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Table of Contents

 

 

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 March 30, 2012

OR

 

¨ 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 or former address, 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.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

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 16,305,961 shares of common stock, par value $0.001 per share, outstanding as of May 10, 2012.

 

 

 


Table of Contents

Jagged Peak, Inc.

Contents

 

Part I – Financial Information

  

Item 1.

  

Financial Statements

     1   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     14   

Item 3.

  

Quantitative and Qualitative Disclosure About Market Risk

     21   

Item 4.

  

Controls and Procedures

     21   

Part II – Other Information

     21   

Item 1.

  

Legal Proceedings

     21   

Item 1A.

  

Risk Factors

     21   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     21   

Item 3.

  

Defaults Upon Senior Securities

     22   

Item 4.

  

(Removed and Reserved)

     22   

Item 5.

  

Other Information

     22   

Item 6.

  

Exhibits

     22   

Signatures

     23   


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Jagged Peak, Inc.

Consolidated Financial Statements

13 Week Period Ended March 30, 2012 (Unaudited), the

13 Week Period Ended April 1, 2011 (Unaudited) and

December 30, 2011 (Audited)

Contents

 

Consolidated 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

     5-13   


Table of Contents

Jagged Peak, Inc.

Consolidated Balance Sheets

 

     March 30,
2012
(Unaudited)
    December 30,
2011

(Audited)
 

Assets

    

Current assets:

    

Cash

   $ 394,500      $ 1,542,300   

Accounts receivable, net of allowance for doubtful accounts of $298,000 at March 30, 2012 and December 30, 2011

     3,424,900        2,825,700   

Other receivables, net of allowance of $35,000 at March 30, 2012 and December 30, 2011

     346,000        468,200   

Work in process, net of allowance of $30,000 at March 30, 2012 and December 30, 2011

     99,500        120,400   

Deferred tax asset

     447,800        423,000   

Other current assets

     329,100        358,400   
  

 

 

   

 

 

 

Total current assets

     5,041,800        5,738,000   

Property and equipment, net of accumulated depreciation of $1,991,300 and $1,932,200 at March 30, 2012 and December 30, 2011, respectively

     754,000        631,900   

Other assets:

    

EDGE applications, net of accumulated amortization of $1,897,000 and $1,864,800 at March 30, 2012 and December 30, 2011, respectively

     736,200        627,000   

Deferred tax asset

     1,129,800        1,129,800   
  

 

 

   

 

 

 

Total long-term assets

     2,620,000        2,388,700   
  

 

 

   

 

 

 

Total assets

   $ 7,661,800      $ 8,126,700   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable, trade

   $ 2,752,400      $ 3,731,100   

Accrued payroll and bonuses

     440,800        608,900   

Other accrued expenses

     91,100        67,400   

Deferred rent

     38,100        22,800   

Notes payable, current portion

     0        1,350,000   

Deferred revenue and customer deposits

     2,095,000        1,799,000   

Capital Lease

     0        239,500   
  

 

 

   

 

 

 

Total current liabilities

     5,417,400        7,818,700   

Long-term liabilities:

    

Long-term debt

     1,850,100        0   
  

 

 

   

 

 

 

Total long-term liabilities

     1,850,100        0   

Temporary equity – Common stock, subject to put rights, 1,000,000 shares at March 30, 2012 and December 30, 2011

     170,000        170,000   

Stockholders’ equity:

    

Preferred stock, $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding at March 30, 2012 and December 30, 2011

    

Common stock, $.001 par value; 70,000,000 shares authorized; 16,305,961 shares issued and 16,183,470 outstanding at March 30, 2012 and December 30, 2011

     16,400        16,400   

Additional paid-in capital

     3,552,400        3,518,900   

Treasury stock, 122,491 shares

     (9,000     (9,000

Accumulated deficit

     (3,335,500     (3,388,300
  

 

 

   

 

 

 

Total stockholders’ equity

     224,300        138,000   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 7,661,800      $ 8,126,700   
  

 

 

   

 

 

 

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

 

1


Table of Contents

Jagged Peak, Inc.

