SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007
COMMISSION FILE NUMBER: 000-51160
ACE MARKETING & PROMOTIONS, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-3427886
(State of jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
457 ROCKAWAY AVE.
VALLEY STREAM, NY 11581
(Address of principal executive offices)
(516) 256-7766
(Registrant's telephone number)
NOT APPLICABLE
(Former name, address and fiscal year, if changed since last report)
_________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of August 9, 2007, the registrant had a total of 8,017,529 shares of Common
Stock outstanding.
ACE MARKETING & PROMOTIONS, INC.
FORM 10-QSB QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheet as of June 30, 2007 3
Condensed Statements of Operations for the three and six months
ended June 30, 2007 and 2006 4
Condensed Statements of Cash Flows for the six months ended
June 30, 2007 and June 30, 2006 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
PART I. FINANCIAL INFORMATION
ACE MARKETING & PROMOTIONS, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
-----------------------------------------------------------------------------------------
JUNE 30, 2007 UNADJUSTED
-----------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,037,262
Accounts receivable, net of allowance for doubtful accounts of $10,000 733,064
Prepaid expenses and other current assets 65,378
-----------
Total Current Assets 1,835,704
Property and Equipment, net 19,062
Other Assets 7,745
-----------
Total Assets $ 1,862,511
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 307,455
Accrued expenses 116,361
-----------
Total Current Liabilities 423,816
-----------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.0001 par value; 25,000,000 shares authorized
8,005,029 shares issued and outstanding 803
Preferred stock $.0001 par value: 500,000 shares authorized
no shares outstanding --
Additional paid-in capital 3,259,458
Accumulated deficit (1,790,065)
Less: Treasury Stock, at cost, 23,334 shares (31,501)
-----------
Total Stockholders' Equity 1,438,695
-----------
Total Liabilities and Stockholders' Equity $ 1,862,511
===========
-----------------------------------------------------------------------------------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. 3
ACE MARKETING & PROMOTIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
----------------------------------------------------------------------------------------------------------------------
Revenues, net $ 1,400,786 $ 1,088,589 $ 2,683,666 $ 2,163,596
Cost of Revenues 960,074 754,291 1,825,598 1,529,464
------------------------------ ------------------------------
Gross Profit 440,712 334,298 858,068 634,132
------------------------------ ------------------------------
Operating Expenses:
Selling, general and administrative expenses 580,384 454,311 1,134,908 870,484
------------------------------ ------------------------------
Total Operating Expenses 580,384 454,311 1,134,908 870,484
------------------------------ ------------------------------
Loss from Operations (139,672) (120,013) (276,840) (236,352)
------------------------------ ------------------------------
Other Income (Expense):
Interest expense (43) -- (43) --
Interest income 7,995 124 16,337 871
------------------------------ ------------------------------
Total Other Income (Expense) 7,952 124 16,294 871
------------------------------ ------------------------------
Loss Before Provision for Income Taxes (131,720) (119,889) (260,546) (235,481)
Provision for Income Taxes -- -- -- --
------------------------------ ------------------------------
Net Loss $ (131,720) $ (119,889) $ (260,546) $ (235,481)
============================== ==============================
Net Loss Per Common Share:
Basic $ (0.02) $ (0.02) $ (0.03) $ (0.04)
============================== ==============================
Diluted $ (0.02) $ (0.02) $ (0.03) $ (0.04)
============================== ==============================
Weighted Average Common Shares Outstanding:
Basic 8,012,722 6,923,701 8,020,499 6,590,678
============================== ==============================
Diluted 8,012,722 6,923,701 8,020,499 6,590,678
============================== ==============================
----------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. 4
ACE MARKETING & PROMOTIONS, INC.
