SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
COMMISSION FILE NUMBER: 000-51160
ACE MARKETING & PROMOTIONS, INC.
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(Exact name of Registrant as specified in its charter)
New York 11-3427886
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(State of jurisdiction of I.R.S. Employee
incorporation or organization) Identification Number)
457 Rockaway Avenue, Valley Stream, NY 11581
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 256-7766
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Securities registered pursuant to Section 12 (b) of the Act: None
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Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
$.0001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes ? No? [X]
Check whether the Registrant is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act. [ ]
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 has submitted electronically and
posted on it corporate Web site, if any, every Interactive data file required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-K
or any amendment to this Form 10-K [X].
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company as
defined by Rule 12b-2 of the Exchange Act: smaller reporting company [X].
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 June 30, 2009, the number of shares held by non-affiliates was
approximately 6,665,600 shares. The approximate market value based on the last
sale (i.e. $.75 per share as of June 30, 2009) of the Company's Common Stock was
approximately $5,000,000.
The number of shares outstanding of the Registrant's Common Stock, as of March
25, 2010 was 13,233,847 (after giving effect to the issuance of 2,050,000 shares
in a recently completed private placement).
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FORWARD-LOOKING STATEMENTS
We believe this annual report contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties and are based on the
beliefs and assumptions of our management, based on information currently
available to our management. When we use words such as "believes," "expects,"
"anticipates," "intends," "plans," "estimates," "should," "likely" or similar
expressions, we are making forward-looking statements. Forward-looking
statements include information concerning our possible or assumed future results
of operations set forth under "Business" and/or "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Forward-looking
statements are not guarantees of performance. They involve risks, uncertainties
and assumptions. Our future results and stockholder values may differ materially
from those expressed in the forward-looking statements. Many of the factors that
will determine these results and values are beyond our ability to control or
predict. Stockholders are cautioned not to put undue reliance on any
forward-looking statements. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. For a discussion of some of the factors that may
cause actual results to differ materially from those suggested by the
forward-looking statements, please read carefully the information under "Risk
Factors." In addition to the Risk Factors and other important factors discussed
elsewhere in this annual report, you should understand that other risks and
uncertainties and our public announcements and filings under the Securities
Exchange Act of 1934, as amended could affect our future results and could cause
results to differ materially from those suggested by the forward-looking
statements.
PART I
Item 1. Business
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OVERVIEW
Ace Marketing & Promotions, Inc. (the "Company" or "Ace") is a full
service promotional marketing company offering a wide array of business
solutions. These solutions include: fulfillment and warehousing, incentives and
rewards programs, importing, e-commerce and web design, interactive media,
printing and forms management, database management, branded merchandise,
interactive media and proximity marketing. Although we offer several business
solutions, our core business still remains to be distributing advertising
specialties and promotional items manufactured by others to our customers
typically with our customers' logos on them. Several of our customer categories
include large corporations, local schools, universities, financial institutions,
hospitals and not-for-profit organizations. Our promotional products are a
useful, practical, informative, entertaining, and/or decorative item, most often
imprinted with the sponsoring advertiser's name, logo, slogan or message, and
typically retained and appreciated by the end recipients who receive them, in
many cases free of charge in marketing and communication programs.
Promotional products are also effective for the following:
o dealer/distribution programs;
o co-op programs;
o company stores;
o generating new customers or new accounts;
o nonprofit fundraising; public awareness campaigns;
o promotion of brand awareness and brand loyalty;
o employee incentive programs;
o new product or service introduction; and
o marketing research for survey and focus group participants.
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We have the ability to distribute over 500,000 promotional product
items ranging from stickers that cost pennies all the way through jewelry,
sporting goods, awards, and electronics that cost thousands of dollars per unit.
Specific categories of promotional products include:
o Advertising Specialties - build awareness, goodwill and
remembrance of the advertiser's name, product, purpose,
advantages or other timely message. These products are
generally lower priced goods and are usually distributed for
free.
o Business Gifts, Awards and Commemoratives - generally lower
priced goods and are given for goodwill, often at trade shows
to generate traffic.
o Incentives and Awards - focus on motivation, workplace safety,
goal setting and recognition. These are typically higher
priced items used in incentive programs to promote employee
retention and recognition. They may also be used in
recruitment programs as well.
o Premiums - given after a specific behavior has been performed.
The most popular products that we have distributed over the last
several 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.
ACE ADVANTAGES
Ace presently has over 2000 customer accounts ranging from Fortune 500
companies to local schools and small businesses. We have built our business
around the concept of high quality innovative branded merchandise, competitive
pricing, and consistently superior customer service. Our operational platform,
using top-line technology, is designed for economies of scale and ensures
superior relations with major industry suppliers. The platform also provides
superior support to an expanding team of experienced, well-connected salespeople
who are key to acquiring new business.
The major advantage we hold over most companies in the promotional
product industry is the ability to provide integrated business solutions to its
customers as trusted advisors. The majority of companies in the promotional
product industry offer only branded merchandise, whereas, we offer solutions in:
o Branded Merchandise;
o Importing;
o Incentive / Rewards programs;
o Printing / Forms Management;
o Fulfillment / Warehousing;
o E-commerce / Website Design;
o Database Management / Integrated Marketing Solutions;
o Interactive media; and
o Proximity Marketing.
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The ability to offer multiple solutions and integrate them is what
separates us from the average promotional product distributor. Where nearly all
of the competition continues to be viewed as commodity based "order takers", our
solutions based services deepen the relationship with our clients as our sales
consultants become trusted advisors and Ace becomes a valued business partner.
BUSINESS STRATEGY
Ace's growth to date is based on a scalable corporate structure, using
top-of-the-line technology, to create advantages over most small distributors
by:
o Quickly targeting the best products and prices to meet a
client's needs;
o Providing in-house art capabilities for rapidly customizing
merchandise;
o Providing fulfillment and warehousing services for inventory
or custom programs,
o Providing research, consulting and design services to our
customers;
o Offering direct overseas importing for large quantities;
o Providing incentive and reward programs for both customers and
employees;
o Providing full service print and forms management solutions;
o Providing full e-commerce solutions, including company stores
and website design;
o Managing purchase orders consistently from query to final
order;
o Tracking shipments effectively regardless of size or the
overseas location of the supplier;
o Offering database management software, which integrates with
each service offered and allows the customer the ability to
quantify the results of any given marketing campaign or
promotion;
o Offering proximity marketing and interactive media services.
In addition, Ace offers a wide array of services not offered by most
distributors. These additional services allow our salespeople the opportunity to
open new doors and create more sales with both new and old customers. By
providing all the necessary back-office support, these efficiencies also free
salespersons to focus on selling. The in-house computer system allows access
from off-site, enabling sales staff to operate from any location.
ACE MOBILE MARKETING
In 2008 and 2009, we entered into agreements with certain
non-affiliated parties to become an authorized distributor, provider and
reseller in the United States of mobile advertising solutions, in the Mobile
Advertising & Proximity Marketing Industry. To date, we have not generated any
significant revenue from this segment of our business.
Management believes that proximity marketing has unlimited marketing
possibilities to thousands of different businesses. Proximity marketing is the
localized wireless distribution of advertising content associated with a
particular place. If we place a proximity transmitting box in a location of an
advertiser/business, transmissions (messages) will be sent to and received by
cell phones and PDA's equipped with Bluetooth technology within approximately
100 meters of a marketing broadcast. A person receiving the transmission can
elect to download the transmission, read the message and potentially act upon
the message sent by the advertiser. The message will remain on the cell phone or
PDA until proactively removed by the user. The user also has the ability to
forward the message to other users, which generates multiple views over an
extended period of time.
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Management believes that advertisers are constantly seeking new
measurable media channels that can accurately target and engage key consumer
segments, and deliver compelling, relevant content that can be enjoyed for what
it is, shared with friends, interactively engaged with or commercially acted
upon instantaneously. All messages received by the public are free of charge
meaning there is no charge on any content a consumer downloads. We will enable
our advertising customers to promote their business by sending still images,
animated images, audio files, video clips, text files, promotional or discount
contents, bar codes, mobile games and java applications and business card files.
We can also send live data such as news and sports updates to targeted mobile
phones.
Management believes that proximity marketing is completely spam-free
and compliant with all applicable governmental regulations. It asks the users if
they would like to receive the content. It tracks how many people accept and
reject the content, providing the sender with a detailed time and date for every
transmission. The system maintains a unique Bluetooth ID assigned to each
device, and therefore will not send users the same advertisement more than once,
and if rejected will not contact the user again.
The ABI Research report published in January 2008 on mobile marketing
refers to the industry as still being in its "wild west" years but forecasts it
will settle down and become a $24 billion slice of the worldwide marketing and
advertising pie by 2013. It estimates there was about $1.8 billion spent in 2007
on all forms of mobile marketing.
Ace intends to market its proximity boxes as a premiere mobile
technology. This will allow Ace to create a new channel in the mobile
marketplace for existing brands and marketers to leverage the inherent strengths
of mobile advertising. Ace plans to leverage the technology to develop niche
vertical sites. These services will be scalable for both large and small
businesses to monetize high traffic areas. Additionally, the platform shall be
dynamically scalable for worldwide partnerships, where a multi-location business
will be able to send a different marketing campaign for each demographic.
THE MARKET
There are thousands of different types and styles of promotional
products. In many cases, it is even possible to obtain custom items that are not
found in any catalog. According to The Counselor - State of the Industry 2007
Survey, which is available online at no cost to the public at
www.thecounselor.net, the most popular promotion products sold in 2007 were the
following:
o Wearables (which also accounts for one- third of the overall
industry revenue);
o Writing instruments;
o Glassware and ceramics;
o Desk/office/business accessories;
o Calendars;
o Bags
o Caps and headwear
o Recognition awards/trophies; and
o Sporting goods.
According to the Promotional Products Association International, which
is available online at no cost to the public at
www.ppai.com/MediaInformation/Industry/Statistics/SalesVolumeEstimates/,
promotional product distributor's sales were $5.13 billion in 1991, with steady
increases in sales until they reached $17.85 billion in 2000. Promotional
Product sales then declined to $16.55 billion in 2001, $15.63 billion in 2002,
increased to $16.34 billion in 2003, to $17.3 billion in 2004, to $18.6 billion
in 2006 and $19.4 billion in 2007 and then decreased to $18.1 billion in 2008. A
revitalized economy, increased competition in the marketplace, and a trend
toward integrated and targeted marketing strategies had contributed to this
growth which ceased with the economic downturn in 2008. 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. Since 2008, the
economic downturn in the United States has substantially adversely affected the
promotional product industry.
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DISTRIBUTORS
According to the Promotional Products Association International, with
no single company dominating the market, the promotional products industry is
highly fragmented with 20,500 distributors in the industry with revenues of less
than $2.5 million and 942 distributors with revenues of $2.5 million or more.
According to The Counselor - State of the Industry 2009 Survey, the top ten
distributors in our industry are believed to have 2008 North American sales of
over $118 million. Staples, Pro Forma Inc., BDA, Group II Communications/IMS and
4 Imprint were the top five distributors of 2008 with estimated sales of $448
million, $246 million, $235 million, $205 million and $170 million,
respectively. Nearly 80% of the distributors surveyed are reported to be
privately owned family businesses. Management believes that control of sales
lies predominantly with the independent sales representatives, as there is
little brand recognition at this time.
According to the Promotional Products Association International, the
following ranks the top ten purchasers of promotional products in descending
order according to the findings of a 2003 study by Louisiana State University
and Glenrich Business Studies. Industries were named by distributors according
to the volume spent on promotional products by each industry.
o education: schools, seminars;
o financial: banks, savings and loans, credit unions, stock
brokers;
o health care: hospitals, nursing homes, clinics;
o not-for-profit organizations;
o construction: building trades and building supplies;
o government: public offices, agencies, political candidates;
o trade, professional associations and civic clubs;
o real estate: agents, title companies and appraisers;
o automotive: manufacturers, dealers, parts suppliers; and
o professionals: doctors, lawyers, CPA's, architects.
SUPPLY CHAIN
Domestic and overseas manufacturers generally sell their promotional
product items directly to suppliers. Suppliers sell to distributors like Ace
Marketing and distributors sell promotional products to customer users such as
large corporations, financial institutions, universities and schools, hospitals,
not-for-profit organizations and small businesses. However, manufacturers have
the ability to sell their promotional products directly to distributors and
customers. Suppliers have the ability to sell promotional products directly to
customers who are not distributors.
Whereas the majority of the items are made overseas, often in China,
and the suppliers are simply importing from actual manufacturers, we generally
consider the supplier as the beginning of the industry supply chain. They choose
specified product lines and import blank goods to be warehoused until a
distributor orders one of their items with a customer logo on it. The suppliers
generally run the risk of inventory exposure and fluctuations in an item's
popularity. This is generally why most distributors stick to distributing and
not importing. There are situations where importing directly from the
manufacturer and thus cutting out the supplier does in fact make sense.
Generally, this happens when a distributor has a large quantity order and has
enough lead time from the customer to import the item. Since ocean freight from
overseas generally takes 30-45 days and manufacturing may take several weeks,
this only makes sense when a customer orders far in advance and in large
quantity. The benefits of this are outstanding since the margins and cost
savings can be substantial. But, in general, the average order in the industry
is below $1,000 and thus the need for individual suppliers to carry specified
product lines and hold inventory to fill the need of the average distributor
with the average order.
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SUPPLIERS
Management believes that while there are an estimated 3,000 suppliers
in the industry, most of the promotional products distributors have access to
the same suppliers. Currently, we utilize approximately 500 suppliers in our
business with only one supplier accounting for about 10% of our purchasing
requirements over the last two years. We seek to distinguish ourselves from
other distributors by attractive pricing, by sourcing unique items, creating
custom products and/or offering superior in house service and customer support
through our employees. Most suppliers require us to pay within 30 days of
delivery of an order; however, we may not receive our customers' payments in the
same time frame. This requires us to have available cash resources to finance
most of our customers' orders. The possible lack of available cash resources
would limit our ability to take orders from customers, thus limiting our ability
to grow. An infusion of additional capital, a line of credit and better payment
terms based on volume can enable us to service a broader base of customers. We
have never sought to establish a line of credit, although we may seek to
establish one with an institutional lender in the future.
PURCHASING TRENDS - NEED FOR VALUE ADDED PRODUCTS AND RELATED SERVICES
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
value-added 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 CUSTOMERS - CHOOSING US AS YOUR RIGHT DISTRIBUTOR
Most of our promotional products bear our customers' corporate name and
are a reflection of their corporate image. The events they use these items for
are of the utmost importance. If they go with another distributor who gives them
run of the mill ideas possibly at a lower cost, a poor quality product with
inferior quality decoration and/or the goods arrive late, then they quickly
realize there should be other factors that determine which distributor they
should be working with. We presently have over 500 customer accounts ranging
from fortune 500 companies to local schools and small businesses. A customer
account is a person who or entity that has purchased promotional products from
us in the past on a non-exclusive basis and may or may not purchase from us
additional promotional products in the future. No customer has accounted for
more than 10% of sales during the past three years. Our customer base grows
mainly through business and personal referrals and the efforts of our sales
representatives. Generally our customers do not actively seek distributors to
bid on their projects. There are many reasons why our customers may work with us
over another distributor. The average buyer first believes that price is the
sole issue with the lowest bidding distributor on a project obtaining the
business. Once they gain more experience and understand the difficulties in
processing and fulfilling an order on time and correctly, they generally analyze
the rationale on how they choose a distributor differently. Although pricing is
important to our customers, they also count on our dependability, creativity and
efficiency. In this regard, we recently agreed to develop an online store for
one of the fastest growing privately held hospices in the United States to
consolidate the customer's purchasing from us for its multiple locations across
the country.
SERVICING OUR CUSTOMERS
The major advantage we believe we have over most companies in the
promotional product industry is the ability to provide integrated business
solutions to its customers as trusted advisors. The majority of companies in the
promotional product industry offer only branded merchandise, whereas, we offer
solutions in:
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o Branded Merchandise
o Importing
o Incentive / Rewards programs
o Printing / Forms Management
o Fulfillment / Warehousing
o E-commerce / Website Design
o Database Management / Integrated Marketing Solutions
o Proximity Marketing and Interactive media services
We have built our distribution business around the concept of
reliability, quality, innovative and custom promotional products at competitive
prices while maintaining a high level of customer service and good relationships
with industry suppliers. Our research licensed software technology, that we
purchased from an outside vendor and is available for licensing to other
distributors in the industry, affords us the ability to locate and purchase
industry product in an efficient manner rather than to have to manually research
products through hundreds of catalogs and/or reference books. Our in-house art
capabilities through our salaried employees make us a "one stop shop" for custom
merchandise and provide our customers with comfort in knowing logo modifications
will not delay valuable production days on tight turn-around projects. Our
in-house art department consists of two employees who work on Apple computers
using licensed software programs such as Illustrator, Photoshop and Quark to
create new logos or manipulate current ones. These logos are then sent to the
supplier who arranges to put them on the product whether internally or through
an outside source in one of the following manners:
o silkscreen printing
o embroidery
o hot stamp
o heat transfer
o embossing/debossing
o engraving
Our reliability stems from our own customized and detailed tracking
system that we structured and implemented to ensure an order is processed
correctly and on time. In general, customers contact us when they have a need
for items that have corporate logos. They provide us with general information
that helps us determine what products to suggest, including the following:
o The type of event and the targeted audience;
o The number of units that are required and the budget; and
o The timing of the event and the theme of the event.
