JAGGED PEAK, INC. - FORM 10-Q - November 14, 2011

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JAGGED PEAK, INC. Reports

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file	filename
EXCEL - IDEA: XBRL DOCUMENT - JAGGED PEAK, INC.	Financial_Report.xls
EX-31.1 - CERTIFICATION - JAGGED PEAK, INC.	d224604dex311.htm
EX-32.1 - CERTIFICATION - JAGGED PEAK, INC.	d224604dex321.htm
EX-31.2 - CERTIFICATION - JAGGED PEAK, INC.	d224604dex312.htm
EX-32.2 - CERTIFICATION - JAGGED PEAK, INC.	d224604dex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2011

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number: 000-31715

Jagged Peak, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada

91-2007478

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3000 Bayport Drive, Suite 250, Tampa, FL 33607

(Address of principal executive offices, including zip code)

(813) 637-6900

(Registrant’s telephone number, including area code)

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The Registrant had 16,123,470 shares of common stock, par value $0.001 per share, outstanding as of November 11, 2011.

Jagged Peak, Inc.

Contents


Part I – Financial Information

Item 1.	Financial Statements
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statement of Changes in Stockholders’ Equity	3
	Consolidated Statements of Cash Flows	4
	Notes to the Unaudited Consolidated Financial Statements	5-14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	24

Item 4.	Controls and Procedures	24

Part II – Other Information		24

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	(Removed and Reserved)	24

Item 5.	Other Information	24

Item 6.	Exhibits	24

Signatures		25

Jagged Peak, Inc.

Consolidated Balance Sheets


	September 30, 2011 (Unaudited)			December 31, 2010 (Audited)
Assets
Current assets:
Cash	$	209,600		$	550,800
Accounts receivable, net of allowance for doubtful accounts of $140,000 and $60,000 at September 30, 2011 and December 31, 2010, respectively		2,360,200			1,878,700
Other receivables		102,800			234,100
Work in process, net of allowance of $30,000 at September 30, 2011 and December 31, 2010, respectively		274,500			194,600
Deferred tax asset		290,000			290,000
Other current assets		438,600			397,100

Total current assets		3,675,700			3,545,300

Property and equipment, net of accumulated depreciation of $1,874,700 and $1,720,500 at September 30, 2011 and December 31, 2010, respectively		646,600			264,200

Other assets:
EDGE and other applications, net of accumulated amortization of $1,837,600 and $1,609,400 at September 30, 2011 and December 31, 2010, respectively		590,800			524,700
Deferred tax asset		1,086,100			1,151,500


Total long-term assets		2,323,500			1,940,400


Total assets	$	5,999,200		$	5,485,700


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable, trade	$	2,372,600		$	2,433,700
Accrued payroll and bonuses		375,900			410,200
Other accrued expenses		22,200			104,600
Deferred rent		13,300			14,900
Notes payable, current portion		1,500,000			0
Capital lease obligation, current		50,000			0
Deferred revenue and customer deposits		906,600			814,500

Total current liabilities		5,240,600			3,777,900

Long-term liabilities:
Long-term debt		0			1,250,000
Capital lease obligation		200,800			0

Total long-term liabilities		200,800			1,250,000

Temporary equity – Common stock, 1,000,000 and 775,000 for the period ended September 30, 2011 and December 31, 2010, subject to certain debt requirements		170,000			162,800

Stockholders’ equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding at September 30, 2011 and December 31, 2010		0			0
Common stock, $.001 par value; 70,000,000 shares authorized; 16,245,961 shares issued and 16,123,470 outstanding at September 30, 2011 and 16,020,961 shares issued and 15,898,470 outstanding at December 31, 2010		16,300			16,100
Additional paid-in capital		3,474,000			3,426,200
Treasury stock, 122,491 shares		(9,000	)		(9,000	)
Accumulated deficit		(3,093,500	)		(3,138,300	)

Total stockholders’ equity		387,800			295,000

Total liabilities and stockholders’ equity	$	5,999,200		$	5,485,700

The accompanying notes are an integral part of the financial statements.

Jagged Peak, Inc.

Consolidated Statements of Operations (Unaudited)


	Thirteen Week Period Ended					Thirty-Nine Week Period Ended
	September 30, 2011			September 24, 2010		September 30, 2011			September 24, 2010

Revenue	$	8,064,900		$	5,288,700	$	21,905,400		$	15,378,700

Cost of revenues		6,339,800			3,992,700		17,313,600			11,685,800


Gross profit		1,725,100			1,296,000		4,591,800			3,692,900


Selling, general and administrative expenses		1,584,800			1,156,100		4,170,800			3,253,000


Operating income		140,300			139,900		421,000			439,900


Other (income) expenses		(4,900	)		3,000		(4,900	)		11,200

Interest expense		106,700			117,100		315,800			345,800


Profit before tax expense		38,500			19,800		110,100			82,900


Provision for income tax expense		21,200			11,200		65,300			37,600


Net profit	$	17,300		$	8,600	$	44,800		$	45,300


Weighted average number of common shares outstanding – basic		16,245,961			16,020,961		16,175,178			16,020,961


Net income per share – basic	$	0.00		$	0.00	$	0.00		$	0.00


Weighted average number of common shares outstanding – fully diluted		17,497,846			16,030,665		16,738,747			16,030,665


Net income per share – fully diluted	$	0.00		$	0.00	$	0.00		$	0.00

The accompanying notes are an integral part of the financial statements.

Jagged Peak, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

39 Weeks Ended September 30, 2011 (Unaudited)


	Common Stock						Additional Paid in Capital			Treasury Stock			Accumulated Deficit			Total
	Shares			Amount			Additional Paid in Capital			Treasury Stock			Accumulated Deficit			Total
Balance, December 31, 2010		16,020,961		$	16,100		$	3,426,200		$	(9,000	)	$	(3,138,300	)	$	295,000


Issuance of Shares		1,000,000			1,000			169,000									170,000
Reclassified to temporary equity								(170,000	)								(170,000	)

Redemption of shares		(775,000	)		(800	)		800									0

Amortization of stock options								48,000									48,000

Net profit for the period														44,800			44,800


Balance, September 30, 2011		16,245,961		$	16,300		$	3,474,000		$	(9,000	)	$	(3,093,500	)	$	387,800

The accompanying notes are an integral part of the financial statements.