Consolidated Statements of Operations (Unaudited)

 

     Thirteen Weeks Ended  
     March 30,
2012
    April 1,
2011
 

Revenue

   $ 8,421,800      $ 6,242,900   

Cost of revenue

     6,848,100        4,837,800   
  

 

 

   

 

 

 

Gross profit

     1,573,700        1,405,100   
  

 

 

   

 

 

 

Selling, general and administrative expenses

     1,348,000        1,244,400   
  

 

 

   

 

 

 

Income from operations

     225,700        160,700   

Other

     (3,000     (900

Interest expense

     129,600        113,300   
  

 

 

   

 

 

 

Profit before tax expense

     99,100        48,300   

Provision for income tax expense

     46,300        28,200   
  

 

 

   

 

 

 

Net income

   $ 52,800      $ 20,100   
  

 

 

   

 

 

 

Weighted average number of common shares outstanding – basic

     16,183,470        16,033,461   
  

 

 

   

 

 

 

Net income per share – basic

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

Weighted average number of common shares outstanding – fully diluted

     17,215,668        16,109,787   
  

 

 

   

 

 

 

Net income per share – fully diluted

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

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

 

2


Table of Contents

Jagged Peak, Inc.

Consolidated Statement of Changes in Stockholders’ Equity

13 Weeks Ended March 30, 2012 (Unaudited)

 

     Common Stock      Additional         
     Shares      Amount      Paid in
Capital
     Treasury
Stock
    Accumulated
Deficit
    Total  

Balance, December 30, 2011

     16,305,961       $ 16,400       $ 3,518,900       $ (9,000   $ (3,388,300   $ 138,000   

Stock option expense

           33,500             33,500   

Net income for the period

                52,800        52,800   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, March 30, 2012

     16,305,961       $ 16,400       $ 3,552,400       $ (9,000   $ (3,355,500   $ 224,300   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

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

 

3


Table of Contents

Jagged Peak, Inc.

Consolidated Statements of Cash Flows (Unaudited)

 

     13 Weeks Ended  
     March 30,
2012
    April 1,
2011
 

Operating activities

    

Net income

   $ 52,800      $ 20,100   

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     91,300        115,300   

Stock option expense

     33,500        1,700   

Amortization of debt costs

     67,400        79,600   

Bad debt expense

     0        25,700   

Changes in:

    

Accounts receivable

     (564,200     697,300   

Work-in-process

     20,900        (68,600

Other current assets

     (38,100     48,500   

Other receivables

     87,200        (132,200

Deferred tax asset

     (24,800     28,900   

Accounts payable and accrued expenses

     (1,123,100     (1,022,900

Deferred rent

     15,300        (12,600

Deferred revenue and customer deposits

     296,000        60,600   
  

 

 

   

 

 

 

Net cash flows used in operating activities

     (1,085,800     (158,600
  

 

 

   

 

 

 

Investing activities

    

Acquisition of property and equipment

     (181,100     (28,200

Acquisition/development of software – EDGE applications

     (141,500     (77,100
  

 

 

   

 

 

 

Cash flows used in investing activities

     (322,600     (105,300
  

 

 

   

 

 

 

Financing activities

    

Net proceeds on note

     500,100        0   

Payments made on capital lease obligation

     (239,500     0   

Redemption of temporary stock

     0        (162,800
  

 

 

   

 

 

 

Cash flows provided by (used in) financing activities

     260,600        (162,800
  

 

 

   

 

 

 

Net decrease in cash

     (1,147,800     (426,700

Cash, beginning of period

     1,542,300        550,800   
  

 

 

   

 

 

 

Cash, end of period

   $ 394,500      $ 124,100   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information

    

Cash paid during the period for interest

   $ 112,600      $ 33,900   
  

 

 

   

 

 

 

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

 

4


Table of Contents

Jagged Peak, Inc.

