SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[_] Confidential, for Use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement 9Definitive additional materials
[_] Soliciting material pursuant to Section 240.14a-11(c) or Section 240.14a-12
ACE MARKETING AND PROMOTIONS, INC.
----------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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ACE MARKETING & PROMOTIONS
We put a premium on higher standards
Promotional Marketing Solutions
www.acemarketing.net
www.proximitymarketingus.com
Dear Valued Shareholder:
Let me first start by thanking you for your continued support of Ace
Marketing & Promotions. As many of you may have been personally affected by the
economic downturns of the last year, so too has Ace Marketing. We have seen a
sharp decline in Revenue over the last one year that seems to be in line with
what most other companies in the Promotional Product industry have experienced.
In the last month, we have seen the beginning of a turn-around in order volume,
as well as an increase in the number of clients requesting product information
and quotes for upcoming events. History has shown that during steep declines in
the economy, it is difficult for weaker players to survive. We have worked hard
to maintain a position of strength through sound financial management practices
such as increasing cash reserves and maintaining zero debt. Additionally, we
have used this time to aggressively develop our business product and service
offerings. As the economy recovers, Ace should be well positioned to capitalize
on the new growth, and should emerge as a true industry leader.
Over the last two years the management team at Ace initiated a paradigm
shift in the strategic development of the Ace business units. We realized that
the progression of technology and the overlap of several industries are driving
a shift in what clients demanded of their vendors. The buyers within the
organizations we service generally direct most of their company's sales and
marketing initiatives. In years past, they have had the need to deal with many
vendors to pull together their full marketing initiatives. Their range of
vendors often included promotional products distributors, print salespeople,
website development companies, marketing agencies, hosting companies, email
service providers, mobile marketing solutions companies and fulfillment houses.
They faced the challenge of evaluating the best companies to work with, as well
as the more daunting issue of integrating all of these vendors into a cohesive
system that would work well together.
To help our clients meet these challenges, we have developed an
integrated suite of solutions that has positioned Ace to lead the new generation
of business marketing consultants. Through our products, services and technology
platforms, we should become an invaluable asset to our clients. There has been a
shift in strategies within organizations to run leaner and more efficiently,
which is driving a re- evaluation of business relationships. The services we now
provide span those that have traditionally required many companies. In the new
business paradigm, this business will fall to one trusted consultant who gets
paid not for his or her advice, but for goods and services provided.
As a Promotional Marketing Agency, we concentrate on 3 main business
verticals; Branding, Interactive (anything online), and Mobile (anything related
to cell phones). Each vertical contains several solutions.
Within the Branding vertical we have the ability to not only create the
actual brands, but also provide all the branded merchandise or promotional
products. This has been the core of the Ace business model since its inception.
Our current focus within this vertical is to find new and innovative ways to
leverage new technology platforms and our growing list of clients in the Sports
& Entertainment industry to drive growth beyond traditional channels.
The Interactive vertical deals with any online marketing & branding
initiatives. Utilizing the Ace CMS Platform (CMS stands for "Content Management
System"), we create custom websites that allow us to give total control of the
site content back to our clients after they are created. Through the Ace CMS
platform, the client has the ability to change all the content on the site
without the need for a programmer and the high hourly fees that go along with
them. If they have the ability to attach a file to an email, they have the
ability to control content (text, audio, video pictures and backgrounds) on our
sites. With this power, their websites become dynamic and powerful marketing
vehicles instead of just an online static ad. For relevant clients, we also add
an E-Commerce component to their websites. As an internal purchasing tool, this
allows the client to control the products that are purchased internally by
requiring all buyers to use the online company store. As an online sales tool,
it provides a professional and economical way to sell products online to their
customers or fans. As additional service offerings, we house these sites on Ace
Marketing servers, and offer clients email marketing services and solutions. We
either pass along the ability to generate email marketing campaigns to our
client by providing them with a certain amount of emails per month and a
Newsletter template, or we can create and manage the email marketing programs
for them.
Under the last vertical, Mobile, we provide Proximity Marketing and SMS
Text platforms & services. Several years ago the term "Mobile Marketing" was
really just a buzz word, last year mobile marketing became more of a reality,
and now most companies are eagerly adding "mobile" to their advertising and
marketing mix. Our clients and potential clients are coming to the conclusion
that if they are not marketing to their customers or fans on their cell phones,
then they are behind the times. To address this exciting market opportunity, Ace
has quickly become one of the US leaders in Proximity Marketing. Utilizing the
technology that we believe is the best in the world, we are setting up Bluetooth
and Wi-Fi Proximity Marketing networks that allow us to deliver content directly
to consumers' cell phones for free. There is no network charge by a cell phone
carrier as we set up our own devices throughout sports and entertainment venues,
retail locations, and any other relevant locations, effectively creating our own
local network. Over the last year we have delivered successful campaigns for the
New York Knicks, Macy's, NASCAR, NHL, Def Leppard, and IMAX to name a few. The
technology seems set to become the next component of advertising and marketing
spends as mobile marketing gains more and more momentum. This allows us to
target and deliver rich media content at targeted locations at targeted times
where it is most relevant. The technology allows us to control all locations and
campaigns remotely whether they are down the block or across the country. With
precise statistical reporting as to how many consumers downloaded the campaign,
advertisers now have an exciting new and measurable medium to communicate with
fans and consumers. Ace has begun discussions with various retailers, chain
stores, mall developers and venue owners to build this next generation network.
At the same time we are in discussions with many of the leagues, teams, bands,
consumer products companies and sponsors who will run campaigns on this network.
It is our vision to build this network across the United States and have plans
for our first permanent installs this calendar year. Our SMS Text platforms
provide another effective tool for our clients to interact with their customers
through their mobile devices. This technology can be used to complement
Proximity Marketing or as a stand-alone marketing channel.
The services, products and technology platforms that we have assembled
provide our clients with an exceptional mix of solutions for reaching their
customers in ways that were previously impossible. We give clients the ability
to choose a solution "A La Carte", where we will simply create their branded
merchandise, or just create their website, and there are other times where a
client will have us provide the entire suite of solutions. We now have the
ability to create the brand identity as well as the merchandise to go along with
it. Our platforms allow us to create the website and the ecommerce platform to
sell it on, communicate with the customer or fan base via email marketing, and
also create and manage a client's mobile marketing initiatives using text
messaging and proximity marketing. Additionally, we provide warehousing,
fulfillment, and shipping directly from Ace for online programs. Providing the
entire suite of solutions for a single client allows that client to exclusively
use Ace where in the past they may have had to look to several different
companies. Through the suite of solutions Ace can now deliver, we have
transformed from a supplier into a partner, and our sales representatives are
now seen as business solution consultants.
We look forward to reporting to you on future developments. We want to
thank our employees for their dedication and hard work in these challenging
times. We hope to be sharing our success with them and our shareholders for many
years to come.
Following this letter is our Notice of Meeting, Proxy Statement, 2008
Annual Report and proposed Amendment to our Certificate of Incorporation and new
Stock Option Plan.
Sincerely,
/s/ Michael D. Trepeta, President
[Left blank intentionally.]
ACE MARKETING & PROMOTIONS
NOTICE OF A SPECIAL MEETING IN LIEU OF AN ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON OCTOBER 7, 2009 AT 10:00 A.M.
To our Shareholders:
Notice is hereby given that a Special Meeting in Lieu of an Annual
Meeting of Shareholders (the "Special Meeting") of Ace Marketing & Promotions,
Inc. ("Ace"), a New York corporation, will be held at 1400 Old Country Road,
Suite 302, Westbury, New York 11590, on October 7, 2009 at the hour of 10:00
A.M. local time for the following purposes:
(1) To elect four directors of Ace for the coming year;
(2) To ratify, adopt and approve the Board's selection of Holtz
Rubenstein Reminick LLP to serve as the independent auditors of Ace for its
fiscal year ended
December 31, 2009;
(3) To ratify, adopt and approve the filing of an amendment to Ace's
Certificate of Incorporation to increase the number of authorized shares of
Common stock from 25,000,000 shares, $.0001 par value to 100,000,000 shares,
$.0001 par value;
(4) To ratify, adopt and approve Ace's 2009 Employee Benefit and
Consulting Services Compensation Plan; and
(5) To transact such other business as may properly come before the
Special Meeting.
Only Ace's shareholders of record at the close of business on August
18, 2009 are entitled to notice of and to vote at the Special Meeting or any
postponements or adjournments thereof.
By Order of the Board of Directors
/s/ Dean L. Julia, Chairman
September 10, 2009
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING
IN LIEU OF AN ANNUAL MEETING REGARDLESS OF THE NUMBER OF SHARES YOU
HOLD. YOU ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON, BUT
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO
ATTEND THE SPECIAL MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY
AND VOTE YOUR SHARES IN PERSON.
[Left blank intentionally.]
ACE MARKETING & PROMOTIONS, INC.
457 ROCKAWAY AVENUE
VALLEY STREAM, NY 11581
PHONE: (516) 256-7766
PROXY STATEMENT
This Proxy Statement and the accompanying proxy are furnished by the
Board of Directors of Ace Marketing & Promotions, Inc. ("Ace" or the "Company")
in connection with the solicitation of proxies for use at the Special Meeting in
Lieu of an Annual Meeting of Shareholders (the "Special Meeting") referred to in
the foregoing Notice. It is contemplated that this Proxy Statement (which
includes the Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 2008, exclusive of exhibits), together with the accompanying form
of proxy will first be mailed on or about September 10, 2009 to shareholders of
record on the close of business on August 18, 2009 (the "Record Date").
Stockholders may also view our Shareholder Letter, Notice of Meeting, Proxy
Statement, Annual Report and Proxy at www.acemarketing.net.
This Proxy Statement contains information relating to a Special Meeting
in Lieu of an Annual Meeting of Shareholders of Ace to be held on October 7,
2009, and at any postponements or adjournments thereof.
ABOUT THE SPECIAL MEETING IN LIEU OF AN ANNUAL MEETING
WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
At the Special Meeting, shareholders will act upon the matters listed
in the Notice of a Special Meeting in Lieu of an Annual Meeting and any other
matters that properly come before the meeting.
WHO CAN VOTE AT THE SPECIAL MEETING IN LIEU OF AN ANNUAL MEETING?
All shareholders of record at the close of business on the Record Date
of August 18, 2009 are entitled to vote at the Special Meeting in Lieu of an
Annual Meeting and any postponements or adjournments of the meeting.
WHAT ARE THE VOTING RIGHTS OF THE HOLDERS OF THE COMMON STOCK?
Holders of our Common Stock will vote on all matters to be acted upon
at the Special Meeting. Each outstanding share of Common Stock will be entitled
to one vote on each matter to be voted upon at the Special Meeting.
WHO CAN ATTEND THE SPECIAL MEETING?
All shareholders as of the Record Date, or their duly appointed
proxies, may attend the Special Meeting. Each shareholder may be asked to
present valid picture identification, such as a driver's license or passport. If
you hold your shares through a broker or other nominee, you must bring a copy of
a brokerage statement reflecting your stock ownership as of the Record Date.
Everyone must check in at the registration desk at the meeting.
HOW DO I VOTE?
You may attend the Special Meeting in Lieu of an Annual Meeting and
vote in person. Alternatively, you may vote your shares by proxy through the
mail. To vote by mail, simply mark, sign and date your proxy card and return it
in the postage-paid envelope provided for receipt by us through our transfer
agent, Continental Stock Transfer & Trust Company, prior to October 7, 2009
(proxy cards received on or after October 7, 2009 will not be counted).
If you want to vote in person at the Special Meeting in Lieu of an
Annual Meeting and you hold Ace Common Stock in street name, you must obtain a
proxy card from your broker and bring that proxy card to the Special Meeting,
together with a copy of a brokerage statement reflecting your stock ownership as
of the Record Date.
Please also note that by casting your vote by proxy, you are
authorizing the individuals listed on the proxy card to vote your shares in
accordance with your instructions.
IS MY VOTE CONFIDENTIAL?
Yes. Proxy cards, ballots and voting tabulations that identify
shareholders are kept confidential except in certain circumstances where it is
important to protect the interests of Ace and its shareholders.
WHAT IF I DO NOT INDICATE MY PREFERENCE ON THE PROXY CARD?
If you do not indicate how you would like your shares to be voted for a
particular proposal, your shares will be voted FOR the election of the nominated
slate of directors and in favor of Proposal Nos. 2, 3 and 4. As to other matters
as may properly come before the meeting (or any adjournments or postponements
thereof), the proxy holders will vote as recommended by the Board of Directors.
If no such recommendation is made, the proxy holders will be authorized to vote
upon such matters in their own discretion.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote
at any time before the proxy is exercised by filing with Continental Stock
Transfer & Trust Company, 17 Battery Place, 8th Floor, New York, NY 10004 either
a notice of revocation or a duly executed proxy bearing a later date. The powers
of the proxy holders will be suspended if you attend the Special Meeting in
person and request to recast your vote. Attendance at the Special Meeting in
Lieu of an Annual Meeting will not, by itself, revoke a previously granted
proxy.
WHAT CONSTITUTES A QUORUM?
As of August 18, 2009, Ace had 9,717,615 shares of its Common Stock
outstanding. In deciding all questions, a shareholder shall be entitled to one
vote, in person or by proxy, for each share held in his name on the Record Date.
The presence at the Special Meeting in Lieu of an Annual Meeting, in person or
by proxy, of the holders entitled to cast at least a majority of votes which all
shareholders are entitled to cast as of the Record Date will constitute a
quorum. Broker non-votes, abstentions and votes withheld count as shares present
at the Special Meeting in Lieu of an Annual Meeting for purposes of a quorum.
2
WHAT ARE THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS?
Unless you instruct otherwise on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Directors. The Board's recommendations are set forth below. In
summary, the Board recommends a vote FOR the election of the nominated slate of
directors and in favor of proposals numbers 2, 3 and 4.
The proxy holders will vote as recommended by the Board of Directors
with respect to any other matter that properly comes before the Special Meeting.
If the Board of Directors on any such matter gives no recommendation, the proxy
holders will vote in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
ELECTION OF DIRECTORS. (PROPOSAL NO. 1) The affirmative vote of a
plurality of the votes cast at the Special Meeting is required for the election
of directors. A properly executed proxy marked "WITHHOLD" authority with respect
to the election of one or more directors will not be voted with respect to the
director or directors indicated, although it will be counted for purposes of
determining whether there is a quorum. Thus, the four candidates with the most
affirmative votes will be elected at the Special Meeting in Lieu of an Annual
Meeting.
BROKER NON-VOTES. If you hold your shares in "street name" through a
broker or other nominee, your broker or nominee may not be permitted to exercise
voting discretion with respect to some of the matters to be acted upon. Under
the rules that govern brokers who are voting with respect to shares held in
street name, brokers have the discretion to vote such shares on routine matters,
but not on non-routine matters. Routine matters include the election of
directors and ratification of auditors. Non-routine matters include all other
proposals. Therefore, if you do not give your broker or nominee specific
instructions, your shares may not be voted on non-routine matters and will not
be counted in the voting results. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum. Accordingly,
broker non-votes will not be counted toward a nominee's total of affirmative
votes in the election of directors and will have no effect on the approval of
any other proposals that may come before the meeting.
PROPOSAL NOS. 2, 3 AND 4. As of the date of this Proxy Statement, the
Board of Directors knows of no other matters other than Proposal Nos. 1, 2, 3
and 4 as outlined in the Notice of Special Meeting that will be presented at the
meeting. Voting for Proposal No. 1 is described above under Election of
Directors . Proposal No. 3 will be decided by a vote of the majority of
outstanding shares of capital stock entitled to vote at the Special Meeting in
Lieu of an Annual Meeting. Proposal Nos. 2 and 4 and any other proposals (if
any) that come before our meeting will be decided by a majority of the votes
cast at the meeting.
WHO CONDUCTS THE PROXY SOLICITATION AND HOW MUCH WILL IT COST?
Ace is soliciting the proxies and will bear the cost of the
solicitation. Ace has not retained any outside firm to aid in the solicitation
and it does not intend to use specially engaged employees or paid solicitors for
such solicitation. Ace may ask its officers and other employees, without
compensation other than their regular compensation, to solicit proxies by
further mailing or personal conversations, or by telephone, facsimile, Internet
or other means of electronic transmission. Management intends to solicit proxies
which are held of record by brokers, dealers, banks, or voting trustees, or
their nominees, and may pay the reasonable expenses of such record holders for
completing the mailing of solicitation materials to persons for whom they hold
the shares.
3
FINANCIAL AND OTHER INFORMATION
Accompanying this Proxy Statement as Exhibit A is the Company's 2008
Annual Report on Form 10-K for its fiscal year ended December 31, 2008
(excluding exhibits). The Company hereby incorporates by reference into this
Proxy Statement the information contained in the Company's 2008 Annual Report.
