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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-K/A**

**(Amendment No. 2)**

** **

**(Mark One)**

| x | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF  THE SECURITIES EXCHANGE ACT of 1934** |
|---|------------|-----------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31, 2008**

** **

**or**

 

| o | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|---|------------|-----------------------------------------------------------------------------------------------|

 

**For the transition period from              to            **

 

**CommissionFile No. 001-33346**

 

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**SUMMERINFANT, INC.**

 

| **Delaware**                                       | ** ** | **20-1994619**                       |
|----------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation)     |       | (I.R.S. Employer Identification No.) |
|                                               |       |                                 |
| **1275 Park East Drive, Woonsocket, Rhode Island** | ** ** | **02895**                            |
| (Address of Principal Executive Offices)           |       | (Zip Code)                           |

 
| **(401) 671-6550**                                   |
|-----------------------------------------------------------|
| (Registrant’s Telephone Number, Including Area Code) |

 

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Securitiesregistered pursuant to Section 12(b) of the Act:

 

| **Title  of each class**                              | ** ** | **Name  of Exchange on which registered** |
|-------------------------------------------------------|------------|-------------------------------------------|
| **Common Stock, Par Value $.0001**                    | ** ** | **Nasdaq Capital Market**                 |
| **Warrants to Purchase Common Stock**                 | ** ** | **Nasdaq Capital Market**                 |
| **Units consisting of Common Stock and Two Warrants** | ** ** | **Nasdaq Capital Market**                 |

 

Securitiesregistered pursuant to Section 12(g) of the Act:

**None**

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act. YES o  NO x

 

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of theAct. YES o  NO x

 

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days. YES x   NO o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 229.405 of this chapter) during the preceeding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files). Yes o   No o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer or a smaller reportingcompany. See the definitions of “accelerated filer,” large accelerated filer”and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o                |   | Accelerated filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer o                  |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicate by check mark whether registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). YES o  NO x

 

The aggregate market value of the voting and non-voting common equityheld by non-affiliates computed by reference to the price at which the commonequity was sold, or the average bid and asked price of such common equity, asof December 31, 2008 approximately $21,400,000.

 

The number of shares outstanding of the registrant’s common stock as ofMarch 25, 2009 was 15,404,782.

 

 

 

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**ExplanatoryNote**

 

**This second amendment on Form 10-K/A(the “Amendment”) amends our annual report for the fiscal year ended December 31,2008 originally filed with the Securities and Exchange Commission (“SEC”) on March 25,2009 as amended by that first amendment on Form 10-K/A filed with theSEC on April 30, 2009 (as amended, the “Original Report”). We are filingthis amendment primarily in response to comment letters received from theSEC dated May 21, 2009 and June 30, 2009.**

 

**As required by Rule 12b-15under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), weare also filing new certifications by the Company’s Principal Executive Officerand Principal Financial Officer as exhibits to this Form 10-K/A underItem 15. Exhibits and Financial Statement Schedules. No other informationin the Original Report, other than as set forth below, is amended hereby.Except for the foregoing, the Amendment speaks as of the filing date of theOriginal Report and does not update or discuss any other Company developmentsafter the date of the Original Report.**

 

**The only changes to the text fromthe Form 10-K are as follows:**

 

**1)  To delete the reference on the cover page toincorporation by reference to certain portions of the definitive proxystatement;**

 

**2)  To revise the introductory language in therisk factors section to make clear that all of the risk factors listed are allof the risk factors known to the Company;**

 

**3)  To include in Item 5 of Part II the historicalstock prices for each of the four quarters for the fiscal year ended December 31,2007;**

 

**4)  To confirm in the subsection entitled “IssuerRepurchases of Equity Securities” of Item 5 of Part II that all of thewarrants outstanding expired on April 20, 2009;**

 

**5)  To delete the words “In general” from thesubsection entitled “Revenue Recognition” of Item 5 of Part II in order toclarify how the Company records revenue;**

 

**6)  The Non-GAAP discussion in Management’sDiscussion and Analysis was revised (1) to clarify that the performancemeasure that the Company used was Adjusted EBITDA and (2) to delete thereference to how the Company uses EBITDA and (3) to remove the referenceto minority interests in net income of affiliates as something that is not containedin the Adjusted EBITDA calculation;**

 

**7)  In the section entitled  “Evaluation of Disclosure Controls andProcedures” was revised to remove redundant language relating to theeffectiveness of the Company’s controls and procedures;**

 

**8)  To add three paragraphs at the end of theAnnual Incentive Bonus section in Item 11 of Part III to provideadditional information on EBITDA targets and the bonus payments;**

 

**9)  To add one paragraph at the end of theLong-Term Incentive Awards section in Item 11 of Part III to provideadditional information on the status of the Company’s plans for long termincentives going forward;**

 

**10)  To add a new section entitled “Role ofCompensation Consultants and Benchmarking to Item 11 of Part III toprovide additional information on compensation information that thecompensation committee received during the year and how it is used;**

 

**11)  To clarify in the final paragraph of theCompensation of Other Named Executive Officers section in Item 11 of Part IIIto provide additional information on how the company utilizes benchmarkingdata;**

 

**12)  To include in Section 7 entitled StockOptions to the Notes to Consolidated Financial Statements to include theweighted-average grant date fair value of options granted during the year endedDecember 31, 2007;**

 

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**13)  To update the list of Exhibits required byItem 601 of Regulation S-K; and**

 

**14)  To update Exhibits 31.1 and 31.2 to ensurethat they comply with Item 601(b)(31) of Regulation S-K.**

 

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**INDEX TO FORM 10-K**

**FOR THEFISCAL YEAR ENDED DECEMBER 31, 2008**

 
| ** **        | ** **                                                                                                          | **PAGE** |
|-------------------|---------------------------------------------------------------------------------------------------------------------|----------|
| **PART I**   |                                                                                                                |     |
| ITEM 1.           | Business                                                                                                            | 1        |
| ITEM 1A.          | Risk Factors                                                                                                        | 5        |
| ITEM IB.          | Unresolved Staff  Comments                                                                                          | 9        |
| ITEM 2.           | Properties                                                                                                          | 9        |
| ITEM 3.           | Legal Proceedings                                                                                                   | 10       |
| ITEM 4.           | Submission of  Matters to a Vote of Security Holders                                                                | 10       |
| **PART II**  |                                                                                                                |     |
| ITEM 5.           | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 10       |
| ITEM 6.           | Selected  Financial Data                                                                                            | 11       |
| ITEM 7.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 11       |
| ITEM  7A.         | Quantitative  and Qualitative Disclosures About Market Risk                                                         | N/A      |
| ITEM 8.           | Financial  Statements and Supplementary Data                                                                        | 20       |
| ITEM  9.          | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                               | N/A      |
| ITEM 9A(T).       | Controls and  Procedures                                                                                            | 20       |
| ITEM 9B.          | Other Information                                                                                                   | 21       |
| **PART III** |                                                                                                                |     |
| ITEM 10.          | Directors,  Executive Officers of the Registrant and Corporate Governance                                           | 21       |
| ITEM 11.          | Executive  Compensation                                                                                             | 29       |
| ITEM 12.          | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 36       |
| ITEM 13.          | Certain  Relationships, Related Transactions and Director Independence                                              | 38       |
| ITEM 14.          | Principal  Accounting Fees and Services                                                                             | 39       |
| **PART IV**  |                                                                                                                |     |
| ITEM  15.         | Exhibits,  Financial Statement Schedules                                                                            | N/A      |
| **SIGNATURES**    |                                                                                                                |     |

