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EX-31.2 - CERTIFICATION - Mobiquity Technologies, Inc.ace_10k-ex3102.htm
EX-99.13 - PRESS RELEASE - Mobiquity Technologies, Inc.ace_10k-ex9913.htm
EX-23.1 - CONSENT - Mobiquity Technologies, Inc.ace_10k-ex2301.htm
EX-32.1 - CERTIFICATION - Mobiquity Technologies, Inc.ace_10k-ex3201.htm
EX-32.2 - CERTIFICATION - Mobiquity Technologies, Inc.ace_10k-ex3202.htm
EX-21.1 - SUBSIDIARIES - Mobiquity Technologies, Inc.ace_10k-ex2101.htm
EX-31.1 - CERTIFICATION - Mobiquity Technologies, Inc.ace_10k-ex3101.htm
EX-99.12 - WARRANT - Mobiquity Technologies, Inc.ace_10k-ex9912.htm


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, 2011

COMMISSION FILE NUMBER: 000-51160

ACE MARKETING & PROMOTIONS, INC.
 
 
(Exact name of Registrant as specified in its charter)

New York
11-3427886
(State of jurisdiction of
incorporation or organization)
(I.R.S. Employee
Identification Number)
   
457 Rockaway Avenue, Valley Stream, NY
11581
(Address of principal executive offices)
(Zip Code)
   
Registrant's telephone number, including area code:
(516) 256-7766
   
Securities registered pursuant to Section 12 (b) of the Act:  
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.0001 Par Value

 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes [_]  No [X]
 
Check whether the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  [_]
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes [X]   No [_]
 
Indicate by check mark whether the Registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes [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]
 
As of June 30, 2011, the number of shares held by non-affiliates was approximately 17,665,000 shares.  The approximate market value based on the last sale (i.e. $.67 per share as of June 30, 2011) of the Company’s Common Stock was approximately $11,836,000.
 
The number of shares outstanding of the Registrant’s Common Stock, as of March 1, 2012 was 24,369,239.
 



 
 

 

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.
 
Item 1.  Business

Overview

Ace Marketing & Promotions, Inc. (the “Company” or “Ace”), a New York corporation,  is an Integrated Marketing Solutions Company that focuses on four business verticals; Branding & Branded Merchandise, Interactive Solutions, Direct Relationship Marketing and Mobile Marketing.
 
Ace Marketing has created a comprehensive suite of Integrated Marketing Solutions to Manage and Implement Branding and Marketing Strategies.  Ace’s proprietary Technology Platform, “AcePlace”, is the centerpiece of our implementation strategy.  AcePlace eliminates the need for companies to rely on multiple vendors to put their marketing strategies to work. 
 
Ace’s implementation philosophy is based on a systematic and data-driven process to identify ideal clients, prospects and branding strategies.  Our integrated platforms utilize the ideal delivery methods to strengthen brand awareness and drive effective marketing programs that produce results that can be easily defined and measured.
 
The Promotional Products Market (Branded)

Global Advertising Specialties Impressions Study (Released at the 2010 ASI Power Summit)

During July and August of 2010, a team conducted in-person interviews with business people in New York, Chicago, Los Angeles, Philadelphia, London, Sydney, Toronto and Montreal metro areas on behalf of ASI regarding promotional products they had received. The purpose of the interviews was to understand where items are kept, frequency of use, why the promotional product was kept and estimate the number of impressions the advertiser makes with the item. In-person interviewers conducted a total of 406 completed surveys.

Further, an online panel survey was conducted among recipients of advertising specialties to augment the sample from the in-person interviews. Combined with the in-person interviews, there was a total of 3,332 completed surveys for this study. Respondents were asked if they had received any promotional products in the last 12 months.

Conclusions

 
Cost per Impression. In the U.S., the cost per impression of a promotional product stayed virtually the same from 2008 to 2010, at .005 cents.
 
ü
When compared to other forms of media like television or radio, promotional products are very affordable and effective. For a modest investment, a small company can obtain the type of exposure normally reserved for large companies with significant advertising budgets.

 
Product Usage. Bags have the highest number of impressions in a month, over 1,000. In fact, over one-third (36%) of those with incomes under $50,000 own bags.
 
ü
Current global awareness of the importance of reusing, rather than throwing away, combined with high end-user needs for cost saving, make bags a better-than-ever way for advertisers to spread their message.

 
 

 


 
Gender Preferences. Males are more likely than females to own shirts and caps, while females are more likely to have bags, writing instruments, calendars and health and safety products than males. And as men age, they are even more likely to have received a cap in the last 12 months. As women age, they are more likely to have received writing instruments or calendars.
 
ü
Knowing the likely recipient of a promotional product is paramount for an advertiser. Decorating items that have special appeal to the end-user will mean the item gets used more often and held longer, extending the product’s life span and increasing the number of impressions it makes.

 
Positive Reinforcement. Product preferences differ among voters. 75% of Independent voters prefer consumer-branded products – nearly 1.5 times more than Democrats or Republicans. Independents get more promotional T-shirts than either Democrats or Republicans, but are less inclined than Democrats or Republicans to take free pens.
 
ü
Promotional products are unique during political campaigns in that they primarily emphasize the positive qualities of a candidate, while mass media focuses more on the negative aspects of the opposing candidate. A positive message on a useful product stands above the fray of negative campaign ads.

 
Ability to Identify the Advertiser. 83% in the U.S. indicated they could identify the advertiser on a promotional item they owned, very similar to 2008 (84%).
 
ü
Not only do promotional products make impressions to everyone who sees them, but messaging is reinforced every time the item is used, as it is making a contribution to the needs of the owner. No other form of media can allow the advertiser to so closely tie a benefit to the recipient of the message or brand.
 
 
 
Ability to Influence User Opinions. 41% of U.S. respondents indicated their opinion of the advertiser was more favorable after receiving a promotional product. Among those who had not done business with the advertiser already in the U.S., 27% thought it likely they would.
 
ü
Because the promotional products benefit is so clear to the end-user, they are more aware of the sponsor on the product and they are able to create a positive impression of the sponsor, as they find value in the item each time it is used.

 
Pass Along. After receiving a promotional product they don’t plan to keep, nearly two-thirds (62%) of respondents in the U.S. indicated that they give the item to someone else. This is up 11 percentage points from two years ago.
 
ü
Promotional product usefulness goes beyond the person who initially receives the item. Products are frequently passed along to others who might value them more.

Detailed Findings

Types of items owned
The most commonly owned promotional products among U.S. respondents are writing instruments (46%), followed by shirts (38%) and calendars (24%). Calendars climbed from seventh in 2008 to third in 2010. The number of calendars given out was not necessarily higher, but the number kept and subsequently used was higher.

                Types of Items Owned
 
 
Rank 2010
Rank 2008
Writing Instruments
1
1
Shirts
2
2
Calendars
3
7
Bags
4
4
Caps/Headwear
5
3
Desk/Office/Business Accessories
6
6
Food Items
7
n/a
Glassware/Ceramics (includes Mugs)
8
5
Health and Safety Products
9
n/a
Jackets/Hoodies/Sweatshirts/Fleece
10
n/a
Electronics/Computer
11
n/a
Recognition-Awards/Trophies/Plaques
12
10
Automotive
13
n/a

 
2

 

Ace Advantages
 
Ace has thousands of existing 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 Ace 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 our customers as trusted advisors. The majority of companies in the promotional product industry offer only branded merchandise, whereas, we offer solutions in:
 
 
·
Branding & Branded Merchandise;
 
·
Interactive Solutions/ Website Development;
 
·
Direct Relationship Marketing; and
 
·
Mobile Marketing / Proximity Marketing.
 
Our 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 Ace’s sales consultants become trusted advisors and Ace becomes a valued business partner.
 
BRANDING & BRANDED MERCHANDISE
 
Within the Branding vertical Ace has the ability to create the actual brand, in addition to providing all the branded merchandise.  This has been the core of the Ace business model since its inception.  The current focus within this vertical is to find innovative ways to leverage new technology platforms that drive growth beyond traditional channels.

Ace has invested in the technology and training that few other distributors have accomplished. Our industry leading software allows us to quickly sort through a database of 500,000 items and compile a collection of our customers best options by price, production time, imprint, shape color and size. We’ll email our customers a focused product presentation of items that fit their criteria with all the details. If time allows, we’ll also send our customers samples. It’s how Ace helps our customers achieve the greatest marketing impact within our customers’ budget on projects with even the tightest turn-around.

Whether reinventing a customer’s corporate image or developing a new logo, a strong brand is essential for making a positive first impression. Ace’s experienced sales consultants will help our customers to choose products that achieve the maximum impact.  While working within our customer parameters, we simultaneously maintain brand consistency and corporate image. Ace’s in-house Art Department & Creative Teams will incorporate our customers’ logo and branding into a custom format for specific events.

Program Business

Creating Brands, Creating Merchandise, Creating Solutions.  Ace’s “Program Business” Solution for branded Merchandise sourcing seeks to achieve:
 
 
·
Better Services;
 
 
·
Consistency in Branding to protect Quality, and
 
 
·
Incredible cost savings when implemented as an aggregated buying program.
 
Through our solution, we create an Online Company Store, purchase in bulk to achieve economies of scale, negotiate preferred domestic pricing and import directly when order size permits.  Ace also provides full-service fulfillment and shipping services.
 
Importing
 
Ace utilizes established suppliers carrying the most recognizable brands in the U.S and overseas. By concentrating our orders with the top suppliers-around the world, we attempt to ensure prompt product availability, competitive pricing and failsafe results.
 

 
3

 

When customers use Ace as their Importing Partner, they get:
 
·
Established relationships with premium factories throughout the world
·
Customized product development and design service
·
Factory Direct Pricing
·
Detailed Import Proposals F.O.B. USA
·
Prototyping and Pre-Production Samples
·
Detailed correspondence and foreign translation
·
Overseas Inspection of finished goods
·
On-site inspections – as needed
·
Letter of intent provided for overseas orders
·
 
 
Fulfillment & Warehousing
 
At Ace, we can streamline the supply chain to take advantage of the economies of scale that result from large orders. We can fulfill orders and distribute customers items to one location or multiple locations across the country.
 
Ace Offers:
 
·
Cost Center Analysis
·
Mailing Services
·
Credit Card Authorization
·
Pick & Pack Services
·
Drop shipping Inventory World-Wide
·
Assembly
·
Inventory Storage
·
Product Fulfillment
·
Inventory Consolidation
·
Shipping Manifest
·
Invoice Consolidation
·
Customized Reporting
 
INTERACTIVE SOLUTIONS

Website Development
 
AcePlace CMS - Ace has developed a proprietary Website Development Platform & Content Management System  (CMS) that will quite simply changes the way a customer’s presence on the web is designed and managed.  The recent addition of database-driven E-Mail, SMS Text & Newsletter capabilities make it a special  Client Relationship Management Platform.
 
Mobile Websites - Increasing numbers of web searches are originating from mobile devices as “smart phones” continue to dominate new phone sales.  Most existing websites do not display properly on the much smaller mobile screens, and in many cases, cannot display at all.  Search engines like Google give higher priority to WAP sites when the search originates from a mobile device.  Having a Mobile Website running in parallel with a primary website solves this problem.  Our solution recognizes the type of device (computer or mobile) and directs the information request to the appropriate format.  AcePlace is:
 
 
·
Optimized to display Web content effectively; 
 
 
·
Optimized for search engines used by mobile devices;
 
 
·
Optimized for easy data-field entry from mobile devices;
 
 
·
Customized High Quality and Visually pleasing design; and
 
 
·
Strategically developed to deliver vital content.
 
E-Commerce
 
When our customer needs a new web site built from the ground up or a complete overhaul of our customers existing design, we can expand our customers’ capabilities to include e-commerce or database management.   Our solution provides:

 
·
Retail E-Commerce;
 
 
·
Online Company Stores;
 
 
·
Enable customers to sell products and services to their clients and fans; and
 
 
·
Seamless integration with customer websites.
 

