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JAGGED PEAK, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) 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 the Company's financial condition and results of operations should be read in conjunction with the Company's financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of the Company's financial condition, 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 the Company's 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 the Company's financial statements and the notes thereto presented in "Item 1 - Financial Statements" and the Company's audited financial statements and the related Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's report on Form 10-K for the year ended December 30, 2011. Overview 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, 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. Page 18 of 28 --------------------------------------------------------------------------------Jagged Peak operates two fulfillment warehouses in Florida and has a network of 20 independently owned fulfillment warehouses throughout North America that enable 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 the Company's 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 its strategic objectives, including the ability to increase market penetration, acquire and profitably manage additional businesses, 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 the Company's 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 September 28, 2012 compared to the 13-week period ended September 30, 2011 Revenues increased approximately $652,900, or 8.1%, to approximately $8,717,800 for the 13-week period ended September 28, 2012, as compared to approximately $8,064,900 for the 13-week period ended September 30, 2011. Greater e-commerce order volume for existing customers and the addition of new customers resulted in increases in the Company's primary sources of revenue: fulfillment, technology fees, and implementation of client's e-commerce sites. Cost of revenue, which consists primarily of labor, fulfillment operational and facilities costs and freight increased by approximately $316,500 or 5%, to approximately $6,656,300 for the 13-week period ended September 28, 2012, as compared to approximately $6,339,800 for the 13-week period ended September 30, 2011. As a percentage of revenues, costs of revenue were approximately 76% for the 13-week period ended September 28, 2012 and 79% for the 13-week period ended September 30, 2011. The decrease in cost as a percent of revenues was primarily the result of improved management of fulfillment operations and implementation of client's e-commerce sites. Selling, general and administrative expense increased by approximately $29,000 or 2%, to approximately $1,613,800 for the 13-week period ended September 28, 2012 as compared to approximately $1,584,800 for the 13-week period ended September 30, 2011 due to the increase in fulfillment employees offset by the Company's improved cost management activities around overhead costs during the current period. Interest expense decreased by approximately $48,300 to approximately $58,400 for the 13-week period ended September 28, 2012 as compared to approximately $106,700 for the 13-week period ended September 30, 2011 due to the new, lower cost, credit facility from Fifth Third, bank which bears interest at LIBOR plus 3.00%. This compares to the Moriah Loan and Security Agreement utilized in 2011 which had an interest rate of six percent (6%) above prime with a floor of ten percent (10%). The cost savings from the new credit facility were partially offset by the interest on the new $2.388 million, 3.93% 5-year Term Loan, entered into on June 25, 2012 to finance the purchase of the Company's previously leased warehouse facility in St. Petersburg, Florida. The Company realized a profit from continuing operations before provision for income taxes of approximately $417,300 for the 13-week period ended September 28, 2012, compared with a profit from continuing operations before provision for income taxes of approximately $38,500 for the 13-week period ended September 30, 2011 as a result of the above-mentioned items. Page 19 of 28 --------------------------------------------------------------------------------Income tax expense was approximately $163,100 for the 13-week period ended September 28, 2012 compared to an income tax expense of approximately $21,200 for the 13-week period ended September 30, 2011. Differences between the taxable income and the effective tax rate used for 2012 and 2011, as compared to the U.S. federal statutory rate, are primarily due to permanent differences. At December 30, 2011 the Company had estimated federal and state net operating loss carryforwards totaling approximately $4,500,000, which begin to expire in 2021. 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 $254,200 for the 13-week period ended September 28, 2012, compared with a net income of approximately $17,300 for the 13-week period ended September 30, 2011. Basic income per share from continuing operations for the 13-week period ended September 28, 2012 was $0.02 per weighted average share, compared with a basic income of $0.00 per weighted average share for the 13-week period ended September 30, 2011. For the 39-week period ended September 28, 2012 compared to the 39-week period ended September 30, 2011 Revenues increased approximately $3,583,300, or 16%, to approximately $25,488,700 for the 39-week period ended September 28, 2012, as compared to approximately $21,905,400 for the 39-week period ended September 30, 2011. Greater e-commerce order volume for existing customers and the addition of new customers resulted in increases in the Company's primary sources of revenue: fulfillment, technology fees, and new client implementations. Cost of revenue, which consists primarily of labor, fulfillment operational and facilities costs and freight increased by approximately $2,795,600 or 16%, to