 

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**FORWARD-LOOKINGSTATEMENTS**

 

This annual report on Form 10-K contains, in addition tohistorical information, forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. These forward-lookingstatements are based on management’s current expectations and are subject to anumber of factors and uncertainties, which could cause actual results to differmaterially from those described in such statements. We caution investors thatactual results or business conditions may differ materially from thoseprojected or suggested in forward-looking statements as a result of variousfactors including, but not limited to, the risk factors described below. Wecannot assure you that we have identified all the factors that createuncertainties. Readers should not place undue reliance on forward-lookingstatements.

 

**PART I**

 

**Item 1.  Business**

 

**Background**

 

On March 6, 2007, under an Agreement and Plans of Reorganization,dated as of September 1, 2006 (“Acquisition Agreement”), KBL HealthcareAcquisition Corp. II (“KBL”), and its wholly owned subsidiary, SII AcquisitionCorp. (“Acquisition Sub”), consummated a transaction by which (i) SummerInfant, Inc. (“SII”) was merged with and into Acquisition Sub and (ii) allof the outstanding capital stock of each of Summer Infant Europe, Limited (“SIE”)and Summer Infant Asia, Ltd. (“SIA” and, collectively, with SII and SIE,the “Targets”) was acquired directly by KBL. As used in this Report, the term “Summer”includes each of the Targets. As used in this Report, the term “Company” meansthe registrant on a post-acquisition basis. On March 7, 2007, thesecurities of the Company commenced listing on the Nasdaq Capital Market underthe symbols SUMR (common stock), SUMRW (warrants) and SUMRU (units).

 

Effective upon closing, the Company changed its name to Summer Infant, Inc.and SII changed its name to Summer Infant (USA), Inc. Thus, the Company isnow a holding company called Summer Infant, Inc. operating though itswholly-owned subsidiaries, Summer Infant (USA), Inc., Summer InfantEurope, Limited, Summer Infant Canada, Ltd. (“SIC”) and Summer InfantAsia, Ltd.

 

**General**

 

We are a designer, marketer, and distributor of branded juvenilehealth, safety and wellness products which are sold principally to large NorthAmerican and UK retailers. We currently have more than 80 proprietary productsin various product categories including nursery audio/video monitors, safetygates, durable bath products, bed rails, related health and safety products,booster and potty seats, bouncers and a product line of soft goods/bedding. Inaddition, the Basic Comfort and Kiddopotamus acquisitions added items such asinfant sleep positioners, head supports, portable changing pads, as well asnursery and feeding accessories. Our products are sold primarily to U.S.retailers including Babies R Us, Target, KMart, Buy Buy Baby, Meijer, Baby Depot(Burlington Coat Factory) and Wal-Mart.

 

We maintain through SIE a sales, marketing and distribution office inEngland, which services the United Kingdom and other parts of Europe. SIE’slargest customers are Mothercare, Toys R Us, Argos, and Tesco. In 2008, SummerInfant (USA), including international sales managed out of the U.S., accountedfor approximately 90% of revenue, SIC accounted for approximately 4%, and SIEaccounted for approximately 6%.

 

We maintain through SIA a product development, engineering and qualityassurance office, which oversees the production of all product lines made inChina.

 

**Strategy**

 

Our strategy is to grow our sales through a variety of methods,including:

 

·                  increased productpenetration (more products at each store);

 

·                  increased store penetration(more stores within each retail customer);

 

·                  new products (at existingand new customers);

 

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·                  new mass merchant retailcustomers;

 

·                  new distribution channels(food and drug chains, price clubs, home centers, web-based retailers);

 

·                  new geographies(international expansion);

 

·                  new product categories; and

 

·                  acquisitions.

 

We have been able to grow our annual revenues historically through acombination of all of the above factors. Each year, we have been able to expandthe number of products in our main distribution channel, mass merchantretailers, and have also added new customers each year. Therefore, even withoutnew product introductions, we could grow our business by simply selling more ofour existing product line to existing customers.

 

In the future, our growth strategy will be to continue to develop andsell new products to our existing customer base, sell new and existing productsto new customers (or expand relationships with existing customers), to expandour sales of products from our soft goods product line, and to expand in the UKand in other geographic regions (including Japan, Mexico and Australia, amongothers). In addition, there are a number of potential acquisition candidatesthat could be pursued in order to obtain new innovative products, new product categories,new retail customers or new sales territories. There are approximately 400active juvenile product companies, of which approximately 300 have less than$10 million in sales. In addition, there are various product categoriesthat we do not currently compete in, including car seats, high chairs, walkers,nursery care, and other categories. We may look to develop our own products inthese categories or attempt to gain entrance into these categories throughacquisitions.

 

**Products**

 

We sell over eighty proprietary products listed in order of dollarvolume importance: (i) nursery audio/video monitors (approximately 27% ofnet sales for the year ended December 31, 2008), (ii) baby gates(approximately 17% of net sales for the year ended December 31, 2008), (iii) durablebath products (approximately 11% of net sales for the year ended December 31,2008), (iv) bed rails, booster seats, potty seats, soft goods, bouncersand other products (approximately 45% of net sales for the year ended December 31,2008).

 

New product development teams have also been established to enterseveral new categories in 2008 and 2009. One team is focused on play yards,swings, high chairs and other “baby gear” categories. The other team is focusedon the infant soft goods market comprised mainly of bedding, blankets, homefurnishings, layette and soft bath products.

 

**Product Development and Design**

 

Our management believes that product development is a critical elementof our strategy and success to date. Our product strategy is to produceproprietary products that provide distinctive benefits, are visually appealing,provide convenience and will appeal to the mid-tier and upper-tier buyers. OurU.S. retailers are strategically motivated to buy innovative, up-marketproducts. Our main product development efforts are located at our Rhode Islandcorporate office, but we also have development efforts in China (six personsourcing, electronics and QA team), Colorado, South Carolina (five person softgoods design office) and England (two-person team focused on meeting UK and EUstandards and market demands).

 

**Suppliers and Manufacturing**

 

Except for certain injection-molded bath tubs, potty seats and gates,which are manufactured in the U.S., substantially all of our other products aremanufactured in southern China at factories near Hong Kong. We use manydifferent suppliers, and therefore we are not dependent on any onemanufacturer. We own our own molds. SIA provides us with a local sourcingpresence and the ability to oversee quality, electronic engineering and otherissues that may arise during production.

