposes as the record holder of such Common Stock and shall on the same date cease to be treated for any purpose as the record holder of such shares of Series A Preferred Stock so converted.

Upon the conversion of any shares of Series A Preferred Stock, no adjustment or payment shall be made with respect to such converted shares on account of any dividend on the Common Stock, except that the holder of such converted shares shall be entitled to be paid any dividends declared on shares of Common Stock after conversion thereof.

The Corporation shall not be required, in connection with any conversion of Series A Preferred Stock, and payment of   dividends on Series A Preferred Stock to issue a fraction of a share of its Series A Preferred Stock or Common Stock and shall instead deliver a stock certificate representing the nearest whole number.

(d)   The Conversion Price   determined pursuant to   Paragraph 4(b) shall be subject to adjustment from time to time as follows:

(i) In case the Corporation shall at any time (A) declare any dividend or distribution on its Common Stock or other securities of the Corporation other than the Series A Preferred Stock, (B) split or subdivide the outstanding Common Stock, (C) combine the outstanding Common Stock into a smaller number of shares, or (D) issue by reclassification of its Common Stock any shares or other securities of the Corporation, then in each such event the Conversion Price shall be adjusted proportionately so that the Holders of Series A Preferred Stock shall be entitled to receive the kind and number of shares or other securities of the Corporation which such Holders would have owned or have been entitled to receive after the   happening of any of the events described above had such shares of Series A Preferred Stock been converted immediately prior to the happening of such event (or any record date with respect thereto). Such adjustment shall be made whenever any of the events listed above shall occur.
 
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An adjustment made to the Conversion Price pursuant to this paragraph 4(d)(i) shall become effective immediately after the effective date of the event.

(ii) For so long as Series A Preferred Stock is outstanding, without the prior written consent of the holders of at least a majority of the outstanding shares of Series A Preferred Stock the Corporation cannot (a) issue or sell, or deem to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Corporation); or (b)   grant or sell   or reprice any   options or   convertible securities (but excluding shares of Common Stock, options or convertible securities issued or deemed to have been issued by the Corporation in connection with an   Approved Stock Plan) for a consideration per share less than $0.15 per share. "Approved Stock Plan" means any employee benefit plan which has been approved by the Board of Directors of the Corporation, pursuant to which the Corporation's securities may be issued to any employee, officer or director for services provided to the Corporation in that capacity.

(e)   (i) In case of any merger of the Corporation with or into any other corporation or entity (other than a merger in which the Corporation is the surviving or continuing corporation and which does not result in any reclassification, conversion, or change of the outstanding shares of Common Stock) then unless the right to convert shares of Series A Preferred Stock shall have terminated as part of such merger, lawful provision shall be made so that Holders of Series A Preferred Stock shall thereafter have the right to convert each share of Series A Preferred Stock into the kind and amount of shares of stock and/or other securities or property receivable upon such merger by a Holder of the number of shares of Common Stock into which such shares of Series A Preferred Stock might have been converted immediately prior to such consolidation or merger. Such provision shall also provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in sub-paragraph (d) of this paragraph 4. The foregoing provisions of this paragraph 4(e) shall similarly apply to successive mergers.

(ii) In case of any sale or conveyance to another person or entity of the property of the Corporation as an entirety, or substantially as an entirety, in connection with which shares or other securities or cash or other property shall be issuable, distributable, payable, or deliverable for outstanding shares of Common Stock, then, unless the right to convert such shares shall have terminated, lawful provision shall be made so that the Holders of Series A Preferred Stock shall thereafter have the right to convert each share of the Series A Preferred Stock into the kind and amount of shares of stock or other securities or property that shall be issuable, distributable, payable, or deliverable upon such sale or conveyance with respect to each share of Common Stock immediately prior to such conveyance.

(f)   Whenever the number of shares to be issued upon conversion of the Series A Preferred Stock is required to be adjusted as provided in this paragraph 4, the Corporation shall forthwith compute the adjusted number of shares to be so issued and   prepare a   certificate setting forth such adjusted conversion amount and the   facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Transfer Agent for the Series A Preferred Stock and the Common Stock; and the Corporation shall mail to each Holder of record of Series A Preferred Stock notice of such adjusted conversion price.

(g)   In case at any time the Corporation shall propose:

(i)    to pay any dividend or distribution payable in shares upon its Common Stock or make any distribution (other than cash dividends) to the holders of its Common Stock; or

(ii)    to offer for subscription to the holders of its Common Stock any additional shares of any class or any other rights; or
 
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(iii)    any capital reorganization or reclassification of its shares or the merger of the Corporation with another   corporation or entity (other than a merger in which the Corporation is the surviving or continuing corporation and which does not result in any reclassification, conversion, or change of the outstanding shares of Common Stock); or

(iv)    the voluntary dissolution, liquidation or winding-up of the Corporation;

then, and in any one or more of said cases, the Corporation shall cause at least fifteen (15) days prior notice of the date on which (A) the books of the Corporation shall close or a record be taken for such stock dividend, distribution, or subscription rights, or (B) such capital reorganization, reclassification, merger, dissolution, liquidation or winding-up shall take place, as the case may be, to be mailed to the Transfer Agent for the Series A Preferred Stock and for the Common Stock and to the Holders of record of the Series A Preferred Stock.

(h) The term "Common Stock" as used in this Certificate of Amendment shall mean the $0.001 par value Common Stock of the Corporation as such stock is constituted at the date of issuance   thereof or as it may from time to time be changed, or shares of stock of any class or other securities and/or property into which the shares of Series A Preferred Stock shall at any time become convertible pursuant to the provisions of this paragraph 4.

(i) The Corporation shall pay the amount of any and all issue taxes (but not income taxes) which may be imposed in respect of a4 issue or delivery of stock upon the conversion of any shares of Series A Preferred Stock, but all transfer taxes and income taxes that may be payable in respect of any change of ownership of Series A Preferred Stock or any rights represented thereby or of stock receivable upon conversion thereof, shall be paid by the person or persons surrendering such stock for conversion.

(j)    In the event a Holder shall elect to convert any shares of Series A Preferred Stock as provided herein, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, or for any other reason unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of said shares of Series A Preferred Stock shall have been issued and the Corporation posts a surety bond for the benefit of such Holder in the Obligation Amount sought to be converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder in the event it obtains judgment.

(k)    In addition to any other rights available to the Holder, if at the time of an optional conversion of the Series A Preferred Stock by the Holder the Corporation's Common Stock is listed on an exchange quoted on The Nasdaq Stock Market, Inc. or in the over the counter market and the Corporation fails to deliver to the Holder such certificate or certificates pursuant to Section 4(c) by the Delivery Date and if within seven (7) business days after the Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Common Stock which the   Holder anticipated receiving   upon such conversion (a "Buy-In"), then the Corporation shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) within five (5) business days after written notice from the Holder, the amount by which (A) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate Stated Value of the shares of Series A Preferred Stock for which such conversion was not timely honored, together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if the Holder purchases shares of Common Stock
 
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having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of Stated Value of Series A Preferred Stock, the Corporation shall be required to pay the Holder $1,000, plus interest. The Holder shall provide the Corporation written notice indicating the amounts payable to the Holder in respect of the Buy-In.

(1) If at any time after the Corporation's Common Stock is approved for listing on an exchange or   quoted on The   Nasdaq Stock Market, Inc. or in the over   the counter market, if   ever, and the average closing price of the Corporation's 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 as reported by such exchange (the "Measurement Date"), The Nasdaq Stock Market, Inc. or by the over the counter market on which the Corporation's Common Stock is listed or quoted, then, at the Corporation's sole option, upon 30 days prior notice to the Holder in accordance with Section 11 of the Subscription Agreement the shares of Series A Preferred Stock are subject to mandatory conversion by the Corporation pursuant to the provisions of this Section provided that such notice is given within 30 days of the Measurement Date.

5. Voting Rights. The Holders of all outstanding shares of Series A Preferred Stock will vote together with holders of Corporation's Common Stock on all matters submitted to a vote of the Corporation's stockholders. Each share of Series A Preferred Stock is entitled to the number of votes which equals the number of shares of Common Stock into which it is then convertible.

6. Restrictions and Limitations. The Corporation shall not amend its certificate of incorporation without the approval by the Holders of at least a majority of the then outstanding shares of Series A Preferred Stock if such amendment would:

(a)    change the relative seniority rights of the Holders of Series A Preferred Stock as to the payment of dividends in relation to the holders of any other capital stock of the Corporation, or create any other class or series of capital stock entitled to seniority as to the payment of dividends in relation to the Holders of Series A Preferred Stock;

(b)    reduce the amount payable to the Holders of Series A Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, or change the relative seniority of the liquidation preferences of the Holders of Series A Preferred Stock to the rights upon liquidation of the holders of other capital stock of the   Corporation, or change the dividend rights of the Holders of Series A Preferred Stock;
 
(c)    cancel or modify the conversion rights of the Holders of Series A Preferred Stock provided for in Section 4 herein;
 
(d)    reduce or modify the voting rights of the Holders of Series A Preferred Stock provided for in Section 5 herein; or
 
(e)    cancel or modify the rights of the Holders of the Series A Preferred Stock provided for in this Section 6.

7.   Redemption. The Series A Preferred Stock is not redeemable.

8. Status of Converted or Redeemed Stock. In case any shares of Series A Preferred Stock shall be converted or otherwise reacquired, the shares so converted or reacquired shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series A Preferred Stock.
 
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9.      Authority to Amend. This Certificate of Amendment was adopted by the Corporation's Board of Directors on August 2, 2006, and no stockholder consent was required for the adoption thereof pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of said Corporation.
 
10.      Registration Rights. If at any time, or from time to time, during the five year period following the issuance of the Series A Preferred the Corporation shall determine to prepare and file with the Securities and Exchange Commission ("SEC"), a registration statement relating to an offering for its own account or the account of others under the Securities Act of 1933 of any of its equity securities or debt or their then equivalents (the " Registration Statement"), then the Corporation shall send to the Holders a written notice of such determination and, if within ten (10) days after receipt by the Holders, the Corporation shall receive a request in writing from the Holder, the Corporation shall include in such Registration Statement all or any part of the shares of Common Stock underlying the Series A Preferred Stock (the "Registerable Securities”) such Holder requests to be registered, provided however, that (a) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Corporation determines for any reason not to proceed with such registration, the Corporation shall be relived of its obligation to register any of the Registerable Securities in connection with such registration, and (B) in case of a determination by the Corporation to delay registration of its securities, the Corporation will be permitted to delay the registration of such Registerable Securities for the same period as the delay in registering such other securities, in any such case without any obligation or liability to the Holder.
 
IN WITNESS WHEREOF, the undersigned, being the President of this Corporation, has executed this Certificate as of August 2, 2006.
 
ACCELERIZE NEW MEDIA INC.  
 
 
By: /s/ Brian Ross
Brian Ross, President
 

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EXHIBIT A
 
NOTICE OF CONVERSION

(To Be Executed By the Registered Holder   in Order to Convert the Series A Convertible Preferred Stock of Accelerize New Media Inc.)

The undersigned hereby irrevocably elects to convert $___________ of the Stated Value of the above 10% Series A Convertible Preferred Stock into shares of Common Stock of Accelerize New Media Inc. according to the conditions hereof, as of the date written below.

Date of Conversion:______________________________________________________________________________


Applicable Conversion Price Per Share:________________________________________________________________


Number of Common Shares Issuable Upon This Conversion:________________________________________________
 
Select one:
 
 
o   A 10% Series A Convertible Preferred Stock certificate is being delivered herewith. The unconverted portion of such certificate should be' reissued and delivered to the undersigned.

o   A 10% Series A Convertible Preferred Stock certificate is not being delivered to Accelerize New Media Inc.

Signature:______________________________________________________________________________________


Print Name:_____________________________________________________________________________________


Address:_______________________________________________________________________________________
 
______________________________________________________________________________________________________________
 
Deliveries Pursuant to this Notice of Conversion Should Be Made to:
 
______________________________________________________________________________________________________________
 
______________________________________________________________________________________________________________
 
______________________________________________________________________________________________________________
 
 
 
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CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE TO SET FORTH
DESIGNATIONS, PREFERENCES AND RIGHTS OF
10% SERIES A CONVERTIBLE PREFERRED STOCK


It is hereby certified that:

I.   The name of the Corporation is Accelerize New Media Inc. (the " Corporation"), a Delaware corporation.

II.   The Corporation has heretofore filed with the Secretary of State of Delaware a Certificate to Set Forth Designations, Preferences and Rights of 10% Series A Convertible Preferred Stock creating a series.eonsisting of 50,000 shares.

III.   The Corporation's Board of Directors and holders of all the issued and outstanding shares of 10% Series A Convertible Preferred Stock have, by written consent dated September 15, 2006, approved an amendment to the Certificate to Set Forth Designations, Preferences and Rights of 10% Series A Convertible Preferred Stock increasing the number of shares constituting such series from 50,000 shares to 54,000 shares.

IV.   Article I of the Certificate to Set Forth Designations, Preferences and Rights of 10% Series A Convertible Preferred Stock be, and it hereby is, deleted in its entirety and substituted with the following:

1. Designation: Number of Shares. The designation of said series of preferred stock shall be 10% Series A Convertible Preferred Stock (the "Series A Preferred Stock"). The number of shares of Series A Preferred Stock shall be 54,000. Each share of Series A Preferred Stock shall have a stated value equal to $15.00 (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the "Stated Value"), and $0.001 par value. The Corporation will not issue more than 54,000 shares of Series A Preferred Stock ("Original Issue").

V.   This Certificate of Amendment was adopted by the Corporation's Board of Directors and holders of all outstanding shares of 10% Series A Convertible Preferred Stock on September 15, 2006, and no consent of the Corporation's common stockholders was required for the adoption thereof pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of said Corporation.

IN WITNESS WHEREOF, the undersigned, being the President of this Corporation, has executed this Certificate of Amendment as of December 20 th , 2006.

ACCELERIZE NEW MEDIA, INC.
 
By: /s/ Brian Ross
Brian Ross, President
 
 
 
 
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Exhibit 3.2

 
BYLAWS
 
OF
 
Accelerize New Media Inc.


ARTICLE I
 
Stockholders

Section 1.1. Annual Meetings. An annual meeting of stockholders shall be held for the election of directors on a date and at a time and place either within or without the State of Delaware fixed by resolution of the Board of Directors. Any other proper business may be transacted at the annual meeting.

Section 1.2. Special Meetings. Special meetings of the stockholders may be called ' at any time by the Board of Directors, the Chairman of the Board or the holders of shares entitled to cast not less than ten percent of the votes at the meeting, such meeting to be held on a date and at a time and place either within or without the State of Delaware as may be stated in the notice of the meeting.

Section 1.3. Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote thereat. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Such notice shall state the place, date and hour of the meeting, and in the case of a special meeting, the general purpose for which the meeting is called.