Jagged Peak, Inc.

Consolidated Statements of Cash Flows (Unaudited)


	39 Week Period Ended
	September 30, 2011			September 24, 2010
Operating activities
Net profit	$	44,800		$	45,300
Adjustments to reconcile net profit to net cash (used in) provided by operating activities:
Depreciation and amortization		382,400			253,000
Stock option expense		48,000			2,600
Amortization of debt costs		79,600			164,500
WIP allowance		0			15,000
Bad debt expense		21,200			85,800

Changes in:
Accounts receivable		(502,700	)		(305,600	)
Work-in-process		(79,900	)		(220,200	)
Other receivables Other current assets		0 131,300			87,600 0
Deferred tax asset		65,400			38,000
Other assets		(113,900	)		(77,700	)
Accounts payable		(61,100	)		(68,900	)
Accrued payroll Accrued expenses Deferred rent		(34,300 (82,400 (1,600	) ) )		66,000 (85,800 (28,000	) )
Other liabilities		92,100			132,100

Net cash flows (used in) provided by operating activities		(11,100	)		103,700


Investing activities
Acquisition of property and equipment		(536,600	)		(137,800	)
Acquisition/development of software/ Edge platform		(294,300	)		(267,200	)

Cash flows used by investing activities		(830,900	)		(405,000	)


Financing activities
Treasury stock		0			(9,000	)
Net proceeds and payments on the revolving note		250,800			0
Proceeds from the issuance of equity		0			1,000
Proceeds from notes payable		250,000			250,000

Cash flows provided by financing activities		500,800			242,000


Net decrease in cash		(341,200	)		(59,300	)

Cash, beginning of period		550,800			331,300


Cash, end of period	$	209,600		$	272,000

Supplemental disclosure of cash flow information Cash paid during the period for interest	$	91,600		$	98,600

The accompanying notes are an integral part of the financial statements.

Jagged Peak, Inc.

Notes to the Unaudited Consolidated Financial Statements

For the 13 and 39-Week Periods Ended September 30, 2011 and the 13 and

39-Week Periods Ended September 24, 2010

1.	General Background Information

Jagged Peak, Inc. (the “Company” or “Jagged Peak”) is an e-business software and services company headquartered in Tampa, Florida, providing Demand and Supply Chain management, CRM execution and e-Fulfillment solutions and services. The Company’s flagship product, EDGE (E-Business Dynamic Global Engine), is a web-based software application that enables companies to control and coordinate multi-channel orders, catalogs, multi-warehouse inventories, and fulfillment across multiple customers, suppliers, employees, and partners in real-time. The Company enables clients to build and operate custom branded portals such as e-commerce, incentive and rebate programs, customer service, repair and reverse logistics, marketing materials management, and automate other business processes through the use of the EDGE application and its related tools. The EDGE platform has been deployed in multiple vertical markets such as consumer goods, financial services, distribution, travel and tourism and manufacturing.

Jagged Peak’s multi-channel, enterprise EDGE application provides a comprehensive, integrated platform for e-business management that supports a broad range of business and operational applications. Clients can use EDGE as an enterprise application or as an integrator and consolidator for multiple businesses, processes and applications. EDGE has built in tools to extend the application which enables clients to create complex and robust e-commerce, CRM related customer services and repair and reverse logistics solutions. The EDGE application permits users to manage order capturing, processing, tracking, fulfillment, settlement, creating, and managing dynamic catalogs, customer relation management, marketing and reporting, all in real-time application. The EDGE application is built to industry-standard best practices. The application has been integrated seamlessly with legacy and back-office management systems as well as industry leading ERP, WMS, TMS and CRM software systems. In addition to the traditional software license sales model, Jagged Peak offers its software with a flexible managed services transaction based pricing model.

Jagged Peak provides outsourced e-commerce and supply chain solutions that enable manufacturers, distributors, and consumer brand companies to quickly and cost effectively establish and operate a direct to customer online business that is fully integrated with their offline sales channels. Jagged Peak’s proven solutions provide companies the tools, expertise, infrastructure and scalability they need to create and maximize their direct to customer sales channel potential without the risk and burden of managing it themselves. The Company uniquely provides companies the benefit of maintaining complete control of the channel, ownership of the customer relationship and retention of the gross product margin normally lost to distributors, resellers and other trading partners.

Jagged Peak continues to market TotalCommerce™, which is an end-to-end solution that enables a company to quickly and cost effectively launch a fully operational, best practices, e-commerce online channel direct to its consumers. TotalCommerce™ is an outsourced “managed services” solution that leverages Jagged Peak’s extensive technology and supply chain infrastructure and provides manufacturers with a turnkey, rapidly deployable solution including e-commerce webstore(s); order, inventory and transportation management software; a nationwide network of fulfillment centers; back office program management; and a range of online marketing services.

Jagged Peak has a network of independently owned fulfillment warehouses throughout North America that enables its clients to provide better service to their customers, while lowering their overall delivery costs. The EDGE application is able to automatically route the orders to the optimal warehouse based on an established set of factors such as service, cost and priority. This enables our clients to achieve their customer service goals while reducing cost and internal infrastructure.

In July 2009, Jagged Peak began operations in Canada through its wholly owned subsidiary, Jagged Peak Canada, Inc. The operations provide similar services as in the United States through a network of independently owned fulfillment warehouses, which are managed through technology provided by Jagged Peak, Inc.