 
4

 


Email Marketing

Email Marketing is one of the least expensive methods of Ace’s customers reaching out to large masses of potential clients.  Ace can help our customers develop programs for building their email database, assist with the graphic design of their email templates and even provide a platform for individually personalized emails including variable data fields that can be tracked and reported in real-time.  Supporting services include:
 
 
·
Database Building;
 
 
·
Easy-to-use Newsletter creation;
 
 
·
Effective tracking & reporting; and
 
 
·
Integration with client website.
 
Reward & Incentive Programs

After potential customers meet with one of our Incentive and Rewards Consultants,Ace will tailor a custom “solution” for our customers’ organization that will:
 
 
·
Fit our customers’ Price Point;
 
 
·
Engage our customers’ Target Audience; and
 
 
·
Deliver Measurable Results.
 
Ace’s custom Incentive Manager solution provides everything our customers needs to run an incentive program for their clients, channel partners, salespeople, and employees. Incentive Manager is award neutral: it can plug into almost any incentive award choices including:
 
 
·
Brand Name Merchandise;
 
 
·
Gift Cards;
 
 
·
Travel Incentives; and
 
 
·
Debit Cards.
 
Or, simply link our customers’ newly customized Rewards program with any product offered on Amazon! Through our exclusive technology agreement with Atrium Enterprises, we have secured the rights to offer Amazon product through seamless integration bringing award winning fulfillment and distribution along with an unparalleled array of quality product for our customer’s Incentive Program.
 
Interactive Message Video (IMV)
 
Our interactive message video solution is a great way to engage our customers’ audience and build their online database.  IMV’s bring variable personalization to short, online video presentations.  Through progressive tracking programming, names or messages can be variably placed inside existing video, personalizing the video for each consumer who views it.  The variable message looks like it was actually live on set when the video was shot, and moves in real time. IMV’s are shot in high definition either on location or in-studio.  They are a truly innovative, cutting-edge means of conveying our customers marketing message through entertainment, and to personalize the experience to each prospect with dynamic content without the time or expense of video re-shoots or re-editing.  It will seem like we custom-created each video specifically for each client.
 
IMV’s Include:
 
 
·
A dynamic, personalized, online video designed to uniquely engage consumers, while gathering data to build and enhance our customers targeted consumer database.
 
 
·
An Integrated Enrollment Page allows individuals to enter personal information and participate in the personalized video experience.
 
 
·
Consumer’s personal information (name, age, sex, phone number,  and favorite song) can be dynamically incorporated to personalize the video for them and their favorite store, product, celebrity, and sports team.
 
 
o
Personalized data can also be incorporated in the video or to a live action, pre-recorded phone call from their favorite celebrity, artist, athlete.
 

 
5

 

 
 
·
Our Customers are immersed into a new and innovative video experience.
 
 
·
Web based video with flexibility to reside anywhere on the internet
 
 
o
Websites, social media sites and blogs .
 
RELATIONSHIP MARKETING

Ace utilizes a wealth of direct marketing programs (“DRM”) that integrate flawlessly, resulting in stronger messages and superior results.  By blending state-of-the-art technology with innovative, award-winning design, Ace delivers a comprehensive, interactive, and targeted direct marketing system.

Ace’s relationship marketing campaigns embrace data-driven personalization – using customer database information to target the marketing message to every recipient. These integrated programs build brand awareness, customer loyalty, and most importantly, increased response. Relationship marketing is the solution to attract new customers and keep existing ones: target the right group, use the proper combination of print, web, email and video to get a customer’s message across, and track the results.

DRM provides a dynamic, personalized turn-key marketing program for our customers business.  DRM targets prospects that are most likely to buy our customers’ products/services, in addition to helping them reconnect with and reacquire their existing customers.

Relationship Marketing:
 
 
·
Data - First, we’ll help our customers to analyze their customer data to develop an Ideal Customer Profile.  Second, we’ll use the Ideal Customer Profile to identify “most likely prospects” within their target market.
 
 
·
Offer - We’ll help our customers to develop offers that will get the attention of their existing and target customers.
 
 
·
Delivery - We’ll use multiple delivery methods:  Direct Mail, Email, SMS Text & Personal Websites to communicate our customer offer to their target audience.
 
The Key Benefits to Personalized Cross-Media Marketing:

Market to Truly Qualified Leads
 
 
·
Target consumers based on geographic, demographic, and psychographic data.
 
 
·
Pre-screen the consumers’ financial ability to purchase a customer’s product or service.
 
 
·
Target consumers who are more likely to purchase a customer’s product or service.
 
 
·
Achieve a lower per-customer acquisition cost than traditional media.
 
Impact Each & Every Target – Send the Right Message to the Right Target at the Right time using the Right Delivery Method:
 
 
·
Flexible message format – change the content based on the demographic profile.
 
 
·
Grabs the attention of a customer’s potential clients with personalized, relevant information.
 
 
·
Our customer’s will have a greater understanding of their product/service because they’ll be more likely to engage with a clients message.
 
 
·
Variable graphics and offer: deliver relevancy to a customer’s target; increasing response rates by increasing the perceived value to the consumer.
 

 
6

 

The Acquisition/Reactivation Model:

Identify Our Customer’s Target
 
 
·
Acquisition: Find clients that resemble our customer’s current client  and targeted client base by age, income, gender or lifestyle interest, eliminating those who are unlikely to respond to messages sent by our customer’s business
 
 
·
Retention: Create specific messages for our customer’s current client base to deliver relevant offers to increase their loyalty and referrals. Attraction Marketing can help our customer append their current data to fill in gaps in their customer list, such as most recent address, income, presence of children in household, lifestyle interest and much more.
 
Modeled Data

We can also work with our customers to improve their existing database through a cleansing (eliminating bad/outdated data) and appending (acquiring additional demographic data) process.  From an enhanced database, we can model our customer’s current database to build a mailing list of prospective clients that share the closest statistical similarity to their existing customer base.   This new list will have the highest propensity to become our customer’s new clients.  Finally, Ace can utilize the additional data to personalize the message and delivery method to maximize response rates.

Delivery Methods for Delivering Personal, Relevant Marketing Messages

Direct Mail
 
       Our direct mail is intended to:
 
 
·
Be personalized to the recipient; thereby increasing response rates by approximately 35%;
 
 
·
Contain variable message, graphics and offer, all in the same press run; and
 
 
·
Drive responders to personal VIP web site for data collection and increased response rates.
 
Broadcast E-Mail
 
        Our Broadcast E-mail are anticipated to:
 
 
·
Personalize variable messaging and graphics
 
 
·
Increase response rates
 
 
·
Provide immediate Feedback; and
 
 
·
Obtain Response reporting.
 
Personalized VIP Websites (P-URL’s) - A personalized URL provides an additional media channel to expand on our customer’s marketing message. The web page look and feel is designed to match the branding established in the direct mail campaign. The VIP page allows our customers business to:
 
 
·
Build or refine their database of leads by collecting data from responders;
 
 
·
Offer unique time based incentives to drive response;
 
 
·
Drive qualified traffic to our customer’s  website; and
 
 
·
Expand message outside target through viral refer-a-friend feature.
 
Call Tracking - Toll free or local numbers are assigned to each mail campaign and list segment to track call response. Each prospect call “invisibly” routes through our system and rings to our customer’s direct dial lines. From our customer’s reporting site, they can review recordings of the phone calls for response analysis and training purposes.
 
 
·
All missed calls are tracked, a message is immediately sent to our customer’s designated e-mail address with the information about the caller, ensuring our customer never loses a prospect call; and
 
 
·
Valuable information about the caller is tracked (when and where the call was originated, how many times it rang before it was picked up, call outcomes, and much more).
 
 
7

 

Track Customers’ Campaign Results with Online, Real-Time Reporting
 
 
·
Our proprietary web-based reporting system combines all of the gathered information into one reporting engine for easy analysis.
 
 
·
We deliver analytics for our customer’s to learn what campaigns were successful, and which ones need improvement; all to ensure future success.
 
 
·
Our reporting systems can also track the effectiveness of our customer’s other media investments.
 
MOBILE MARKETING
 
SMS Text Platform.  SMS Messaging provides a cost-effective and highly interactive way for our customers to communicate with their clients via their mobile phones.  Ace can help the customers design and implement programs that will allow our customers to cut through the clutter of traditional advertising and reach their clients via their most-personal device.

Mobile Websites.  With the rise of the “smart-phone”, the number of web-searches originating from mobile devices is skyrocketing.  Ace can ensure that our customer’s website is capable of formatting for display on these much-smaller screens, which will dramatically improve both functionality and Search Engine Optimization.

QR Codes.  Ace brings our customer’s print media and promotional products to life with QR Codes.  These unique codes can be placed on static media to create a dynamic point of interaction by engaging their consumers via their smart phones.  QR Codes are an inexpensive way to automatically link our customers to their clients to a mobile website, initiate a text, app download or youtube video.

Location-Based Mobile Marketing.  Ace is one of the leading national providers of location-based Proximity Marketing services through its wholly-owned subsidiary, Mobiquity Networks.  Proximity Marketing utilizes local Bluetooth & Wi-Fi networks to reach out to mobile devices that have entered “the Zone” to deliver rich digital-media content such as ringtones, wallpapers, videos, music, games, applications and coupons.  Systems can be installed on a campaign-basis, or our customer can utilize Ace’s ever-expanding national network to deliver their message.  Mobiquity Networks currently covers 75 of the nation’s premier mall properties and is represented in each of the top 10 DMA’s.  The malls covered by this proprietary network have average monthly visits from 96 million shoppers.  www.mobiquitynetworks.com

On January 5, 2011, we formed Mobiquity Networks, Inc. ("Mobiquity") for the purpose of attempting to develop a proximity marketing network and to derive revenues from same. Ace has assigned certain contracts described below (i.e. those contracts with Blue Bite LLC. and Eye Corp Pty Ltd.) pertaining to these start-up operations to Mobiquity.

The Mobile Marketing advertising medium continues to gain momentum in marketing spending.  Technology allows advertisers to target and deliver rich media content to specific locations and times where it is most relevant. It gives advertisers the ability to reach consumers with their message as they are ready to make their purchasing decision.
 
Mobiquity provides location-based mobile marketing services via Bluetooth and Wi-Fi that requires no GPS tracking and no need to download an application.   Mobiquity utilizes a targeted, location-based approach to reach audiences on their mobile devices when it matters most.  Mobiquity employs a combination of leading-edge mobile technologies to deliver virtually any digital media content including images, videos, audio mp3s, maps, games, applications and coupons to mobile phones within targeted geographic locations.
 
The Company has built an extensive location based mobile marketing mall network which currently enables access to over 96 million mobile customer visits per month while they are shopping. Our network allows brands to engage their potential customers with the right offer at the right place at the right time....when they are about to make a purchasing decision.
 
Mobiquity currently has over 600 zones throughout 75 malls with over 96 million monthly visits to those malls. These zones create a cloud of coverage so that visitors do not need to go directly to one of these zone access points. Some of our land mark malls include, but are not limited to:
 
 
·
Roosevelt Field - NY
 
·
The Galleria – Houston
 
·
Lenox Square – Atlanta
 
·
Northbridge – Chicago
 
·
Santa Monica Place – LA
 
·
Copley Place – Boston
 
How it Works:  A proximity broadcast station is set up in a location that is frequented by the target audience – a shopping mall, museum, bus stop, concert hall, etc. If an enabled device is in discoverable mode (which should be prompted by “call-to-action” signage) and comes within range, the Proximity Unit will ping the device and provide an opportunity for the user to accept or decline relevant content. This content can include text, still images, videos, audio files and more. If the user accepts, the Proximity Unit transfers the content to the device.
 

