<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                       -----------------------------------

                                   FORM 10-QSB

                       -----------------------------------


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                  FOR THE QUARTERLY PERIOD ENDED September 30, 2005


                        COMMISSION FILE NUMBER: 000-51160


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


                 NEW YORK                              11-3427896
                 --------                              ----------
(State of jurisdiction of Incorporation)    (I.R.S. Employer Identification No.)


                                457 ROCKAWAY AVE.
                             VALLEY STREAM, NY 11581
                             -----------------------
                    (Address of principal executive offices)


                                 (516) 256-7766
                                 --------------
                         (Registrant's telephone number)


                                 NOT APPLICABLE
                                 --------------
      (Former name, address and fiscal year, if changed since last report)


                       -----------------------------------


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ]

As of October 21, 2005, the registrant had a total of 5,888,076 shares of Common
Stock outstanding.


<PAGE>
                        ACE MARKETING & PROMOTIONS, INC.

                          FORM 10-QSB QUARTERLY REPORT
                                TABLE OF CONTENTS


                                                                            PAGE
                                                                            ----

PART I.  FINANCIAL INFORMATION

   Item 1.  Financial Statements

             Condensed Balance Sheets as of September 30, 2005 (unaudited)
               and December 31, 2004                                           3

             Condensed Statements of Operations for the Three and Nine Months
               Ended September 30, 2005 and September 30, 2004 (unaudited)     4

             Condensed Statements of Cash Flows for the Nine Months
               Ended September 30, 2005
               and September 30, 2004 (unaudited)                              5

            Notes to Condensed Financial Statements (unaudited)                6

   Item 2.  Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                      10

   Item 3.  Controls and Procedures                                           15

PART II.  OTHER INFORMATION

   Item 1.  Legal Proceedings                                                 16

   Item 2.  Changes in Securities                                             16

   Item 3.  Defaults Upon Senior Securities                                   16

   Item 4.  Submissions of Matters to a Vote of Security Holders              17

   Item 5.  Other Information                                                 17

   Item 6.  Exhibits and Reports on Form 8-K                                  17

SIGNATURES                                                                    18


                                        2


<PAGE>

<TABLE>
PART I. FINANCIAL INFORMATION

                                ACE MARKETING & PROMOTIONS, INC.

                                    CONDENSED BALANCE SHEETS
-----------------------------------------------------------------------------------------------
                                                                  SEPTEMBER, 30    DECEMBER, 31
                                                                      2005             2004
                                                                   -----------      -----------
                                                                   (UNAUDITED)
<S>                                                                <C>              <C>
ASSETS

Current Assets:
  Cash and cash equivalents                                        $   544,805      $   582,705
  Accounts receivable                                                  341,661          528,080
  Prepaid expenses and other current assets                             37,263            4,405
                                                                   -----------      -----------
Total Current Assets                                                   923,729        1,115,190

Property and Equipment, net                                             11,767            9,539

Other Assets                                                             3,135            3,616
                                                                   -----------      -----------
Total Assets                                                       $   938,631      $ 1,128,345
                                                                   ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Notes payable                                                    $        --      $    31,000
  Accounts payable                                                     179,588          225,606
  Accrued expenses                                                      18,516          205,436
                                                                   -----------      -----------
Total Current Liabilities                                              198,104          462,042
                                                                   -----------      -----------

Commitments and Contingencies

Stockholders' Equity:
  Common stock, $.0001 par value; 25,000,000 shares authorized
     5,888,076 and 5,757,000 shares issued and outstanding
     at June 30, 2005 and December 31, 2004, respectively                  589              576
  Preferred stock $.0001 par value: 500,000 shares authorized
     no shares outstanding                                                  --               --
  Additional paid-in capital                                         1,638,474          953,940
  Accumulated deficit                                                 (898,536)        (288,213)
                                                                   -----------      -----------
Total Stockholders' Equity                                             740,527          666,303
                                                                   -----------      -----------
Total Liabilities and Stockholders' Equity                         $   938,631      $ 1,128,345
                                                                   ===========      ===========

SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.

                                               3
<PAGE>


                                         ACE MARKETING & PROMOTIONS, INC.