EXECUTIVE COMPENSATION
Incorporated by reference is the contents of Item 10 of Ace's Form 10-K
for its fiscal year ended December 31, 2008, a copy of which is annexed to this
Proxy Statement as Exhibit A.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
Incorporated by reference is the contents of Item 12 of Ace's Form 10-K
for its fiscal year ended December 31, 2008, a copy of which is annexed to this
Proxy Statement as Exhibit A.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference is the contents of Item 13 of Ace's Form 10-K
for its fiscal year ended December 31, 2008, a copy of which is annexed to this
Proxy Statement as Exhibit A.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
MANAGEMENT RECOMMENDS THAT YOU VOTE IN FAVOR OF THE FOUR NOMINEES NAMED TO THE
BOARD OF DIRECTORS. DIRECTORS WILL BE ELECTED BY A PLURALITY OF THE VOTES CAST
AT THE MEETING.
Four directors are to be elected at the meeting for terms of one year
each and until their successors shall be elected and qualified. It is intended
that votes will be cast pursuant to such proxy for the election of the four
persons whose names are first set forth below unless authority to vote for one
or more of the nominees is withheld by the enclosed proxy, in which case it is
intended that votes will be cast for those nominees, if any, with respect to
whom authority has not been withheld. Three of the four nominees named in the
table below are now members of the Board of Directors. In the event that any of
the nominees should become unable or unwilling to serve as a director, a
contingency which the management has no reason to expect, it is intended that
the proxy be voted, unless authority is withheld, for the election of such
person, if any, as shall be designated by the Board of Directors. The following
table sets forth information concerning each proposed nominee of the Company.
NAME (1) AGE FIRST BECAME DIRECTOR PRINCIPAL OCCUPATION
-------- --- ---------------------- ------------------------------
Dean L. Julia 41 1998 Chief Executive Officer/ Secretary/
Treasurer/Director/Co-Founder
Michael D. Trepeta 37 1998 President/Director/Co-Founder
Scott J. Novack 41 1998 Director/Co-Founder
Domenico Iannucci 53 N/A Owner of Commercial and
Residential Construction Company
--------
N/A Not applicable.
(1) Directors are elected at the annual meeting of stockholders and hold
office until the following annual meeting.
4
Identification of Executive Officers
------------------------------------
Dean L. Julia serves as our Chief Executive Officer, Michael D. Trepeta
serves as our President and Sean McDonnell serves as our Chief Financial
Officer. 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.
Biographies of Nominees
-----------------------
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.
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.
DOMENICO IANNUCCI
Mr. Iannucci has owned and managed a residential and commercial
construction company for over 20 years.
5
Director Meetings
-----------------
During fiscal 2008, Ace's Board of Directors held seven meetings of its
Board of Directors via unanimous written consent. During 2008, no other Board
meetings were held. Each Board member is welcome to attend our Special Meeting
in Lieu of an Annual Meeting. However, Ace has no policy in place requiring
Board members attendance at such meeting. Ace did not hold an Annual Meeting of
Stockholders in 2008.
LACK OF COMMITTEES/BOARD INDEPENDENCE
Our Company has no audit, compensation or nominating committees of our
board of directors or committees performing similar functions. Our Company
currently has no independent directors. We are currently seeking to nominate and
appoint to the board one independent director, namely, Domenico Iannucci. After
the conclusion of the Special Meeting in lieu of an Annual Meeting, we will seek
to further expand the Board to include a second independent director, who may be
deemed a financial expert (as defined below). At such time as we have two
independent directors, it is Ace's intention to form an audit committee
consisting solely of independent directors in compliance with Sarbanes Oxley Act
of 2002, as amended.
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.
6
In the event an audit committee is established, 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;
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.
REPORT OF BOARD OF DIRECTORS
In March 2009, members of the Board of Directors functioning in lieu of
an Audit Committee discussed the 2008 audited financial statements of the
Company with Management and Holtz Rubenstein & Reminick LLP. Management has the
primary responsibility for the financial statements and the reporting process.
The Board has discussed with Holtz Rubenstein & Reminick LLP the matters
required to be discussed by the statement on Auditing Standards No. 61, as
amended (AICPA, Professional Standards, Vol 1. AU section 380), as adopted by
the Public Company Oversight Board in Rule 3200T. The Board has received the
written disclosures from Holtz Rubenstein & Reminick LLP required by
Independence Standards Board Standard No. 1 (Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees), as adopted by
the Public Company Accounting Oversight Board in Rule 3600T, and has discussed
with Holtz Rubenstein & Reminick LLP, the independent accountant's independence.
The Board has determined that Holtz Rubenstein & Reminick LLP is independent
from Ace and its management.
During the past fiscal year and through the mailing date of this Proxy
Statement, Holtz Rubenstin & Reminick LLP has not provided any financial
information systems design and implementation services or any other non-audit
services to the Company except for the review of the Company's quarterly
reports, preparation of corporate tax returns, tax research and other related
professional consulting services. The Company does not anticipate Holtz
Rubenstein & Reminick LLP providing any financial information systems design and
implementation services and any other non-audit services to the Company which
would be incompatible with maintaining the independence of Holtz Rubenstein &
Reminick LLP. The fees paid by the Company to Holtz Rubenstein & Reminick LLP
for the fiscal year ended December 31, 2008 are described in Item 14 of the
Company's Form 10-K for its fiscal year ended December 31, 2008, which is
annexed to this Proxy Statement as Exhibit A and is incorporated herein by
reference.
7
In March 2009, the Board members reviewed the audited consolidated
financial statements of the Company which were to be included in the 2008 Form
10-K for filing with the Securities and Exchange Commission and considered the
aforementioned matters and it then recommended the approval of said financial
statements and their inclusion in the Form 10-K filing.
THE BOARD OF DIRECTORS
Dean L. Julia, Chairman and CEO
Michael D. Trepeta, President
Scott J. Novack
Compensation Committee Interlocks and Insider Participants - None.
------------------------------------------------------------------
LACK OF NOMINATING COMMITTEE
The Board of Directors has acted as the nominating committee for the
Company and no separate nominating committee has been formed to date. This type
of committee, if one existed, would be responsible for identifying and
recommending the director nominees to be selected by the Board of Directors for
each annual meeting of shareholders and reviewing any shareholder nominees;
implementing the Board's criteria for selecting new directors; developing,
reviewing and recommending to the Board a set of corporate governance policies
applicable to Ace; providing oversight for the evaluation of the performance of
the Board of Directors; and adopting a written charter. Management believes that
the cost of having a nominating committee for Ace as a Smaller Reporting Company
outweighs the benefits that may be derived from implementing such a committee.
The Board of Directors, acting as the nominating committee, did not
meet during the 2008 fiscal year. However, the Board of Directors, acting as the
nominating committee, met by unanimous written consent to select and approve the
four Director nominees to be up for election at the 2009 Special Meeting in Lieu
of an Annual Meeting. Based upon the size of the Company and the Board's
familiarity with the Company since its inception, the Board also has determined
that each of the Directors is qualified to suggest nominees for consideration to
the nominating committee. The Board of Directors, when acting as the nominating
committee, is generally responsible for:
o Developing a nomination process for candidates to the Board of
Directors;
o Establishing criteria and qualifications for membership to the
Board of Directors;
o Identifying and evaluating potential Director nominees;
o Filling vacancies on the Board of Directors; and
o Recommending nominees for election or re-election.
The Board of Directors, when fulfilling the duties of a nominating
committee, does not operate under a charter and it does not have a policy with
regard to the consideration of any Director candidates recommended by members.
8
DIRECTOR QUALIFICATIONS. While the members of our Board have not
established specific minimum qualifications for director candidates, the
candidates for Board membership should have the highest professional and
personal ethics and values, and conduct themselves consistent with our Code of
Ethics. While the members of the Board have not formalized specific minimum
qualifications they believe must be met by a candidate to be recommended by the
members, the members of the Board believe that candidates and nominees must
reflect a Board that is comprised of directors who (i) have broad and relevant
experience, (ii) include some independent directors, (iii) are of high
integrity, (iv) have qualifications that will increase overall Board
effectiveness and enhance long-term stockholder value, and (v) meet other
requirements as may be required by applicable rules, such as financial literacy
or financial expertise with respect to potential Audit Committee members. These
factors, and others as considered useful by our Board acting as its own
nomination and governance committee, will be reviewed in the context of an
assessment of the perceived needs of our Board of Directors at a particular
point in time. As a result, the priorities and emphasis of our Board of
Directors may change from time to time to take into account changes in business
and other trends, and the portfolio of skills and experience of current and
prospective directors. Consideration of new director candidates is expected to
involve a series of Board discussions, review of information concerning
candidates and interviews with selected candidates. The Board does not assign
specific weights to particular criteria and no particular criterion is
necessarily applicable to all prospective nominees. Candidates for nomination to
our Board of Directors may be suggested by other members of our Board of
Directors. From time to time, our Board acting as its own nomination committee
may in the future (although it has not done so in the past) engage the services
of a third party search firm to identify director candidates.
DIRECTOR CANDIDATES
Although our Board acting as its own nomination committee does not have
a formal policy on stockholder nominations, it will consider candidates proposed
in writing by stockholders, provided such proposal meets the eligibility
requirements (i.e. ownership of at least 2% of the outstanding common shares)
for submitting stockholder nominations for inclusion in our next Proxy Statement
and is accompanied by certain required information about the candidate. If an
eligible stockholder wishes to recommend a nominee, he or she should submit such
recommendation in writing to our Corporate Secretary, Dean L. Julia, 457
Rockaway Avenue, Valley Stream, NY 11581, by the deadline set forth herein under
"Deadline for Receipt of Stockholder Proposals." Information provided with the
stockholder recommendation should specify the following information: (a) the
name and address of the nominee; (b) the name and address of the stockholder
making the nomination; (c) the number of shares of our Common Stock entitled to
vote at such meeting held by the stockholder; (d) a representation that the
nominating stockholder is a stockholder of record entitled to vote at such
meeting and intends to appear in person or by proxy at such meeting to nominate
the person specified in the notice; (e) the nominee's qualifications for
membership on our Board of Directors; (f) all of the information that would be
required in a proxy statement soliciting proxies for the election of the nominee
as a director; (g) a description of all arrangements or understandings between
the nominating stockholder and the nominee and any other person or persons
(naming such person or persons) pursuant to whose request the nomination is
being made by the stockholder; (h) all other companies to which the nominee is
being recommended as a nominee for director; and (i) a signed consent of the
nominee to cooperate with reasonable background checks and personal interview,
and to serve as a director, if elected. Candidates proposed by stockholders will
be evaluated by our Board acting as its own nomination committee using the same
criteria as for all other candidates. Our Board acting as its own nomination
committee has not received any nominations from any of our stockholders in
connection with this Special Meeting in Lieu of an Annual Meeting. The Board is
authorized to retain advisers and consultants and to compensate them for their
services. The Board did not retain any such advisers or consultants during 2008.
If the Board determines to nominate a shareholder-recommended
candidate and recommends his or her election as a director by the shareholders,
his or her name will be included in Ace's proxy card for the shareholder meeting
at which his or her election is recommended.
Shareholders also have the right to nominate director candidates
themselves, without any prior review or recommendation by the Board, by the
procedures set forth herein under "Deadline for Receipt of Stockholder
Proposals."
9
SHAREHOLDER COMMUNICATIONS
The Board will give appropriate attention to written communications
that are submitted by shareholders, and will respond if and as appropriate.
Absent unusual circumstances and subject to any required assistance or advice
from legal counsel, our Corporate Secretary, Dean L. Julia, is primarily
responsible for monitoring communications from shareholders and for providing
copies or summaries of such communications to the other directors as he
considers appropriate.
Communications will be forwarded to all directors if they relate to
important substantive matters and include suggestions or comments considered to
be important for the directors to know. In general, communications relating to
corporate governance and long-term corporate strategy are more likely to be
forwarded than communications relating to ordinary business affairs, personal
grievances and matters as to which we may receive repetitive or duplicative
communications. Shareholders who wish to send communications on any topic to the
Board for its consideration should address such communications to c/o of Dean L.
Julia, Corporate Secretary, Ace Marketing & Promotions, Inc., 457 Rockaway
Avenue, Valley Stream, NY 11581.
PROPOSAL NO. 2
PROPOSAL TO RATIFY THE BOARD'S SELECTION
OF HOLTZ RUBENSTEIN & REMINICK LLP AS INDEPENDENT AUDITORS FOR 2009
MANAGEMENT RECOMMENDS THAT YOU VOTE IN FAVOR OF THE RATIFICATION, ADOPTION AND
APPROVAL OF THE BOARD'S SELECTION OF HOLTZ RUBENSTEIN & REMINICK LLP AS
INDEPENDENT AUDITORS FOR 2009.
THIS PROPOSITION WILL BE DECIDED BY A MAJORITY OF THE VOTES CAST AT THE MEETING
OF STOCKHOLDERS BY THE HOLDERS OF SHARES ENTITLED TO VOTE THEREON.
The Board of Directors has approved the selection of Holtz Rubenstein &
Reminick LLP, subject to the ratification of its shareholders, as the Company's
independent auditors for 2009. Holtz Rubenstein & Reminick LLP, Certified Public
Accountants, audited the Company's financial statements for its last year ended
December 31, 2008. Even if the selection is ratified, the Board in its sole
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Board believes that such a change would be in
the best interests of the Company and its stockholders. It is expected that a
representative of Holtz Rubenstein & Reminick LLP will be present at the Special
Meeting in lieu of an annual meeting via telephonic connection, will have the
opportunity to make a statement if they desire to do so and be available to
respond to appropriate questions.
For a discussion of the Audit Fees, Financial Information Systems
Design and Implementation Fees and other fees billed by the Company's
independent auditors for 2008, see Item 14 of our 2008 Form 10-K appended hereto
as Exhibit A which is incorporated herein by reference.
10
PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
MANAGEMENT RECOMMENDS THAT YOU VOTE IN FAVOR OF THIS PROPOSAL. A MAJORITY OF THE
COMPANY'S ISSUED AND OUTSTANDING SHARES ENTITLED TO BE CAST AT THE MEETING IS
REQUIRED TO ADOPT THE AMENDMENT.
The Company's Board of Directors believes it advisable to amend the
Company's Certificate of Incorporation to increase the authorized Common Stock
from 25,000,000 shares of Common Stock, $.0001 par value, to 100,000,000 shares
of Common Stock, $.0001 par value. The Company also has 5,000,000 shares of
Preferred Stock, $.0001 par value, authorized, none of which are outstanding as
of the date hereof. The number of shares of Preferred Stock will not change as a
result of this amendment. Accordingly, the Board adopted a resolution proposing
that an amendment (the "Amendment") to Article Fourth of the Certificate of
Incorporation be presented to the shareholders at the annual meeting for
approval to effect this change in capital. See "Exhibit B."
As of August 18, 2009, the Company had 9,717,615 common shares
outstanding and had outstanding options and warrants exercisable into
approximately 6,039,000 shares of Common Stock. The outstanding shares does not
include 300,000 unissued shares (the "Advisory Shares") that Ace was obligated
to issue to a financial advisor in connection with a July, 2009 Advisory
Agreement entered into with the Placement Agreement of Ace's plan of financing
described below.
The Company has a Plan of Financing to raise up to $2,100,000 from the
sale of its Common Stock and Warrants, which commenced on July 14, 2009 and it
is in the process of attempting to complete same. On August 21, 2009, the
Company had an initial closing and it received gross proceeds of $345,000 and it
is obligated to issue to the investors and the Placement Agent an aggregate of
approximately 550,000 shares of Common Stock (in addition to the Advisiory
Shares) and three year Warrants to purchase approximately 275,000 shares of
Common Stock, exercisable at a $1.00 per share. The proposed increase in the
number of authorized shares of Common Stock would give the Company the necessary
shares of Common Stock to use in connection with future capital raise
transactions, use in employee benefit plans, acquisitions, mergers and other
corporate purposes. The Company has no particular acquisition, merger or
transaction in mind, nor is it presently negotiating with anyone with respect
thereto, which would result in the issuance of Common Stock. No further action
nor authorization by the Company's shareholders would be necessary prior to
issuance of the Common Stock, except as may be required for a particular
transaction by the Company's Certificate of Incorporation, by applicable law or
regulatory agencies or by the rules of any stock exchange on which the Company's
Common Stock may then be listed. Adoption of the Amendment will eliminate the
delay and expense involved in calling a special meeting of shareholders to
authorize the Common Stock.
Shareholders of the Company do not have any preemptive rights with
respect to any of the presently authorized but unissued shares of Common Stock
of the Company.
The authority of the Board to issue Common Stock might be considered as
having the effect of discouraging an attempt by another person or entity to
effect a takeover or otherwise gain control of the Company, since the issuance
of Common Stock would dilute the voting power of the Common Stock then
outstanding. Such shares could also be sold in public or private transactions to
purchasers who might assist the Board of Directors in opposing a takeover bid
which the Board determines not to be in the best interests of the Company and
its shareholders. Accordingly, the authority of the Board to issue Common Stock
could be used in a manner calculated to prevent the removal of management, and
make more difficult or discourage a change in control of the Company.