Condensed Statements of Cash Flows (unaudited)
-----------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2007 2006
-----------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $ (260,546) $ (235,649)
------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,243 2,101
Stock-based payments 51,166 64,314
Changes in operating assets and liabilities:
(Increase) decrease in operating assets:
Accounts receivable (11,078) 58,405
Prepaid expenses and other assets (19,948) 3,025
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (73,300) 8,370
Customer deposits -- (19,600)
------------------------------
Total adjustments (50,917) 116,615
------------------------------
Net Cash Used in Operating Activities (311,463) (119,034)
------------------------------
Cash Flows from Investing Activities:
Acquisition of property & equipment (4,406) --
------------------------------
Net Cash Provided by Financing Activities (4,406) --
------------------------------
Net Decrease in Cash and Cash Equivalents (315,869) (119,034)
Cash and Cash Equivalents, beginning of period 1,353,131 398,235
------------------------------
Cash and Cash Equivalents, end of period $ 1,037,262 $ 279,201
==============================
-----------------------------------------------------------------------------------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. 5
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
The Condensed Balance Sheet as of June 30, 2007, the Condensed Statements of
Operations for the three and six months ended June 30, 2007 and 2006 and the
Condensed Statements of Cash Flows for the six months ended June 30, 2007 and
2006 have been prepared by us without audit. In our opinion, the accompanying
unaudited condensed financial statements contain all adjustments necessary to
present fairly in all material respects our financial position as of June 30,
2007, results of operations for the three and six months ended June 30, 2007 and
2006 and cash flows for the six months ended June 30, 2007 and 2006.
This report should be read in conjunction with our Form 10-KSB for our fiscal
year ended December 31, 2006.
The results of operations and cash flows for the three and/or six months ended
June 30, 2007 are not necessarily indicative of the results to be expected for
the full year.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION - Revenue is recognized when title and risk of loss
transfers to the customer and the earnings process is complete. In general,
title passes to our customers upon the customer's receipt of the merchandise.
Revenue is accounted for in accordance with Emerging Issue Task Force (EITF)
Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an
Agent." Revenue is recognized on a gross basis since the Company has the risks
and rewards of ownership, latitude in selection of vendors and pricing, and
bears all credit risk.
The Company records all shipping and handling fees billed to customers as
revenues, and related costs as cost of goods sold, when incurred, in accordance
with EITF 00-10, "Accounting for Shipping and Handling Fees and Costs."
ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS - In July 2006, the FASB issued FASB
Interpretation 48, "Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109, "Accounting
for Income Taxes." This interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides a guidance on de-recognition, classification interest and penalties,
accounting in interim periods, disclosure and transition. The adoption of FIN 48
on January 1, 2007 did not have a material impact on the Company's financial
statements.
6
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
2. EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Dilutive earnings per share gives effect to stock options and warrants, which
are considered to be dilutive common stock equivalents. Basic loss per common
share was computed by dividing net loss by the weighted average number of shares
of common stock outstanding. 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 3,519,000 and
2,848,000 because they are antidilutive as a result of a net loss for the six
months ended June 30, 2007 and 2006..
3. STOCK COMPENSATION
During Fiscal 2005, the Company established, and the stockholders approved, an
Employee Benefit and Consulting Services Compensation Plan (the "Plan") for the
granting of up to 2,000,000 non-statutory and incentive stock options and stock
awards to directors, officers, consultants and key employees of the Company. On
June 9, 2005, the Board of Directors amended the Plan to increase the number of
stock options and awards to be granted under the Plan to 4,000,000.
All stock options under the Plan are granted at or above the fair market value
of the common stock at the grant date. Employee and non-employee stock options
vest over varying periods and generally expire either 5 or 10 years from the
grant date.
Effective January 1, 2006, the Company's Plan is accounted for in accordance
with the recognition and measurement provisions of Statement of Financial
Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS
123(R)"). FAS 123 (R) requires compensation costs related to share-based payment
transactions, including employee stock options, to be recognized in the
financial statements. In addition, the Company adheres to the guidance set forth
within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin
("SAB") No. 107, which provides the Staff's views regarding the interaction
between SFAS No. 123(R) and certain SEC rules and regulations and provides
interpretations with respect to the valuation of share-based payments for public
companies.
The Company's results for the three and six month periods ended June 30, 2007
and 2006 include employee share-based compensation expense totaling
approximately $25,583 and $51,166 and $42,309 and $56,189 respectively. Such
amounts have been included in the Condensed Consolidated 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.
7
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
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 guidance under SFAS 123R and SEC Staff Accounting Bulletin
No. 107 (SAB 107) when reviewing and updating assumptions. The expected
volatility is based upon historical volatility of our stock and other
contributing factors. The expected term is based upon observation of actual time
elapsed between date of grant and exercise of options for all employees.
Previously such assumptions were determined based on historical data.