The aforementioned parameters will narrow the field of items suggested
from a broad list of 500,000 to possibly a dozen or less. Once a customer calls
in or e-mails us requesting ideas for an upcoming event, we begin to research
ideas based on their parameters and we use our research software to look up
dozens of products, prepare a competitive analysis between similar products to
find just the right one, send a picture to the customer by email and prepare and
send a quotation to the customer also by email. This provides us an immediate
time saving advantage over other distributors who still do things manually. Many
of these distributors still scan a reference book which is called a register.
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They search for a particular product, such as clocks, and then find the
sub-category they are interested in, such as plastic, and there they find all
the suppliers who carry the specific item they are wish to purchase. They must
then either cross reference each supplier to find their phone number or web
address, or they can physically pull as many of the catalogs they have on hand
and search for the products that they are interested in and send catalogs with
tabbed pages via regular mail or overnight service. This is an inefficient way
to research and deliver images of products. We are not aware of any statistical
information which allows us to tell the percentages of distributors who use
publicly available licensed research software systems like ours versus the
manual way described above.
When the customer decides on the product that they would like to order,
the order is processed in our order entry department utilizing our order-entry
software which is available for licensing to anyone in the industry from third
party vendors. The salesperson submits the specifics of the order to our order
entry department where the order is keyed into the system by our employees.
Three parts to each order are printed.
o ACKNOWLEDGEMENT This outlines the product ordered along with a
description of the product and how the logo will be placed and
in what colors. It includes the quantity ordered, the price
per piece, total cost, ship to address, and the delivery date.
It is sent to our customer via fax along with a hard copy of
the artwork that will be used on the order. The order will not
move forward until our customer signs off on the
acknowledgment and the artwork. No order runs without the sign
offs thus protecting us in the long run of a customer claiming
they were not aware of some aspect of the order.
o PURCHASE ORDER The purchase order is submitted to the supplier
only after the acknowledgment and art are signed by our
customer. It contains all the information that the
acknowledgment contains except the price of the product is now
shown as the price we will be paying. The art is sent via
e-mail to the factory and the purchase order requires that the
supplier send back a paper proof of the art to insure accuracy
before proceeding with the order. Now the supplier has the
exact same parameters to complete the order that the customer
signed off on. They must meet the delivery date for the
quantity specified, with the logo specified, at the price we
submitted. Orders are drop shipped from the supplier directly
to the customer, except on rare occasions where packaging is
done in our office.
o SALES ORDER COPY This is a print out that essentially shows
all of the components on the acknowledgment and the purchase
order combined side by side. It shows what we pay for the
product and what price our customer pays for the product. It
also shows the gross profit, the gross profit percentage, and
the commission due to the salesperson.
Once the above process takes place, the entire work folder goes to the
tracking department. We have developed a system to follow each order from the
time it is processed, through the time it is shipped. This is yet another
safeguard to protect us from a supplier not fulfilling their obligations, which
in turn may lead to us losing money, a customer, or both. The tracking process
consists of us contacting the factory at various points in the production
process to ensure that the order is on schedule. We verbally verify the item,
quantity, and ship date and document who at the supplier verified the
information. We then call again at a certain point in the process to verify it
is on schedule and lastly call on the day of shipping to receive tracking
numbers. The above processes have historically led to eliminating disputes with
both suppliers and customers.
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OUR DISTRIBUTION AND MARKETING STRATEGY
Key elements of our distribution and marketing strategy are:
o CREATING AWARENESS OF OUR PRODUCTS, SERVICES AND FACILITIES. We have
been in business since March 1998. Our revenues are derived from
existing customers and new customers through word of mouth
recommendations, attendance at trade shows, our sales representatives
and advertising and promotion in trade journals.
o MOTIVATING RETAILERS TO UTILIZE PROMOTIONAL AND SPECIALTY PRODUCTS IN
THEIR BUSINESS. It is our management's belief from conversations with
persons in our industry and at trade shows, that a trend in our
industry is often for the use of promotional items to customers rather
than cash incentives for gaining customer loyalty and motivating sales
people. In this regard, customers who received a promotional item
tended to purchase more and repeat purchases more often than customers
who received a discount coupon of equivalent value. Additionally, sales
forces show a tendency for greater motivation when receiving a trip or
merchandise as opposed to the cash equivalent. We must show our
customers the benefits of utilizing promotional and specialty items in
their business and for their sales force and build customer loyalty
through the use of point systems that are exchanged for promotional
merchandise.
o OUR COMPANY WAS BUILT AS A PLATFORM THAT COULD GROW EASILY. Scalability
is the key and we have separate departments with defined roles which
will allow this to occur and for our salesperson to sell. Our sales
persons receive helpful support from us. In many other
distributorships, the salesperson is often responsible for everything
from answering phones, doing all their own research, processing orders,
billing, tracking and collections. At our company, we provide complete
backup to allow our sales persons to just sell. Since our technology is
currently up to date, including in house servers to allow access to our
systems from off-site, we have the ability to pick up salespeople from
any location in the United States.
o PROVIDING GENEROUS INCENTIVES TO OUR SALES PEOPLE TO INCREASE
PERFORMANCE LEVELS. We offer competitive commissions in addition to
back office support and research assistance to allow our independent
sales representatives to optimize their sales time and to provide them
with adequate incentives to sell promotional products to our customers
rather than for our competitors. In the future, we may offer a stock
option program for additional incentives.
o MAINTAIN A COMPETITIVE GROSS PROFIT PERCENTAGE ON ALL SALES ORDERS. For
the years ended December 31, 2009 and 2008, our gross profit percentage
was 30.0% and 27.0%, respectively.
o PROVIDE RESEARCH, CONSULTING, DESIGN AND FULFILLMENT SERVICES TO OUR
CUSTOMERS TO INCREASE PROFITABILITY. We design promotional products for
our customers and provide consulting services in connection therewith.
We utilize licensed research software technology and order entry
systems that are available to anyone in the industry for license to
provide the best services to our customers in the timeliest fashion
possible.
o UTILIZING THE INTERNET AND ITS CAPABILITIES AND OPPORTUNITIES FOR SALES
OF PROMOTIONAL PRODUCTS AND COST SAVINGS. Our website is
www.Acemarketing.net. Our website is utilized for multiple purposes,
including providing information to potential customers who want to
learn about us and research our available product line. We also develop
online company stores for customers to help facilitate re-orders at
cost savings to them based upon a pre-determined product line.
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SALES AND MARKETING
Our revenues are derived from existing customers and new customers
through word of mouth recommendations, attendance at trade shows, our sales
representatives and advertising and promotion in trade journals. Our website
described herein is utilized for multiple purposes, including providing
information to potential customers who want to learn about us and research our
available product line. Except primarily our two executive officers, our sales
representatives receive commissions and are not paid a salary. They work at
their own location or at our facility and may sell products on behalf of other
companies. We encourage our sales representatives to sell promotion products for
us on the basis of sales incentives which include competitive commissions and
appropriate sales support and research which is provided in-house by our
employees. In the future, we intend to offer stock and/or stock options as part
of their incentive programs.
TECHNOLOGY
Technology affects most industries, and specifically the internet,
which enables many capabilities and opportunities for cost savings. Sales of
promotional products are often catalog-based. The cost of producing and mailing
a catalog can be high. Placing a catalog on a website takes less manpower to
maintain and less money to update and distribute new versions. Additionally,
integrating the catalog with the order processing system can save time and money
in placing and filling orders, also eliminating manual errors.
The proliferation of open architecture software and hardware makes an
increasing number of systems available for automating processes and integrating
back office systems. By doing this, we reduce support requirements and further
enhance margins. Additionally, the ability to provide more direct support to our
sales force has led to increased retention of our sales team.
POSSIBLE GROWTH THROUGH ACQUISITIONS
We believe the environment for growth and consolidation in the
promotional products industry is appealing, and that we would like to take
advantage of this if a satisfactory opportunity arises. There are some issues
that our company must address to be successful. The main issues are motivating
previous owners, retaining sales people, and integrating operations.
We believe that when a distributor is acquired, a decision must be made
about the existing management team, most typically the owner. An evaluation must
be made regarding the skills of the owner and desirability of having them
involved in our company. Acquisitions would be typically made for the customer
accounts; however, due to the size of the target companies, the owner would most
likely also be a key employee or sales person. The motivation of the previous
owner to work for others may be an issue. We must address this issue and ensure
the continued participation of the owners. In general, the best way to mitigate
this risk is to tie up much of the previous owners' payment in stock, thus
providing incentive for the overall company's success.
We believe that one of the most difficult tasks in our acquiring a
company would be transitioning the new acquisition into us. It is important to
have flexible, open systems and technology to integrate the back office
operations, as well as strong controls and processes to put in place. Having the
appropriate technology and strong management team will help alleviate some of
the issues here.
As of the date hereof, there is no firm agreement to acquire any
company or distributor and we can provide no assurances that our plans will be
realized to grow through acquisitions of one or more distributors or, if
successful, that any acquisitions can be profitably integrated into our
company's operations.
12
COMPETITION
While our competition is extensive with over 20,000 distributors, we
believe that there are no companies that dominate the market in which we
operate. Our company competes within the industry on the basis of service,
competitive prices, personnel relationships and competitive commissions to our
sales representatives to sell promotional products for us rather than our
competitors. Competitors' advantages over us may include better financing,
greater experience and better service, cheaper prices and personal relationships
than us.
According to the Promotional Products Association International, with
no single company dominating the market, the promotional products industry is
highly fragmented with 20,500 distributors in the industry with revenues of less
than $2.5 million and 942 distributors with revenues of $2.5 million or more.
According to The Counselor - State of the Industry 2009 Survey, the top ten
distributors in our industry are believed to have 2008 North American sales of
over $118 million. Staples, Pro Forma Inc., BDA, Group II Communications/IMS and
4 Imprint were the top five distributors of 2008 with estimated sales of $448
million, $246 million, $235 million, $205 million and $170 million,
respectively. Nearly 80% of the distributors surveyed are reported to be
privately owned family businesses. Management believes that control of sales
lies predominantly with the independent sales representatives, as there is
little brand recognition at this time.
We believe that in the promotional products industry, sales people
typically have a large amount of autonomy and control the relationships with
their customers. This works both for and against us. To avoid losing customers,
we must provide the appropriate incentives to keep sales people. At the same
time, while there can be no assurances, management believes our company will be
able to obtain new customers by luring sales people away from competitors. The
offering of stock incentives and health care benefits are ways to retain sales
people, especially in an industry where these types of benefits are rare.
EMPLOYEES
As of December 31, 2009, we had 13 full time employees, including two
executive officers who provide in-house sales, our Chief Financial Officer and
seven support staff employees. We utilize seven sales representatives of which
three are employees who provide services on an exclusive basis and four
additional persons who provide services to us on a non-exclusive basis as
independent consultants.
Our principal executive offices are located at 457 Rockaway Avenue,
Valley Stream, NY 11581. We currently lease approximately 4,000 square feet of
office space at this facility at an annual cost of approximately $59,000
pursuant to a month-to-month lease. We are currently exploring our options of
obtaining a new location and/or entering into a long-term lease at our current
facility. We also lease approximately 2,000 square feet of space, expiring in
November 2011, at an annual cost of approximately $28,000 (inclusive of taxes)
at 1105 Portion Road, Farmingville, NY 11738.
LEGAL PROCEEDINGS
We are currently not subject to any threatened or pending legal
proceedings. Nevertheless, we may from time-to-time become a party to various
legal proceedings arising in the ordinary course of our business.
Item 1.A. Risk Factors
-----------------------
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE
OTHER INFORMATION PRESENTED IN THIS FORM 10-K, IN EVALUATING US AND OUR
BUSINESS. ANY OF THE FOLLOWING RISKS, AS WELL AS OTHER RISKS AND UNCERTAINTIES,
COULD HARM OUR BUSINESS AND FINANCIAL RESULTS AND CAUSE THE VALUE OF OUR
SECURITIES TO DECLINE, WHICH IN TURN COULD CAUSE YOU TO LOSE ALL OR PART OF YOUR
INVESTMENT.
13
RISKS RELATING TO OUR BUSINESS
THE PROMOTIONAL PRODUCTS DISTRIBUTION INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY
NOT BE ABLE TO COMPETE SUCCESSFULLY.
We compete with over 20,000 distributor companies. Some of our
competitors have greater financial and other resources than we do which could
allow them to compete more successfully. Most of our promotional products are
available from several sources and our customers tend to have relationships with
several distributors. Competitors could obtain exclusive rights to market
particular products which we would then be unable to market and may provide
business solutions related to promotional products competitive with those
provided by us. Industry consolidation among promotional products distributors,
the unavailability of products, whether due to our inability to gain access to
products or interruptions in supply from manufacturers, or the emergence of new
competitors could also increase competition. In the future, we may be unable to
compete successfully and competitive pressures may reduce our revenues.
OUR PROXIMITY MARKETING BUSINESS IS NEW, UNPROVEN AND THE ESTABLISHMENT OF THIS
BUSINESS MAY NOT RESULT IN SUFFICIENT REVENUES AND PROFITABILITY TO JUSTIFY THE
EXPENDITURES THEREOF.
In 2008, we became an authorized distributor, provider and reseller in
the United States of mobile advertising solutions, in the mobile advertising and
proximity marketing industry. To date, we have not generated any significant
revenue from this new and unproven segment of our business. A primary business
focus of Ace is to attempt to place our proximity marketing units into
businesses on a local, regional and potentially on a national scale, and to then
generate revenues through advertisers seeking new measurable media channels that
can accurately target and engage key consumer segments and deliver compelling
relevant content that can be enjoyed for what it is, shared with friends,
interactively engage with or commercially acted upon instantaneously. It is our
intent to enable advertisers to promote their business by sending animated
images, audio files, video clips, text files, promotional or discount contents,
bar codes, mobile games and java applications and business card files. We can
also send live data such as news and sports updates to targeted mobile phones.
The ABI Research report published in January 2008 on mobile marketing refers to
the industry as still being in its "wild west" years but forecasts it will
settle down and become a $24 billion slice of the worldwide marketing and
advertising pie by 2013. It estimates there was about $1.8 billion spent in 2007
on all forms of mobile marketing. While Management intends to market the
proximity boxes as a premier mobile technology, we can provide no assurances
that Ace will successfully establish a local, regional and/or national network
containing its proximity marketing boxes or that sufficient advertising revenues
and profits (if any) will result to justify the expenditures thereof.
WE EXPERIENCE FLUCTUATIONS IN QUARTERLY EARNINGS. AS A RESULT, WE MAY FAIL TO
MEET OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS AND INVESTORS, WHICH
COULD CAUSE OUR STOCK PRICE TO DECLINE.
Our business has been subject to seasonal and other quarterly
fluctuations. Net sales and operating profits generally have been higher in the
third and fourth quarters, particularly in the months of September through
November, due to the timing of sales of promotional products and year-end
promotions. Net sales and operating profits have been lower in the first
quarter, primarily due to increased sales in the prior two quarters. Quarterly
results may also be adversely affected by a variety of other factors, including:
14
o costs of developing new promotions and services;
o costs related to acquisitions of businesses;
o the timing and amount of sales and marketing expenditures;
o general economic conditions, as well as those specific to the
promotional product industry; and
o our success in establishing additional business relationships.
Any change in one or more of these or other factors could cause our
annual or quarterly operating results to fluctuate. If our operating results do
not meet market expectations, our stock price may decline in the event a market
should develop.
BECAUSE WE DO NOT MANUFACTURE THE PRODUCTS WE DISTRIBUTE, WE ARE DEPENDENT UPON
THIRD PARTIES FOR THE MANUFACTURE AND SUPPLY OF OUR PRODUCTS.
We obtain all of our products from third-party suppliers, both
domestically and overseas primarily in China. We submit purchase orders to our
suppliers who are not committed to supply products to us. Therefore, suppliers
may be unable to provide the products we need in the quantities we request.