Section 1.4. Adjournments. Any meeting of stockholders may be adjourned from time to time, to reconvene at the same or some other place. Notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corpora-tion may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 1.5. Quorum. At each meeting of stockholders, except where otherwise provided by law or the certificate of incorporation or these bylaws, the holders of a majority of the outstanding shares of stock entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the stockholders. In the absence of a quorum, any meeting of stockholders may be adjourned from time to time by the vote of
 

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a majority of the shares represented either in person or by proxy until a quorum is present or represented. Shares of its own capital stock belonging to the Corporation or to another corporation where the majority of the voting power is held by the Corporation shall nether be entitled to vote nor counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

Section 1.6. Organization. Meetings of stockholders shall be presided over by the Chairman of the Board of Directors, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary, an Assistant Secretary, shall act as secretary of the meeting, or in their absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 1.7. Voting. Unless otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share held by such stockholder which has voting power upon the matter in questions. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all other matters, unless otherwise provided by law or by the certificate of incorporation or these bylaws, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the subject matter at a meeting in which a quorum is present shall be the act of the stockholders. Where a separate vote by class or classes is required, the affirmative vote of the holders of a majority of the shares of such class or classes present in person or represented by proxy shall be the act of such class or classes, except as otherwise provided by law or by the certificate of incorporation or these bylaws.

Section 1.8. Stockholder's Proxies. Every person entitled to vote or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act by proxy with respect to such shares. No proxy shall be valid after the expiration of three years from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it. Such revocation may be effected by a writing delivered to the Corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting by attendance at such meeting and voting in person by the person executing the proxy.
 

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Section 1.9. Fixing Date for Determination of   Stockholders of Record. In order that the corporation may determine the stockholders entitled to notice of any meeting, the Board of Directors may fix a record date, which shall not be more than sixty nor less than ten days prior to the date of such meeting, nor shall the record date precede the date upon which the resolution fixing the record date is adopted by the Board of Directors. In order that the corporation may determine the stockholders entitled to consent to corporate action without a meeting, the Board of Directors may fix a record date, which shall not precede, or be more than 10 days after, the date upon which the resolution fixing the record date is adopted by the Board of Directors. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or of any other lawful action, the Board of Directors may fix a record date, which shall not be more than sixty days prior to such action.

If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; (2) the record date fig determining stockholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given; if prior action by the Board is required, then the record date shall be the close of business on the date the Board of Directors adopts the resolution taking such prior action, and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

Section 1.10. Consent of Stockholders in Lieu of   Meeting. Except as otherwise provided in the certificate of incorporation, any action which may be taken at any annual or special meeting of the stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and shall be delivered to the Corporation. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective unless, within 60 days of the earliest consent, written consents signed by a sufficient number of holders have been delivered to the Corporation.

Unless all stockholders entitled to vote consent in writing, prompt notice of any stockholder approval without a meeting shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that sufficient consents were delivered to the Corporation.
 

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ARTICLE II
 
Board of Directors

Section 2.1. Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by, and all corporate powers shall be exercised by or under, the direction of the Board of Directors, except as otherwise provided by laws or in the certificate of incorporation. The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by the Board.

Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies. Each director shall hold office until a successor has been elected and qualified or until his or her earlier resignation or removal. Any director may resign effective upon giving written notice to the Chairman of the Board, the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any or all of the directors may be removed, with or without cause if such removal is approved by a majority of the outstanding voting shares then entitled to vote on the election of directors. Unless otherwise provided in the certificate of incorporation or in these bylaws, vacancies and newly-created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director.

Section 2.3. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given.

Section 2.4. Special Meetings; Notice of Meetings; Waiver of Notice. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, by the Vice Chairman of the Board, if any, or by any two directors. Reasonable notice shall be given by the person or persons calling the meeting unless a director signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting the lack of notice prior to the meeting or at its commencement.

Section 2.5. Participation in Meetings by Conference Telephone   Permitted. Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, through the use of conference telephone or similar communications equipment by means of which all members participating in such meeting can hear one another, and participation in a meeting pursuant to this Section 2.5 shall constitute presence in person at such meeting.

Section 2.6. Quorum; Adjournment; Vote Required for Action. At all meetings of the Board of Directors a majority of the authorized number of directors shall
 

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constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be shall be the act of the Board unless the certificate of incorporation or these by-laws shall require a vote of a greater number.

Section 2.7. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in their absence by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8. Action by Directors Without a Meeting. Any action required or permitted to be taken by the Board of Directors, or any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent in writing to such action and such consent is filed with the minutes of the proceedings of the Board.

Section 2.9. Compensation of Directors. The Board of Directors shall have the authority to fix the compensation of directors for services in any capacity.


ARTICLE III
 
Committees

Section 3.1. Committees of Directors. The Board of Directors may designate one or more committees, each consisting of one or more directors. Any committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board, except that no such committee shall have power or authority with respect to the following matters:

(1)   Approving or adopting, or recommending to the stockholders, any action or matter expressly required by Delaware General Corporation Law to be submitted to the stockholders for approval; or

(2)   The amendment or repeal of the by-laws, or the adoption of new by-laws.

Section 3.2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board of Directors or a provision in the rules of such committee to the contrary, each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these by-laws.
 

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ARTICLE IV
 
Officers

Section 4.1. Officers; Election. As soon as practicable after the annual meeting of stockholders in each year, the Board of Directors shall elect a President and a Secretary, and if it so determines, elect from among its members a Chairman of the Board and a Vice Chairman of the Board. The Board may also elect one or more Vice Presidents, one or more Assistant Secretaries, and such other officers as the Board may deem desirable or appropriate and may give any of them such further designations or alternate titles as it considers desirable. Any number of offices may be held by the same person.

Section 4.2. Term of Office; Resignation; Removal; Vacancies. Except as otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board or to the Chairman of the Board or the Secretary of the Corporation. Such resignation shall take effect at the , time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board at any regular or special meeting.

Section 4.3. Powers and Duties. The officers of the Corporation shall have such powers and duties in the management of the corporation as shall be stated in these by-laws or in a resolution of the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board. The Secretary shall have the duty to record the proceedings of the meetings of the stockholders, the Board of Directors and any committees in a book to be kept for that purpose. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties.


ARTICLE V

Forms of Certificates; Loss
and Transfer of Shares

Section 5.1. Forms of Certificates. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by (1) the President, any Vice President, Chairman of the Board or Vice Chairman, and (2) by the Chief Financial Officer, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary. Each certificate shall state the number of shares and the class or series of
 

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shares owned by such stockholder. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

If the Corporation is authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences, relative or other special rights, qualifications, restrictions and limitations of each class or series shall be set forth in full or summarized on the face or back of the certificate representing such class or series of stock, provided that in lieu of the foregoing, there may be set forth on the back or face of the certificate a statement that the Corporation will furnish without charge to each stockholder who requests the powers, designations, preferences, relative or other special rights, qualifications, restrictions and limitations of such class or series.

Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of   New Certificates. The corporation mayjssue a new share certificate or a new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.


ARTICLE VI
 
Records

Section 6.1 Records. The Corporation shall keep a stock ledger, a list of stockholders an other books and records as may be required to run the corporation. The Secretary shall have the duty to record the proceedings of the meetings of the stockholders, the Board of Directors and any committees in a book to be kept for that purpose.

Section 6.2. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, computer discs, magnetic tape, photographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.
 

 
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ARTICLE VII
 
Miscellaneous

Section 7.1. Fiscal Year. The fiscal year of the corporation shall be determined by the Board of Directors.

Section 7.2. Seal. The corporation may have a corporate seal which shall have the name of the corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

Section 7.3. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before of after the time stated therein, shall be deemed equivalent of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the r person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless required in the certificate of incorporation or these bylaws.

Section 7.4. Interested Directors; Quorum. No contract or transaction between the corporation and one or more of its directors or between the Corporation and any other corporation, firm or association in which one or more of its directors are directors, or have a financial interest, shall be void or voidable solely for this reason, or solely because such director or directors are present at the meeting of the Board of Directors or committee thereof which authorizes, approves or ratifies the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are fully disclosed or are known to the Board or the committee, and the Board or committee authorizes, approves or ratifies the contract or transaction in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are fully disclosed or are known to the stockholders and such contract or transaction is specifically approved by the stockholders in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.
 

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Section 7.5. Indemnification. The Corporation shall have the power to indemnify to the full extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person's testator or instate is or was a director, officer or employee of the Corporation or serves or served at the request of the Corporation as a director, officer, employee or agent of another enterprise. Expenses, including attorneys' fees, incurred by any such person in defending against such action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding by the Corporation upon receipt by it of an undertaking of such person to repay such expenses if it shall be ultimately determined that such person is not entitled to be indemnified by the Corporation. For purposes of this Section 7.5, the term "Corporation" shall include any , predecessor of the Corporation and any constituent corporation absorbed by the Corporation in consolidation or merger; the term "other enterprise" shall include any corporation, partnership, joint venture, trust or employee benefit plan; service "at the request of the Corporation" shall include services as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person reasonable believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation.

Section 7.6. Amendment of By-Laws. These bylaws may be amended or repealed, and new bylaws adopted, by the Board of Directors. The stockholders entitled to vote, however, retain the right to adopt additional by-laws and may amend or repeal any by-law whether or not adopted by them.
 
 
 
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Exhibit 4.1
 
 
 
 
 

For Value Received, ___________ hereby sell, assign and transfer unto __________________________________________________________ Shares represented by the within Certificate and do hereby irrevocably constitute and appoint _______________________________________________ Attorney to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises.

Dated ___________________

In presence of ________________________________
 
 
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
 
 
Exhibit 4.2
 
 
 

Exhibit 4.3

FORM OF COMMON STOCK PURCHASE WARRANT

THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ACCELERIZE NEW MEDIA, INC. THAT SUCH REGISTRATION IS NOT REQUIRED .

 
Right to Purchase ________ shares of Common Stock of Accelerize New Media, Inc. (subject to adjustment as provided herein)

FORM OF COMMON STOCK PURCHASE WARRANT
 
 
No. _____
 Issue Date: ___________, 2006
             
ACCELERIZE NEW MEDIA, INC., a corporation organized under the laws of the State of Delaware (the “Company”), hereby certifies that, for value received, __________ or its assigns (the “Holder”) is entitled, subject to the terms set forth below, to purchase from the Company at any time after the issue date (the “Issue Date”) until 5:00 p.m., E.S.T on the seventh (7th) anniversary of the Issue Date (the “Expiration Date”), ________ fully paid and nonassessable shares of Common Stock at a per share purchase price of $0.15. The aforedescribed purchase price per share, as adjusted from time to time as herein provided, is referred to herein as the “Purchase Price.” The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. The Company may reduce the Purchase Price without the consent of the Holder. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Subscription Agreement (the “Subscription Agreement”) entered into by the Company and Holder of the Warrant.

As used herein the following terms, unless the context otherwise requires, have the following respective meanings:

(a)   The term “Company” shall include Accelerize New Media, Inc. and any corporation which shall succeed or assume the obligations of Accelerize New Media, Inc. hereunder.

(b)   The term “Common Stock” includes (a) the Company’s Common Stock, $0.001 par value per share, as authorized on the date of the Subscription Agreement, and (b) any other securities into which or for which any of the securities described in (a) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

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(c)   The term “Other Securities” refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 herein or otherwise.

(d)   The term “Warrant Shares” shall mean the Common Stock issuable upon exercise of this Warrant.

1.   Exercise of Warrant .

1.1.   Number of Shares Issuable upon Exercise . From and after the Issue Date through and including the Expiration Date, the Holder hereof shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of subsection 1.2 or upon exercise of this Warrant in part in accordance with subsection 1.3, shares of Common Stock of the Company, subject to adjustment pursuant to Section 4.

1.2.   Full Exercise . This Warrant may be exercised in full by the Holder hereof by delivery of an original or facsimile copy of the form of subscription attached as Exhibit A hereto (the “Subscription Form”) duly executed by such Holder and surrender of the original Warrant within four (4) days of exercise, to the Company at its principal office or at the office of its Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire transfer or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect.
 
1.3.   Partial Exercise . This Warrant may be exercised in part (but not for a fractional share) by surrender of this Warrant in the manner and at the place provided in subsection 1.2 except that the amount payable by the Holder on such partial exercise shall be the amount obtained by multiplying (a) the number of whole shares of Common Stock designated by the Holder in the Subscription Form by (b) the Purchase Price then in effect. On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the Holder hereof a new Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon payment by such Holder of any applicable transfer taxes) may request, the whole number of shares of Common Stock for which such Warrant may still be exercised.
 
1.4.   Fair Market Value . Fair Market Value of a share of Common Stock as of a particular date (the “Determination Date”) shall mean:
 
(a)   If the Company’s Common Stock is traded on an exchange or is quoted on The Nasdaq Stock Market, Inc., then the last sale price reported for the last business day immediately preceding the Determination Date;
 
(b)   If the Company’s Common Stock is not traded on an exchange or quoted on The Nasdaq Stock Market, Inc. but is traded in the over-the-counter market, then the average of the closing bid and ask prices reported for the last business day immediately preceding the Determination Date;
 
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(c)   Except as provided in clause (d) below, if the Company’s Common Stock is not publicly traded, then as the Holder and the Company agree, or in the absence of such an agreement, by arbitration in accordance with the rules then standing of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided; or
 
(d)   If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company’s charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding at the Determination Date.
 
1.5.   Company Acknowledgment . The Company will, at the time of the exercise of the Warrant, upon the request of the Holder hereof acknowledge in writing its continuing obligation to afford to such Holder any rights to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights.
 
1.6.   Delivery of Stock Certificates, etc. on Exercise . The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share of Common Stock, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
 
1.7   Cashless Exercise .
 
(a)   Except as described below, if a Registration Statement (as herein after defined) is effective and the Holder may sell its shares of Warrant Shares upon exercise hereof pursuant to the Registration Statement, this Warrant may be exercisable in whole or in part for cash only as set forth in this Section 1. If no such Registration Statement is available during the time that such Registration Statement is required to be effective pursuant to the terms of Section 8 hereof,, then payment upon exercise may be made at the option of the Holder either in (i) cash, wire transfer or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Purchase Price, (ii) by cashless exercise in accordance with Section (b) below or (iii) by a combination of any of the foregoing methods, for the number of Warrant Shares specified in such form (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the holder per the terms of this Warrant) and the holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein.
 
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(b)   If the Fair Market Value of one share of Common Stock is greater than the Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Subscription Form in which event the Company shall issue to the holder a number of shares of Common Stock computed using the following formula:
 
X= Y (A-B)
 A    

                     Where X= the number of shares of Common Stock to be issued to the holder
 
 
Y=
the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)
 
 
A=
the Fair Market Value of one share of the Company’s Common Stock (at the date of such calculation)
 
 
B=
Purchase Price (as adjusted to the date of such calculation)
 
a.   For purposes of Rule 144 promulgated under the Securities Act of 1933 ("Securities Act"), it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Subscription Agreement.
 
2.   Adjustments.
 
2.1.   Reorganization, Consolidation, Merger, etc . In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1, at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 3.

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2.2.   Dissolution . In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable in accordance with Section 2.1 by the Holder of the Warrants upon their exercise after the effective date of such dissolution pursuant to this Section 2.

2.3   Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock or Common Stock Derivatives . So long as this Warrant is outstanding, if Company (a) issues or sells, or is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company); or (b) issues or sells or reprices any options or convertible securities (but excluding shares of Common Stock, options or convertible securities issued or deemed to have been issued by the Company in connection with an Approved Stock Plan) for a consideration per share less than a price (the “Applicable Price”) equal to the Purchase Price in effect immediately prior to such issuance or sale or repricing, then immediately after such issue or sale the Purchase Price shall be reduced to the Applicable Price. “Approved Stock Plan” means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, officer or director for services provided to the Company in that capacity.

