SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2006
COMMISSION FILE NUMBER: 000-51160
ACE MARKETING & PROMOTIONS, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-3427896
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(State of jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
457 ROCKAWAY AVE.
VALLEY STREAM, NY 11581
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(Address of principal executive offices)
(516) 256-7766
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(Registrant's telephone number)
NOT APPLICABLE
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(Former name, address and fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 15, 2006, the registrant had a total of 6,917,108 shares of Common
Stock outstanding.
ACE MARKETING & PROMOTIONS, INC.
FORM 10-QSB QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheet as of March 31, 2006 3
Condensed Statements of Operations for the Three
Months Ended March 31, 2006 and March 31, 2005 4
Condensed Statements of Cash Flows for the three Months
Ended March 31, 2006 and March 31, 2005 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submissions of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
PART I. FINANCIAL INFORMATION
ACE MARKETING & PROMOTIONS, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
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MARCH 31, 2006
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ASSETS
Current Assets:
Cash and cash equivalents $ 286,042
Accounts receivable, net of allowance for doubtful accounts of $10,000 574,009
Prepaid expenses and other current assets 47,884
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Total Current Assets 907,935
Property and Equipment, net 20,049
Other Assets 5,492
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Total Assets $ 933,476
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 313,177
Accrued expenses 123,806
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Total Current Liabilities 436,983
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Commitments and Contingencies
Stockholders' Equity:
Common stock, $.0001 par value; 25,000,000 shares authorized
6,917,108 shares issued and outstanding 692
Preferred stock $.0001 par value: 500,000 shares authorized
no shares outstanding --
Additional paid-in capital 1,659,989
Accumulated deficit (1,164,188)
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Total Stockholders' Equity 496,493
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Total Liabilities and Stockholders' Equity $ 933,476
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SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. 3
ACE MARKETING & PROMOTIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE MONTHS ENDED MARCH 31, 2006 2005
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Revenues, net $ 1,075,007 $ 558,407
Cost of Revenues 775,173 357,909
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Gross Profit 299,834 200,498
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Operating Expenses:
Selling, general and administrative expenses 416,173 247,554
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Total Operating Expenses 416,173 247,554
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Loss from Operations (116,339) (47,056)
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Other Income (Expense):
Interest expense -- (4,511)
Interest income 747 99
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Total Other Income (Expense) 747 (4,412)
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Loss Before Provision for Income Taxes (115,592) (51,468)
Income Tax Expense -- --
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Net Loss $ (115,592) $ (51,468)
==============================
Net Loss Per Common Share:
Basic $ (0.01) $ (0.01)
==============================
Diluted $ (0.01) $ (0.01)
==============================
Weighted Average Common Shares Outstanding:
Basic 6,253,954 5,851,476
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Diluted 6,253,954 5,851,476
==============================
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SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. 4
ACE MARKETING & PROMOTIONS, INC.
Condensed Statements of Cash Flows (unaudited)
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THREE MONTHS ENDED MARCH 31, 2006 2005
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Cash Flows from Operating Activities:
Net loss $(115,592) $ (51,468)
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Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,051 1,305
Stock-based payments 13,880 16,500
Changes in operating assets and liabilities:
(Increase) decrease in operating assets:
Accounts receivable 137,047 75,676
Prepaid expenses and other assets (6,602) 33,914
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (43,977) (73,146)
Customer deposits (98,000) 74,000
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Total adjustments 3,399 128,249
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Net Cash (Used in ) Provided by Operating Activities (112,193) 76,781
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Cash Flows from Financing Activities:
Proceeds from private placement -- 95,000
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Net Cash Provided by Financing Activities -- 95,000
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Net (Decrease) Increase in Cash and Cash Equivalents (112,193) 171,781
Cash and Cash Equivalents, beginning of period 398,235 566,285
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Cash and Cash Equivalents, end of period $ 286,042 $ 738,066
==========================
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SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. 5
ACE MARKETING & PROMOTIONS, INC
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
The Condensed Balance Sheet as of March 31, 2006, the Condensed Statements of
Operations for the three months ended March 31, 2006 and 2005 and the Condensed
Statements of Cash Flows for the three months ended March 31, 2006 and 2005 have
been prepared by us without audit. In our opinion, the accompanying unaudited
condensed financial statements contain all adjustments necessary to present
fairly in all material respects our financial position as of March 31, 2006,
results of operations for the three months ended March 31, 2006 and 2005 and
cash flows for the three months ended March 31, 2006 and 2005.