 

Transportation of China-made goods to our warehouses typically takesthree to four weeks, depending on the location of the warehouse. We maintainour inventory at warehouses located in California, Rhode Island, Canada, andthe 

 

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UnitedKingdom. Most of our customers pick up their goods at regional warehouses. Wealso use UPS and other common carriers to arrange shipments to customers whorequest such arrangements, primarily smaller retailers and specialty stores.

 

We use several manufacturers in the U.S. for our injection moldedproducts that account for between 15% and 20% of our annual net sales.

 

**Sales and Marketing**

 

Our sales are primarily derived from the sale of juvenile health,safety and wellness products and are recognized upon transfer of title ofproduct to our customers. Our products are marketed and sold through severaldistribution channels including chain retailers, specialty retailers and directto consumers.

 

Sales are made utilizing standard credit terms of 30 to 60 days.We generally accept returns only for defective merchandise.

 

**Competition**

 

The juvenile health, safety and wellness industry has manyparticipants, none of which have dominant market share, though certaincompanies have disproportionate strength in certain segments. Our largestdirect competitors are Dorel Industries (Safety 1st and Cosco brands),Evenflo (Evenflo, Gerry, and Snugli brands), Fisher-Price (part of Mattel, Inc.),The First Years (a subsidiary of RC2 Corporation) and Graco (a subsidiary ofNewell Rubbermaid). In addition, we compete in certain of our product lineswith a number of smaller private companies, such as KidCo, Inc. andMunchkin.

 

The primary methods of competition in the industry consist of productinnovation, brand positioning, quality, price and other factors such as timelydistribution. Our competitive strengths include our experienced productdevelopment staff, our ability to develop new products, brand positioning,relationships with major retailers, and the quality and pricing of ourproducts.

 

**Intellectual Property**

 

We rely on a combination of patents, licenses and trade secrets toprotect our intellectual property. Our patents currently in effect includevarious design features related to bedrails, infant seats, bouncers, and pottychairs, with several other patents pending for monitors, baby swings, and otheritems. The patents expire at various times over the next 20 years. We alsohave license agreements relating to the use of patented technology owned bythird parties in certain of our products. We are the sole owner of the molds usedin manufacturing our products.

 

**Customers**

 

Our top 15 customers in North America and the United Kingdom togethercomprised over 90% of our sales in fiscal 2008. Some of these customers includeBabies R Us, Target, K-Mart, Toys R Us Canada, and Wal-Mart in North America,and in the United Kingdom, Mothercare and Argos.

 

**Seasonality**

 

There are not significant variations in seasonal demand for ourproducts. Sales to our retail customers are generally higher in the time framewhen retailers take initial shipments of new products. These orders usuallyincorporate enough product to fill each store plus additional amounts to bekept at the customer’s distribution center. The timing of these initialshipments varies by customer depending on when they finalize store layouts forthe upcoming year, and whether there are any mid-year product introductions.

 

**Geographic Regions**

 

Approximately 92% of our sales in fiscal 2008 were made in NorthAmerica, primarily the United States (88%) and Canada (4%). The remaining 8% ofsales in fiscal 2008 were made in the United Kingdom and all otherinternational accounts.

 

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**Facilities**

 

We are headquartered in a 52,000 square foot headquarters/warehousefacility in Woonsocket, Rhode Island. This facility provides for 24,000 squarefeet of office space and a 40,000 square foot warehouse. We are the owner ofthis facility.

 

We have a 36 month, 3,750 square foot lease for office space inSouth Carolina, which expires in 2010. We have a 24 month lease for officespace in Hong Kong, which expires in 2009, as well as a 60 month lease foroffice space in the United Kingdom, which expires in 2012.

 

We maintain inventory at leased warehouses in California (twowarehouses which total approximately 170,000 square feet) and Rhode Island(approximately 72,000 square feet), Colorado (approximately 90,000 squarefeet), Canada (approximately 31,000 square feet) and the United Kingdom(approximately 16,000 square feet). The leases expire at various times between2009 and 2013.

 

**Regulatory Matters**

 

We obtain all necessary regulatory agency approvals for each of ourproducts. In the U.S., these approvals may include, among others, one or moreof the Consumer Product Safety Commission (“CPSC”), the American Society ofTest Methods (“ASTM”), the Juvenile Products Manufacturing Association (“JPMA”),the Federal Communications Commission (“FCC”) and the Food and Drug Administration(“FDA”). We conduct our own internal testing, which utilizes a “foreseeable useand abuse” testing method and is designed to subject each product to the “worstcase scenario.” Our products are also frequently tested by independentgovernment certified labs.

 

**Insurance**

 

We carry a product liability insurance policy that provides us with$9,000,000 of liability coverage with a minimal deductible. We consult with ourinsurers to ascertain appropriate liability coverage for our product mix. Weanticipate increasing our insurance coverage in the future in line with ourexpanding sales and product breadth.

 

**Employees**

 

As of December 31, 2008, we employed a total of 170 people, 95 ofwhom work in the headquarters and distribution centers in Rhode Island. Ouremployees are not covered by a collective bargaining agreement. We consider ouremployee relations to be good.

 

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**Available Information**

 

We maintain our corporate website at *www.summerinfant.com*and we make available, free of charge, through this website our annual reporton Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports that we file with or furnish to the Securitiesand Exchange Commission, as soon as reasonably practicable after weelectronically file that material with, or furnish it to, the SEC. Informationon our website is not part of this report. This report includes all materialinformation about us that is included on our website and is otherwise requiredto be included in this report.

 

**Item 1A.  Risk Factors**

 

If any of the events or circumstances described in the following risksactually occur, our business, financial condition or results of operationscould be materially adversely affected. In those cases, the trading price ofour common stock could decline.

 

***The concentration of our businesswith a base of retail customers that make no binding long-term commitmentsmeans that economic difficulties or changes in the purchasing policies of ourmajor customers could have a significant impact on our business.***

 

A number of large, retail customers account for a majority of our netsales. Customers that generated more than 10% of net sales for the year ended December 31,2008 were Toys R Us (48% of net sales), and Target (10% of net sales). Becauseof the concentration of our business with these customers, and because we haveno long term contracts with these customers, our success depends on ourcustomers’ willingness to purchase and provide shelf space for our products. Anadverse change in our relationship with any of our large customers or a changein the financial viability of any of these customers could adversely affect ourresults of operations and financial condition.

 

***Our ability to grow and compete willbe harmed if we do not successfully satisfy consumer preferences, enhanceexisting products, develop and introduce new products, and achieve marketacceptance of those products.***

 

Our business and operating results depend largely upon the appeal ofour products. Consumer preferences, particularly among parents, who are the endpurchasers of our products, are constantly changing. Our success will, in largepart, depend on our ability to identify emerging trends in the health, safetyand wellness marketplace, and design products that address consumer demand andprove safe and cost effective. Our product offerings compete with those of manyother companies, many of which are much larger and enjoy broader brandrecognition and significant distribution channel relationships, which meansthat our market position is always at risk. Our ability to maintain andincrease our current market share will depend upon our ability to anticipatechanges in consumer preferences and satisfy these preferences, enhance existingproducts, develop and introduce new products and establish and growdistribution channels for these products, and ultimately achieve market acceptanceof these products.