The following table represents the activity under our stock option plan:
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Share Price Contractual Term Value
---------------------------------------------- --------------------- ------------------ ----------------- -------------------
Outstanding, January 1, 2007 1,921,222 $ 1.17
Granted -
Exercised -
Forfeited -
---------------------
Outstanding, June 30, 2007 1,921,222 $ 1.17 5.63 $ 1,169,417
=====================
Options exercisable, June 30, 2007 1,352,247 $ 1.11 6.07 $ 889,585
=====================
As of June 30, 2007, the fair value of unamortized compensation cost related to
unvested stock option awards was approximately $165,000. Unamortized
compensation cost as of June 30, 2007 is expected to be recognized over a
remaining weighted-average vesting period of 3.50 years.
4. TRANSACTIONS WITH MAJOR CUSTOMER
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.
For the three and six months ended June 30, 2007 and 2006, sales from ten
percent or greater customers approximated 27% and 37%, 11 % and 27%,
respectively of total sales. During these reporting periods, we had up to two
different principal customers, each of whom are retailers, accounting for these
results.
5. TREASURY SHARES
In April 2007, in connection with a settlement arrangement with a former sales
agent, the Company received 23,334 shares of its common stock from the sales
agent. The shares have been recorded at their fair value on the date of receipt
and presented as treasury shares.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information contained in this Form 10-QSB and documents incorporated herein
by reference are intended to update the information contained in the Company's
Form 10-KSB for its fiscal year ended December 31, 2006 which includes our
audited financial statements for the year ended December 31, 2006 and such
information presumes that readers have access to, and will have read, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Risk Factors" and other information contained in such Form 10-KSB
and other Company filings with the Securities and Exchange Commission ("SEC").
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements involve risks and uncertainties, and
actual results could be significantly different than those discussed in this
Form 10-QSB. Certain statements contained in Management's Discussion and
Analysis, particularly in "Liquidity and Capital Resources," and elsewhere in
this Form 10-QSB are forward-looking statements. These statements discuss, among
other things, expected growth, future revenues and future performance. Although
we believe the expectations expressed in such forward-looking statements are
based on reasonable assumptions within the bounds of our knowledge of our
business, a number of factors could cause actual results to differ materially
from those expressed in any forward-looking statements, whether oral or written,
made by us or on our behalf. The forward-looking statements are subject to risks
and uncertainties including, without limitation, the following: (a) changes in
levels of competition from current competitors and potential new competition,
(b) possible loss of customers, and (c) the company's ability to attract and
retain key personnel, (d) The Company's ability to manage other risks,
uncertainties and factors inherent in the business and otherwise discussed in
this 10-QSB and in the Company's other filings with the SEC. The foregoing
should not be construed as an exhaustive list of all factors that could cause
actual results to differ materially from those expressed in forward-looking
statements made by us. All forward-looking statements included in this document
are made as of the date hereof, based on information available to the Company on
the date thereof, and the Company assumes no obligation to update any
forward-looking statements.
OVERVIEW
We are a full service advertising specialties and promotional products company.
Specific categories of the use of promotional products include advertising
specialties, business gifts, incentives and awards, and premiums. Through the
services of our in-house sales persons and the use of independent sales
representatives, we distribute items to our customers typically with their logos
on them. Several of our customer categories include large corporations, local
schools, universities, financial institutions, hospitals and not-for-profit
organizations.
The most popular products that we have distributed over the last 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.
There are a number of trends in the advertising/marketing industry, the most
significant of which is the trend toward integrated marketing strategies.
Integrated marketing campaigns involve not only advertising, but also sales
promotions, internal communications, public relations, and other disciplines.
The objectives of integrated marketing are to promote products and services,
raise employee awareness, motivate personnel, and increase productivity through
a wide array of methods including extensive use of promotional products.
Price is no longer the sole motivator of purchasing behavior for our customers.
With the availability of similar products from multiple sources, customers are
increasingly looking for distributors who provide a tangible 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.
9
Our revenues are expected by us to grow as economic conditions in the United
States continue to 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.
Recently Issued Accounting Pronouncements
-----------------------------------------
Reference is made to the Notes to Financial Statements for a description of
certain recently issued accounting pronouncements.