                                  CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------

                                                        THREE MONTHS ENDED               NINE MONTHS ENDED
                                                          September, 30                     September, 30
                                                      2005              2004            2005             2004
                                                   -----------      -----------      -----------      -----------

Revenue, net                                       $   750,957      $   735,793      $ 2,300,150      $ 1,856,859
Cost of Revenue                                        477,466          591,360        1,518,185        1,352,433
                                                   -----------      -----------      -----------      -----------
  Gross Profit                                         273,491          144,433          781,965          504,426
                                                   -----------      -----------      -----------      -----------

Operating Expenses:
  Selling, General and administrative expenses         313,066          202,734        1,310,147          599,394
                                                                                                      -----------
Total Operating Expenses                               313,066          202,734        1,310,147          599,394
                                                                                                      -----------

Loss from Operations                                   (39,575)         (58,301)        (528,182)         (94,968)
                                                   -----------      -----------      -----------      -----------

Other Income (Expense):
 Interest expense                                           --               --           (4,532)              --
 Interest income                                            12               --              133               --
                                                   -----------      -----------      -----------      -----------
Total Other Income                                          12               --           (4,399)              --
                                                   -----------      -----------      -----------      -----------

Loss Before Provision
  for Income Taxes                                     (39,563)         (58,301)        (532,581)         (94,968)

Income Tax  Expense                                         --               --               --               --
                                                   -----------      -----------      -----------      -----------

Net Loss                                           $   (39,563)     $   (58,301)     $  (532,581)     $   (94,968)
                                                   ===========      ===========      ===========      ===========

Net Loss Per Common Share:

Basic                                              $     (0.01)     $     (0.01)     $     (0.09)     $     (0.02)
                                                   ===========      ===========      ===========      ===========

Diluted                                            $     (0.01)     $     (0.01)     $     (0.09)     $     (0.02)
                                                   ===========      ===========      ===========      ===========

Weighted Average Common Shares Outstanding:

Basic                                                5,888,076        5,430,000        5,877,988        5,289,599
                                                   ===========      ===========      ===========      ===========

Diluted                                              5,888,076        5,430,000        5,877,988        5,289,599
                                                   ===========      ===========      ===========      ===========



SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.

                                                         4

<PAGE>


                                      ACE MARKETING & PROMOTIONS, INC.

                              Condensed Statements of Cash Flows (unaudited)
----------------------------------------------------------------------------------------------------------
                                                                                     Nine Months Ended
                                                                                        September 30,
                                                                                    2005           2004
                                                                                  ---------      ---------

Cash Flows from Operating Activities:
  Net loss                                                                        $(532,581)     $ (94,968)
                                                                                  ---------      ---------
  Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                    3,913          2,479
     Stock based compensation                                                       481,786             --
     Changes in operating assets and liabilities:
     (Increase) decrease in operating assets:
       Accounts receivable                                                          (29,057)      (137,356)
       Prepaid expenses and other assets                                             31,144         (4,229)
     Increase (decrease) in operating liabilities:
     Accounts payable and accrued expenses                                          (77,761)       107,756
                                                                                  ---------      ---------
  Total adjustments                                                                 410,025        (31,350)
                                                                                  ---------      ---------
Net Cash Used in Operating Activities                                              (122,556)      (126,318)
                                                                                  ---------      ---------

Cash Flows from Investing Activities:
  Purchase of Equipment                                                                  --        (10,000)
                                                                                  ---------      ---------
Net Cash Used in Investing Activities                                                    --        (10,000)
                                                                                  ---------      ---------

Cash Flows from Financing Activities:
  Proceeds from private placement                                                   126,076        636,036
  Payments on notes payable                                                         (25,000)       (10,000)
                                                                                  ---------      ---------
Net Cash Provided by Financing Activities                                           101,076        626,036
                                                                                  ---------      ---------

Net (Decrease) Increase in Cash and Cash Equivalents                                (21,480)       489,718
Cash and Cash Equivalents, beginning of period                                      566,285         92,987
                                                                                  ---------      ---------
Cash and Cash Equivalents, end of period                                          $ 544,805      $ 582,705
                                                                                  =========      =========



SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.

                                                     5
</TABLE>

<PAGE>

                         ACE MARKETING & PROMOTIONS, INC
                          NOTES TO FINANCIAL STATEMENTS
            NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)

The Condensed Balance Sheet as of September 30, 2005, the Condensed Statements
of Operations for the three and nine months ended September 30, 2005 and 2004
and the Condensed Statements of Cash Flows for the nine months ended September
30, 2005 and 2004 have been prepared by us without audit. In our opinion, the
accompanying unaudited condensed financial statements contain all adjustments
necessary to present fairly in all material respects our financial position as
of September 30, 2005, results of operations for the three and nine months ended
September 30, 2005 and 2004 and cash flows for the nine months ended September
30, 2005 and 2004.