 

***We are dependent on key personnel,and our ability to grow and compete in our industry will be harmed if we do notretain the continued services of our key personnel, or we fail to identify,hire, and retain additional qualified personnel.***

 

We are dependent on the efforts of our management team, and the loss ofservices of members of our management team, each of whom has substantialexperience in the juvenile health, safety and wellness markets, could have anadverse effect on our business. If any members of management leave, theirdeparture could have an adverse effect on our operations and could adverselyaffect our ability to design new products and to maintain and grow thedistribution channels for our products.

 

In addition, if our operations continue to grow in a manner consistentwith our historical growth rates, it will be necessary for us to attract andretain additional qualified personnel. The market for qualified and talentedproduct development personnel in the consumer goods market, and the juvenilehealth, safety and wellness products market specifically is intenselycompetitive. If we are unable to attract or retain qualified personnel asneeded, the growth of our operations could be slowed or hampered. However, webelieve that Summer Infant’s compensation including salary, performance-basedbonuses, and stock award programs provides incentives that are competitivewithin our industry.

 

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***Intellectual property claimsrelating to our products could increase our costs and adversely affect ourbusiness.***

 

We have, from time to time, received claims of alleged infringement ofpatents relating to certain of our products, and we may face similar claims inthe future. These claims relate to alleged patent infringement and areprimarily the result of newly issued patents that were not in force when weinitially brought the subject products to market. The defense of intellectualproperty claims can be costly and time consuming, even in circumstances wherethe claim is without merit. We may be required to pay substantial damages orsettlement costs in order to resolve these types of claims. In addition, theseclaims could materially harm our brand name, reputation and operations.

 

***We rely on foreign suppliers inChina to manufacture the majority of our products, and any adverse change inour relationship with our suppliers could harm our business.***

 

We rely on numerous third-party suppliers located in China for themanufacture of most of our products. While we believe that alternativesuppliers could be located if required, our product sourcing could be affectedif any of these suppliers do not continue to manufacture our products inrequired quantities or at all, or with the required levels of quality. We enterinto purchase orders with our foreign suppliers and do not enter into any longterm contracts. In addition, difficulties encountered by these suppliers, suchas fire, accident, natural disasters, outbreaks of contagious diseases, orpolitical unrest, could halt or disrupt production at the affected locations,resulting in delay or cancellation of orders. Any of these events could resultin delayed deliveries by us of our products, causing reduced sales and harm toour reputation and brand name.

 

In particular, in 2008, our suppliers based in China faced significantadditional costs, as a result of raw materials shortages, the furtherstrengthening of the Chinese currency (“RMB”) versus the US dollar, risinglabor rates and increases in energy prices. While we anticipate being able topass on some portion of these increased costs to our customers, continued costpressures on our suppliers will inevitably be passed on to us

 

***Increases in the cost of materialsor labor used to manufacture our products could decrease our profitability andtherefore negatively impact our business and financial condition.***

 

Because our products are manufactured by third-party suppliers, we donot directly purchase the materials used in the manufacture of our products.However, the prices paid by us to these suppliers could increase if rawmaterials, labor, or other costs increase. If we cannot pass these increasesalong to our customers, our profitability will be adversely affected.

 

***Because we rely on foreign suppliersand we sell in to foreign markets, we are subject to numerous risks associatedwith international business that could increase our costs or disrupt the supplyof our products, resulting in a negative impact on our business and financialcondition.***

 

Our international operations subject us to risks, including:

 

·                  economic and politicalinstability,

 

·                  restrictive actions byforeign governments,

 

·                  greater difficulty enforcingintellectual property rights and weaker laws protecting intellectual propertyrights,

 

·                  changes in import duties orimport or export restrictions,

 

·                  timely shipping of productand unloading of product through West Coast ports, as well as timely truckdelivery to our warehouses,

 

·                  complications complying withthe laws and policies of the United States affecting the importation of goods,including duties, quotas, and taxes, and

 

·                  complications in complyingwith trade and foreign tax laws.

 

Any of these events or circumstances could disrupt the supply of ourproducts or increase our expenses.

 

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***Product liability, product recalls,and other claims relating to the use of our products could increase our costs.***

 

Because we sell infant and juvenile health, safety and wellnessproducts to consumers, we face product liability risks relating to the use ofour products. We also must comply with a variety of product safety and producttesting regulations. If we face a product liability claim or fail to complywith these regulations, we may be subject to costly litigations, damage awards,fines or settlement costs that exceed our insurance coverage. We also wouldincur significant costs in connection with any product recall requirements.Even if a product liability claim is without merit, the claim could harm ourreputation and divert management’s attention and resources from our business.

 

***Competition in our markets couldreduce our net sales and profitability.***

 

We operate in highly competitive markets. We compete with several largedomestic and foreign companies and with other producers of infant products.Many of our competitors have longer operating histories, greater brandrecognition, and greater financial, technical, marketing and other resourcesthan we have. In addition, we may face competition from new participants in ourmarkets because the infant product industry has limited barriers to entry. Weexperience price competition for our products, competition for shelf space atretailers and competition for licenses, all of which may increase in thefuture. If we cannot compete successfully in the future, our net sales andprofitability will likely decline.

 

***We may experience difficulties inintegrating strategic acquisitions.***

 

As part of our growth strategy, we intend to pursue acquisitions thatare consistent with our mission and enable us to leverage our competitivestrengths. The integration of acquired companies and their operations into ouroperations involves a number of risks, including:

 

·                  the acquired business mayexperience losses that could adversely affect our profitability;

 

·                  unanticipated costs relatingto the integration of acquired businesses may increase our expenses;

 

·                  possible failure to obtainany necessary consents to the transfer of licenses or other agreements of theacquired company;

 

·                  possible failure to maintaincustomer, licensor and other relationships after the closing of the transactionof the acquired company;

 

·                  difficulties in achievingplanned cost-savings and synergies may increase our expenses or decrease ournet sales;

 

·                  diversion of management’sattention could impair their ability to effectively manage our businessoperations; and

 

·                  unanticipated management oroperational problems or liabilities may adversely affect our profitability andfinancial condition.

 

In addition, any future acquisitions or investments may result in:

 

·                  issuances of dilutive equitysecurities, which may be sold at a discount to market price;

 

·                  use of significant amountsof cash;

 

·                  the incurrence of debt;

 

·                  the assumption ofsignificant liabilities;

 

·                  unfavorable financing terms;

 

·                  large one-time expenses; and

 

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·                  the creation of intangibleassets, including goodwill, the write-down of which may result in significantcharges to earnings.

 

***Our debt covenants may limit ourability to complete acquisitions, incur debt, make investments, sell assets,merge or complete other significant transactions.***

 

Our line of credit includes provisions that place limitations on anumber of our activities, including our ability to:

 

·                  incur additional debt;

 

·                  create liens on our assetsor make guarantees;

 

·                  make certain investments orloans;

 

·                  pay dividends; or

 

·                  dispose of or sell assets orenter into a merger or similar transaction.