2.4.   Continuation of Terms . Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 2, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the Other Securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any Other Securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 3. In the event this Warrant does not continue in full force and effect after the consummation of the transaction described in this Section 2, then only in such event will the Company’s securities and property (including cash, where applicable) receivable by the Holder of the Warrants be delivered to the Trustee as contemplated by Section 2.2.

3.   Extraordinary Events Regarding Common Stock . In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 3. The number of shares of Common Stock that the Holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 3) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section 3) be in effect, and (b) the denominator is the Purchase Price in effect on the date of such exercise.
 
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4.   Certificate as to Adjustments . In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of the Warrant and any Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
 
5.   Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements . The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. This Warrant entitles the Holder hereof to receive copies of all financial and other information distributed or required to be distributed to the holders of the Company’s Common Stock.
 
6.   Assignment; Exchange of Warrant . Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”). On the surrender for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement Form”) and together with an opinion of counsel reasonably satisfactory to the Company that the transfer of this Warrant will be in compliance with applicable securities laws, the Company at its expense, twice, only, but with payment by the Transferor of any applicable transfer taxes, will issue and deliver to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a “Transferee”), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. No such transfers shall result in a public distribution of the Warrant.
 
7.   Replacement of Warrant . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense, twice only, will execute and deliver, in lieu thereof, a new Warrant of like tenor.

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8.   Registration Rights . If at any time, or from time to time, during the five year period following the issuance of the Warrant the Company shall determine to prepare and file with the Securities and Exchange Commission (“SEC”), a registration statement relating to an offering for its own account or the account of others under the Act of any of its equity securities or debt or their then equivalents (the “Registration Statement”), then the Company shall send to the Holder a written notice of such determination and, if within ten (10) days after receipt by the Holder, the Company shall receive a request in writing from the Holder, the Company shall include in such Registration Statement all or any part of such Warrant Shares such Holder requests to be registered, provided however, that (a) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company determines for any reason not to proceed with such registration, the Company shall be relived of its obligation to register any Warrant Shares in connection with such registration, and (B) in case of a determination by the Company to delay registration of its securities, the Company will be permitted to delay the registration of the Warrant Shares for the same period as the delay in registering such other securities, in any such case without any obligation or liability to the Holder.

9.   Warrant Agent . The Company may, by written notice to the Holder of the Warrant, appoint an agent (a “Warrant Agent”) for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 6, and replacing this Warrant pursuant to Section 7, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such Warrant Agent.

10.   Transfer on the Company’s Books . Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.
 
11.   Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur or (c) three business days after deposited in the mail if delivered pursuant to subsection (ii) above . The addresses for such communications shall be: (i) if to the Company to: 6477 Highway 93 South, Suite 303, Whitefish, MT 59937, telecopier: (406) 892-2162, and (ii) if to the Holder, to the addresses and telecopier number set forth in the first paragraph of this Warrant. The Company may change its address for notices but only to an address and fax number located in the United States.

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12.   Miscellaneous . This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the laws of New Jersey. Any dispute relating to this Warrant shall be adjudicated in Monmouth County in the State of New Jersey. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.
 
ACCELERIZE NEW MEDIA, INC.


By: _______________________________
Name: _____________________________
Title: ______________________________
 
Witness:
 
 
_____________________________

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Exhibit A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
 
TO:   ACCELERIZE NEW MEDIA, INC.
 
The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

___
________ shares of the Common Stock covered by such Warrant; or
 
___
the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 1.

The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes):

___
$__________ in lawful money of the United States; and/or
 
___
the cancellation of the Warrant to the extent necessary, in accordance with the formula set forth in Section 1, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 1.

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _____________________________________________________ whose address is__________________________________________________________________________

The undersigned represents and warrants that the representations and warranties in Section 4 of the Subscription Agreement (as defined in this Warrant) are true and accurate with respect to the undersigned on the date hereof.

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act, or pursuant to an exemption from registration under the Securities Act.

Dated: _______________________________

 
__________________________________________
(Signature must conform to name of holder as
specified on the fact of the Warrant.)
 
_________________________________________________
 
_________________________________________________
(Address)
 
 
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Exhibit B

FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
 
For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of ACCELERIZE NEW MEDIA, INC. to which the within Warrant relates specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of ACCELERIZE NEW MEDIA, INC. with full power of substitution in the premises.
 
Transferees
Percentage Transferred
Number Transferred
     
     
     


Dated: ______________, ___________
 
 
Signed in the presence of:
 
_____________________________________
           (Name)
 
 
ACCEPTED AND AGREED:
[TRANSFEREE]
 
 
________________________________
           (Name)
____________________________________________
(Signature must conform to name of holder as specified
 on the face of the warrant)
 
 
____________________________________________
____________________________________________
           (address)
 
____________________________________________
____________________________________________
           (address)

 
 
10




Exhibit 5.1

[Form of Legal Opinion]
 
Sullivan & Worcester LLP
1290 Avenue of the Americas, 29 th Floor
New York, NY 10104

December ___, 2006

 
Accelerize New Media, Inc.
6477 Highway 93 South, Suite 303
Whitefish, Montana 59937


Ladies and Gentlemen:

In connection with the registration statement on Form SB-2 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), filed by Accelerize New Media, Inc., a Delaware corporation (the "Company"), the following opinion is furnished to you to be filed with the Securities and Exchange Commission (the "Commission"), as Exhibit 5.1 to the Registration Statement in connection with the offering and sale from time to time by certain shareholders of an aggregate of 19,826,519 shares of common stock, par value $0.001 per share of the Company (the "Shares").  The Shares include an aggregate 5,400,000 shares of common stock underlying 10% Series A Convertible Preferred Stock (the “Preferred Stock”), up to 936,492 shares of common stock to be received as dividends on Preferred Stock (the “Dividend Shares”) and 1,350,000 shares of common stock issuable upon exercise of warrants (the “Warrants”).

In connection with this opinion, we have examined and relied upon originals or copies of the Company's Certificate of Incorporation, as amended, including, without limitation, by Certificates of Designation, and Bylaws, corporate proceedings of the Board of Directors of the Company with respect to the authorization and issuance of the Shares and such other records, agreements and instruments of the Company, certificates of public officials and of officers of the Company and such matters of law, as we have deemed necessary as a basis for the opinion hereinafter expressed.  In making such examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies, which facts we have not independently verified.

The opinion rendered herein is limited to the laws of the State of New York, the Delaware General Corporation Law (including the applicable provisions of the Delaware Constitution and reported judicial decisions interpreting these laws) and the federal laws of the United States.


Accelerize New Media, Inc.
December __, 2006
Page 2
 
 
Other than our examination of the documents indicated above, we have made no other examination in connection with this opinion. We express no opinion herein concerning any state securities or blue sky laws.
 
We have necessarily assumed in connection with the opinion expressed below that the terms and conditions of the agreements under which the Shares were or, in the case of shares issuable upon conversion of Preferred Stock, issuance of Dividend Shares, or exercise of Warrants, will be issued, and any related agreements and instruments, will be, and that any related proceedings of the Company conducted after the date hereof will be conducted, (i) in accordance with all applicable laws and the Company's Certificate of Incorporation, as amended, including, without limitation, by Certificates of Designation, and Bylaws and (ii) not in conflict with any contractual or other restrictions which are binding on the Company.

We have also necessarily assumed in connection with the opinions expressed below that, at the time of the issuance of the Shares upon the conversion of the Preferred Stock, the issuance of the Dividend Shares, or the exercise of the Warrants, the Company will have a sufficient number of authorized shares of common stock under the Company's Certificate of Incorporation that will be unissued and not otherwise reserved for issuance.

Relying on the foregoing, and without further inquiry on our part, we are of the opinion that the Shares, including Shares issuable upon conversion of the Preferred Stock, Dividend Shares or Shares underlying Warrants, to be sold as described in the Registration Statement have been duly authorized.  The Shares, other than Shares issuable upon conversion of the Preferred Stock, the Dividend Shares and Shares underlying Warrants, are legally and validly issued, fully paid and non-assessable, and the Shares issuable upon conversion of the Preferred Stock, the Dividend Shares and the Shares underlying Warrants, when issued and paid for in accordance with the terms of the Certificate of Designation or the Warrants, as the case may be, will be legally and validly issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm in the prospectus forming a part of the Registration Statement.  In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder.


Very truly yours,

 
 
Exhibit 10.1
 
ACCELERIZE NEW MEDIA, INC.
 
STOCK OPTION PLAN
 
1.
PURPOSE
 
The purpose of this Accelerize New Media, Inc. Stock Option Plan (the “ Plan ”) is to encourage employees, directors and other individuals (whether or not employees) who render services to Accelerize New Media, Inc. (the “ Company ”) and its Subsidiaries (as hereinafter defined), to continue their association with the Company and its Subsidiaries by providing opportunities for them to participate in the ownership of the Company and in its future growth through the granting of options to acquire the Company’s stock (“ Options ”). The term “ Subsidiary ” as used in the Plan means a corporation or other business entity of which the Company owns, directly or indirectly through an unbroken chain of ownership, fifty percent (50%) or more of the total combined voting power of all classes of stock, in the case of a corporation, or fifty percent (50%) or more of the total combined interests by value, in the case of any other type of business entity.
 
2.
ADMINISTRATION OF THE PLAN
 
(a)   The Plan shall be administered by the Board of Directors of the Company (the “ Board ”). The Board shall from time to time determine to whom Options shall be granted under the Plan, whether Options granted are intended to be incentive stock options (“ ISOs ”) or nonqualified stock options (“ NSOs ”), the terms of the Options and the number of shares of Common Stock (as hereinafter defined) that may be granted under Options.
 
(b)   If the circumstances described in Section 2(d) are applicable, the Board shall delegate to the Compensation Committee of the Board (the “ Compensation Committee ”) the authority of the Board to make determinations and to take actions described in this Section 2 and elsewhere in the Plan. The Board may otherwise delegate to the Compensation Committee the authority to make such determinations and to take such actions as the Board shall determine in its discretion. The Compensation Committee shall report to the Board any such determinations made and actions taken pursuant to such delegated authority.
 
(c)   The Board shall have the authority to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan. All questions of interpretation and application of such rules and regulations of the Plan and of Options granted hereunder shall be subject to the determination of the Board, which shall be final and binding. The Plan shall be administered in such a manner as to permit those Options granted hereunder and specially designated under Section 5 hereof as an ISO to qualify as incentive stock options as described in Section 422 of the Internal Revenue Code of 1986, as amended (the “ Code ”).
 
(d)   For so long as Section 16 of the Securities Exchange Act of 1934, as amended from time to time (the “ Exchange Act ”), is applicable to the Company, each member of the Compensation Committee shall be a “non-employee director” or the equivalent within the meaning of Rule 16b-3 under the Exchange Act and, during any period that Section 162(m) of the Code is applicable to the Company, an “outside director” within the meaning of Section 162 of the Code and the regulations thereunder. With respect to persons subject to Section 16 of the Exchange Act (“ Insiders ”), transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the Exchange Act. To the extent any provision of the Plan or action by the Board or Compensation Committee fails to so comply, it shall be deemed to be modified so as to be in compliance with such Rule or, if such modification is not possible, it shall be deemed to be null and void, to the extent permitted by law and deemed advisable by the Board or Compensation Committee.
 
3.
STOCK SUBJECT TO THE PLAN
 
The total number of shares of capital stock of the Company that may be subject to Options under the Plan shall be 4,300,000 shares of the Company’s Common Stock, $.001 par value per share (the “ Common Stock ”), from either authorized but unissued shares or treasury shares. If the circumstances described in Section 2(d) are applicable, the maximum number of shares of Common Stock subject to Options that may be granted to any individual in the aggregate in any calendar year shall not exceed 2,000,000 shares. The numbers of shares stated in this Section 3 shall be subject to adjustment in accordance with the provisions of Section 8. Shares of Common Stock subject to an Option that is not fully exercised prior to its expiration or other termination shall again become available for grant under the terms of the Plan.
 
4.
ELIGIBILITY
 
The individuals who shall be eligible to receive Option grants under the Plan shall be employees, directors and other individuals who render services to the management, operation or development of the Company or a Subsidiary and who have contributed or may be expected to contribute to the success of the Company or a Subsidiary. In determining the suitability of an individual to be granted an Option, as well as in determining the number of Options to be granted to any individual, the Board shall take into account the position and responsibilities of the individual being considered, the nature and value to the Company or its subsidiaries of his or her service and accomplishments, his or her present and potential contribution to the success of the Company or its subsidiaries, and such other factors as the Board may deem relevant. ISOs shall not be granted to any individual who is not an employee of the Company or a Subsidiary that is a corporation for federal tax purposes. The term “Optionee,” as used in the Plan, refers to any individual to whom an Option has been granted.
 
5.
TERMS AND CONDITIONS OF OPTIONS
 
Every Option 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 ISO or an NSO and such other terms and conditions as the Board shall approve, and containing or incorporating by reference the following terms and conditions.
 
(a)   Duration . Each Option shall expire ten years from its date of grant, provided , however , that no ISO granted to an employee who owns (directly or under the attribution rules of Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Subsidiary shall expire later than five (5) years from its date of grant.
 
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(b)   Exercise Price . The exercise price of each Option shall be any lawful consideration, as specified by the Board in its discretion; provided , however , that the price shall be in each case at least 100 percent of the Fair Market Value (as hereinafter defined) of the shares on the date on which the Board awards the Option, which shall be considered the date of grant of the Option for purposes of fixing the price; and provided , further , that the price with respect to an ISO granted to an employee who at the time of grant owns (directly or under the attribution rules of Section 424(d) of the Code) stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or of any Subsidiary shall be at least 110 percent of the Fair Market Value of the shares on the date of grant of the ISO. For purposes of the Plan, except as may be otherwise explicitly provided in the Plan or in any Stock Option Agreement, the “Fair Market Value” of a share of Common Stock at any particular date shall be determined according to the following rules: (i) if the Common Stock is not at the time listed or admitted to trading on a stock exchange or the Nasdaq Stock Market, the Fair Market Value shall be the closing price of the Common Stock on the date in question in the over-the-counter market, as such price is reported in a publication of general circulation selected by the Board and regularly reporting the price of the Common Stock in such market, including any market that is outside of the United States; provided , however , that if the price of the Common Stock is not so reported, the Fair Market Value shall be determined in good faith by the Board, which may take into consideration (1) the price paid for the Common Stock in the most recent trade of a substantial number of shares known to the Board to have occurred at arm’s length between willing and knowledgeable investors, (2) an appraisal by an independent party or (3) any other method of valuation undertaken in good faith by the Board, or some or all of the above as the Board shall in its discretion elect; or (ii) if the Common Stock is at the time listed or admitted to trading on any stock exchange, including any market that is outside of the United States, or the Nasdaq Stock Market, then the Fair Market Value shall be the mean between the lowest and highest reported sale prices (or the highest reported bid price and the lowest reported asked price) of the Common Stock on the date in question on the principal exchange or the Nasdaq Stock Market, as the case may be, on which the Common Stock is then listed or admitted to trading. If no reported sale of Common Stock takes place on the date in question on the principal exchange or the Nasdaq Stock Market, as the case may be, then the most recent previous reported closing sale price of the Common Stock (or, in the Board’s discretion, the reported closing asked price) of the Common Stock on such date on the principal exchange or the Nasdaq Stock Market, as the case may be, shall be determinative of Fair Market Value.
 
(c)   Method of Exercise .
 