This report should be read in conjunction with our Registration Statement on
Form 10-SB which includes financial statements for the year ended December 31,
2004.

The results of operations and cash flows for the nine months ended September 30,
2005 are not necessarily indicative of the results to be expected for the full
year.


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     REVENUE RECOGNITION - Revenue is recognized when title and risk of loss
     transfers to the customer and the earnings process is complete. In general,
     title passes to our customers upon the customer's receipt of the
     merchandise. Revenue is accounted for in accordance with Emerging Issue
     Task Force (EITF) Issue No. 99-19, "Reporting Revenue Gross as a Principal
     versus Net as an Agent." Revenue is recognized on a gross basis since the
     Company has the risks and rewards of ownership, latitude in selection of
     vendors and pricing, and bears all credit risk.

     The Company records all shipping and handling fees billed to customers as
     revenues, and related costs as cost of goods sold, when incurred, in
     accordance with EITF 00-10, "Accounting for Shipping and Handling Fees and
     Costs."

     ESTIMATES - The preparation of financial statements in conformity with
     generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the financial statements and the reported amounts of revenues and
     expenses during the reporting period. Actual results could differ from
     those estimates.


                                        6


<PAGE>

                         ACE MARKETING & PROMOTIONS, INC
                          NOTES TO FINANCIAL STATEMENTS
            NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)


2. EARNINGS PER SHARE

     Basic earnings per common share are computed by dividing net income by the
     weighted average number of shares of common stock outstanding during the
     period. Dilutive earnings per share gives effect to stock options and
     warrants, which are considered to be dilutive common stock equivalents.
     Basic loss per common share was computed by dividing net loss by the
     weighted average number of shares of common stock outstanding. Diluted loss
     per common share does not give effect to the impact of options because
     their effect would have been anti-dilutive.

3. STOCK OPTIONS

     The Company has elected the disclosure only provisions of Statement of
     Financial Accounting Standard No. 123,"Accounting for Stock-Based
     Compensation" ("SFAS 123") in accounting for our employee stock options.
     Accordingly, no compensation expense has been recognized. Had we recorded
     compensation expense for the stock options based on the fair value at the
     grant date for awards in the three and nine months ended September 30, 2005
     and 2004 consistent with the provisions of SFAS 123, our net loss and net
     loss per share would have been adjusted as follows:




                                        7


<PAGE>


                         ACE MARKETING & PROMOTIONS, INC
                          NOTES TO FINANCIAL STATEMENTS
            NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)

<TABLE>
                                                       Three Months     Three Months     Nine Months      Nine Months
                                                           Ended           Ended            Ended            Ended
                                                       September 30,    September 30,    September 30,    September 30,
                                                           2005             2004             2005             2004
                                                        -----------      -----------      -----------      -----------
<S>                                                     <C>              <C>              <C>              <C>
Net loss, as reported                                   $   (39,563)     $   (58,301)     $  (532,581)     $   (94,968)
Add: Stock-based employee compensation expense
   included in net loss, net of related tax effects           5,094               --          481,786               --
(Deduct): Total stock-based employee compensation
   expense determined under fair value based method
   for all awards, net of tax related effects                (5,094)             (--)        (663,725)             (--)
Pro forma net loss                                          (39,563)         (58,301)        (714,520)         (94,968)
Weighted average common shares outstanding                5,888,076        5,430,000        5,877,988        5,289,599
Loss per share:
   Basic and diluted---as reported                      $     (0.01)     $     (0.01)     $     (0.09)     $     (0.02)
   Basic and diluted---pro-forma                        $     (0.01)     $     (0.01)     $     (0.12)     $     (0.02)

</TABLE>

4. NOTE PAYABLE

     Note payable to a stockholder in the original principal amount of $25,000.
     The Note bears interest at a rate of 10% per annum.

     Prior to the repayment of any of the principal and accrued interest, the
     holder can convert the Note into common stock of the Company at the
     conversion rate of $1.50 per share. On January 13, 2005, the Company agreed
     to convert the principal and accrued interest into common stock of the
     Company at a reduced conversion rate of $1.00 per share, which resulted in
     the issuance of 31,076 shares of common stock.