The Company is not aware of any efforts to accumulate the Company's
securities or to obtain control of the Company and has no present intention,
agreement or negotiation requiring the issuance of any additional shares of
Common Stock other than as described herein. The Company has no present
intention of soliciting a shareholder vote on any proposal, or series of
proposals, to deter takeovers.
The affirmative vote of the owners of a majority of the issued and
outstanding shares entitled to be cast at the meeting is required to adopt the
Amendment. No dissenting shareholder will have a right of appraisal or right to
receive payment for his stock by reason of such dissent.
11
PROPOSAL NO. 4
PROPOSAL TO RATIFY, ADOPT AND APPROVE THE COMPANY'S 2009
EMPLOYEE BENEFIT AND CONSULTING COMPENSATION PLAN
MANAGEMENT RECOMMENDS THAT YOU VOTE IN FAVOR OF THE RATIFICATION, ADOPTION AND
APPROVAL OF THE 2009 EMPLOYEE BENEFIT AND CONSULTING COMPENSATION PLAN.
THIS PROPOSITION WILL BE DECIDED BY A MAJORITY OF THE VOTES CAST AT THE MEETING
OF STOCKHOLDERS BY THE HOLDERS OF SHARES ENTITLED TO VOTE THEREON.
On August 28, 2009, the Board established an Employee Benefit and
Consulting Compensation Plan (the "2009 Plan") covering 4,000,000 shares with an
effective date of October 7, 2009, subject to ratification and approval by
stockholders. The material features of the Plan are described below. (Note: A
copy of the plan is appended hereto as Exhibit C.)
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.
12
COMMON STOCK AWARD. "Common Stock Award" 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.
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.
13
FEDERAL TAX CONSEQUENCES
The Federal income tax discussion set forth below is intended for
general information only. State and local income tax consequences are not
discussed, and may vary from locality to locality.
INCENTIVE STOCK OPTIONS. Incentive stock options granted under the 2009
Plan are designed to qualify for the special tax treatment for incentive stock
options provided for in the Internal Revenue Code (the "Code"). Under the
provisions of the Code, an optionee who at all times from the date of grant
until three months before the date of exercise is an employee of the Company,
and who does not dispose of the shares of Common Stock obtained upon exercise of
his incentive stock option for two years after the date of grant and holds those
shares for at least one year after exercise, will recognize no taxable income on
either the grant or exercise of such option and will recognize capital gain or
loss on the sale of the shares. If such shares are held by the optionee for the
required holding period, the Company will not be entitled to any tax deduction
with respect to the grant or exercise of the option. If such shares are sold by
the optionee prior to the expiration of the holding periods described above, the
optionee will recognize ordinary income upon such disposition. Upon the exercise
of an incentive stock option, the optionee will incur an item of tax preference
equal to the excess of the fair market value of the shares at the time of
exercise over the exercise price, which may subject the optionee to the
alternative minimum tax.
NON-QUALIFIED OPTIONS. Under present Treasury regulations, an optionee
who is granted a non-qualified option will not realize taxable income at the
time the option is granted. In general, an optionee will be subject to tax for
the year of exercise on an amount of ordinary income equal to the excess of the
fair market value of the shares on the date of exercise over the option price,
and the Company will receive a corresponding deduction. Income tax withholding
requirements apply upon exercise. The optionee's basis in the shares so acquired
will be equal to the option price plus the amount of ordinary income upon which
he is taxed. Upon subsequent disposition of the shares, the optionee will
realize capital gain or loss, long-term or short-term, depending upon the length
of time the shares are held after the option is exercised.
COMMON STOCK AWARDS. Recipients of shares of restricted Common Stock
that are not "transferable" and are subject to "substantial risk of forfeiture"
at the time of grant will not be subject to Federal income taxes until lapse or
release of the restrictions on the shares. The recipient's income and the
Company's deduction will be equal to the fair market value of the shares on the
date of lapse or release of such restrictions.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors of the
Company knows of no other business which will be presented for consideration at
the Special Meeting in lieu of Annual Meeting.
AVAILABILITY OF SECURITIES AND EXCHANGE
COMMISSION'S FORM 10-K
THE COMPANY'S ANNUAL REPORT FOR ITS FISCAL YEAR ENDED DECEMBER 31, 2008
ON FORM 10-K INCLUDES THE FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS THERETO,
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION; SUCH REPORT IS ATTACHED TO
THIS PROXY STATEMENT AS EXHIBIT A (EXCLUSIVE OF EXHIBITS AND SCHEDULES).
ADDITIONAL COPIES OF SUCH REPORT ARE AVAILABLE WITHOUT CHARGE TO THE
SHAREHOLDERS UPON WRITTEN REQUEST. SUCH MATERIAL CAN BE OBTAINED BY WRITING ACE
MARKETING & PROMOTIONS, INC., ATTENTION DEAN L. JULIA, CORPORATE SECRETARY, 457
ROCKAWAY AVENUE, VALLEY STREAM, NY 11581.
14
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the next annual
meeting of shareholders must deliver the proposal to Dean L. Julia, Corporate
Secretary of Ace Marketing & Promotions, Inc. at 457 Rockaway Avenue, Valley
Stream, NY 11581:
o Not later than May 15, 2010, if the proposal is submitted for inclusion
in our proxy materials for that meeting pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934; and
o Not later than May 15, 2010, if the proposal is submitted outside the
processes of Rule 14a-8 under the Securities and Exchange Act of 1934,
in which case we are not required to include the proposal in our proxy
materials. Such nominations and proposals for the next annual meeting
of shareholders, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by
first class United States mail, postage prepaid, to the Chairman.
ACE MARKETING & PROMOTIONS, INC.
/s/ Dean L. Julia, Chairman
15
[Left blank intentionally.]
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDER MEETING TO BE HELD ON OCTOBER 7, 2009
THE COMPANY'S PROXY STATEMENT AND 2008 ANNUAL REPORT ARE
AVAILABLE AND CAN BE ACCESSED DIRECTLY AT THE FOLLOWING INTERNET ADDRESS:
HTTP://WWW.ACEMARKETING.NET
PROXY
ACE MARKETING & PROMOTIONS, INC.
SPECIAL MEETING IN LIEU OF AN ANNUAL MEETING
TO BE HELD ON OCTOBER 7, 2009 AT 10:00 A.M.
(THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
The undersigned shareholder of Ace Marketing & Promotions, Inc., a New
York corporation (the "Company"), acknowledges receipt of the Notice of a
Special Meeting in Lieu of an Annual Meeting of Shareholders and Proxy
Statement, dated September 10, 2009 and hereby constitutes and appoints Dean L.
Julia and Michael D. Trepeta or either of them acting singly in the absence of
the other, with a power of substitution in either of them, the proxies of the
undersigned to vote with the same force and effect as the undersigned all shares
of Common Stock of the Company held by the undersigned at the Special Meeting in
Lieu of an Annual Meeting of Shareholders of the Company to be held at Morse &
Morse PLLC, 1400 Old Country Road, Suite 302, Westbury, New York 11590 on
October 7, 2009 at 10:00 A.M. local time and at any adjournment or adjournments
thereof, hereby revoking any proxy or proxies heretofore given and ratifying and
confirming all that said proxies may do or cause to be done by virtue thereof
with respect to the following matters:
1. The election of the four directors nominated by the Board of Directors.
FOR all nominees listed below (except WITHHOLD AUTHORITY to vote
as indicated below), please check here ___ for all nominees listed below,
please check here ___
Dean L. Julia Michael D. Trepeta Scott J. Novack Domenico Iannucci
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE OR NOMINEES WRITE SUCH
NOMINEE'S OR NOMINEES' NAME(S) IN THE SPACE PROVIDED BELOW.)
--------------------------------------------------------------------------------
2. To ratify, adopt and approve the Audit Committee's selection of Holtz
Rubenstein Reminick LLP to be the independent auditors of Ace for the fiscal
year ended December 31, 2009.
FOR [_] AGAINST [_] [_] ABSTAIN
3. To ratify, adopt and approve the filing of an amendment to Ace's Certificate
of Incorporation to increase the number of authorized shares of Common stock
from 25,000,000 shares, $.0001 par value to 100,000,000 shares, $.0001 par
value.
FOR [_] AGAINST [_] [_] ABSTAIN
4. To ratify, adopt and approve Ace's 2009 Employee Benefit and Consulting
Services Compensation Plan.
FOR [_] AGAINST [_] [_] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
adjournments thereof.
The shares represented by this proxy will be voted in the manner directed. In
the absence of any direction, the shares will be voted FOR each nominee named in
Proposal 1, FOR Proposals 2, 3, and 4, and in accordance with the discretion of
the persons appointed as Proxies on such other matters as may properly come
before the Meeting, including adjournment of the Meeting and any other matters
incident to the conduct of the Meeting. In case any nominee should become
unavailable for election to the Board of Directors for any reason, the persons
appointed as proxies shall have discretionary authority to vote the shares
represented by this proxy for one or more alternative nominees who will be
designated by the existing Board of Directors.
Dated ___________________________, 2009
_________________________________________(L.S.)
_________________________________________(L.S.)
Email address (optional) _____________________________
Please sign your name exactly as it appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title as it
appears hereon. When signing as joint tenants, all parties in the joint tenancy
must sign. When a proxy is given by a corporation, it should be signed by an
authorized officer and the corporate seal affixed. No postage is required if
returned in the enclosed envelope and mailed in the United States.
PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY IN THE ENCLOSED ENVELOPE.
Exhibit A
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, 2008
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
Check whether the Registrant is not required to file reports pursuant to Section
13 of 15(d) of the Exchange Act. [ ]
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:
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Common Stock, $.0001 Par Value
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]. No [ ].
Indicate by check mark 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 [ ].
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]
State issuer's revenues for its most recent fiscal year: $6,069,356.
As of March 25, 2009, the number of shares held by non-affiliates was
approximately 6,661,910 shares. The approximate market value based on the last
sale (i.e. $.82 per share as of March 2, 2009) of the Company's Common Stock was
approximately $5,462,766.
The number of shares outstanding of the Registrant's Common Stock, as of March
25, 2009 was 9,717,615.
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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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COMPANY 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, printing and forms
management, database management ,branded merchandise 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;
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.
POSITIONED FOR GROWTH
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.
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; and
o Offering proximity marketing services.
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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, 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.
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.
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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. Ace
has demonstrated the use of proximity marketing boxes and delivered branded
content for:
o Def Leppard to support their band tour;
o International Speeding Corporation, owner and
operator of 13 major motorsports facilities,
including the Daytona International Speedway;
o Macy's Thanksgiving Day Parade
o SANTALAND AT MACY'S
o MADISON SQUARE GARDEN
o IMAX THEATHER
o Lonestar to support their band.
Blue Bite, LLC is also an authorized distributor, provider and reseller
of the proximity transmitting boxes. We have an agreement pursuant to which Ace
has loaned Blue Bite $100,000 pursuant to two Notes (due June 1, 2009 and
September 17, 2009) convertible at Ace's option into a 20% ownership interest of
Blue Bite. At the time of conversion, Ace would also have to deliver to Blue
Bite up to $150,000 in fair market value of its restricted Common Stock as
additional consideration.
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
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in 2006 and $19.4 billion in 2007. A revitalized economy, increased competition
in the marketplace, and a trend toward integrated and targeted marketing
strategies has contributed to this growth. 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.
DISTRIBUTORS
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/, 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 2008 Survey, the top ten distributors in our industry are
believed to have 2007 North American sales of between $145 million and $256
million. Corporate Express Promotional Marketing, Proforma Inc., Staples/America
Identity and Group II Communications/IMS are the top five distributors with 2007
sales of $256 million, $247 million, $240 million, $215 million and $202
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, which
is available online at no cost to the public at www.ppai.com/ProductsResources/
Research/TopBuyers/, 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.
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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.
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
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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 or entity who has purchased promotional products from us in
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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 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 Proximity Marketing
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
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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.
They search for a particular product, such as clocks, 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 looking 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
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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.
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 trade show attendance, 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 all the
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.
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o KEY ACQUISITIONS OF SMALL DISTRIBUTORS AND INTEGRATING THEIR WORKFORCE
INTO OURS. We will target one or more of the estimated 20,000 small
distributors for potential acquisition. However, we can provide no
assurances that we will be successful in acquiring any distributors on
terms satisfactory to us, if at all.
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, 2008 and 2007, our gross profit percentage
was 27.0% and 32.6%, 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.
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. 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 are provided in-house by our employees. In the future, we
intend to offer stock and/or stock options as part of their incentive programs.
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.
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.
12
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 have had conversions with the owners of several distributors of
promotional products and have observed that they are open to conversions taking
place for the possible sale of their business.
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 is 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.
JOINT MARKETING AND SALES AGREEMENT WITH ATRIUM ENTERPRISES
We have entered into a Joint Marketing and Sales Agreement with Atrium
Enterprises, a leader in the motivational, incentive and rewards industry,
whereby we have received the exclusive rights to market and sell a customized
version of Atriums technology platform called, www.ExperienceTheRewards.com. In
addition, Atrium provides its sales services to us on an exclusive basis in our
business which consists of selling promotional products, print sales and the
like to Atrium's clients.
Atrium has developed a fully functional customized "Points Banking"
platform for us called, "ACE REWARDS". This platform will allow us to
differentiate ourselves from our competition by offering reward points and
incentives to all our customers who purchase promotional products through us and
to our employees. Atrium has also provided an enhanced Solata marketing and
communication module to the platform that allows us to re-sell this "ACE
13
REWARDS" platform to other entities. In addition Atrium has created and
introduced a sponsored Mobile Banking Debit Card to Ace Marketing and its
customers. Atrium has granted us exclusive sales and marketing rights to both
the "ACE REWARD" platform and the Mobile Banking Debit Card within the
promotional products industry, and related industry organizations such as ASI
and PPAI. For additional information, see "Note 11 to our financial statements."
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 Counselor - State of the Industry 2008 Survey, the top
ten distributors in our industry are believed to have 2007 North American sales
of between $145 million and $256 million. Corporate Express Promotional
Marketing, Proforma Inc., Staples/America Identity and Group II
Communications/IMS are the top five distributors with 2007 sales of $256
million, $247 million, $240 million, $215 million and $202 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 March 25, 2009, we had 13 full time employees, including two
executive officers who provide in-house sales, our Chief Financial Officer,
seven support staff employees, two being part-timers, and eight sales
representatives of which four are employees who provide services on an exclusive
basis and five additional persons who provide services to us on a non-exclusive
basis as independent consultants.
14
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.
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.
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:
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.
15
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.
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:
16
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. Our 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
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:
17
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.
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.
18
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
(believed to be approximately 6,661,910 shares) 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.
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.
19
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. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2008.
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, 2007............................. 2.05 1.32
June 30, 2007.............................. 1.95 1.25
September 30, 2007......................... 2.00 .86
December 31, 2007.......................... 1.45 .65
The closing sales price on March 2, 2009 was $.79 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
(believed to be approximately 6,661,910 shares) 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.
20
Currently, we have outstanding Class A and Class B warrants to purchase
837,000 restricted shares of our common stock exercisable at a price of $2.00
per share through July 1, 2009. In the event that all of the warrants are
exercised, of which there can be no assurances given, an additional 837,000
shares of restricted common stock will be issued and may be resold pursuant to
Rule 144 after a holding period of at least six months, unless we elect to
voluntarily register the resale of the shares issuable upon exercise of the
warrants for earlier sale. No registration rights were granted in connection
with the issuance of said warrants.
Between July 20, 2006 and November 30, 2006, we sold 951,575 shares of
common stock at a purchase price of $1.75 per share and Class C warrants to
purchase 475,788 shares at an exercise price of $1.75 per share. We also issued
to the placement agent and its designees 139,680 shares of common stock and
placement agent warrants to purchase 95,160 shares exercisable at a price of
$1.00 per share. We registered the resale of the 951,575 shares of common stock
sold to these investors, including the 475,788 shares issuable upon exercise of
the Class C warrants.
As of March 25, 2009, there were about 90 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.
RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
Since January 2008, 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
DISCOUNTS TO MARKET IF OPTION, WARRANT OR
PRICE OR CONVERTIBLE EXEMPTION FROM CONVERTIBLE SECURITY,
TITLE OF SECURITY, AFFORDED TO REGISTRATION TERMS OF EXERCISE OR
DATE OF SALE SECURITY NUMBER SOLD PURCHASERS CLAIMED CONVERSION
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
January 2008 Common 1,000,000 Services rendered; no Section 4(2) Not applicable.
Stock shares commissions paid
Options
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
January Common Stock 20,000 shares Services rendered; no Section 4(2). A Not applicable.
2008 commissions paid restrictive
legend appears on
each certificate.
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
21
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
June 2008 Common 200,000 shares Services rendered; Section 4(2) Not applicable
Stock no commissions paid
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
June 2008 Common 133,500 shares Services rendered; Section 4(2) Exercisable at prices
Stock no commissions paid ranging from $.50 per
share to $.80 per
share through
June 30, 2011.