 
8

 

Proximity Marketing is being embraced by all kinds of organizations, including transportation services, sports arenas, financial institutions, malls and retail stores.  Because the content is only limited to what can be stored on a file, virtually anything is possible, from free ringtones and travel updates to sales promotions and event information.
 
The advantages of Proximity Marketing include free transmission for both the sending and receiving parties; the ability to send rich content such as video, music and even Java applications; the ability to target an audience very locally; as well as the relative novelty of the application.
 
 
 
 
 
Because we control the network remotely, each location and campaign can be monitored whether they are down the block or across the country.  With its precise statistical reporting as to how many consumers engaged in the campaign, advertisers now have an exciting new and measurable medium to communicate with consumers.
 

 
9

 

The Mobiquity AP Suite is a desktop software program used to manage and control all access points throughout the entire network from a remote location.  The content management tool adapts multimedia content like videos, audios, images, animations, vouchers, links, text, etc. to the screen size and technical requirements of each mobile device.  The integrated software tool tracks information pertaining to the success or failure of message delivery, message open rates, and conversion rates.  The Suite allows a Sequential Content Schedule to program the sending of content to the same user when detected in the same place at a different time or day.  Automated Creation of applications (JAVA and Windows Mobile), allows the creation and modification of text, images, WAP links, menus, etc. using templates. All of this can be done remotely and in real time.  The content manager programs in advance, multiple campaigns and creates grids of content. It offers the ability to set up to 20 campaigns simultaneously per access point with 10 sequential pieces of content per campaign and provides real time statistics and charts of detected devices, content downloads, and model of mobile devices that interact with the network.
 
Mobiquity’s is currently in 75 malls representing over 96 million visits per month.  Fifty of the malls that Mobiquity currently operates are owned by Simon Property Group (NYSE: SPG). The remaining 17 mall locations are owned by Macerich (NYSE: MAC).  Simon Property Group is the largest and Macerich is the third largest mall operators in the U.S.
 
For the exclusive use of Bluetooth throughout the common areas of their top 50 malls until December, 2015, the Company paid Simon Property Group a one-time $250,000 rights fee and pays $1,000 per month per mall.  The agreement with Simon also allows for non-exclusive use of Wi-Fi.
 
The Company is currently installed in 25 Macerich malls throughout the US.  Macerich currently has 76 shopping malls in the US and had over 650 million shopping visits in 2010.  Ace is currently discussing expanding throughout the Macerich mall portfolio.
 
Growth Strategy
 
Location-Based Mobile Marketing combined with Out-Of-Home Advertising results in strong opt-in rates due to proximity of the Network.  Management believes that we have the first Location-Based Mobile Marketing Company focused on US shopping malls and we have built and control the only national proximity marketing mall network.  Our exclusive contract with leading Out-Of-Home advertising company, Eye Corp. enables us to remain a leader in US malls.  According to the agreement, Eye Corp. is exclusive to us for five years. Eye Corp. is a subsidiary of Ten Network Holdings, a public company with its headquarters in Australia.   Eye Corp. has an exclusive agreement with Simon Malls to manage their non-digital assets in all mall properties and has a full-time sales force of 26 individuals that maintain relationships with over 800 brands.  The sales team of Eye Corp. will be paid a commission on Mobiquity proximity products.  Discussions have begun between Eye Corp. and Ace about expanding their exclusive relationship to global malls and airports.
 
Business Partners
 
We have partnered with Blue Bite LLC. (“Blue Bite”), a premier provider of Proximity Marketing hardware and software solutions, and Eye Corp Pty Ltd., (“EyeCorp”) an out-of-home media company which operates the largest mall advertising display network in the United States, to roll-out an expansive network which comprises of retail, dining, transportation, sporting, music, and other high traffic venues.
 
Agreement with Simon Property Group, L.P.
 
In April 2011, we signed an exclusive rights agreement with a top mall developer (the "Simon Property Group") to create a location-based mobile marketing network called Mobiquity Networks. The 50 mall agreement runs through December of 2015 and includes top malls in the Simon Mall portfolio. (Note: A list of these malls can be found by going to www.mobiquitynetworks.com website under the network tab). This new alliance will give advertisers the opportunity to reach millions of mall visitors per month with mobile digital content and offers when they are most receptive to advertising messages.
 
In connection with Eye Corp., Mobiquity Networks will deliver digital content and offers to shoppers on their mobile devices through Eye Corp’s extensive mall advertising network. Eye Corp and Mobiquity Networks have an exclusive agreement to build a location-based mobile marketing network throughout Eye Corp’s Mall Advertising network. New properties to be added to the Mobiquity Networks portfolio will include iconic malls in the top designated market area in the US. These prestigious malls further complement Mobiquity Networks’ portfolio of prominent malls including Queens Center Mall in New York City, Northbridge in Chicago, and Santa Monica Place in Los Angeles.
 

 
10

 

Our location-based mobile advertising medium is designed to reach on-the-go shoppers via their mobile devices with free rich media content delivered using Bluetooth or Wi-Fi. This advertising medium offers extremely targeted messaging engineered to engage and influence shoppers as they move about the mall environment. Eye Corp. and our company will jointly create mobile marketing programs for existing clients in conjunction with their already active in mall advertising programs. Mobiquity Networks proximity marketing units will be strategically positioned in shopping malls near entrances, anchor stores, escalators and other high-traffic, and high dwell-time areas. Mobiquity Networks proximity marketing unit placement takes advantage of the opportunity to provide a reminder to consumers and touch them just before making a purchase decision. These units generate high awareness and brand recognition at the right time and place. When combined with the impact of other visual advertising mediums (in mall assets) or as a stand-alone medium, Mobiquity Networks is a great mobile solution to promote a brand on a local or national level.
 
Our Distribution and Marketing Strategy

Key elements of our distribution and marketing strategy are as follows:

 
·
We have created a suite of solutions for one stop shopping. With its newly developed suite of solutions in place, Ace now offer its clients and potential clients the ability to work smarter in addressing their marketing needs by leveraging technology platforms. The services and technology platforms assembled within each of our four business verticals allow Ace to provide its clients with an exceptional mix of solutions for reaching their customers in ways that were previously impossible. Clients have the ability to choose a single solution within a vertical or a complete package of solutions working together seamlessly. By offering the entire suite of solutions, the need for multiple vendors has been eliminated, and Ace can be a single source provider of Branding, Interactive, Direct Relationship Marketing and Mobile Marketing Solutions.

 
·
We have partnered with leading companies for our proximity marketing business. We have partnered with Blue Bite LLC. (“Blue Bite”), a premier provider of Proximity Marketing hardware and software solutions, and Eye Corp Pty Ltd., (“EyeCorp”) an out-of-home media company which operates the largest mall advertising display network in the United States, to roll-out an expansive network which comprises of retail, dining, transportation, sporting, music, and other high traffic venues. As a result of these relationships, in April 2011, we were able to enter into an exclusive rights agreement with the Simon Property Group to create a location-based mobile marketing network in top malls across the United States in the Simon Mall portfolio. This new alliance will give advertisers the opportunity to reach millions of mall visitors a month with mobile digital content and offers when they are most receptive to advertising messages.

 
·
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.

 
·
Our company was built as a platform that could grow easily.  Scalability is the key and we have separate departments with defined roles which will allow this to occur and for our salesperson to sell.  Our sales persons receive helpful support from us.  In many other distributorships, the salesperson is often responsible for everything from answering phones, doing all their own research, processing orders, billing, tracking and collections.  At our company, we provide complete backup to allow our sales persons to just sell.  Since our technology is currently up to date, including in house servers to allow access to our systems from off-site, we have the ability to pick up salespeople from any location in the United States.

 
·
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.

 
·
Maintain a competitive gross profit percentage on all sales orders. For the years ended December 31, 2011 and 2010, our gross profit percentage was 25.5% and 29.4%, respectively.

 
·
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.


 
11

 

Sales and Marketing

Our revenues for branding, interactive and direct relationship marketing are derived from existing customers and new customers through word of mouth recommendations, attendance at trade shows, our sales representatives and advertising and promotion in trade journals. Our Ace Marketing website is utilized for multiple purposes, including providing information to potential customers who want to learn about us and research our available product line.  Except primarily our two executive officers, our sales representatives receive commissions and are not paid a salary. They work at their own location or at our facility and may sell products on behalf of other companies. We encourage our sales representatives to sell promotion products for us on the basis of sales incentives which include competitive commissions and appropriate sales support and research which 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 revenues for mobile marketing are derived through our relationship with Eye Corp. and our own sales marketing representatives.   Eye Corp. has an exclusive agreement with Simon Malls to manage their non-digital assets in all mall properties and has a full-time sales force of about 25 individuals that maintain relationships with over 800 brands.  The sales team of Eye Corp. will be paid a commission on Mobiquity proximity products.  Discussions have begun between Eye Corp. and Ace about expanding their exclusive relationship to global malls and airports.

Proximity Marketing Business is new and unproven/Competition will likely enter the market place and we may be unable to compete

In 2008, we became an authorized distributor, provider and reseller in the United States of mobile advertising solutions, in the mobile advertising and proximity marketing industry.  As of December 31, 2011, we have not generated any significant revenue from this new and unproven segment of our business. A primary business focus of Ace is to attempt to place our proximity marketing units into businesses on a local, regional and potentially on a national scale, and to then generate revenues through advertisers seeking new measurable media channels that can accurately target and engage key consumer segments and deliver compelling relevant content that can be enjoyed for what it is, shared with friends, interactively engage with or commercially acted upon instantaneously. It is our intent to enable advertisers to promote their business by sending animated images, audio files, video clips, text files, promotional or discount contents, bar codes, mobile games and java applications and business card files. We can also send live data such as news and sports updates to targeted mobile phones. The ABI Research report published in January 2008 on mobile marketing refers to the industry as still being in its “wild west” years but forecasts it will settle down and become a $24 billion slice of the worldwide marketing and advertising pie by 2013. While Management intends to market the proximity boxes as a premier mobile technology, we can provide no assurances that Ace will successfully establish a local, regional and/or national network containing its proximity marketing boxes or that sufficient advertising revenues and profits (if any) will result to justify the expenditures thereof. We also can provide no assurances that we will be able to compete with large and small competitors that are in (or may enter) the Proximity Marketing industry with substantially larger resources and management experience.

Competition

Our interactive solutions (website development) and direct relationship marketing (database management) verticals compete against thousands of small, medium and large companies throughout the United States. We can provide no assurances that our business will be able to compete in these business verticals against other companies that may have more financial resources and greater experience than the Company.

With respect to our branding and branded merchandise (promotional products vertical), while our competition in this business vertical is extensive with over 20,000 distributors, we believe that there are no companies that dominate the market in which we operate.  Our company competes within the industry on the basis of service, competitive prices, personnel relationships and competitive commissions to our sales representatives to sell promotional products for us rather than our competitors. Competitors’ advantages over us may include better financing, greater experience and better service, cheaper prices and personal relationships than us.
 
According to the Promotional Products Association International, with no single company dominating the market, the promotional products industry is highly fragmented with 21,150 distributors in the industry with revenues of less than $2.5 million and 857 distributors with revenues of $2.5 million or more. According to The Counselor – State of the Industry 2010 Survey, the top ten distributors in our industry are believed to have 2009 North American sales of over $1.6 billion. Staples, Pro Forma Inc., Group II Communications/IMS, BDA, and 4 Imprint were the top five distributors of 2009 with estimated sales of $360 million, $234 million, $207 million, $198 million and $165 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.

 
12

 


Employees
 
As of February 29, 2012, we had 12 full time employees, including three executive officers who provide in-house sales, our Chief Financial Officer and 6 support staff employees. We utilize 8 sales representatives of which two are employees who provide services on an exclusive basis and six additional persons who provide services to us on a non-exclusive basis as independent consultants. 
 
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.