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 require 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. Revenues are recognized when title and risk of loss
transfers to the customer and the earnings process is complete. In general,
title passes to our customers upon the customer's receipt of the merchandise.
Revenue is accounted for in accordance with Emerging Issue Task Force Issue No.
99-19, reporting revenue gross as a principal versus net as an agent. Revenue is
recognized on a gross basis since our company has the risks and rewards of
ownership, latitude in selection of vendors and pricing, and bears all credit
risk. Our company records all shipping and handling fees billed to customers as
revenues, and related costs as cost of goods sold, when incurred, in accordance
with Emerging Issue Task Force Issue No. 00-10, accounting for shipping and
handling fees and costs.
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.
STOCK-BASED PAYMENTS. Effective January 1, 2006, the Company began recording
compensation expense associated with stock options and other equity-based
compensation in accordance with SFAS 123(R), using the modified prospective
transition method and therefore has not restated results for prior periods.
Under the modified prospective transition method, share-based compensation
expense for 2006 includes 1) compensation expense for all share-based awards
granted on or after January 1, 2006 as determined based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123(R) and 2)
compensation expense for share-based compensation awards granted prior to, but
not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS 123. The Company
recognizes compensation expense on a straight-line basis over the requisite
service period of the award.
10
RESULTS OF OPERATIONS
The following table sets forth certain selected unaudited condensed statement of
operations data for the periods indicated in dollars and as a percentage of
total net revenues. The following discussion relates to our results of
operations for the periods noted and is not necessarily indicative of the
results expected for any other interim period or any future fiscal year. In
addition, we note that the period-to-period comparison may not be indicative of
future performance.
2007 2006
Three Months Ended June 30,: ------------------------------------
Revenue $1,400,786 $1,088,589
Cost of Revenue 960,074 754,291
----------------- ----------------
Gross Profit 440,712 334,298
Selling, general & Administrative expenses 580,384 454,311
----------------- ----------------
Loss from operations (139,672) (120,013)
================= ================
Six Months Ended June 30,: 2007 2006
------------------------------------
Revenue $2,683,666 $2,163,596
Cost of Revenue 1,825,598 1,529,464
----------------- ----------------
Gross Profit 858,068 634,132
Selling, general & Administrative expenses 1,134,908 870,484
----------------- ----------------
Loss from operations (276,840) (236,352)
================= ================
We generated revenue of $1,400,786 in the three months ended June 30, 2007
compared to $1,088,589 in the same three month period ending June 30, 2006. We
generated revenue of $2,683,666 in the six months ended June 30, 2007 compared
to $2,163,596 in the same six month period ending June 30, 2006. The increase in
revenue of $312,197 or 28.7% in the three months ended June 30, 2007 and
$520,070 or 24.0% in the six months ended June 30, 2007 as compared to the
comparable periods of 2006 are primarily due to our utilizing additional sales
representations to obtain additional customers and our new and existing
customers buying products with higher average prices.
Cost of revenue was $960,074 or 68.5% of revenue in the three months ended June
30, 2007 compared to $754,291 or 69.3% of revenues in the same three months of
2006. Cost of revenue was $1,825,598 or 68.0% of revenues in the six months
ended June 30, 2007 compared to $1,529,464 or 70.7% of revenue in the same six
months of 2006. Cost of revenue includes purchases and freight costs associated
with the shipping of merchandise to our customers. Increases in cost of revenues
in 2007as compared to 2006 are related to an increase in revenue.
Gross profit was $440,712 in the three months ended June 30, 2007 or 31.5% of
net revenue compared to $334,298 in the same three months of 2006 or 30.7% of
revenue. Gross profit was $858,068 in the six months ended June 30, 2007 or
32.0% of net revenue compared to $634,132 in the same six months of 2006 or
29.3% of revenues. Gross profit will vary period-to-period depending upon a
number of factors including the mix of items sold, pricing of the items and the
volume of product sold. Also, it is our practice to pass freight costs on to our
customers. Reimbursement of freight costs which are included in revenue have
lower profit margins than sales of our promotional products and has the effect
of reducing our overall gross profit margin on sales of products, particularly
on smaller orders.
Selling, general, and administrative expenses were $580,384 in the three months
ended June 30, 2007 compared to $454,311 in the same three months of 2006.