Notes to the Unaudited Consolidated Financial Statements

For the 13 Week Periods Ended March 30, 2012 and April 1, 2011

 

1. General Background Information

Jagged Peak, Inc. (the “Company” or “Jagged Peak”) is an e-commerce software and services company headquartered in Tampa, Florida, providing enterprise e-commerce technology and related fulfillment services. The Company’s flagship product, EDGE (Enterprise 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, healthcare, distribution, travel and tourism and manufacturing.

Jagged Peak has continued to market the launch of TotalCommerce™, 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 operates two warehouses in Florida and has a network of 16 independently owned fulfillment warehouses throughout North America that enables its clients to provide faster delivery 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.

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 period ended March 30, 2012 and the period ended April 1, 2011 consist of 13 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 March 30, 2012, (b) the consolidated results of operations for the 13-week periods ended March 30, 2012 and April 1, 2011, (c) the consolidated statement of changes in stockholders’ equity for the 13-week period ended March 30, 2012 and (d) consolidated cash flows for the 13-week periods ended March 30, 2012 and April 1, 2011, have been made.

 

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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 52-week period ended December 30, 2011.

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 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 from pre-determined prices. We have past history of selling each element separately to establish the market price of each element.

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 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.

 

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Table of Contents

We have established vender specific objective evidence for the individually priced elements in our contracts through the use of the market as each element in our contracts is sold both as a package and individually with the same pricing. For any element delivered for which vendor 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 elements and the remaining consideration is allocated to the delivered elements.

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 primarily include payroll and employee benefit costs 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 to production are capitalized and amortized over the estimated useful life of the software. Effective October 1, 2011, the Company determined that the estimated useful life is seven years. Previously, the company used a three-year life. Approximately $141,500 and $77,100 was capitalized during the 13-week period ended March 30, 2012 and the 13-week period ended April 1, 2011, respectively. Amortization expense related to capitalized software and charged to operations for the 13-week periods ended March 30, 2012 and April 1, 2011 was approximately $32,300 and $66,600, respectively.

Concentration of Risk

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

Cash is maintained with three major financial institutions in the United States and Canada. Deposits with these banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand, and, therefore, bear minimal risk.

Sales to a single, multi-national customer with several brands amounted to approximately $7,316,500, or approximately 87% of total revenue and amounted to approximately $5,091,300 or approximately 82% of total revenue during the 13-week periods ended March 30, 2012 and April 1, 2011, respectively. Accounts receivable from this customer was approximately $2,162,700, or approximately 63% of total accounts receivable, and approximately $1,892,000, or approximately 61% of total accounts receivable, at March 30, 2012 and December 30, 2011, respectively. This customer is a large international company with more than one hundred brands and we continue to expand our services to additional brands. The Company classifies all revenues from this customer’s brands as one single customer for the concentration of risk calculation.

 

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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 management’s review of accounts receivable and other receivables, an allowance for doubtful accounts of approximately $298,000 is considered necessary as of March 30, 2012 and December 30, 2011. The Company charges uncollectible accounts against the allowance account once the invoices are deemed unlikely to be collectible. The Company does not accrue interest on past due receivables.

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, principally one 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

     1-7   

Warehouse equipment

     3-10   

Leasehold improvements

     Lease term   

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.

 

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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 2008.

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 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 do not begin to expire until 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. The Company accounted for these shares as a reclassification of the value of the shares from permanent to temporary equity. Pursuant to the 2010 amendment, Moriah put the 775,000 shares of common stock back to Jagged Peak for the redemption price of $162,750 at a fixed price of $0.21 per common share in March 2011.