This report should be read in conjunction with our Form 10-KSB for our fiscal
year ended December 31, 2005.
The results of operations and cash flows for the three months ended March 31,
2006are not necessarily indicative of the results to be expected for the full
year.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION - Revenue is recognized when title and risk of loss
transfers to the customer and the earnings process is complete. In general,
title passes to our customers upon the customer's receipt of the merchandise.
Revenue is accounted for in accordance with Emerging Issue
Task Force (EITF) Issue No. 99-19, "Reporting Revenue Gross as a
Principal versus Net as an Agent." Revenue is recognized on a gross
basis since the Company has the risks and rewards of ownership,
latitude in selection of vendors and pricing, and bears all credit
risk.
The Company records all shipping and handling fees billed to customers
as revenues, and related costs as cost of goods sold, when incurred, in
accordance with EITF 00-10, "Accounting for Shipping and Handling Fees
and Costs."
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 could
differ from those estimates.
6
ACE MARKETING & PROMOTIONS, INC
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
2. EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the period. Dilutive earnings per share gives effect to stock
options and warrants, which are considered to be dilutive common stock
equivalents. Basic loss per common share was computed by dividing net
loss by the weighted average number of shares of common stock
outstanding. Diluted loss per common share does not give effect to the
impact of options because their effect would have been anti-dilutive.
3. STOCK COMPENSATION
During Fiscal 2005, the Company established, and the stockholders approved, an
Employee Benefit and Consulting Services Compensation Plan (the "Plan") for the
granting of up to 2,000,000 non-statutory and incentive stock options and stock
awards to directors, officers, consultants and key employees of the Company. On
June 9, 2005, the Board of Directors amended the Plan to increase the number of
stock options and awards to be granted under the Plan to 4,000,000.
All stock options under the Plan are granted at or above the fair market value
of the common stock at the grant date. Employee and non-employee stock options
vest over varying periods and generally expire either 5 or 10 years from the
grant date.
Effective January 1, 2006, the Company's Plan is accounted for in accordance
with the recognition and measurement provisions of Statement of Financial
Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS
123(R)"), which replaces FAS No. 123, Accounting for Stock-Based Compensation,
and supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting
for Stock Issued to Employees, and related interpretations. FAS 123 (R) requires
compensation costs related to share-based payment transactions, including
employee stock options, to be recognized in the financial statements. In
addition, the Company adheres to the guidance set forth within Securities and
Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 107, which
provides the Staff's views regarding the interaction between SFAS No. 123(R) and
certain SEC rules and regulations and provides interpretations with respect to
the valuation of share-based payments for public companies.
Prior to January 1, 2006, the Company accounted for similar transactions in
accordance with APB No. 25 which employed the intrinsic value method of
measuring compensation cost. Accordingly, compensation expense was not
recognized for fixed stock options if the exercise price of the option equaled
or exceeded the fair value of the underlying stock at the grant date.
While FAS No. 123 encouraged recognition of the fair value of all stock-based
awards on the date of grant as expense over the vesting period, companies were
permitted to continue to apply the intrinsic value-based method of accounting
prescribed by APB No. 25 and disclose certain pro-forma amounts as if the fair
value approach of SFAS No. 123 had been applied. In December 2002, FAS No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment
of SFAS No. 123, was issued, which, in addition to providing alternative methods
of transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation, required more prominent pro-forma disclosures
in both the annual and interim financial statements. The Company complied with
these disclosure requirements for all applicable periods prior to January 1,
2006.