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
July 2008 Shares of 445,000 shares $445,000 paid in cash; Section 4(2) Automatically
Series A no commissions paid converted into common
Preferred stock on December 15,
Stock 2008 based upon a
conversion price
equal to the
lower of $.50
per share or the
average closing
price over the
10 preceding
trading days
with a floor of
$.25 per share.
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
July 2008 Common 250,000 Services rendered; no Section 4(2) Exercisable at prices
Stock warrants commissions paid ranging from $.50 to
Warrants $.80 per share
through June 30, 2011.
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
October 2008 Common Stock 125,000 Services rendered; no Section 4(2) Exercisable at prices
Warrants warrants commissions paid ranging from $.50 to
$.80 per share
through June 30,
2011.
Exercisable at a
price of $.90
per share
through October
14, 2011.
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
December Common 890,000 Conversion of preferred Section 3(a)(9) Not Applicable.
2008 Stock Shares stock at $.50 per
share; no commissions
paid.
---------------- -------------- ---------------- ------------------------- ------------------- -----------------------
RECENT PURCHASES OF SECURITIES
------------------------------
In 2008, we have had no repurchases of our common stock.
Item 6. Selected Financial Data
--------------------------------
Not Applicable.
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.
22
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
--------------------
In 2008, 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.
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.
23
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.
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. Ace
has demonstrated the use of proximity marketing boxes and delivered branded
content for:
o Def Leppard to support their band tour;
o International Speeding Corporation, owner and
operator of 13 major motorsports facilities,
including the Daytona International Speedway;
o Macy's Thanksgiving Day Parade ;
o SantaLand at Macy's;
o Madison Square Garden;
o IMAX theater
o Lonestar to support their band.
Blue Bite, LLC is also an authorized distributor, provider and reseller
of the proximity transmitting boxes. We have an agreement pursuant to which Ace
has loaned Blue Bite $100,000 pursuant to two Notes (due June 1, 2009 and
September 17, 2009) convertible at Ace's option into a 20% ownership interest of
Blue Bite. At the time of conversion, Ace would also have to deliver to Blue
Bite up to $150,000 in fair market value of its restricted Common Stock as
additional consideration.
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
24
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 COMPENSATION. The Company records compensation expense
associated with stock options and other equity-based compensation in accordance
with SFAS 123(R). Share-based compensation expense is determined based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123(R)
The Company recognizes compensation expense on a straight-line basis over the
requisite service period of the award.
Results of Operations
---------------------
2008 versus 2007
----------------
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
--------------------------------------------------------------------------------
2008 2007
---- ----
Revenue $ 6,069,356 $ 5,660,102
Cost of Revenues 4,383,183 3,844,047
Gross Profit 1,686,173 1,816,055
Operating Expenses 2,927,620 2,721,058
Loss from operations (1,241,447) (905,003)
Net Loss (1,230,393) (879,055)
Preferred Stock Dividend 96,500 -
Net Loss Allocable to Common Stockholders (1,326,893) (879,055)
Net (Loss) per common Share (.16) (.11)
Weighted average common Shares
Outstanding 8,270,985 8,021,521
--------------------------------------------------------------------------------
25
We generated revenues of $6,069,356 for 2008 compared to $5,660,102 in
2007. The increase in revenues of $409,254 in 2008 compared to 2007 is due to
the collaborated effort with a major customer, Ace Marketing was able to create,
administer and fulfill an in house order which benefited over 3,500 members of
the organization. This order 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 $4,383,183 or 72.2% of revenues for 2008 compared
to $3,844,047 or 67.9% of revenues for 2007. Cost of revenues includes purchases
and freight costs associated with the shipping of merchandise to our customers.
Increase in cost of revenues of $539,136 in 2008 is related to an increase in
sales to a major customer which placed a large order during the second quarter
of fiscal 2008.
Gross profit was $1,686,173 for 2008 or 27.8% of net revenues compared
to $1,816,055 in the same period of 2007 or 32.1% of revenues. Gross profits
will vary period-to-period depending upon a number of factors including the mix
of items sold, pricing of the items and the volume of product sold. Also, it is
our practice to pass freight costs on to our customers. Reimbursement of freight
costs which are included in revenues have lower profit margins than sales of our
promotional products and has the effect of reducing our overall gross profit
margin on sales of products, particularly on smaller orders. The 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 $2,927,620 for 2008
as compared to $2,721,058 for 2007. Such costs include payroll and related
expenses, commissions, insurance, rents, professional, consulting and public
awareness fees. The overall increase of $206,562 was primarily due to a $202,582
increase in stock based compensation.
Net loss from operations was $(1,230,393) for 2008 compared to a net
loss of $(879,055) for 2007. Our increase in net loss for 2008 as compared to
the comparable period of the prior year was due to an increase in stock based
payments of $202,582 and a decrease in gross profit of $129,882. No benefit for
income taxes is provided for 2008 and 2007 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, which
commenced in August 2008.
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.
See "Note 5 of the Notes to Financial Statements."
Liquidity and Capital Resources
-------------------------------
The Company had cash and cash equivalents of $509,251 at December 31,
2008.
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.
26
Cash provided by financing activities of $445,000 which was as a result
of the sale of our Series A Convertible preferred stock.
Cash used by operating activities for the year ended December 31, 2007
was $(511,239). This resulted primarily from a net loss of $(879,055) and an
increase of accounts receivable of $241,933 partially offset by stock based
compensation of $449,638 and an increase in accounts payable and accrued
expenses of $184,351.
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
-----------------
Between July and October 2008, the Company sold 445,000 shares of its
Series A Preferred Stock at a purchase price of $1.00 per share.
On December 15, 2008, all of the Preferred Shares automatically
converted into 890,000 common shares at a conversion price of $.50 per share.
Exemption is claimed pursuant to Rule 506 of Regulation D of the Securities Act
for the issuance of the Preferred Shares. Exemption is claimed pursuant to
Section 3(a)(9) of the Securities Act for the subsequent conversion of Preferred
Stock into Common Stock.
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.
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.
27
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 registration
rights. Presently, the Company does not have a current registration statement
that pertains to the securities purchased in the 2006 private placement.
However, all outstanding shares of Common Stock that were sold in the 2006
offering are believed to be saleable pursuant to Rule 144(b)(1) without volume
restriction. In the event that the market price of our Common Stock should
exceed the exercise price of the Class C Warrants, the Company would then file a
registration statement to cover the resale of the underlying Common Stock.
Pursuant to the 2006 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.
Recently Issued Accounting Pronouncements
-----------------------------------------
On September 15, 2006, the Financial Accounting Standards Board
("FASB") issued Statement No. 157, FAIR VALUE MEASUREMENTS ("SFAS 157"). SFAS
157 provides guidance for using fair value to measure assets and liabilities.
This Statement references fair value as the price that would be received to sell
an asset or paid to transfer a liability, in an orderly transaction, between
market participants in the market in which the reporting entity transacts. The
Statement applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value. The Statement does not expand the use
of fair value in any new circumstances. SFAS 157 was effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The adoption of this Statement did
notl have a material effect on our financial position or results of operation.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans ("SFAS 158"). SFAS 158 requires an employer to recognize
the over-funded or under-funded status of a defined benefit postretirement plan
as an asset or liability in its balance sheet and to recognize changes in funded
status in the year in which the changes occur through comprehensive income. SFAS
158 had no impact on the Company's financial position or results of operation.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141R, "Business Combinations" ("SFAS 141R"), which establishes
principles and requirements for the reporting entity in a business combination,
including recognition and measurement in the financial statements of the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. This statement also establishes disclosure
requirements to enable financial statement users to evaluate the nature and
financial effects of the business combination. SFAS 141R applies prospectively
to business combinations for which the acquisition date is on or after fiscal
years beginning after December 15, 2008. The Company is currently evaluating the
effect that the adoption of SFAS 141R will have on its financial statements.
28
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160, "Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51" ("SFAS 160"). SFAS 160 establishes
accounting and reporting standards pertaining to ownership interests in
subsidiaries held by parties other than the parent; the amount of net income
attributable to the parent and to the noncontrolling interest; changes in a
parent's ownership interest; and the valuation of any retained noncontrolling
equity investment when a subsidiary is deconsolidated. SFAS 160 also establishes
disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160
is required to be adopted prospectively for the first annual reporting period
beginning after December 15, 2008. The Company is currently reviewing the effect
that the adoption of this statement will have on its financial statements.
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.
29
ACE MARKETING &
PROMOTIONS, INC.
CONTENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007 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-15
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, 2008 and 2007, 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, 2008 and 2007 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.
/s/ Holtz Rubenstein Reminick LLP
Holtz Rubenstein Reminick LLP
Melville, New York
March 26, 2009
F-1
ACE MARKETING &
PROMOTIONS, INC.
BALANCE SHEETS
=======================================================================================================
DECEMBER 31, 2008 2007
-------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 509,251 $ 819,021
Accounts receivable, net of allowance for doubtful accounts of
$20,000 and $10,000 at December 31, 2008 and 2007, respectively 809,685 963,919
Notes receivable 100,000 --
Prepaid expenses and other assets 63,401 75,375
------------------------------
Total Current Assets 1,482,337 1,858,315
Property and Equipment, net 115,334 34,065
Other Assets 7,745 7,745
------------------------------
Total Assets $ 1,605,416 $ 1,900,125
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 338,165 $ 475,452
Accrued expenses 181,766 206,015
------------------------------
Total Current Liabilities 519,931 681,467
------------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.0001 par value; 5,000,000 shares authorized;
none issued -- --
Common stock, $.0001 par value; 25,000,000 shares authorized;
9,234,949 and 8,124,949 shares issued and outstanding
at December 31, 2008 and 2007, respectively 924 813
Additional paid-in capital 4,851,529 3,657,920
Accumulated deficit (3,735,467) (2,408,574)
------------------------------
1,116,986 1,250,159
Less Treasury Stock, at cost, 23,334 shares (31,501) (31,501)
------------------------------
Total Stockholders' Equity 1,085,485 1,218,658
------------------------------
Total Liabilities and Stockholders' Equity $ 1,605,416 $ 1,900,125
==============================
=======================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. F-2
ACE MARKETING &
PROMOTIONS, INC.
STATEMENTS OF OPERATIONS
=======================================================================================
YEARS ENDED DECEMBER 31, 2008 2007
---------------------------------------------------------------------------------------
Revenue, net $ 6,069,356 $ 5,660,102
Cost of Revenue 4,383,183 3,844,047
------------------------------
Gross Profit 1,686,173 1,816,055
------------------------------
Operating Expenses:
Selling (including stock based payments of
$322,270 and $212,638 for the years ended
December 31, 2008 and 2007, respectively) 771,867 795,115
General and administrative (including stock based
payments of $329,950 and $237,000 for the years
ended December 31, 2008 and 2007, respectively) 2,155,753 1,925,943
------------------------------
Total Operating Expenses 2,927,620 2,721,058
------------------------------
Loss from Operations (1,241,447) (905,003)
------------------------------
Other Income (Expense):
Interest expense (1,042) --
Interest income 12,096 25,948
------------------------------
Total Other Income 11,054 25,948
------------------------------
Net Loss (1,230,393) (879,055)
Less Preferred Stock Dividend 96,500 --
------------------------------
Net Loss Allocable to Common Stockholders $(1,326,893) $ (879,055)
==============================
Net Loss Per Common Share:
Basic $ (0.16) $ (0.11)
==============================
Diluted $ (0.16) $ (0.11)
==============================
Weighted Average Common Shares Outstanding:
Basic 8,270,985 8,021,521
==============================
Diluted 8,270,985 8,021,521
==============================
=======================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. F-3
ACE MARKETING &
PROMOTIONS, INC.
Statement of Stockholders' Equity
====================================================================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
------------------------------------------------------------------------------------------------------------------------------------
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, 2007 $ 1,648,075 8,028,363 $ 803 - $ - $3,176,791 $ (1,529,519) - $ -
Cancellation of Restricted Stock - - - - - 31,501 - 23,334 (31,501)
Cashless Exercise of Stock
Purchase Warrants - 4,086 1 - - (1) - - -
Stock Based Payments 449,638 92,500 9 - - 449,629 - - -
Net Loss (879,055) - - - - - (879,055) - -
------------- ----------------- ---------------- ---------- -------------- --------------------
Balance, at December 31, 2007 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 Preferred 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)
============= ================= ================ =========== ============= ====================
====================================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. F-4
ACE MARKETING &
PROMOTIONS, INC.
STATEMENTS OF CASH FLOWS
======================================================================================================
YEARS ENDED DECEMBER 31, 2008 2007
------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $(1,230,393) $ (879,055)
------------------------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 17,865 5,705
Allowance for doubtful accounts receivable 10,000 --
Stock-based compensation 652,220 449,638
Changes in operating assets and liabilities:
(Decrease) increase in operating assets:
Accounts receivable 144,234 (241,933)
Prepaid expenses and other assets 11,974 (29,945)
(Decrease) increase in operating liabilities:
Accounts payable and accrued expenses (161,536) 184,351
------------------------------
Total adjustments 674,757 367,816
------------------------------
Net Cash Used in Operating Activities (555,636) (511,239)
------------------------------
Cash Flows from Investing Activities:
Increase in notes receivable (100,000) --
Acquisition of property and equipment (99,134) (22,871)
------------------------------
Net Cash Used in Investing Activities (199,134) (22,871)
------------------------------
Cash Flows from Financing Activities:
Proceeds from private placement of Series A Convertible Preferred 445,000 --
------------------------------
Net Cash Provided by Financing Activities 445,000 --
------------------------------
Net Decrease in Cash and Cash Equivalents (309,770) (534,110)
Cash and Cash Equivalents, beginning of year 819,021 1,353,131
------------------------------
Cash and Cash Equivalents, end of year $ 509,251 $ 819,021
==============================
Supplemental Disclosure of Non-cash transaction:
Beneficial conversion feature - preferred stock dividend $ 96,500 --
==============================
======================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. F-5
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
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 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. 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, in
accordance with EITF 00-10, "Accounting for Shipping and Handling Fees
and Costs".
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.
COMPREHENSIVE INCOME (LOSS) - Comprehensive income (loss) refers to
revenue, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but are
excluded from net income as these amounts are recorded directly as an
adjustment to stockholders' equity. At December 31, 2008 and 2007,
there were no such adjustments required.
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, 2008 and 2007.
================================================================================
F-6
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
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 5,499,000 and 3,880,000
because they are anti-dilutive, as a result of a net loss for the years
ended December 31, 2008 and 2007, respectively.
ADVERTISING COSTS - Advertising costs are expensed as incurred.
Advertising expense for the years ended December 31, 2008 and 2007
approximated $10,100 and $20,900, respectively.
SHARE-BASED COMPENSATION - The Company records compensation expense
associated with stock options and other equity-based compensation in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 123 (revised 2004), "SHARE-BASED PAYMENT," 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 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 123R 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.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS - In the opinion of management, the
carrying value of all financial instruments, consisting primarily of
cash and cash equivalents, accounts receivables and accounts payable,
reflected in the accompanying balance sheet, approximates fair value as
of December 31, 2008 and 2007, due to their short-term nature.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - On September 15, 2006, the
Financial Accounting Standards Board ("FASB") issued Statement No. 157,
"FAIR VALUE MEASUREMENTS" ("SFAS 157"). SFAS 157 provides guidance for
using fair value to measure assets and liabilities. This statement
references fair value as the price that would be received to sell an
asset or paid to transfer a liability, in an orderly transaction,
between market participants in the market in which the reporting entity
transacts. The statement applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value. The
statement does not expand the use of fair value in any new
circumstances. SFAS 157 was effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The adoption of this statement did not have
a material effect on the Company's financial position or results of
operation.
================================================================================
F-7
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 158, "Employers' Accounting for Defined Benefit Pension
and Other Postretirement Plans" ("SFAS 158"). SFAS 158 requires an
employer to recognize the over-funded or under-funded status of a
defined benefit postretirement plan as an asset or liability in its
balance sheet, and to recognize changes in funded status in the year in
which the changes occur through comprehensive income. SFAS 158 did not
have an impact on the Company's financial position or results of
operation.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141R, "Business Combinations" ("SFAS 141R"), which
establishes principles and requirements for the reporting entity in a
business combination, including recognition and measurement in the
financial statements of the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree.
This statement also establishes disclosure requirements to enable
financial statement users to evaluate the nature and financial effects
of the business combination. SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after
fiscal years beginning after December 15, 2008. The Company is
currently evaluating the effect that the adoption of SFAS 141R will
have on its financial statements.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160, "Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51" ("SFAS 160"). SFAS 160
establishes accounting and reporting standards pertaining to ownership
interests in subsidiaries held by parties other than the parent; the
amount of net income attributable to the parent and to the
noncontrolling interest; changes in a parent's ownership interest; and
the valuation of any retained noncontrolling equity investment when a
subsidiary is deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners.
SFAS 160 is required to be adopted prospectively for the first annual
reporting period beginning after December 15, 2008. The Company is
currently reviewing the effect that the adoption of this statement will
have on its financial statements.