In 2011, the Company amended its agreement with Moriah and issued Moriah 1,000,000 restricted common shares as collateral for the redemption premium Moriah received related to the refinancing of the loan. Moriah had the option until March 31, 2012 to retain the collateral shares or put the shares to Jagged Peak for the redemption price of $170,000. On March 31, 2012, Moriah chose to retain the 1,000,000 collateral shares and the put option expired. Effective, March 31, 2012, the Company will account for these shares as a reclassification of the value of the shares from temporary to permanent equity.

 

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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.

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. There were no recorded translation gains or losses for the 13-week periods ended March 30, 2012 and April 1, 2011. Net gains and losses resulting from foreign exchange transactions are recorded as a component of other expenses.

Earnings per Share

The Company computes earnings per share in accordance with FASB ASC 260, Earnings Per Share. FASB ASC 260 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and 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 reflect 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 EPS 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 16,183,470 and 16,033,461 for the 13-week periods ended March 30, 2012 and April 1, 2011, respectively. The diluted weighted average number of shares was 17,215,668 and 16,109,787 for the 13-week periods ended March 30, 2012 and April 1, 2011, respectively.

Recently Issued Financial Accounting Standards

There are no recently issued financial accounting standards applicable to Jagged Peak.

 

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.

 

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The Company’s 2005 Stock Incentive Plan as Amended July 2008 (“the Plan”) authorizes the Board of Directors the authority 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 of Directors, 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 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 of Directors, 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.

 

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The following summarizes the Company’s stock option activity and related information:

 

     Shares      Range of Exercise
Prices
     Weighted Average
Exercise Price
 

Outstanding at December 30, 2010

     1,500,782       $ 0.01-2.50       $ 0.68   

Options granted

     2,150,000       $ 0.13       $ 0.13   

Options exercised

     0       $ 0       $ 0   

Options cancelled or expired

     1,415,000       $ 0.08-2.50       $ 0.50   
  

 

 

    

 

 

    

 

 

 

Outstanding at December 30, 2011

     2,235,782       $ 0.01-0.30       $ 0.13   

Options granted

     0       $ 0       $ 0   

Options exercised

     0       $ 0       $ 0   

Options cancelled or expired

     0       $ 0       $ 0   
  

 

 

    

 

 

    

 

 

 

Outstanding at March 30, 2012

     2,235,782       $ 0.01-0.30       $ 0.13   

Exercisable at March 30, 2012

     2,044,001       $ 0.01-0.30       $ 0.13   

Exercisable at December 30, 2011

     1,607,700       $ 0.01-0.30       $ 0.13   

The following table summarizes information about options outstanding and exercisable as of March 30, 2012:

 

     Outstanding Options      Exercisable 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         38.7 years       $ 0.01         38.7 years         10,782       $ 0.01   

$0.30

     75,000         1.1 years       $ 0.30         1.1 years         75,000       $ 0.30   

$0.13

     2,150,000         4.1 years       $ 0.13         4.1 years         1,958,219       $ 0.13   

 

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4. Related Party Transaction

In 2011, subsequent to the lease expiration and to ensure Jagged Peak’s ability to renew the warehouse lease under similar terms. Ridge Rock Partners, LLC, which is owned by a group of investors, including officers of Jagged Peak, purchased the building from the bank that had taken ownership of the building from the previous landlord. Ridge Rock Partners entered into a lease with Jagged Peak but did not make any substantial changes to the lease Jagged Peak previously had with its former landlord. Rent expense related to this lease agreement was approximately $101,000 for the 13-week period ended March 30, 2012.

Certain executives and owners of the Company hold a majority ownership share in an entity that was spun-off in 2010 and is now a variable interest of the Company, as detailed in the Variable Interest Entity disclosure in the report on Form 10-K for the year ended December 30, 2011.

 

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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 30, 2011.

Background of our Company

Jagged Peak, Inc. (the “Company” or “Jagged Peak”) is an e-commerce software and services company headquartered in Tampa, Florida, providing Enterprise e-Commerce technology and related fulfillment services. The Company’s flagship product, EDGE (Enterprise 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, healthcare, distribution, travel and tourism and manufacturing.