PART I

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

History of operating losses.  Since we went public in 2005, we have experienced a continued history of operating losses.  For the  years ended December 31, 2011, 2010, and 2009 we incurred a net loss of $2,209,508, $1,762,256 and $1,577,010, respectively. Our operating losses for the past three years are attributable to the general state of the economy. We can provide no assurances that our operations will be profitable in the future. During the fiscal years ended December 31, 2011, 2010 and 2009, we have completed financings totaling $2,222,727, $1,124,250 and $1,628,300, respectively.  We can provide no assurances that we will be able to continue to raise additional financing to supplement our liquidity and capital resource needs on terms satisfactory to us if at all.
 
Our proximity marketing business is new, unproven and the establishment of this business may not result in sufficient revenues and profitability to justify the expenditures thereof. Also there are no assurances that we will be able to successfully compete in the proximity marketing business.  In 2008, we became an authorized distributor, provider and reseller in the United States of mobile advertising solutions, in the mobile advertising and proximity marketing industry. As of December 31, 2011, we have not generated any significant revenue from this new and unproven segment of our business. A primary business focus of Ace is to attempt to place our proximity marketing units into businesses on a local, regional and potentially on a national scale, and to then generate revenues through advertisers seeking new measurable media channels that can accurately target and engage key consumer segments and deliver compelling relevant content that can be enjoyed for what it is, shared with friends, interactively engage with or commercially acted upon instantaneously. It is our intent to enable advertisers to promote their business by sending animated images, audio files, video clips, text files, promotional or discount contents, bar codes, mobile games and java applications and business card files. We can also send live data such as news and sports updates to targeted mobile phones. The ABI Research report published in January 2008 on mobile marketing refers to the industry as still being in its “wild west” years but forecasts it will settle down and become a $24 billion slice of the worldwide marketing and advertising pie by 2013. It estimates there was about $1.8 billion spent in 2007 on all forms of mobile marketing. While Management intends to market the proximity boxes as a premier mobile technology, we can provide no assurances that Ace will successfully establish a local, regional and/or national network containing its proximity marketing boxes or that sufficient advertising revenues and profits (if any) will result to justify the expenditures thereof. We also can provide no assurances that we will be able to compete with large and small competitors that are in (or may enter) the Proximity Marketing industry with substantially larger resources and management experience.
 

 
13

 

Dependence upon our agreements with our business partners, Blue Bite LLC and Eye Corp. Pty Ltd. to execute on our proximity marketing plans as well as our dependence upon our agreement with Simon Property Group, L.L.P. We have partnered with Blue Bite LLC. (“Blue Bite”), a premier provider of Proximity Marketing hardware and software solutions, and Eye Corp Pty Ltd., (“EyeCorp”) an out-of-home media company which operates the largest mall advertising display network in the United States, to roll-out an expansive network which comprises of retail, dining, transportation, sporting, music, and other high traffic venues. In April 2011, we signed an exclusive rights agreement with a Top Mall Developer (the "Simon Property Group") to create a location-based mobile marketing network called Mobiquity Networks. The 50 mall agreement runs through December of 2015.  We are dependent upon our agreements with Blue Bite, Eye Corp. and Simon Property Group to execute on the development of our Proximity Marketing business and to attempt to achieve profitable operations. We can provide no assurances that our operations will be profitable.

We cannot predict our future capital needs and we may not be able to secure additional financing.  As of January 31, 2012, we will need to raise additional financing to support our Proximity Marketing operations and for general business operations. We can provide no assurances that additional equity or debt financings will be available to us on mutually satisfactory 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. Failure to secure additional financing on favorable terms could have severe adverse consequences to us.

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:
 
 
·
costs of developing new promotions and services;
 
·
costs related to acquisitions of businesses;
 
·
the timing and amount of sales and marketing expenditures;
 
·
general economic conditions, as well as those specific to the promotional product industry; and
 
·
our success in establishing additional business relationships.
 
Any change in one or more of these or other factors could cause our annual or quarterly operating results to fluctuate. If our operating results do not meet market expectations, our stock price may decline in the event a market should develop.

Because we do not manufacture the promotional products we distribute, we are dependent upon third parties for the manufacture and supply of our promotional products.  We obtain all of our promotional 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 promotional 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 and lack of a working capital line of credit. Any lack of cash resources would limit our ability to take orders from customers and to place Proximity Marketing Units in malls across the country. We can provide no assurances that we will obtain additional resources and/or an adequate line of credit in the future, if at all.

 
14

 

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 services 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, Michael Trepeta, President and Sean Trepeta, President of Mobiquity Networks. The loss of the services of these persons could have a material adverse effect on our business. We have an employment agreement with each of Messrs. Julia and M. Trepeta expiring March 1, 2015. However, we lack "key man" life insurance policies on any of our officers or employees. Competition for additional qualified management is intense, and we may be unable to attract and retain additional key personnel. The number of management personnel is currently limited and they may be unable to manage our expansion successfully and the failure to do so could have a material adverse effect on our business, results of operations and financial condition.

 
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 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:

 
·
costs of developing new promotions and services;
 
·
costs related to acquisitions of businesses;
 
·
the timing and amount of sales and marketing expenditures;
 
·
general economic conditions, as well as those specific to the promotional product industry; and
 
·
 our success in establishing additional business relationships.

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:

 
·
the publication of earnings estimates or other research reports and speculation in the press or investment community;
 
·
changes in our industry and competitors;
 
·
our financial condition, results of operations and prospects;
 
·
any future issuances of our common stock, which may include primary offerings for cash, and the grant or exercise of stock options from time to time;
 
·
general market and economic conditions; and
 
·
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 the 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.

 
15

 

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:
 
 
·
Authority of the board of directors to issue preferred stock; and
 
·
Prohibition on cumulative voting in the election of directors.

Our future sales of Common Stock by management and other stockholders may have an adverse effect on the then prevailing market price of our Common Stock. In the event a public market for our common stock is sustained in the future, sales of our common stock may be made by holders of our public float or by holders of restricted securities in compliance with the provisions of Rule 144 of the Securities Act of 1933. In general, under Rule 144, a non-affiliated person who has satisfied a six-month holding period in a fully reporting company under the Securities Exchange Act of 1934, as amended, may, sell their restricted Common Stock without volume limitation, so long as the issuer is current with all reports under the Exchange Act in order for there to be adequate common public information. Affiliated persons may also sell their common shares held for at least six months, but affiliated persons will be required to meet certain other requirements, including manner of sale, notice requirements and volume limitations. Non-affiliated persons who hold their common shares for at least one year will be able to sell their common stock without the need for there to be current public information in the hands of the public. Future sales of shares of our public float or by restricted common stock made in compliance with Rule 144 may have an adverse effect on the then prevailing market price, if any, of our common stock.

Lack of Audit Committee. 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 two independent directors but lack having an Audit Committee of the Board of Directors.  See “Item 10.”

Our Common Stock may be considered “penny stock” and may be difficult to trade. The SEC has adopted regulations that generally define “penny stock” to be an equity security that has a market or exercise price of less than $5.00 per share, subject to specific exemptions.  The market price of our Common Stock may be less than $5.00 per share and, therefore, may be designated as a “penny stock” according to SEC rules.  This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities.  These rules may restrict the ability of brokers or dealers to sell our Common Stock and may affect the ability of investors to sell their Shares.  In addition, since our Common Stock is quoted on the OTCBB, investors may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price.

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 also lease approximately 2,000 square feet of space, expiring in November 2012, at an annual cost of approximately $28,000 (inclusive of taxes) at 1105 Portion Road, Farmingville, NY 11738.

In February 2012, the Company entered into a lease agreement for new executive office space of approximately 4,200 square feet located at 600 Old Country Road, Garden City, NY 11530.  Not later than May 1, 2012, the Company will move its Valley Stream, NY office facilities into this space. The lease agreement is for 63 months. The annual rent under this office facility for the first year is estimated at $127,000, including electricity, subject to an annual increase of 3%. In the event of a default in which the Company is evicted from the office space, Ace would be responsible to the landlord for an additional payment of rent of $160,000 in the first year of the lease, an additional payment of $106,667 in the second year of the lease and an additional payment of rent of $53,333 in the third year of the lease. Such additional rent would be payable at the discretion of the Company in cash or in Common Stock of the Company.

Item 3.  Legal Proceedings

We are currently not subject to any threatened or pending legal proceedings. Nevertheless, we may from time to time become a party to various legal proceedings arising in the ordinary course of our business.

Item 4.  Reserved



 
16

 

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, 2010
   
$  .65
     
.40
 
June 30, 2010
   
.62
     
.25
 
September 30, 2010
   
.65
     
.11
 
December 31, 2010
   
.80
     
.23
 
March 31, 2011
   
.40
     
.17
 
June 30, 2011
   
.70
     
.16
 
September 30, 2011
   
1.85
     
.50
 
December 31, 2011
   
1.30
     
              .55
 


The closing sales price on February 29, 2012 was $.61 per share. All quotations provided herein reflect inter-dealer prices, without retail mark-up, markdown or commissions.

In the event a public market for our common stock is sustained in the future, sales of our common stock may be made by holders of our public float or by holders of restricted securities in compliance with the provisions of Rule 144 of the Securities Act of 1933. In general, under Rule 144, a non-affiliated person who has satisfied a six-month holding period in a fully reporting company under the Securities Exchange Act of 1934, as amended, may, sell their restricted Common Stock without volume limitation, so long as the issuer is current with all reports under the Exchange Act in order for there to be adequate common public information. Affiliated persons may also sell their common shares held for at least six months, but affiliated persons will be required to meet certain other requirements, including manner of sale, notice requirements and volume limitations. Non-affiliated persons who hold their common shares for at least one year will be able to sell their common stock without the need for there to be current public information in the hands of the public. Future sales of shares of our public float or by restricted common stock made in compliance with Rule 144 may have an adverse effect on the then prevailing market price, if any, of our common stock. See "Risk Factors."

As of February 29, 2012, there were approximately 106  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.


 
17

 

RECENT SALES OF UNREGISTERED SECURITIES

For the period January 1, 2011 through February 29, 2012, there were no sales of unregistered securities, except as follows:

Date of Sale
Title of Security
Number Sold
Consideration Received
and Description of
Underwriting or Other
Discounts to Market
Price or Convertible
Security, Afforded to
Purchasers
Exemption from
Registration
Claimed
If Option, Warrant
or Convertible
Security, terms of
exercise or
conversion
           
January 2011
Common Stock
150,000 shares and 200,000
Class E warrants
Services rendered;
no commissions paid
Section 4(2)
Warrants exercisable at $.30 per share through August 31, 2013
March 2011
Common Stock and
Class E Warrants
2,516,666 shares and
2,516,666 warrants
$755,000; no commissions paid
Rule 506
Warrants exercisable at $.30 per share through August 31, 2013

           
April 2011
Common Stock and Class E warrants
100,000 shares and Class E
warrants to purchase 100,000 shares
 
Services rendered;
no commissions paid
Rule 506
Warrants exercisable at $.30 per share through August 31, 2013
           
May 1/ June 2011
Common Stock
and Class F
Warrants
1,025,000 shares,
Class F
Warrants to purchase 1,025,000 shares and Class G Warrants to purchase 900,000 shares, respectively.
$461,250; no commissions
 Paid
Rule 506
Class F Warrants exercisable at $.50 per share through May 31, 2014, Class G Warrants exercisable at $.60 per share through May 31, 2014 August 31, 2013
 
           
July/August 2011
Common Stock and Class H
Warrants
1,950,000 shares, 1,980,000 Warrants (includes 30,000 Warrants issued to Placement Agent)
$975,000; $15,000 commission paid
Rule 506
Class H Warrants exercisable at $.60 per share through July 31, 2014
           
           
 
September 2011
 
Common Stock
 
159,810 shares
 
Cashless exercise of Warrants; no commissions paid
 
 
Section 3(a)(9)
 
Warrants exercised on cashless basis
           
 
August/
September 2011
Common Stock
325,000 shares
Services rendered; no commissions paid
Section 4(2)
Not applicable.
 