Selling, general, and administrative expenses were $1,134,908 in the six months
ended June 30, 2007 compared to $870,484 in the same six months of 2006. Such
costs include payroll and related expenses, commissions, insurance, rents,
professional, consulting and public awareness fees. For the six months ended
June 30, 2007, the overall increase of $126,073 was primarily due to a $128,685
increase in salaries, commissions and other compensation paid to our employees
to sustain our growth and a $16,726 decrease in stock based compensation. For
the six months ended June 30, 2007, the overall increase of $264,424 was
primarily due to a $191,148 increase in salaries, commissions and other
compensation paid to our employees to sustain our growth, one time cash fees for
public awareness/investor relations of approximately $45,000 and a $5,023
decrease in stock based compensation.
11
Net Loss was $131,720 for the three months ended June 30, 2007 compared to a net
loss of $119,889 for the same three months in 2006. The net loss for the six
months ended June 30, 2007 includes stock based payments (non-cash) of $25,583
as compared to $42,309 for the comparable period of 2006. Net Loss was $260,546
for the six months ended June 30, 2007 compared to a net loss of $235,481 for
the same six months in 2006. The net loss for the six months ended June 30, 2007
includes stock based payments (non-cash) of $51,166 as compared to $56,189 for
the comparable period of 2006. It also includes a one time cash fee for public
awareness/investor relations of approximately $45,000. No benefit for income
taxes is provided for in 2007 and 2006 due to the full valuation allowance on
the net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The company had cash and cash equivalents of $1,037,262 at June 30, 2007. Cash
used by operating activities for the six months ended June 30, 2007 was
$(311,463). This resulted primarily from a net loss of $ 260,546 and a decrease
in accounts payable of $73,300, partially offset by stock based compensation of
$51,166.
The Company had cash and cash equivalents of $279,201 at June 30, 2006. Cash
used by operating activities for the six months ended June 30, 2006 was
$(119,034). This resulted primarily from a net loss of $(235,481), partially
offset by decreased accounts receivable of $58,405 and stock based compensation
of $64,314.
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. In the event we should need additional financing, we can
provide no assurances that we will be able to obtain financing on terms
satisfactory to us, if at all.
2006 Financing
--------------
In 2006, we engaged Brookshire Securities Corporation, a licensed broker-dealer
and member of the NASD, to act as Placement Agent to raise financing for our
company through the sale of our unregistered securities solely to "accredited
investors" as defined in Rule 501 of Regulation D of the Securities Act of 1933,
as amended.
Pursuant to the offering, we raised gross proceeds of $1,665,250 from the sale
of Units. Each Unit consisted of 60,000 shares of our Common Stock and Class C
Warrants to purchase 30,000 shares of Common Stock at an offering price of
$105,000 per Unit. We had the right to sell fractional Units, but not fractional
shares or fractional Class C Warrants. The Class C Warrants are exercisable at
$1.75 per share at anytime from the date of issuance through the earlier of June
30, 2009 or the redemption date of the Class C Warrants, whichever is earlier.
Each Class C Warrant may be redeemed by us at a redemption price of $.001 per
Warrant, on at least 30 days prior written notice (the "Redemption Date'), at
anytime after the average closing sales price of our Common Stock as reported in
the Over-the-Counter Market OTC Electronic Bulletin Board, NASDAQ or if listed
on a national securities exchange, equals or exceeds $3.00 per share for a
period of 20 consecutive trading days ending within 10 days prior to the date of
the notice of redemption is mailed or otherwise delivered by us to each holder
of Class C Warrants.
All investors who purchased Units in the Offering have the following additional
rights:
o REGISTRATION RIGHTS - On December 21, 2006, we obtained an
effective Registration Statement to register the resale of
951,575 shares of our Common Stock and 475,788 shares of our
Common Stock underlying a like number of Class C Warrants.
o ANTI-DILUTION PROTECTION - In the event we seek to raise money
on a capital raise transaction during the period commencing on
October 30, 2006 and terminating on the earlier of 24 months
from that date or 12 months from the initial effective date
(i.e. December 21, 2006) of the Registration Statement (the
"Covered Period") and we sell shares of our Common Stock or
issue options or warrants at a price below $1.75 per share
during the Covered Period, the investors in the Offering will
have the following anti-dilution protection during the Covered
Period:
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"MOST FAVORED NATION PROVISION - Purchasers of Units sold by
the Company during the Covered Period may elect at the time of
each capital raise transaction by us to exchange their unsold
Units multiplied by $105,000 per Unit in exchange for an
equivalent amount of our securities offered in any new capital
raise transaction based upon the new terms offered by us. A
capital raise transaction shall not include the issuance of
securities to officers, directors, employees, advisors or
consultants or securities issued in connection with
acquisitions, consolidations or mergers."