2. NOTES RECEIVABLE
----------------
In February 2008, the Company entered into an agreement with Blue Bite,
LLC ("Blue Bite"), a distributor of wireless networking solutions, to
become an authorized provider and reseller in the United States of
mobile advertising solutions.
In connection with the agreement, the Company loaned Blue Bite $50,000
(the "Note"). The Note bears interest at 10% per annum and is due June
1, 2009. The Note is convertible, at the Company's option, into a 10%
ownership interest of Blue Bite. Upon conversion, the Company would
also have to deliver to Blue Bite, $75,000 in restricted Common Stock
of the Company as additional consideration.
On September 17, 2008, the company loaned Blue Bite an additional
$50,000 pursuant to the terms of a one year convertible promissory note
(the "Second Note"). The Second Note provides for interest at 10% per
annum, payable with any outstanding principal on September 17, 2009.
The Company has the option to convert the Second Note plus $75,000
worth of shares of restricted Common Stock of the Company into an
additional 10% interest in Blue Bite.
================================================================================
F-8
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT, NET
---------------------------
Property and equipment, net, consist of the following at December 31:
USEFUL LIVES 2008 2007
-----------------------------------------------------------------------------------------
Furniture and Fixtures 5 years $ 169,848 $ 70,715
Leasehold Improvements 5 years 8,919 8,919
-------------------------------------
178,767 79,634
Less Accumulated Depreciation 63,433 45,569
-------------------------------------
$ 115,334 $ 34,065
=====================================
Depreciation expense for the years ended December 31, 2008 and 2007 was
$17,865 and $5,705, respectively.
4. INCOME TAXES
------------
The provision for income taxes for the years ended December 31, 2008
and 2007 is summarized as follows:
2008 2007
--------------------------------------------------------------------------------------
Current:
Federal $ - $ -
State - -
-----------------------------------
- -
-----------------------------------
Deferred:
Federal - -
State - -
-----------------------------------
$ - $ -
===================================
The Company has federal and state net operating loss carryforwards of
approximately $1,898,000, which can be used to reduce future taxable
income through 2028.
The tax effects of temporary differences which give rise to deferred
tax assets (liabilities) are summarized as follows:
DECEMBER 31, 2008 2007
-----------------------------------------------------------------------------------------
Deferred Tax Assets:
Net operating loss carryforwards $ 759,000 $ 507,000
Stock based compensation 650,000 420,000
Preferred stock dividend 39,000 420,000
Allowance for doubtful accounts 8,000 4,000
-------------------------------------
Deferred Tax Assets 1,456,000 931,000
Less Valuation Allowance 1,456,000 931,000
-------------------------------------
Net Deferred Tax Asset $ - $ -
=====================================
================================================================================
F-9
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
A reconciliation of the federal statutory rate to the Company's
effective tax rate is as follows:
YEARS ENDED DECEMBER 31, 2008 2007
-----------------------------------------------------------------------
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%
================================
5. STOCKHOLDERS' EQUITY
CAPITALIZATION - On February 9, 2005, the stockholders approved an
amendment to the Company's Certificate of Incorporation to (i) increase
the authorized shares of common stock from 22,000,000 shares to
25,000,000; (par value $.0001); and (ii) create 5,000,000 shares of
preferred stock (par value $.0001). The Board of Directors has the
authority to issue shares of preferred stock from time to time and to
fix such rights, preferences and privileges of such issuances.
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 has 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.
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 has 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.
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.
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. During the year ended December
31, 2007, the Placement Agent exercised 8,671 warrants using the
cashless exercise provision, and received 4,086 shares of the Company's
common stock.
In addition, pursuant to the Offering, the Company issued options to
purchase 50,000 shares of the Company's common stock at an exercise
price of $.10 per share to a law firm in connection with legal services
for the Offering. The options were valued at $95,000 and have been
recorded as a cost of the Offering.
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.
================================================================================
F-10
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
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.
6. SHARE-BASED COMPENSATION
------------------------
WARRANTS - On September 26, 2005, the Company entered into a consulting
agreement with a financial advisory firm. In connection with this
agreement, the Company granted a warrant for the purchase of 100,000
shares of the Company's common stock. The warrant has an exercise price
of $2.50 per share and expires on August 14, 2010.
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.
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.
PURCHASE OF LISTS AND SEARCH ENGINE - On April 10, 2006, the Company
granted 40,000 non-statutory stock options to an entity controlled by
two of the officers of the Company, for the purchase of an email list
of promotional products professionals and an industry specific search
engine. The officers of the Company have waived their right to receive
any benefit from the option grant, and the options were granted in the
name of the minority shareholders of the related entity. The options
have an exercise price of $2.50 per share and expire on April 10, 2011.
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.
================================================================================
F-11
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
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.
SHARE BASED COMPENSATION 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 4,000,000 non-statutory and incentive stock options and stock
awards to directors, officers, consultants and key employees of the
Company.
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 of Statement of Financial Accounting
Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payment" ("SFAS
123(R)"). SFAS 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 years ended December 31, 2008 and 2007
include employee share-based compensation expense totaling
approximately $234,000 and $317,000, respectively. Such amounts have
been included in the statement 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.
The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model. The Company took into consideration
guidance under SFAS 123(R) and SEC SAB 107 when reviewing and updating
assumptions. 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.
The estimated fair value of each option award granted was determined on
the date of grant using the following weighted-average assumptions for
option grants during the years ended December 31, 2008 and 2007:
2008 2007
-----------------------------------------------------------------------
Dividend Yield 0.00% 0.00%
Volatility 115.0% 58.23%
Risk-Free Interest Rate 3.13% 4.15%
Expected Life 5.00 YEARS 10.00 years
================================================================================
F-12
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
A summary of option activity under the Plan as of December 31, 2008,
and changes during the year then ended is as follows:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
OPTIONS Shares Price Term (Years) Value
------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 2,221,222 $ 1.18 5.74 $ -
Granted 1,110,000 .98 8.58 -
-----------------
Outstanding, end of year 3,331,222 1.11 6.02 -
=========================================================================
Exercisable, end of year 2,219,600 $ 1.15 4.76 $ -
=========================================================================
For the years ended December 31, 2008 and 2007, total share-based
compensation expense related to stock options was approximately
$286,000 and $360,000, respectively. The weighted-average grant-date
fair value of options granted during the years ended December 31, 2008
and 2007 was $.53 and $.86, respectively.
The aggregate intrinsic value of options outstanding and options
exercisable at December 31, 2008 is $0, and was 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 $0.77 closing price of the
Company's common stock on December 31, 2008. The Company received no
cash proceeds from options exercised in the years ended December 31,
2008 and 2007.
A summary of the status of the Company's non-vested shares as of
December 31, 2008 and the changes during the year ended December 31,
2008, is as follows:
Weighted
Average
Grant-Date
NON-VESTED SHARES Shares Fair Value
-------------------------------------------------------------------------------------------------------------------
Non-Vested, at January 1, 2008 597,934 $ .36
Granted 1,110,000 .52
Vested (668,312) .40
-------------------------------------
Non-Vested, at December 31, 2008 1,039,622 $ .50
=====================================
As of December 31, 2008 and 2007, the fair value of unamortized
compensation cost related to unvested stock option awards was
approximately $405,000 and $108,000, respectively. Unamortized
compensation cost as of December 31, 2008 is expected to be recognized
over a remaining weighted-average vesting period of 3.2 years.
COMMON SHARES RESERVED
-------------------------------------------------------------------------------------------------------------------
Class A Warrants 737,000
Class B Warrants 100,000
Class C Warrants 475,788
Placement Agent Warrants 86,489
2005 Stock Option Plan 3,962,222
Warrants - Series 1 - 3 375,000
============================================================================================================================
F-13
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
LEASE COMMITMENTS - The Company leases office space under
non-cancelable operating leases, which expire 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,
----------------------------------------------------------------------
2009 $ 27,000
2010 31,000
2011 29,000
Rent and real estate tax expense was approximately $92,000 and $85,000
for the years December 31, 2008 and 2007, 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.
Minimum aggregate future commitments under the employment contracts is
as follows:
YEARS ENDING DECEMBER 31,
----------------------------------------------------------------------
2009 $ 472,000
2010 520,000
2011 88,000
8. CONCENTRATIONS
--------------
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, 2008 two customers accounted for
approximately 26% of net revenues and for the year ended December 31,
2007 a customer accounted for approximately 20% of net revenues.
================================================================================
F-14
ACE MARKETING &
PROMOTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
YEARS ENDED DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
--------------------------
The Company purchased merchandise with a cost of approximately $3,000
and $5,000 for the years ended December 31, 2008 and 2007,
respectively, from an entity that is owned by an individual related to
one of the officers of the Company.
10. SUPPLEMENTARY INFORMATION - STATEMENT OF CASH FLOWS
---------------------------------------------------
Cash paid during the years for:
YEARS ENDED DECEMBER 31, 2008 2007
-----------------------------------------------------------------------
Interest $ 1,042 $ -
=====================================
Income Taxes $ - $ -
=====================================
11. JOINT MARKETING AND SALES AGREEMENT
-----------------------------------
In February 2007, the Company entered into a joint marketing and sales
agreement with Atrium Enterprises Ltd. ("Atrium"). Atrium provides
solutions to corporate customers through the design and application of
performance improvement programs.
The agreement provides for the Company to receive the exclusive rights
to market and sell Atrium's products and services to its customers and
provides Atrium the exclusive right to sell and market the Company's
promotional services to its customers. The Company will receive a 50%
commission on gross profit (as defined) from all sales of Atrium's
products and services generated by the Company. Atrium will receive a
50% commission on gross profit (as defined) from all sales of the
Company's promotional services generated by Atrium. In addition, Atrium
was granted an option to purchase 70,000 shares of the Company's common
stock at an exercise price of $2.50 per share. The options vest in
three equal installments commencing on February 15, 2008, and expire
four years after the date of grant. Services were recorded equal to the
value of the options and an expense of approximately $16,000 and
$14,000 is included in operating expenses for the year ended December
31, 2008 and 2007, respectively.
12. SUBSEQUENT EVENT
----------------
PRIVATE PLACEMENT - On February 3, 2009, the Company sold 500,000
shares of its common stock at $.50 per share to investors in a private
transaction.
CONSULTING AGREEMENT - In February 2009, the Company entered into an
agreement with a consulting firm to provide investor relations
services. The agreement provides for the issuance of 350,000 common
stock purchase warrants, with an exercise price of $.80 and expires in
February 2014. The warrants have a vesting period of 25% immediately
and the remaining ratably on a monthly basis through January 2010.
In addition, the consultant would be entitled to an additional advisory
fee, subject to the Company completing a successful capital raise
through the sale of its common stock of at least $1,250,000
================================================================================
F-15
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, 2008. 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, 2008.
30
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, 2008 that also existed at December 31, 2007.
INDEPENDENT BOARD OF DIRECTORS OR AUDIT COMMITTEE
We do not have an independent board of directors or audit committee to
oversee our internal control over financial reporting.
INFORMATION TECHNOLOGY
Management identified certain control procedures that were not
sufficiently documented relating to a) Entity Level management of the IT
function b) Logical access to financial applications and company wide networks
c) the managing of operations for application and technology platforms.
REVENUE RECOGNITION AND COST OF REVENUE
Revenue is recognized upon shipment of merchandise to customers and
when title and risk of loss transfers to the customer. The verification of drop
shipments to customers is not a centralized function, and we lack an effective
process of timely identifying shipping dates and accurately matching revenue and
related expenses. As such there is a potential of a misstatement as a result of
a period cutoff error.
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 and the
inability to understand and apply complex equity transactions b) manual
processes and dual databases creating the need for excessive journal entries.
Management identified the following additional material weaknesses as
of December 31, 2008.
ACCOUNTS PAYABLE AND CASH DISBURSEMENTS
As a result of our year end audit process a deficiency was noted in the
application of payments to accounts payable which resulted in the recording of
duplicate invoices and expense. The deficiency was a result of improper setting
of access rights for a user of the accounts payable module which resulted in the
payment of open invoices without relief of the liability.
MANAGEMENT'S PLAN OF REMEDIATION
INDEPENDENT BOARD OF DIRECTORS OR AUDIT COMMITTEE
Due to the current size of the Company it does not intend to add
independent board members at this time. This deficiency will be addressed if the
Company shows substantial growth moving forward.
31
INFORMATION TECHNOLOGY
a) Management will create and implement a weekly and monthly checklist of
IT required function to assure all necessary actives are completed and
documented.
b) Management will limit access to all financial application to the
Companies CEO, President and CFO. In addition all passwords will be
changed on a quarterly basis.
c) Management will review all software at least annually. Proper updates,
patches, and licenses will be reviewed by IT and reported to CEO. In
addition all changes will be tested and documented by IT and reported
to CEO. All software quotes will be reviewed by management and IT. The
review of alternative sourcing and products will be verified by IT and
all confirmation emails will be sent to CEO for review.
REVENUE RECOGNITION AND COST OF REVENUE
As of January 2009, management has implemented a change to address its
deficiencies. The Company has centralized the verification of delivery to the
tracking department. Orders can no longer move forward to the billing department
until proof of delivery has been verified by the tracking department.
FINANCIAL REPORTING
a) Management plans to address the lack of review or evidence of review in
the financial reporting process and the inability to understand and
apply complex equity transactions, by engaging a financial reporting
consultant.
b) Management is in the process of resolving the issue of manual processes
and dual databases creating the need for excessive journal entries, by
engaging a software company to create a link between the dual systems
so that information flows back and forth dynamically, thus creating a
single operating system.
ACCOUNTS PAYABLE AND CASH DISBURSEMENTS
As of February 2009, management has implemented a change to address its
deficiencies. The Company has granted access rights for the user of the accounts
payable module which now results in the payment of open invoices to relieve the
corresponding liability.
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.
CHANGES IN INTERNAL CONTROLS
There have been no changes in our internal control over financial
reporting during our most recent fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
32
Item 9.B. Other Information.
-----------------------------
None.
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 41 1998 Chief Executive Officer/ Secretary/
Treasurer/Director/Co-Founder
Michael Trepeta 37 1998 President/Director/Co-Founder
Scott Novack 41 1998 Director/Co-Founder
Sean McDonnell 46 2005 Chief Financial Officer
(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.
33
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.
LACK OF COMMITTEES
------------------
Our Company has no audit, compensation or nominating committees of our
board of directors or committees performing similar functions. We are currently
seeking to nominate and appoint to the board two independent directors and to
form an audit committee consisting of the two independent directors. It is our
goal that at least, one of the two independent directors would be deemed a
"Financial Expert" within the meaning of Sarbanes-Oxley Act of 2002, as amended.
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
34
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 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.
We can provide no assurances that our board's efforts to select two
persons to serve as independent directors on the Board of Directors (at least
one of which is a "Financial Expert") and on the proposed audit committee will
be successful. In the event an audit committee is established, 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;
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.
35
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 2008, 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 for certain Form 4 filings of Glenwood
Capital and Peter Chung.
Item 11. Executive Compensation.
-----------------------------------------------------------
SUMMARY COMPENSATION TABLE
The following table sets forth the overall compensation earned over the
fiscal year ended December 31, 2007 and 2008 by (1) each person who served as
the principal executive officer of the Company during fiscal year 2008; (2) the
Company's most highly compensated (up to a maximum of two) executive officers as
of December 31, 2008 with compensation during fiscal year 2008 of $100,000 or
more; and (3) those two individuals, if any, who would have otherwise been in
included in section (2) above but for the fact that they were not serving as an
executive of the Company as of December 31, 2008.
SALARY COMPENSATION
----------------------------
NON-EQUITY NONQUALIFIED
NAME AND OPTIONS INCENTIVE PLAN DEFERRED ALL OTHER
PRINCIPAL FISCAL BONUS STOCK AWARDS COMPENSATION COMPENSATION COMPENSATION
POSITION YEAR SALARY($) ($) AWARDS ($)(1) ($) EARNINGS ($) ($)(2)(3) TOTAL ($)
--------------------- ------ --------- -------- ------- -------------------------------------------------------------------
Dean L. Julia 2007 $188,000 -- -- $145,667 -- -- $ 15,112 $ 348,779
Chief Executive 2008 $216,000 -- -- $ 32,648 -- -- $ 13,368 $ 262,016
Officer
Michael D. Trepeta 2007 $188,000 -- -- $145,667 -- -- $ 15,112 $ 348,779
President 2008 $216,000 -- -- $ 32,648 -- -- $ 12,447 $ 261,095
--------------------
(1) Reflects dollar amount expensed by the company during applicable fiscal
year for financial statement reporting purposes pursuant to FAS 123R.
FAS 123R 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 FAS 123 R 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) 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.
36
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 2008 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,
2008.
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
UNEXERCISED 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 UNEXERCISABE OPTIONS (#) PRICE ($) DATE VESTED (#) VESTED VESTED VESTED
------------- ----------- ------------ -------------- --------- ----------- ---------------------------------------------------
Dean L. Julia 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
Michael D.
