Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates. We do not hold or issue financial instruments for trading purposes.

Interest rate sensitivity

We are exposed to interest rate risks primarily through borrowing under our credit facility. Interest on our borrowings is based upon variable rates. We did not utilize the credit facility during fiscal 2011.

The Company had an interest rate swap agreement with a notional amount of $25 million which was designated as a cash flow hedge. The agreement expired on January 31, 2010. The interest rate swap was recorded at fair value in fiscal 2009 and changes in market value related to the effective portion of the cash flow hedge was recorded as unrecognized gain or loss in accumulated other comprehensive income (loss) section of the stockholders’ equity in the balance sheets.