Jagged Peak continues to market TotalCommerce™, 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 North American network of fulfillment centers; back office program management; and a range of online marketing services.

 

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Jagged Peak operates two fulfillment warehouses in Florida and has a network of 16 independently owned fulfillment warehouses throughout North America that enables its clients to provide faster delivery 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.

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 30, 2011 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 March 30, 2012 compared to the 13-week period ended April 1, 2011

Revenues increased approximately $2,178,900, or 35%, to approximately $8,421,800 for the 13-week period ended March 30, 2012, as compared to approximately $6,242,900 for the 13-week period ended April 1, 2011. The increase in revenue primarily resulted from continued expansion of services to existing customers, the addition of new customers and increased sales from our Canadian operations.

Costs of revenue, which consist primarily of labor, software amortization, technology, facilities, postage, freight, and packing supplies, increased by approximately $2,010,300, or 42%, to approximately $6,848,100 for the 13-week period ended March 30, 2012, as compared to approximately $4,837,800 for the 13-week period ended April 1, 2011. As a percentage of revenues, costs of revenue amounted to approximately 81% of related revenues for the 13-week period ended March 30, 2012 and 77% for the 13-week period ended April 1, 2011. This increase resulted primarily from costs associated with greater transaction volume, increased orders flowing through the company’s North America distribution network and the growth of the Canadian operation.

Selling, general and administrative expense increased by approximately $103,600, or 8%, to approximately $1,348,000 for the 13-week period ended March 30, 2012 as compared to approximately $1,244,400 for the 13-week period ended April 1, 2011. This was primarily related to increased sales and marketing costs related to a new sales program, recruiting and travel expenses and costs related to the implementation of the new warehouse management system.

Interest expense increased by approximately $16,300 to approximately $129,600 for the 13-week period ended March 30, 2012 as compared to approximately $113,300 for the 13-week period ended April 1, 2011 due to an increase in average borrowings. The Company expects its interest expense to decrease in future quarters due to its new lower cost credit facility.

The Company realized a profit from continuing operations before provision for income taxes of approximately $99,100 for the 13-week period ended March 30, 2012, compared with a profit from continuing operations before provision for income taxes of approximately $48,300 for the 13-week period ended April 1, 2011 as a result of the above mentioned items.

Income tax expense was approximately $46,300 for the 13-week period ended March 30, 2012 compared to an income tax expense of approximately $28,200 for the 13-week period ended April 1, 2011. Differences between the effective tax rate used for 2012 and 2011, as compared to the U.S. federal statutory rate, are primarily due to permanent differences. As of March 30, 2012 the Company had federal and state net operating loss carry-forwards totaling approximately $4,100,000, which begin to expire in 2018.

 

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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.

The Company realized net income of approximately $52,800 for the 13-week period ended March 30, 2012, compared with a net income of approximately $20,100 for the 13-week period ended April 1, 2011.

Basic income per share from continuing operations for the 13-week period ended March 30, 2012 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 April 1, 2011.

Liquidity and Capital Resources

The Company’s primary cash needs consist of working capital, capital expenditures and debt service. The Company’s working capital needs depend upon the timing of collections from customers and payments to others as well as capital and operating lease payment obligations. Capital expenditures primarily relate to software enhancements and warehouse equipment. The Company reduces capital expenditure requirements by utilizing independent fulfillment warehouses. Independent fulfillment warehouses typically provide their own equipment, which reduces capital investment requirements.

Debt service consists of interest payments on the outstanding balance of debt. On March 23, 2012, the Company entered into the Senior Credit Facility (the “Facility”) with Fifth Third Bank. The Facility provides for a revolving line of credit with a maturity of two years and a maximum borrowing capacity of $3.0 million. The proceeds of the Facility were used to repay all outstanding indebtedness and fees under the Moriah loan. The Facility is available for general corporate purposes. The Facility is secured by a first priority lien on substantially all of the Company’s assets. The Facility contains customary events of default and covenants including among other things, covenants that restrict but do not prevent the ability of the Company to incur certain additional indebtedness, create or permit liens on assets, pay dividends and repurchase stock, engage in mergers or acquisitions and make investments and loans.