Trepeta 250,000 -- -- $ 1.00 1/03/15 -- -- -- --
(1) 200,000 -- $ 1.20 12/28/15
150,000 -- -- $ 1.20 08/22/17 -- -- -- --
50,000 $ 1.20 03/01/13
--------------
(1) Common Stock purchase options to acquire 250,000 shares of common stock
at $1.00 per share were granted on January 3, 2005. These options were
fully exercisable (vested) upon grant. Options granted on December 28,
2005 vest and are exercisable immediately as to one-half of the options
and the balance vested and became exercisable on December 28, 2008.
Common Stock purchase options to acquire 150,000 shares of Common Stock
were granted on August 23, 2007, exercisable at $1.20 per share and
fully vested at the date of grant. All options contain cashless
exercise provisions.
37
EMPLOYMENT AGREEMENTS
Each of the following executive officers is a party to an employment
agreement with the Company.
NAME POSITION ANNUAL SALARY (1) BONUS (2)
Dean L. Julia Chief Financial Officer $ 216,000 Annual bonuses of at least
5% of pre-tax earn ngs
Michael Trepeta President $ 216,000 Annual bonuses of at least 5%
of pre-tax earn ngs
----------
(1) Annual salary is for 2008. 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. The current monthly base salary of $18,000 was scheduled to
increase to $20,000 on March 1, 2009; however, as a result of the financial
outlook of the economy and the difficult environment in which Ace is
operating under, our two executive officers have held off on their annual
monthly increase in wages and they will re-evaluate this decision on a
monthly basis.
(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.
38
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.
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, 1017;
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.
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
BOARD MEMBERS WHO ARE DEEMED INDEPENDENT
Our board of directors has determined that none of our directors are
"independent" as that term is defined by the National Association of Securities
Dealers Automated Quotations ("NASDAQ"). See "Lack of Committees" for the NASDAQ
definition of "Independent Director."
39
DIRECTOR COMPENSATION
STOCK OPTIONS
Stock options and equity compensation awards to our non-employee /
non-executive director are at the discretion of the Board. To date, no options
or equity awards have been made to our non-employee / non-executive director.
CASH COMPENSATION
Our non-employee / non-executive director is eligible to receive a fee
of $500 to be paid for attending each Board meeting; however, no fees were paid
in 2008.
TRAVEL EXPENSES
All directors shall be reimbursed for their reasonable out of pocket
expenses associated with attending the meeting.
DIRECTOR COMPENSATION
The following table shows the overall compensation earned for the 2008
fiscal year with respect to each non-employee and non-executive director as of
December 31, 2008.
DIRECTOR COMPENSATION
------------------------------------------------------------------------------------------
FEES
EARNED NON-EQUITY NONQUALIFIED
NAME AND OR PAID OPTION INCENTIVE PLAN DEFERRED ALL OTHER
PRINCIPAL IN CASH STOCK AWARDS COMPENSATION COMPENSATION COMPENSATION ($)
POSITION ($) AWARDS ($) (1) ($)(2) EARNINGS($) (3) TOTAL ($)
--------------------------- ------- ---------- ---------- ------------- ------------- ---------------- ---------
Scott Novack, Director -- -- -- -- -- -- --
-----------------------
(1) Reflects dollar amount expensed by the company during applicable fiscal
year for financial statement reporting purposes pursuant to FAS 123R. FAS
123R 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 FAS 123 R
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
40
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.
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
41
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.
AWARDS
------
As of December 31, 2008, the Company has granted non-statutory stock
options to purchase 3,331,222 shares of the Company's Common Stock which are
currently outstanding at exercise prices ranging from $.80 per share to $ 2.50
per share, exclusive of options which have been cancelled since the date of
grant. 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, 2008 on the known
benefits provided to certain persons and group of persons under the Plan.
----------------------------------------------------- ---------------- ---------------- ------------------------
NUMBER OF RANGE OF VALUE OF UNEXERCISED
SHARES SUBJECT EXERCISE PRICE OPTIONS AT
TO OPTIONS ($) PER SHARE DECEMBER 31, 2008 (1)
----------------------------------------------------- ---------------- ---------------- ------------------------
----------------------------------------------------- ---------------- ---------------- ------------------------
Dean L. Julia, Chief Executive Officer (2) 650,000 $.80 - $1.20 $-0-
----------------------------------------------------- ---------------- ---------------- ------------------------
Michael D. Trepeta, President (2) 650,000 $.80 - $1.20 $-0-
----------------------------------------------------- ---------------- ---------------- ------------------------
Sean McDonnell, Chief Financial officer 50,000 $1.00 $-0-
----------------------------------------------------- ---------------- ---------------- ------------------------
Three Executive Officers As a group 1,350,000 $.80 - $1.20 $-0-
----------------------------------------------------- ---------------- ---------------- ------------------------
Non-Executive Officer, Employees and Consultants 1,981,222 $.80-$ 2.50 $-0-
----------------------------------------------------- ---------------- ---------------- ------------------------
(1) Value is normally calculated by multiplying (a) the difference between the
market value per share at period end (i.e. $.77 based upon a last sale on
December 31, 2008) and the option exercise price by (b) the number of
shares of Common Stock underlying the option.
(2) Excludes options to purchase 50,000 shares, exercisable at $.65 per share
granted on March 1, 2009.
42
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
---------------------------------------------------------------------------
Related Stockholder Matters.
----------------------------
As of March 25, 2009, the Company had outstanding 9,717,615 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
SHARES PERCENTAGE
----------------------------------------------------------------------------------------------------------------------
OFFICERS AND DIRECTORS:
------------------------------------------------------------- ------------------------------- ------------------------
------------------------------------------------------------- ------------------------------- ------------------------
Scott Novack 1,052,402 10.8
457 Rockaway Avenue
Valley Stream, NY 11583
------------------------------------------------------------- ------------------------------- ------------------------
------------------------------------------------------------- ------------------------------- ------------------------
Michael D. Trepeta
457 Rockaway Avenue
Valley Stream, NY 11583(2) 1,716,402 16.5
------------------------------------------------------------- ------------------------------- ------------------------
Dean L. Julia
457 Rockaway Avenue
Valley Stream, NY 11583 (2) 1,686,901 16.2
------------------------------------------------------------- ------------------------------- ------------------------
------------------------------------------------------------- ------------------------------- ------------------------
Sean McDonnell 50,000 .5
457 Rockaway Avenue
Valley Stream, NY 11583 (3)
------------------------------------------------------------- ------------------------------- ------------------------
------------------------------------------------------------- ------------------------------- ------------------------
All Directors and Officers as a
Group (four persons) (4) 4,505,705 40.5
------------------------------------------------------------- ------------------------------- ------------------------
------------------------------------------------------------- ------------------------------- ------------------------
Domenico Iannucci 989,660 9.5
One Windsor Drive
Muttontown, NY 11753 (5)
------------------------------------------------------------- ------------------------------- ------------------------
43
---------------
(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.
(2) Includes options to purchase 700,000 shares.
(3) Includes options to purchase 50,000 shares.
(4) Includes options to purchase 1,150,000 shares.
(5) Includes 539,660 shares of Common Stock, Class A Warrants to purchase
300,000 shares and Class B Warrants to purchase 50,000 shares and includes
options to purchase 100,000 shares.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
-------------------------------------------------------------------
The following summary information is as of December 31, 2008 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 outstanding (excluding shares
Plan category of outstanding options options reflected in column (a)
------------------------------- ------------------------------ ---------------------- --------------------------------
Equity compensation 3,331,222 1.11 2,215,814
Plans (1)
------------------------------- ------------------------------ ---------------------- --------------------------------
(1) Options exercisable at December 31, 2008 include 3,331,222 shares with a
weighted average exercise price of $.80 to $2.50 per share and aggregate
intrinsic value of $0.00.
44
Item 13. Certain Relationships and Related Transactions and Director
--------------------------------------------------------------------
Independence.
-------------
Related Party Transactions
--------------------------
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 2004, 2005, 2006, 2007 and 2008 we purchased a total of
$20,471, $10,313, $8,657, $4,934 and $3,165, 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.
Director Independence
---------------------
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. Our board of directors has determined
that none of our directors are "independent" as that term is defined by the
National Association of Securities Dealers Automated Quotations ("NASDAQ").
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;
45
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 shall receive 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 described herein 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, excluding common stock sold
pursuant to commitments obtained prior to the date of this agreement
(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"). All accrued monthly advisory fees shall be paid to
Legend on the Closing Date of the Capital Transaction and thereafter the Monthly
Advisory Fee shall be paid no later than the fifteenth (15th) day of each
monthly anniversary of the Effective Date during the Term of this Agreement.
On March 25, 2009, the Board of Directors extended the expiration date
of the Company's Class A and Class B Warrants to the close of business on July
1, 2009.
Item 14. Principal Accountant Fees and Services.
-------------------------------------------------
AUDIT FEES
For the fiscal year ended December 31, 2008 and 2007, 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 $69,000 and $54,000, respectively.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal years ended December 31, 2008 and 2007, 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, 2008 and 2007, 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.
46
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 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA," beginning on page F-1 through page F-15 and are
included as part of this Form 10-K as the financial statements of the Company
for the years ended December 31, 2008 and 2007:
Reports of Independent Registered Public Accounting Firms
Balance Sheets
Statements of Operations
Statement of Stockholders' Equity
Notes to Financial Statements
(b) EXHIBITS
Exhibit Description
------- -----------
No.
---
3.1 Articles of Incorporation filed March 26, 1998 (1)
3.2 Amendment to Articles of Incorporation filed June 10, 1999 (1)
3.3 Amendment to Articles of Incorporation approved by stockholders on February 9, 2005(1)
3.4 Amended By-Laws (1)
10.1 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 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 - 2008 (3)
99.7 March 26, 2009 Press Release (3)
-----------
47
(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.
48
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 27, 2009
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 27, 2009
-------------------------- Chief Executive Officer
Dean L. Julia
/s/ Sean McDonnell Chief Financial Officer March 27, 2009
--------------------------
Sean McDonnell
/s/ Michael D. Trepeta President, Director March 27, 2009
--------------------------
Michael D. Trepeta
/s/ Scott Novack Director March 27, 2009
--------------------------
Scott Novack
Dean L. Julia, Michael D. Trepeta and Scott Novack represent all the current
members of the Board of Directors.
49
[Left blank intentionally]
EXHIBIT B
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
ACE MARKETING & PROMOTIONS, INC.
Under Section 805 of the Business Corporation Law
It is hereby certified that:
1. The name of the Corporation is Ace Marketing & Promotions, Inc.
2. The Certificate of Incorporation of the Corporation was filed by the
Department of State on March 26, 1998.
3. The Certificate of Incorporation is amended as follows:
To amend Article FOURTH of the Certificate of Incorporation to
increase the authorized number of shares of Common Stock. Currently the
corporation is authorized to issue 25,000,000 common shares at $.0001 par value.
The corporation shall add 75,000,000 common shares at a $.0001 par value for a
total of 100,000,000 common shares with a $.0001 par value. The corporation's
authorized 5,000,000 preferred shares at $.0001 par value shall remain
unchanged. Accordingly, Article FOURTH of the Certificate of Incorporation is
hereby amended and changed in its entirety, to now read as follows:
"FOURTH. The total number of shares of stock which the
corporation shall have authority to issue is one-hundred five million
(105,000,000), of which one-hundred million (10,000,000) shares of the
par value of one-tenth of a mil ($.0001) each, amounting in the
aggregate to ten thousand ($10,000), shall be common stock and of which
five million (5,000,000) shares of the par value of one-tenth of a mil
($.0001) each, amounting in the aggregate to five hundred ($500), shall
be preferred stock.
The voting powers, designations, preferences and relative,
participating optional or other rights, if any, and the qualifications,
limitations or restrictions, if any, of the preferred stock, in one or
more series, shall be fixed by one or more resolutions providing for
the issue of such stock adopted by the Corporation's board of
directors, in accordance with the provisions of Section 502 of the
Business Corporation Law of New York and the board of directors is
expressly vested with authority to adopt one or more such resolutions."
4. Pursuant to Section 803(a) of the Business Corporation Law, this
amendment to the Certificate of Incorporation was authorized by unanimous
consent of the board of directors of the Corporation on August 28, 2009 pursuant
to Section 708(b) of the Business Corporation Law and by a majority of the
outstanding shares entitled to vote at a meeting of stockholders of the
Corporation pursuant to Section 602(c) of the Business Corporation Law on
October 7, 2009.
1
IN WITNESS WHEREOF, the undersigned hereby affirms that statements made
herein are true and under penalties of perjury.
Dated: October 7, 2009 ACE MARKETING & PROMOTIONS, INC.
By: /s/ Michael Trepeta
-------------------------------
Michael Trepeta, President
By: /s/ Dean Julia
-------------------------------
Dean Julia, Secretary
2
EXHIBIT C
ACE MARKETING & PROMOTIONS, INC.
2009 EMPLOYEE BENEFIT AND CONSULTING SERVICES COMPENSATION PLAN
SECTION 1. INTRODUCTION
1.1 ESTABLISHMENT. Ace Marketing & Promotions, Inc., a New York
corporation (the "Company"), hereby establishes a plan of long-term stock-based
compensation incentives for selected Eligible Participants (defined below) of
the Company and its affiliated corporations. This plan was adopted on August 28,
2009 (the "Adoption Date") by the Board of Directors, subject to stockholder
ratification within one year and shall be known as the 2009 Employee Benefit and
Consulting Services Compensation Plan (the "Plan"). The effective date of the
Plan and duration of the Plan is set forth in section 17 herein.
1.2 PURPOSE. The purpose of the Plan is to further the success of the
Company and its Subsidiaries by making available Common Stock of the Company for
purchase by eligible directors, officers, consultants and key employees of the
Company and its Subsidiaries and thus to provide an additional incentive to such
personnel to continue to serve the Company and its Subsidiaries and to give them
a greater interest as stockholders in the success of the Company. It is intended
that this Plan be considered an "Employee Benefit Plan" within the meaning of
Regulation 405 of the Securities Act of 1933, as amended (the "1933 Act").
The Company intends this Plan to enable the Company to issue, pursuant
hereto, Incentive Stock Options as such term is defined in Section 422 of the
Internal Revenue Code of 1986, as amended from time to time (the "Code"). The
Company also intends this Plan to enable it to issue similar options which will
not, however, be qualified as Incentive Stock Options (also known as
"Non-Statutory Stock Options") and to issue stock in exchange for services
rendered.
The Plan shall become effective as provided in Section 17, provided,
however, Incentive Stock Options may not be exercised and will be void and of no
further force and effect if the Plan is not approved by stockholders within 12
months of the Adoption Date of the Plan.
SECTION 2. DEFINITIONS
The following definitions shall be applicable to the terms used in the
Plan:
2.1 "AFFILIATED CORPORATION" means any corporation that is either a
parent corporation with respect to the Company or a subsidiary corporation with
respect to the Company (within the meaning of Sections 424(e) and (f),
respectively, of the Code).
2.2 "Board" means the Board of Directors of the Company.
2.3 "COMMITTEE" means a committee designated by the Board of Directors
to administer the Plan or, if no committee is so designated, the Board of
Directors. The Board of Directors, in its sole discretion, may at any time
remove any member of the Committee and appoint another Director to fill any
vacancy on the Committee. The Committee shall consist of at least two members of
the Board of Directors, preferably (but not required) all of whom are
Non-Employee Directors. For the purposes of the Plan, a director or member of
the Committee shall qualify as a "Non-Employee Director" only if such person
qualifies as a Non-Employee Director within the meaning of paragraph (b)(3)(i)
of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended.
2.4 "COMMON STOCK" means the Company's $.0001 par value voting common
stock.
2.5 "COMPANY" means Ace Marketing & Promotions, Inc., a New York
corporation.
2.6 "Disability" means permanent total disability as defined in the
Code.
1
2.7 "EFFECTIVE DATE" means the effective date of the Plan, as set forth
in Section 17 hereof.
2.8 "ELIGIBLE PARTICIPANT" or "PARTICIPANT" means any employee,
director, officer, consultant, or advisor of the Company who is determined (in
accordance with the provisions of Section 4 hereof) to be eligible to receive
stock and exercise stock options hereunder. Not withstanding the foregoing, no
consultant or advisor shall receive options unless such person is eligible to
receive same under an employee benefit plan which would be filed under a Form
S-8 Registration Statement.