Because we lack control of the actual production of the products we sell, we may
be subject to delays caused by interruption in production based on conditions
outside of our control. In the event that any of our third-party suppliers were
to become unable or unwilling to continue to provide the products in required
volumes, we would need to identify and obtain acceptable replacement sources on
a timely cost effective basis. There is no guarantee that we will be able to
obtain such alternative sources of supply on a timely basis, if at all. An
extended interruption in the supply of our products would have an adverse effect
on our results of operations, which most likely would adversely affect the value
of our common stock.
WE MAY NOT BE ABLE TO EXPAND THROUGH INTERNAL GROWTH AND MEET CHANGES IN THE
INDUSTRY.
Our plans for internal growth include hiring in-house sales
representatives from our competitors and offering stock incentives and generous
commissions to keep them. Additionally, we have room for growth by building
direct relationships with advertising agencies and major corporations. Because
of potential industry changes, our products and promotions must continue to
evolve to meet changes in the industry. Our future expansion plans may not be
successful due to competition, competitive pressures and changes in the
industry.
OUR LIMITED CASH RESOURCES AND LACK OF A LINE OF CREDIT MAY RESTRICT OUR
EXPANSION OPPORTUNITIES.
An economic issue that can limit our growth is lack of extensive cash
resources, due to the typical payment terms of a transaction. Most suppliers
require us to pay within 30 days of delivery of an order; however, we may not
receive our customer's payment in the same time frame. This requires us to have
available cash resources to finance most of our customers' orders. Any lack of
cash resources would limit our ability to take orders from customers, thus
limiting our ability to grow. An infusion of capital and a good line of credit
can enable us to service a broader base of customers. We can provide no
assurances that we will obtain an adequate line of credit in the future, if at
all.
15
OUR PROPOSED EXPANSION THROUGH ACQUISITIONS INVOLVES SEVERAL RISKS.
We may expand our domestic markets in part through acquisitions in the
future. Such transactions would involve numerous risks, including possible
adverse effects on our operating results or the market price of our common
stock. Some of our future acquisitions could give rise to an obligation by us to
make contingent payments or to satisfy certain repurchase obligations, which
payments could have an adverse effect on our results of operations. In addition,
integrating acquired businesses:
o may result in a loss of customers of the acquired businesses;
o requires significant management attention; and
o may place significant demands on our operations, information
systems and financial resources.
There can be no assurance that our future acquisitions will be
successful. Our ability to successfully effect acquisitions will depend upon the
following:
o the availability of suitable acquisition candidates at
acceptable prices;
o the development of an established market for our common stock;
and
o the availability of financing on acceptable terms, in the case
of non-stock transactions.
OUR REVENUES DEPEND ON OUR RELATIONSHIPS WITH CAPABLE INDEPENDENT SALES
PERSONNEL OVER WHOM WE HAVE NO CONTROL AS WELL AS KEY CUSTOMERS, VENDORS AND
MANUFACTURERS OF THE PRODUCTS WE DISTRIBUTE.
Our future operating results depend on our ability to maintain
satisfactory relationships with qualified independent Sales personnel as well as
key customers, vendors and manufacturers. We are dependent upon our independent
sales representatives to sell our products and do not have any direct control
over these third parties. If we fail to maintain our existing relationships with
our independent sales representatives, key customers, vendors and manufacturers
or fail to acquire new relationships with such key persons in the future, our
business may suffer.
OUR FUTURE PERFORMANCE IS MATERIALLY DEPENDENT UPON OUR MANAGEMENT AND THEIR
ABILITY TO MANAGE OUR GROWTH.
Our future success is substantially dependent upon the efforts and
abilities of members of our existing management, particularly Dean L. Julia,
Chief Executive Officer and Michael Trepeta, President. The loss of the services
of Mr. Julia or Mr. Trepeta could have a material adverse effect on our
business. We have an employment agreement with each of Messrs. Julia and Trepeta
expiring February 28, 2011. However, we lack "key man" life insurance policies
on any of our officers or employees. Competition for additional qualified
management is intense, and we may be unable to attract and retain additional key
personnel. The number of management personnel is currently limited and they may
be unable to manage our expansion successfully and the failure to do so could
have a material adverse effect on our business, results of operations and
financial condition.
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING.
We may need to raise additional funds in the future to fund more
aggressive expansion of our business or make strategic acquisitions or
investments. We may require additional equity or debt financings or funds from
other sources for these purposes. No assurance can be given that these funds
will be available for us to finance our development on acceptable terms, if at
all. Such additional financings may involve substantial dilution of our
16
stockholders or may require that we relinquish rights to certain of our
technologies or products. In addition, we may experience operational
difficulties and delays due to working capital restrictions. If adequate funds
are lacking from operations or additional sources of financing, we may have to
delay or scale back our growth plans.
RISKS RELATING TO AN INVESTMENT IN OUR COMMON STOCK
WE LACK AN ESTABLISHED TRADING MARKET FOR OUR COMMON STOCK, AND YOU MAY BE
UNABLE TO SELL YOUR COMMON STOCK AT ATTRACTIVE PRICES OR AT ALL.
There is currently a limited and sporadic trading market for our common
stock in the OTC electronic bulletin board under the symbol "AMKT." There can be
no assurances given that an established public market will be obtained for our
common stock or that any public market will last. The trading price of the
common stock depends on many factors, including:
o the markets for similar securities;
o our financial condition, results of operations and prospects;
o the publication of earnings estimates or other research
reports and speculation in the press or investment community;
o changes in our industry and competition; and
o general market and economic conditions.
As a result, we cannot assure you that you will be able to sell your
common stock at attractive prices or at all.
THE MARKET PRICE FOR OUR COMMON STOCK MAY BE HIGHLY VOLATILE.
The market price for our common stock may be highly volatile. A variety
of factors may have a significant impact on the market price of our common
stock, including:
o the publication of earnings estimates or other research
reports and speculation in the press or investment community;
o changes in our industry and competitors;
o our financial condition, results of operations and prospects;
o any future issuances of our common stock, which may include
primary offerings for cash, issuances in connection with
business acquisitions, and the grant or exercise of stock
options from time to time;
o general market and economic conditions; and
o any outbreak or escalation of hostilities, which could cause a
recession or downturn in our economy.
17
In addition, the markets in general can experience extreme price and
volume fluctuations that can be unrelated or disproportionate to the operating
performance of the companies listed or quoted. Broad market and industry factors
may negatively affect the market price of our common stock, regardless of actual
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
often been instituted against companies. This type of litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources, which would harm our business.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS IN THE FUTURE.
No cash dividends have been paid by our company on our common stock.
The future payment by us of cash dividends on our common stock, if any, rests
within the discretion of our board of directors and will depend, among other
things, upon our earnings, our capital requirements and our financial condition
as well as other relevant factors. We do not intend to pay cash dividends upon
our common stock for the foreseeable future.
PROVISIONS OF OUR ARTICLES OF INCORPORATION AND AGREEMENTS COULD DELAY OR
PREVENT A CHANGE IN CONTROL OF OUR COMPANY.
Certain provisions of our articles of incorporation may discourage,
delay, or prevent a merger or acquisition that a shareholder may consider
favorable. These provisions include:
o Authority of the board of directors to issue preferred stock.
o Prohibition on cumulative voting in the election of directors.
WE LACK INDEPENDENT DIRECTORS AND COMMITTEES THEREOF.
The Sarbanes-Oxley Act of 2002 requires us as a public corporation to
have an audit committee composed solely of independent directors. Currently, we
have no independent directors or committees of directors. Without independent
directors, our board may have no way to resolve conflicts of interest,
including, without limitation, executive compensation, employment contracts and
the like.
OUR FUTURE SALES OF COMMON STOCK BY MANAGEMENT AND OTHER STOCKHOLDERS MAY HAVE
AN ADVERSE EFFECT ON THE THEN PREVAILING MARKET PRICE OF OUR COMMON STOCK.
In the event a public market for our common stock is sustained in the
future, sales of our common stock may be made by holders of our public float or
by holders of restricted securities in compliance with the provisions of Rule
144 of the Securities Act of 1933. In general, under Rule 144, a non-affiliated
person who has satisfied a six-month holding period in a fully reporting company
under the Securities Exchange Act of 1934, as amended, may, sell their
restricted Common Stock without volume limitation, so long as the issuer is
current with all reports under the Exchange Act in order for there to be
adequate common public information. Affiliated persons may also sell their
common shares held for at least six months, but affiliated persons will be
required to meet certain other requirements, including manner of sale, notice
requirements and volume limitations. Non-affiliated persons who hold their
common shares for at least one year will be able to sell their common stock
without the need for there to be current public information in the hands of the
public. Future sales of shares of our public float or by restricted common stock
made in compliance with Rule 144 may have an adverse effect on the then
prevailing market price, if any, of our common stock.
18
Item 1.B. Unresolved Staff Comments
------------------------------------
Not Applicable.
Item 2. Properties
-------------------
Our principal executive offices are located at 457 Rockaway Avenue,
Valley Stream, NY 11581. We currently lease approximately 4,000 square feet of
office space at this facility at an annual cost of approximately $59,000
pursuant to a month-to-month lease. We are currently exploring our options of
obtaining a new location and/or entering into a long-term lease at our current
facility. We also lease approximately 2,000 square feet of space, expiring in
November 2011, at an annual cost of approximately $28,000 (inclusive of taxes)
at 1105 Portion Road, Farmingville, NY 11738.
Item 3. Legal Proceedings
--------------------------
We are currently not subject to any threatened or pending legal
proceedings. Nevertheless, we may from time to time become a party to various
legal proceedings arising in the ordinary course of our business.
Item 4. Reserved
-----------------
19
PART II
Item 5. Market for Common Equity, Related Stockholder Matters, and Issuer
--------------------------------------------------------------------------
Purchases of Equity Securities.
-------------------------------
Since June 9, 2005, our common stock has been traded on the OTC
Bulletin Board under the symbol "AMKT." Our common stock trades on a limited
basis on the OTC Electronic Bulletin Board in the Over-the-Counter Market. The
following table sets forth the range of high and low sales prices of our Common
Stock for the last two fiscal years.
Quarters Ended High Low
---------------------------------------------------------
March 31, 2008-------------------$1.18--------------$.55
June 30, 2008----------------------.70---------------.29
September 30, 2008----------------1.19---------------.50
December 31, 2008-----------------1.05---------------.57
March 31, 2009---------------------.99---------------.45
June 30, 2009---------------------1.01---------------.62
September 30, 2009----------------1.25---------------.68
December 31, 2009------------------.80---------------.45
The closing sales price on March 25, 2010 was $.55 per share. All
quotations provided herein reflect inter-dealer prices, without retail mark-up,
markdown or commissions.
In the event a public market for our common stock is sustained in the
future, sales of our common stock may be made by holders of our public float or
by holders of restricted securities in compliance with the provisions of Rule
144 of the Securities Act of 1933. In general, under Rule 144, a non-affiliated
person who has satisfied a six-month holding period in a fully reporting company
under the Securities Exchange Act of 1934, as amended, may, sell their
restricted Common Stock without volume limitation, so long as the issuer is
current with all reports under the Exchange Act in order for there to be
adequate common public information. Affiliated persons may also sell their
common shares held for at least six months, but affiliated persons will be
required to meet certain other requirements, including manner of sale, notice
requirements and volume limitations. Non-affiliated persons who hold their
common shares for at least one year will be able to sell their common stock
without the need for there to be current public information in the hands of the
public. Future sales of shares of our public float or by restricted common stock
made in compliance with Rule 144 may have an adverse effect on the then
prevailing market price, if any, of our common stock. See "Risk Factors."
As of March 1, 2010, there were about 72 holders of record of our
common stock, although we believe that there are other persons who are
beneficial owners of our common stock held in street name. Our transfer agent is
Continental Stock Transfer & Trust Company, 17 Battery Place, 8th Floor, New
York, NY 10004.
DIVIDEND POLICY
---------------
We have never paid any cash dividends and intend, for the foreseeable
future, to retain any future earnings for the development of our business. Our
Board of Directors will determine our future dividend policy on the basis of
various factors, including our results of operations, financial condition,
capital requirements and investment opportunities.
20
RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
Since January 2009, we had no sales or issuances of unregistered common
stock, except we made sales or issuances of unregistered securities listed in
the table below:
CONSIDERATION RECEIVED AND
DESCRIPTION OF
UNDERWRITING OR OTHER IF OPTION, WARRANT OR
DISCOUNTS TO MARKET PRICE EXEMPTION FROM CONVERTIBLE SECURITY,
DATE OF TITLE OF OR CONVERTIBLE SECURITY, REGISTRATION TERMS OF EXERCISE OR
SALE SECURITY NUMBER SOLD AFFORDED TO PURCHASERS CLAIMED CONVERSION
------------- ------------- ----------------- ---------------------------- ------------------- -----------------------
February Common 500,000 Shares $250,000; no commissions Section 4(2). A Not applicable.
2009 Stock paid restrictive
legend appears on
each certificate.
------------- ------------- ----------------- ---------------------------- ------------------- -----------------------
February Common 350,000 Services rendered; no Section 4(2). A Five year Warrants,
2009 Stock commissions paid restrictive exercisable at $.80
Warrants legend appears on per share
each certificate.
------------- ------------- ----------------- ---------------------------- ------------------- -----------------------
April 2009 Common 100,000 Services rendered; Section 4(2). A Five year Options,
Stock no commissions paid restrictive exercisable at $.90
Options legend appears on per share
each certificate.
------------- ------------- ----------------- ---------------------------- ------------------- -----------------------
April 2009 Common 500,000 (1) Services rendered; Section 4(2). A Three year Options
Stock no commissions paid restrictive exercisable at $1.00
Options legend appears on per share
each certificate.
------------- ------------- ----------------- ---------------------------- ------------------- -----------------------
August 2009 Common 40,000 Services rendered; Section 4(2). A Not applicable.
Stock No commissions paid restrictive
legend appears on
each certificate.
------------- ------------- ----------------- ---------------------------- ------------------- -----------------------
August - Common 1,075,880 $499,250; $49,925 paid in Rule 506 Warrants exercisable
October Stock and shares commissions plus $25,000 at $1.00 per share
2009 Class D (includes legal, plus 371,725 shares through August 21,
Warrants 371,725 and 35,863 warrants 2012.
placement agent
shares) and
394,490
warrants
(includes
35,863
placement agent
warrants)
------------- ------------- ----------------- ---------------------------- ------------------- -----------------------
Dec. 2009 Stock and 1,650,000 $825,000; $93,000 Rule 506 Warrants exercisable
through Class D shares, commission paid at $1.00 per share
Feb. 2010 Warrants 825,000 through August 2012
Class D
warrants and
Placement Agent
Warrants to
purchase
165,000 shares
and 82,500
Class D
Warrants
RECENT PURCHASES OF SECURITIES
------------------------------
In 2009, we have had no repurchases of our common stock.
Item 6. Selected Financial Data
--------------------------------
Not Applicable.
21
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations
-------------
The following discussion should be read in conjunction with our
financial statements and the notes thereto appearing elsewhere in this Form
10-K. All statements contained herein that are not historical facts, including,
but not limited to, statements regarding anticipated future capital
requirements, our future plan of operations, our ability to obtain debt, equity
or other financing, and our ability to generate cash from operations, are based
on current expectations. These statements are forward-looking in nature and
involve a number of risks and uncertainties that may cause the Company's actual
results in future periods to differ materially from forecasted results.
OVERVIEW
--------
We are a full service promotional marketing and distribution company
offering a wide array of business solutions. Ace has grown organically through
referrals based on its high quality service and external financings to support
our growth. We are also expanding through hiring leading independent
salespersons who are well supported by the Ace proprietary business structure.
By offering more services and solutions to our customers, new recruits will have
the ability to expand their present business by simply making the move to Ace.
Upon integrating their client base into our system they too become trusted
advisors that provide integrated business solutions instead of a commodity based
promotional product salesperson.
These achievements position us to accelerate growth through potential
acquisition and consolidation of other companies as well as simply recruiting
experienced salespeople. In the event a company is acquired by us, of which no
assurances can be given in this regard, the new clients would all be introduced
to the additional services that are now available in our promotional marketing
model.
We have effectively carved out a niche for Ace. Marketing and branding
companies create an image and direction for clients. Ad agencies develop print,
TV, radio and other campaigns aimed at goals of recruiting and introducing new
products or services. Traditional promotional product companies offer imprinted
merchandise and apparel. Ace finds itself in a position of providing value added
services that compliment those of the ad agency, as well as branding and
marketing companies while at the same time far exceeding the capabilities of a
standard promotional products distributor.
We expect our revenues to grow at such time as economic conditions in
the United States improve, by adding additional in-house and independent sales
representatives to our sales network. While one or more acquisitions of other
distributors will also be considered by Management, we can provide no assurances
that one or more acquisitions of other distributors will be completed on terms
satisfactory to us, if at all.