5. STOCKHOLDERS EQUITY

     Private placement of securities - During the nine months ended September
     30, 2005, the Company completed a private placement through the sale of 10
     units (each consisting of 10,000 common shares and 10,000 Class B Warrants)
     at a purchase price of $10,000 per unit for net proceeds of $95,000, net of
     transaction cost of approximately $5,000. Each Class B Warrant has an
     exercise price of $2.00 and expires on January 2, 2008.

6. STOCK OPTION PLAN

     The Shareholders approved an amendment to the Company's Employee Benefit
     and Consulting Services Compensation Plan (the "Plan") and increased the
     number of shares covered by the Plan from 2,000,000 to 4,000,000 shares of
     Common Stock.

     During the three and nine month periods ended September 30, 2005, the
     Company granted 180,000 and 2,672,000 options, respectively, under the
     Plan.


                                        8

<PAGE>


7. CONSULTING AGREEMENT

     On June 10, 2005 the Company entered into a consulting agreement with a
     financial advisory firm. In connection with this agreement the Company
     granted a warrant for the purchase of 1,100,000 shares of the Company's
     common stock. The warrant has an exercise price of $.10 per share and
     expires on June 10, 2010. In connection with this grant the Company
     recorded a charge of $451,000, which is included in selling, general and
     administrative expenses.






                                        9



<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The information contained in this Form 10-QSB and documents incorporated herein
by reference are intended to update the information contained in the Company's
Registration Statement on Form 10-SB which includes our audited financial
statements for the year ended December 31, 2004 and such information presumes
that readers have access to, and will have read, the "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Risk Factors"
and other information contained in such Form 10-SB and other Company filings
with the Securities and Exchange Commission ("SEC").

This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties, and actual results
could be significantly different than those discussed in this Form 10-QSB.
Certain statements contained in Management's Discussion and Analysis,
particularly in "Liquidity and Capital Resources," and elsewhere in this Form
10-QSB are forward-looking statements. These statements discuss, among other
things, expected growth, future revenues and future performance. Although we
believe the expectations expressed in such forward-looking statements are based
on reasonable assumptions within the bounds of our knowledge of our business, a
number of factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether oral or written, made by us
or on our behalf. The forward-looking statements are subject to risks and
uncertainties including, without limitation, the following: (a) changes in
levels of competition from current competitors and potential new competition,
(b) possible loss of customers, and (c) the company's ability to attract and
retain key personnel, (d) The Company's ability to manage other risks,
uncertainties and factors inherent in the business and otherwise discussed in
this 10-QSB and in the Company's other filings with the SEC. The foregoing
should not be construed as an exhaustive list of all factors that could cause
actual results to differ materially from those expressed in forward-looking
statements made by us. All forward-looking statements included in this document
are made as of the date hereof, based on information available to the Company on
the date thereof, and the Company assumes no obligation to update any
forward-looking statements.


                                       10


<PAGE>

OVERVIEW

     We are a full service advertising specialties and promotional products
company. Specific categories of the use of promotional products include
advertising specialties, business gifts, incentives and awards, and premiums.
Through the services of our two in-house sales persons, who also serve as
executive officers of our company, and the use of independent sales
representatives, we distribute items to our customers typically with their logos
on them. Several of our customer categories include large corporations, local
schools, universities, financial institutions, hospitals and not-for-profit
organizations.

     The most popular products that we have distributed over the last two years
and account for over 50% of our business are as follows:

     o    Wearables, such as t-shirts, golf shirts and hats.
     o    Glassware, such as mugs and drinking glasses.
     o    Writing instruments, such as pens, markers and highlighters.
     o    Bags, such as tote bags, gift bags and brief cases.

     There are a number of trends in the advertising/marketing industry, the
most significant of which is the trend toward integrated marketing strategies.
Integrated marketing campaigns involve not only advertising, but also sales
promotions, internal communications, public relations, and other disciplines.
The objectives of integrated marketing are to promote products and services,
raise employee awareness, motivate personnel, and increase productivity through
a wide array of methods including extensive use of promotional products.

     Price is no longer the sole motivator of purchasing behavior for our
customers. With the availability of similar products from multiple sources,
customers are increasingly looking for distributors who provide a tangible
added-value to their products. As a result, we provide a broad range of products
and related services. Specifically, we provide research and consultancy
services, artwork and design services, and fulfillment services to our
customers. These services are provided in-house by our current employees.
Management believes that by offering these services, we can attempt to attract
new customers.