 

***We could issue additional commonstock, which might dilute the book value of our common stock.***

 

Our board of directors has authority, without action or vote of ourstockholders in most cases, to issue all or a part of our authorized butunissued shares. These stock issuances could be made at a price that reflects adiscount from the then-current trading price of our common stock. In addition,to raise capital, we may need to issue securities that are convertible into orexchangeable for a significant amount of our common stock. These issuanceswould dilute current shareholders’ ownership percentage which would have theeffect of reducing their influence on matters on which stockholders vote, andcould dilute the book value of Summer Infant common stock. Stockholders mayincur additional dilution if holders of stock options, whether currentlyoutstanding or subsequently granted, exercise their options, or if warrantholders exercise their warrants to purchase shares of Summer Infant commonstock.

 

***As a “thinly-traded” stock, largesales can place downward pressure on our stock price.***

 

Our common stock experiences periods when it could be considered “thinlytraded.” Finance transactions resulting in a large amount of newly issuedshares that become readily tradable, or other events that cause current stockholdersto sell shares, could place downward pressure on the trading price of ourstock. In addition, the lack of a robust resale market may require astockholder to sell a large number of shares in increments over time tomitigate any adverse impact of the sales on the market price of our stock.

 

***Anti-takeover provisions in ourorganizational documents and Delaware law may limit the ability of ourstockholders to control our policies and effect a change of control of ourcompany and may prevent attempts by our stockholders to replace or remove ourcurrent management, which may not be in your best interests.***

 

There are provisions in our certificate of incorporation and bylawsthat may discourage a third party from making a proposal to acquire us, even ifsome of our stockholders might consider the proposal to be in their bestinterests, and may prevent attempts by our stockholders to replace or removeour current management. These provisions include the following:

 

·                  our certificate ofincorporation provides for three classes of directors with the term of officeof one class expiring each year, commonly referred to as a staggered board. Bypreventing stockholders from voting on the election of more than one class ofdirectors at any annual meeting of stockholders, this provision may have theeffect of keeping the current members of our board of directors in control fora longer period of time than stockholders may desire;

 

·                  our certificate ofincorporation authorizes our board of directors to issue shares of preferredstock without stockholder approval and to establish the preferences and rightsof any preferred stock issued, which would allow the board to issue one or moreclasses or series of preferred stock that could discourage or delay a tenderoffer or change in control; and

 

·                  our bylaws require advancewritten notice of stockholder proposals and director nominations.

 

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Additionally, we are subject to Section 203 of the DelawareGeneral Corporation Law, which, in general, imposes restrictions upon acquirersof 15% or more of our stock. Finally, the board of directors may in the futureadopt other protective measures, such as a stockholder rights plan, which coulddelay, deter or prevent a change of control.

 

***The global economic downturn couldresult in a reduced demand for our products and increased volatility in ourstock price.***

 

Current uncertainty in global economic conditions pose a risk to theoverall economy as consumers and retailers may defer or choose not to makepurchases in response to tighter credit and negative financial news, whichcould negatively affect demand for our products. Additionally, due to the weakeconomic conditions and tightened credit environment, some of our retailers anddistributors may not have the same purchasing power, leading to lower purchasesof our products for placement into distribution channels. Consequently, demandfor our products could be materially different from expectations, which couldnegatively affect our profitability and cause our stock price to decline.

 

**Item 1B.  Unresolved Staff Comments**

 

None.

 

**Item 2.  Properties**

 

We are headquartered in a 52,000 square foot headquarters/warehousefacility in Woonsocket, Rhode Island. This facility provides for 24,000 squarefeet of office space and a 28,000 square foot warehouse. We are the owner ofthis facility.

 

We have a 36 month, 3,750 square foot lease for office space inSouth Carolina, which expires in 2010. We have a 24 month lease for officespace in Hong Kong, which expires in 2009, as well as a 60 month lease foroffice space in the United Kingdom, which expires in 2012.

 

We maintain inventory at leased warehouses in California (approximately170,000 square feet, which includes two warehouses), Rhode Island(approximately 72,000 square feet), Colorado (approximately 90,000 square), Canada(approximately 31,000 square feet), and the United Kingdom (approximately16,000 square feet). These leases expire at various times between 2009 and2013.

 

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**Item 3.  Legal Proceedings**

 

None.

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

 

No matter was submitted to a vote of our stockholders during the fourthquarter of the year ended December 31, 2008.

 

**PART II**

 

**Item 5.  Market for Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities**

 

*Price Range of Common Stock*

 

On March 7, 2007, our common stock, warrants and units commencedlisting on the Nasdaq Capital Market under the symbols “SUMR”, “SUMRW” and “SUMRU”,respectively.

 

On March 17, 2008, we announced that effective March 28,2008, the units will be separated into its component securities, consisting ofone share of common stock and two warrants. As a result, beginning on March 28,2008, the units ceased trading.

 

The high and low closing prices for our common stock as reported on theNasdaq Capital Market for the periods indicated below were as follows:

 
| ** **                                    | ** ** | **High** | ** ** | **Low** | ** ** |
|-----------------------------------------------|------------|----------|------------|---------|------------|
| **Fiscal Year Ended  December 31, 2007** |       |     |       |    |       |
| First Quarter                                 |       | $        | 5.25       |    | $          | 4.98 |   |
| Second Quarter                                |       | $        | 5.44       |    | $          | 4.73 |   |
| Third Quarter                                 |       | $        | 5.30       |    | $          | 4.06 |   |
| Fourth Quarter                                |       | $        | 5.50       |    | $          | 4.14 |   |
| **Fiscal Year Ended  December 31, 2008** |       |     |       |    |       |
| First Quarter                                 |       | $        | 4.90       |    | $          | 3.67 |   |
| Second Quarter                                |       | $        | 4.80       |    | $          | 3.84 |   |
| Third Quarter                                 |       | $        | 4.79       |    | $          | 3.76 |   |
| Fourth Quarter                                |       | $        | 4.50       |    | $          | 2.10 |   |

 

*Holders of Common Stock*

 

As of March 14, 2009, there were approximately thirteenshareholders of record of our common stock. Because shares of our common stockare held by depositaries, brokers and other nominees, the number of beneficialholders of our shares is substantially larger than the number of recordholders.

 

*Dividend Policy*

 

There have been no cash dividends declared on our common stock sinceour company was formed. Dividends are declared at the sole discretion of ourBoard of Directors. Our intention is not to declare cash dividends and retainall cash for our operations.

 

*Issuer Repurchases of Equity Securities*

 

On October 9, 2007, we made a tender offer to all holders of ourwarrants to repurchase each warrant for $1.00. The tender offer expired on November 8,2007. The total number of warrants purchased in the tender offer was14,766,047. All of the warrants which remained after the tender offer expiredon April 20, 2009.

 

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**Item 6.  Selected Consolidated Financial Data**

 

N/A

 

**Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (dollar amounts in thousands,except share and per share data)**

 

The information contained in this section has been derived from ourconsolidated financial statements and should be read together with ourconsolidated financial statements and related notes included elsewhere in thisfiling.