(i)   To the extent that it has become exercisable under the terms of the Stock Option Agreement, an Option may be exercised from time to time by notice acceptable to the Chief Executive Officer of the Company, or his or her delegate, stating the number of shares with respect to which the Option is being exercised and accompanied by payment of the exercise price in cash or check payable to the Company, or, if the Stock Option Agreement so provides, other payment or deemed payment described in this Section 5(c), or by means of a “cashless exercise” as described in Section 5(c)(ii). Such notice shall be delivered in person to the Chief Executive Officer of the Company, or his or her delegate, or shall be sent by registered mail, return receipt requested, to the Chief Executive Officer of the Company, or his or her delegate, in which case delivery shall be deemed made on the date such notice is deposited in the mail.
 
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(ii)   An Option may be exercised by means of a “cashless exercise” procedure in which a broker reasonably acceptable to the Company (a) transmits the exercise price to the Company in cash or acceptable cash equivalents, either (i) against the Optionee’s notice of exercise and the Company’s confirmation that it will deliver to the broker stock certificates issued in the name of the broker for at least that number of shares having a fair market value equal to the exercise price, or (ii) as the proceeds of a margin loan to the Optionee; or (b) agrees to pay the exercise price to the Company in cash or acceptable cash equivalents upon the broker’s receipt from the Company of stock certificates issued in the name of the broker for at least that number of shares having a fair market value equal to the exercise price. The Optionee’s notice of exercise of an Option pursuant to a “cashless exercise” procedure must include the name and address of the broker involved, a clear description of the procedure, and such other information or undertaking by the broker as the Company shall reasonably require.
 
(iii)   Alternatively, if so permitted by the Stock Option Agreement, payment of the exercise price may be made:
 
(1)   In whole or in part in shares of Common Stock already owned by the Optionee or to be received upon exercise of the Option; provided , however , that such shares are fully vested and free of all liens, claims and encumbrances of any kind; and provided , further , that the Optionee may not make payment in shares of Common Stock that he acquired upon the earlier exercise of any ISO (or other “incentive stock option”), unless he has held the shares for at least two years after the date the ISO was granted and at least one year after the date the ISO was exercised. If payment is made in whole or in part in shares of Common Stock, then the Optionee shall deliver to the Company stock certificates registered in his or her name representing a number of shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims and encumbrances of every kind and having a Fair Market Value on the date of delivery that is not greater than the exercise price, such stock certificates to be duly endorsed, or accompanied by stock powers duly endorsed, by the record holder of the shares represented by such stock certificates. If the exercise price exceeds the Fair Market Value of the shares for which stock certificates are delivered, the Optionee shall also deliver cash or a check payable to the order of the Company in an amount equal to the amount of that excess or, if the Stock Option Agreement so provides, his or her promissory note as described in paragraph (2) of this Section 5(c)(iii); or
 
(2)   Except to the extent prohibited by applicable law, by payment in cash of the par value of the Common Stock to be acquired and by payment of the balance of the exercise price in whole or in part by delivery of the Optionee’s recourse promissory note, in a form specified by the Company, secured by the Common Stock acquired upon exercise of the Option and such other security as the Board may require.
 
(iv)   At the time specified in an Optionee’s notice of exercise, the Company shall, without issue or transfer tax to the Optionee, deliver to him at the main office of the Company, or such other place as shall be mutually acceptable, a stock certificate for the shares as to which his or her Option is exercised. If the Optionee fails to pay for or to accept delivery of all or any part of the number of shares specified in his or her notice upon tender of delivery thereof, his or her right to exercise the Option with respect to those shares shall be terminated, unless the Company otherwise agrees.
 
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(d)   Exercisability . An Option may be exercised in whole or in part, to the extent and subject to the terms and conditions that the Board in its discretion may provide in the Stock Option Agreement. Such terms and conditions may include provisions for exercise within twelve (12) or fewer months after his or her death or disability (within the meaning of Section 22(e)(3)) of the Code, provided that no Option shall be exercisable after the expiration of the period described in paragraph (a) above. Except as the Board in its discretion may otherwise provide in the Stock Option Agreement, an Option shall cease to be exercisable upon the expiration of three (3) months following the termination of the Optionee’s employment with, or his or her other provision of services to, the Company or a Subsidiary, subject to paragraph (a) above and Section 9 hereof.
 
(e)   Notice of ISO Stock Disposition . The Optionee must notify the Company promptly in the event that he sells, transfers, exchanges or otherwise disposes of any shares of Common Stock issued upon exercise of an ISO before the later of (i) the second anniversary of the date of grant of the ISO and (ii) the first anniversary of the date the shares were issued upon his or her exercise of the ISO.
 
(f)   No Rights as Stockholder . An Optionee shall have no rights as a stockholder with respect to any shares covered by an Option until the date of issuance of a stock certificate to him for the shares. No adjustment shall be made for dividends or other rights for which the record date is earlier than the date the stock certificate is issued, other than as required or permitted pursuant to Section 8.
 
(g)   Transferability of Options . Options shall not be transferable by the Optionee otherwise than by will or under the laws of descent and distribution, and shall be exercisable during his or her lifetime only by the Optionee, except that the Board may specify in a Stock Option Agreement that pertains to an NSO that the Optionee may transfer such NSO to a member of the Immediate Family of the Optionee, to a trust solely for the benefit of the Optionee and the Optionee’s Immediate Family, or to a partnership or limited liability company whose only partners or members are the Optionee and members of the Optionee’s Immediate Family. “Immediate Family” shall mean, with respect to any Optionee, such Optionee’s child, stepchild, spouse, son-in-law or daughter-in-law, and shall include adoptive relationships.
 
6.
METHOD OF GRANTING OPTIONS
 
The grant of Options shall be made by action of the Board at a meeting at which a quorum of its members is present, or by unanimous written consent of all its members, provided , however , that if an individual to whom a grant has been made fails to execute and deliver to the Board a Stock Option Agreement within thirty (30) days after it is submitted to him, the Option under the agreement shall be voidable by the Company at its election, without further notice to the grantee.
 
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7.
REQUIREMENTS OF LAW
 
The Company shall not be required to sell or issue any shares upon the exercise of any Option if the issuance of such shares will result in a violation by the Optionee or the Company of any provisions of any law, statute or regulation of any governmental authority. Specifically, in connection with the Securities Act of 1933, as amended from time to time (the “ Securities Act ”), upon the exercise of any Option, the Company shall not be required to issue shares unless the Board has received evidence satisfactory to it to the effect that the holder of the Option will not transfer such shares except pursuant to a registration statement in effect under the Securities Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that registration is not required. Any determination in this connection by the Board shall be conclusive. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an Option to comply with any law or regulations of any governmental authority, including, without limitation, the Securities Act or applicable state securities laws.
 
8.
CHANGES IN CAPITAL STRUCTURE
 
(a)   In the event that the outstanding shares of Common Stock are hereafter exchanged for a different number or kind of shares or other securities of the Company, by reason of a reorganization, recapitalization, exchange of shares, stock split, combination of shares or dividend payable in shares or other securities, a corresponding adjustment shall be made by the Board in the number and kind of shares or other securities covered by outstanding Options and for which Options may be granted under the Plan. Any such adjustment in outstanding Options shall be made without change in the total price applicable to the unexercised portion of the Option, but the price per share specified in each Stock Option Agreement shall be correspondingly adjusted, provided , however , that no adjustment shall be made with respect to an ISO that would constitute a modification as defined in Section 424 of the Code without the consent of the holder. Any such adjustment made by the Board shall be conclusive and binding upon all affected persons, including the Company and all Optionees.
 
(b)   If, while unexercised Options remain outstanding under the Plan, the Company merges or consolidates with a wholly-owned Subsidiary for the purpose of reincorporating itself under the laws of another jurisdiction, the Optionees will be entitled to acquire shares of common stock of the reincorporated Company upon the same terms and conditions as were in effect immediately prior to such reincorporation (unless such reincorporation involves a change in the number of shares or the capitalization of the Company, in which case proportional adjustments shall be made as provided above) and the Plan, unless otherwise rescinded by the Board, will remain the Plan of the reincorporated Company.
 
(c)   Except as otherwise provided in the preceding paragraph, if the Company is merged or consolidated with another corporation, whether or not the Company is the surviving entity, or if the Company is liquidated or sells or otherwise disposes of all or substantially all of its assets to another entity while unexercised Options remain outstanding under the Plan, or if other circumstances occur in which the Board in its sole and absolute discretion deems it appropriate for the provisions of this paragraph to apply (in each case, an “ Applicable Event ”), then: (i) in the discretion of the Board, each holder of an outstanding Option shall be entitled, upon exercise of the Option, to receive in lieu of shares of Common Stock, such stock or other securities or property as he or she would have received had he exercised the Option immediately prior to the Applicable Event; or (ii) the Board, may in its discretion, waive, generally or in one or more specific cases, any limitations imposed on exercise (including without limitation a change in any existing vesting schedule) so that some or all Options shall be exercisable from and after a date prior to the effective date of such Applicable Event, as specified by the Board in its discretion, or (iii) the Board may, in its discretion, convert some or all Options into Options to purchase the stock or other securities of the surviving corporation pursuant to such Applicable Event; or (iv) the Board may, in its discretion, convert the outstanding and unexercised options to purchase stock or other securities of any corporation into Options to purchase Common Stock, whether pursuant to the Plan or not, pursuant to an Applicable Event; or (v) the Board may, in its discretion, cancel all outstanding and unexercised Options as of the effective date of any such Applicable Event; provided , however , that notice of any cancellation pursuant to clause (v) shall be given to each holder of an Option not less than thirty (30) days preceding the effective date of such Applicable Event; and provided , further , that the Board may, in its discretion, waive, generally or in one or more specific instances, any limitations imposed on exercise (including a change in any existing vesting schedule) with respect to any Option so that such Option shall be exercisable in full or in part during such thirty (30) day period, as the Board may, in its discretion, determine.
 
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(d)   Except as expressly provided to the contrary in this Section 8, the issuance by the Company of shares of stock of any class for cash or property or for services, either upon direct sale or upon the exercise of rights or warrants, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect the number, class or price of shares of Common Stock then subject to outstanding Options.
 
9.
FORFEITURE FOR DISHONESTY OR TERMINATION FOR CAUSE
 
Notwithstanding any provision of the Plan to the contrary, if the Board determines, after full consideration of the facts, that:
 
(a)   the Optionee has been engaged in fraud, embezzlement or theft in the course of his or her employment by or involvement with the Company or a Subsidiary, has made unauthorized disclosure of trade secrets or other proprietary information of the Company or a Subsidiary or of a third party who has entrusted such information to the Company or a Subsidiary, or has been convicted of a felony or any crime that reflects negatively upon the Company; or
 
(b)   the Optionee has violated the terms of any employment, noncompetition, nonsolicitation, confidentiality, nondisclosure or other agreement with the Company to which he is a party; or
 
(c)   the employment or involvement with the Company or a Subsidiary of the Optionee was terminated for “cause,” as defined in any agreement with the Optionee governing his or her relationship with the Company, or if there is no such agreement, as determined by the Board, which may determine that “cause” includes among other matters the willful failure or refusal of the Optionee to perform and carry out his or her assigned duties and responsibilities diligently and in a manner satisfactory to the Board; then the Optionee’s right to exercise an Option shall terminate as of the date of such act (in the case of (a) or (b)) or such termination (in the case of (c)), the Optionee shall forfeit all unexercised Options and the Company shall have the right to repurchase all or any part of the shares of Common Stock acquired by the Optionee upon any previous exercise of any Option, whether then vested or unvested, at a price equal to the lower of (x) the amount paid to the Company upon such exercise or acquisition, or (y) the Fair Market Value of such shares at the time of repurchase. If an Optionee whose behavior the Company asserts falls within the provisions of the clauses above has exercised or attempts to exercise an Option prior to consideration of the application of this Section 9 or prior to a decision of the Board, the Company shall not be required to recognize such exercise until the Board has made its decision and, in the event any exercise shall have taken place, it shall be of no force and effect (and shall be void ab   initio ) if the Board makes an adverse determination; provided , however , that if the Board finds in favor of the Optionee then the Optionee will be deemed to have exercised the Option retroactively as of the date he or she originally gave notice of his or her attempt to exercise or actual exercise, as the case may be. The decision of the Board as to the cause of an Optionee’s discharge and the damage done to the Company shall be final, binding and conclusive. No decision of the Board, however, shall affect in any manner the finality of the discharge of such Optionee by the Company. For purposes of this Section 9, reference to the Company shall include any Subsidiary.
 
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10.
REPURCHASE RIGHTS OF THE COMPANY; CERTAIN AGREEMENTS
 
(a)   Unless the Optionee’s Stock Option Agreement specifically provides to the contrary, the provisions of this paragraph of Section 10 shall apply to the shares of Common Stock acquired on exercise of each Option granted under the Plan during any period that such Common Stock is not admitted to trading on a stock exchange or the Nasdaq Stock Market. Shares of Common Stock acquired pursuant to an Option granted under the Plan shall not be transferred without the written consent of the Board. The Company shall have the right to repurchase all or any of such shares of Common Stock at a price equal to the Fair Market Value of the shares of Common Stock at the time of repurchase. In addition, if at the time of termination of an Optionee’s employment or other service relationship with the Company or a Subsidiary he holds an Option granted under the Plan that is by its terms exercisable after such termination, the Company shall have the right to repurchase all or any part of the shares of Common Stock acquired pursuant to the exercise of the Option, at a price equal to that described in the preceding sentence. The Company’s right to repurchase shares of Common Stock may be exercised at any time, in the sole discretion of the Board. Nothing in the Plan shall be construed to give any person the right to require the Company to purchase any Common Stock acquired pursuant to an Option, and in any given instance the Company may take any one or more of the actions permitted under this Section 10 without taking all of them.
 
(b)   Without limiting the foregoing, the Board may provide in an Optionee’s Stock Option Agreement that any exercise of such Option is conditioned on the Optionee’s execution of one or more agreements or other documents concerning investment intent, transfer restrictions, and such other matters as the Board may deem appropriate.
 
11.
MISCELLANEOUS
 
(a)   No Guarantee of Employment or Other Service Relationship . Neither the Plan nor any Stock Option Agreement shall give an employee the right to continue in the employment of the Company or a Subsidiary or give the Company or a Subsidiary the right to require an employee to continue in employment. Neither the Plan nor any Stock Option Agreement shall give a director or other service provider the right to continue to perform services for the Company or a Subsidiary or give the Company or a Subsidiary the right to require the director or service provider to continue to perform services.
 
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(b)   Tax Withholding . To the extent required by law, the Company shall withhold or cause to be withheld income and other taxes with respect to any income recognized by an Optionee by reason of the exercise of an Option, and as a condition to the receipt of any Common Stock the Optionee shall agree that if the amount payable to him by the Company and any Subsidiary in the ordinary course is insufficient to pay such taxes, then he shall upon the request of the Company pay to the Company an amount sufficient to satisfy its tax withholding obligations.
 
Without limiting the foregoing, the Board may in its discretion permit any Optionee’s withholding obligation to be paid in whole or in part in the form of shares of Common Stock by withholding from the shares to be issued or by accepting delivery from the Optionee of shares already owned by him. The Fair Market Value of the shares for such purposes shall be determined as set forth in Section 5(b). An Optionee may not make any such payment in the form of shares of Common Stock acquired upon the exercise of an ISO until the shares have been held by him for at least two years after the date the ISO was granted and at least one year after the date the ISO was exercised. If payment of withholding taxes is made in whole or in part in shares of Common Stock, the Optionee shall deliver to the Company stock certificates registered in his or her name representing shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims and encumbrances of every kind, duly endorsed or accompanied by stock powers duly endorsed by the record holder of the shares represented by such stock certificates. If the Optionee is subject to Section 16(a) of the Exchange Act, his or her ability to pay his or her withholding obligation in the form of shares of Common Stock shall be subject to such additional restrictions as may be necessary to avoid any transaction that might give rise to liability under Section 16(b) of the Exchange Act.
 