 
August 2011
 
Common Stock
 
65,000 shares
 
Services rendered; no
commissions paid
 
Section 4(2)
 
Not applicable.
 
December 2011
 
Common Stock
 
66,000
 
Services rendered; no
Commissions paid
 
Section 4(20
 
Not applicable.
           
January 2012
Common Stock and Class AAWarrants
958,338 shares, 191,671 Warrants (excludes 95,833 Warrants issued to Placement Agent)
$575,000; $51,750 commission paid;
$25,000 advisory fee
paid (exclusive of legal
and due diligence costs)
Rule 506
Class AAWarrants exercisable at $.60 per share through January 18, 2016
 
February 2012
 
Common Stock
 
150,000 shares
 
Services rendered; no
Commissions paid
 
Section 4(2)
 
Not applicable


 
18

 

____________________

(b) Rule 463 of the Securities Act is not applicable to the Company.

(c) For the year ended December 31, 2011, there were no repurchases by the Company of its Common Stock.


RECENT PURCHASES OF SECURITIES

In 2011, we have had no repurchases of our common stock.

Item 6.  Selected Financial Data

Not Applicable.

 
19

 

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this Form 10-K. All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated future capital requirements, our future plan of operations, our ability to obtain debt, equity or other financing, and our ability to generate cash from operations, are based on current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results.

Overview

Ace Marketing & Promotions, Inc. is a publicly traded company on the OTCBB under the ticker symbol: AMKT. The Company began as a promotional products company and has since evolved into an integrated marketing solutions company. Ace currently focuses on four business verticals; Branding, Interactive, Direct Relationship Marketing and Mobile Marketing.

The Mobile Marketing advertising medium continues to gain momentum in marketing spending.  Technology allows advertisers to target and deliver rich media content to specific locations and times where it is most relevant. It gives advertisers the ability to reach consumers with their message as they are ready to make their purchasing decision.

Ace Marketing & Promotions’ subsidiary Mobiquity Networks provides location-based mobile marketing services via Bluetooth and Wi-Fi that requires no GPS tracking and no need to download an application.   Mobiquity utilizes a targeted, location-based approach to reach audiences on their mobile devices when it matters most.  Mobiquity employs a combination of leading-edge mobile technologies to deliver virtually any digital media content including images, videos, audio mp3s, maps, games, applications and coupons to mobile phones within targeted geographic locations.
 
The Company has built an extensive location based mobile marketing mall network which currently enables access to over 96 million mobile customer visits per month while they are shopping. Our network allows brands to engage their potential customers with the right offer at the right place at the right time....when they are about to make a purchasing decision.
 
Mobiquity currently has over 600 zones throughout 75 malls with over 96 million monthly visits to those malls. These zones create a cloud of coverage so that visitors do not need to go directly to one of these zone access points. Some of our land mark malls include, but are not limited to:
 
 
·
Roosevelt Field - NY
 
·
The Galleria – Houston
 
·
Lenox Square – Atlanta
 
·
Northbridge – Chicago
 
·
Santa Monica Place – LA
 
·
Copley Place – Boston

Location-Based Mobile Marketing combined with Out-Of-Home Advertising results in strong opt-in rates due to proximity of the Network.  Through its subsidiary Mobiquity Networks, Management believes that Ace is the first Location-Based Mobile Marketing Company focused on US shopping malls and has built and controls the only national proximity marketing mall network.  An exclusive contract with leading Out-Of-Home advertising company, Eye Corp. will enable Ace to remain a leader in US malls.  According to the agreement, Eye Corp. is exclusive to Ace for five years. Eye Corp. is a subsidiary of Ten Network Holdings, a public company with its headquarters in Australia.   Eye Corp. has an exclusive agreement with Simon Malls to manage their non-digital assets in all mall properties and has a full-time sales force that maintains relationships with over 800 brands.  The sales team of Eye Corp. will be paid a commission and will be required to fulfill a sales quota on Mobiquity proximity products.  Discussions have begun between Eye Corp. and Ace about expanding their exclusive relationship to global malls and airports.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.  The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.

 
20

 


REVENUE RECOGNITION - Revenue is recognized when title and risk of loss transfers to the customer and the earnings process is complete. In general, title passes to our customers upon the customer's receipt of the merchandise. Revenue is recognized on a gross basis since the Company has the risks and rewards of ownership, latitude in selection of vendors and pricing, and bears all credit risk. Advance payments made by customers are included in customer deposits.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. We are required to make judgments based on historical experience and future expectations, as to the realizability of our accounts receivable. We make these assessments based on the following factors: (a) historical experience, (b) customer concentrations, customer credit worthiness, (d) current economic conditions, and (e) changes in customer payment terms.

Results of Operations

2011 versus 2010

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.

   
Years Ended December 31
 
   
2011
   
2010
 
             
Revenue
 
$
       3,243,318
   
$
3,170,035
 
Cost of Revenues
   
       2,417,834
     
2,237,396
 
Gross Profit
   
          825,484
     
932,639
 
Operating Expenses
   
       3,033,448
     
2,694,826
 
Loss from operations
   
     (2,207,964
)
   
(1,762,187
)
Net Loss
   
    (2,209,508
)
   
(1,762,256
)
Preferred Stock Dividend
   
--
     
--
 
Net Loss Allocable to Common Stockholders
   
     (2,209,508
)
   
(1,762,256
)
Net (Loss) per common Share
   
               (.11
)
   
(.13
)
Weighted average common Shares outstanding
   
       20,566,33
     
13,520,411
 
 
We generated revenues of $3,243,318 for 2011 compared to $3,170,035 in 2010.  The increase in revenues of $73,283 in 2011 compared to 2010 is due to the increased efforts of our sales force.

Cost of revenues was $2,417,834 or 74.5% of revenues for 2011 compared to $2,237,396 or 70.6% of revenues for 2010. Cost of revenues includes purchases and freight costs associated with the shipping of merchandise to our customers.

Gross profit was $825,484 for 2011 or 25.5% of net revenues compared to $932,639 in the same period of 2010 or 29.4% 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.

Selling, general, and administrative expenses were $3,033,448 for 2011 as compared to $2,694,826 for 2010. Such costs include payroll and related expenses, commissions, insurance, rents, professional, consulting and public awareness fees. The overall increase of $338,622 was primarily due to a $244,062 increase in rents for our proximity marketing vertical and $99,387 increase in payroll.

Net loss from operations was $(2,207,964) for 2011 compared to a net loss of $(1,762,187) for 2010. Our increase in net loss for 2011 as compared to the comparable period of the prior year was due to an increase in rents for our proximity marketing segment as described above. No benefit for income taxes is provided for 2011 and 2010 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.

Liquidity and Capital Resources

The Company had cash and cash equivalents of $605,563 at December 31, 2011.

Cash used by operating activities for the year ended December 31, 2011 was $(1,786,001). This resulted primarily from a net loss of $2,209,508 and an increase in accounts payable and accrued expenses of $179,680, partially offset by stock based compensation of $474,556 and a increase in accounts receivable of $236,032. Cash was used in investing activities of $594,744, which funds were used to acquire property and equipment primarily for purchases of proximity marketing boxes.  Cash provided by financing activities of $2,222,727 was the result of the sale of our company common stock.

 
21

 

Cash used by operating activities for the year ended December 31, 2010 was $(1,023,774). This resulted primarily from a net loss of $1,762,256 and a decrease in accounts payable and accrued expenses of $199,021, partially offset by stock based compensation of $706,635 and a decrease in accounts receivable of $234,663. Cash was used in investing activities of $173,056, which funds were used to acquire property and equipment primarily for purchases of proximity marketing boxes.  Cash provided by financing activities of $1,364,800 was the result of the sale of our company common stock.

Our company commenced operations in 1998 and was initially funded by our three founders, each of whom has made demand loans to our Company that have been repaid. Since 1999, we have relied on equity financing and borrowings from outside investors to supplement our cash flow from operations.

We anticipate that our future liquidity requirements will arise from the need to finance our accounts receivable and inventories, hire additional sales persons and capital expenditures. The primary sources of funding for such requirements will be cash generated from operations, raising additional capital from the sale of equity or other securities and borrowings under debt facilities which currently do not exist. We believe that we can generate sufficient cash flow from these sources to fund our operations for at least the next fifteen months.

Recent Financings

In the past two fiscal years ended December 31, 2011 and the period January 1, 2012 through January 31, 2017, the Company completed the following private placement offerings with non-affiliated persons except as otherwise noted:

On December 8, 2009, Ace Marketing & Promotions, Inc. entered into an Introducing Agent Agreement with Legend Securities, Inc., a FINRA registered broker-dealer ("Legend"), to attempt to raise additional financing through the sale of its Common Stock and Warrants. Between December 8, 2009 and March 15, 2010, the Company closed on gross proceeds of $1,025,000 before commissions of $117,000. The planned use of proceeds is to primarily expand the Company's mobile and interactive divisions.  The Company issued pursuant to the terms of the offering an aggregate of 2,050,000 shares of Common Stock at a per share price of $.50 per share and 1,025,000 Warrants exercisable at $1.00 per share to investors in the offering and placement agent warrants to purchase an amount equal to 10% of the number of shares and the number of warrants sold in the offering. All securities were issued pursuant to Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended.

In August 2010, the Company raised $175,000 in gross proceeds from the sale of 437,500 shares and a like number of Warrants expiring in August 2013.  The investor paid $0.40 per Share and received Warrants exercisable at $0.60 per Share.  In November 2010, the Company commenced a plan of financing and raised an additional $800,500 in financing from the sale of 2,934,999 Shares of its restricted Common Stock at $0.30 per Share and Common Stock Purchase Warrants to purchase a like number of Shares, exercisable at $0.30 per Share through August 31, 2013. Subsequent to the completion of the second financing, the Company agreed to adjust the terms of the August 2010 transaction and issue to the August 2010 investor Shares and Warrants on the same terms as those sold in November - December 2010. Accordingly, an additional 145,833 Shares and a like number of Warrants were issued to the August 2010 investor, with the exercise price of the Warrants being lowered from $0.60 per Share to $0.30 per Share.  All securities will be issued pursuant to Section 4(2) and/or Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended.

In March 2011, the Company commenced a private placement offering. Pursuant to said offering between March 29, 2011 and April 19, 2011, the Company raised $755,000 in gross proceeds from the sale of 2,516,666 shares of common stock and a like number of warrants, exercisable at $.30 per share through August 31, 2013. Exemption is claimed for the sale of securities pursuant to Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended.

Between May 25, 2011 and June 3, 2011, the Company received gross proceeds of $461,250 from the sale of 1,025,000 shares of Common Stock at a purchase price of $.45 per share. The sale of stock was also accompanied by Warrants expiring on May 31, 2014. Exemption is claimed for the sale of securities pursuant to Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended.

In July 2011, the Company commenced a private placement offering. Pursuant to said offering between July14, 2011 and August 1, 2011, the Company raised $975,000 in gross proceeds from the sale of 1,950,000 shares of common stock and a like number of warrants, exercisable at $.60 per share through July 31, 2014.  Of the $975,000, $250,000 was invested by Thomas Arnost who later became a director of the Company in December 2011. Mr. Arnost received 500,000 shares of Common Stock and Warrants to purchase 500,000 shares in the offering. Exemption is claimed for the sale of securities pursuant to Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended.