ACE MOBILE MARKETING
--------------------
We entered into agreements with certain non-affiliated parties to
become an authorized distributor, provider and reseller in the United States of
mobile advertising solutions, in the Mobile Advertising & Proximity Marketing
Industry. To date, we have not generated any significant revenue from this
segment of our business. Management believes that proximity marketing has
unlimited marketing possibilities to thousands of different businesses.
Proximity marketing is the localized wireless distribution of advertising
content associated with a particular place. If we place a proximity transmitting
box in a location of an advertiser/business, transmissions (messages) will be
sent to and received by cell phones and PDA's equipped with Bluetooth technology
within approximately 100 meters of a marketing broadcast. A person receiving the
transmission can elect to download the transmission, read the message and
potentially act upon the message sent by the advertiser. The message will remain
on the cell phone or PDA until proactively removed by the user. The user also
has the ability to forward the message to other users, which generates multiple
22
views over an extended period of time. Management believes that advertisers are
constantly seeking new measurable media channels that can accurately target and
engage key consumer segments, and deliver compelling, relevant content that can
be enjoyed for what it is, shared with friends, interactively engaged with or
commercially acted upon instantaneously. All messages received by the public are
free of charge meaning there is no charge on any content a consumer downloads.
We will enable our advertising customers to promote their business by sending
still images, animated images, audio files, video clips, text files, promotional
or discount contents, bar codes, mobile games and java applications and business
card files. We can also send live data such as news and sports updates to
targeted mobile phones.
Management believes that proximity marketing is completely spam-free
and compliant with all applicable governmental regulations. It asks the users if
they would like to receive the content. It tracks how many people accept and
reject the content, providing the sender with a detailed time and date for every
transmission. The system maintains a unique Bluetooth ID assigned to each
device, and therefore will not send users the same advertisement more than once,
and if rejected will not contact the user again.
The ABI Research report published in January 2008 on mobile marketing
refers to the industry as still being in its "wild west" years but forecasts it
will settle down and become a $24 billion slice of the worldwide marketing and
advertising pie by 2013. It estimates there was about $1.8 billion spent in 2007
on all forms of mobile marketing.
Ace intends to market its proximity boxes as a premiere mobile
technology. This will allow Ace to create a new channel in the mobile
marketplace for existing brands and marketers to leverage the inherent strengths
of mobile advertising. Ace plans to leverage the technology to develop niche
vertical sites. These services will be scalable for both large and small
businesses to monetize high traffic areas. Additionally, the platform shall be
dynamically scalable for worldwide partnerships, where a multi-location business
will be able to send a different marketing campaign for each demographic.
CRITICAL ACCOUNTING POLICIES
----------------------------
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of financial statements requires management to make estimates
and disclosures on the date of the financial statements. On an on-going basis,
we evaluate our estimates including, but not limited to, those related to
revenue recognition. We use authoritative pronouncements, historical experience
and other assumptions as the basis for making judgments. Actual results could
differ from those estimates. We believe that the following critical accounting
policies affect our more significant judgments and estimates in the preparation
of our financial statements.
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 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. Advance payments made by customers are included in customer
deposits.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. We are required to make judgments based on
historical experience and future expectations, as to the realizability of our
accounts receivable. We make these assessments based on the following factors:
(a) historical experience, (b) customer concentrations, customer credit
worthiness, (d) current economic conditions, and (e) changes in customer payment
terms.
23
Results of Operations
---------------------
2009 versus 2008
----------------
The following table sets forth certain selected condensed statement of
operations data for the periods indicated in dollars. In addition, we note that
the period-to-period comparison may not be indicative of future performance.
Year Ended December 31
---------- -----------
2009 2008
---- ---
Revenue $ 3,248,132 $ 6,069,356
Cost of Revenues 2,260,065 4,383,183
-------------- --------------
Gross Profit 988,067 1,686,173
Operating Expenses 2,569,021 2,927,620
-------------- --------------
Loss from operations (1,580,954) (1,241,447)
Net Loss (1,577,010) (1,230,393)
Preferred Stock Dividend -- 96,500
Net Loss Allocable to Common Stockholders (1,577,010) (1,326,893)
Net (Loss) per common Share (.16) (.16)
Weighted average common Shares
Outstanding 10,070,890 8,270,985
We generated revenues of $3,248,132 for 2009 compared to $6,069,356 in
2008. The decrease in revenues of $2,821,224 in 2009 compared to 2008 is due to
the general state of the economy and the non-renewal of a major order that was
responsible for approximately 13% of revenues for the year ended December 31,
2008. We can provide no assurance that this large order will be recurring in
future operating periods.
Cost of revenues was $2,260,065 or 69.6% of revenues for 2009 compared
to $4,383,143 or 72.2% of revenues for 2008. Cost of revenues includes purchases
and freight costs associated with the shipping of merchandise to our customers.
Decrease in cost of revenues of $2,123,118 in 2009 is related to the general
state of the economy and the non-renewal of a major order.
Gross profit was $988,067 for 2009 or 30.4% of net revenues compared to
$1,686,173 in the same period of 2008 or 27.8% 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. The 2008 gross profit was
negatively impacted by reduced gross profit achieved in connection with the
large order placed by members of a police organization.
Selling, general, and administrative expenses were $2,569,021 for 2009
as compared to $2,927,620 for 2008. Such costs include payroll and related
expenses, commissions, insurance, rents, professional, consulting and public
awareness fees. The overall decrease of $358,599 was primarily due to a $266,886
decrease in stock based compensation.
24
Net loss from operations was $(1,577,010) for 2009 compared to a net
loss of $(1,230,393) for 2008. Our increase in net loss for 2009 as compared to
the comparable period of the prior year was due to a substantial drop in sales
due to the general state of the economy and the non-renewal of a major order
that was responsible for approximately 13% of revenues for the year ended
December 31, 2008. No benefit for income taxes is provided for 2009 and 2008 due
to the full valuation allowance on the net deferred tax assets. Our ability to
be profitable in the future is dependent upon both a turnaround in the United
States economy and the successful introduction and usage of our proximity
marketing services by our clients.
During 2008, we recognized a non-cash dividend of $96,500 which related
to the terms of our private placement of Series A Convertible Preferred Stock,
all of which were converted into Common Stock in December 2008. See "Note 5 of
the Notes to Financial Statements."
Liquidity and Capital Resources
-------------------------------
The Company had cash and cash equivalents of $595,611 at December 31,
2009.
Cash used by operating activities for the year ended December 31, 2009
was $(957,731). This resulted primarily from a net loss of $1,577,010 and a
increase in accounts payable and accrued expenses of $21,156 and an increase in
stock based compensation of $385,334 and a decrease in accounts receivable of
$276,130. Cash provided by investing activities was $50,864, which was comprised
of the repayment of the loan receivable of $100,000 from Blue Bite, LLC and the
purchase of equipment of $49,136, which were primarily purchases of proximity
marketing boxes. Cash provided by financing activities of $993,227 which was as
a result of the sale of our company common stock.
Cash used by operating activities for the year ended December 31, 2008
was $(555,636). This resulted primarily from a net loss of $1,230,393 and a
decrease in accounts payable and accrued expenses of $161,536 partially offset
by stock based compensation of $652,220 and a decrease in accounts receivable of
$144,234. Cash used by investing activities was $199,134, which was comprised of
our loan of $100,000 to Blue Bite, LLC and the purchase of equipment of $99,134,
which were primarily purchases of proximity marketing boxes. Cash provided by
financing activities of $445,000 which was as a result of the sale of our Series
A Convertible preferred stock.
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.
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 fifteen months.
Recent Financings
-----------------
In February 2009, we sold 500,000 shares of our Common Stock at an
exercise price of $.50 per share, payable one-half immediately and the balance
in March 2009 through the retirement of a $125,000 Note. Exemption is claimed
under Section 4(2) of the Securities Act of 1933, as amended.
25
On July 14, 2009, Ace Marketing & Promotions, Inc. entered into a
Placement Agent Agreement with Sierra Equity Group LLC, a FINRA registered
broker-dealer ("Sierra"), to attempt to raise additional financing through the
sale of its Common Stock and Warrants. Between August 21, 2009 and October 15,
2009, the Company closed on gross proceeds of $499,250 and received net cash
proceeds of approximately $403,000, after commissions of approximately $50,000,
legal expenses of $40,000 and blue sky, escrow and printing expenses of
approximately $7,000. The planned use of proceeds is to primarily expand the
Company's mobile and interactive divisions. In connection with the offering, the
Company entered into a Financial Advisory Agreement with Sierra pursuant to
which Sierra would receive 300,000 shares of Common Stock and an additional 10%
of the number of shares sold in the offering. The Company issued pursuant to the
terms of the offering and the Financial Advisory Agreement an aggregate of
717,253 shares of Common Stock at an average per share price of $.696 per share
and 358,627 Warrants exercisable at $1.00 per share to investors in the offering
and an aggregate of 371,725 shares and 35,863 Warrants to Sierra. All securities
were issued pursuant to Rule 506 of Regulation D promulgated under Section 4(2)
of the Securities Act of 1933, as amended.
On December 8, 2009, Ace Marketing & Promotions, Inc. entered into an
Introducing Agent Agreement with Legend Securities, Inc., a FINRA registered
broker-dealer ("Legend"), to attempt to raise additional financing through the
sale of its Common Stock and Warrants. Between December 8, 2009 and March 15,
2010, the Company closed on gross proceeds of $1,025,000 before commissions of
$117,000. The planned use of proceeds is to primarily expand the Company's
mobile and interactive divisions. The Company issued pursuant to the terms of
the offering an aggregate of 2,050,000 shares of Common Stock at a per share
price of $.50 per share and 1,025,000 Warrants exercisable at $1.00 per share to
investors in the offering and placement agent warrants to purchase an amount
equal to 10% of the number of shares and the number of warrants sold in the
offering. All securities were issued pursuant to Rule 506 of Regulation D
promulgated under Section 4(2) of the Securities Act of 1933, as amended.
Item 7.A Qualitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with our short term money market investments. The Company does not
have any financial instruments held for trading or other speculative purposes
and does not invest in derivative financial instruments, interest rate swaps or
other investments that alter interest rate exposure. The Company does not have
any credit facilities with variable interest rates.
Item 8. Financial Statements
-----------------------------
Financial Statements and Supplementary Data
-------------------------------------------
The report of the Independent Registered Public Accounting Firm,
Financial Statements and Schedules are set forth beginning on page F-1 of this
Annual Report on Form 10-K, following this page.
26
ACE MARKETING &
PROMOTIONS, INC.
CONTENTS
================================================================================
YEARS ENDED DECEMBER 31, 2009 AND 2008 PAGES
--------------------------------------
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm............F-1
Balance Sheets.....................................................F-2
Statements of Operations...........................................F-3
Statement of Stockholders' Equity..................................F-4
Statements of Cash Flows...........................................F-5
Notes to Financial Statements......................................F-6 - F-20
27
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Ace Marketing & Promotions, Inc.
Valley Stream, New York
We have audited the accompanying balance sheets of Ace Marketing & Promotions,
Inc. (the "Company") for the years ended December 31, 2009 and 2008, and the
related statements of operations, stockholders' equity and cash flows for the
years then ended. 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 audits.
We conducted our audits in accordance with 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. Our audit included consideration of 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 Ace Marketing & Promotions,
Inc. as of December 31, 2009 and 2008 and the results of its operations and its
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Holtz Rubenstein Reminick LLP
Melville, New York
March 29, 2010
--------------------------------------------------------------------------------
F-1
ACE MARKETING &
PROMOTIONS, INC.
BALANCE SHEETS
----------------------------------------------------------------------------------------------
December 31, 2009 2008
Assets
Current Assets:
Cash and cash equivalents $ 595,611 $ 509,251
Accounts receivable, net of allowance for doubtful accounts of
$20,000 at December 31, 2009 and December 31, 2008 533,555 809,685
Note receivable -- 100,000
Prepaid expenses and other current assets 157,580 63,401
--------------------------
Total Current Assets 1,286,746 1,482,337
Property and Equipment, net 133,632 115,334
Other Assets 7,745 7,745
--------------------------
Total Assets $ 1,428,123 $ 1,605,416
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 310,753 $ 338,165
Accrued expenses 230,334 181,766
--------------------------
Total Current Liabilities 541,087 519,931
--------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $.0001 par value; 5,000,000 shares authorized,
none issued
Common stock, $.0001 par value; 100,000,000 shares authorized;
11,615,703 and 9,234,949 shares issued and outstanding
at December 31, 2009 and December 31, 2008, respectively 1,163 924
Less: Treasury Stock, at cost, 23,334 shares (31,501) (31,501)
Additional paid-in capital 6,229,851 4,851,529
Accumulated deficit (5,312,477) (3,735,467)
--------------------------
Total Stockholders' Equity 887,036 1,085,485
--------------------------
Total Liabilities and Stockholders' Equity $ 1,428,123 $ 1,605,416
==========================
----------------------------------------------------------------------------------------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. F-2
ACE MARKETING &
PROMOTIONS, INC.
Statements of Operations
--------------------------------------------------------------------------------
Years Ended December 31, 2009 2008
Revenues, net $ 3,248,132 $ 6,069,356
Cost of Revenues 2,260,065 4,383,183
----------------------------
Gross Profit 988,067 1,686,173
----------------------------
Operating Expenses:
Selling, general and administrative expenses 2,569,021 2,927,628
----------------------------
Total Operating Expenses 2,569,021 2,927,628
----------------------------
Loss from Operations (1,580,954) (1,241,447)
----------------------------
Other Income (Expense):
Interest expense (1,031) (1,042)
Interest income 4,975 12,096
----------------------------
Total Other Income (Expense) 3,944 11,054
----------------------------
Net Loss $ (1,577,010) $ (1,230,393)
============================
Less Preferred Stock Dividend $ -- $ 96,500
----------------------------
$ (1,577,010) $ (1,326,893)
============================
Net Loss Per Common Share:
Basic $ (0.16) $ (0.16)
============================
Diluted $ (0.16) $ (0.16)
============================
Weighted Average Common Shares Outstanding:
Basic 10,070,890 8,270,985
============================
Diluted 10,070,890 8,270,985
============================
--------------------------------------------------------------------------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. F-3
ACE MARKETING &
PROMOTIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2009 AND 2008
-----------------------------------------------------------------------------------------------------------------------------------
Convertible
Series A
Total Common Stock Preferred Stock Additional Treasury Stock
Stockholders' ---------------------- ------------------ Paid-in -------------------
Equity Shares Amount Shares Amount Capital (Deficit) Shares Amount
------------ ----------- -------- -------- ------- ------------ ------------ ------- ----------
Balance, at
January 1, 2008 $ 1,218,658 8,124,949 $ 813 $ 3,657,920 $ (2,408,574) 23,334 $ (31,501)
Sale of Series A
Preferred Stock 445,000 450,000 $ 45 444,955
Accretion of Beneficial
Conversion Feature on
Preferred Stock 96,500 96,500
Deemed dividend on
Pref Stock (96,500) (96,500)
Conversion of Preferred
Stock 890,000 89 (450,000) (45) (44)
Stock Based Payments 652,220 220,000 22 652,198
Net Loss (1,230,393) (1,230,393)
------------ ----------- -------- -------- ------- ------------ ------------ ------- ----------
Balance, at
December 31, 2008 1,085,485 9,234,949 $ 924 -- -- $ 4,851,529 $ (3,735,467) 23,334 $ (31,501)
Stock Purchase 993,227 1,967,254 197 993,030
Stock Warrant 128,010 128,010
Stock Grant 34,200 46,000 5 34,195
Stock Compensation 233,124 233,124
Stock Issued to
Placement Agent -- 367,500 37 (37)
Net Loss (1,577,010) (1,577,010)
------------ ----------- -------- -------- ------- ------------ ------------ ------- ----------
Balance, at
December 31, 2009 $ 897,036 11,615,703 $ 1,163 -- $ -- $ 6,239,851 $ (5,312,477) 23,334 $ (31,501)
============ =========== ======== ======== ======= ============ ============ ======= ==========
-----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. F-4
ACE MARKETING &
PROMOTIONS, INC.
STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------------------------------
2009 2008
----------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $(1,577,010) $(1,230,393)
-------------------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 30,838 17,865
Allowance for Doubtful Accounts Receivable 10,000
Stock-based compensation 385,334 652,220
Changes in operating assets and liabilities:
(Increase) decrease in operating assets:
Accounts receivable 276,130 144,234
Prepaid expenses and other assets (94,179) 11,974
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 21,156 (161,536)
-------------------------
Total adjustments 619,279 674,757
-------------------------
Net Cash Used in Operating Activities (957,731) (555,636)
-------------------------
Cash Flows from Investing Activities:
(Increase) Decrease in Note receivable 100,000 (100,000)
Acquisition of property and equipment (49,136) (99,134)
-------------------------
Net Cash Provided by (Used) in Financing Activities 50,864 (199,134)
-------------------------
Cash Flows from Financing Activities:
Proceeds from sale of stock 993,227 --
Proceeds from private placement of Series A Convertible Preferred -- 445,000
-------------------------
Net Cash Provided by Financing Activities 993,227 445,000
-------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 86,360 (309,770)
Cash and Cash Equivalents, beginning of year 509,251 819,021
-------------------------
Cash and Cash Equivalents, end of year $ 595,611 $ 509,251
=========================
Supplemental Disclosure of non cash transaction:
Beneficial conversion feature-preferred stock dividend -- $ 96,500
=========================
----------------------------------------------------------------------------------------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. F-5
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Ace Marketing & Promotions, Inc. (the "Company") is a
full service advertising specialties and promotional products company that
distributes items typically with logos to large corporations, schools and
universities, financial institutions and not-for-profit organizations. Specific
categories of promotional products include advertising specialties, business
gifts, incentives and awards, and premiums.
In Fiscal 2008, the Company became an authorized distributor, provider and
reseller of mobile advertising solutions. To date, the Company has not generated
any significant revenue from this segment.
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 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. Advance payments made by customers are included in customer
deposits.
The Company records all shipping and handling fees billed to customers as
revenues, and related costs as cost of goods sold, when incurred.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - Management must make estimates of the
uncollectability of accounts receivable. Management specifically analyzes
accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit-worthiness, current economic trends and changes in customer
payment terms when evaluating the adequacy of the allowance for doubtful
accounts.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are being amortized using the
straight-line method over the estimated useful lives of the related assets or
the remaining term of the lease. The costs of additions and improvements, which
substantially extend the useful life of a particular asset, are capitalized.
Repair and maintenance costs are charged to expense. When assets are sold or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the account and the gain or loss on disposition is reflected in operating
income.
F-6
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
CONCENTRATION OF CREDIT RISK - Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist principally of trade
receivables and cash and cash equivalents.
Concentration of credit risk with respect to trade receivables is generally
diversified due to the large number of entities comprising the Company's
customer base and their dispersion across geographic areas principally within
the United States. The Company routinely addresses the financial strength of its
customers and, as a consequence, believes that its receivable credit risk
exposure is limited.
The Company places its temporary cash investments with high credit quality
financial institutions. At times, the Company maintains bank account balances,
which exceed FDIC limits. The Company has not experienced any losses in such
accounts and believes that it is not exposed to any significant credit risk on
cash. Management does not believe significant credit risk exists at December 31,
2009 and 2008.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with a maturity of three months or less, as well as bank money
market accounts, to be cash equivalents.
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.
NET INCOME PER SHARE - Basic net income per share is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the impact of common shares issuable upon exercise of stock
options. The number of common shares potentially issuable upon the exercise of
certain options and warrants that were excluded from the diluted loss per common
share calculation was approximately 4,700,000 and 5,499,000 because they are
anti-dilutive, as a result of a net loss for the years ended December 31, 2009
and 2008, respectively.
F-7
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
ADVERTISING COSTS - Advertising costs are expensed as incurred. There were no
advertising expenses for the year ended December 31, 2009 and for 2008 costs
were approximately $10,100.
ACCOUNTING FOR STOCK BASED COMPENSATION. Stock based compensation cost is
measured at the grant date fair value of the award and is recognized as expense
over the requisite service period. The Company uses the Black-Sholes
option-pricing model to determine fair value of the awards, which involves
certain subjective assumptions. These assumptions include estimating the length
of time employees will retain their vested stock options before excising them
("expected term"), the estimated volatility of the Company's common stock price
over the expected term ("volatility") and the number of options for which
vesting requirements will not be completed ("forefitures"). Changes in the
subjective assumptions can materially affect estimates of fair value stock-based
compensation, and the related amount recognized on the consolidated statements
of operations. Refer to Note 8 "Stock Option Plans" in the Notes to Consolidated
Financial Statements in this report for a more detailed discussion.
INCOME TAXES - Deferred income taxes are recognized for temporary differences
between financial statement and income tax basis of assets and liabilities for
which income tax or tax benefits are expected to be realized in future years. A
valuation allowance is established to reduce deferred tax assets, if it is more
likely than not, that all or some portion of such deferred tax assets will not
be realized. The effect on deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On July 1, 2009, the FASB issued the FASB Accounting Standards
Codification (the Codification). The Codification became the single source of
authoritative nongovernmental U.S. GAAP, superseding existing FASB, American
Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force
(EITF) and related literature. The Codification eliminates the previous US GAAP
hierarchy and establishes one level of authoritative GAAP. All other literature
is considered non-authoritative. The Codification was effective for interim and
annual periods ending after September 15, 2009.
The Company adopted the Codification for the quarter ending September
30, 2009. There was no impact the condensed financial results as this change is
disclosure-only in nature.
F-8
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
In May 2009, the Financial Accounting Standards Board ("FASB") issued guidance
on, Subsequent Events, which requires an entity after the balance sheet date to
evaluate events or transactions that may occur for potential recognition or
disclosure in its financial statements. This statement determines the
circumstances under which the entity shall recognize these events or
transactions in its financial statements and provides the disclosures that an
entity shall make about them including disclosing the date through which the
entity evaluated these events or transactions, as well as whether that date is
the date the entity's financial statements were issued or the date the financial
statements were available to be issued. The Company established that there would
be no material effect with the adoption of this statement on its financial
statements.
2. NOTES RECEIVABLE
On May 26, 2009, Ace Marketing received repayment of the Notes Receivable for a
total of $100,000 from Blue Bite together with interest.
NOTE 3: PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consist of the following at December 31:
USEFUL LIVES 2009 2008
Furniture and Fixtures 5 years $ 218,984 $ 169,848
Leasehold Improvements 5 years 8,919 8,919
--------- ---------
227,903 178,767
Less Accumulated Depreciation 94,271 63,433
--------- ---------
$ 133,632 $ 115,334
--------- ---------
Depreciation expense for the years ended December 31, 2009 and 2008 was
$30,838 and $17,865, respectively.
F-9
ACE MARKETING & PROMOTIONS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
NOTE 4: INCOME TAXES
The provision for income taxes for the years ended December 31, 2009
and 2008 is summarized as follows:
2009 2008
Current:
Federal $ - $ -
State - -
----------------------------------
- -
----------------------------------
Deferred:
Federal - -
State - -
----------------------------------
$ - $ -
==================================
The Company has federal and state net operating loss carryforwards of
approximately $3,048,000, which can be used to reduce future taxable
income through 2029.
The tax effects of temporary differences which give rise to deferred
tax assets (liabilities) are summarized as follows:
F-10
ACE MARKETING & PROMOTIONS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
YEARS ENDED DECEMBER 31, 2009 2008
----------------------------------------------------------------------
Deferred Tax Assets:
Net operating loss carryforwards $ 1,219,000 $ 759,000
Stock based compensation 780,000 650,000
Allowance for doubtful accounts 8,000 8,000
---------------------------------
Deferred Tax Assets 2,007,000 1,417,000
Less Valuation Allowance 2,007,000 1,417,000
---------------------------------
Net Deferred Tax Asset $ - $ -
=================================
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
YEARS ENDED DECEMBER 31, 2009 2008
---- ----
Federal Statutory Tax Rate 34.00% 34.00%
State Taxes, net of Federal benefit 6.00% 6.00%
Change in Valuation Allowance (40.00%) (40.00%)
------------------------
Total Tax Expense 0.00% 0.00%
========================
NOTE 5: STOCKHOLDERS' EQUITY
On October 9, 2009 the stockholders approved an amendment to the Company's
Certificate of Incorporation to increase the authorized shares of common stock
from 25,000,000, (par value $.0001); to 100,000,000; (par value $.0001)
authorized shares.
PRIVATE PLACEMENT OF SECURITIES - During fiscal 2004, the Company sold through a
private placement, 14.74 units (each consisting of 50,000 common shares and
50,000 Class A Warrants). Each Class A Warrant had an exercise price of $2.00
and was to expire on January 3, 2007. The Company extended the expiration date
of the Class A Warrants to July 1, 2009. The Class AWarrants expired on
September 30, 2009.
During fiscal 2005, the Company completed a private placement through the sale
of 10 units (each consisting of 10,000 common shares and 10,000 Class B
Warrants) at a purchase price of $10,000 per unit for net proceeds of $95,000,
net of transaction cost of approximately $5,000. Each Class B Warrant had an
exercise price of $2.00 and expires on January 2, 2008. Subsequent to December
31, 2007, the Company extended the expiration date of the Class B Warrants to
July 1, 2009. The Class B Warrants expired on September 30, 2009.
F-11
ACE MARKETING & PROMOTIONS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
During fiscal 2006, the Company completed a private placement (the "Offering")
through the sale of 15.859 units (each consisting of 60,000 common shares and
30,000 Class C Warrants) at a purchase price of $105,000 per unit for net
proceeds of $1,420,937, net of transaction costs of approximately $244,000. Each
Class C Warrant has an exercise price of $1.75 per share and expires on June 30,
2009. The Class C Warrants expired on September 30, 2009.
Pursuant to the Offering, the Placement Agent was issued 139,680 shares of the
Company's common stock and a warrant to purchase 95,160 shares of common stock
at an exercise price of $1.00 per share. The Placement Agent warrants expire on
June 29, 2011.
PRIVATE PLACEMENT OF SERIES A CONVERTIBLE PREFERRED STOCK - During Fiscal 2008,
through a private placement, the Company sold 445,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share, for an issue price of
$1.00 per share (the "Preferred Stock").The shares of Preferred Stock are
convertible at the holders option, at any time, based upon a conversion price
equal to the lower of $.50 per share or the average closing sales price over the
ten trading dates preceding December 15, 2008, with a floor of $.25.
On December 15, 2008 the Preferred Stock automatically converted into common
stock based upon the same conversion rate. As a result of the conversion option
and that the Company's stock was trading above $.50 upon the issuance of certain
of the Preferred Stock, this resulted in a non-cash beneficial conversion
feature of $96,500 which was recognized as a non-cash dividend as of December
31, 2008. An individual related to one of the Company's officers purchased
250,000 shares of the Preferred Stock.
NOTE 5: SHARE-BASED COMPENSATION
WARRANTS - On June 26, 2008 the Company issued to an investment advisor 133,500
common stock purchase warrants for the purpose of providing investor awareness
and business advisory services. The services were recorded equal to the value of
the warrants and an expense of $30,488 is included in operating expenses for the
year ended December 31, 2008.
On July 1, 2008, the Company issued to investor and public relations company
250,000 common stock purchase warrants for the purpose of providing investor
awareness and public relations advisory services. The warrants are immediately
exercisable and expire on June 30, 2011. 150,000 of the warrants are exercisable
at $.50 per share and contain a cashless exercise provision, and 100,000 of the
warrants are exercisable at $.80 per share. The services were recorded equal to
the value of the warrants and an expense of $139,177 is included in operating
expenses for the year ended December 31, 2008.
F-12
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
On October 10, 2008, the Company entered into a one year agreement with a
consulting firm to provide investor relations services, which agreement would
terminate by December 31, 2008 in the event the Company did not raise additional
financing from the sale of common stock of at least $1,250,000. The agreement
provided for guaranteed monthly cash payments of $5,000 for a minimum period of
three months plus the grant of 125,000 stock purchase warrants. The warrants are
immediately exercisable, have an exercise price of $.90, contain a cashless
exercise provision and expire on October 14, 2011. The services were recorded
equal to the value of the warrants and an expense of $103,670 is included in
operating expenses for the year ended December 31, 2008. The remaining
provisions of the agreement were canceled since the Company was unable to raise
the additional financing.
On August 17, 2009, the Company issued to an independent contractor 40,000
restricted common stock to seek to obtain new business for the Company and to
create general market awareness of the Company and new services, which include
but not limited to Proximity Marketing. The term of the agreement expired on the
close of business on November 30, 2009.
RESTRICTED STOCK GRANTS - On January 16, 2008, the Company issued 20,000 shares
of common stock to an employee in exchange for marketing and training services.
The services were recorded equal to the value of the shares and an expense of
$17,000 included in operating expenses for the year ended December 31, 2008.
On June 10, 2008, the Company issued 200,000 shares of common stock to two
independent sales agents. The services were recorded equal to the value of the
stock at the date of grant and an expense of $60,000 is included in operating
expenses for the year ended December 31, 2008.
F-13
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
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
generally vest over periods ranging from one to three years and generally expire
either five or ten years from the grant date.
The Company's Plan is accounted for, in accordance with the recognition and
measurement provisions 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 which provides the staff's views
regarding the interaction between certain SEC rules and regulations and provides
interpretations with respect to the valuation of share-based payments for public
companies.
The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model. The expected volatility is based upon
historical volatility of the Company's 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.
NOTE 6: STOCK COMPENSATION
The Company's results for the years ended December 31, 2009 and 2008 include
employee share-based compensation expense totaling approximately $(51,000) and
$234,000 respectively. Such amounts have been included in the Statements of
Operations within selling, 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.
F-14
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
The following table summarizes stock-based compensation expense for the years
ended December 31, 2009 and 2008:
Years Ended December 31,
------------------------
2009 2008
---- ----
Employee stock based compensation-option grants $ (51,239) $ 234,198
Employee stock based compensation-stock grants -- 17,000
Non-Employee stock based compensation-option grants 238,670 67,688
Non-Employee stock based compensation-stock grants 34,200 60,000
Non-Employee stock based compensation-stock warrant 164,008 273,334
--------- ---------
$ 385,639 $ 652,220
========= =========
NOTE 7: LOSS PER SHARE
Authoritative guidance requires dual presentation of basic and diluted earnings
per share ("EPS") with a reconciliation of the numerator and denominator of the
basis EPS computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.
NOTE 8: STOCK OPTION PLAN
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. During
Fiscal 2009, the Company established a plan of long-term stock-based
compensation incentives for selected Eligible Participants of the Company. This
plan was adopted by the Board of Directors and approved by stockholders in
October 2009 and shall be known as the 2009 Employee Benefit and Consulting
Services Compensation Plan (the "Plan").
F-15
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
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. The fair value of options at the date of grant was estimated using
the Black-Scholes option pricing model. For option grants, the Company will take
into consideration payments subject to the provisions of ASC 718 "Stock
Compensation", previously Revised SFAS No. 123 "Share-Based Payment" ( "SFAS 123
(R)"). The fair values of these restricted stock awards are equal to the market
value of the Company's stock on the date of grant, after taking into certain
discounts. 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 weighted average assumptions made in calculating the fair values of options
granted during the years ended December 31, 2009 and 2008 are as follows:
Years Ended December 31,
2009 2008
--------------------------------------------------------------------------------
Expected volatility 135.23% 115.00%
Expected dividend yield - -
Risk-free interest rate 1.27% 3.13%
Expected term (in years) 5.00 5.00
--------------------------------------------------------------------------------
F-16
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Share Price Term Value
---------------------------------------------------------------------------------------------
Outstanding, January 1, 2009 3,491,222 $ .76
Granted 1,360,000 $ .97
Exercised -- --
Cancelled (1,822,000) $ 1.10
-----------
Outstanding, December 31, 2009 3,029,222 $ 1.09 4.26 --
===========
Options exercisable, December 31, 2009 2,539,222 $ 1.11 4.26 --
The weighted-average grant-date fair value of options granted during the years
ended December 31, 2009 and 2008 was $0.44 and $0.97
The aggregate intrinsic value of options outstanding and options exercisable at
December 31, 2009 is calculated as the difference between the exercise price of
the underlying options and the market price of the Company's common stock for
the shares that had exercise prices, that were lower than the $.50 closing price
of the Company's common stock on December 31, 2009.
As of December 31, 2009, the fair value of unamortized compensation cost related
to unvested stock option awards was approximately $531,000. Unamortized
compensation cost as of December 31, 2009 is expected to be recognized over a
remaining weighted-average vesting period of 2.50 years. As of December 31,
2008, the fair value of unamortized compensation cost related to unvested stock
option awards was approximately $405,000. Unamortized compensation cost as of
December 31, 2008 was expected to be recognized over a remaining
weighted-average vesting period of 3.20 years.