7
ACE MARKETING & PROMOTIONS, INC
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
In adopting FAS 123(R), the Company applied the modified prospective approach to
transition. Under the modified prospective approach, the provisions of FAS 123
(R) are to be applied to new awards and to awards modified, repurchased, or
cancelled after the required effective date. Additionally, compensation cost for
the portion of awards for which the requisite service has not been rendered that
are outstanding as of the required effective date shall be recognized as the
requisite service is rendered on or after the required effective date. The
compensation cost for that portion of awards shall be based on the grant-date
fair value of those awards as calculated for either recognition or pro-forma
disclosures under FAS 123.
As a result of the adoption of FAS 123 (R), the Company's results for the three
month period ended March 31, 2006 include employee share-based compensation
expense totaling approximately $11,400. Such amounts have been included in the
Condensed Consolidated Statements of Income within general and administrative
expenses. No income tax benefit has been recognized in the statement of
operations for share-based compensation arrangements due to a history of
operating losses. Stock compensation expense recorded under APB No. 25 in the
Consolidated Statements of Operations for the three months ended March 31, 2005
totaled $0.
Stock option compensation expense in 2006 is the estimated fair value of options
granted amortized on a straight-line basis over the requisite service period for
entire portion of the award.
There were no options granted to employees during the three month period ended
March 31, 2006. The weighted average estimated fair value of stock options
granted to employees in the three months ended March 31, was $.21. The fair
value of options at the date of grant was estimated using the Black-Scholes
option pricing model. For option grants in Fiscal 2006, the Company will take
into consideration guidance under SFAS 123R and SEC Staff Accounting Bulletin
No. 107 (SAB 107) when reviewing and updating assumptions. The expected
volatility is based upon historical volatility of our stock and other
contributing factors. The expected term is based upon observation of actual time
elapsed between date of grant and exercise of options for all employees.
Previously such assumptions were determined based on historical data.
The assumptions made in calculating the fair values of options granted during
the three months ended March 31, 2005 are as follows:
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Expected volatility 0.0%
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Expected dividend yield 0.0%
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Risk-free interest rate 2.37%
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Expected term (in years) 10.0
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The following table addresses the additional disclosure requirements of 123(R)
in the period of adoption. The table illustrates the effect on net income and
earnings per share as if the fair value recognition provisions of FAS No. 123
had been applied to all outstanding and unvested awards in the prior year
comparable period.
Three
Months Ended
March 31,
2005
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Net loss, as reported $ (51,468)
Deduct: Total stock based compensation expense
determined under the fair value based method for all
awards (no tax effect) (181,500)
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Pro forma net loss $ (232,968)
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Net income per share:
Basic - as reported $ (0.01)
Basic - pro forma $ (0.04)
Diluted - as reported $ (0.01)
Diluted - pro forma $ (0.04)
8
ACE MARKETING & PROMOTIONS, INC
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
The following table represents our stock options granted, exercised, and
forfeited during the quarter ended March 31, 2006:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Share Price Term Value
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Outstanding, beginning of year 2,777,000 $ 1.05
Forfeited (1,000,000) 1.00
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Outstanding, end of quarter 1,777,000 $ 1.08 6.26 $ 1,108,900
==============
Options exercisable, end of quarter 887,800 $ 1.05 7.84 $ 575,960
==============
No options were exercised the first quarter of 2006 and 2005.
4. CONSULTING AGREEMENT
On June 10, 2005 the Company entered into a consulting agreement with a
financial advisory firm. In connection with this agreement, the Company
granted a warrant for the purchase of 1,100,000 shares of the Company's
common stock containing cashless exercise provisions. The warrant was
exercisable at $.10 per share and would have expired on June 10, 2010.