On January 30, 2012, the Company’s private placement offering was terminated. Rockwell Global Capital LLC acted as Placement Agent. The Company received gross proceeds of $575,000 from the sale of 958,338 shares of Common Stock at a purchase price of $.60 per share. The private placement offering also included the sale of Warrants to purchase 191,671 shares of Common Stock, exercisable at $.60 per share and expiring on January 18, 2016. The Placement Agent received a $25,000 advisory fee, $51,750 in commissions and warrants to purchase 95,833 shares identical to the warrants sold to investors in the offering. Exemption is claimed for the sale of securities pursuant to Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended. The Company is required to file a Registration Statement with the Securities and Exchange Commission (“SEC”) to register the resale of the shares of Common Stock sold in the private placement offering and the resale of the shares of Common Stock issuable upon exercise of the Class AA Warrants (collectively the “Registrable Shares”).  If a Registration Statement covering the Registrable Shares is not filed with the SEC on or before March 15, 2012 or is not declared effective within 120 days of January 30, 2012 (subject to a 60 day extension in the event the SEC is performing a full review of the Registration Statement), the Company shall pay to each investor as liquidated damages, a payment equal to 1.5% of the aggregate amount invested by such investor in the offering, cumulative for every 30 day period until such Registration Statement has been filed or declared effective or a portion thereof. Such liquidated damages shall not exceed 15% per annum. The Company, at its sole discretion, shall pay the liquidated damage payment in cash and/or Common Stock of the Company based upon the closing sale price of the Company’s Common Stock on the trading day preceding the date triggering the payment of the liquidated damages.
 

 
22

 

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.




 
23

 

 
ACE MARKETING &
PROMOTIONS, INC.


CONTENTS
 
   
YEARS ENDED DECEMBER 31, 2011 AND 2010
PAGES
   
CONSOLIDATED FINANCIAL STATEMENTS
 
   
Reports of Independent Registered Public Accounting Firm
F-1
   
Consolidated Balance Sheets
F-2
   
Consolidated Statements of Operations
F-3
   
Consolidated Statement of Stockholders' Equity
F-4
   
Consolidated Statements of Cash Flows
F-5
   
Notes to Consolidated Financial Statements
F-6




 
F-1

 


 
 
Peter Messineo
Certified Public Accountant
1982 Otter Way Palm Harbor FL 34685
peter@pm-cpa.com
T   727.421.6268   F   727.674.0511

 
Report of Independent Registered Public Accounting Firm
 

Board of Directors and Stockholders
Ace Marketing & Promotions, Inc.
Valley Stream, New York

I have audited the accompanying consolidated balance sheets of Ace Marketing & Promotions, Inc. (the "Company") for the years ended December 31, 2011 and 2010 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on my audits.

I conducted my audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that I 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 was I engaged to perform, an audit of its internal control over financial reporting. My audits 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, I 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. I believe that my audits provide a reasonable basis for my opinion.

In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ace Marketing & Promotions, Inc. as of December 31, 2011 and 2010 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/ Peter Messineo, CPA
Peter Messineo, CPA
Palm Harbor, Florida
February 27, 2012
 
 
 

 
F-2

 

 
     ACE MARKETING &
     PROMOTIONS, INC.
     
Condensed Balance Sheets
   
December 31,
 
   
2011
   
2010
 
             
Assets
           
             
Current Assets:
           
Cash and cash equivalents
  $ 605,563     $ 763,581  
Accounts receivable, net of allowance for doubtful accounts of $20,000 at December 31, 2010 and December 31, 2011
    534,924       298,892  
Prepaid expenses and other current assets
    342,641       218,336  
Total Current Assets
    1,483,128       1,280,809  
                 
Property and Equipment, net
    714,865       249,726  
                 
Other Assets
    7,745       7,745  
Total Assets
  $ 2,205,738     $ 1,538,280  
                 
Liabilities and Stockholders' Equity
               
                 
Current Liabilities:
               
Accounts payable
  $ 399,924     $ 243,795  
Accrued expenses
    121,821       98,270  
Total Current Liabilities
    521,745       342,065  
                 
Commitments and Contingencies
               
                 
Stockholders' Equity:
               
                 
Preferred Stock, $.0001 par value; 5,000,000 shares authorized, none issued
               
Common stock, $.0001 par value; 100,000,000 shares authorized; 23,284,236 and 16,834,260 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively
    2,328       1,683  
Additional paid-in capital
    10,997,407       8,300,766  
Accumulated deficit
    (9,284,241 )     (7,074,733 )
      1,715,494       1,227,716  
Less: Treasury Stock, at cost, 23,334 shares
    (31,501 )     (31,501 )
Total Stockholders' Equity
    1,683,993       1,196,215  
Total Liabilities and Stockholders' Equity
  $ 2,205,738     $ 1,538,280  
                 
                 
 
 
     
     
See notes to condensed  financial statements.
   
 

 
 
F-3

 

ACE MARKETING &
PROMOTIONS, INC.
       
Condensed Statements of Operations
     
Years Ended December 31,
     
 
   
2011
   
2010
 
             
Revenues, net
  $ 3,243,318     $ 3,170,035  
Cost of Revenues
    2,417,834       2,237,396  
Gross Profit
    825,484       932,639  
                 
Operating Expenses:
               
Selling, general and administrative expenses
    3,033,448       2,694,826  
Total Operating Expenses
    3,033,448       2,694,826  
                 
Loss from Operations
    (2,207,964 )     (1,762,187 )
                 
Other Income (Expense):
               
Interest expense
    (2,177 )     (818 )
Interest income
    633       749  
Total Other Income (Expense)
    (1,544 )     (69 )
                 
Net Loss
  $ (2,209,508 )   $ (1,762,256 )
                 
Net Loss Per Common Share:
               
                 
Basic
  $ (0.11 )   $ (0.13 )
                 
Diluted
  $ (0.11 )   $ (0.13 )
                 
Weighted Average Common Shares Outstanding:
               
                 
Basic
    20,566,338       13,520,411  
                 
Diluted
    20,566,338       13,520,411  
 
 
     
     
See notes to condensed  financial statements.
   
 
 
 
F-4

 
 
 
   ACE MARKETING &
   PROMOTIONS, INC.
                   
Statement of Stockholders' Equity
Years Ended December 31, 2010 and 2011
           
 
                                           
                                           
   
Total
               
Additional
                   
     Stockholders'     Common Stock    
Paid-in
         
Treasury Stock
 
   
Equity
   
Shares
   
Amount
   
Capital
   
(Deficit)
   
Shares
   
Amount
 
                                           
Balance, at December 31, 2009
  $ 887,036       11,615,703     $ 1,163     $ 6,229,851     $ (5,312,477 )     23,334     $ (31,501 )
Stock Purchase
    1,364,800       4,672,499       467       1,364,333                          
Stock Warrant
    15,064                       15,064                          
Stock Grant
    155,649       546,058       53       155,596                          
Stock Compensation
    535,922                       535,922                          
Net Loss
    (1,762,256 )                             (1,762,256 )                
Balance, at December 31, 2010
  $ 1,196,215       16,834,260     $ 1,683     $ 8,300,766     $ (7,074,733 )     23,334     $ (31,501 )
Stock Purchase
    2,222,727       5,616,666     $ 562     $ 2,222,165                          
Stock Warrant
    25,522       134,810     $ 13     $ 25,509                          
Stock Grant
    141,153       698,500       70       141,083                          
Stock Compensation
    307,884                       307,884                          
Net Loss
    (2,209,508 )                           $ (2,209,508 )                
Balance, at December 31, 2011
  $ 1,683,993       23,284,236     $ 2,328     $ 10,997,407     $ (9,284,241 )     23,334     $ (31,501 )
 
 
     
     
See notes to condensed  financial statements.
   
 

 
F-5

 

     ACE MARKETING &
     PROMOTIONS, INC.
     
Condensed Statements of Cash Flows
   
Years Ended December 31,
 
   
2011
   
2010
 
             
             
Cash Flows from Operating Activities:
           
Net loss
  $ (2,209,508 )   $ (1,762,256 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    129,607       56,961  
Stock-based compensation
    474,556       706,635  
Changes in operating assets and liabilities:
               
(Increase) decrease in operating assets:
               
Accounts receivable
    (236,032 )     234,663  
Prepaid expenses and other assets
    (124,304 )     (60,756 )
Increase (Decrease) in operating liabilities:
               
Accounts payable and accrued expenses
    179,680       (199,021 )
Total adjustments
    423,507       738,482  
Net Cash Used in Operating Activities
    (1,786,001 )     (1,023,774 )
                 
Cash Flows from Investing Activities:
               
Acquisition of property and equipment
    (594,744 )     (173,056 )
Net Cash (Used) in Provided by Investing Activities
    (594,744 )     (173,056 )
                 
Cash Flows from Financing Activities:
               
                 
Proceeds from issuance of common stock
    2,222,727       1,364,800  
Net Cash Provided by Financing Activities
    2,222,727       1,364,800  
                 
Net Increase (decrease) in Cash and Cash Equivalents
    (158,018 )     167,970  
Cash and Cash Equivalents, beginning of period
    763,581       595,611  
Cash and Cash Equivalents, end of period
  $ 605,563     $ 763,581  
 
 
 
     
     
See notes to condensed  financial statements.
   
 



 
F-6

 


 
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010
 

NOTE 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.
 
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Ace Marketing & Promotions, Inc. and its wholly owned subsidiary, Mobiquity Networks, Inc.  All intercompany accounts and transactions have been eliminated in consolidation.
 
REVENUE RECOGNITION - Revenue is recognized when title and risk of loss transfers to the customer and the earnings process is complete. In general, title passes to our customers upon the customer's receipt of the merchandise. Revenue is recognized on a gross basis since the Company has the risks and rewards of ownership, latitude in selection of vendors and pricing, and bears all credit risk. Advance payments made by customers are included in customer deposits.
 
The Company records all shipping and handling fees billed to customers as revenues, and related costs as cost of goods sold, when incurred.
 
ALLOWANCE FOR DOUBTFUL ACCOUNTS - Management must make estimates of the uncollectability of accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.
 
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are being amortized using the straight-line method over the estimated useful lives of the related assets or the remaining term of the lease. The costs of additions and improvements, which substantially extend the useful life of a particular asset, are capitalized. Repair and maintenance costs are charged to expense. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the account and the gain or loss on disposition is reflected in operating income.
 
 
 


 
F-7

 

ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010
 
 
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, 2011 and 2010.
 
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 16,100,000 and 9,364,000 because they are anti-dilutive, as a result of a net loss for the years ended December 31, 2011 and 2010, respectively.
 
 

 
F-8

 

 
 
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010
 
 
ADVERTISING COSTS - Advertising costs are expensed as incurred. For the year ended December 31, 2011 there were no expenses, in 2010 there were $2,850 in costs.
 
ACCOUNTING FOR STOCK BASED COMPENSATION. Stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period.  The Company uses the Black-Sholes option-pricing model to determine fair value of the awards, which involves certain subjective assumptions.  These assumptions include estimating the length of time employees will retain their vested stock options before excising them (“expected term”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”) and the number of options for which vesting requirements will not be completed (“forefitures”). Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation, and the related amount recognized on the consolidated statements of operations.  Refer to Note 8 “Stock Option Plans” in the Notes to Consolidated Financial Statements in this report for a more detailed discussion.
 
INCOME TAXES - Deferred income taxes are recognized for temporary differences between financial statement and income tax basis of assets and liabilities for which income tax or tax benefits are expected to be realized in future years. A valuation allowance is established to reduce deferred tax assets, if it is more likely than not, that all or some portion of such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
 
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2009, the FASB issued new accounting guidance that established the FASB Accounting Standards Codification (“Codification”), as the single source of authoritative GAAP to be applied by nongovernmental entities, except for the rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. This new guidance became effective for interim and annual periods ending after September 15, 2009. Other than the manner in which new accounting guidance is referenced, the Codification did not have an effect on the Company’s financial statements.



 
F-9

 

 
 
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010

In January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements. This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers.  Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our financial statements.
 
In February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events and amendments to certain recognition and disclosure requirements. Under this ASU, a public company that is a SEC filer, as defined, is not required to disclose the date through which subsequent events have been evaluated. This ASU is effective upon the issuance of this ASU. The adoption of this ASU did not have a material impact on our financial statements.