F-17
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
The weighted average assumptions made in calculating the fair value of warrants
granted during the years ended December 31, 2009 and 2008 are as follows:
--------------------------------------------------------------------------------
Years Ended
2009 2008
--------------------------------------------------------------------------------
Expected volatility 115.32% 153.62%
Expected dividend yield -- --
Risk-free interest rate 1.02% 1.91%
Expected term (in years) 3.00 3.00
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Share Price Term Value
---------------------------------------------------------------------------------------------
Outstanding, January 1, 2009 1,907,759 $ .91
Granted 1,117,377 $ .94
Exercised -- --
Cancelled 1,312,770 --
---------
Outstanding, December 31, 2009 1,712,366 $ .86 2.65 --
=========
Warrants exercisable, December 31, 2009 1,689,866 $ .86 2.40 --
=========
F-18
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
COMMON SHARES RESERVED
Placement Agent Warrants 86,489
2005 Stock Option Plan 3,029,222
Warrants - Series 1 - 3 858,500
Class D Warrants 767,377
Class A, B and C Warrants have expired as of September 30, 2009
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company leases office space under non-cancelable
operating leases, which expires in November 2011. The Company is obligated for
the payment of real estate taxes under these leases. The Company is also
currently leasing additional office space on a month-to-month basis. Minimum
future rentals under non-cancelable lease commitments are as follows:
YEARS ENDING DECEMBER 31,
2010 $ 31,000
2011 29,000
Rent and real estate tax expense was approximately $93,000 and $92,000 for the
years December 31, 2009 and 2008, respectively.
EMPLOYMENT CONTRACTS - On March 1, 2005, the Company entered into employment
contracts with two of its officers. The employment agreements provide for
minimum annual salaries plus bonuses equal to 5% of pre-tax earnings (as
defined) and other perquisites commonly found in such agreements. In addition,
pursuant to the employment contracts, the Company granted the officers options
to purchase up to an aggregate of 400,000 shares of common stock.
On August 22, 2007, the Company approved a three year extension of the
employment contracts with two of its officers expiring on February 28, 2011. The
employment agreements provide for minimum annual salaries with scheduled
increases per annum to occur on every anniversary date of the contract and
extension commencing on March 1, 2008. A signing bonus of options to purchase
150,000 shares granted to each executive were fully vested at the date of the
grant and exercisable at $1.20 per share through August 22, 2017. Ten year
options to purchase 50,000 shares of common stock are to be granted at fair
market value on each anniversary date of the contract and extension commencing
March 1, 2008. Termination pay of one year base salary based upon the scheduled
annual salary of each executive officer for the next contract year, plus the
amount of bonuses paid (or entitle to be paid) to the executive for the current
fiscal year of the preceding fiscal year, whichever is higher.
F-19
ACE MARKETING & PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
TRANSACTIONS WITH MAJOR CUSTOMERS - The Company sells its products to a
geographically diverse group of customers, performs ongoing credit evaluations
of its customers and generally does not require collateral. During the year
ended December 31, 2009 two customers accounted for approximately 14 % of net
revenues and for the year ended December 31, 2008 the customers accounted for
approximately 26 % of net revenues.
10. SUPPLEMENTARY INFORMATION - STATEMENT OF CASH FLOWS Cash paid during the
years for:
YEARS ENDED DECEMBER 31, 2009 2008
Interest $ 1,031 $ 1,042
=========================
Income Taxes $ - $ -
=========================
11. SUBSEQUENT EVENTS
CONSULTING AGREEMENT - In January 2010, the Company entered into an agreement
with a consulting firm to provide services over the next twelve months. The
agreement provides for the issuance of 100,000 restricted common shares of
Common Stock.
In January 2010, the Company also entered into an agreement with a two
individuals to provide services over the next twelve months. The agreement
provides for the issuance of 57,500 shares and 52,500 restricted common shares
of Common Stock.
In January 2010, the Company approved the agreement with employees and
consultants to issue 45,000 restricted shares of its Common Stock for services
rendered over the last 12 months.
The Company has evaluated all subsequent events through the filing date of this
form 10-K for appropriate accounting and disclosures.
F-20
Item 9. Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure.
---------------------
Not Applicable.
Item 9.A(T) Controls and Procedures.
------------------------------------
Evaluation of Disclosure Controls and Procedures.
-------------------------------------------------
As of the end of the period covered by this annual report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)). Based
upon the foregoing evaluation, our principal executive officer and principal
financial officer have concluded that our disclosure controls and procedures are
not effective, for the reasons discussed below, to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission ("SEC").
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) under the
Exchange Act. Internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and principal
financial officers, and effected by the board of directors, management, and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with US GAAP including those policies and procedures
that: (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with US
GAAP and that receipts and expenditures are being made only in accordance with
authorizations of management and directors of the company, and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with policies and procedures may deteriorate.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we have
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009. In making this assessment, our management used the
criteria described in INTERNAL CONTROL -- INTEGRATED FRAMEWORK issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Due to
the inherent issue of segregation of duties in a small company, we have relied
heavily on entity or management review controls to lessen the issue of
segregation of duties. Based on this assessment and those criteria, our
management concluded that the Company did not maintain effective internal
control over financial reporting as of December 31, 2009.
28
A material weakness is a deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company's annual or interim
financial statements will not be prevented or detected on a timely basis.
Management identified the following material weaknesses as of December
31, 2009 that also existed at December 31, 2008.
INFORMATION TECHNOLOGY
a) Management identified certain control procedures that were not
sufficiently documented relating to the managing of operations for application
and technology platforms.
FINANCIAL REPORTING
Management identified the following significant deficiencies that when
aggregated give rise to a material weakness. These deficiencies include a) lack
of review or evidence of review in the financial reporting process.
Management identified the following additional material weaknesses as
of December 31, 2009.
To remediate one of the 2008 deficiencies a software link was created
between the operating and accounting databases. As a result of our year end
audit process a deficiency was noted in the process of reconciling the
sub-ledger to the general ledger balance.
MANAGEMENT'S PLAN OF REMEDIATION
INFORMATION TECHNOLOGY
a) Management will document their policies and procedures as they relate
to the managing of operations for application and technology platforms.
These policies will be documented in Q2 2010 and will be completed by
the end of Q3 2010.
FINANCIAL REPORTING
a) Managements plans to address the lack of review or evidence of review
in the financial reporting process by instituting a checklist process
where the CEO or an outside consultant will review transactions created
by the CFO.
b) The database link was created in mid 2009 and will continue to be
monitored and tested. Management believes the process has improved
considerably and believes any outstanding issues will be fully resolved
by Q2 2010.
This annual report does not include an attestation report of the
Company's independent registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to
attestation by the Company's independent registered public accounting firm
pursuant to temporary rules of the SEC that permit the Company to provide only
management's report on internal control in this annual report.
29
CHANGES IN INTERNAL CONTROLS
A significant change in internal controls over financial reported took
place in Q3 of 2009, regarding the dual databases. Management created a link
between the two databases, thus integrating the operations data into the finance
database.
Item 9.B. Other Information.
-----------------------------
None.
30
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
-----------------------------------------------------------------
The names, ages and principal occupations of the Company's present
officers and directors are listed below.
FIRST BECAME DIRECTOR
NAME (1) AGE AND/OR OFFICER POSITION
------- --- -------------- --------
Dean Julia 42 1998 Chief Executive Officer/ Secretary/
Treasurer/Director/Co-Founder
Michael Trepeta 38 1998 President/Director/Co-Founder
Scott Novak 42 1998 Director/Co-Founder
Sean McDonnell 47 2005 Chief Financial Officer
Domenico Iannucci 54 2009 Director
(1) Directors are elected at the annual meeting of stockholders and hold
office until the following annual meeting.
The terms of all officers expire at the annual meeting of directors
following the annual stockholders meeting. Officers serve at the pleasure of the
Board and may be removed, either with or without cause, by the Board of
Directors, and a successor elected by a majority vote of the Board of Directors,
at any time.
MANAGEMENT TEAM
Our officers, directors and founders each have experience in the
development of early stage companies including business strategies, products and
services and financing.
DEAN L. JULIA
Mr. Julia holds a Bachelor of Business Administration from Hofstra
University received in 1990. Since that time, Mr. Julia has been associated with
various broker/dealers as a stockbroker where he was involved in the funding of
numerous development stage and growth companies. From 1991 to 1996, Mr. Julia
served as a Vice President for Reich & Co. From 1993 to 1994, he was Vice
President for D. Blech & Co. From 1994 to 1995, he served as a Vice President
for GKN Securities; and from 1995 to 1996 he served as Vice President for Rickel
& Associates. From September 1996 through February 1998, Mr. Julia served as
President and Chief Executive Officer of DLJ Consulting, a financial
intermediary consultant for public and private companies. In 1998, Mr. Julia
co-founded us and became an officer, director and principal stockholder of our
company and a full time employee.
31
MICHAEL D. TREPETA
Mr. Trepeta received a Bachelor of Science Degree in Applied Economics
and Business Management with a minor in Communications from Cornell University
in 1993. Since that time, Mr. Trepeta has been associated with various
broker/dealers as a stockbroker where he was involved in the funding of numerous
development stage and growth companies. Mr. Trepeta was a Vice President of
Investments at Joseph Roberts & Co. in 1994 and a Vice President of Investments
at Rickel & Associates from 1995-1996. From September of 1996 through February
1998, he has served as President of MDT Consulting Group, Inc., a corporation
contracted by publicly traded companies to serve as a financial intermediary to
investment bankers and to assist in developing products, services, and business
strategies. In 1998, Mr. Trepeta co-founded us and he became an officer,
director and principal owner of our company and a full time employee.
SCOTT J. NOVACK
Mr. Novack holds a Bachelor of Business Administration from Hofstra
University received in 1990. From 1993-1994, Mr. Novack was a Vice President at
D. Blech & Co., a New York investment bank specializing in raising venture
capital money for early stage companies. From 1994-1995, Mr. Novack was a Vice
President at GKN Securities, a New York based investment bank. From 1995-1996,
Mr. Novack was a Vice President at Rickel Associates, a New York based
investment bank. Mr. Novack was the President of SJN Consulting Group, Inc., a
privately held company, from 1996 to 2003. SJN was a corporation contracted by
publicly traded companies to serve as a financial intermediary to investment
bankers and to assist in developing products, services, and business strategies.
Since 2003, Mr. Novack is a private investor who invests for his own account. In
1998, Mr. Novack co-founded us and became a director of our company.
SEAN MCDONNELL
Sean J. McDonnell, Certified Public Accountant, has been self employed
and in private accounting practice since January 1990 handling many different
types of business entities and associations. Mr. McDonnell has spent much of his
time helping his customers grow their companies and acquire financing for the
purchase of buildings and equipment. Prior to starting his own practice, he was
employed from 1985 - 1990 as a senior staff member in the accounting firm of
Breiner & Bodian CPA's. After graduating from Dowling College in 1984, he was
employed by Kenneth Silver C.P.A. from 1984 - 1985. He is currently serving on
the boards of the Police Athletic League, North East Youth Sports Association
and Sound Beach Soccer Club, Inc. Mr. McDonnell has served as our Chief
Financial Officer since January 3, 2005 and currently as an employee, he devotes
such time to our affairs as is necessary for the performance of his duties.
DOMINICO IANNUCCI
Mr. Iannucci has owned and managed a residential and commercial
construction company for over 24 years.
LACK OF COMMITTEES
------------------
Our Company has no audit, compensation or nominating committees of our
board of directors or committees performing similar functions. Domenico Iannucci
is the Company's sole "independent director," but he is not a "financial expert"
as those terms are defined below. See "Risk Factors."
32
Under the National Association of Securities Dealers Automated Quotations
definition, an "independent director" means a person other than an officer or
employee of the Company or its subsidiaries or any other individuals having a
relationship that, in the opinion of the Company's board of directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of the director. The board's discretion in determining director
independence is not completely unfettered. Further, under the NASDAQ definition,
an independent director is a person who (1) is not currently (or whose immediate
family members are not currently), and has not been over the past three years
(or whose immediate family members have not been over the past three years),
employed by the company; (2) has not (or whose immediate family members have
not) been paid more than $60,000 during the current or past three fiscal years;
(3) has not (or whose immediately family has not) been a partner in or
controlling shareholder or executive officer of an organization which the
company made, or from which the company received, payments in excess of the
greater of $200,000 or 5% of that organizations consolidated gross revenues, in
any of the most recent three fiscal years; (4) has not (or whose immediate
family members have not), over the past three years been employed as an
executive officer of a company in which an executive officer of Ace has served
on that company's compensation committee; or (5) is not currently (or whose
immediate family members are not currently), and has not been over the past
three years (or whose immediate family members have not been over the past three
years) a partner of Ace's outside auditor.
The term "Financial Expert" is defined under the Sarbanes-Oxley Act of
2002, as amended, as a person who has the following attributes: an understanding
of generally accepted accounting principles and financial statements; has the
ability to assess the general application of such principles in connection with
the accounting for estimates, accruals and reserves; experience preparing,
auditing, analyzing or evaluating financial statements that present a breadth
and level of complexity of accounting issues that are generally comparable to
the breadth and complexity of issues that can reasonably be expected to be
raised by the company's financial statements, or experience actively supervising
one or more persons engaged in such activities; an understanding of internal
controls and procedures for financial reporting; and an understanding of audit
committee functions.
The Company is seeking to add to the Board an "independent director"
who is a "financial expert" and at that time, to form an audit committee
consisting of Mr. Iannucci and the financial expert. In the event an audit
committee is established, of which there can be no assurances given, its first
responsibility would be to adopt a written charter. Such charter would be
expected to include, among other things:
o being directly responsible for the appointment, compensation and
oversight of our independent auditor, which shall report directly
to the audit committee, including resolution of disagreements
between management and the auditors regarding financial reporting
for the purpose of preparing or issuing an audit report or related
work;
o annually reviewing and reassessing the adequacy of the
committee's formal charter;
o reviewing the annual audited financial statements with our
management and the independent auditors and the adequacy of
our internal accounting controls;
o reviewing analyses prepared by our management and independent
auditors concerning significant financial reporting issues and
judgments made in connection with the preparation of our financial
statements;
o reviewing the independence of the independent auditors;
o reviewing our auditing and accounting principles and practices
with the independent auditors and reviewing major changes to our
auditing and accounting principles and practices as suggested by
the independent auditor or its management;
33
o reviewing all related party transactions on an ongoing basis for
potential conflict of interest situations; and
o all responsibilities given to the audit committee by virtue of the
Sarbanes-Oxley Act of 2002, which was signed into law by President
George W. Bush on July 30, 2002.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our officers and directors, and persons who own more than ten percent
of a registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the
"Commission"). Officers, directors and greater than ten percent stockholders are
required by the Commission's regulations to furnish us with copies of all
Section 16(a) forms they file. During fiscal 2009, none of our officers,
directors or 10% or greater stockholders failed to file or filed any forms late
to the best of our knowledge, except that Domenico Iannucci filed Form 5's on
two occasions in January 2009 to report the late filings of Form 4's pertaining
to 2008 transactions.
Item 11. Executive Compensation.
---------------------------------
The following table sets forth the overall compensation earned over the
fiscal year ended December 31, 2008 and 2009 by (1) each person who served as
the principal executive officer of the Company during fiscal year 2009; (2) the
Company's most highly compensated (up to a maximum of two) executive officers as
of December 31, 2009 with compensation during fiscal year 2009 of $100,000 or
more; and (3) those two individuals, if any, who would have otherwise been in
included in section (2) above but for the fact that they were not serving as an
executive of the Company as of December 31, 2009.
SALARY COMPENSATION
---------------------------------------
NON-EQUITY NONQUALIFIED
NAME AND OPTIONS INCENTIVE PLAN DEFERRED ALL OTHER
PRINCIPAL FISCAL STOCK AWARDS COMPENSATION COMPENSATION COMPENSATION
POSITION YEAR SALARY($) BONUS AWARDS ($)(1) ($) EARNINGS ($) ($) (2)(3) TOTAL ($)
--------------------- ------ ------------------ ------- ----------- -------------- ------------- ------------ ----------
Dean L. Julia 2009 $216,000 $3,500 ___ $ 38,998 ___ ___ $ 8,123 $ 266,621
Chief Executive 2008 $216,000 _____ ___ 32,648 ___ ___ 13,368 $ 262,016
Officer
Michael D. Trepeta 2009 $216,000 $3,500 ___ $ 38,998 ___ ___ $ 7,429 $ 266,621
President 2008 $216,000 _____ ___ $ 32,648 ___ ___ $ 12,447 $ 261,095
--------------------
(1) While the financial statements reflect the dollar amount expensed by
the company during applicable fiscal year for financial statement
reporting purposes pursuant to FASB for options and restricted stock
awards, the table reflects the entire date of grant amount to be
expensed over the service period as if the total dollar amount were
earned in the year of grant. Such guidance requires the company to
determine the overall value of the options as of the date of grant
based upon the Black-Scholes method of valuation, and to then expense
that value over the service period over which the options become
exercisable (vest). As a general rule, for time-in-service-based
options, the company will immediately expense any option or portion
thereof which is vested upon grant, while expensing the balance on a
pro rata basis over the remaining vesting term of the option. For a
description FASB and the assumptions used in determining the value of
the options under the Black-Scholes model of valuation, see the notes
to the financial statements included with this Form 10-K.