In addition to application software and demand execution, Jagged Peak also focuses on e-marketing and e-channel management to provide a holistic e-commerce solution for its clients. The Company’s approach to e-marketing is to build marketing programs and systems that elevate clients’ sites to be viewed by leading search engines as “authorities” within a particular product niche or keyword search term. Our services help companies excel in online retailing through the management, development, and optimization of e-commerce stores. Jagged Peak’s e-marketing services achieve superior results by utilizing a mix of traditional and emerging strategies and industry best practices. The Company’s e-channel management services help protect clients’ online pricing and intellectual property policies by utilizing an automated system and business process to identify, notify and potentially enforce violations. Jagged Peak’s holistic approach to e-commerce provides its clients with assurance that their e-business is performing at its highest level.

Effective January 1, 2003, the Company elected to change its fiscal year end to correspond to accounting periods based on a 52/53 week reporting year. Therefore, the periods ended September 30, 2011 and September 24, 2010 consist of 39 weeks.

2.	Significant Accounting Policies

Basis of Presentation

In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of (a) the consolidated financial position at September 30, 2011, (b) the consolidated results of operations for the 13 and 39 weeks ended September 30, 2011 and September 24, 2010, (c) the consolidated statement of changes in stockholders’ equity for the 39-week period ended September 30, 2011 and (d) consolidated cash flows for the 39 weeks ended September 30, 2011 and September 24, 2010, have been made.

The unaudited consolidated financial statements and notes are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying statements and notes should be read in conjunction with the audited financial statements and notes of the Company for the 53-week period ended December 31, 2010.

Use of Estimates

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. These principles require 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. The Company reviews its estimates, including but not limited to, capitalization of software, work in process, recoverability of long-lived assets, recoverability of prepaid expenses, valuation on deferred tax assets and allowance for doubtful accounts, on a regular basis and makes adjustments based on historical experiences and existing and expected future conditions. These evaluations are performed and adjustments are made as information is available. Management believes that these estimates are reasonable and these estimates have been discussed with the audit committee; however, actual results could differ from these estimates.

Revenue Recognition

There are multiple components in our TotalCommerce solution, which are sold through a master agreement where each individual component is priced separately and distinctly from the other components, based on market prices at which we sell those services individually. The client is able to choose which services it wishes to purchase. The separate components can be added or deleted at any time during the contract period at pre-determined prices. We have past history of selling each component separately to establish the market price of each component.

Software development services include activation, e-commerce site development, application and e-commerce site enhancements, consulting services and other development activities. Additional technology revenue is derived from help desk support, maintenance, general support, active monitoring and training.

Revenue from software development and technology services is recognized as services are provided or on the percentage of completion method for those arrangements with specified milestones. The percentage of completion is based on labor hours incurred to total labor hours expected to be incurred. Additional technology revenues are either paid monthly or on an annual basis. If paid on an annual basis, the revenue is recognized ratably over the year, and if paid on a monthly basis, the revenue is recognized in the month in which the service was provided.

Hosting and managed services contracts range in length from one to three years, and are typically renewed annually after the initial term for subsequent one year periods. Revenue from hosting and managed services is recognized ratably over the period for which the services are provided. In most cases the fees are either a flat monthly fee or based on the client’s use of the system (transactions).

Our EDGE software is a web-based product and provided to our customers in software as a service model. Revenues are recognized ratably over the period the service is provided. The method of payment can be based on the clients’ use of the system (transactions), a flat monthly fee or an annual fee. Revenue for all methods of payment is recognized over the period the software is available to the client and we are responsible for providing software updates.

We have established vender specific objective evidence for the individually priced components in our contracts through the use of the market as each component in our contracts is sold both as a package and individually with the same pricing. For any component delivered for which vender specific objective evidence (“VSOE”) is not available, we use the residual method. When applying the residual method, VSOE of fair value is allocated to each of the undelivered components and the remaining consideration is allocated to the delivered components.

Revenue is also derived from fulfillment service arrangements. Services included under fulfillment arrangements include account services, handling, order processing, packaging, storage and reporting. These services are based on established monthly charges as well as handling fees based on volume. These revenues are recognized based on the net value of the services provided.

Certain order processing services are contracted out by us to optimized independent distribution warehouses in North America. All of these services are managed by us through our order management platform. Since we have the exclusive responsibility to contract and to manage the services provided to our clients by these independent warehouses and the related transportation, the revenue and expenses are recognized based on the amount of services charged to our client and the related expenses are part of our cost of services.

Work in process represents costs and services which have been provided and properly recognized based on the above policy, however have not been billed to the client.

Shipping and handling costs are classified as cost of revenues.

Software and Development Enhancements

Software and development enhancements include costs such as payroll and employee benefits associated with product development. The EDGE product platform, including the order management, the warehouse management and the transportation management systems are continually being enhanced with new features and functions. Once technological feasibility of new features and functions is established, the costs incurred until release and production are capitalized and amortized over a three-year useful life. There was approximately $68,900 capitalized during the 13-week period ended September 30, 2011 and approximately $294,300 capitalized during the 39-week period ended September 30, 2011, and there was approximately $54,300 capitalized during the 13-week period ended September 24, 2010 and approximately $267,200 capitalized during the 39-week period ended September 24, 2010. Amortization expense related to capitalized software and charged to operations for the 13-week and 39-week periods ended September 30, 2011 was approximately $86,500 and $228,200, respectively. Amortization expense related to capitalized software and charged to operations for the 13-week and 39-week periods ended September 24, 2010 was approximately $50,200 and $125,200, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and investments in money market funds with high quality financial institutions. The Company considers all highly liquid instruments purchased with a remaining maturity of less than three months at the time of purchase as cash equivalents.

Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, are cash and cash equivalents and accounts receivables.

The majority of cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand, and, therefore, bear minimal risk.

During the 39-week period ended September 30, 2011, sales to two customers amounted to approximately $18,776,700, and during the 39-week period ended September 24, 2010, sales to one customer amounted to approximately $12,951,200, respectively, or 86% and 84% of total revenues, respectively. Accounts receivable from these same customers at September 30, 2011 amounted to approximately $1,225,858, or approximately 49%, of total accounts receivable. Accounts receivable from the same customer at September 24, 2010 amounted to approximately $995,300, or approximately 60%, of total accounts receivable. One of the two customers is a large international company with more than one hundred brands. The Company classifies all business done for all of this customer’s brands as one single customer for the concentration of risk calculation.