The Company’s primary sources of liquidity for operations during the first quarter of 2012 and 2011 periods have been cash flow from operations and borrowing availability under the Fifth Third credit facility and the Moriah loan. The Company believes that, based on current operations and anticipated growth, cash flow from operations, together with other available sources of liquidity, will be sufficient to fund anticipated capital expenditures, operating expenses and other anticipated liquidity needs for the next twelve months. Anticipated debt maturity in 2014, and other unforseen events may require the Company to seek alternative financing, such as restructuring or refinancing long-term debt, selling assets or operations or selling debt or equity securities. If these alternatives were not available in a timely manner or on satisfactory terms or were not permitted under the debt agreement and the Company defaulted on obligations, its debt could be accelerated and assets might not be sufficient to repay in full all obligations.

 

 

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Borrowings under the Facility bear interest at a rate equal to an applicable margin of 3.00% plus LIBOR. In addition to paying monthly interest on outstanding principal under the Facility, the Company is required to pay a quarterly unutilized 0.25% commitment fee to the lender, based on the daily unused balance of the Facility. The Company may voluntarily repay outstanding loans under the Facility at any time without premium or penalty.

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 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 from pre-determined prices. We have past history of selling each element separately to establish the market price of each element.

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 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 vendor specific objective evidence for the individually priced elements in our contracts through the use of the market as each element in our contracts is sold both as a package and individually with the same pricing. For any element delivered for which vendor 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 elements and the remaining consideration is allocated to the delivered elements.

 

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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.

Concentration of Risk

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

Cash is maintained with two major financial institutions in the United States and Canada. Deposits with these banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand, and, therefore, bear minimal risk.

Sales to a single, multi-national customer with several brands amounted to approximately $7,316,500 or approximately 87% of total revenue and amounted to approximately $5,091,300 or approximately 82% of total revenue during the 13-week period ended March 30, 2012 and April 1, 2011, respectively. Accounts receivable from this customer was approximately $2,162,700 or approximately 63% of total accounts receivable and approximately $1,892,000 or approximately 61% of total accounts receivable at March 30, 2012 and December 30, 2011, respectively. This customer is a large international company with more than one hundred brands and the Company continues to expand its services to additional 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 management’s review of accounts receivable and other receivables, an allowance for doubtful accounts of approximately $298,000 was recorded as of March 30, 2012 and December 30, 2011. The Company charges uncollectible accounts against the allowance account once the invoices are deemed unlikely to be collectible. The Company does not accrue interest on past due receivables.

 

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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 do not begin to expire until 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. The Company accounted for these shares as a reclassification of the value of the shares from permanent to temporary equity. Pursuant to the 2010 amendment, Moriah put the 775,000 shares of common stock back to Jagged Peak for the redemption price of $162,750 at a fixed price of $0.21 per common share in March 2011.

In 2011, the Company amended its agreement with Moriah and issued Moriah 1,000,000 restricted common shares as collateral for the redemption premium Moriah received related to the refinancing of the loan. Moriah had the option until March 31, 2012 to retain the collateral shares or put the shares to Jagged Peak for the redemption price of $170,000. On March 31, 2012, Moriah chose to retain the 1,000,000 collateral shares and the put option expired. Effective, March 31, 2012, the Company will account for these shares as a reclassification of the value of the shares from temporary to permanent equity.

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 “EBITDA,” with EBITDA being defined by the Company as earnings before interest, taxes, depreciation and amortization. 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 this non-GAAP financial measure 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.