On February 27, 2006, the holder exercised the warrants utilizing the
cashless exercise provision and received 1,029,032 shares of common
stock in exchange for the exercise of the 1,100,000 warrants based on
the closing price of $1.55 of the Company's stock on that date.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information contained in this Form 10-QSB and documents incorporated herein
by reference are intended to update the information contained in the Company's
Form 10-KSB for its fiscal year ended December 31, 2005 which includes our
audited financial statements for the year ended December 31, 2005 and such
information presumes that readers have access to, and will have read, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Risk Factors" and other information contained in such Form 10-KSB
and other Company filings with the Securities and Exchange Commission ("SEC").
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties, and actual results
could be significantly different than those discussed in this Form 10-QSB.
Certain statements contained in Management's Discussion and Analysis,
particularly in "Liquidity and Capital Resources," and elsewhere in this Form
10-QSB are forward-looking statements. These statements discuss, among other
things, expected growth, future revenues and future performance. Although we
believe the expectations expressed in such forward-looking statements are based
on reasonable assumptions within the bounds of our knowledge of our business, a
number of factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether oral or written, made by us
or on our behalf. The forward-looking statements are subject to risks and
uncertainties including, without limitation, the following: (a) changes in
levels of competition from current competitors and potential new competition,
(b) possible loss of customers, and (c) the company's ability to attract and
retain key personnel, (d) The Company's ability to manage other risks,
uncertainties and factors inherent in the business and otherwise discussed in
this 10-QSB and in the Company's other filings with the SEC. The foregoing
should not be construed as an exhaustive list of all factors that could cause
actual results to differ materially from those expressed in forward-looking
statements made by us. All forward-looking statements included in this document
are made as of the date hereof, based on information available to the Company on
the date thereof, and the Company assumes no obligation to update any
forward-looking statements.
10
OVERVIEW
We are a full service advertising specialties and promotional products
company. Specific categories of the use of promotional products include
advertising specialties, business gifts, incentives and awards, and premiums.
Through the services of our two in-house sales persons, who also serve as
executive officers of our company, and the use of independent sales
representatives, we distribute items to our customers typically with their logos
on them. Several of our customer categories include large corporations, local
schools, universities, financial institutions, hospitals and not-for-profit
organizations.
The most popular products that we have distributed over the last two
years and account for over 50% of our business are as follows:
o Wearables, such as t-shirts, golf shirts and hats.
o Glassware, such as mugs and drinking glasses.
o Writing instruments, such as pens, markers and highlighters.
o Bags, such as tote bags, gift bags and brief cases.
There are a number of trends in the advertising/marketing industry, the
most significant of which is the trend toward integrated marketing strategies.
Integrated marketing campaigns involve not only advertising, but also sales
promotions, internal communications, public relations, and other disciplines.
The objectives of integrated marketing are to promote products and services,
raise employee awareness, motivate personnel, and increase productivity through
a wide array of methods including extensive use of promotional products.
Price is no longer the sole motivator of purchasing behavior for our
customers. With the availability of similar products from multiple sources,
customers are increasingly looking for distributors who provide a tangible
added-value to their products. As a result, we provide a broad range of products
and related services. Specifically, we provide research and consultancy
services, artwork and design services, and fulfillment services to our
customers. These services are provided in-house by our current employees.
Management believes that by offering these services, we can attempt to attract
new customers.
Our revenues are expected by us to grow as economic conditions in the
United States continue to improve, by adding additional independent sales
representatives to our sales network and through one or more acquisitions of
other distributors. We can provide no assurances that our expectations described
above will be realized.
11
RESULTS OF OPERATIONS
The following table sets forth certain selected unaudited condensed
statement of operations data for the periods indicated in dollars and as a
percentage of total net revenues. The following discussion relates to our
results of operations for the periods noted and is not necessarily indicative of
the results expected for any other interim period or any future fiscal year. In
addition, we note that the period-to-period comparison may not be indicative of
future performance.