In April 2010, the FASB issued ASU No. 2010-18 regarding improving comparability by eliminating diversity in practice about the treatment of modifications of loans accounted for within pools under Subtopic 310-30 – Receivable – Loans and Debt Securities Acquired with Deteriorated Credit Quality (“Subtopic 310-30”). Furthermore, the amendments clarify guidance about maintaining the integrity of a pool as the unit of accounting for acquired loans with credit deterioration.  Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors. The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early adoption is permitted. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our financial statements.

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.  Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company's present or future financial statements.




 
F-10

 



ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010
 
 
 
NOTE 2: PROPERTY AND EQUIPMENT, NET
 
Property and equipment, net, consist of the following at December 31:
 
 
USEFUL LIVES
 
2011
   
2010
 
               
Furniture and Fixtures
5 years
 
$
     986,785
   
$
     392,039
 
Leasehold Improvements
5 years
   
8,919
     
8,919
 
       
     995,704
     
     400,958
 
Less Accumulated Depreciation
     
     280,839
     
     151,232
 
     
$
    714,865
   
$
     249,726
 
 
Depreciation expense for the years ended December 31, 2011 and 2010 was $129,607 and $56,961, respectively.
 
 
 
 

 
F-11

 


ACE MARKETING & PROMOTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010


NOTE 3: INCOME TAXES

The provision for income taxes for the years ended December 31, 2011 and 2010 is summarized as follows:

   
2011
   
2010
 
Current:
           
Federal
 
$
-
     
-
 
State
   
-
     
-
 
     
-
     
-
 
                 
Deferred:
               
Federal
   
-
     
-
 
State
   
-
     
-
 
   
$
-
   
$
-
 
 
The Company has federal and state net operating loss carryforwards of approximately $5,836,000, which can be used to reduce future taxable income through 2030.

The tax effects of temporary differences which give rise to deferred tax assets (liabilities) are summarized as follows:


 
 

 


 
F-12

 



ACE MARKETING & PROMOTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010

 
   
YEARS ENDED DECEMBER 31,
 
   
2011
   
2010
 
             
Deferred Tax Assets:
           
Net operating loss carryforwards
 
$
2,808,000
   
$
1,924,000
 
Stock based compensation
   
1,276,000
     
1,086,000
 
Allowance for doubtful accounts
   
8,000
     
8,000
 
Deferred Tax Assets
   
4,092,000
     
3,018,000
 
Less Valuation Allowance
   
4,092,000
     
3,018,000
 
Net Deferred Tax Asset
 
$
-
   
$
-
 

 A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows:
 
   
YEARS ENDED DECEMBER 31,
 
   
2011
   
2010
 
                 
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%
 
                             


 
 

 
F-13

 



ACE MARKETING & PROMOTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
 
 
 
NOTE 4: STOCKHOLDERS’ EQUITY

PRIVATE PLACEMENT OF SECURITIES - During fiscal 2004, the Company sold through a private placement, 14.74 units (each consisting of 50,000 common shares and 50,000 Class A Warrants). Each Class A Warrant had an exercise price of $2.00 and was to expire on January 3, 2007. The Company extended the expiration date of the Class A Warrants to July 1, 2009.  The Class A Warrants expired on September 30, 2009.
 
During fiscal 2005, the Company completed a private placement through the sale of 10 units (each consisting of 10,000 common shares and 10,000 Class B Warrants) at a purchase price of $10,000 per unit for net proceeds of $95,000, net of transaction cost of approximately $5,000. Each Class B Warrant had an exercise price of $2.00 and expires on January 2, 2008. Subsequent to December 31, 2007, the Company extended the expiration date of the Class B Warrants to July 1, 2009.  The Class B Warrants expired on September 30, 2009.
 
During fiscal 2006, the Company completed a private placement (the "Offering") through the sale of 15.859 units (each consisting of 60,000 common shares and 30,000 Class C Warrants) at a purchase price of $105,000 per unit for net proceeds of $1,420,937, net of transaction costs of approximately $244,000. Each Class C Warrant has an exercise price of $1.75 per share and expires on June 30, 2009. The Class C Warrants expired on September 30, 2009
 
Pursuant to the Offering, the Placement Agent was issued 139,680 shares of the Company's common stock and a warrant to purchase 95,160 shares of common stock at an exercise price of $1.00 per share. The Placement Agent warrants expired on June 29, 2011.

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.


 
 


 
F-14

 



ACE MARKETING & PROMOTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010


On July 14, 2009, the Company entered into a Placement Agent Agreement with Sierra Equity Group LLC, a FINRA registered broker-dealer ("Sierra"), to attempt to raise additional financing through the sale of its Common Stock and Warrants. Between August 21, 2009 and October 15, 2009, the Company closed on gross proceeds of $499,250 and received net cash proceeds of approximately $403,000, after commissions of approximately $50,000, legal expenses of $40,000 and blue sky, escrow and printing expenses of approximately $7,000. The planned use of proceeds is to primarily expand the Company's mobile and interactive divisions. In connection with the offering, the Company entered into a Financial  Advisory  Agreement with  Sierra  pursuant to which Sierra would  receive 300,000 shares  of

Common Stock and an additional 10% of the number of shares sold in the offering. The Company issued pursuant to the terms of the offering and the Financial Advisory Agreement an aggregate of 717,253 shares of Common Stock at an average per share price of $.696 per share and 358,627 Warrants exercisable at $1.00 per share to investors in the offering and an aggregate of 371,725 shares and 35,863 Warrants to Sierra.

On December 8, 2009, Ace Marketing & Promotions, Inc. entered into an Introducing Agent Agreement with Legend Securities, Inc., a FINRA registered broker-dealer ("Legend"), to attempt to raise additional financing through the sale of its Common Stock and Warrants. Between December 8, 2009 and March 15, 2010, the Company closed on gross proceeds of $1,025,000 before commissions of $117,000. The planned use of proceeds is to primarily expand the Company's mobile and interactive divisions.  The Company issued pursuant to the terms of the offering an aggregate of 2,050,000 shares of Common Stock at a per share price of $.50 per share and 1,025,000 Warrants exercisable at $1.00 per share to investors in the offering and placement agent warrants to purchase an amount equal to 10% of the number of shares and the number of warrants sold in the offering.
 
In August 2010, the Company raised $175,000 in gross proceeds from the sale of 437,500 shares and a like number of Warrants expiring in August 2013.  The investor paid $0.40 per Share and received Warrants exercisable at $0.60 per Share.  In November 2010, the Company commenced a plan of financing and raised an additional $800,500 in financing from the sale of 2,934,999 Shares of its restricted Common Stock at $0.30 per Share and Class E Common Stock Purchase Warrants to purchase a like number of Shares, exercisable at $0.30 per Share through August 31, 2013. Subsequent to the completion of the second financing, the Company agreed to adjust the terms of the August 2010 transaction and issue to the August 2010 investor Shares and  Class E Warrants on the same terms as those sold in November - December 2010. Accordingly, an additional 145,833 Shares and a like number of Warrants were issued to the August 2010 investor, with the exercise price of the Warrants being lowered from $0.60 per Share to $0.30 per Share.
 
In March 2011, the Company commenced a private placement offering. Pursuant to said offering between March 29, 2011 and April 19, 2011, the Company raised $755,000 in gross proceeds from the sale of 2,516,666 shares of common stock and a like number of warrants, exercisable at $.30 per share through August 31, 2013. Exemption is claimed for the sale of securities pursuant to Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended.

Between May 25, 2011 and June 3, 2011, the Company received gross proceeds of $461,250 from the sale of 1,025,000 shares of Common Stock at a purchase price of $.45 per share. The sale of stock was also accompanied by Warrants expiring on May 31, 2014. Exemption is claimed for the sale of securities pursuant to Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended.

In July 2011, the Company commenced a private placement offering. Pursuant to said offering between July14, 2011 and August 1, 2011, the Company raised $975,000 in gross proceeds from the sale of 1,950,000 shares of common stock and a like number of warrants, exercisable at $.60 per share through July 31, 2014.  Of the $975,000, $250,000 was invested by Thomas Arnost who later became a director of the Company in December 2011. Mr. Arnost received 500,000 shares of Common Stock and Warrants to purchase 500,000 shares in the offering. Exemption is claimed for the sale of securities pursuant to Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended.


 
F-15

 



ACE MARKETING & PROMOTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010


NOTE 5: SHARE-BASED COMPENSATION
 
WARRANTS - On January 4, 2010, the Company issued 6,000 Warrants to purchase Common Stock to an independent consultant to manage sales relationships.  The services were recorded equal to the value of the shares at the date of grant and an expense of $3,051 is included in the operating expenses for the year ended December 31, 2010.
 
On August 17, 2010, the Company issued 145,600 Warrants to purchase Common Stock to franchisee owners of a chain store for the purpose of placing proximity marketing units in their business locations.

On January 20, 2011, the Company issued 100,000 shares of restricted Common Stock and Warrants to purchase 200,000 shares of Common Stock for the business development agreement.
 
RESTRICTED STOCK GRANTS - In January 2010, the Company entered into an agreement with a consulting firm to provide services over the next twelve months.  The agreement provides for the issuance of 100,000 restricted Common Stock.
 
In January 2010, the Company also entered into an agreement with two individuals to provide services over the next twelve months.  The agreement provides for the issuance of 57,500 shares and 52,500 restricted common shares of Common Stock which vest immediately.
 
In December 2010, the Company entered into an agreement with a consulting firm to provide services to the Corporation.  50,000 shares of stock were granted to the consultant during the fourth quarter of 2010.

On January 20, 2011, the Company issued to an independent contractor 50,000 shares of common stock in exchange for consulting services rendered.

On May 25, 2011, the Company issued 100,000 shares of Common Stock as a consulting fee to an independent contractor assisting the Company structure a stock deal.

On August 17, 2011, the Company issued 65,000 shares of Corporation’s Common Stock to retain the services of two outside representatives for an additional three years.

On August 17, 2011, the Company issued 175,000 shares of the Corporation’s Common Stock in exchange for consulting services rendered.

On September 7, 2011, the Company issued 150,000 shares of restricted Common Stock to an independent contractor for investor relations and public relations.

On December 20, 2011, the Company approved the grant of 200,000 options to purchase Company stock options to an individual who accepted the position on the board of directors.

On December 29, 2011, the Company issued 66,000 restricted Common Stock in exchange for computer consulting services.
 
During the past three years, the Company has granted under our 2005 Plan certain employees and consultants restricted stock awards for services for the prior year with vesting to occur after the passage of an additional 12 months. These awards totaled 51,000 Shares for 2009, subject to continued services with the Company through December 31, 2009.  These awards totaled 105,000 Shares for 2010 subject to continued services with the Company through December 31, 2010.  These awards totaled 45,000 Shares for 2011 subject to continued services with the Company through December 31, 2012.
 
 

 
F-16

 


ACE MARKETING & PROMOTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
 
 
All stock options under the Plan are granted at or above the fair market value of the common stock at the grant date. Employee and non-employee stock options generally vest over periods ranging from one to three years and generally expire either five or ten years from the grant date.
 
The Company's Plan is accounted for, in accordance with the recognition and measurement provisions requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements. In addition, the Company adheres to the guidance set forth within Securities and Exchange Commission which provides the staff's views regarding the interaction between certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies.
 
The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model.  The expected volatility is based upon historical volatility of the Company's stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. Previously such assumptions were determined based on historical data.
 
NOTE 6: STOCK COMPENSATION
 
The Company's results for the years ended December 31, 2011 and 2010 include employee share-based compensation expense totaling approximately $118,000 and $282,000 respectively. Such amounts have been included in the Statements of Operations within selling, general and administrative expenses. No income tax benefit has been recognized in the statement of operations for share-based compensation arrangements due to a history of operating losses.
 