 

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EBITDA

EBITDA for the 13-week period ended March 30, 2012 was approximately $387,400 compared to approximately $356,500 in the comparable period of the prior year. The increase in the EBITDA relates to the increase in sales offset by higher cost of revenues as compared to 2011. The Company defines EBITDA as earnings before interest and amortization of debt costs, taxes, and depreciation and amortization costs. 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 13-weeks ended  
     March 30,
2012
     April 1,
2011
 

Net income as reported

   $ 52,800       $ 20,100   

Income tax expense

     46,300         28,200   

Interest expense and amortization of debt costs

     197,000         192,900   

Depreciation and amortization

     91,300         115,300   
  

 

 

    

 

 

 

EBITDA

   $ 387,400       $ 356,500   
  

 

 

    

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary cash needs consist of working capital, capital expenditures and debt service. The Company’s working capital needs depend upon the timing of collections from customers and payments to others as well as capital and operating lease payment obligations. Capital expenditures primarily relate to software enhancements and warehouse equipment. The Company reduces capital expenditure requirements by utilizing independent fulfillment warehouses. Independent fulfillment warehouses typically provide their own equipment, which reduces capital investment requirements.

Debt service consists of interest payments on the outstanding balance of debt. On March 23, 2012, the Company entered into the Senior Credit Facility (the “Facility”) with Fifth Third Bank. The Facility provides for a revolving line of credit with a maturity of two years and a maximum borrowing capacity of $3.0 million. The proceeds of the Facility were used to repay all outstanding indebtedness and fees under the Moriah loan. The Facility is available for general corporate purposes. The Facility is secured by a first priority lien on substantially all of the Company’s assets. The Facility contains customary events of default and covenants including among other things, covenants that restrict but do not prevent the ability of the Company to incur certain additional indebtedness, create or permit liens on assets, pay dividends and repurchase stock, engage in mergers or acquisitions and make investments and loans.

The Company’s primary sources of liquidity for operations during the first quarter of 2012 and 2011 periods have been cash flow from operations and borrowing availability under the Fifth Third credit facility and the Moriah loan. The Company believes that, based on current operations and anticipated growth, cash flow from operations, together with other available sources of liquidity, will be sufficient to fund anticipated capital expenditures, operating expenses and other anticipated liquidity needs for the next twelve months. Anticipated debt maturity in 2014, and other unforseen events may require the Company to seek alternative financing, such as restructuring or refinancing long-term debt, selling assets or operations or selling debt or equity securities. If these alternatives were not available in a timely manner or on satisfactory terms or were not permitted under the debt agreement and the Company defaulted on obligations, its debt could be accelerated and assets might not be sufficient to repay in full all obligations.

 

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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 seasonality 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 March 30, 2012. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of April 1, 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 significant change in the Company’s internal control over financial reporting during the fiscal quarter ended March 30, 2012 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

On March 28, 2011, the Company issued 1,000,000 shares of common stock, $0.001 par value per share, to Moriah. The shares were issued pursuant to the terms and conditions of the securities issuance agreement and are collateral for the redemption premium payable to Moriah in connection with the refinancing of the Company’s then existing debt. The shares were issued pursuant to an exemption from registration promulgated under the Securities Act. Moriah has the option, at March 31, 2012, to retain the shares or return the shares for the redemption premium of $170,000. On March 31, 2012, Moriah chose to retain the 1,000,000 collateral shares and the put option expired.

 

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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 May 11, 2011

31.2

   Certification of the Chief Operations Officer dated May 11, 2011

32.1

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

32.2

   Certification of the Chief Operations Officer, pursuant to 18 U.S.C. section 1350, dated May 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

 

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Table of Contents

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

   

May 11, 2012

 
Paul B. Demirdjian     Date  

Chairman of the Board of Directors,

Chief Executive Officer and President

(Principal Executive Officer)

     

/s/ Albert Narvades

   

May 11, 2012

 
Albert Narvades     Date  
Senior Vice President, Chief Financial Officer,      

Treasurer and Secretary

(Principal Financial Officer)

     

 

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