The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. The Company provides for estimated losses on accounts receivable considering a number of factors, including the overall aging of accounts receivables, the customer’s payment history and the customer’s current ability to pay its obligation. Based on managements’ review of accounts receivable and other receivables, an allowance for doubtful accounts of approximately $140,000 and $60,000 is considered necessary as of September 30, 2011 and December 31, 2010, respectively. Although management believes that accounts receivable are recorded at their net realizable value, a 10% decline in historical collection rate would increase the current bad debt expense for the period ended September 30, 2011 by approximately $10,000. We do not accrue interest on past due receivables.

Identified Intangible Assets

The Company reviews identified intangible assets and long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of an identified intangible assets or long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. For the 39-week periods ended September 30, 2011 and September 24, 2010, there was no impairment of long-lived or intangible assets.

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, principally three to ten years. Accelerated methods are used for tax depreciation. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. Equipment held under capital leases is stated at the present value of the minimum lease payments and amortized on a straight-line basis over the estimated useful life of the asset.

Depreciation is calculated by the straight-line method over the following estimated useful lives of the related assets:


		Years

Furniture and equipment		3-7
Computer equipment and software		1-4
Warehouse equipment		3-10
Leasehold improvements		Lease term

Leased Property meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of the capitalized leased assets is computed on a straight-line method over the shorter of the estimated useful life or the initial lease term, minus any residual value.

Estimated Fair Value of Financial Instruments

The aggregated net fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, receivables, payables, accrued expenses and short-term borrowings. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company’s debt is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.

Uncertain Tax Positions

The Company periodically assesses its tax positions taken for all open tax years and has not identified any uncertain tax positions. The Company is not subject to examination by taxing authorities for years prior to 2007.

Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax return purposes. Deferred tax assets and liabilities are determined based on the differences between the book values and the tax bases of particular assets and liabilities and the tax effects of net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized as income or expense in the period that included the enactment date.

The Company periodically assesses the recoverability of its deferred tax assets, as necessary, when the Company experiences changes that could materially affect its determination of the recoverability of its deferred tax assets. In conducting this assessment, management considered a variety of factors, including the Company’s operating profits, the reasons for the Company’s operating losses in prior years, and management’s judgment as to the likelihood of continued profitability and expectations of future performance, and other factors. Management does not believe that a valuation allowance is necessary; however the amount of deferred tax asset realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. Net loss carry forwards will begin to expire in 2018.

Put Options

In 2009, the Company issued 775,000 restricted common shares as partial consideration for a loan obtained from Moriah Capital L.P. (“Moriah”). Pursuant to the terms and conditions of the governing Securities Issuance Agreement, the holder of such shares had the right, but not the obligation, to put the shares back to the Company at a fixed price of $0.21 per common share on March 18, 2011.

During the 39-week period ended September 30, 2011, the Company refinanced its loan with Moriah and as part of our amended Moriah agreement, Moriah put the 775,000 shares of common stock back to Jagged Peak at a fixed price of $0.21 per common share. The Company then retired these shares. As part of the amended agreement, the Company also issued Moriah 1,000,000 restricted common shares as collateral for the redemption premium related to the refinancing of the loan obtained from Moriah. Moriah has the option, at March 31, 2012, to retain the collateral shares or return the shares to Jagged Peak for the redemption premium of $170,000.

The Company accounted for these shares as a reclassification of the value of the shares from permanent to temporary equity.

Stock-Based Compensation

The Company has stock option and stock incentive plans for employees and non-employee directors that provide for grants of restricted stock awards and options to purchase shares of Jagged Peak common stock at exercise prices generally equal to the fair values of such stock at the dates of grant. The Company recognizes the cost of all share-based payments in the financial statements using a fair-value based measurement method. The Company uses a Black-Scholes model to value its stock option grants and expenses the related compensation cost using the straight-line method over the vesting period. The fair value of the stock compensation is determined on the grant date using assumptions for the expected term, volatility, dividend yield and the risk free interest rate. The period expense is then determined based on the valuation of the options and on estimated forfeitures. Generally, stock options vest 50 percent on each anniversary of the grant date, are fully vested two years from the grant date, and have a contractual term of five years.

There were 2,350,000 options granted during the 39-week period ended September 30, 2011 and no options granted during the 39-week period ended September 24, 2010. As of September 30, 2011, there was approximately $135,000 of unrecognized stock-based compensation expense related to nonvested stock options as compared to approximately $1,700 of unrecognized stock-based compensation expense related to nonvested stock options as of September 24, 2010.

Foreign Currency

Generally, the functional currency of our international subsidiary is the local currency. The financial statements are translated to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenues, costs and expenses. Translation gains and losses are recorded in accumulated other comprehensive income as a component of stockholders’ equity. There were no recorded translation gains for the 39-week periods ended September 30, 2011 and September 24, 2010. Net gains and losses resulting from foreign exchange transactions are recorded as a component of interest income and other, net.

Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of the Company. Potential common stock shares consist of shares that may arise from outstanding dilutive common stock options and warrants (the number of which is computed using the “treasury stock method”) and from outstanding convertible debentures (the number of which is computed using the “if converted method”). Diluted earnings per share considers the potential dilution that could occur if the Company’s outstanding common stock options, warrants and convertible debentures were converted into common stock that then shared in the Company’s earnings (as adjusted for interest expense, that would no longer occur if the debentures were converted).

The weighted average number of shares was approximately 16,175,178 and 16,020,961 for the 39-week periods ended September 30, 2011 and September 24, 2010, respectively. The diluted weighted average number of shares was approximately 16,738,747 and 16,030,665 for the 39-week periods ended September 30, 2011 and September 24, 2010, respectively.