 
 


 
F-17

 



 
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010
 
 
The following table summarizes stock-based compensation expense for the years ended December 31, 2011 and 2010:
 
   
Years Ended December 31,
 
   
2011
   
2010
 
Employee stock based compensation-option grants
 
$
89,963
   
$
267,180
 
Employee stock based compensation-stock grants
   
28,500
     
       42,514
 
Non-Employee stock based compensation-option grants
   
252,378
     
     175,122
 
Non-Employee stock based compensation-stock grants
   
65,454
     
     170,900
 
Non-Employee stock based compensation-stock warrant
   
38,264
     
       50,921
 
   
$
474,559
   
$
     706,635
 
                                                                                      
NOTE 7: LOSS PER SHARE
 
Authoritative guidance requires dual presentation of basic and diluted earnings per share ("EPS") with a reconciliation of the numerator and denominator of the basis EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
 
NOTE 8: STOCK OPTION PLANS
 
During Fiscal 2005, the Company established, and the stockholders approved, an Employee Benefit and Consulting Services Compensation Plan (the "2005 Plan") for the granting of up to 2,000,000 non-statutory and incentive stock options and stock awards to directors, officers, consultants and key employees of the Company. On June 9, 2005, the Board of Directors amended the Plan to increase the number of stock options and awards to be granted under the Plan to 4,000,000.  During Fiscal 2009, the Company established a plan of long-term stock-based compensation incentives for selected Eligible Participants of the Company covering 4,000,000 shares. This plan was adopted by the Board of Directors and approved by stockholders in October 2009 and shall be known as the 2009 Employee Benefit and Consulting Services Compensation Plan (the "2009 Plan"). (The 2005 and 2009 Plans are collectively referred to as the “Plans.”)


 
 

 

 
F-18

 

 
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010
 
 
All stock options under the Plans are granted at or above the fair market value of the common stock at the grant date. Employee and non-employee stock options vest over varying periods and generally expire either 5 or 10 years from the grant date. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. For option grants, the Company will take into consideration payments subject to the provisions of ASC 718 "Stock Compensation", previously Revised SFAS No. 123 "Share-Based Payment" ( "SFAS 123 (R)"). The fair values of these restricted stock awards are equal to the market value of the Company's stock on the date of grant, after taking into certain discounts. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. Previously, such assumptions were determined based on historical data.
 
The weighted average assumptions made in calculating the fair values of options granted during the years ended December 31, 2011 and 2010 are as follows:
 
   
Years Ended December 31,
 
   
2011
   
2010
 
             
Expected volatility
   
203.04%
     
123.48%
 
Expected dividend yield
   
-
     
-
 
Risk-free interest rate
   
1.88%
     
3.01%
 
Expected term (in years)
   
6.54
     
4.00
 
                  
 
 
 
 
 
 
 
 

 
F-19

 



ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010
 

               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
   
Aggregate
 
         
Exercise
   
Contractual
   
Intrinsic
 
   
Share
   
Price
   
Term
   
Value
 
                         
Outstanding, January 1, 2011
   
3,120,000
   
$
.97
   
                  5.23
       
Granted
   
515,000
   
$
1.00
             
Exercised
   
-
     
-
             
Cancelled / Expired
   
(130,000
)
 
$
2.50
             
                             
Outstanding, December 31, 2011
   
3,505,000
   
$
.84
     
4.85
     
171,600
 
                                 
Options exercisable, December 31, 2011
   
3,455,000
   
$
.83
     
4.51
     
-
 

The weighted-average grant-date fair value of options granted during the years ended December 31, 2011 and 2010 was $0.43 and $0.51

The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2011 is calculated as the difference between the exercise price of the underlying options and the market price of the Company's common stock for the shares that had exercise prices, that were lower than the $.60 closing price of the Company's common stock on December 31, 2011.

As of December 31, 2011, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $31,200. Unamortized compensation cost as of December 31, 2011 is expected to be recognized over a remaining weighted-average vesting period of .25 years. As of December 31, 2010, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $156,000. Unamortized compensation cost as of December 31, 2010 was expected to be recognized over a remaining weighted-average vesting period of 1.25 years.


 
 


 
F-20

 



ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010


The weighted average assumptions made in calculating the fair value of warrants granted during the years ended December 31, 2011 and 2010 are as follows:
 
   
Years Ended
 
   
2011
   
2010
 
             
Expected volatility
   
56.83%
     
132.18%
 
Expected dividend yield
   
--
     
--
 
Risk-free interest rate
   
1.07%
     
2.65%
 
Expected term (in years)
   
3.00
     
5.00
 

               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
   
Aggregate
 
         
Exercise
   
Contractual
   
Intrinsic
 
   
Share
   
Price
   
Term
   
Value
 
Outstanding, January 1, 2011
   
6,243,965
   
$
.54
             
Granted
   
7,021,666
   
$
.45
             
Exercised
   
  (395,000
   
--
             
Cancelled/Expired
   
(299,989
   
--
             
Outstanding, December 31, 2011
   
12,570,642
   
$
.48
     
1.84
     
1,943,000
 
                                 
Warrants exercisable, December 31, 2011
   
12,570,642
   
$
.48
     
1.84
     
--
 


 
 



 
F-21

 


 
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010

COMMON SHARES RESERVED
 
2005 Stock Option Plan
3,355,000
Non Statutory Options
150,000
Warrants
551,600
Class D Warrants  
2,062,377
Class E Warrants
5,851,665
Class F Warrants
                                                                                                   1,225,000
 
Class G Warrants
                                                                                                      900,000
Class H Warrants
1,980,000


NOTE 9: COMMITMENTS AND CONTINGENCIES
 
LEASE COMMITMENTS - The Company leases office space under non-cancelable operating leases, which expires in November 2012. 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,

2012
$ 26,000
 
Rent and real estate tax expense was approximately $337,500 and $93,000 for the years December 31, 2011 and 2010, 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.


 
 


 
F-22

 

 
 
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010
 
 On April 7, 2010, the Board of Directors approved a five-year extension of the employment contract of Dean L. Julia and Michael D. Trepeta to expire on March 1, 2015.  The Board approved the continuation of each officer’s current salary and scheduled salary increases which will next occur on March 1, 2011.  The Board also approved a signing bonus of stock options to purchase 200,000 shares granted to each officer which is fully vested at the date of grant and exercisable at $.50 per share through April 7, 2020; ten-year stock options to purchase 100,000 shares of Common Stock to be granted to each officer at fair market value on each anniversary date of the contract and extension thereof commencing March 1, 2011; and 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.  In the event of termination, the executives will continue to receive all benefits included in the employment agreement through the scheduled expiration date of said employment agreement prior to the acceleration of the termination date thereof.

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. On April 7, 2010, the Board of Directors approved a five-year extension of the employment contracts of Dean L. Julia and Michael D. Trepeta to expire on March 1, 2015. The Board approved the continuation of each officer's current annual salary and scheduled salary increases. The Board also approved a signing bonus of stock options to purchase 200,000 shares granted to each officer which is fully vested at the date of grant and exercisable at $.50 per share through April 7, 2020; ten-year stock options to purchase 100,000 shares of Common Stock to be granted to each officer at fair market value on each anniversary date of the contract and extension thereof commencing March 1, 2011; In the event of termination, the executives will continue to receive all benefits included in the employment agreement through the scheduled expiration date of said employment agreement prior to the acceleration of the termination date thereof.
 
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, 2011 a customer accounted for approximately 7 % of net revenues and for the year ended December 31, 2010 a customer accounted for approximately 10 % of net revenues.  The Company holds on hand certain items that are ordered on a regular basis.
 
NOTE 10: SUPPLEMENTARY INFORMATION - STATEMENT OF CASH FLOWS
 
Cash paid during the years for:
 
   
YEARS ENDED DECEMBER 31,
 
   
2011
   
2010
 
             
Interest
 
$
2,177
   
$
818
 
                 
Income Taxes
 
$
-
   
$
-
 


 
 



 
F-23

 



ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010


 

 NOTE 11: SEGMENT INFORMATION
 
Reportable operating segment is determined based on Ace Marketing & Promotion Inc.’s management approach. The management approach, as defined by accounting standards which have been codified into FASB ASC 280, “Segment Reporting,” is based on the way that the chief operating decision-maker organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. Our chief operating decision-maker is our Chief Executive Officer and Chief Financial Officer.

While our results of operations are primarily reviewed on a consolidated basis, the chief operating decision-maker also manages the enterprise in two operating segments: (i) Branding & Branded Merchandise (ii) Mobil Marketing

Corporate management defines and reviews segment profitability based on the same allocation methodology as presented in the segment data tables below:

   
Ace Marketing
& Promotions, Inc.
   
Mobiquity
 Networks
Inc.
    Total  
                         
Net sales   $
    3,239,951
     
4,000
    $
3,243,951
 
Operating (loss)
   
(1,040,190)
     
(1,038,168)
     
(2,078,358)
 
Interest income
    633       -       633  
Interest (expense)
   
(2,177)
     
-
     
(2,177)
 
Depreciation and amortization
   
(6,442)
     
(123,164)
     
(129,606)
 
Exp Net Loss
   
(1,048,176)
     
(1,161,332)
     
(2,209,508)
 
Total assets at December 31, 2011
   
1,452,276
     
753,462
     
2,205,738
 

 
All intersegment sales and expenses have been eliminated from the table above. 


NOTE 12: SUBSEQUENT EVENTS
 
In January 2012, the Company approved the agreement with employees to issue 45,000 restricted shares of its Common Stock for services rendered over the last 12 months.

On January 30, 2012, the Company’s private placement offering was terminated. Rockwell Global Capital LLC acted as Placement Agent. The Company received gross proceeds of $575,000 from the sale of 958,338 shares of Common Stock at a purchase price of $.60 per share. The private placement offering also included the sale of Warrants to purchase 191,671 shares of Common Stock, exercisable at $.60 per share and expiring on January 18, 2016. The Placement Agent received a $25,000 advisory fee, $51,750 in commissions and warrants to purchase 95,833 shares identical to the warrants sold to investors in the offering. Exemption is claimed for the sale of securities pursuant to Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On January 30, 2012, the Company’s private placement offering was terminated. Rockwell Global Capital LLC acted as Placement Agent. The Company received gross proceeds of $575,000 from the sale of 958,338 shares of Common Stock at a purchase price of $.60 per share. The private placement offering also included the sale of Warrants to purchase 191,671 shares of
 

 
F-24

 

 
ACE MARKETING & PROMOTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010

 
Common Stock, exercisable at $.60 per share and expiring on January 18, 2016. The Placement Agent received a $25,000 advisory fee, $51,750 in commissions and warrants to purchase 95,833 shares identical to the warrants sold to investors in the offering. Exemption is claimed for the sale of securities pursuant to Rule 506 and/or Section 4(2) of the Securities Act of 1933, as amended.
 
In February 2012, the Company entered into a lease agreement for new executive office space of approximately 4,200 square feet located at 600 Old Country Road, Garden City, NY 11530.  Not later than May 1, 2012, the Company will move its Valley Stream, NY office facilities into this space. The lease agreement is for 63 months. The annual rent under this office facility for the first year is estimated at $127,000, including electricity, subject to an annual increase of 3%. In the event of a default in which the Company is evicted from the office space, Ace would be responsible to the landlord for an additional payment of rent of $160,000 in the first year of the lease, an additional payment of $106,667 in the second year of the lease and an additional payment of rent of $53,333 in the third year of the lease. Such additional rent would be payable at the discretion of the Company in cash or in Common Stock of the Company.

The Company has evaluated all subsequent events through the filing date of this form 10-K for appropriate accounting and disclosures.








 
F-25

 

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not Applicable.

Item 9.A  Controls and Procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
 
Report of Management on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2011. There were no significant changes in our internal control over financial reporting during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our independent auditors have not audited and are not required to audit this assessment of our internal control over financial reporting for the fiscal year ended December 31, 2011.