 

The following discussion is intended to assist in the assessment ofsignificant changes and trends related to our results of operations andfinancial condition. This discussion and analysis should be read in conjunctionwith our consolidated financial statements and notes thereto included herein.Our business has grown organically in all of our markets. We derive ourrevenues from the sale of health, safety and wellness products for infants andtoddlers. Our revenue is driven by our ability to design and market desirableproducts, identify business opportunities and secure new and renew existingdistribution channels. Our income from operations is derived from our abilityto generate revenue and collect cash in excess of labor and other costs ofproviding our products and selling, general and administrative costs.

 

**Company Overview**

 

We are a designer, marketer, and distributor of branded juvenilehealth, safety and wellness products which are sold principally to large NorthAmerican and UK retailers. We currently have more than 80 proprietary productsin various product categories including nursery audio/video monitors, safetygates, durable bath products, bed rails, infant thermometers, related health andsafety products, booster and potty seats, bouncers and a product line of softgoods/bedding.

 

Our strategy is to grow our sales through a variety of methods,including:

 

·                  increased productpenetration (more products at each store);

 

·                  increased store penetration(more stores within each retail customer);

 

·                  new products (at existingand new customers);

 

·                  new mass merchant retailcustomers;

 

·                  new distribution channels (foodand drug chains, price clubs, home centers, web-based retailers);

 

·                  new geographies(international expansion); and

 

·                  new product categories.

 

We have has been able to grow our annual revenues historically througha combination of all of the above factors. Each year, we have been able toexpand the number of products in our main distribution channel, mass merchantretailers, and have also added new customers each year. Therefore, even withoutnew product introductions, we could grow our business by simply selling more ofour existing product line to existing customers.

 

In the future, our growth strategy will be to continue to develop andsell new products to our existing customer base, sell new and existing productsto new customers (or expand relationships with existing customers), expand oursales of products from our soft goods product line, and expand in the UK and inother geographic regions (including Japan, Mexico and Australia, among others).In addition, there are a number of potential acquisition candidates that couldbe pursued in order to obtain new innovative products, new product categories,new retail customers or new sales territories. There are approximately 400active juvenile product companies, of which approximately 300 have less than$10 million in sales. In addition, there are various product categoriesthat we do not currently compete in, including car seats, high chairs, walkers,nursery care, and other categories. We may look to develop our own products inthese categories or attempt to gain entrance into these categories throughacquisitions.

 

As we continue to grow through internal initiatives and any futureacquisitions, we will incur additional expenses. Two of the key areas in whichthose increased expenses will likely occur are sales and product development.In order to grow 

 

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sales,we will likely hire additional sales personnel to service new geographicterritories, focus existing resources on specific parts of the United Statesmarket and retain product line specialists to drive sales of new and existingproducts in specific areas in which we believe we can readily increase sales. Productdevelopment expenses will increase as we develop new products in existing andnew categories.

 

If we were to acquire one or more companies as part of our growthstrategy, we would face various challenges such as the integration of theacquired companies’ product lines, employees, marketing requirements andinformation systems. Ongoing infrastructure investment also may be required tosupport realized growth, including expenditures with respect to upgraded andexpanded information systems and enhancing our management team.

 

*Sales*

 

Our revenues are primarily derived from the sale of juvenile health,safety and wellness products and are recognized upon transfer of title ofproduct to our customers. Our products are marketed through severaldistribution channels including chain retailers, specialty retailers and directto consumers.

 

A number of large, retail customers account a majority of our netsales. Customers that generated more than 10% of net sales for the year ended December 31,2008 were Toys R Us (48% of such net sales), and Target (10% of such netsales). Because of the concentration of our business with these customers, andbecause we have no long term contracts with these customers, our successdepends on our customers’ willingness to purchase and provide shelf space forour products.

 

Over 90% of sales are currently made to customers in North America,with the remaining sales primarily made to customers in the UK. Sales are madeutilizing standard credit terms of 30 to 60 days. We generally acceptreturns only for defective merchandise.

 

*Cost of goods sold and other expenses*

 

Our products are manufactured by third parties, with approximately80-85% of the dollar value of products being manufactured in China and themajority of the balance being manufactured in the United States. Cost of goodssold primarily represents purchases of finished products from these third partymanufacturers. The remainder of our cost of goods sold includes duties oncertain imported items, freight-in from suppliers and miscellaneous chargesfrom contract manufacturers. Substantially all of our purchases are made in USdollars; therefore, most of this activity is not subject to currencyfluctuations. If our suppliers experience increased raw materials, labor orother costs and pass along those cost increases through higher prices forfinished goods, our cost of sales would increase, and to the extent we areunable to pass these price increases along to our customers, our gross marginswould decrease.

 

Selling, general and administrative expenses primarily consist ofpayroll, insurance, professional fees, royalties, freight out to customers,product development costs, advertising and marketing expenses (including co-opadvertising allowances as negotiated with certain customers) and salescommissions. Several of these items fluctuate with sales, some are based onsales to particular customers and others are based on sales of particularproducts.

 

In particular, in 2008, our suppliers based in China faced significantadditional costs, as a result of raw materials shortages, the furtherstrengthening of the Chinese currency (“RMB”) versus the US dollar, risinglabor rates and increases in energy prices. Additionally, Chinese supplierswere impacted by Government imposed reductions on tax refunds. While weanticipate being able to pass on some portion of these increased costs to ourcustomers, continued cost pressures on our suppliers will inevitably be passedon to us; although recently we have experienced some stabilization with ourorient suppliers.

 

There are not significant variations in seasonal demand for ourproducts. Sales to our retail customers are generally higher in the time framewhen retailers take initial shipments of new products. These orders usuallyincorporate enough product to fill each store plus additional amounts to bekept at the customer’s distribution center. The timing of these initialshipments varies by customer depending on when they finalize store layouts forthe upcoming year, and whether there are any mid-year product introductions.

 

**Summary of critical accounting policies and estimates**

 

This summary of our critical accounting policies is presented to assistin understanding our consolidated financial statements. The consolidatedfinancial statements and notes are representations of our management, which isresponsible for 

 

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theirintegrity and objectivity. These accounting policies conform to accountingprinciples generally accepted in the United States of America and have beenconsistently applied in the preparation of the consolidated financialstatements.

 

We make certain estimates and assumptions that affect the reportedamounts of assets and liabilities and the reported amounts of revenues andexpenses. The accounting policies described below are those we considercritical in preparing our financial statements. Some of these policies includesignificant estimates made by management using information available at thetime the estimates were made. However, these estimates could change materiallyif different information or assumptions were used.

 

*Revenue recognition*

 

We follow the guidance of the Securities and Exchange Commission (“SEC”)Staff Accounting Bulletin 104 for revenue recognition. We record revenue whenall of the following occur: persuasive evidence of an arrangement exists,product delivery has occurred, the sales price to the customer is fixed ordeterminable and collectability is reasonably assured. Sales are recorded netof provisions for returns and allowances, product placement fees, customerdiscounts and other sales related discounts. We base our estimates fordiscounts, returns and allowances on negotiated customer terms and historicalexperience. These estimates are subject to variability, as actual deductionstaken by customers may be different from the estimates recorded.