Recently Issued Financial Accounting Standards

In April 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring”. This new guidance requires a creditor performing an evaluation of whether a restructuring constitutes a troubled debt restructuring, to separately conclude that both (i) the restructuring constitutes a concession and (ii) the debtor is experiencing financial difficulties. This standard clarifies the guidance on a creditor’s evaluation of whether it has granted a concession as well as the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties. The update also requires entities to disclose additional quantitative activity regarding troubled debt restructurings of finance receivables that occurred during the period, as well as additional information regarding troubled debt restructurings that occurred within the previous twelve months and for which there was a payment default during the current period. The new accounting guidance is effective beginning September 30, 2011, and should be applied retrospectively to January 1, 2011. The Company does not anticipate the adoption of this update will have a material impact on the Company’s financial statements.

In April 2011, the FASB issued the ASU, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” This ASU amended Topic 310 and provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a TDR. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. The new guidance requires creditors to evaluate modifications and restructurings of receivables using a more principles-based approach, which may result in more modifications and restructurings being considered troubled debt restructurings. For purposes of measuring impairment of these receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. Adoption of this accounting standard update did not have a material impact on our financial condition, results of operations or financial statement disclosures.

In May 2011, the FASB issued guidance related to amendments to disclosures about fair value measurements. The amendments in this update improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. We are required to adopt this standard for the first quarter of 2012. Early adoption is not permitted. We do not expect this accounting standard to have a material impact on our consolidated financial statements.

In June 2011, the FASB issued guidance related to the presentation of comprehensive income. This guidance eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all other comprehensive income changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not affect how earnings per share is calculated or presented. We are required to adopt this standard for the first quarter of 2012, however early adoption is permitted. The amendments should be applied retrospectively. We do not expect this accounting standard to have a material impact on our consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its EITF), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

3.	Equity

Common Stock

Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors (the “Board”), subject to the prior rights of any outstanding senior classes of stock, of which there are currently none. The Company records stock as issued when the consideration is received or the obligation is incurred.

The Company’s 2005 Stock Incentive Plan, as amended in July 2008 (“the Plan”), authorizes the Board of Directors to grant up to 5,000,000 options to key employees, officers, directors, and consultants. The aggregate fair market value of grants to one individual shall not exceed $100,000 during any one calendar year for grants of both incentive stock options and non-qualified stock options. Options granted under the Plan must be exercised within ten years of the date of grant. The option price payable for the shares of common stock covered by any option shall be determined by the Board, but with regards to incentive stock options, shall not be less than the fair market value of one share of common stock on the date of grant. The option price for nonstatutory options may be less than the fair market value of common stock on the date of grant only if the Board determines that special circumstances warrant a lower exercise price.

The Company’s 2000 Stock Incentive Plan authorizes the grant of up to 100,000 shares of common stock to any employee or consultant during any one calendar year for grants of both incentive stock options and non-qualified stock options to key employees, officers, directors, and consultants. Options granted under the Plan must be exercised within ten years of the date of grant. The option price payable for the shares of common stock covered by any option shall be determined by the Board, but shall in no event be less than the par value of common stock. The option price for incentive stock options shall not be less than the fair market value of one share of common stock on the date of grant. The option price for nonstatutory options may be less than the fair market value of common stock on the date of grant only if the Board determines that special circumstances warrant a lower exercise price.

The following summarizes the Company’s stock option, convertible debt and warrant activity and related information:


	Shares			Range of Exercise Prices	Weighted Average Exercise Price

Outstanding at December 31, 2010		1,500,782		$0.01-2.50		$0.68
Warrants exercised		0		$0		$0
Warrants and options cancelled or expired		(505,000	)	$0.08-2.50		$0.50
Warrants, convertible debt and options granted		2,350,000		$0.13		$0.01


Outstanding at September 30, 2011		3,345,782		$0.01-0.55		$0.16

Exercisable at September 30, 2011		995,782		$0.01-0.55		$0.53
Exercisable at December 31, 2010		1,100,782		$0.01-2.50		$0.68

The following table summarizes information about options and warrants outstanding and exercisable as of September 30, 2011:


	Outstanding Warrants and Options						Exercisable Warrants and Options
Range of Exercise Price	Number Outstanding		Weighted Average Remaining Life		Weighted Average Price		Weighted Average Remaining Life		Number Exercisable		Weighted Average Price

$0.01		10,782		39.25 years	$	0.01		39.25 years		10,782	$	0.01
$0.13-0.55		3,335,000		1.0 years	$	0.16		0.6 years		985,000	$	0.53

As of September 30, 2011 and December 31, 2010, there were approximately 995,782 and 1,100,782 options exercisable at a weighted average exercise price of $0.53 and $0.68, respectively. There were 2,350,000 options granted in 2011 and there were 400,000 options granted in 2010.

4.	Related Party Transaction

During the 39-week period ended September 30, 2011, to ensure Jagged Peak’s ability to renew its warehouse lease under similar terms, a group of investors, including officers of Jagged Peak (Vince Fabrizzi, Paul Demirdjian and Andrew Norstrud), purchased the building from the bank that had foreclosed on the warehouse. Jagged Peak has signed a 10 year lease that is at market rate and averages approximately $33,800 per month over the term of the lease. During the 39-week period ended September 30, 2011, there was approximately $205,200 in total lease payments. The group of investors currently has the property available for sale and does not intend to own the property long term.

The above related party transactions are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent parties.

PART I – FINANCIAL INFORMATION

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

THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words “expect”, “anticipate”, “estimate” or similar expressions are also used to indicate forward-looking statements. The following discussions should be read in conjunction with our financial statements and the notes thereto presented in “Item 1 – Financial Statements” and our audited financial statements and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our report on Form 10-K for the year ended December 31, 2010.

Background of our Company

systems as well as industry leading ERP, WMS, TMS and CRM software systems. In addition to the traditional software license sales model, Jagged Peak offers its software with a flexible managed services transaction based pricing model.