approximately $20,109,200 for the 39-week period ended September 28, 2012, as compared to approximately $17,313,600 for the 39-week period ended September 30, 2011. As a percentage of revenues, costs of revenue were approximately 79% for the 39-week periods ended September 28, 2012 and September 30, 2011. Selling, general and administrative expense increased by approximately $233,000, or 6%, to approximately $4,403,800 for the 39-week period ended September 28, 2012 as compared to approximately $4,170,800 for the 39-week period ended September 30, 2011. This increase was primarily related to additional fulfillment employees hired to manage the increase in client orders processed. Interest expense decreased by approximately $93,900 to approximately $221,900 for the 39-week period ended September 28, 2012 as compared to approximately $315,800 for the 39-week period ended September 30, 2011 due to the new, lower cost, credit facility from Fifth Third bank, which bears interest at LIBOR plus 3.00%. This compares to the Moriah Loan and Security Agreement utilized in 2011, which had an interest rate of six percent (6%) above prime with a floor of ten percent (10%). The cost savings from the new credit facility were partially offset by the interest on the new $2.388 million, 3.93% 5-year Term Loan, entered into on June 25, 2012 to finance the purchase of the Company's previously leased warehouse facility in St. Petersburg, Florida. The Company realized a profit from continuing operations before provision for income taxes of approximately $757,100 for the 39-week period ended September 28, 2012, compared with a profit from continuing operations before provision for income taxes of approximately $110,100 for the 39-week period ended September 30, 2011 as a result of the above-mentioned items. Page 20 of 28 --------------------------------------------------------------------------------Income tax expense was approximately $341,600 for the 39-week period ended September 28, 2012 compared to an income tax expense of approximately $65,300 for the 39-week period ended September 30, 2011. Differences between the taxable income and the effective tax rate used for 2012 and 2011, as compared to the U.S. federal statutory rate, are primarily due to permanent differences. At December 30, 2011, the Company had estimated federal and state net operating loss carryforwards totaling approximately $4,500,000, which begin to expire in 2021. 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 $415,500 for the 39-week period ended September 28, 2012, compared with a net income of approximately $44,800 for the 39-week period ended September 30, 2011. Basic income per share from continuing operations for the 39-week period ended September 28, 2012 was $0.03 per weighted average share, compared with a basic income of $0.00 per weighted average share for the 39-week period ended September 30, 2011. Liquidity and Capital Resources The Company's cash needs consist of working capital, capital expenditures and debt service. The Company's working capital needs primarily depend on the timing of collections from customers and payments to vendors. Capital expenditures consist of building, computer, and warehouse equipment purchases and developer salaries for EDGE enhancements. The Company reduces capital expenditure requirements by utilizing independent fulfillment warehouses. Independent fulfillment warehouses typically provide their own equipment, which reduces capital investment requirements. For the 39-week period ended September 30, 2012 the Company used cash of $145.7 thousand to fund its operations compared to $11.1 thousand for the 39-week period ended September 30, 2011. The $134.6 thousand increase in cash used in operating activities primarily reflects an increase in accounts receivable and a decrease in accounts payable and accrued liabilities offset by the increase in deferred revenue and customer deposits due to timing of cash receipts and payments. Net cash used in the Company's investing activities totaled $1,392.9 thousand for the 39-week period ended September 30, 2012 consisting of equipment and improvements for the Company's warehouses, the purchase of the St. Petersburg warehouse as well as the development of the Company's software. The Company expects total capital expenditures for the year 2012 to be $1.6 million to $1.8 million. The Company's financing activities provided cash of $340.7 thousand for the 39-week period ended September 30, 2012 consisting of net proceeds from the refinancing of its line of credit offset by the payments on its capital lease obligation. The Company's primary sources of cash flow were from operations and borrowings under the Fifth Third credit facility and the Secured Revolving Term Note with Moriah Capital (the "Moriah Note"). The Moriah Note was entered into in December 2009 and amended in March 2011. The note had up to $1,500,000 of availability based in certain criteria. Availability under the loan was based on 85% of eligible accounts receivable, in addition to other collateral. The interest rate on the note was 10% and was paid on a monthly basis. Principal payments were not required until the final balloon payment was paid in March 2012. On March 23, 2012, the Company entered into a Senior Credit Facility with Fifth Third bank (the "Facility"). 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 under the Moriah note payable, and to pay related fees and expenses. 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. Page 21 of 28 --------------------------------------------------------------------------------Borrowings under the Facility bear interest at a rate equal to an applicable margin of LIBOR plus 3.00%. LIBOR was approximately 0.22% as of September 28, 2012. 