Three Months Ended
March 31,
2006 2005
Revenue $1,075,007 100% $ 558,407 100%
Cost of Revenues 775,173 72% 357,909 64%
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Gross Profit 299,834 28% 200,498 36%
Selling, general &
Administrative
expenses 416,173 39% 247,554 44%
(Loss)
from operations $(115,592) (11%) $ (47,056) (8%)
12
Three Months Ended March 31, 2006 versus Three Months Ended March 31, 2005
--------------------------------------------------------------------------
We generated revenues of $1,075,007 in the first three months of 2006 compared
to $558,407 in the same three month period ending March 31, 2005. The increase
in revenues of $516,600 in 2006 compared to 2005 is primarily due to our
utilizing additional sales representations to obtain additional customers and
our new and existing customers buying products with higher average prices.
Cost of revenues was $775,173 or 72% of revenues in the first three months of
2006 compared to $357,909 or 64% of revenues in the same three months of 2005.
Cost of revenues includes purchases and freight costs associated with the
shipping of merchandise to our customers. Increase in cost of revenues of
$417,264 in 2006 is related to an increase in revenues.
Gross profit was $299,834 in the first three months of 2006 or 28% of net
revenues compared to $200,498 in the same three months of 2005 or 36% of
revenues. Gross profits will vary period-to-period depending upon a number of
factors including the mix of items sold, pricing of the items and the volume of
product sold. Also, it is our practice to pass freight costs on to our
customers. Reimbursement of freight costs which are included in revenues have
lower profit margins than sales of our promotional products and has the effect
of reducing our overall gross profit margin on sales of products, particularly
on smaller orders. The decrease in gross profit percentage during the first
quarter of 2006 relates to the mix of product sold and size of orders.
13
Selling, general, and administrative expenses were $416,173 in the first three
months of 2006 compared to $247,554 in the same three months of 2005. Such costs
include payroll and related expenses, insurance and rents. The overall increase
of $168,619 is primarily due to expanding operations by acquiring additional
office space and hiring sales and support staff to handle the new business
location. More specifically, operating expenses in the first quarter of 2006
increased over first quarter of 2005 mainly due to the following reasons:
o Start-up cost related to opening additional office in
Farmingville, NY.
o Salary, commissions and benefits increases totaling
approximately $148,000 for 2006, including hiring sales and
support staff to handle the new business.
o A non-cash charge of approximately $12,000 to operations
relating to employee stock based payment expenses in 2006 as a
result of adoption of SFAS 123R.
o Professional and other fees relating to be publicly held
corporation totaling approximately $34,000.
Net loss was $(115,592) in the first three months of 2006 compared to a net loss
of $(47,056) for the same three months in 2005. No benefit for income taxes is
provided for in 2006 and 2005 due to the full valuation allowance on the net
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $286,042 at March 31, 2006. Cash
used by operating activities for the three months ended March 31, 2006 was
$(112,193). This resulted primarily from a decrease in accounts receivable of
$137,047 and a decrease in accounts payable and accrued expenses of $43,977 and
a decrease in customer deposits of $98,000, offset by a net loss in operations
of $(115,592).
Our company commenced operations in 1998 and was initially funded by our three
founders, each of whom has made demand loans to our Company that have been
repaid. Since 1999, we have relied on equity financing and borrowings from
outside investors to supplement our cash flow from operations. As of March 31,
2006, all borrowings from outside investors have been repaid or converted into
our company's common stock. We raised net proceeds of $95,000 from the sale of
our common stock and warrants to purchase additional common stock in the first
quarter of 2005.
We anticipate that our future liquidity requirements will arise from the need to
finance our accounts receivable and inventories, hire additional sales persons,
capital expenditures and possible acquisitions. The primary sources of funding
for such requirements will be cash generated from operations, raising additional
capital from the sale of equity or other securities and borrowings under debt
facilities which currently do not exist. We believe that we can generate
sufficient cash flow from these sources to fund our operations for at least the
next twelve months. We are currently seeking to raise private financing of up to
$4,830,000 from the sale of our common stock and warrants. We can provide no
assurance that our attempt to raise additional financing will be successful On
terms satisfactory to us, if at all.