34
(2) Includes all other compensation not reported in the preceding columns,
including (i) perquisites and other personal benefits, or property,
unless the aggregate amount of such compensation is less than $10,000;
(ii) any "gross-ups" or other amounts reimbursed during the fiscal year
for the payment of taxes; (iii) discounts from market price with
respect to securities purchased from the company except to the extent
available generally to all security holders or to all salaried
employees; (iv) any amounts paid or accrued in connection with any
termination (including without limitation through retirement,
resignation, severance or constructive termination, including change of
responsibilities) or change in control; (v) contributions to vested and
unvested defined contribution plans; (vi) any insurance premiums paid
by, or on behalf of, the company relating to life insurance for the
benefit of the named executive officer; and (vii) any dividends or
other earnings paid on stock or option awards that are not factored
into the grant date fair value required to be reported in a preceding
column.
(3) Includes compensation for service as a director described under
Director Compensation, below.
For a description of the material terms of each named executive
officers' employment agreement, including the terms of the terms of any common
share purchase option grants, see that section of this Form 10-K captioned
"Employment Agreements."
No outstanding common share purchase option or other equity-based award
granted to or held by any named executive officer in 2009 were repriced or
otherwise materially modified, including extension of exercise periods, the
change of vesting or forfeiture conditions, the change or elimination of
applicable performance criteria, or the change of the bases upon which returns
are determined, nor was there any waiver or modification of any specified
performance target, goal or condition to payout.
For a description of the material terms of any contract, agreement,
plan or other arrangement that provides for any payment to a named executive
officer in connection with his or her resignation, retirement or other
termination, or a change in control of the company see "Employment Agreements".
EXECUTIVE OFFICER OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table provides certain information concerning any common
share purchase options, stock awards or equity incentive plan awards held by
each of our named executive officers that were outstanding as of December 31,
2009.
OPTION AWARDS STOCK AWARDS
-------------------------------------------------------------------------------- ---------------------------------------------------
EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER EQUITY
EQUITY OF INCENTIVE PLAN
INCENTIVE PLAN UNEARNED AWARDS:
AWARDS: MARKET SHARES, MARKET OR
NUMBER OF NUMBER OF NUMBER OF NUMBER OF VALUE OF UNITS OR PAYOUT VALUE OF
SECURITIES SECURITIES SECURITIES SHARES OR SHARES OR OTHER UNEARNED
UNDERLYING UNDERLYING UNDERLYING UNITS OF UNITS OF RIGHTS SHARES, UNITS OR
UNEXERCISE UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT STOCK THAT THAT HAVE OTHER RIGHTS
OPTIONS(#) OPTIONS(#) UNEARNED EXERCISE EXPIRATION HAVE NOT HAVE NOT NOT THAT HAVE NOT
NAME EXERCISABLE UNEXERCISABLE OPTIONS (#) PRICE DATE VESTED(#) VESTED VESTED VESTED
Dean L. Juli 250,000 -- -- $ 1.00 01/03/15 -- -- -- --
(1) 200,000 -- -- $ 1.20 12/28/15 -- -- -- --
150,000 -- -- $ 1.20 08/22/17 -- -- -- --
50,000 __ __ $ 1.20 03/01/13 -- -- -- --
50,000 __ __ $ .65 03/02/19 -- -- -- --
50,000 __ __ $ .54 03/25/20 -- -- -- --
Michael D.
Trepeta 250,000 -- -- $ 1.00 01/03/15 -- -- -- --
(1) 200,000 -- -- $ 1.20 12/28/15 -- -- -- --
150,000 -- -- $ 1.20 08/22/17 -- -- -- --
50,000 __ __ $ 1.20 03/01/13 -- -- -- --
50,000 __ __ $ .65 03/02/19 -- -- -- --
50,000 __ __ $ .54 03/25/20 -- -- -- --
--------------
(1) All options contain cashless exercise provisions and are currently fully
vested.
35
EMPLOYMENT AGREEMENTS
Each of the following executive officers is a party to an employment
agreement with the Company.
NAME POSITION MONTHLY SALARY (1) BONUS (2)
---- -------- ------------------ ---------
Dean L. Julia Chief Executive Officer $ 22,000 Annual bonus of at least 5% of pre-tax earnings
Michael Trepeta President $ 22,000 Annual bonus of at least 5% of pre-tax earnings
----------
(1) The monthly salary is effective March 1, 2010. Compensation of each
executive officer named in the table above has his monthly base salary
increased by $2,000 each subsequent March 1st during the term of the
agreement and any extensions thereof. During the period March 1, 2009
through February 28, 2010, each officer waived $24,000 of his salary as a
result of the financial outlook of the economy and the difficult
environment in which Ace is operating.
(2) Annual bonuses are paid by us by the last business day of March for the
preceding calendar (fiscal) year, except in the event of termination prior
to the end of any fiscal year (other than termination for cause), a pro
rata portion of the annual bonus shall be paid within 30 days of
termination.
A summary of each Executive's employment agreement, as amended, is as
follows:
Each employment agreement, as amended, expires on February 29, 2011.
The Agreement shall be automatically renewed for a period of two years
thereafter unless the Executive gives 60 days prior written notice of his
intention not to renew this Agreement prior to the end of the initial Term. Each
employment agreement may not be terminated without cause. However, it may be
terminated at any time by the Executive upon written three-month notice. In such
event, the Company shall be relieved of all of its obligations under the
Agreement, except for payment of the Executive's Base Salary and Annual Bonus
earned and unpaid through the effective date of termination, those obligations
with respect to indemnification and director and officer insurance and severance
pay as described below.
We may terminate the Executive's employment for cause ("Cause") as
defined in the Agreement. In the event this Agreement is terminated for cause,
the Executive's Base Salary and any unearned Annual Bonus, severance pay and all
benefits shall terminate immediately upon such discharge, and we shall have no
further obligations to the Executive except for payment and reimbursement for
any monies due which right to payment or reimbursement accrued prior to such
termination.
We may terminate this Agreement upon the disability as defined in the
Agreement or death of the Executive by giving written notice to the Executive.
In the case of disability, such termination will become effective immediately
upon the giving of such notice unless otherwise specified by us. Upon any such
termination, we shall be relieved of all our obligations under the Executive's
employment, except for payment of the Executive's Base Salary and Annual Bonus
earned and unpaid through the effective date of termination and severance pay.
We have agreed to defend and indemnify each Executive in his capacity
as an officer against all claims, judgments, damages, liabilities, costs and
expenses (including reasonable attorney's fees) arising out of, based upon, or
related to his performance of services to us, to the maximum extent permitted
under law. We will also use our reasonable best efforts to include each
Executive as an insured under all applicable directors' and officers' liability
insurance policies maintained by us.
36
Each Executive is also entitled to the following additional benefits:
o $2,000 per month pay raise on each March 1 during the term of the
Agreement and any extension thereof;
o The annual grant on March 1 of each year of ten-year stock
options to purchase 50,000 shares at an exercise price equal to
the then fair market value of our common stock as determined by
the Board. On December 28, 2005, Messrs. Trepeta and Julia each
agreed to amend their employment contracts to eliminate the
automatic annual grant of options in consideration of the grant
of ten year options to purchase 200,000 shares exercisable at
$1.20 per share, with one-half immediately vested and the other
half vested on December 28, 2008 irrespective of employment or
termination thereof; Pursuant to a three-year extension of their
employment agreements, the automatic grant of 50,000 options at
fair market value on each anniversary date of the contract
recommenced on March 1, 2008. A signing bonus was paid to each
executive consisting of options to purchase 150,000 shares, fully
vested at the date of grant and exercisable at $1.20 per share at
any time through August 22, 2017;
o Election to the Board of Directors and during the term of
employment, the Board's nomination for re-election to the Board;
o Paid disability insurance and term life insurance for the benefit
of each Executive's family in an amount fixed by the Board at a
cost not to exceed $10,000 per annum;
o Use of company automobile with all related costs paid for by us;
o Health insurance;
o Right to participate in any pensions of our company;
o Termination pay of one-year base salary based upon the scheduled
annual salary of each executive officer for the next contract
year, plus the amount of bonuses paid or entitled to be paid to
the executive for the current fiscal year or the preceding fiscal
year, whichever is higher;
o Health insurance; and
o Right to participate in any pensions of our company.
DIRECTOR COMPENSATION
STOCK OPTIONS
Stock options and equity compensation awards to our non-employee /
non-executive director are at the discretion of the Board. As of December 31,
2009, no options or equity awards have been made to our non-employee /
non-executive directors.
CASH COMPENSATION
Our non-employee / non-executive director is eligible to receive a fee
of $500 to be paid for attending each Board meeting; however, no fees were paid
in 2009.
TRAVEL EXPENSES
All directors shall be reimbursed for their reasonable out of pocket
expenses associated with attending the meeting.
37
The following table shows the overall compensation earned for the 2009 fiscal
year with respect to each non-employee and non-executive director as of December
31, 2009.
DIRECTOR COMPENSATION
------------------------------------------------------------------------------------
FEES
EARNED NON-EQUITY NONQUALIFIED
NAME AND OR PAID STOCK OPTION INCENTIVE PLAN DEFERRED ALL OTHER
PRINCIPAL IN CASH AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION
POSITION ($) ($) (1) ($) (2) EARNINGS ($) (3) TOTAL ($)
------------------------------------------------------------------------------------
Scott Novack, Director -- -- -- -- -- -- --
Domenico Iannucci, Director -- -- -- -- -- -- --
----------------
(1) While the financial statements reflect the dollar amount expensed by the
company during applicable fiscal year for financial statement reporting
purposes pursuant to FASB for options and restricted stock awards, the
table reflects the entire date of grant amount to be expensed over the
service period as if the total dollar amount were earned in the year of
grant. Such guidance requires the company to determine the overall value of
the options as of the date of grant based upon the Black-Scholes method of
valuation, and to then expense that value over the service period over
which the options become exercisable (vest). As a general rule, for
time-in-service-based options, the company will immediately expense any
option or portion thereof which is vested upon grant, while expensing the
balance on a pro rata basis over the remaining vesting term of the option.
For a description FASB and the assumptions used in determining the value of
the options under the Black-Scholes model of valuation, see the notes to
the financial statements included with this Form 10-K.
(2) Excludes awards or earnings reported in preceding columns.
(3) Includes all other compensation not reported in the preceding columns,
including (i) perquisites and other personal benefits, or property, unless
the aggregate amount of such compensation is less than $10,000; (ii) any
"gross-ups" or other amounts reimbursed during the fiscal year for the
payment of taxes; (iii) discounts from market price with respect to
securities purchased from the company except to the extent available
generally to all security holders or to all salaried employees; (iv) any
amounts paid or accrued in connection with any termination (including
without limitation through retirement, resignation, severance or
constructive termination, including change of responsibilities) or change
in control; (v) contributions to vested and unvested defined contribution
plans; (vi) any insurance premiums paid by, or on behalf of, the company
relating to life insurance for the benefit of the director; (vii) any
consulting fees earned, or paid or payable; (viii) any annual costs of
payments and promises of payments pursuant to a director legacy program and
similar charitable awards program; and (ix) any dividends or other earnings
paid on stock or option awards that are not factored into the grant date
fair value required to be reported in a preceding column.
2005 Employee Benefit and Consulting Services Compensation Plan
---------------------------------------------------------------
On January 3, 2005, our company established an Employee Benefit and
Consulting Services Compensation Plan (the "2005 Plan") covering 2,000,000
shares, which 2005 Plan was ratified by our stockholders on February 9, 2005. On
August 12, 2005, the company's stockholders approved a 2,000,000 share increase
in the 2005 Plan to 4,000,000 shares.
ADMINISTRATION
--------------
Our board of directors administers the 2005 Plan, has the authority to
determine and designate officers, employees, directors and consultants to whom
awards shall be made and the terms, conditions and restrictions applicable to
each award (including, but not limited to, the option price, any restriction or
limitation, any vesting schedule or acceleration thereof, and any forfeiture
restrictions). The board may, in its sole discretion, accelerate the vesting of
awards.
38
TYPES OF AWARDS
---------------
The 2005 Plan is designed to enable us to offer certain officers,
employees, directors and consultants of us and our subsidiaries equity interests
in us and other incentive awards in order to attract, retain and reward such
individuals and to strengthen the mutuality of interests between such
individuals and our stockholders. In furtherance of this purpose, the 2005 Plan
contains provisions for granting non-statutory stock options and incentive stock
options and common stock awards.
STOCK OPTIONS. A "stock option" is a contractual right to purchase a
number of shares of common stock at a price determined on the date the option is
granted. An incentive stock option is an option granted under the Internal
Revenue Code of 1986 to our employees with certain tax advantages to the grantee
over non-statutory stock options. The option price per share of common stock
purchasable upon exercise of a stock option and the time or times at which such
options shall be exercisable shall be determined by the Board at the time of
grant. Such option price in the case of incentive stock options shall not be
less than 100% of the fair market value of the common stock on the date of grant
and may be granted below fair market value in the case of non-statutory stock
options. Incentive stock options granted to owners of 10% or more of our common
stock must be granted at an exercise price of at least 110% of the fair market
value of our common stock and may not have a term greater than five years. Also,
the value of incentive options vesting to any employee cannot exceed $100,000 in
any calendar year. The option price of our options must be paid in cash, money
order, check or common stock of the company. The non-statutory stock options may
also contain at the time of grant, at the discretion of the board, certain other
cashless exercise provisions. These cashless exercise provisions are included in
the currently outstanding non-statutory stock options granted by the board.
Options shall be exercisable at the times and subject to the conditions
determined by the Board at the date of grant, but no option may be exercisable
more than ten years after the date it is granted. If the optionee ceases to be
an employee of our company for any reason other than death, any incentive stock
option exercisable on the date of the termination of employment may be exercised
for a period of thirty days or until the expiration of the stated term of the
option, whichever period is shorter. In the event of the optionee's death, any
incentive stock option exercisable at the date of death may be exercised by the
legal heirs of the optionee from the date of death until the expiration of the
stated term of the option or six months from the date of death, whichever event
first occurs. In the event of disability of the optionee, any incentive stock
options shall expire on the stated date that the Option would otherwise have
expired or 12 months from the date of disability, whichever event first occurs.
The termination and other provisions of a non-statutory stock option shall be
fixed by the board of directors at the date of grant of each respective option.
COMMON STOCK AWARD. Common stock awards are shares of common stock that
will be issued to a recipient at the end of a restriction period, if any,
specified by the board if he or she continues to be an employee, director or
consultant of us. If the recipient remains an employee, director or consultant
at the end of the restriction period, the applicable restrictions will lapse and
we will issue a stock certificate representing such shares of common stock to
the participant. If the recipient ceases to be an employee, director or
consultant of us for any reason (including death, disability or retirement)
before the end of the restriction period unless otherwise determined by the
board, the restricted stock award will be terminated.
39
Awards
------
As of December 31, 2009, the Company has granted non-statutory stock
options to purchase 3,029,222 shares of the Company's Common Stock with a
weighted average exercise price of $1.10 per share. The board has granted
options with varying terms.
It is not possible to predict the individuals who will receive future
awards under the Plan or the number of shares of Common Stock covered by any
future award because such awards are wholly within the discretion of the Board.
The table below contains information as of December 31, 2009 on the known
benefits provided to certain persons and group of persons under the Plan.
-------------------------------- ------------------------- ------------------------ -------------------------------
NUMBER OF SHARES RANGE OF EXERCISE VALUE OF UNEXERCISED OPTIONS
SUBJECT TO OPTIONS PRICE ($) PER SHARE AT DEC. 31, 2009 (1)
-------------------------------- ------------------------- ------------------------ -------------------------------
-------------------------------- ------------------------- ------------------------ -------------------------------
Dean L. Julia, Chief 700,000 $.65 - $1.20 $-0-
Executive Officer (2)
-------------------------------- ------------------------- ------------------------ -------------------------------
Michael D. Trepeta, 700,000 $.65 - $1.20 $-0-
President (2)
-------------------------------- ------------------------- ------------------------ -------------------------------
Sean McDonnell, Chief 50,000 $1.00 $-0-
Financial officer
-------------------------------- ------------------------- ------------------------ -------------------------------
Three Executive Officers As a 1,450,000 $.65 - $1.20 $-0-
group
-------------------------------- ------------------------- ------------------------ -------------------------------
Non-Executive Officer,
Employees and 1,469,222 $.80-$ 2.50 $-0-
Consultants
-------------------------------- ------------------------- ------------------------ -------------------------------
(1) Value is normally calculated by multiplying (a) the difference between
the market value per share at period end (i.e. $.50 based upon a last
sale on (or the last trade date before) December 31, 2009) and the
option exercise price by (b) the number of shares of Common Stock
underlying the option.
(2) Does not include options to purchase 50,000 shares exercisable at $.54
per share granted on March 25, 2010.
ELIGIBILITY
-----------
Our officers, employees, directors and consultants of Ace and our
subsidiaries are eligible to be granted stock options, and common stock awards.