(c)   Use of Proceeds . The proceeds from the sale of shares pursuant to Options shall constitute general funds of the Company.
 
(d)   Construction . All masculine pronouns used in the Plan shall include both sexes; the singular shall include the plural and the plural the singular unless the context otherwise requires. The titles of the sections of the Plan are included for convenience only and shall not be construed as modifying or affecting their provisions. All other provisions of this Plan notwithstanding, this Plan shall be administered and construed so as to avoid any person who receives an Option grant incurring any adverse tax consequences under Internal Revenue Code Section 409A. The Board of Directors shall suspend the application of any provision of the Plan which could, in the sole determination of the Board of Directors, result in an adverse tax consequence to any person under Internal Revenue Code Section 409A.
 
(e)   Governing Law . The Plan shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflict of laws.
 
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12.
EFFECTIVE DATE, DURATION, AMENDMENT AND TERMINATION OF PLAN
 
The Plan shall be effective as of _______, 2006, subject to ratification by (a) the holders of a majority of the outstanding shares of capital stock present, or represented, and entitled to vote thereon (voting as a single class) at a duly held meeting of the stockholders of the Company or (b) by the written consent of the holders of a majority (or such greater percentage as may be prescribed under the Company’s charter, by-laws and applicable state law) of the capital stock of the Company entitled to vote thereon (voting as a single class), in either case within twelve months after such date. Options that are conditioned upon the ratification of the Plan by the stockholders may be granted prior to ratification. The Board may grant Options under the Plan from time to time until the close of business on __________, 2016. The Board may at any time amend the Plan; provided , however , that without approval of the Company’s stockholders there shall be no: (a) change in the number of shares of Common Stock that may be issued under the Plan, except by operation of the provisions of Section 8, either to any one Optionee or in the aggregate; (b) change in the class of persons eligible to receive Options; or (c) other change in the Plan that requires stockholder approval under applicable law. No amendment shall adversely affect outstanding Options without the consent of the Optionee. The Plan may be terminated at any time by action of the Board, but any such termination will not terminate any Option then outstanding without the consent of the Optionee.
 
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[Form of Stock Option Agreement]
 
All of the terms of this Agreement and the information herein are confidential.
 
This Stock Option Agreement (this “ Agreement ”) is made as of this        day of                                   by and between Accelerize New Media, Inc., a Delaware corporation   (the “ Company ”), and                    (the “ Optionee ”).
 
WITNESSETH THAT:
 
WHEREAS, the Company has instituted the “Accelerize New Media, Inc. Stock Option Plan” (the “ Plan ”); and
 
WHEREAS, the Board of Directors of the Company (the “ Board ”) has granted to the Optionee a stock option upon the terms and subject to the conditions of this Agreement and of the Plan (which is hereby incorporated herein); and
 
WHEREAS, the Board has designated this stock option [an incentive / a non-qualified] stock option in accordance with the Plan.
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Optionee agree as follows:
 
1.   Grant . Subject to the terms and conditions hereinafter set forth and the terms and conditions of the Plan, the Company (which term shall include, unless the context otherwise clearly requires, all Subsidiaries of the Company) hereby grants to the Optionee the following option (the “ Option ”) to purchase from the Company the number of shares specified in Schedule 1 attached hereto of the Common Stock, $.001 par value per share (the “ Common Stock ”), of the Company.
 
2.   Exercise Price and Further Conditions . (a) This Option may be exercised at the exercise price per share of Common Stock set forth in Schedule 1 attached hereto, subject to adjustment as provided herein and in the Plan.
 
(b) Pursuant to Section 10 of the Plan, the exercise of this Option may also be conditioned on the Optionee’s execution of certain letter agreements or other documents, including, without limitation, those expressly referred to herein.

3.   Term and Exerciseability of Option . The Option may be exercised only to the extent vested from time to time. Subject to the provisions below, this Option will vest [100% on the first anniversary of the date of grant] [33⅓% on the first anniversary of the date of grant, 66⅔% on the second anniversary thereof and 100% on the third anniversary thereof].
 
(a)   Vesting will cease upon the termination of the Optionee’s employment with the Company or any affiliate of the Company, except if such termination is involuntary and without cause (as defined in the employment agreement between the Optionee and the Company of even date herewith) then the Board shall determine whether vesting shall cease or continue.
 
(b)   An Option that is otherwise exercisable under the Plan and this Agreement must be exercised within six months of the termination of Optionee’s employment with the Company. This Option shall expire and no longer be exercisable with respect to vested and unvested shares six months after termination of Optionee’s employment with the Company. Notwithstanding anything to the contrary above, if such termination is without cause (as defined in the employment agreement between the Optionee and the Company of even date herewith) then the Board shall determine exercisability and termination of Option.
 
(c)   This Option shall fully vest and become exercisable immediately prior to the effective date of a Change of Control.
 
(d)   For purposes of this Agreement, the term “Change in Control” shall mean (i) the sale of all or substantially all of the assets of the Company, (ii) the sale of more than 50% of the outstanding capital stock of the Company in a non-public sale, (iii) the dissolution or liquidation of the Company, or (iv) any merger, share exchange, consolidation or other reorganization or business combination of the Company if immediately after such transaction of either (A) persons who were directors of the Company immediately prior to such transaction do not constitute at least a majority of the directors of the surviving entity, or (B) persons who hold a majority of the voting capital stock of the surviving entity are not persons who held a majority of the voting capital stock of the Company immediately prior to the transaction; provided , however , that the term “Change in Control” shall not include a public offering of capital stock of the Company that is effected pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933.
 
(e)   If the Optionee dies before this Option has been exercised in full, the executor, administrator or personal representative of the estate of the Optionee may exercise this Option as set forth in this paragraph.
 

[Optional 409A Safe Harbor Provision
An Option that is otherwise exercisable under the Plan and this Agreement may be exercised solely in connection with the first to occur of the following Specified Events and as further provided as follows:
 
 
(1)
If the Optionee ceases to be employed, the Option shall be exercisable as set forth in the Plan, provided, however, that (a) the Option shall not be exercisable following the December 31 after the Optionee ceases to be employed; (b) if the date the Optionee ceases to be employed occurs in December of any year, the Option shall not be exercisable during such December but, in lieu thereof, shall be exercisable during the period beginning January 1 and ending on the last day of February of the following calendar year; and (c) the Option shall be exercisable after the Optionee ceases to be employed only if such event constitutes a separation from service within the meaning of Section 409A(a)(2)(A) of the Code, applicable regulations and other authority thereunder, and any successor provision;

-2-
 
(2)
In connection with any change in the ownership or effective control of the Company or any affiliate thereof, or in the ownership of a substantial portion of the assets of the Company or any affiliate thereof, provided that such change constitutes a permissible distribution event under Section 409A(a)(2)(A) of the Code, applicable regulations and other authority thereunder and, further provided, that in the case of such event, the Option shall be exercisable solely within a specified period within a single calendar year that shall be announced by the Board in connection with such event;

 
(3)
In connection with a termination of the Plan in connection with an event specified in Prop. Treas. Reg. § 1.409A-3(h)(2)(viii) or any successor provision, in which case the Option shall be exercisable during a specified period within a single calendar year that shall be announced by the Board in connection with such event; and

 
(4)
At any time during the calendar year 2016 on or prior to the expiration date specified in Schedule 1.]


4.   Method of Exercise . To the extent that the right to purchase shares of Common Stock is exercisable hereunder, this Option may be exercised from time to time by notice acceptable to the Company substantially in the form attached hereto as Exhibit A stating the number of shares with respect to which this Option is being exercised and accompanied by payment in full of the exercise price for the number of shares to be delivered by cash or check or by issuance of a recourse promissory note to the Company in the form specified by the Company, due and payable within one year. Any exercise of less than all the options that are vested at the time of exercise must be for a minimum of ten (10) shares. As soon as practicable after its receipt of such notice, the Company shall, without transfer or issue tax to the Optionee (or other person entitled to exercise this Option), deliver to the Optionee (or other person entitled to exercise this Option), at the principal executive offices of the Company or such other place as shall be mutually acceptable, a stock certificate or certificates for such shares out of theretofore authorized but unissued shares or reacquired shares of its Common Stock as the Company may elect; provided , however , that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable requirements of law.
 
5.   Nonassignability of Option Rights . This Option shall not be assignable or transferable by the Optionee except by will or by the laws of descent and distribution and during the life of the Optionee, this Option shall be exercisable only by him.
 
6.   Forfeiture for Dishonesty or Termination for Cause . Notwithstanding any provision of this Agreement to the contrary, if the Board determines, after full consideration of the facts, that:
 
(a)   the Optionee has been engaged in fraud, embezzlement or theft in the course of his or her employment by or involvement with the Company or a Subsidiary, has made unauthorized disclosure of trade secrets or other proprietary information of the Company or a Subsidiary or of a third party who has entrusted such information to the Company or a Subsidiary, or has been convicted of a felony or any crime that reflects negatively upon the Company; or
 
-3-
(b)   the Optionee has violated the terms of any employment, noncompetition, nonsolicitation, confidentiality, nondisclosure or other agreement with the Company to which he is a party; or
 
(c)   the employment or involvement with the Company or a Subsidiary of the Optionee was terminated for “cause,” as defined in any agreement with the Optionee governing his or her relationship with the Company, or if there is no such agreement, as determined by the Board, which may determine that “cause” includes among other matters the willful failure or refusal of the Optionee to perform and carry out his or her assigned duties and responsibilities diligently and in a manner satisfactory to the Board;
 
then the Optionee’s right to exercise this Option shall terminate as of the date of such act (in the case of (a) or (b)) or such termination (in the case of (c)), the Optionee shall forfeit the unexercised portion of this Option and the Company shall have the right to repurchase all or any part of the shares of Common Stock acquired by the Optionee upon any previous exercise of this Option, at a price equal to the lower of (x) the amount paid to the Company upon such exercise, or (y) the Fair Market Value of such shares at the time of repurchase. If the Company asserts that the Optionee’s behavior falls within the provisions of the clauses above and the Optionee has exercised or attempts to exercise this Option prior to consideration of the application of this Section 6 or prior to a decision of the Board, the Company shall not be required to recognize such exercise until the Board has made its decision and, in the event any exercise shall have taken place, it shall be of no force and effect (and shall be void ab   initio ) if the Board makes an adverse determination; provided , however , that if the Board finds in favor of the Optionee then the Optionee will be deemed to have exercised this Option retroactively as of the date he originally gave notice of his or her attempt to exercise or actual exercise, as the case may be. The decision of the Board as to the cause of the Optionee’s discharge and the damage done to the Company shall be final, binding and conclusive. No decision of the Board, however, shall affect in any manner the finality of the discharge of the Optionee by the Company. For purposes of this Section 6, reference to the Company shall include any Subsidiary.
 
7.   Confidentiality . The Optionee hereby agrees that the entire contents of this Agreement are confidential at all times, and that the Option’s exercisability is conditioned on his or her compliance with this covenant; provided , however , that the Optionee may disclose the contents of this Agreement to his or her spouse and to his or her legal and financial advisors.
 
8.   Compliance with Securities Act . The Company shall not be obligated to sell or issue any shares of Common Stock or other securities pursuant to the exercise of this Option unless the shares of Common Stock or other securities with respect to which this Option is being exercised are at that time effectively registered or exempt from registration under the Securities Act and applicable state securities laws. In the event shares or other securities shall be issued that shall not be so registered, the Optionee hereby represents, warrants and agrees that he or she will receive such shares or other securities for investment and not with a view to their resale or distribution, and will execute an appropriate investment letter satisfactory to the Company and its counsel.
 
The Optionee further hereby agrees that as a condition to the purchase of shares upon exercise of this Option, he will, if requested, execute an agreement in a form acceptable to the Company to the effect that the shares shall be subject to any underwriter’s lock-up agreement in connection with a public offering of any securities of the Company that may from time to time apply to shares held by officers and employees of the Company.

-4-
9.   Legends . The Optionee hereby acknowledges that the stock certificate or certificates evidencing shares of Common Stock or other securities issued pursuant to any exercise of this Option may bear a legend setting forth the restrictions on their transferability described in Section 8 hereof.
 
10.   Rights as Stockholder . The Optionee shall have no rights as a stockholder with respect to any shares of Common Stock or other securities covered by this Option until the date of issuance of a certificate to him or her for such shares or other securities. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued, except as required or permitted by Section 8 of the Plan.
 
11.   Withholding Taxes . The Optionee hereby agrees, as a condition to any exercise of this Option, to provide to the Company an amount sufficient to satisfy its obligation to withhold certain federal, state and local taxes arising by reason of such exercise (the “ Withholding Amount ”), if any, by (a) authorizing the Company and/or a Subsidiary to withhold the Withholding Amount from his or her cash compensation or (b) remitting the Withholding Amount to the Company in cash; provided , however , that to the extent that the Withholding Amount is not provided by one or a combination of such methods, the Company in its sole and absolute discretion may refuse to issue such shares of Common Stock or may withhold from the shares of Common Stock delivered upon exercise of this Option that number of shares having a Fair Market Value, on the date of exercise, sufficient to eliminate any deficiency in the Withholding Amount.
 
12.   Notice of Disqualifying Disposition . If this Option is an incentive stock option, the Optionee agrees to notify the Company promptly in the event that he sells, transfers, exchanges or otherwise disposes of any shares of Common Stock issued upon exercise of the Option before the later of (i) the second anniversary of the date of grant of the Option and (ii) the first anniversary of the date the shares were issued upon his or her exercise of the Option.
 
13.   Termination or Amendment of Plan . The Board may in its sole and absolute discretion at any time terminate or from time to time modify and amend the Plan, but no such termination or amendment will affect rights and obligations under this Option, to the extent it is then in effect and unexercised.
 
14.   Effect Upon Employment . Nothing in this Option or the Plan shall be construed to impose any obligation upon the Company or any Subsidiary to employ or retain in its employ, or continue its involvement with, the Optionee.
 
15.   Time for Acceptance . Unless the Optionee shall evidence his or her acceptance of this Option by executing this Agreement and returning it to the Company within thirty (30) days after its delivery to him, the Option and this Agreement shall, in the discretion of the Company, be null and void.
 
-5-
16.   General Provisions .
 
16.1 Amendment; Waivers . This Agreement, including the Plan, contains the full and complete understanding and agreement of the parties hereto as to the subject matter hereof and, except as otherwise permitted by the express terms of the Plan and this Agreement, it may not be modified or amended, nor may any provision hereof be waived, except by a further written agreement duly signed by each of the parties; provided , however , that a modification or amendment that does not adversely affect the rights of the Optionee hereunder, as they may exist immediately before the effective date of the modification or amendment, shall be effective upon written notice of its provisions to the Optionee. The waiver by either of the parties hereto of any provision hereof in any instance shall not operate as a waiver of any other provision hereof or in any other instance.
 
16.2 Binding Effect . This Agreement shall inure to the benefit of and be binding upon the parties hereto and, to the extent provided herein and in the Plan, their respective heirs, executors, administrators, representatives, successors and assigns.
 