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 average daily unused balance of the Facility. The Company may voluntarily repay outstanding loans under the Facility at any time without premium or penalty. The Company believes that, based on current operations and anticipated growth, cash flow from operations, together with the Facility, 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 of its 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 the Facility and the Company defaulted on obligations, its debt could be accelerated and its lender may forclose on its assets. On June 25, 2012, the Company purchased a previously leased warehouse facility for $3.0 million. The purchase was financed with a $2.388 million 5-year Term Loan (the "Term Loan") amortized over 20 years and an approximately $612,000 down payment provided by the Facility. Principal and interest are due monthly. Concurrent with the Term Loan, the Company entered into an interest rate swap thereby fixing its effective rate on the Term Loan at 3.93% The Company expects net capital expenditures to decline from the first half of 2012. The Company expects net capital expenditures to be approximately $1.6 million to $1.8 million for the 2012 year, of which approximately $0.6 million is for the purchase of its St. Petersburg warehouse and $0.6 million is for the acquisition and development of software. At September 28, 2012, the balance outstanding on the Term Loan and the Facility were approximately $2.358 million and $1.960 million, respectively. 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 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 Jagged Peak's 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. Page 22 of 28 --------------------------------------------------------------------------------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). Jagged Peak's EDGE software is a web-based product and provided to its 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. Jagged Peak has established vendor specific objective evidence for the individually priced elements in its contracts through the use of the market as each element in its 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 the Company uses 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 Jagged Peak through its order management platform. Since Jagged Peak has the exclusive responsibility to contract and to manage the services provided to its clients by these independent warehouses and the related transportation, the revenue and expenses are recognized based on the amount of services charged to its client and the related expenses are part of its 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 receivables. Page 23 of 28 --------------------------------------------------------------------------------Cash is maintained with one major financial institution in the United States and Canada. 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. Sales to a single, multi-national customer with several brands amounted to approximately $7.2 million and $7.4 million, or approximately 83% and 84%, of total revenue during the 13-week periods ended September 28, 2012 and September 30, 2011, respectively. Sales to the same customer amounted to approximately $21.5 million, and $18.0 million, or approximately 85% and 82%, of total revenue during the 39-week period ended September 28, 2012 and September 30, 2011, respectively. Accounts receivable from the single customer was approximately $2.0 million, or approximately 54% of accounts receivable as of September 28, 2012, and approximately $2.2 million, or approximately 94% of accounts receivable as of September 30, 2011. The Company classifies all revenues from 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 receivable the customer's payment history and the customer's current ability to pay its obligation. Based on management's review of accounts receivable, an allowance for doubtful accounts of approximately $302,400 and $298,000 is considered necessary as of September 28, 2012 and December 30, 2011, respectively. 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. 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 carryforwards do not begin to expire until 2021. 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 to the Securities Issuance Agreement, 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. Page 24 of 28 --------------------------------------------------------------------------------In 2011, the Company amended its agreement with Moriah and issued to 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 accounted for these shares as a reclassification of the value of the shares from temporary to permanent equity. Page 25 of 28 --------------------------------------------------------------------------------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 "Adjusted EBITDA," with Adjusted EBITDA being defined by the Company as earnings before interest, taxes, depreciation and amortization, and stock option expense. 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, Adjusted 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. ADJUSTED EBITDA Adjusted EBITDA for the 39-week period ended September 28, 2012 was approximately $1,376,400 compared to approximately $856,300 in the comparable period of the prior year. The increase in the Adjusted EBITDA primarily relates to the increase in sales, improved operating margins from improved management of fulfillment operations and client implementation of customer's e-commerce sites and lower borrowing costs. The Company defines Adjusted EBITDA as earnings before interest, taxes, and depreciation and amortization, and stock option expense. The Company believes Adjusted 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 Adjusted EBITDA, the following reconciliation is provided. For the 39-weeks ended September 28, 2012 September 30, 2011 Net income as reported $ 415,400 $ 44,800 Income tax expense 341,600 65,300 Interest expense 221,900 315,800 Depreciation and amortization 322,300 382,400 Stock option expense 75,200 48,000 Adjusted EBITDA $ 1,376,400 $ 856,300 Page 26 of 28--------------------------------------------------------------------------------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. |