2.9 "Fair Market Value" with respect to Common Stock means fair market
value of a share of Common Stock as determined as of the date of grant in
accordance with Section 422(c)(7) of the Code and the Regulations applicable
thereto. In this respect, the Fair Market Value of the Common Stock shall be
determined as follows:
(i) If the Common Stock is listed on or quoted on any established stock
exchange or a national market system, including without limitation, NYSE
Alternext US LLC, the NASDAQ National Market or the NASDAQ SmallCap Market, its
fair market value shall be the mean between the high and low sales price for
such stock on such exchange or system on the date of such grant, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or, if
none, shall be the mean of the closing "bid" and "ask" prices, if any, for the
Common Stock on the date of such grant, as reported in The Wall Street Journal
or such other source as the Board deems reliable, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the date of
grant in accordance with Section 25.2512-2 of the Regulations;
(ii) If the Common Stock is not then listed or quoted on any
established stock exchange or national market system, including without
limitation, the NASDAQ National Market or the NASDAQ SmallCap Market or the OTC
Electronic Bulletin Board, its fair market value shall be the average of the
"bid" prices, if any, for the Common Stock on the date of such grant, as
reported in National Daily Quotation Service or such other source as the Board
deems reliable; or, if none, shall be determined by taking a weighted average of
the means between the highest and lowest sales on the nearest date before and
the nearest date after the date of grant in accordance with Section 25.2512-2 of
the Regulations; and
(iii) If the Fair Market Value of the Common Stock cannot be determined
under either (i) or (ii) of Section (c) above, the Fair Market Value thereof
shall be determined in good faith by the Board.
(iv) Regardless of (i) or (ii) of Section (c) above, if the last sales
price is reported, that value should be used.
2.10 "Grant" means the action of the Board or Committee at the time of
grant of an Option or direct issuance of a share of Common Stock.
2.11 "Incentive Stock Option" means any incentive stock option as
defined in Section 422(b) of the Code granted to an individual for any reason
connected with his employment by the Company at the time of the granting of a
given option under the Plan.
2.12 "Modification" means any change in the terms of an option which
would constitute a "modification" as defined in Section 424(h)(3) of the Code,
including, without limitation, such a modification to an option as effected by a
change in the Plan and any other change in the Plan which would increase the
number of shares reserved for options under the Plan, materially change the
administration of the Plan (except as permitted in paragraphs 4(c) hereof) or
that would otherwise materially increase the benefits accruing to, or available
for, participants in the Plan; provided, however, that registration of Option
shares under the Securities Act of 1933, as amended, shall not be deemed a
Modification.
2.13 "Non-Statutory Stock Option" means any option granted under this
Plan other than an Incentive Stock Option.
2
2.14 "OPTION" means the grant to an Eligible Participant of a right to
acquire shares of Restricted Stock of the Company, unless said shares are duly
registered, and thus freely tradable, pursuant to a Grant of Option approved by
the Committee and executed and delivered by the Company. "Options" means any
Incentive Stock Option or Non-Statutory Stock Option, unless otherwise indicated
or required by context.
2.15 "REGISTERED STOCK" means shares of Common Stock, $.0001 par value,
of the Company underlying an Option which, if specified in the written Option
are, upon issuance, freely tradable by virtue of having been registered with the
Securities and Exchange Commission on a Form S-8 Registration Statement, or
another appropriate registration statement, and which shares have been issued
subject to the "blue sky" provisions of any appropriate state jurisdiction.
Special resale restrictions may, however, apply to officers, directors, control
shareholders and affiliates of the Company and such individuals or entities will
be required to obtain an opinion of counsel as regards their ability to resell
shares received pursuant to this Plan.
2.16 "Subsidiary" means any corporation which is a "subsidiary
corporation" as defined in Section 424(f) of the Code, and the regulations
thereto.
2.17 "10% Stockholder" means a person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of Company
or of any parent or subsidiary of the Company after giving effect to the
attribution of stock ownership provisions of Section 424(d) of the Code.
2.18 "STOCK" or "RESTRICTED STOCK" means shares of Common Stock, $.0001
par value, of the Company issuable directly under the Plan or underlying the
grant of the Option, which are, upon issuance, subject to the restrictions set
forth in Section 11 herein.
References in these definitions to provisions of the Code shall, when
appropriate to effectuate the purposed of this Plan, be deemed to be references
to such provisions of the Code and regulations promulgated thereunder as the
same may be from time to time amended or to successor provisions to such
provisions. Terms defined elsewhere in this Plan shall have the meanings set
forth in such respective definitions. The term "Subsidiary" or "Subsidiaries"
shall be deemed to include any parent corporation (if any) as defined in Section
424(e) of the Code. Wherever appropriate, words used in the Plan in the singular
may mean the plural, the plural may mean the singular, and the masculine may
mean the feminine.
SECTION 3. ADMINISTRATION OF THE PLAN
The Plan is a plan of long-term stock-based compensation incentives for
selected Eligible Participants of the Company. In the absence of contrary action
by the Board, and except for action taken by the Committee pursuant to Section 4
in connection with the determination of Eligible Participants, any action taken
by the Committee or by the Board with respect to the implementation,
interpretation or administration of the Plan shall be final, conclusive and
binding. This Plan may be administered by the Committee, the Board or both, in
the sole discretion of the Board.
SECTION 4. ELIGIBILITY AND AWARDS
The Committee shall determine at any time and from time to time after
the Effective Date of the Plan: (i) the Eligible Participants; (ii) the number
of shares of Common Stock issuable directly or to be granted pursuant to the
Option which an Eligible Participant may exercise; (iii) the price per share at
which each Option may be exercised, including the form of consideration to be
paid, or the value per share if a direct issue of stock; and (iv) the terms on
which each Option may be granted. Such determination, may from time to time be
amended or altered at the sole discretion of the Committee. Options granted to
officers and/or directors of the Company shall be granted by the Board, or by
the Committee, if the Committee is composed of all members who are Non-Employee
Directors.
3
SECTION 5. GRANT OF OPTION
Subject to the terms and provisions of this Plan, the terms and
conditions under which the Option may be granted to an Eligible Participant
shall be established by the Committee and the Grant of an Option hereunder shall
be in the form attached hereto as APPENDIX A and made a part hereof and
containing such changes thereto and such other provisions as the Committee, in
its sole discretion, may determine. Notwithstanding the foregoing provisions of
this Section 5, each Grant of Option shall incorporate the provisions of this
Plan by reference.
Options may be granted after the Effective Date by the Committee and
instruments evidencing such grant(s) may similarly be so issued, but in each
case where Incentive Stock Options are granted, such Incentive Stock Options and
such instruments shall be subject to the approval and ratification of the Plan
by the stockholders of the Company within one year of the Effective Date of the
Plan, and notwithstanding anything in the Plan that may be deemed to be to the
contrary, no Incentive Stock Option may be exercised unless and until such
approval and ratification is obtained. In the event such approval and
ratification shall not be obtained, all Incentive Stock Options that may have
been granted pursuant to the Plan shall be converted into Non-Statutory Stock
Options, but shall be subject to the same termination provisions applicable to
the originally granted Incentive Stock Options. The shares of Common Stock
underlying an Incentive Stock Option may be sold in a disqualifying disposition
under Section 421(b) of the Code. No Option shall be granted for a term of more
than 10 years from the date of Grant. In the case of Incentive Stock Options
granted to a 10% stockholder, the term of the Incentive Stock Option shall not
exceed five years from the date of Grant.
The Committee shall determine the exercise price of each Option granted
under the Plan. Non-Statutory Stock Options may be granted at any price
determined by the Board even if the exercise price of the Non-Statutory Stock
Options is at a price below the Fair Market Value of the Company's Common Stock
on the date of Grant. In the case of Incentive Stock Options, the following
rules shall also apply:
(A) The purchase price of an Incentive Stock Option may not be less
than the Fair Market Value of the Common Stock at the time of Grant, except that
in the case of a 10% Stockholder who receives an Incentive Stock Option, the
purchase price may not be less than 110% of such Fair Market Value.
(B) The aggregate fair market value (determined at the time the Option
is granted) of the optioned stock for which Incentive Stock Options are
exercisable for the first time by any employee during any calendar year (under
all such Plans of the Company and its subsidiaries) shall not exceed $100,000.
SECTION 6. TOTAL NUMBER OF SHARES OF COMMON STOCK
The total number of shares of Common Stock reserved for issuance by the
Company either directly or underlying Options granted under this Plan from
inception to date is 4,000,000. The total number of shares of Common Stock
reserved for such issuance may be increased only by a resolution adopted by the
Board of Directors and amendment of the Plan. Stockholder approval of such
increase or other Modification of the Plan within one year of Effective Date
shall be required in the event Incentive Stock Options are granted or to be
granted under the Plan. Common Stock issued under the Plan may be authorized and
unissued or reacquired Common Stock of the Company. 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.
SECTION 7. PURCHASE OF SHARES OF COMMON STOCK
7.1 As soon as practicable after the determination by the Committee of
the Eligible Participants and the number of shares an Eligible Participant may
be issued directly or granted pursuant to an Option, the Committee shall give
written notice thereof to each Eligible Participant, which notice in the case of
Option Grants shall be accompanied by the Grant of Option to be executed by such
Eligible Participant. Upon vesting of Option, an Eligible Participant may
exercise his right to an Option to purchase Common Stock by providing written
notice as specified in the Grant of Option.
4
7.2 The exercise price for each Option to purchase shares of Common
Stock pursuant to paragraph 7.1 shall be as determined by the Committee based
upon the provisions contained in Section 5 herein, it being understood that the
price so determined by the Committee may vary from one Eligible Participant to
another.
SECTION 8. PAYMENT UPON EXERCISE OF OPTION OR DIRECT ISSUANCE
The Committee shall determine the terms of the Grant of Option and the
exercise price or direct issue price for payment or services by each Participant
for his shares of Common Stock granted thereunder. Such terms shall be set forth
or referred to in the Grant of Option or resolution authorizing the share
issuance. The terms and/or prices so set by the Committee may vary from one
Participant to another. Options granted under the Plan may provide for the
payment of the exercise price by delivery of (i) cash or a check payable to the
order of the Company in an amount equal to the exercise price of such Options,
(ii) shares of Common Stock owned by the optionee having a Fair Market Value
equal in amount to the exercise price of such Options, or (iii) any combination
of (i) and (ii), provided, however, that payment of the exercise price by
delivery of shares of Common Stock owned by such optionee may be made only upon
the condition that such payment does not result in a charge to earnings for
financial accounting purposes as determined by the Committee, unless such
condition is waived by the Committee at anytime between the date of grant and
the date of exercise. The Fair Market Value of any shares of Common Stock which
may be delivered to the Company for payment of the exercise price upon exercise
of an Option shall be determined by the Committee in the manner set forth in the
Grant of Option. Reference is made to Section 14 which provides that the
Committee may, in its discretion, have the Company make loans to option holders
to pay the exercise price and/or in the case of Non-Statutory Stock Options,
adopt additional cashless exercise provisions in form satisfactory to it, which
provisions would be established at the time of Grant of each Non-Statutory Stock
Option and incorporated into the Grant of Option.
SECTION 9. DELIVERY OF SHARES OF COMMON STOCK UPON EXERCISE
The Company shall deliver to or on behalf of each Participant such
number of shares of Common Stock as such Participant elects to purchase upon
direct issuance or upon exercise of the Option. Such shares shall be fully paid
and nonassessable upon the issuance thereof and shall be represented by a
certificate or certificates registered in the name of the Participant and, if
Restricted Stock, stamped with an appropriate legend referring to the
restrictions thereon, as described in Section 11 herein.
SECTION 10. RIGHTS OF EMPLOYEES; NON-TRANSFERABILITY; EXERCISE OF OPTIONS;
TERMINATION OF EMPLOYMENT; WITHHOLDING OBLIGATIONS
10.1 EMPLOYMENT. Nothing contained in the Plan or in any Stock Option,
Restricted Stock award or other Common Stock award granted under the Plan shall
confer upon any Participant any right with respect to the continuation of his or
her employment by the Company or any Affiliated Corporation, or interfere in any
way with the right of the Company or any Affiliated Corporation, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of a Stock
Option or other Common Stock award. Whether an authorized leave of absence, or
absence in military or government service, shall constitute termination of
employment shall be determined by the Committee at the time.
10.2 NON-TRANSFERABILITY. No right or interest of any Participant in a
Stock Option award shall be assignable or transferable during the lifetime of
the Participant, either voluntarily or involuntarily, or subjected to any lien,
directly or indirectly, by operation of law, or otherwise, including execution,
levy, garnishment, attachment, pledge or bankruptcy. In the event of a
Participant's death, a Participant's rights and interest in Stock Option awards
shall be transferable by testamentary will or the laws of descent and
distribution. Notwithstanding anything contained herein to the contrary, the
Company shall permit the assignment or transfer of an Option to Optionee's
children, grandchildren, spouse or trusts established solely for their benefits
(the "Family Members"), but only if the assignment or transfer is without
consideration and the Option remains subject to the provisions of the Plan.
5
10.3 EXERCISE OF OPTIONS. An Option granted under the Plan, to the
extent vested, shall be exercisable at such time or times, whether or not in
installments, as the Committee shall prescribe at the time the Option is
granted. An Option which has become exercisable may be exercised in accordance
with its terms as to any or all full shares purchasable under the provisions of
the Option. The purchase price of the shares shall be paid upon the exercise of
the Option in accordance with the provisions of the Grant of Option, and the
Company shall not be required to deliver certificates for such shares until such
payment has been made. Except as provided in Section 10.4, an Incentive Stock
Option may not be exercised at any time unless the holder thereof is then an
employee of the Company or any subsidiaries and shall have been continuously
employed by the Company or any subsidiaries since the date of grant (As used in
this Plan, the terms "employ" and "employment" shall be deemed to refer to
employment as an employee in any such capacity, and "termination of employment"
shall be deemed to mean termination of employment as an employee in all of such
capacities and continuation of employment as an employee in none of such
capacities.)
10.4 TERMINATION OF EMPLOYMENT. Except in the case of Optionee's death
or disability as provided below, in the event of termination of employment of a
person to whom an Incentive Stock Option has been granted under the Plan,
notwithstanding the reason for termination (such as termination for cause,
without cause or voluntary on the part of the optionee,), any Incentive Stock
Option held by him or a Family Member under the Plan, to the extent not
theretofore exercised by the Optionee or Family Member, shall on the 30th day
after termination of employment be null and void. Incentive Stock Options
granted under the Plan shall not be affected by any change of employment so long
as the holder continues in the employ of the Company or any subsidiaries.
Nothing in the Plan or in any Option granted pursuant to the Plan shall confer
on any individual any right to continue in the employ of the Company or any
subsidiaries or affiliates or interfere in any way with the right of the Company
or any subsidiaries or affiliates to terminate his employment or occupancy of
any corporate office at any time.
In the event of the death of an Optionee to whom an Incentive Stock
Option has been granted under the Plan while he is in the employ of the Company
or a subsidiary, such Incentive Stock Option may be exercised (to the extent of
the number of shares covered by the Incentive Stock Option which were
purchasable by the Optionee at the date of his death) by the lawful owner at any
time within a period of six months after his death, but in no event after the
day in which the Incentive Stock Option would otherwise terminate under the
Grant of Option.
In the event of termination of employment of a person to whom an
Incentive Stock Option has been granted under the Plan by reason of the
disability of such person, the optionee or his Family Member who is then the
holder of the Option may exercise his Incentive Stock Option at any time within
one year after such termination of employment but in no event after the day in
which the Incentive Stock Option would otherwise terminate, to the extent of the
number of shares covered by his Incentive Stock Option which were purchasable by
him at the date of the termination of employment. In the case of Non-Statutory
Options, the Committee shall determine at the time of Grant, all applicable
termination provisions of Options, if any, and shall incorporate them into the
Grant of Option.
10.5 FEDERAL INCOME TAX OR OTHER WITHHOLDING AMOUNTS. In respect to the
direct issuance of Common Stock or the exercise of Non-Statutory Stock Options
or any Incentive Stock Options which fail to qualify as such for any reason, any
required federal income tax or other withholding amount shall be paid (in full)
by the Option Holder or Family Member as the case may be, to the Company in cash
or by certified check at the time required by applicable federal and/or other
laws. The Company shall not be required to deliver certificates for such shares
until all such payments have been made, and until the Company has had an
opportunity (at its sole discretion) to obtain verification from the Option
Holder that all federal income tax or other withholding amounts have been
properly calculated and paid.
6
SECTION 11. GENERAL RESTRICTIONS
11.1 RESTRICTIVE LEGEND. All shares of Common Stock issued or issuable
under this plan, unless qualified as Registered Stock as defined in Section 2
hereinabove, shall be restricted, and certificates representing the shares shall
bear a restrictive legend reading substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
The Company may, at its option, register the Registered Stock on a Form
S-8 Registration Statement, or other appropriate form of registration statement,
for exercise and subsequent sale in accordance with the 1933 Act.
11.2 INVESTMENT REPRESENTATIONS. The Company may require any person to
whom a Stock Option, Restricted Stock award, or other Common Stock award is
granted, as a condition of exercising such Stock Option, or receiving such
Restricted Stock award, or other Common Stock award, to give written assurances
in substance and form satisfactory to the Company and its counsel to the effect
that such person is acquiring the Common Stock subject to the Stock Option,
Restricted Stock award, or other Common Stock award for his or her own account
for investment and not with any present intention of selling or otherwise
distributing the same, and to such other effects as the Company deems necessary
or appropriate in order to comply with federal and applicable state securities
laws.