Pursuant to the Offering, we sold 951,575 shares of our Common Stock and Class C
Warrants to purchase 475,788 shares of our Common Stock. We also issued to the
Placement Agent 139,680 shares of Common Stock and five-year Warrants to
purchase 95,160 shares of Common Stock exercisable at $1.00 per share. Exemption
from registration is claimed under Rule 506 of Regulation d promulgated under
Section 4(2) of the Securities Act.
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-15(e). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. The Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective at the reasonable
assurance level at the end of our most recent quarter. There have been no
changes in the Company's disclosure controls and procedures or in other factors
that could affect the disclosure controls subsequent to the date the Company
completed its evaluation. Therefore, no corrective actions were taken.
Management has not yet completed, and is not yet required to have completed, its
assessment of the effectiveness of internal control over financial reporting as
required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
As of the filing date of this Form 10-QSB, we are not a party to any pending
legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
(a) Between January 1, 2007 and June 30, 2007, there were no sales
of unregistered securities,
(b) Rule 463 of the Securities Act is not applicable to the
Company.
(c) In the six months ended June 30, 2007, there were no
repurchases by the Company of its Common Stock. However,
23,334 shares were cancelled by agreement with a former
consultant in settlement of a dispute involving the number of
shares the consultant was entitled to retain for services
previously rendered.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not applicable.
ITEM 5. OTHER INFORMATION:
The Company has outstanding Class A Common Stock Purchase Warrants to purchase
an aggregate of 737,000 shares of Common Stock, exercisable at $2.00 per share.
The expiration date of the Class A Warrants has been extended to the close of
business on September 28,2007.
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ITEM 6. EXHIBITS:
Except for the exhibits listed below as filed herewith or unless
Otherwise noted, all other required exhibits have been previously
filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, on Form 10-SB, as amended (file no.
000-51160).
Exhibit
Number 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 Letter Employment Agreement - Michael Trepeta (2)
10.2 Letter Employment Agreement - Dean Julia (2)
10.3 Amendment to Employment Agreement - Michael Trepeta (3)
10.4 Amendment to Employment Agreement - Dean L. Julia (3)
11.1 Statement re: Computation of per share earnings. See Statement of Operations and Notes to
Financial Statements
14.1 Code of Ethics/Code of Conduct (3)
31.1 Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification (6)
31.2 Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certification (6)
32.1 Chief Executive Officer Section 1350 Certification (6)
32.2 Chief Financial Officer Section 1350 Certification (6)
99.1 2005 Employee Benefit and Consulting Services Compensation Plan(2)
99.2 Form of Class A Warrant (2)
99.3 Form of Class B Warrant (2)
99.4 Amendment to 2005 Plan (4)
99.5 Release - 2007 Second Quarter Results of Operations (6)
99.6 Form of Class C Warrant (5)
_____________
(1) Incorporated by reference to Registrant's Registration Statement on
Form 10-SB as filed with the Commission on February 10, 2005.
(2) Incorporated by reference to Registrant's Registration Statement on
Form 10-SB/A as filed with the Commission March 18, 2005.
(3) Incorporated by reference to Form 10-KSB for fiscal year ended December
31, 2005.
(4) Incorporated by reference to the Registrant's Form 10-QSB/A filed with
the Commission on August 18, 2005 for the quarter ended June 30, 2005.
(5) Incorporated by reference to the Registrant's Form 10-QSB filed with
the Commission on November 13, 2006 for the quarter ended September 30,
2006.
(6) Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACE MARKETING & PROMOTIONS, INC.
Date: August 9, 2007 By: /s/ Dean L. Julia
----------------------------
Dean L. Julia,
Chief Executive Officer
Date: August 9, 2007 By: /s/ Sean McDonnell
----------------------------
Sean McDonnell,
Chief Financial Officer
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