In addition to application software and demand execution, Jagged Peak also focuses on e-marketing and e-channel management to provide a holistic e-commerce solution for its clients. The Company’s approach to e-marketing is to build marketing programs and systems that elevate client’s sites to be viewed by leading search engines as “authorities” within a particular product niche or keyword search term. Our services help companies excel in online retailing through the management, development, and optimization of e-commerce stores. Jagged Peak’s e-marketing services achieve superior results by utilizing a mix of traditional and emerging strategies and industry best practices. The Company’s e-channel management services help protect clients’ online pricing and intellectual property policies by utilizing an automated system and business process to identify, notify and potentially enforce violations. Jagged Peak’s holistic approach to e-commerce provides its clients with assurance that their e-business is performing at its highest level.

There are a variety of risks associated with the Company’s ability to achieve strategic objectives, including the ability to increase market penetration, acquire and profitably manage additional businesses, current reliance on key customers, the risks inherent in expanding, and the intense competition in the industry. For a more detailed discussion of these risks, see the section of our December 31, 2010 annual report filed on Form 10-K with the SEC under Item 1A entitled “Risks Factors.”

RESULTS OF OPERATIONS

For the 13-week period ended September 30, 2011 compared to the 13-week period ended September 24, 2010

Revenues increased approximately $2,776,200, or 52%, to approximately $8,064,900 for the 13-week period ended September 30, 2011, as compared to approximately $5,288,700 for the 13-week period ended September 24, 2010. The increase in revenue primarily related to (i) continued growth in order/transaction volume, (ii) an increase in distribution orders, (iii) the newly operating Canadian operation, (iv) growth in our recurring technology transaction revenue, and (v) new customers. The Canadian operation is similar to our United States fulfillment operation; however, all technology services are still performed and billed from the United States.

Costs of revenue, which consist primarily of labor, software amortization, technology, facilities, postage, freight, and packing supplies, increased by approximately $2,347,100, or 59%, to approximately $6,339,800 for the 13-week period ended September 30, 2011, as compared to approximately $3,992,700 for the 13-week period ended September 24, 2010. As a percentage of revenues, cost of revenue amounted to approximately 79% of related revenues for the 13-week period ended September 30, 2011, as compared with approximately 75% for the 13-week period ended September 24, 2010. The increased cost of revenue and increase as a percentage of revenue resulted primarily from (i) increased order/ transaction volume, (ii) increased orders flowing through the Company’s North America distribution network, which has a lower gross margin, and (iii) the newly operating Canadian operation, which has a lower gross margin. Executive management continues to change the infrastructure and production methods, and to develop technology enhancements to enable the Company to continue to increase productivity without significant additional resources and to allow the Company to better capitalize on economies of scale as revenues increase. Management expects the percentage of cost of revenue to revenue to decrease as sales increase and we are able to increase revenue from technology, capitalize on the additional capacity and improve the efficiency of our Canadian operations.

Selling, general and administrative expense increased by approximately $428,700, or 37%, to approximately $1,584,800 for the 13-week period ended September 30, 2011 as compared to approximately $1,156,100 for the 13-week period ended September 24, 2010. The increase was primarily related to (i) increased sales and marketing costs related to a new sales and marketing program, which includes significant expense related to brand awareness, (ii) recruiting and travel expenses, and (iii) costs related to the implementation of the new warehouse management system. Management expects to continue to reinvest cash flow from operations into marketing efforts, which is expected to significantly increase leads and new customers.

The Company realized a profit from continuing operations before provision for income taxes of approximately $38,500 for the 13-week period ended September 30, 2011, compared with a profit from continuing operations before provision for income taxes of approximately $19,800 for the 13-week period ended September 24, 2010.

Income tax expense was approximately $21,200 for the 13-week period ended September 30, 2011 compared to an income tax expense of approximately $11,200 for the 13-week period ended September 24, 2010. Differences between the effective tax rate used for 2011 and 2010, as compared to the U.S. federal statutory rate, are primarily due to permanent differences. As of September 30, 2011 the Company had federal and state net operating loss carry-forwards totaling approximately $4,000,000, which begin to expire in 2018. Management believes that there will be sufficient future earnings to support the more than likely realization of deferred tax assets in excess of existing taxable temporary differences. The amount of deferred tax assets considered realizable, however, could be reduced in the near-term if estimates of future taxable income are reduced.

Basic income per share from continuing operations for the 13-week period ended September 30, 2011 was $0.00 per weighted average share, compared with a basic income of $0.00 per weighted average share for the 13-week period ended September 24, 2010.

For the 39-week period ended September 30, 2011 compared to the 39-week period ended September 24, 2010

Revenues increased approximately $6,526,700, or 42%, to approximately $21,905,400 for the 39-week period ended September 30, 2011, as compared to approximately $15,378,700 for the 39-week period ended September 24, 2010. The increase in revenue primarily related to (i) continued growth in order/transaction volume, (ii) an increase in distribution orders, (iii) the newly operating Canadian operation, (iv) growth in our recurring technology transaction revenue, and (v) new customers. The Canadian operation is similar to our United States fulfillment operation; however, all technology services are still performed and billed from the United States.

Cost of revenues, which consist primarily of labor, software amortization, technology, facilities, postage, freight, and packing supplies, increased by approximately $5,627,800, or 48%, to approximately $17,313,600 for the 39-week period ended September 30, 2011, as compared to approximately $11,685,800 for the 39-week period ended September 24, 2010. As a percentage of revenues, cost of revenue amounted to approximately 79% of related revenues for the 39-week period ended September 30, 2011, as compared with approximately 76% for the 39-week period ended September 24, 2010. The increased cost of revenue and increase as a percentage of revenue resulted primarily from (i) increased order/transaction volume, (ii) increased orders flowing through the Company’s North America distribution network, which has a lower gross margin, and (iii) the newly operating Canadian operation, which has a lower gross margin. Executive management continues to change the infrastructure and production methods, and to develop technology enhancements to enable the Company to continue to increase productivity without significant additional resources and to allow the Company to better capitalize on economies of scale as revenues increase. Management expects the percentage of cost of revenue to revenue to decrease as sales increase and we are able to increase revenue from technology, capitalize on the additional capacity and improve the efficiency of our Canadian operations.