 

Sales incentives or other consideration given by us to customers thatare considered adjustments of the selling price of its products, such asallowances and product placement fees, are reflected as reductions of revenue.Sales incentives and other consideration that represent costs incurred by usfor assets or services received, such as the appearance of our products in acustomer’s national circular ad, are reflected as selling and marketingexpenses in the accompanying statements of income.

 

*Trade receivables*

 

We carry our trade receivables at net realizable value. On a periodicbasis, we evaluate our trade receivables and establish an allowance fordoubtful accounts based on a history of past bad debt expense, collections andcurrent credit conditions. The allowance is adjusted based on actual write-offsthat occur. We have a credit insurance policy to protect against potentiallosses up to stated amounts from certain customers.

 

We do not accrue interest on trade receivables. A receivable isconsidered past due if payments have not been received within the credit termson the account, typically 60 days for most customers.

 

We will turn an account over for collection around 120 days pastdue. Accounts are considered uncollectible if no payments are received 60 to90 days after they have been turned over for collection.

 

*Inventory Valuation*

 

Inventory is comprised of finished goods and is stated at the lower ofcost, inclusive of freight and duty, or market (net realizable value) using thefirst-in, first-out (FIFO) method. Our warehousing costs are charged to expenseas incurred. Inventory write-downs are recorded for damaged, obsolete orslow-moving inventory. Management uses estimates to record write-downs based onits review of inventory by product category, including length of time on handand estimates of future orders for each product. Changes in consumerpreferences, as well as demand for products, customer buying patterns andinventory management could impact the inventory valuation.

 

*Impairment of long-lived assets, goodwill and otherintangible assets.*

 

Long-lived assets have been reviewed for impairment based on Statementof Financial Accounting Standards (SFAS) No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” This Statement requires that animpairment loss be recognized whenever the carrying value of an asset exceedsthe sum of the undiscounted cash flows expected to result from the use andeventful disposition of that asset, excluding future interest costs the entitywould recognize as an expense when incurred. Goodwill and other intangibleassets have been reviewed for impairment based on SFAS No. 142, “Goodwilland Other Intangible Assets.” Under this Statement, goodwill and otherintangible assets that have indefinite useful lives are not amortized, butrather tested at least annually for impairment. The Company’s managementreviews for indicators that might suggest an impairment loss could exist.Testing for impairment requires estimates of expected cash flows to begenerated from the use of the assets. Various uncertainties, including changesin consumer 

 

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preference,deterioration in the political environment, continued adverse conditions in thecapital markets or changes in general economic conditions, could impact theexpected cash flows to be generated by an asset or group of assets. Intangibleassets that have finite useful lives are amortized over their useful lives.

 

*Allowance for doubtful accounts.*

 

The allowance for doubtful accounts represents adjustments to customertrade accounts receivable for amounts deemed uncollectible. The allowance fordoubtful accounts reduces gross trade receivables to their estimated netrealizable value. The Company’s allowance is based on managements’ assessmentof the business environment, customers’ financial condition, historical trends,customer payment practices, receivable aging and customer disputes. The Companywill continue to proactively review its credit risks and adjust its customerterms to reflect the current environment.

 

*Income taxes*

 

Effective January 1, 2007, we adopted the provisions of FASBInterpretation No. 48 (“FIN 48”), “Accounting for Uncertainty inIncome Taxes—An Interpretation of FASB Statement No. 109.” FIN 48provides detailed guidance for the financial statement recognition, measurementand disclosure of uncertain tax positions recognized in the financialstatements in accordance with SFAS No. 109. Tax positions must meet a “more-likely-than-not”recognition threshold at the effective date to be recognized upon the adoptionof FIN 48 and in subsequent periods. Upon the adoption of FIN 48, wehad no unrecognized tax benefits.

 

Deferred income tax assets are adjusted by a valuation allowance, ifnecessary, to recognize future tax benefits only to the extent, based onavailable evidence; it is “more-likely-than-not” such benefits will berealized. We recognize interest and penalties, if any, related to uncertain taxpositions in selling, general and administrative expenses.

 

The tax years 2004 through 2007 remain open to examination by the majortaxing jurisdictions in which we operate. We expect no material changes tounrecognized tax positions within the next twelve months.

 

**Results of Operations**

 

**SummerInfant, Inc. (formerly KBL Healthcare Acquisition Corp. II)**

**ConsolidatedStatements of Income**

**For theYears Ended December 31, 2008 and 2007**

**(Inthousands)**

 
| ** **                              | ** ** | **Year Ended  December 31, 2008** | ** ** | **Year Ended  December 31, 2007** | ** ** |
|-----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Net sales                               |       | $                                      | 132,369    |                                   | $          | 68,117 |   |
| Cost of goods sold                      |       | 85,514                                 |       | 42,356                                 |       |
| Gross profit                            |       | 46,855                                 |       | 25,761                                 |       |
| Operating expenses (including interest) |       | 39,575                                 |       | 20,968                                 |       |
| Income tax expense                      |       | 2,378                                  |       | 1,678                                  |       |
| Net income                              |       | $                                      | 4,902      |                                   | $          | 3,115 |   |

 

The results of operations for the year ended December 31, 2007represent the combined activity of KBL Healthcare from January 1, 2007through March 6, 2007 and the activity of Summer Infant from March 6,2007 through December 31, 2007. KBL Healthcare historically had no salesor gross profit, while Summer Infant has both sales and gross profit, inaddition to other normal operating expenses. Therefore, the amounts in the twoabove periods cannot be compared in a meaningful fashion.

 

To give the reader some additional information on the performance ofthe underlying Summer Infant operations, the following table represents theresults of the Summer Infant operating company for the years ended December 31,2008 and 2007. This table is being presented to give the reader moreinformation about the underlying performance of the ongoing operating company,because KBL Healthcare had no operating business in 2007. The 2008 operatingresults include Kiddopotamus and Basic Comfort from their respectiveacquisition dates of April 18th and March 31st, through December 31, 2008.

 

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**SummerInfant, Inc. and Subsidiaries**

**ConsolidatedStatements of Income**

**For theYears Ended December 31, 2008 and 2007**

**(Inthousands)**

 
|                 |   | **Year  Ended  December 31, 2008** |    | **Year  Ended  December 31, 2007** |   |
|----------------------|--------|-----------------------------------------|---------|-----------------------------------------|--------|
| Net sales            |   | $                                       | 132,369 |                                    | 100.0  | % | $ | 80,517 |   | 100.0 | % |
| Cost of goods sold   |   | 85,514                                  |    | 64.6                                    | %      | 50,037 |   | 62.1 | % |
| Gross Profit         |   | 46,855                                  |    | 35.4                                    | %      | 30,480 |   | 37.9 | % |
| SG&A expenses(a) |   | 34,039                                  |    | 25.7                                    | %      | 22,458 |   | 27.9 | % |
| EBITDA(b)            |   | $                                       | 12,816  |                                    | 9.7    | % | $ | 8,022 |   | 10.0 | % |

 

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(a)                                  Excludingdepreciation, amortization, deal-related fees, and Non-Cash stock optionexpense.