     Our revenues are expected by us to grow as economic conditions in the
United States continue to improve, by adding additional independent sales
representatives to our sales network and through one or more acquisitions of
other distributors. We can provide no assurances that our expectations described
above will be realized.



                                       11

<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth certain selected unaudited condensed
statement of operations data for the periods indicated in dollars and as a
percentage of total net revenues. The following discussion relates to our
results of operations for the periods noted and is not necessarily indicative of
the results expected for any other interim period or any future fiscal year. In
addition, we note that the period-to-period comparison may not be indicative of
future performance.


                         Three Months Ended            Nine Months Ended
                            September 30,                 September 30,

                        2005            2004           2005            2004
                    ----------------------------   ----------------------------

Revenue             $    750,957    $    735,793   $  2,300,150    $  1,856,859

Cost of Revenues         477,466         591,360      1,518,185       1,352,433
                    ----------------------------   ----------------------------

Gross Profit             273,491         144,433        781,965         504,426

Selling, general &
 administrative
 expenses                313,066         202,734      1,310,147         599,394
                    ----------------------------   ----------------------------

(Loss)
from operations     $   (39,575)   $    (58,301)   $   (528,182)   $    (94,968)
                    ============================   ============================



                                       12


<PAGE>

Three Months Ended September 30, 2005 versus Three Months Ended September 30,
2004
------------------------------------------------------------------------

We generated revenues of $750,957 in the third quarter of 2005 compared to
$735,793 in the same three month period ending September 30, 2004. The increase
in revenues of $15,164 in 2005 as compared to 2004 is primarily due to our
utilizing additional sales representatives to obtain additional customers and
our new and existing customers buying products with higher average prices.

Cost of revenues was $477,466 or 64% of revenues in the third quarter of 2005 as
compared to $591,360 or 80% of revenues in the same three months ended September
30, 2004. Cost of revenues includes purchases and freight costs associated with
the shipping of merchandise to our customers. Decrease in cost of revenues of
$113,894 in 2005 is related to the mix of items sold and the sale of products
with higher average prices.

Gross profit was $273,491 in the third quarter of 2005 or 36% of net revenues as
compared to $144,433 in the same three months ended September 30, 2004 or 20% of
revenues. Gross profits will vary period-to-period depending upon a number of
factors including the mix of items sold, pricing of the items and the volume of
product sold. Also, it is our practice to pass freight costs on to our
customers. Reimbursement of freight costs which are included in revenues have
lower profit margins than sales of our promotional products and has the effect
of reducing our overall gross profit margin on sales of products, particularly
on smaller orders. The increase in gross revenue during the quarter ended
September 30, 2005 relates to the mix of product sold and size of orders.

Selling, general, and administrative expenses were $313,066 in the third quarter
ended September 30, 2005 as compared to $202,734 in the same period ended
September 30, 2004. Such costs include payroll and related expenses,
professional fees, insurance and rents. The overall increase of $110,332 is
generally related to our ongoing efforts to effectively increase our sales
volume. It also includes an increase in officers' and other salaries of $24,000
and approximately $48,000 in costs of being a public company, including director
and officer liability insurance.

Net (loss) was $(39,563) in the quarter ended September 30, 2005 compared to a
net loss of $(58,301) for the same three months in 2004. No provision for income
taxes is provided for in 2005 and 2004 due to the availability of net operating
loss carryforwards.

Nine Months Ended September 30, 2005 versus Nine Months Ended September 30, 2004
--------------------------------------------------------------------------------

We generated revenues of $2,300,150 in the first three quarters of 2005 compared
to $1,856,859 in the same nine month period ending September 30, 2004. The
increase in revenues of $443,291 in 2005 compared to 2004 is primarily due to
our utilizing additional sales representations to obtain additional customers
and our new and existing customers buying products with higher average prices.

Cost of revenues was $1,518,185 or 66% of revenues in the first three quarters
of 2005 compared to $1,352,433 or 73% of revenues in the same nine months of
2004. Cost of revenues includes purchases and freight costs associated with the
shipping of merchandise to our customers. Increase in cost of revenues of
$165,752 in 2005 is related to an increase in revenues.