TERMINATION OR AMENDMENT OF THE 2005 PLAN
-----------------------------------------
The board may at any time amend, discontinue, or terminate all or any
part of the 2005 Plan, provided, however, that unless otherwise required by law,
the rights of a participant may not be impaired without his or her consent, and
provided that we will seek the approval of our stockholders for any amendment if
such approval is necessary to comply with any applicable federal or state
securities laws or rules or regulations.
2009 Employee Benefit and Consulting Compensation Plan
------------------------------------------------------
On August 28, 2009, the Board established and on October 7, 2009, the
stockholders approved an Employee Benefit and Consulting Compensation Plan (the
"2009 Plan") covering 4,000,000 shares with an effective date of October 7,
2009.
40
Administration
--------------
Our Board of Directors, Compensation Committee or both, in the sole
discretion of our Board, will administer the 2009 Plan. The Board, subject to
the provisions of the 2009 Plan, has the authority to determine and designate
employees and consultants to whom awards shall be made and the terms, conditions
and restrictions applicable to each award (including, but not limited to, the
option price, any restriction or limitation, any vesting schedule or
acceleration thereof, and any forfeiture restrictions). The Board or
Compensation Committee may, in its sole discretion, accelerate the vesting of
awards. Our Compensation Committee must approve all grants of Options and Stock
Awards issued to our executive officers or directors.
Types of Awards
---------------
The 2009 Plan is designed to enable us to offer certain officers,
employees, directors and consultants of us and our subsidiaries equity interests
in us and other incentive awards in order to attract, retain and reward such
individuals and to strengthen the mutuality of interests between such
individuals and our stockholders. In furtherance of this purpose, the 2009 Plan
contained provisions for granting incentive and non-statutory stock options and
Common Stock Awards.
STOCK OPTIONS. A "stock option" is a contractual right to purchase a
number of shares of Common Stock at a price determined on the date the option is
granted. The option price per share of Common Stock purchasable upon exercise of
a stock option and the time or times at which such options shall be exercisable
shall be determined by the Board at the time of grant. Such option price shall
not be less than 100% of the fair market value of the Common Stock on the date
of grant. The option price must be paid in cash, money order, check or Common
Stock of the Company. The Options (excluding Incentive Stock Options) may also
contain at the time of grant, at the discretion of the Board, certain cashless
exercise provisions.
Options shall be exercisable at the times and subject to the conditions
determined by the Board at the date of grant, but no option may be exercisable
more than ten years after the date it is granted. If the Optionee ceases to be
an employee of our company for any reason other than death, any option
originally granted as an Incentive Stock Option exercisable on the date of the
termination of employment may be exercised for a period of thirty days or until
the expiration of the stated term of the option, whichever period is shorter. In
the event of the Optionee's death, any originally granted Incentive Stock Option
exercisable at the date of death may be exercised by the legal heirs of the
Optionee from the date of death until the expiration of the stated term of the
option or six months from the date of death, whichever event first occurs. In
the event of disability of the Optionee, any originally granted Incentive Stock
Options shall expire on the stated date that the Option would otherwise have
expired or 12 months from the date of disability, whichever event first occurs.
The termination and other provisions of a non-statutory stock option shall be
fixed by the Board of Directors at the date of grant of each respective option.
COMMON STOCK AWARD. "Common Stock Awards" are shares of Common Stock
that will be issued to a recipient at the end of a restriction period, if any,
specified by the Board if he or she continues to be an employee, director or
consultant of us. If the recipient remains an employee, director or consultant
at the end of the restriction period, the applicable restrictions will lapse and
we will issue a stock certificate representing such shares of Common Stock to
the participant. If the recipient ceases to be an employee, director or
consultant of us for any reason (including death, disability or retirement)
before the end of the restriction period unless otherwise determined by the
Board, the restricted stock award will be terminated.
41
Eligibility
-----------
The Company's officers, employees, directors and consultants of Ace and
its subsidiaries are eligible to be granted stock options, and Common Stock
Awards. Eligibility shall be determined by the Board or our Compensation
Committee; however, all Options and Stock Awards granted to officers and
directors must be approved by our Compensation Committee.
Termination or Amendment of the 2009 Plan
-----------------------------------------
The Board may at any time amend, discontinue, or terminate all or any
part of the 2009 Plan, provided, however, that unless otherwise required by law,
the rights of a participant may not be impaired without his or her consent, and
provided that we will seek the approval of our stockholders for any amendment if
such approval is necessary to comply with any applicable federal or state
securities laws or rules or regulations.
Awards
------
It is not possible to predict the individuals who will receive future
awards under the 2009 Plan or the number of shares of Common Stock covered by
any future award because such awards are wholly within the discretion of the
Board or our Compensation Committee. Currently, there have been no awards
granted under the 2009 Plan. The 2009 Plan will terminate and no awards may be
granted after October 6, 2019.
SHARES SUBJECT TO THE PLAN
--------------------------
The maximum number of shares of Common Stock that may be issued
pursuant to awards granted under the Plan is 4,000,000. Such shares may be
either authorized and unissued shares or issued shares reacquired by the Company
and held in treasury. The Plan does not limit the number of shares of Common
Stock with respect to which options or Stock Awards may be granted to any
individual during any calendar year, except there are limits in the case of
Incentive stock Options to those established by the Internal Revenue Code of
1986, as amended. The aggregate number of shares issuable under the 2009 Plan
and the number of shares subject to options and awards to be granted under the
Plan are subject to adjustment in the event of certain mergers, reorganizations,
consolidations, recapitalizations, dividends (other than a regular cash
dividend), stock split or other change in corporate structure affecting the
Common Stock. Shares subject to options that expire, terminate or are canceled
unexercised, shares of stock that have been forfeited to the Company and shares
that are not issued as a result of forfeiture or termination of an award may be
reissued under the Plan.
42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
---------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS.
----------------------------
As of March 25, 2010, the Company had outstanding 13,233,847 shares of
Common Stock. The only persons of record who presently hold or are known to own
(or believed by the Company to own) beneficially more than 5% of the outstanding
shares of such class of stock is listed below. The following table also sets
forth certain information as to holdings of the Company's Common Stock of all
officers and directors individually, and all officers and directors as a group.
-------------------------------------------------- ----------------------- -----------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER OF COMMON APPROXIMATE
-------------------------------------------------- ----------------------- -----------------
--------------------------------------------------------------------------------------------
OFFICERS AND DIRECTORS:
-------------------------------------------------- ----------------------- -----------------
-------------------------------------------------- ----------------------- -----------------
Scott Novak 1,052,402 8.0 %
457 Rockaway Avenue
Valley Stream, NY 11583
-------------------------------------------------- ----------------------- -----------------
Michael D. Trepeta
457 Rockaway Avenue
Valley Stream, NY 11583(3) 1,766,402 12.7 %
-------------------------------------------------- ----------------------- -----------------
Dean L. Julia
457 Rockaway Avenue
Valley Stream, NY 11583 (3) 1,736,901 12.5 %
-------------------------------------------------- ----------------------- -----------------
Sean McDonnell 50,000 *
457 Rockaway Avenue
Valley Stream, NY 11583 (4)
-------------------------------------------------- ----------------------- -----------------
Domenico Iannucci
One Windsor Drive
Muttontown, NY 11753 (5) 639,650 4.8 %
-------------------------------------------------- ----------------------- -----------------
All Directors and Officers as a
Group (five persons) (6) 5,245,355 35.3 %
-------------------------------------------------- ----------------------- -----------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, and is generally determined by
voting powers and/or investment powers with respect to securities. Unless
otherwise noted, all of such shares of common stock listed above are owned
of record by each individual named as beneficial owner and such individual
has sole voting and dispositive power with respect to the shares of common
stock owned by each of them. Such person or entity's percentage of
ownership is determined by assuming that any options or convertible
securities held by such person or entity, which are exercisable within
sixty (60) days from the date hereof, have been exercised or converted as
the case may be, but not for the purposes of determining the number of
outstanding shares held by any other named beneficial owner.
43
(2) Assumes the Maximum Amount is sold at an Adjusted per Share Price of $0.75
and includes 280,000 shares of Common Stock to be issued to the Introducing
Agent(s) upon consummation of the Offering. Does not include shares
issuable upon exercise of Introducing Agent Warrants that will be issued
upon consummation of this Offering.
(3) Includes options to purchase 752,000 shares.
(4) Includes options to purchase 50,000 shares.
(5) Consists of 539,660 shares of Common Stock and options to purchase 100,000
shares.
(6) Includes options to purchase 1,650,000 shares.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
-------------------------------------------------------------------
The following summary information is as of December 31, 2009 and
relates to our 2005 Plan described elsewhere herein pursuant to which we have
granted options to purchase our common stock:
------------------------------- ------------------------------ ---------------------- --------------------------------
(a) (b) (c)
------------------------------- ------------------------------ ---------------------- --------------------------------
Number of securities
remaining available for
Number of shares of common Weighted average future issuance under
stock to be issued upon exercise price of equity compensation plans
exercise of outstanding (excluding shares
Plan category outstanding options options reflected in column (a)
------------------------------- ------------------------------ ---------------------- --------------------------------
Equity compensation 3,029,222 1.09 944,778
Plans (1)
------------------------------- ------------------------------ ---------------------- --------------------------------
(1) Options exercisable at December 31, 2009 include 2,539,222 shares with an
exercise price range of $.65 to $2.50 per share. The foregoing table does
not reflect 26,000 shares of Common Stock issued pursuant to the 2005 Plan.
The following summary information is as of December 31, 2009 and
relates to our 2009 Plan described elsewhere herein pursuant to which we have
granted options to purchase our common stock:
------------------------------- ------------------------------ ---------------------- --------------------------------
(a) (b) (c)
------------------------------- ------------------------------ ---------------------- --------------------------------
Number of securities
remaining available for
Number of shares of common Weighted average future issuance under
stock to be issued upon exercise price of equity compensation plans
exercise of outstanding (excluding shares
Plan category outstanding options options reflected in column (a)
------------------------------- ------------------------------ ---------------------- --------------------------------
Equity compensation -0- N/A 4,000,000
Plans (1)
------------------------------- ------------------------------ ---------------------- --------------------------------
44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
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INDEPENDENCE.
-------------
Michael Trepeta's wife has a company which is a candle supplier. From
time-to-time, we have in the past and may in the future purchase candle supplies
from her company. During 2006, 2007, 2008 and 2009, we purchased a total of
$8,657, $4,934, $3,165 and $510, respectively, from her company.
The transactions above were approved by the Board of Directors based
upon obtaining at least three competitive quotes and Mr. Trepeta's wife being
the best price. Accordingly, the transactions described above were believed by
Management to be on terms that are at least as favorable to us as the terms we
could have obtained from an unaffiliated third party.
In the future, we expect to have one or more members of our Board be
independent directors of our company. It is anticipated that future transactions
between us and our executive officers and directors and other affiliated parties
will be approved by the then disinterested members of the Board and, if not a
majority of the Board, then by our independent director(s) through a committee
appointed by the Board.
Other Recent Transactions
-------------------------
On February 24, 2009, the Company entered into an Agreement with Legend
Securities, Inc. for a term of one (1) year (the "Term"). Legend has agreed to
provide services outlined below to increase investor awareness. The services
include the following:
o assistance with investor presentations such as, but not
limited to, PowerPoint slide presentations, broker/dealer fact
sheets, financial projections and budgets;
o sponsorship to capital conferences;
o identification and evaluation of financing transactions;
o identification and evaluation of acquisition and/or merger
candidates;
o introductions to broker dealers, research analysts, and
investment companies that Legend believes could be helpful to
the Company.
For their services, Legend received warrants to purchase 350,000 shares
of the Company's restricted Common Stock, exercisable at $.80 per share, over a
term of five (5) years, with the warrants investing 25% immediately and the
balance in monthly incremental amounts through January 2010.
Also, in consideration for the services provided in the agreement and
subject to the completion of the Company's successful raise of net proceeds of
at least $1,250,000 from the sale of its common stock (hereinafter referred to
the "Capital Transaction"), the Company shall accrue a monthly advisory fee of
ten thousand dollars ($10,000.00) per month (the "Monthly Advisory Fee"). These
Monthly Advisory Fees totaling $120,000 were paid in March 2010.
Between July and October 2008, the Company sold 445,000 shares of its
Series A Convertible Preferred Stock at a purchase price of $1.00 per share. The
brother of the Company's President, Michael Trepeta, purchased $250,000 and
Domenico Iannucci, who later became a director, purchased $100,000 of the Series
A Convertible Preferred Stock sold in this transaction. On December 15, 2008,
all of the Series A Convertible Preferred Stock automatically converted into
890,000 shares of Common Stock at a conversion price of $.50 per share.
45
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
-------------------------------------------------
AUDIT FEES
For the fiscal year ended December 31, 2009 and 2008, the aggregate
fees billed or expected to be billed for professional services rendered by Holtz
Rubenstein Reminick LLP ("independent auditors") for the audit of the Company's
annual financial statements and the reviews of its financial statements included
in the Company's quarterly reports and filings under the Securities Act of 1933
totaled approximately $72,000 and $69,000, respectively.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal years ended December 31, 2009 and 2008, there were $-0-
in fees billed for professional services by the Company's independent auditors
rendered in connection with, directly or indirectly, operating or supervising
the operation of its information system or managing its local area network.
ALL OTHER FEES
For the fiscal years ended December 31, 2009 and 2008, there were no
fees paid or billed for preparation of corporate tax returns, tax research and
other professional services rendered by the Company's independent auditors.
AUDIT COMMITTEE - PRE-APPROVAL
The Company does not have a standing audit committee. Therefore, all
services provided to the Company by Holtz Rubenstein Reminick LLP as detailed
above, were pre-approved by the board of Directors and all work of said firm was
performed solely by their permanent employees.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) FINANCIAL STATEMENTS
The following documents are filed under "ITEM 7. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA," beginning on page F-1 through page F-20and are included
as part of this Form 10-K as the financial statements of the Company for the
years ended December 31, 2009 and 2008:
Reports of Independent Registered Public Accounting Firms
Balance Sheets
Statements of Operations
Statement of Stockholders' Equity
Notes to Financial Statements
46
(b) EXHIBITS
Exhibit No. Description
------- --- -----------
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 Employment Agreement - Michael Trepeta (2)
10.2 Employment Agreement - Dean Julia (2)
10.3 Amendments to Employment Agreement - Michael Trepeta (5)(7)
10.4 Amendments to Employment Agreement - Dean L. Julia (5)(7)
10.5 Joint Venture Agreement with Atrium Enterprises Ltd. (6)
10.6 Agreement with Aon Consulting (6)
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 (5)
21.1 Subsidiaries of the Issuer - None in 2007
23.1 Consent of by Holtz Rubenstein Reminick LLP (3)
31.1 Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification (3)
31.2 Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certification (3)
32.1 Chief Executive Officer Section 1350 Certification (3)
32.2 Chief Financial Officer Section 1350 Certification (3)
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 Form of Class C Warrant (8)
99.6 Release of Earnings - 2009 (3)
99.7 2009 Employee Benefit and Consulting Services Compensation Plan (3)
99.8 Form of Class D Warrant (3)
-------------------
(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) Filed herewith.
(4) Incorporated by reference to the Registrant's Form 10-QSB/A filed with
the Commission on August 18, 2005.
(5) Incorporated by reference to the Registrant's Form 10-KSB for its fiscal
year ended December 31, 2005.
(6) Incorporated by reference to the Registrant's Form 10-KSB for its fiscal
year ended December 31, 2006.
(7) Incorporated by reference to the Registrant's Form 8-K dated September
21, 2007.
(8) Incorporated by reference to the Registrant's Form 10-QSB for its
quarter ended September 30, 2006.
(c) FINANCIAL STATEMENT SCHEDULES
We are not filing any financial statement schedules as part of this
Form 10-K because such schedules are either not applicable or the required
information is included in the financial statements or notes thereto.
47
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACE MARKETING & PROMOTIONS, INC.
By: /s/ Dean L. Julia
---------------------------------
Dean L. Julia, Chairman of the
Board and Chief Executive Officer
Dated: Valley Stream, New York
March 30, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
/s/ Dean L. Julia Chairman of the Board March 30, 2010
--------------------------- Chief Executive Officer
Dean L. Julia
/s/ Sean McDonnell Chief Financial Officer March 30, 2010
---------------------------
Sean McDonnell
/s/ Michael D. Trepeta President, Director March 30, 2010
---------------------------
Michael D. Trepeta
/s/ Scott Novack Director March 30, 2010
---------------------------
Scott Novack
/s/ Domenico Iannucci Director March 30, 2010
---------------------------
Domenico Iannucci
Dean L. Julia, Michael D. Trepeta, Scott Novack and Domenico Iannucci represent
all the current members of the Board of Directors.