14
ITEM 3. CONTROLS AND PROCEDURES
-------------------------------
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based closely on the definition of
"disclosure controls and procedures" in Rule 13a-15(e). In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. The Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
the Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective
at the reasonable assurance level at the end of our most recent quarter. There
have been no changes in the Company's disclosure controls and procedures or in
other factors that could affect the disclosure controls subsequent to the date
the Company completed its evaluation. Therefore, no corrective actions were
taken.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
As of the filing date of this Form 10-QSB, we are not a party to any
pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
(a) In the three months ended March 31, 2006 there were no sales of
unregistered securities, except as follows:
CONSIDERATION RECEIVED
AND DESCRIPTION OF IF OPTION, WARRANT OR
UNDERWRITING OR OTHER EXEMPTION FROM CONVERTIBLE SECURITY
DATE OF TITLE OF DISCOUNTS TO MARKET REGISTRATION TERMS OF EXERCISE
SALE SECURITY NUMBER SOLD PRICE OR CONVERTIBLE CLAIMED OR CONVERSION
----------------------------------------------------------------------------------------------------------------------
Feb. 2006 Common stock 1,029,032 Cashless exercise of Section 4(2). Warrants exercisable
underlying shares 1,100,000 warrants A restrictive at $.10 per share;
warrants based upon a market legend appears on immediately
price of $1.55 per each exercisable;
share certificate expire
Jan. 2015;
contain
cashless
exercise
provisions.
(b) Rule 463 of the Securities Act is not applicable to the Company.
(c) In the three months ended March 31, 2006 there were no repurchases
by the Company of its Common Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
16
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not applicable.
ITEM 5. OTHER INFORMATION:
None.
ITEM 6. EXHIBITS:
Except for the exhibits listed below as filed herewith or unless
Otherwise noted, all other required exhibits have been previously filed
with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, on Form 10-SB, as amended (file no.
000-51160).
Number Exhibit Description
------ -------------------
No.
---
3.1 Articles of Incorporation filed March 26, 1998 (1)
3.2 Amendment to Articles of Incorporation filed June 10, 1999 (1)
3.3 Amendment to Articles of Incorporation approved by stockholders on
February 9, 2005(1)
3.4 Amended By-Laws (1)
10.1 Letter Employment Agreement - Michael Trepeta (2)
10.2 Letter Employment Agreement - Dean Julia (2)
10.3 Amendment to Employment Agreement - Michael Trepeta (3)
10.4 Amendment to Employment Agreement - Dean L. Julia (3)
11.1 Statement re: Computation of per share earnings. See Statement of
Operations and Notes to Financial Statements
14.1 Code of Ethics/Code of Conduct (3)
31.1 Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification (5)
31.2 Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certification (5)
32.1 Chief Executive Officer Section 1350 Certification (5)
32.2 Chief Financial Officer Section 1350 Certification (5)
99.1 2005 Employee Benefit and Consulting Services Compensation Plan(2)
99.2 Form of Class A Warrant (2)
99.3 Form of Class B Warrant (2)
99.4 Amendment to 2005 Plan (4)
99.5 Release - 2006 First Quarter Results of Operations (5)
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(1) Incorporated by reference to Registrant's Registration Statement on
Form 10-SB as filed with the Commission on February 10, 2005.
(2) Incorporated by reference to Registrant's Registration Statement on
Form 10-SB/A as filed with the Commission March 18, 2005.
(3) Incorporated by reference to Form 10-KSB for fiscal year ended December
31, 2005.
(4) Incorporated by reference to the Registrant's Form 10-QSB/A filed with
the Commission on August 18, 2005 for the quarter ended June 30, 2005.
(5) Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACE MARKETING & PROMOTIONS, INC.
Date: May 15, 2006 By: /s/ Dean L. Julia
-----------------------------
Dean L. Julia,
Chief Executive Officer
Date: May 15, 2006 By: /s/ Sean McDonnell
-----------------------------
Sean McDonnell,
Chief Financial Officer
18