Gross profit was $781,965 in the first three quarters of 2005 or 34% of net
revenues compared to $504,426 in the same nine months of 2004 or 27% of
revenues. Gross profits will vary period-to-period depending upon a number of
factors including the mix of items sold, pricing of the items and the volume of
product sold. Also, it is our practice to pass freight costs on to our
customers. Reimbursement of freight costs which are included in revenues have
lower profit margins than sales of our promotional products and has the effect
of reducing our overall gross profit margin on sales of products, particularly
on smaller orders. The increase in gross revenue during the first three quarters
of 2005 relates to the mix of product sold and size of orders.


                                       13

<PAGE>

Selling, general, and administrative expenses were $1,310,147 in the first three
quarters of 2005 compared to $599,394 in the same nine months of 2004. Such
costs include payroll and related expenses, insurance and rents. The overall
increase of $710,753 is primarily due to a non-recurring charge to operations of
$451,000 relating to the grant to a financial advisor of warrants to purchase
1,100,000 shares of common stock at an exercise price of $.10 per share,
expiring June 10, 2010. See Note 7 above. The remaining increase is generally
related to our ongoing efforts to effectively increase our sales volume. It also
includes an increase in officers' and other salaries of $58,000 and
approximately $115,000 in costs of being a public company, including director
and officer liability insurance.

Net loss was $(532,581) in the first three quarters of 2005 compared to a net
loss of $(94,968) for the same nine months in 2004. No provision for income
taxes is provided for in 2005 and 2004 due to the availability of net operating
loss carryforwards.


LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and cash equivalents of $544,805 at September 30, 2005.
Cash used by operating activities for the nine months ended September 30, 2005
was $(122,556). This resulted primarily from a net loss of $(532,581), an
increase in accounts receivable of $(29,057) and a decrease in accounts payable
and accrued expenses of $(77,761) partially offset by prepaid expenses of
$31,144 and stock based compensation of $481,786. Cash provided from financing
activities was $101,076 resulting from a private placement of common stock and
warrants which netted $95,000 and the conversion of a note payable with accrued
interest into common stock of the company at a reduced conversion rate of $1.00
per share, which resulted in the issuance of 31,076 shares of common stock.

The Company had cash and cash equivalents of $582,705 at September 30, 2004.
Cash used by operating activities for the nine months ended September 30, 2004
was $(126,318). This was the result of a net loss of $(94,968) partially offset
by an increase in accounts receivable of $(137,356) and an increase in accounts
payable and accrued expenses of $107,756. Cash provided from financing
activities was $626,036, which relates to a private placement of common stock
and warrants.

Our company commenced operations in 1998 and was initially funded by our three
founders, each of whom has made demand loans to our Company that have been
repaid. Since 1999, we have relied on equity financing and borrowings from
outside investors to supplement our cash flow from operations. As of September
30, 2005, all borrowings from outside investors have been repaid or converted
into our company's common stock. We raised net proceeds of $95,000 from the sale
of our common stock and warrants to purchase additional common stock in the
first quarter of 2005.

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



                                       14

<PAGE>

ITEM 3. CONTROLS AND PROCEDURES
-------------------------------

     The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based closely on the definition of
"disclosure controls and procedures" in Rule 13a-15(e). In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. The Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
the Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective
at the reasonable assurance level at the end of our most recent quarter. There
have been no changes in the Company's disclosure controls and procedures or in
other factors that could affect the disclosure controls subsequent to the date
the Company completed its evaluation. Therefore, no corrective actions were
taken.




                                       15


<PAGE>

                           PART II. OTHER INFORMATION
ITEM 1.   LEGAL PROCEEDINGS:

          As of the filing date of this Form 10-QSB, we are not a party to any
          pending legal proceedings.


ITEM 2.   CHANGES IN SECURITIES.

     (a)  In the first nine months ended September 30, 2005 there were no sales
          of unregistered securities, except as follows:

<TABLE>
                                                 CONSIDERATION RECEIVED
                                                 AND DESCRIPTION OF                           IF OPTION, WARRANT OR
                                                 UNDERWRITING OR OTHER      EXEMPTION FROM    CONVERTIBLE SECURITY
DATE OF          TITLE OF                        DISCOUNTS TO MARKET        REGISTRATION      TERMS OF EXERCISE
SALE             SECURITY        NUMBER SOLD     PRICE OR CONVERTIBLE       CLAIMED           OR CONVERSION
----------------------------------------------------------------------------------------------------------------------
<S>            <C>               <C>             <C>                       <C>                  <C>
Jan. 2005      Common Stock      600,000         For services rendered     Section 4(2)         Options exercisable
               Options           Options         no other consideration    granted to           at $1.00 per
                                                 received; no              officers;            share;
                                                 commissions paid          officers,            immediately
                                                                           directors and        exercisable;
                                                                           legal counsel        expire
                                                                           under our 2005       Jan. 2015;
                                                                           Incentive Plan.      contain
                                                                           Each grantee is a    Cashless
                                                                           sophisticated        exercise
                                                                           investor, who        provisions.
                                                                           received the
                                                                           options with a
                                                                           restrictive
                                                                           legend in
                                                                           connection with
                                                                           services rendered
                                                                           and is able to
                                                                           fend for himself.
                                                                           A Form S-8
                                                                           Registration
                                                                           Statement was filed
                                                                           with the Commission
                                                                           in April 2005.

Jan. - Feb.    Common Stock      100,000         $100,000 received; no     Rule 506 of          Class B Warrants
2005           and Class B       Shares and      commissions paid; no      Regulation D; a      exercisable at
               Warrants          Class B         placement agent was       Form D was filed    $ 2.00 per share
                                 Warrants        utilized.                 on February 22,     through Jan. 2, 2008.
                                                                           2005; securities
                                                                           sold to
                                                                           accredited
                                                                           investors only.
----------------------------------------------------------------------------------------------------------------------
Jan. 2005      Common Stock      31,076 Shares   Conversion of $31,076     Section 3a(9); no   Not Applicable.
                                                 of debt; no commissions   commissions paid.
                                                 paid; no placement
                                                 agent was utilized.
----------------------------------------------------------------------------------------------------------------------
</TABLE>

     (b)  Rule 463 of the Securities Act is not applicable to the Company.
     (c)  In the first nine months ended June 30, 2005 there were no repurchases
          by the Company of its Common Stock.


ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          Not applicable.


                                       16


<PAGE>

ITEM 4.   SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS:

          On August 12, 2005, the Company's stockholders took action by majority
consent to ratify, adopt and approve an amendment to the Company's 2005 Employee
Benefit and Consulting Services Compensation Plan to increase the number of
shares covered by the Plan from 2,000,000 shares to 4,000,000 shares of Common
Stock. The proposal was approved by a unanimous consent of 3,401,500 votes in
favor of the amendment.

ITEM 5.   OTHER INFORMATION:

          None.

ITEM 6.   EXHIBITS:

           Except for the exhibits listed below as filed herewith or unless
           Otherwise noted, all other required exhibits have been previously
           filed with the Securities and Exchange Commission under the
           Securities Exchange Act of 1934, as amended, on Form 10-SB, as
           amended (file no. 000-51160).

Number                Exhibit Description
------                -------------------

3.1     Articles of Incorporation filed March 26, 1998
3.2     Amendment to Articles of Incorporation filed June 10, 1999
3.3     Amendment to Articles of Incorporation approved by stockholders on
        February 9, 2005
3.4     Amended By-Laws
10.1    Employment Agreement - Michael Trepeta
10.2    Employment Agreement - Dean Julia
11.1    Statement re: Computation of per share earnings. See Statement of
        Operations and Notes to Financial Statements
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
        under the Securities Exchange Act of 1934, as adopted pursuant to
        Section 302 of the Sarbanes-Oxley Act of 2002*
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
        under the Securities Exchange Act of 1934, as adopted pursuant to
        Section 302 of the Sarbanes-Oxley Act of 2002*
32.1    Certification of Chief Executive Officer pursuant to 18U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002*
32.2    Certification of Chief Financial Officer pursuant to 18U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002*
99.1    2005 Employee Benefit and Consulting Services Compensation Plan
99.2    Form of Class A Warrant
99.3    Form of Class B Warrant
99.4    Amendment to 2005 Employee Benefit and Consulting Services Compensation
        Plan (**)
99.5     Pres release-third quarter results of operations*
---------------
     *   Filed herewith.

     **  Incorporated by reference to the Registrant's Form 10-QSB for the
         quarter ended June 30, 2005.


                                       17


<PAGE>

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                       ACE MARKETING & PROMOTIONS, INC.



Date: November 3, 2005                  By:  /s/ Dean L. Julia
                                            -----------------------------
                                            Dean L. Julia,
                                            Chief Executive Officer



Date: November 3, 2005                  By:  /s/ Sean McDonnell
                                            -----------------------------
                                            Sean McDonnell,
                                            Chief Financial Officer



                                       18