16.3 Construction . This Agreement is to be construed in accordance with the terms of the Plan. In case of any conflict between the Plan and this Agreement, the Plan shall control. The titles of the sections of this Agreement are included for convenience only and shall not be construed as modifying or affecting their provisions. The masculine gender shall include both sexes; the singular shall include the plural and the plural the singular unless the context otherwise requires. Capitalized terms not defined herein shall have the meanings given to them in the Plan.
 
16.4 Governing Law . This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of New York (other than the law governing conflict of law questions) except to the extent the laws of any other jurisdiction are mandatorily applicable.
 
16.5 Notices . Any notice in connection with this Agreement shall be deemed to have been properly delivered if it is in writing and is delivered by hand or facsimile or sent by registered mail to the party addressed as follows, unless another address has been substituted by notice so given:
 
To the Optionee:
To his or her address as listed on the books of the Company
 
To the Company:
6477 HWY 93 South
Suite 303
Whitefish, MT 59937
Attention: Brian Ross
Facsimile: (406) 862-2162

and  
 
with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Jonathan Dubitzky, Esq.
 
 
[SIGNATURE PAGE FOLLOWS]
 
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IN WITNESS WHEREOF, Optionee has executed this Agreement and the Company has caused this Agreement to be executed by its officer thereunto duly authorized, all as of the date first set forth above.
 
ACCELERIZE NEW MEDIA, INC.
_________________________________
 
 
 
By:_________________________________
Brian Ross
Title:
 

 
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Schedule 1 to Stock Option Agreement
 
Name of Optionee:        

Date of grant of Option:      

Number of shares of Common Stock:  

Type of Option:        

Exercise Price (per share):      

Term:   Subject to Section 3 of the Stock Option Agreement, this Option expires at 5:00 p.m. Eastern Time on ___________.

Vesting:          

 
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Exhibit A to Stock Option Agreement
 
[FORM FOR EXERCISE OF STOCK OPTION]
 
ACCELERIZE NEW MEDIA, INC.
 
 

 
Re: Exercise of Option under the Accelerize New Media, Inc. Stock Option Plan
 
Gentlemen:
 
I hereby elect to exercise the stock option granted to me pursuant and subject to the terms and conditions of the Stock Option Agreement between the Company and me dated as of _______, 200__ (the “ Option Agreement ”) by and to the extent of purchasing _____ shares of Common Stock, $.001 par value per share, of Accelerize New Media, Inc. (the “ Company ”) for the exercise price of $_____ per share.
 
Enclosed please find payment, in cash or in such other property as is permitted under the Accelerize New Media, Inc. Stock Option Plan (the “ Plan ”), of the purchase price for said shares. If I am making payment of any part of the purchase price by delivery of shares of Common Stock of the Company , I hereby confirm that I have investigated and considered the possible income tax consequences of making payments in that form . I agree to provide the Company an amount sufficient to satisfy the obligation of the Company to withhold certain taxes, as provided in Section 14 of the Option Agreement.
 
Also enclosed are executed letters concerning my investment intent representations.
 
I specifically confirm to the Company that the shares shall be held subject to all of the terms and conditions of the Option Agreement.
 
Very truly yours,
 
__________________________________
Date
(Signed by the Employee or other
party duly exercising option)

 
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[Date]
ACCELERIZE NEW MEDIA, INC.

 

 
Gentlemen:
 
In connection with my acquisition of [Number] shares of the Common Stock, $.001 par value per share (the “ Shares ”), of Accelerize New Media, Inc. (the “ Company ”), from [from the Company at a price of [Amount] per share/from [Name of Seller] for a purchase price of [Amount] per share]/upon the exercise of a stock option at an exercise price of [Amount] per share], I hereby represent to the Company that I am acquiring the Shares to be purchased for my own account for investment and not with a view to, or for resale in connection with, any distribution thereof or the grant of any participation therein, and that I have no present intention of distributing or reselling any thereof, or granting any participation therein. My acquisition of the Shares will be a representation by me to the Company that I am then acquiring the Shares for my own account for investment with no intention of making any distribution thereof. I represent that I understand that there is no trading market for shares of the Company Common Stock, there is no assurance that such market will ever develop, and that any routine resales of the Shares made in reliance upon Rule 144 under the Securities Act of 1933 (the “ Act ”), if Rule 144 becomes available with respect to shares of the Company’s Common Stock, can be made only in limited amounts in accordance with the terms and conditions of that Rule, and as long as Rule 144 is not available with respect to the Shares, absent registration, compliance with Regulation A under the Act or some other exemption will be required for any resale. The Company is under no obligation to me to register the Shares under the Act, to comply with any exemption under the Act or to furnish me with any information necessary to enable me to sell shares of the Company’s Common Stock under Rule 144.
 
I represent that I fully understand the nature of the risks involved in purchasing the Shares, I am qualified by my own experience to evaluate investments of this type and I am able to bear the economic risks of this investment which may include a total loss of the investment or holding the shares indefinitely. I represent and warrant that I have determined that my investment is a suitable one for me to make in light of all the circumstances, further represent that I have had the opportunity to ask questions of and receive answers from the officers and other employees of the Company regarding the terms and conditions of this purchase as well as the affairs of the Company and related matters and that I have had the opportunity to obtain additional information necessary to verify the accuracy of the information so obtained.
 
I further represent that I have full authority to carry out this transaction without the consent of any other person.
 
_______________________________________
[Name]


 

Exhibit 10.2
 
EXECUTION COPY
ACCELERIZE NEW MEDIA, INC.
6477 Hwy 93 South Suite #303
Whitefish, MT 59937

Mr. Brian Ross
 
AGREEMENT entered into as of the 1st day of January, 2007, by and between Accelerize New Media, Inc., a Delaware corporation with headquarters at 6477 HWY 93 South, Suite 303, Whitefish, MT 59937 (the “ Company ”), and Brian Ross, a natural person, residing at 1280 Hems Road, Columbia Falls, MT 59912 (the “ Employee ”).
 
The following sets out the terms of your employment with the Company, effective as of January 1, 2007.
 
1.   Term . The Company shall employ you subject to the terms and conditions of this letter through the earlier of January 1, 2010 or such date as this Agreement shall terminate or expire as provided herein (the “ Term ”); provided   that you shall have the option to renew for an additional 1 year term by giving written notice to the Company of your intention to do so 60 days before the expiration of the Term. If this option is exercised the word “Term” shall include such additional 2 year period. You and the Company may also elect to continue your employment after expiration of the Term or the renewal period on such terms and conditions of employment as are mutually agreed upon; provided further that Section 8 of this Agreement shall continue in full force and effect during any period in which you are employed by the Company, including without limitation, any period of employment following the Term and shall survive the termination of your employment.
 
2.   Duties . You shall be employed in the position of General Counsel to the Company . You shall (a) be responsible, subject to the board of directors of the Company (the “ Board ”) and the President of the Company, for participating in the management and direction of the Company, (b) perform all duties incident to such offices and (c) perform such other tasks, consistent with your position with the Company, as may from time to time be assigned to you by the Board or other officers of the Company. You shall devote substantially all of your business time, labor, skill, and best ability to the performance of your duties hereunder in a manner which will faithfully and diligently further the business and interests of the Company. During the term of your employment, you shall not directly or indirectly pursue any other business activity which unreasonably interferes with the performance of your duties and responsibilities hereunder; provided , however , that you may serve on civic or other charitable boards or committees and manage personal investments, so long as such activities do not interfere in any material respect with the performance of your duties and responsibilities hereunder.
 
3.   Compensation .
 
Base Salary . During the Term you shall receive an annual base salary (the “ Annual Base Salary ”) of Ninety Thousand Dollars ($90,000) for your position as Chief Executive Officer of the Company. The Annual Base Salary shall be payable in accordance with the Company’s payroll practices as in effect from time to time, subject to applicable withholding and other taxes. If Accelerize New Media Inc. does not make monthly salary payment during the term of employment (salary) will accrue with out interest.
 
4.   Additional Benefits .
 
(a )   Business Expenses . The Company shall reimburse you for reasonable and properly documented business expenses incurred by you in connection with your employment by the Company, including but not limited to your monthly cell phone charges for business related calls and emails in accordance with Company policy.

(b)   Benefit Plans and Programs . During the Term, the Company shall reimburse you for your health insurance premiums as and to the extent set forth on Exhibit A .  

(c)   Stock Option Plan . You shall, to the extent you are otherwise eligible, be entitled to participate in the Company’s stock option plan; provided that any grant of options shall be subject to vesting and other terms and conditions as may be determined by the Board of Directors of the Company. Upon execution of this agreement, you shall be granted a non-qualified stock option (an “ NSO ”) to purchase 2,000,000 shares of the Company’s common stock subject to the terms and conditions of the option agreement between the Company and you relating to such option of even date herewith (the “ NSO Agreement ”).

5.   Illness or Disability . If, because of your illness or other disability for a continuous period of more than 45 days, you are unable to render the services required by the Company as provided herein, the Company may end the Term and the Company may terminate your employment hereunder, by written notice. Upon such termination, if any, you shall not be entitled to any further payments of any nature, except for payment of (a)   any earned but unpaid Annual Base Salary   and (b) unreimbursed business expenses (collectively, “ Payable Amounts ”). All Payable Amounts shall become due and payable on the date of such termination.
 
6.   Death . In the event of your death, the Term shall end and the obligation of the Company to make any payments whatsoever under this Agreement shall cease, except that your executors, administrators, or other legal representatives, shall be entitled to receive any Payable Amounts.
 
7.   Termination of Employment .
 
(a)   Termination Without Cause . During the Term, this Agreement and your employment may be terminated by either party without Cause by giving thirty (30) days’ prior written notice of such termination to the other party; provided , however , that the Company may terminate your employment without any payment obligation immediately after you have given written notice that you intend to terminate this Agreement. In the event that the Company terminates your employment without Cause during the Term, the Company shall, subject to your execution and delivery of a general release in favor of the Company and its affiliates, and your compliance with the terms of this Agreement, pay to you a severance payment of the greater of the remaining payments due on the term of this Agreement or an Annual Base Salary otherwise payable through one (1) year from the date of termination, payable in accordance with the Company’s normal payroll practices (or, at your option, in one lump sum payment, discounted to present value using a 5% discount rate), and notwithstanding anything to the contrary, you will be entitled to such payments only if you have complied in full with the terms of this Agreement following your termination ( e.g. , your Non-Competition, Non-Solicitation, Confidentiality, and Return of Property obligations, etc.) . In addition, (i) you shall be entitled to receive all Payable Amounts (which shall become due and payable on the date of termination) and (ii) all of your unvested options issued under the Company’s Stock Option Plan, bonuses and other compensation shall vest on the date of termination.

(b)   Termination with Cause . During the Term, this Agreement and your employment may be terminated by the Company with Cause. The Company shall have no liability for any further payments to you (including, without limitation, Annual Base Salary or benefits) upon your termination for Cause, provided that you shall be entitled to receive all Payable Amounts (which shall become due and payable on the date of termination) . “ Cause ” shall mean your:

 
(i)
failure or refusal to perform, or any misconduct in the performance of, any material portion of your obligations, duties and responsibilities under this Agreement, which (A) is incapable of cure or (B) has not been cured or remedied as promptly as is reasonably possible (and in any event within forty-five (45) days) after written notice from the Company to you specifying in reasonable detail the nature of such failure, refusal or misconduct; or
 
 
(ii)
material breach of this Agreement which (A) is incapable of cure, or (B) has not been cured or remedied promptly (and in any event within forty-five (45) days) after written notice from the Company to you specifying in reasonable detail the nature of such breach; or
 
 
(iii)
act or acts of dishonesty in connection with your employment; or
 
(iv)   commission of a felony or other crime which materially and adversely affects the Company or its business or reputation.

8.   Restrictions . You acknowledge that the business in which the Company is engaged is highly competitive , and that you are a key executive of the Company. You further acknowledge that as a result of your senior position within DRG and the Company, you have acquired and will acquire extensive confidential information and knowledge of the business of the Company , and will develop relationships with, and/or knowledge of, customers, clients, employees, sales agents, middlemen and suppliers of the Company and its subsidiaries and affiliates. In light of the foregoing, you agree as follows:
 
(a)   Non-Solicitation . While you are employed by the Company for a period of eighteen (18) months thereafter, you agree that you will not, either directly or indirectly, (i) attempt to recruit, solicit or take away any employee or consultant of Company; make known to any person, firm or corporation the names or addresses of, or any information pertaining to any employee or consultant of Company or (ii) attempt to call on, solicit or take away any customer or collaborating partner of Company or any prospective customer or collaborating partner whose identity as such was learned by you during your employment with the Company.

(b)   Non-Competition . While you are employed by the Company and for and for a period of eighteen (18) months thereafter, (i) you will not directly or indirectly be interested in, as an owner, partner, member or shareholder of any entity, which engages in activities related to debt reduction, financial website portals or any other activity that is specific to the business of the Company and its affiliates from time to time (“ Proscribed Activity ”) provided , however , that you and members of your family may acquire (or hold) solely for investment purposes up to 5% of the outstanding equity interests in any publicly-traded company; and (ii) you will not, directly or indirectly as an employee, officer, director, partner, joint venturer, consultant or otherwise engage in any Proscribed Activity or participate, consult with, render services to or permit your name to be used or any other manner or capacity engage in any business or enterprise which engages in Proscribed Activity.

(c)   No Recruiting . While you are employed by the Company and for a period of eighteen (18) months thereafter, you will not, directly or indirectly, on your own behalf or as an owner, partner, officer, director, employee or consultant of any entity, hire or offer to hire any person who is or was an employee or contractor or collaborating partner of the Company during your employment with the Company. Notwithstanding anything to the contrary, if during the period this provision is effective, you and Dan Goldberg are both no longer employed by or providing services to the Company, you may collaborate on other business endeavors which do not compete with the Company’s business.


(d)   Confidentiality .

(i) You agree at all times during your employment with the Company and thereafter to hold in strictest confidence, and not to use, except for the benefit of the Company and within the scope of your employment, or to disclose (except as required by law) to any person or entity, any Confidential Information of the Company. You understand that “ Confidential Information ” means (i) any and all information , in whatever form, whether reduced to writing, maintained on any form of electronic media, or maintained in mind or memory, received by you or generated by you on behalf of the Company at any time before or after the date of this Agreement relating to the current or prospective business, research and development activities, products, technology, strategy, organization and/or finances of the Company, or of third parties (including affiliates, vendors, suppliers and customers) with which the Company has a business relationship and (ii) any other information, in whatever form, designated by the Company as confidential, in either of cases (i) or (ii), above, whether disclosed to, or obtained by, you prior or subsequent to the date of execution of this Agreement. Confidential Information shall include without limitation customer lists, database information, samples, demonstration models or materials and other embodiments of products or prospective products, software and other technology, projections, existing and proposed projects or experiments, processes and methodologies and trade secrets and all Developments, as defined below, but excluding (A) information that the Company deliberately and voluntarily makes publicly available and (B) information disclosed by you to comply with a court, or other lawful compulsory, order compelling you to do so, provided you give the Company prompt notice of the receipt of such order and disclosure is limited only to disclosure necessary for such purpose.   You specifically acknowledge that the Confidential Information derives independent economic value from not being readily known to, or ascertainable by proper means by, others; that the Company has expended considerable sums and efforts to develop such Confidential Information; reasonable efforts have been made by the Company to maintain the secrecy of such information; that such information is the sole property of the Company or its affiliates, vendors, suppliers, or customers and that any retention, use or disclosure of such Confidential Information by you during the Term (except in the course of performing your duties under this Agreement) or any time after termination thereof for any reason, shall constitute a violation of this Agreement and the misappropriation of the trade secrets and Confidential Information of the Company or its affiliates, vendors, suppliers, or customers.