Selling, general and administrative expense increased by approximately $917,800, or 28%, to approximately $4,170,800 for the 39-week period ended September 30, 2011 as compared to approximately $3,253,000 for the 39-week period ended September 24, 2010. The increase was primarily related to (i) increased sales and marketing costs related to a new sales and marketing program, which includes significant expense related to brand awareness, (ii) recruiting and travel expenses, and (iii) costs related to the implementation of the new warehouse management system. Management expects to continue to reinvest cash flow from operations into marketing efforts, which is expected to significantly increase leads and new customers.

The Company realized a profit from continuing operations before provisions for income taxes of approximately $110,100 for the 39-week period ended September 30, 2011, compared with a profit from continuing operations before provisions for income taxes of approximately $82,900 for the 39-week period ended September 24, 2010.

Income tax expense was approximately $65,300 for the 39-week period ended September 30, 2011 compared to an income tax expense of approximately $37,600 for the 39-week period ended September 24, 2010. Differences between the effective tax rate used for 2011 and 2010, as compared to the U.S. federal statutory rate, are primarily due to permanent differences. As of September 30, 2011 the Company had federal and state net operating loss carry-forwards totaling approximately $4,000,000, which begin to expire in 2018. Management believes that there will be sufficient future earnings to support the more than likely realization of deferred tax assets in excess of existing taxable temporary differences. The amount of deferred tax assets considered realizable, however, could be reduced in the near-term if estimates of future taxable income are reduced.

Basic income per share from continuing operations for the 39-week period ended September 30, 2011 was $0.00 per weighted average share, compared with basic loss of $0.00 per weighted average share for the 39-week period ended September 24, 2010.

Critical Accounting Policies and Estimates

Use of Estimates

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. These principles require 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. The Company reviews its estimates, including but not limited to, capitalization of software, work in process, recoverability of long-lived assets, recoverability of prepaid expenses, valuation on deferred tax assets and allowance for doubtful accounts, on a regular basis and makes adjustments based on historical experiences and existing and expected future conditions. These evaluations are performed and adjustments are made, as information is available. Management believes that these estimates are reasonable and these estimates have been discussed with the audit committee; however, actual results could differ from these estimates.

Revenue Recognition

Work in process represents costs and services which have been provided and properly recognized based on the above policy, however have not been billed to the client.

Shipping and handling costs are classified as cost of revenues.

Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, are cash and cash equivalents and accounts receivables.

During the 39-week period ended September 30, 2011, sales to two customers amounted to approximately $18,776,700, and during the 39-week period ended September 24, 2010, sales to one customer amounted to approximately $12,951,200, respectively, or 86% and 84% of total revenues, respectively. Accounts receivable from these same customers at September 30, 2011 amounted to approximately $1,225,858, or approximately 49% of total accounts receivable. Accounts receivable from the same customer at September 24, 2010 amounted to approximately $995,300, or approximately 60%, of total accounts receivable. One of the two customers is a large international company with more than one hundred brands. The Company classifies all business done for all of this customer’s brands as one single customer for the concentration of risk calculation.

The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. The Company provides for estimated losses on accounts receivable considering a number of factors, including the overall aging of accounts receivables, customer’s payment history and the customer’s current ability to pay its obligation. Based on managements’ review of accounts receivable and other receivables, an allowance for doubtful accounts of approximately $140,000 and $60,000 is considered necessary as of September 30, 2011 and December 31, 2010, respectively. Although management believes that accounts receivable are recorded at their net realizable value, a 10% decline in historical collection rate would increase the current bad debt expense for the period ended September 30, 2011 by approximately $10,000. We do not accrue interest on past due receivables.

Income Taxes

in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized as income or expense in the period that included the enactment date.

Put Options

The Company accounted for these shares in accordance with the guidance established by FASB ASC 480 as a reclassification of the value of the shares from permanent to temporary equity.

EBITDA

EBITDA for the 39-week period ended September 30, 2011 was approximately $808,300 compared to approximately $681,700 in the comparable period of the prior year. The increase in the EBITDA directly relates to the increase in sales compared to 2010. The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization costs. The Company also excludes, if applicable, the cumulative effect of a change in accounting principle, discontinued operations, and the impact of restructuring and other charges from the computation. The Company believes EBITDA is a useful measure of operating performance before the impact of investing and financing transactions, making comparisons between companies’ earnings power more meaningful and providing consistent comparisons of the Company’s performance. In order to provide consistent comparisons of year-over-year EBITDA, the following reconciliation is provided.


	For the 39-weeks ended
	September 30, 2011		September 24, 2010
Net profit as reported	$	44,800	$	45,300
Income tax expense		65,300		37,600
Interest expense		315,800		345,800
Depreciation and amortization		382,400		253,000


EBITDA	$	808,300	$	681,700

USE OF GAAP AND NON-GAAP MEASURES

In addition to results presented in accordance with generally accepted accounting principles (“GAAP”), the Company has included in this report earnings “EBITDA,” with EBITDA being defined by the Company as earnings before interest, taxes, depreciation and amortization. The Company also excludes the cumulative effect of a change in accounting principle, discontinued operations, and the impact of restructuring and other charges from the computation of EBITDA, when applicable. For each non-GAAP financial measure, the Company has presented the most directly comparable GAAP financial measure and has reconciled the non-GAAP financial measure with such comparable GAAP financial measure.

These non-GAAP financial measures provide useful information to investors to assist in understanding the underlying operational performance of the Company. Specifically, EBITDA is a useful measure of operating performance before the impact of investing and financing transactions, making comparisons between companies’ earnings power more meaningful and providing consistent period-over-period comparisons of the Company’s performance. In addition, the Company uses these non-GAAP financial measures internally to measure its on-going business performance and in reports to bankers to permit monitoring of the Company’s ability to pay outstanding liabilities.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2011, the Company had approximately $1,564,900 of negative working capital and had cash and cash equivalents of approximately $209,600, compared with approximately $232,600 of negative working capital and approximately $550,800 of cash and cash equivalents at December 31, 2010. The decrease in working capital is primarily the result of the reclassification of the debt that was refinanced with Moriah Capital L.P. with a new maturity date of March 31, 2012, which was previously classified as long term and which is now classified as current.