11.3 COMPLIANCE WITH SECURITIES LAWS. Each Stock Option and Stock Grant
shall be subject to the requirement that if at any time counsel to the Company
shall determine that the listing, registration or qualification of the shares
subject to such Stock Option or Stock Grant upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, is necessary as a condition of, or in connection with, the
issuance or purchase of shares thereunder, such Stock Option or Stock Grant may
not be accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Committee. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
11.4 LIMITATION OF RIGHTS IN THE UNDERLYING SHARES. A holder of an
Option shall not be deemed for any purpose to be a stockholder of the Company
with respect to such Option except to the extent that such Option shall have
been exercised with respect thereto and, in addition, a stock certificate shall
have been issued theretofore and delivered to the holder.
SECTION 12. BURDEN AND BENEFIT
The terms and provisions of this Plan shall be binding upon, and shall
inure to the benefit of, each Participant, his executives or administrators,
heirs, and personal and legal representatives and Family Members who become
lawful transferees of Options granted hereunder.
SECTION 13. PLAN BINDING UPON LAWFUL TRANSFEREES
In the event of an Optionee's death and Options are to be transferred
to the Optionee's legal heirs and distributors, or in the event of transfers
during the Optionee's lifetime to his Family Members, such parties shall take
such Options subject to all provisions and conditions of this Plan, and, as a
condition precedent to the transfer of such Options, such parties shall agree to
be bound by all provisions of this Plan.
7
SECTION 14. LOANS/ADDITIONAL CASHLESS EXERCISE PROVISIONS
At the discretion of the Committee, the Company may loan to the
Optionee some or all of the purchase price of the shares acquired upon exercise
of an Option granted under the Plan. The Committee, in its sole discretion, may
also grant Non-Statutory Stock Options with payment of the exercise price to be
made(but not within the first six months from the date of Grant) through
additional cashless exercise provisions to be established by the Committee and
set forth in the Grant of Option.
SECTION 15. CHANGES IN CAPITAL STRUCTURE OF THE COMPANY
Subject to compliance with the requirements for qualification of the
Plan and of the Options issued or to be issued thereunder as "Incentive Stock
Options" under applicable provisions of federal laws and regulations, the
aggregate number and class of shares as to which Options may be granted under
the Plan, the number and class of shares covered by each outstanding Option and
the price per share thereof (but not the total price), and each such Option,
shall all be proportionately adjusted for any recapitalization or
reclassification, and any increase or decrease in the number of issued shares of
Common Stock of the Company resulting from a split-up or consolidation of shares
or any like capital adjustment, or the payment of any dividends in Common Stock,
or any other increase or decrease in the number of issued shares of Common Stock
of the Company without receipt of consideration by the Company.
In the event that the outstanding shares of Common Stock are increased,
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation (or entity) by
reason of any reorganization, merger, or consolidation, appropriate adjustment
shall be made in accordance with Section 424(a) of the Code, in the number and
kind of shares as to which Options may be granted under the Plan and as to which
outstanding options or portions thereof then unexercised shall be exercisable,
to the end that the proportionate interest of the grantee shall be maintained as
before the occurrence of such event. Such adjustment in outstanding options
shall be made without change in the total price applicable to the unexercised
portion of such Options and with a corresponding adjustment in the exercise
price per share.
In addition, unless otherwise determined by the Committee in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
Optionee the same kind of consideration that is delivered to the stockholders of
the Company as a result of such sale, conveyance or Change in Control, or the
Committee may cancel all outstanding options in exchange for consideration in
cash or in kind which consideration in both cases shall be equal in value to the
value of those shares of stock or other securities the Optionee would have
received had the Option been exercised (to the extent then exercisable) and no
disposition of the shares acquired upon such exercise had been made prior to
such sale, conveyance or Change in Control, less the exercise price therefor.
Upon receipt of such consideration, the Options shall immediately terminate and
be of no further force and effect. The value of the stock or other securities
the grantee would have received if the Option had been exercised shall be
determined in good faith by the Committee, and in the case of shares of Common
Stock, in accordance with the determination of Fair Market Value of Common Stock
as set forth herein.
The Committee shall also have the power and right to accelerate the
exercisability of any Options, notwithstanding any limitations in this Plan or
in the Grant of Option, upon such a sale, conveyance or Change in Control. Upon
such acceleration, any options or portion thereof originally designated as
Incentive Stock Options that no longer qualify as Incentive Stock Options under
Section 422 of the Code as a result of such acceleration shall be redesignated
as Non-Statutory Stock Options.
A "Change in Control" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned less than fifty (50%) percent of the
then outstanding Common Stock, shall acquire such additional shares of Common
Stock in one or more transactions, or series of transactions, such that
following such transaction(s), such person or group and affiliates beneficially
own fifty (50%) percent or more of the Common Stock outstanding.
8
If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Committee
shall authorize the issuance or assumption of Option(s) in a transaction to
which Section 424(a) of the Code applies, then, notwithstanding any other
provision of the Plan, the Committee may grant Option(s) upon such terms and
conditions as it may deem appropriate for the purpose of assumption of the old
option, or substitution of a new Option for the old Option, in conformity with
the provisions of such Section 424(a) of the Code and the Regulations
thereunder, and any such option shall not reduce the number of shares otherwise
available for issuance under the Plan.
No fraction of a share shall be purchasable or deliverable upon the
exercise of any Option, but in the event any adjustment hereunder in the number
of shares covered by the Option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.
SECTION 16. PLAN MODIFICATION AND AMENDMENT
Modifications or other amendments to the Plan may be made by the
stockholders of the Company. The Plan may also be amended by the Committee;
provided, however, that if Incentive Stock Options are granted or to be granted
under the Plan, no amendment which shall constitute a Modification shall be
effective unless approved by the stockholders of the Company within 12 months
before or after the adoption of the Modification. No termination, Modification,
or amendment of the Plan, may, without the consent of the optionee to whom any
Option shall theretofore have been granted, adversely affect the rights of such
optionee under such Option; nor shall any such Modification or amendment be
deemed to effect a Modification, extension or renewal of any Incentive Stock
Option previously granted except pursuant to an express written agreement to
such effect, executed by the Company and the optionee.
SECTION 17. EFFECTIVE DATE OF THE PLAN
17.1 EFFECTIVE DATE. The Plan is effective as of October 7, 2009.
17.2 DURATION OF THE PLAN. The Plan shall terminate at midnight on
October 6, 2019 which is the day before the tenth anniversary of the Effective
Date, and may be terminated prior thereto by action of the Committee of
Directors; and no Stock Option, Restricted Stock Award or other Common Stock
award shall be granted after such termination. Stock Options, Restricted Stock
Awards and other Common Stock awards outstanding at the time of the Plan
termination may continue to be exercised, or become free of restrictions, in
accordance with their terms.
Executed as a sealed instrument as of the 7th day of October, 2009.
ACE MARKETING & PROMOTIONS, INC.
By: /s/ Dean L. Julia
------------------------------------------
Dean L. Julia, Chief Executive Officer
9
APPENDIX A
FORM OF
GRANT OF OPTION PURSUANT TO THE
ACE MARKETING & PROMOTIONS, INC.
2009 EMPLOYEE BENEFIT AND CONSULTING SERVICES COMPENSATION PLAN
Ace Marketing & Promotions, Inc., a New York corporation (the
"Company"), hereby grants to _______________________________ ("Optionee") an
Incentive (Non-Statutory) Stock Option to purchase ___________ shares of common
stock, $.0001 par value (the "Shares") of the Company at the purchase price of
$______ per share (the "Purchase Price"). This Grant of Option is exercisable in
whole or in part at the principal offices of the Company and upon payment in
cash or shares of the Company's Common Stock as permitted under the Plan, or in
the case of a Non-Statutory Stock Option, through the cashless exercise
provisions established by the Committee at the time of Grant and set forth below
or in Appendix I.
This Option is granted pursuant to the 2009 Employee Benefit and
Consulting Services Compensation Plan (the "Plan"), a copy of which is appended
hereto. This Option, if it is an Incentive Stock Option, shall be terminated
pursuant to the provisions contained in Section 10.4 of the Plan. This Option,
if it is a Non-Statutory Stock Option Plan, shall be terminated pursuant to
provisions, if any, set forth by the Committee or the Committee, as the case may
be, in the minutes approving the Grant of Options described herein. Such
termination provisions shall be annexed hereto as Appendix I and are
incorporated herein.
Subject to the preceding paragraph, this Grant of Option, or any
portion thereof, may be exercised only to the extent vested per Appendix I, and
must be exercised by Optionee or Optionee's permitted transferees as described
in the Plan no later than ___________________ (the "Expiration Date") by (i)
notice in writing, sent by facsimile copy to the Company at its address set
forth above; and (ii) payment of the Purchase Price pursuant to the terms of
this Grant of Option and the Company's Plan. The notice must refer to this Grant
of Option, and it must specify the number of shares being purchased, and recite
the consideration being paid therefor. Notice shall be deemed given on the date
on which the notice is delivered to the Company by facsimile transmission
bearing an authorized signature of Optionee.
This Grant of Option shall be considered validly exercised once the
Company has received written notice of such exercise and payment therefor has
been received and in the case of checks or money orders, has cleared the banking
system.
If Optionee fails to exercise this Grant of Option in accordance with
this Agreement, then this Agreement shall terminate and have no force and
effect, in which event the Company and Optionee shall have no liability to each
other with respect to this Grant of Option.
This Grant of Option may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Execution and delivery of
this Grant of Option by exchange of facsimile copies bearing the facsimile
signature of a party hereto shall constitute a valid and binding execution and
delivery of this Grant of Option by such party. Such facsimile copies shall
constitute enforceable original documents.
The validity, construction and enforceability of this Grant of Option
shall be construed under and governed by the laws of the State of New York,
without regard to its rules concerning conflicts of laws, and any action brought
to enforce this Grant of Option or resolve any controversy, breach or
disagreement relative hereto shall be brought only in a court of competent
jurisdiction within the county of ________________, New York.
10
The Shares may not be sold, assigned, transferred or permitted to be
transferred, whether voluntarily, involuntarily or by operation of law,
delivered, encumbered, pledged, hypothecated or otherwise disposed of until (i)
the Shares have been registered with the Securities and Exchange Commission
pursuant to an effective registration statement on Form S-8, or such other form
of registration statement as may be appropriate, in the discretion of the
Company; or (ii) an Opinion of Counsel, satisfactory to the Company, has been
received, which opinion sets forth the basis and availability of any exemption
for resale or transfer from federal or state securities registration
requirements.
This Grant of Option may not be assigned, transferred or hypothecated
(except as permitted under the Plan) and any other purported assignment,
transfer or hypothecation shall be VOID AB INITIO and shall be of no force or
effect.
For purposes of any applicable cashless exercise provisions of this
Option, the "fair market value" per Share shall mean the market price of one
share of Common Stock on the last business day before the effective date of
exercise of the Option. If the Common Stock is then traded on a national
securities exchange or admitted to unlisted trading privileges on such an
exchange, or is listed on the NASDAQ Stock Market (the "NASDAQ Market"), the
market price as of a specified day shall be the last reported sale price of one
share of Common Stock on such exchange or on the NASDAQ Market on such date or
if no such sale is made on such day, the mean of the closing bid and asked
prices for such day on such exchange or on the NASDAQ Market. If the Common
Stock is not so listed or admitted to unlisted trading privileges the market
price as of a specified day shall be the mean of the last bid and asked prices
for one share of Common Stock reported on such date (x) by the NASD or (y) if
reports are unavailable under clause (x) above by the National Quotation Bureau
Incorporated. If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not reported, the market price
of one share of Common Stock as of a specified day shall be determined in good
faith by written resolution of the Board of Directors of the Company or the
Committee.
The Shares __________________ [INSERT APPROPRIATE LANGUAGE: "have" OR
"have not"] been registered with the Securities and Exchange Commission pursuant
to a registration statement on Form S-8.
IN WITNESS WHEREOF, this Grant of Option has been executed effective as
of ____________________, 200__.
ACE MARKETING & PROMOTIONS, INC.
NOT FOR EXECUTION
By:
___________________________________________
(Authorized Executive Officer)
OPTIONEE:
NOT FOR EXECUTION
__________________________
11
APPENDIX I
[DESCRIBE TERMINATION PROVISIONS OF NON-STATUTORY STOCK OPTIONS]
GRANT OF OPTION PURSUANT TO ACE MARKETING &
PROMOTIONS, INC. 2009 EMPLOYEE BENEFIT AND CONSULTING
SERVICES COMPENSATION PLAN
OPTIONEE: ____________________________
OPTIONS GRANTED: ____________________________
PURCHASE PRICE: $_________________ PER SHARE
DATE OF GRANT: ____________________________
EXERCISE PERIOD: ____________ TO ___________
VESTING SCHEDULE: OPTION ON
# OF SHARES DATE VESTED (ASSUMING CONTINUED
----------- ----------- EMPLOYEE OR CONSULTANT
STATUS, ETC.)
_________ __________
_________ __________
_________ __________
_________ __________
VESTED OPTIONS EXERCISED TO DATE: __________ (INCLUDING THIS EXERCISE)
BALANCE OF VESTED OPTIONS TO BE EXERCISED: __________
12
CASHLESS EXERCISE PROVISIONS APPLICABLE ONLY TO
NON-STATUTORY STOCK OPTIONS AT DISCRETION
OF COMMITTEE AT TIME OF GRANT
"CASHLESS RIGHT TO CONVERT NON-STATUTORY STOCK OPTION INTO STOCK NET ISSUANCE.
------------------------------------------------------------------------------
IN ADDITION TO AND WITHOUT LIMITING THE RIGHTS OF THE HOLDER UNDER THE TERMS OF
THIS NON-STATUTORY STOCK OPTION, THE HOLDER MAY ELECT TO EXERCISE THIS OPTION
(BUT NOT WITHIN THE FIRST SIX MONTHS FROM THE DATE OF GRANT) WITH RESPECT TO
THEN VESTED SHARES (THE "CONVERSION RIGHT"), THE AGGREGATE VALUE OF WHICH VESTED
SHARES SHALL BE EQUAL TO THE "IN-THE-MONEY" VALUE OF THIS OPTION OR THE PORTION
THEREOF BEING CONVERTED AS SET FORTH BELOW. THE CONVERSION RIGHT MAY BE
EXERCISED BY THE HOLDER BY SURRENDER OF THIS OPTION AT THE PRINCIPAL OFFICE OF
THE COMPANY TOGETHER WITH NOTICE OF THE HOLDER'S INTENTION TO EXERCISE THE
CASHLESS CONVERSION RIGHT, IN WHICH EVENT THE COMPANY SHALL ISSUE TO THE HOLDER
A NUMBER OF VESTED SHARES COMPUTED USING THE FOLLOWING FORMULA.
X= Y(A-B)
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A
WHERE: X THE NUMBER OF VESTED SHARES TO BE ISSUED TO THE HOLDER.
Y THE NUMBER OF VESTED SHARES REPRESENTING THE
PORTION OF THIS OPTION THAT IS BEING
CONVERTED AND CANCELLED IN PAYMENT OF SHARES
ISSUED TO THE HOLDER.
A THE FAIR MARKET VALUE OF ONE SHARE OF COMMON
STOCK OF THE COMPANY.
B THE EXERCISE PRICE (AS ADJUSTED TO THE DATE OF
SUCH CALCULATIONS).
FOR EXAMPLE, IF AN OPTION HOLDER HAS 3,000 OPTIONS EXERCISABLE AT $3.00
PER SHARE, 2,000 OPTIONS ARE VESTED, THE MARKET VALUE IS $6.00 PER SHARE AND THE
HOLDER DESIRES TO CONVERT THE OPTION TO THE EXTENT VESTED THROUGH THE CASHLESS
EXERCISE PROVISIONS, THE HOLDER WOULD RECEIVE 1,000 VESTED SHARES UPON
CONVERSION AND CANCELLATION OF THE 2,000 OPTIONS.
(X=Y(A-B) = 2,000($6.00 - $3.00) = 1,000)"
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A 6.00
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NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE OPTION)
TO: ACE MARKETING & PROMOTIONS, INC. ("Optionor")
The undersigned, the holder of the Grant of Option described above,
hereby irrevocably elects to exercise the purchase rights represented by such
Grant of Option for, and to purchase thereunder, _________ shares of the Common
Stock of Ace Marketing & Promotions, Inc., and herewith makes payment of
_____________________________________ therefor. Optionee requests that the
certificates for such shares be issued in the name of Optionee and be delivered
to Optionee at the address of
____________________________________________________, and if such shares shall
not be all of the shares purchasable hereunder, represents that a new
Subscription of like tenor for the appropriate balance of the shares, or a
portion thereof, purchasable under the Grant of Option pursuant to the Ace
Marketing & Promotions, Inc. 2009 Employee Benefit and Consulting Services
Compensation Plan to be delivered to Optionor when and as appropriate.
OPTIONEE:
Dated: _________________________ ________________________________________
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