(ii) You recognize that the Company has received and in the future will receive Confidential Information of and from other companies subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. You agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person or entity or to use it except as necessary in performing your duties under this Agreement.

(iii) You agree that all Confidential Information, in any form, shall be and remain the sole and exclusive property of the Company and that immediately upon the termination of your employment, or at any other time that the Company may request, you shall deliver all Confidential Information in your control to the Company or, if instructed to do so by the Company, you will delete or destroy all Confidential Information in your control.

(e)   Assignment of Work Product .
 
(i) If at any time during your employment with the Company, you have or shall (either alone or with others, and whether before or after the date of this Agreement) make, conceive, create, discover, invent or reduce to practice any invention, design, development, improvement, process, software program, work of authorship, or technique, in whole or in part, or which results from any work which you may do for or at the request of the Company, whether or not conceived by you while on holiday, on vacation, or off the premises of the Company, including such of the foregoing items conceived during the course of employment which are developed or perfected after your termination date, whether or not patentable or registrable under copyright or similar statutes (herein called “ Developments ”) that (a) relates to the business of the Company or any of the products or services being developed, manufactured or sold by the Company, or (b) results directly or indirectly from tasks assigned to you by the Company or (c) results from the use of premises or property (whether tangible or intangible) owned, leased or contracted for by the Company, such Developments and all rights and interests therein and all records relating to such Developments shall be the sole and absolute property of the Company. You shall promptly disclose to the Company each such Development and you shall deliver to the Company all records relating to each such Development. You hereby assign any rights (including, but not limited to, any rights under patent law and copyright law or other similar laws) you may have or acquire in the Developments to the Company, without further compensation. Where applicable, all Developments which are copyrightable works shall be works made for hire. To the extent any such work of authorship may not be deemed to be a work made for hire, you agree to, and do hereby, irrevocably, perpetually and unconditionally transfer and assign to the Company all right, title, and interest including copyright in and to such work without further compensation.

(ii) You will, during your employment with the Company and at any time thereafter, at the request and cost of the Company, promptly sign all such assignments, applications and other documents, and take such other actions, as the Company and its duly authorized agents may reasonably require: (A) to evidence the Company’s ownership of any Development and to apply for, obtain, register and vest in the name of the Company, or renew, patents, copyrights, trademarks or other similar protection for any Development in any country throughout the world and (B) to initiate or defend any judicial, administrative or other proceedings in respect of such patents, copyrights, trademarks or other similar rights.

(iii) In the event the Company is unable, after reasonable effort, to secure your signature for such purposes for any reason whatsoever, you hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as your agents and attorneys-in-fact, to act for and in your name, behalf and stead, to execute and file any such assignments, applications or other documents and to do all other lawfully permitted acts to further the obtaining and protection of such patents, copyright or trademark registrations or other rights with the same legal force and effect as if executed by you.

(iv)   You represent and warrant that (A) you do not have any pre-existing inventions that relate to the business of the Company or DRG and all inventions that you have made and own the intellectual property rights to as of the Effective Date that relate to the business of the Company or DRG shall be considered Developments and are subject to the terms of Section 8(d) and (B) all Developments that you have developed or with respect to which you have been associated while employed by the Company are the sole property of the Company and that there are no other claims or ownership rights in such property with respect to any other party.

(f)   Return of Property . Upon the termination of the your employment or at any other time upon written request by the Company, you shall promptly deliver to the Company all records, files, memoranda, designs, data, reports, drawings, plans, computer programs, software and other documents (and all copies or reproductions for such materials in your possession or control) belonging to the Company, including, without limitation, and Developments and/or Confidential Information and anything relating thereto.

(g)   For the purposes of this Section 8 , “ Company ” shall mean the Company and its subsidiaries and controlled affiliates .

9. General .

(a)   Cooperation . During the Term and thereafter, you agree to fully cooperate with the Company or its counsel in connection with any matter, investigation, proceeding or litigation regarding any matter in which you were involved during your employment with the Company or to which you had knowledge based on your employment with the Company.

(b)   Notices . Any notice or any other communication required or permitted to be given hereunder shall be in writing and shall be sufficiently given (i) when delivered by personal delivery; or (ii) two days after sending by registered mail, postage prepaid, return receipt requested, to the party entitled thereto at the address stated below.

(A)
To Company:
6477 HWY 93 South
Suite 303
Whitefish, MT 59937
Attn: Brian Ross

(B)
To Brian Ross
1280 Hems Road
Columbia Falls, MT 59912

(c)   No Conflict . you represent that your performance of all of the terms of this Agreement does not and will not conflict with or breach any agreement you have with any other party.

(d)   Waivers . Any waiver by the Company of any provision of this Agreement shall not operate or be construed as a waiver of this Agreement or of any subsequent breach of such provision or any other provision.

(e)   Survival of Terms . Your obligations under Sections 8 and 10 of this Agreement shall survive the termination of this Agreement for any reason whatsoever regardless of the manner of such termination and shall be binding upon your heirs, executors, administrators and legal representatives.

(f)   Successors and Assigns . This Agreement shall inure to the benefit of and be enforceable by the Company’s successors or assigns. The Company shall have the right to assign this Agreement.

(g)   Scope of Restrictions . You agree that the unenforceability of any one clause of this Agreement shall in no way impair the enforceability of any of the other clauses. If any of the provisions of this Agreement shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise, the parties hereto agree that such provisions shall be construed by the appropriate judicial body by limiting or reducing them, so as to be enforceable to the maximum extent legally permissible.

(h)   Remedies . You agree that a any breach or threatened breach of Section 8 of this agreement would result in irreparable harm to the Company; therefore, in addition to its other remedies at law or in equity, the Company shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of the provisions of Section 8, without the posting of any bond.

(i)   Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its conflict of law provisions.

(j)   Dispute Resolution

(i) Hierarchy of Dispute Resolution Procedures . Any dispute, controversy, or claim, whether based on contract, tort, statute, fraud, misrepresentations, or any other legal theory between the Company, on the one hand, and you, on the other hand (a “ Dispute ”), that arises out of or relates to this Agreement or any obligations or related services to be provided under this Agreement, shall be resolved in accordance with the procedures described in this Section 9(j). In the case of a Dispute, the parties shall establish an internal hierarchy to facilitate resolution of any Dispute as set forth below:
 
(A) Upon written request of the Company or you , the Company shall appoint one designated representative and you shall either represent yourself or appoint one designated representative whose task it shall be to meet for the purpose of endeavoring to resolve such Dispute. Before any initial meeting, the designated representative shall provide to each party written notice of any Dispute, which notice shall include a detailed description of the claim or dispute sufficient to allow a full analysis and complete response. Each party shall exercise good faith in providing its response to any claim or dispute, in advance of the first meeting between designated representatives. The designated representatives shall meet as often as the parties reasonably deem necessary to discuss the Dispute in an effort to resolve the Dispute without the necessity of any further proceeding.
 
(B) The Company and you shall negotiate in good faith in an attempt to resolve the Dispute for a period of not greater than sixty (60) days after notice of the Dispute is received by the parties.
 
(ii) Arbitration
 
(A) If the parties are unable to resolve any Dispute as contemplated by Section 9(j)(i), such Dispute, excluding any matter relating to questions of arbitrability and any action for injunctive relief or specific performance, shall be submitted to arbitration.
 
(B) Any arbitration hereunder shall be conducted as a self administered arbitration in accordance with and subject to the Federal Arbitration Act (9 U.S.C. § 1 et seq., the “ Arbitration Act ”) to the exclusion of any state arbitration laws, and to the extent not inconsistent with the Arbitration Act, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect (the “ Arbitration Rules ”). The arbitration shall occur in New York, NY.
 
(C) The arbitration panel shall consist of one (1) arbitrator, chosen by mutual agreement of the parties. The arbitrator shall be a lawyer, judge or mediator experienced in the resolution of commercial disputes. The relevant parties shall cooperate to select the arbitrator promptly after service of a document initiating arbitration.
 
(D) The award of an arbitrator shall be final and binding upon the parties to such arbitration proceeding, with only such rights of appeal or review as are available under the Arbitration Act.
 
(E) Except for the matters specifically addressed in the Arbitration Rules or hereafter in this Section 9(j)(ii) the procedural rules for the conduct of an arbitration under this Section 9(j)(ii) shall be established by the arbitrator consistent with the parties' intent that any arbitration hereunder is to be conducted in a streamlined and expedited manner, with limited discovery, and as economically as practicable. In addition, the following shall apply:
 
(1) All costs and fees of counsel and expert witnesses shall be borne by the party incurring the same; and
 
(2) The costs of the arbitrator shall be divided equally among the parties to any arbitration proceeding.
 
(k)   Entire Agreement; Amendment . This Agreement constitutes the entire agreement between the Company and you with respect to the subject matter hereof (except with respect to the NSO), and supersedes all prior discussions, promises, negotiations and agreements (whether written or oral). The parties agree that the NSO Agreement governs the terms of the NSO and if any provision of this Agreement conflict with the terms of the NSO Agreement, the terms of the NSO Agreement shall govern.   This Agreement may be amended or modified only by a written agreement executed by the Company and you.

(l)   Tax Withholding . The Company may withhold from any amounts payable under this Agreement or otherwise all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.

 

[SIGNATURE PAGE FOLLOWS]
 
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this Agreement as of the date first above written.
 
 
 
EMPLOYEE:

 
 
/s/ Brian Ross
Brian Ross
 
 

 
ACCELERIZE NEW MEDIA, INC.
 

 
BY:      /s/ Chris Meredith
Chris Meredith
Title: Chief Technology Officer
 

 
Exhibit A

[insert description of BCBS plan or attach copy of a bill with relevant information]


 

Exhibit 10.3
 
EXECUTION COPY
ACCELERIZE NEW MEDIA, INC.
1280 Helms Road
Columbia Falls, MT 59912

Mr. Chris Meredith
 
AGREEMENT entered into as of the 1st day of January, 2007, by and between Accelerize New Media, Inc., a Delaware corporation with headquarters at 6477 HWY 93 South, Suite 303, Whitefish, MT 59937 (the “ Company ”), and Chris Meredith, a natural person, residing at 1982 Asylum Avenue, West Hartford, CT 06117 (the “ Employee ”).
 
The following sets out the terms of your employment with the Company, effective as of January 1, 2007.
 
1.   Term . The Company shall employ you subject to the terms and conditions of this letter through the earlier of January 1, 2010 or such date as this Agreement shall terminate or expire as provided herein (the “ Term ”); provided   that you shall have the option to renew for an additional 2 year term by giving written notice to the Company of your intention to do so 60 days before the expiration of the Term. If this option is exercised the word “Term” shall include such additional 2 year period. You and the Company may also elect to continue your employment after expiration of the Term or the renewal period on such terms and conditions of employment as are mutually agreed upon; provided further that Section 8 of this Agreement shall continue in full force and effect during any period in which you are employed by the Company, including without limitation, any period of employment following the Term and shall survive the termination of your employment.
 
2.   Duties . You shall be employed in the position of Chief Technical Officer. You will also serve as a Board Member on the Board of Directors. You shall (a) be responsible, subject to the board of directors of the Company (the “ Board ”) and the President of the Company, for participating in the management and direction of the Company, (b) perform all duties incident to such offices and (c) perform such other tasks, consistent with your position with the Company, as may from time to time be assigned to you by the Board or other officers of the Company. You shall devote substantially all of your business time, labor, skill, and best ability to the performance of your duties hereunder in a manner which will faithfully and diligently further the business and interests of the Company. During the term of your employment, you shall not directly or indirectly pursue any other business activity which unreasonably interferes with the performance of your duties and responsibilities hereunder; provided , however , that you may serve on civic or other charitable boards or committees and manage personal investments, so long as such activities do not interfere in any material respect with the performance of your duties and responsibilities hereunder.
 
3.   Compensation .
 
Base Salary . During the Term you shall receive an annual base salary (the “ Annual Base Salary ”) of One Hundred Fifty Thousand Dollars ($150,000) for your position as Chief Technical Officer of the Company. The Annual Base Salary shall be payable in accordance with the Company’s payroll practices as in effect from time to time, subject to applicable withholding and other taxes.
 
4.   Additional Benefits .
 
(a )   Business Expenses . The Company shall reimburse you for reasonable and properly documented business expenses incurred by you in connection with your employment by the Company, including but not limited to your monthly cell phone charges for business related calls and emails in accordance with Company policy.

(b)   Benefit Plans and Programs . During the Term, the Company shall reimburse you for your health insurance premiums as and to the extent set forth on Exhibit A .  

(c)   Stock Option Plan . You shall, to the extent you are otherwise eligible, be entitled to participate in the Company’s stock option plan; provided that any grant of options shall be subject to vesting and other terms and conditions as may be determined by the Board of Directors of the Company. Upon execution of this agreement, you shall be granted a non-qualified stock option (an “ NSO ”) to purchase 200,000 shares of the Company’s common stock subject to the terms and conditions of the option agreement between the Company and you relating to such option of even date herewith (the “ NSO Agreement ”).

5.   Illness or Disability . If, because of your illness or other disability for a continuous period of more than 45 days, you are unable to render the services required by the Company as provided herein, the Company may end the Term and the Company may terminate your employment hereunder, by written notice. Upon such termination, if any, you shall not be entitled to any further payments of any nature, except for payment of (a)   any earned but unpaid Annual Base Salary   and (b) unreimbursed business expenses (collectively, “ Payable Amounts ”). All Payable Amounts shall become due and payable on the date of such termination.
 
6.   Death . In the event of your death, the Term shall end and the obligation of the Company to make any payments whatsoever under this Agreement shall cease, except that your executors, administrators, or other legal representatives, shall be entitled to receive any Payable Amounts.
 
7.   Termination of Employment .
 
(a)   Termination Without Cause . During the Term, this Agreement and your employment may be terminated by either party without Cause by giving thirty (30) days’ prior written notice of such termination to the other party; provided , however , that the Company may terminate your employment without any payment obligation immediately after you have given written notice that you intend to terminate this Agreement. In the event that the Company terminates your employment without Cause during the Term, the Company shall, subject to your execution and delivery of a general release in favor of the Company and its affiliates, and your compliance with the terms of this Agreement, pay to you a severance payment of the greater of the remaining payments due on the term of this Agreement or an Annual Base Salary otherwise payable through one (1) year from the date of termination, payable in accordance with the Company’s normal payroll practices (or, at your option, in one lump sum payment, discounted to present value using a 5% discount rate), and notwithstanding anything to the contrary, you will be entitled to such payments only if you have complied in full with the terms of this Agreement following your termination ( e.g. , your Non-Competition, Non-Solicitation, Confidentiality, and Return of Property obligations, etc.) . In addition, (i) you shall be entitled to receive all Payable Amounts (which shall become due and payable on the date of termination) and (ii) all of your unvested options issued under the Company’s Stock Option Plan, bonuses and other compensation shall vest on the date of termination.