During the 39-week period ended September 30, 2011, cash decreased by approximately $341,200. During the 39-week period ended September 30, 2011, there was negative cash flow from operations, which included non-cash expenses of (i) approximately $382,400 related to depreciation and amortization, and (ii) approximately $79,600 related to the amortization of debt cost. In addition, there was approximately $830,900 used by investing activities for the purchase of fixed assets and the development of software, approximately $582,600 was used by operations for the increase in account receivables and work in process, approximately $95,400 was used by operations for the decrease in accounts payable, and accrued salaries both primarily related to the increase in sales, and approximately $500,800 was provided by financing activities from the proceeds of notes payable and the revolving note. Management expects to maintain positive cash flow from operations going forward, except in periods when the accounts receivable and work in process balances significantly increase based on revenue growth.

In December 2009, the Company entered into a Loan and Security agreement and a Secured Revolving Note with Moriah Capital, L.P., a Delaware Limited Partnership (“Moriah” and the “Closing”), whereby we agreed to a Secured Revolving Term Note (the “Note”) with one million five hundred thousand dollars ($1,500,000) availability based on certain criteria. The loan was based on the Company’s accounts receivable and was advanced at a rate of 85% of eligible receivables, in addition to other collateral. The interest rate of the Note was six percent (6%) above prime with a floor of eleven percent (11.0%) and was paid on a monthly basis. The loan is secured by all of the Company’s assets. The entire principal was payable in March of 2011. The proceeds from the Note were used to extinguish loans of the Company and provided the necessary working capital to accelerate the Company’s growth initiatives. A portion of the Note is secured by the Jagged Peak common stock held by certain stockholders of the Company.

In March 2011, the Company entered into an amended Loan and Security Agreement with Moriah, whereby we agreed to amend and extend the Term Note (the “Note”) in the principal amount of one million five hundred thousand dollars ($1,500,000). The new interest rate of the Note is six percent (6%) above prime with a floor of ten percent (10%) and is paid on a monthly basis. There are no monthly principal payments; a final balloon payment of $1,500,000 is due in March of 2012. The balance of the terms remains unchanged. In addition to the collateral provided by the Company, a portion of the Note is secured by the Jagged Peak common stock held by certain stockholders of the Company, which could cause a change of control if the Company was to default on the loan.

Management expects to obtain additional financing or an equity infusion to make the final payment to Moriah, due in March of 2012. The current principal balance is $1,500,000. Based on the cash flow from operations and the Company’s past history, management believes it will be able to find conventional financing with reasonable terms. If the Company is unable to obtain the necessary financing from a conventional bank, it is highly likely that the current shareholders would be significantly diluted if the Company was required to refinance the debt with additional convertible debt at the current market price of the stock. Management has not yet explored refinancing options.

The Company has embarked on marketing activities, upgrades to technology and increasing infrastructure that it believes will enhance cash flows and business opportunities in the future. In addition, the Company uses its warehouse to provide a portion of its e-fulfillment services. When the Company outgrows the capabilities of this warehouse facility, the Company may elect to outsource these additional fulfillment service arrangements to other warehouse services providers, or elect to add additional warehouse space. The Company’s current strategy has been to build a network of partner warehouses to fulfill the additional order requirements. If the Company elected to add additional warehouse space, we may need to obtain additional financing. There is no assurance that we will be able to obtain financing on terms favorable to the Company or successfully implement infrastructure growth strategies.

Our strategy is to continue to expand through both internal development and mergers and acquisitions, which will depend on a number of factors that are beyond our control. There can be no assurance that we will be successful in implementing our growth strategy or in successfully obtaining adequate financing on favorable terms for these strategies.

The Company is currently in the process of completing the spin-off of Acroboo. The current operations of Acroboo are immaterial to Jagged Peak, however management believes that by spinning off the operation and allowing a new team to concentrate on the business model there is a potential that the operations will be able to reach its potential.

From time to time the Company may become a defendant in legal proceedings in the normal course of business. Since the Company has not established a reserve in connection with such claims or any general reserve for legal expenses or claims, any such liability, if at all, would be recorded as an expense in the period incurred or estimated. This amount, even if not material to the Company’s overall financial condition, could adversely affect the Company’s results of operations in the period recorded.

SEASONALITY

Historically, the Company’s revenues and profitability have been subject to moderate quarterly seasonal trends. The first quarter has traditionally been the weakest and the fourth quarter has traditionally been the strongest. Typically, this pattern has been the result of factors such as national holidays, customer demand and economic conditions. Additionally, significant portions of the Company’s revenues are from clients whose business levels are impacted by holiday season transaction volume and the economy.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable

Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of management, including the CEO and CFO, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2011. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2011 our disclosure controls and procedures were effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

(b)

Changes in Internal Control over Financial Reporting. There has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 2011 that materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

As of the date of this Quarterly Report, there are no material pending legal proceedings other than ordinary routine litigation to which the Company is a party or of which any of its property is subject.

Item 1A. Risk Factors

Not Applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

Not applicable

Item 4. Removed and Reserved

Item 5. Other Information

None.

Item 6. Exhibits

(a)	Exhibits included herewith are:


31.1		Certification of the Chief Executive Officer dated November 11, 2011

31.2		Certification of the Chief Operations Officer dated November 11, 2011

32.1		Certification of the Chief Executive Officer, pursuant to 18 U.S.C. section 1350, dated November 11, 2011

32.2		Certification of the Chief Operations Officer, pursuant to 18 U.S.C. section 1350, dated November 11, 2011

Exhibit 101.1 Interactive Data File


101.INS		XBRL Instance Document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


Jagged Peak, Inc.
Registrant

/s/ Paul B. Demirdjian				November 11, 2011
Paul B. Demirdjian				Date
Chief Executive Officer
(Principal Executive Officer)

/s/ Dan Furlong				November 11, 2011
Dan Furlong				Date
Chief Operations Officer
(Principal Financial Officer)

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Non-accelerated filer

Smaller reporting company