Summary of JAGGED PEAK, INC.

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 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 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.

Jagged Peak operates two fulfillment warehouses in Florida and has a network of 17 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 June 29, 2012 compared to the 13-week period ended July 1, 2011

Revenues increased approximately $751,500 or 10%, to approximately $8,349,100 for the 13-week period ended June 29, 2012, as compared to approximately $7,597,600 for the 13-week period ended July 1, 2011. The increase in revenue primarily resulted from continued expansion of services to existing customers and the addition of new customers.

Cost of revenue, which consists primarily of labor, software amortization, technology, facilities, postage, freight, and packing supplies, increased by approximately $468,800, or 8%, to approximately $6,604,800 for the 13-week period ended June 29, 2012, as compared to approximately $6,136,000 for the 13-week period ended July 1, 2011. As a percentage of revenues, costs of revenue amounted to approximately 79% of related revenues for the 13-week period ended June 29, 2012 and 81% for the 13-week period ended July 1, 2011. Improved margins primarily resulted from increased orders flowing through the Company's North American distribution network.

Selling, general and administrative expense increased by approximately $100,400, or 7%, to approximately $1,442,000 for the 13-week period ended June 29, 2012 as compared to approximately $1,341,600 for the 13-week period ended July 1, 2011. This was primarily related to a slight increase in wages due to headcount increases.

Interest expense decreased by approximately $61,900 to approximately $33,900 for the 13-week period ended June 29, 2012 as compared to approximately $95,800 for the 13-week period ended July 1, 2011 due to the new, lower cost, credit facility.

The Company realized a profit from continuing operations before provision for income taxes of approximately $240,700 for the 13-week period ended June 29, 2012, compared with a profit from continuing operations before provision for income taxes of approximately $24,200 for the 13-week period ended July 1, 2011 as a result of the above mentioned items.

Income tax expense was approximately $132,200 for the 13-week period ended June 29, 2012 compared to an income tax expense of approximately $15,900 for the 13-week period ended July 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 June 29, 2012 the Company had federal and state net operating loss carry-forwards totaling approximately $3,900,000, which begin to expire in 2018. Management believes that there will be sufficient future earnings to support the more than likely realization of deferred tax assets in excess of existing taxable temporary differences. The amount of deferred tax assets considered realizable, however, could be reduced in the near-term if estimates of future taxable income are reduced.

The Company realized net income of approximately $108,500 for the 13-week period ended June 29, 2012, compared with a net income of approximately $8,300 for the 13-week period ended July 1, 2011.

Basic income per share from continuing operations for the 13-week period ended June 29, 2012 was $0.01 per weighted average share, compared with a basic income of $0.00 per weighted average share for the 13-week period ended July 1, 2011.

For the 26-week period ended June 29, 2012 compared to the 26-week period ended July 1, 2011

Revenues increased approximately $2,930,400, or 21%, to approximately $16,770,900 for the 26-week period ended June 29, 2012, as compared to approximately $13,840,500 for the 26-week period ended July 1, 2011. The increase in revenue primarily resulted from continued expansion of services to existing customers and the addition of new customers.

Cost of revenue, which consists primarily of labor, software amortization, technology, facilities, postage, freight, and packing supplies, increased by approximately $2,479,100, or 23%, to approximately $13,452,900 for the 26-week period ended June 29, 2012, as compared to approximately $10,973,800 for the 26-week period ended July 1, 2011. As a percentage of revenues, costs of revenue amounted to approximately 80% of related revenues for the 26-week period ended June 29, 2012 and 79% for the 26-week period ended July 1, 2011.

Selling, general and administrative expense increased by approximately $204,000, or 8%, to approximately $2,790,000 for the 26-week period ended June 29, 2012 as compared to approximately $2,586,000 for the 26-week period ended July 1, 2011. This was primarily related to an increase in wages due to headcount increases.

Interest expense decreased by approximately $45,600 to approximately $163,500 for the 26-week period ended June 29, 2012 as compared to approximately $209,100 for the 26-week period ended July 1, 2011 due to the new, lower cost, credit facility.

The Company realized a profit from continuing operations before provision for income taxes of approximately $339,800 for the 26-week period ended June 29, 2012, compared with a profit from continuing operations before provision for income taxes of approximately $71,600 for the 26-week period ended July 1, 2011 as a result of the above mentioned items.

Income tax expense was approximately $178,500 for the 26-week period ended June 29, 2012 compared to an income tax expense of approximately $44,100 for the 26-week period ended July 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 June 29, 2012 the Company had federal and state net operating loss carry-forwards totaling approximately $3,900,000, which begin to expire in 2018. Management believes that there will be sufficient future earnings to support the more than likely realization of deferred tax assets in excess of existing taxable temporary differences. The amount of deferred tax assets considered realizable, however, could be reduced in the near-term if estimates of future taxable income are reduced.

The Company realized net income of approximately $161,300 for the 26-week period ended June 29, 2012, compared with a net income of approximately $27,500 for the 26-week period ended July 1, 2011.

Basic income per share from continuing operations for the 26-week period ended June 29, 2012 was $0.01 per weighted average share, compared with a basic income of $0.00 per weighted average share for the 26-week period ended July 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 half of 2012 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.

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.

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%.

At June 29, 2012, the balance outstanding on the Term Loan and the Facility were approximately $2.388 million and $1.6 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 of 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.

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 $7.0 million and $6.0 million, or approximately 83% and 79%, of total revenue during the 13-week period ended June 29, 2012 and July 1, 2011, respectively. Sales to the same customer amounted to approximately $14.3 million and $11.1 million, or approximately 85% and 80%, of total revenue during the 26-week period ended June 29, 2012 and July 1, 2011, respectively. Accounts receivable from the single customer was approximately $2.2 million, or approximately 68% of accounts receivable, and approximately $1.9 million, or approximately 61% of accounts receivable, as of June 29, 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.

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 and other receivables, an allowance for doubtful accounts of approximately $250,000 and $298,000 is considered necessary as of June 29, 2012 and December 31, 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 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 accounted 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 "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 26-week period ended June 29, 2012 was approximately $770,800 compared to approximately $537,700 in the comparable period of the prior year. The increase in the Adjusted EBITDA relates to the increase in sales offset by higher cost of revenues as compared to 2011. The Company defines Adjusted EBITDA as earnings before interest, taxes, and depreciation and . . .