(b)   Termination with Cause . During the Term, this Agreement and your employment may be terminated by the Company with Cause. The Company shall have no liability for any further payments to you (including, without limitation, Annual Base Salary or benefits) upon your termination for Cause, provided that you shall be entitled to receive all Payable Amounts (which shall become due and payable on the date of termination) . “ Cause ” shall mean your:

 
(i)
failure or refusal to perform, or any misconduct in the performance of, any material portion of your obligations, duties and responsibilities under this Agreement, which (A) is incapable of cure or (B) has not been cured or remedied as promptly as is reasonably possible (and in any event within forty-five (45) days) after written notice from the Company to you specifying in reasonable detail the nature of such failure, refusal or misconduct; or
 
 
(ii)
material breach of this Agreement which (A) is incapable of cure, or (B) has not been cured or remedied promptly (and in any event within forty-five (45) days) after written notice from the Company to you specifying in reasonable detail the nature of such breach; or
 
 
(iii)
act or acts of dishonesty in connection with your employment; or
 
(iv)
commission of a felony or other crime which materially and adversely affects the Company or its business or reputation.

8.   Restrictions . You acknowledge that the business in which the Company is engaged is highly competitive , and that you are a key executive of the Company. You further acknowledge that as a result of your senior position within the Company, you have acquired and will acquire extensive confidential information and knowledge of the business of the Company , and will develop relationships with, and/or knowledge of, customers, clients, employees, sales agents, middlemen and suppliers of the Company and its subsidiaries and affiliates. In light of the foregoing, you agree as follows:
 
(a)   Non-Solicitation . While you are employed by the Company for a period of eighteen (18) months thereafter, you agree that you will not, either directly or indirectly, (i) attempt to recruit, solicit or take away any employee or consultant of Company; make known to any person, firm or corporation the names or addresses of, or any information pertaining to any employee or consultant of Company or (ii) attempt to call on, solicit or take away any customer or collaborating partner of Company or any prospective customer or collaborating partner whose identity as such was learned by you during your employment with the Company.

(b)   Non-Competition . While you are employed by the Company and for and for a period of eighteen (18) months thereafter, (i) you will not directly or indirectly be interested in, as an owner, partner, member or shareholder of any entity, which engages in activities related to debt reduction, financial website portals or any other activity that is specific to the business of the Company and its affiliates from time to time (“ Proscribed Activity ”) provided , however , that you and members of your family may acquire (or hold) solely for investment purposes up to 5% of the outstanding equity interests in any publicly-traded company; and (ii) you will not, directly or indirectly as an employee, officer, director, partner, joint venturer, consultant or otherwise engage in any Proscribed Activity or participate, consult with, render services to or permit your name to be used or any other manner or capacity engage in any business or enterprise which engages in Proscribed Activity.

(c)   No Recruiting . While you are employed by the Company and for a period of eighteen (18) months thereafter, you will not, directly or indirectly, on your own behalf or as an owner, partner, officer, director, employee or consultant of any entity, hire or offer to hire any person who is or was an employee or contractor or collaborating partner of the Company during your employment with the Company. Notwithstanding anything to the contrary, if during the period this provision is effective, you and Dan Goldberg are both no longer employed by or providing services to the Company, you may collaborate on other business endeavors which do not compete with the Company’s business.


(d)   Confidentiality .

(i) You agree at all times during your employment with the Company and thereafter to hold in strictest confidence, and not to use, except for the benefit of the Company and within the scope of your employment, or to disclose (except as required by law) to any person or entity, any Confidential Information of the Company. You understand that “ Confidential Information ” means (i) any and all information , in whatever form, whether reduced to writing, maintained on any form of electronic media, or maintained in mind or memory, received by you or generated by you on behalf of the Company at any time before or after the date of this Agreement relating to the current or prospective business, research and development activities, products, technology, strategy, organization and/or finances of the Company, or of third parties (including affiliates, vendors, suppliers and customers) with which the Company has a business relationship and (ii) any other information, in whatever form, designated by the Company as confidential, in either of cases (i) or (ii), above, whether disclosed to, or obtained by, you prior or subsequent to the date of execution of this Agreement. Confidential Information shall include without limitation customer lists, database information, samples, demonstration models or materials and other embodiments of products or prospective products, software and other technology, projections, existing and proposed projects or experiments, processes and methodologies and trade secrets and all Developments, as defined below, but excluding (A) information that the Company deliberately and voluntarily makes publicly available and (B) information disclosed by you to comply with a court, or other lawful compulsory, order compelling you to do so, provided you give the Company prompt notice of the receipt of such order and disclosure is limited only to disclosure necessary for such purpose.   You specifically acknowledge that the Confidential Information derives independent economic value from not being readily known to, or ascertainable by proper means by, others; that the Company has expended considerable sums and efforts to develop such Confidential Information; reasonable efforts have been made by the Company to maintain the secrecy of such information; that such information is the sole property of the Company or its affiliates, vendors, suppliers, or customers and that any retention, use or disclosure of such Confidential Information by you during the Term (except in the course of performing your duties under this Agreement) or any time after termination thereof for any reason, shall constitute a violation of this Agreement and the misappropriation of the trade secrets and Confidential Information of the Company or its affiliates, vendors, suppliers, or customers.

(ii) You recognize that the Company has received and in the future will receive Confidential Information of and from other companies subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. You agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person or entity or to use it except as necessary in performing your duties under this Agreement.

(iii) You agree that all Confidential Information, in any form, shall be and remain the sole and exclusive property of the Company and that immediately upon the termination of your employment, or at any other time that the Company may request, you shall deliver all Confidential Information in your control to the Company or, if instructed to do so by the Company, you will delete or destroy all Confidential Information in your control.

(e)   Assignment of Work Product .
 
(i) If at any time during your employment with the Company, you have or shall (either alone or with others, and whether before or after the date of this Agreement) make, conceive, create, discover, invent or reduce to practice any invention, design, development, improvement, process, software program, work of authorship, or technique, in whole or in part, or which results from any work which you may do for or at the request of the Company, whether or not conceived by you while on holiday, on vacation, or off the premises of the Company, including such of the foregoing items conceived during the course of employment which are developed or perfected after your termination date, whether or not patentable or registrable under copyright or similar statutes (herein called “ Developments ”) that (a) relates to the business of the Company or any of the products or services being developed, manufactured or sold by the Company, or (b) results directly or indirectly from tasks assigned to you by the Company or (c) results from the use of premises or property (whether tangible or intangible) owned, leased or contracted for by the Company, such Developments and all rights and interests therein and all records relating to such Developments shall be the sole and absolute property of the Company. You shall promptly disclose to the Company each such Development and you shall deliver to the Company all records relating to each such Development. You hereby assign any rights (including, but not limited to, any rights under patent law and copyright law or other similar laws) you may have or acquire in the Developments to the Company, without further compensation. Where applicable, all Developments which are copyrightable works shall be works made for hire. To the extent any such work of authorship may not be deemed to be a work made for hire, you agree to, and do hereby, irrevocably, perpetually and unconditionally transfer and assign to the Company all right, title, and interest including copyright in and to such work without further compensation.

(ii) You will, during your employment with the Company and at any time thereafter, at the request and cost of the Company, promptly sign all such assignments, applications and other documents, and take such other actions, as the Company and its duly authorized agents may reasonably require: (A) to evidence the Company’s ownership of any Development and to apply for, obtain, register and vest in the name of the Company, or renew, patents, copyrights, trademarks or other similar protection for any Development in any country throughout the world and (B) to initiate or defend any judicial, administrative or other proceedings in respect of such patents, copyrights, trademarks or other similar rights.

(iii) In the event the Company is unable, after reasonable effort, to secure your signature for such purposes for any reason whatsoever, you hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as your agents and attorneys-in-fact, to act for and in your name, behalf and stead, to execute and file any such assignments, applications or other documents and to do all other lawfully permitted acts to further the obtaining and protection of such patents, copyright or trademark registrations or other rights with the same legal force and effect as if executed by you.

(iv)   You represent and warrant that (A) you do not have any pre-existing inventions that relate to the business of the Company and all inventions that you have made and own the intellectual property rights to as of the Effective Date that relate to the business of the Company shall be considered Developments and are subject to the terms of Section 8(d) and (B) all Developments that you have developed or with respect to which you have been associated while employed by the Company are the sole property of the Company and that there are no other claims or ownership rights in such property with respect to any other party.

(f)   Return of Property . Upon the termination of the your employment or at any other time upon written request by the Company, you shall promptly deliver to the Company all records, files, memoranda, designs, data, reports, drawings, plans, computer programs, software and other documents (and all copies or reproductions for such materials in your possession or control) belonging to the Company, including, without limitation, and Developments and/or Confidential Information and anything relating thereto.

(g)   For the purposes of this Section 8 , “ Company ” shall mean the Company and its subsidiaries and controlled affiliates .

9. General .

(a)   Cooperation . During the Term and thereafter, you agree to fully cooperate with the Company or its counsel in connection with any matter, investigation, proceeding or litigation regarding any matter in which you were involved during your employment with the Company or to which you had knowledge based on your employment with the Company.

(b)   Notices . Any notice or any other communication required or permitted to be given hereunder shall be in writing and shall be sufficiently given (i) when delivered by personal delivery; or (ii) two days after sending by registered mail, postage prepaid, return receipt requested, to the party entitled thereto at the address stated below.

(A)
To Company:
6477 HWY 93 South
Suite 303
Whitefish, MT 59937
Attn: Brian Ross

(B)
To Chris Meredith:
1982 Asylum Avenue
West Hartford, CT 06117      

(c)   No Conflict . you represent that your performance of all of the terms of this Agreement does not and will not conflict with or breach any agreement you have with any other party.

(d)   Waivers . Any waiver by the Company of any provision of this Agreement shall not operate or be construed as a waiver of this Agreement or of any subsequent breach of such provision or any other provision.

(e)   Survival of Terms . Your obligations under Sections 8 and 10 of this Agreement shall survive the termination of this Agreement for any reason whatsoever regardless of the manner of such termination and shall be binding upon your heirs, executors, administrators and legal representatives.

(f)   Successors and Assigns . This Agreement shall inure to the benefit of and be enforceable by the Company’s successors or assigns. The Company shall have the right to assign this Agreement.

(g)   Scope of Restrictions . You agree that the unenforceability of any one clause of this Agreement shall in no way impair the enforceability of any of the other clauses. If any of the provisions of this Agreement shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise, the parties hereto agree that such provisions shall be construed by the appropriate judicial body by limiting or reducing them, so as to be enforceable to the maximum extent legally permissible.

(h)   Remedies . You agree that a any breach or threatened breach of Section 8 of this agreement would result in irreparable harm to the Company; therefore, in addition to its other remedies at law or in equity, the Company shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of the provisions of Section 8, without the posting of any bond.

(i)   Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its conflict of law provisions.

(j)   Dispute Resolution

(i) Hierarchy of Dispute Resolution Procedures . Any dispute, controversy, or claim, whether based on contract, tort, statute, fraud, misrepresentations, or any other legal theory between the Company, on the one hand, and you, on the other hand (a “ Dispute ”), that arises out of or relates to this Agreement or any obligations or related services to be provided under this Agreement, shall be resolved in accordance with the procedures described in this Section 9(j). In the case of a Dispute, the parties shall establish an internal hierarchy to facilitate resolution of any Dispute as set forth below:
 
(A) Upon written request of the Company or you , the Company shall appoint one designated representative and you shall either represent yourself or appoint one designated representative whose task it shall be to meet for the purpose of endeavoring to resolve such Dispute. Before any initial meeting, the designated representative shall provide to each party written notice of any Dispute, which notice shall include a detailed description of the claim or dispute sufficient to allow a full analysis and complete response. Each party shall exercise good faith in providing its response to any claim or dispute, in advance of the first meeting between designated representatives. The designated representatives shall meet as often as the parties reasonably deem necessary to discuss the Dispute in an effort to resolve the Dispute without the necessity of any further proceeding.
 
(B) The Company and you shall negotiate in good faith in an attempt to resolve the Dispute for a period of not greater than sixty (60) days after notice of the Dispute is received by the parties.
 
(ii) Arbitration
 
(A) If the parties are unable to resolve any Dispute as contemplated by Section 9(j)(i), such Dispute, excluding any matter relating to questions of arbitrability and any action for injunctive relief or specific performance, shall be submitted to arbitration.
 
(B) Any arbitration hereunder shall be conducted as a self administered arbitration in accordance with and subject to the Federal Arbitration Act (9 U.S.C. § 1 et seq., the “ Arbitration Act ”) to the exclusion of any state arbitration laws, and to the extent not inconsistent with the Arbitration Act, in accordance with the commercial arbitration rules of the American Arbitration Association, as then in effect (the “ Arbitration Rules ”). The arbitration shall occur in New York, NY.
 
(C) The arbitration panel shall consist of one (1) arbitrator, chosen by mutual agreement of the parties. The arbitrator shall be a lawyer, judge or mediator experienced in the resolution of commercial disputes. The relevant parties shall cooperate to select the arbitrator promptly after service of a document initiating arbitration.
 
(D) The award of an arbitrator shall be final and binding upon the parties to such arbitration proceeding, with only such rights of appeal or review as are available under the Arbitration Act.
 
(E) Except for the matters specifically addressed in the Arbitration Rules or hereafter in this Section 9(j)(ii) the procedural rules for the conduct of an arbitration under this Section 9(j)(ii) shall be established by the arbitrator consistent with the parties' intent that any arbitration hereunder is to be conducted in a streamlined and expedited manner, with limited discovery, and as economically as practicable. In addition, the following shall apply:
 
(1) All costs and fees of counsel and expert witnesses shall be borne by the party incurring the same; and
 
(2) The costs of the arbitrator shall be divided equally among the parties to any arbitration proceeding.
 
(k)   Entire Agreement; Amendment . This Agreement constitutes the entire agreement between the Company and you with respect to the subject matter hereof (except with respect to the NSO), and supersedes all prior discussions, promises, negotiations and agreements (whether written or oral). The parties agree that the NSO Agreement governs the terms of the NSO and if any provision of this Agreement conflict with the terms of the NSO Agreement, the terms of the NSO Agreement shall govern.   This Agreement may be amended or modified only by a written agreement executed by the Company and you.

(l)   Tax Withholding . The Company may withhold from any amounts payable under this Agreement or otherwise all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.

(m)   Option Award . During the Term or any extension thereof pursuant to Section 1, you shall have the right to require the Company to amend the non-qualified stock option issued by the Company to you of even date herewith to so it mirrors any option granted to Brian Ross after the date hereof in all material terms except for the number of options granted.

[SIGNATURE PAGE FOLLOWS]
 
 

IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this Agreement as of the date first above written.
 
 
EMPLOYEE:

 
 
/s/ Chris Meredith
Chris Meredith
 
 

 
ACCELERIZE NEW MEDIA, INC.
 

 
BY:      /s/ Brian Ross
Brian Ross
Title: Chief Executive Officer
 
 
 


Exhibit A

[insert description of BCBS plan or attach copy of a bill with relevant information]




 

EXHIBIT 23.1


INDEPENDENT REGISTERED ACCOUNTING FIRM CONSENT

We consent to the use in this Registration Statement of Accelerize New Media, Inc. on Form SB-2 of our report dated September 18, 2006, relating to the financial statements of Accelerize New Media, Inc. as of December 31, 2005 and 2004 and for the years ended December 31, 2005 and 2004. We also consent to the use of our audit report dated December 15, 2006, relating to the financial statements of The Debt Reduction Group, LLC as of December 31, 2005 and 2004 and for the years ended December 31, 2005 and 2004 appearing in this Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading “Experts” in such Prospectus.
 

/s/ Sherb & Co., LLP
New York, NY
December 21, 2006