 

(b)                                 See non-GAAPdiscussion below regarding the computation of EBITDA.

 

*Year ended December 31, 2008 compared with yearended December 31, 2007*

 

Net sales increased 64% from approximately $80,517,000 in the yearended December 31, 2007 to approximately $132,369,000 for the year ended December 31,2008. This increase was primarily attributable to increased distribution ofexisting products throughout our customer base, introduction of new products,acquisitions, and expansion into new customers. Kiddopotamus and Basic Comfortadded approximately $11,130,000 and $7,484,000 to net sales, respectively.

 

Gross profit increased 54% from approximately $30,480,000 for the yearended December 31, 2007 to approximately $46,855,000 for the year ended December 31,2008. This increase was primarily attributable to the 64% increase in netsales, offset by increased cost of goods due to raw material increases and achange in product mix. The increase in raw materials costs and labor werepassed along as cost increases, and to the extent we were unable to pass suchprice increases along to our customers, our gross profit percentageyear-over-year has decreased.

 

Selling, general and administrative expenses increased fromapproximately $22,458,000 for the year ended December 31, 2008 toapproximately $34,039,000 for the year ended December 31, 2008. Thisincrease was primarily attributable to increased variable costs such as co-opadvertising allowances as a result of the significant increase in sales. Inaddition, there were increased expenditures in product development, headcount,professional fees, and warehouse operations.

 

**Liquidity and Capital Resources**

 

We generally fund our operations and working capital needs through cashgenerated from operations and borrowings under our credit facility.

 

Our sales have increased significantly over the past several years. Forthe year ended December 31, 2003, net sales for the Summer InfantOperating Companies were approximately $17,600,000. For the year ended December 31,2008, net sales were approximately $132,369,000. This sales growth has led to asubstantial increase in working capital requirements, specifically accountsreceivable and inventory. The typical cash flow cycle is as follows:

 

·                  Inventory is purchased tomeet expected demand plus a safety stock. Because the majority of our vendorsare based in Asia, inventory takes from four to six weeks to arrive from Asiato the various distribution points we maintain in the US, Canada and the UK.Payment terms for these vendors are approximately 30- 60 days from thedate the product ships from Asia, therefore we are generally paying for theproduct a short time after it is physically received in the US. The increasedsales we have experienced result in increased levels of inventory, andtherefore an increase in the amount of cash required to fund our inventorylevel.

 

·                  Sales to customers generallyhave payment terms of 60 days. The increased sales have resulted in anincrease in the level of accounts receivable, and therefore have increased theamount of cash required to fund working capital.

 

We have traditionally been able to fund our increased working capitalthrough lines of credit with banks.

 

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The majority of our capital expenditures are for tools related to newproduct introductions. We receive indications from retailers generally aroundthe middle of each year as to what products the retailer will be taking intoits product line for the upcoming year. Based on these indications, we willthen acquire the tools required to build the products. In most cases thepayments for the tools are spread out over a three to four month period.

 

For the year ended December 31, 2008, net cash used in operatingactivities totaled $16,000. This was due to the positive net income generatedduring the year, plus non-cash charges, less working capital increases(primarily accounts receivable and inventory, which increased due to thesignificant sales increase).

 

Net cash used in investing activities was approximately $21,503,000which primarily relates to the cash portion of the Basic Comfort andKiddopotamus acquisitions, in addition to year to date capital expenditures ofapproximately $3,863,000 and purchases of intangible assets totaling$1,682,000.

 

Net cash provided by financing activities was approximately $21,714,000which relates to amounts borrowed to fund increases in working capital and theacquisitions of Basic Comfort and Kiddopotamus.

 

Based on the above factors, the net cash decrease for the year ended December 31,2008 was approximately $783,000, resulting in a cash balance of approximately$988,000 at December 31, 2008.

 

Summer believes that its cash on hand and current banking facilitiesare sufficient to fund its cash requirements for at least the next12 months. However, unforeseen circumstances, such as softness in theretail industry or deterioration in the business of a significant customer,could create a situation where Summer cannot access all of the available linesof credit due to not having sufficient assets or EBITDA. In addition, there isno assurance that Summer will meet all of its bank covenants in the future, orthat its lender will grant waivers if there are covenant violations.

 

Summer’s strategy for funding its business going forward is acombination of increased profitability, and if necessary, negotiation ofincreased borrowing lines as required with traditional lenders.

 

On April 10, 2008, Summer entered into two new three-year securedcredit facilities (the “Loan Agreement”) with Bank of America, N.A., asAdministrative Agent, and each of the financial institutions that is asignatory to the Loan Agreement. The Loan Agreement provides for a $36,000,000working capital revolving credit facility and a $10,000,000 non-restoringacquisition credit facility. The new credit facilities mature on June 30,2011. The acquisition credit facility has been utilized in its entirety as of June 30,2008.

 

Summer and its subsidiaries, Summer Infant (USA), Inc., SummerInfant Europe Limited, Summer Infant Asia Limited and Summer Infant Canada,Limited are the borrowers under the Loan Agreement. These credit facilitiesreplaced Summer’s prior line of credit and are being used principally to fundgrowth opportunities and for working capital purposes.

 

Summer’s ability to borrow under the Loan Agreement is subject to itsongoing compliance with a number of financial and other covenants, includingthe following (i) that Summer and its subsidiaries maintain a net worth of$50,000,000 plus the sum of 50% of net income earned in each fiscal year, (ii) thatSummer and its subsidiaries maintain a ratio of total funded debt to EBITDA ofnot greater than 3.50:1.00, and (iii) that Summer and its subsidiariesmaintain a ratio of operating cash flow to debt service of not less than1.25:1.00. In addition, if Summer’s ratio of total funded debt to EBITDA isgreater than 3.25:1.00 as of December 31, 2008, the total commitmentamount under the working capital revolving credit facility will reduce by$4,000,000 on March 31, 2009. Furthermore, if Summer’s ratio of totalfunded debt to EBITDA is greater than 3.25:1.00 for any fiscal year, theagreegate amount that may be borrowed under the Loan Agreement will bedetermined by reference to a borrowing base.

 

These credit facilities bear interest at a floating rate based on aspread over LIBOR ranging from 150 basis points to 200 basis points, dependingupon the ratio of the Company’s total funded debt to EBITDA. As of December 31,2008, the rate on these credit facilities ranged between 1.95% and 4.42%. Inaddition, these credit facilities have an unused line fee based on the unused amountof the credit facilities equal to 25 basis points.

 

The Loan Agreement also contains customary events of default, includinga cross default provision and a change of control provision. In the event of adefault, all of the obligations of the Company and its subsidiaries under theLoan Agreement may be declared immediately due and payable. For certain eventsof default relating to insolvency and receivership, all outstanding obligationsbecome due and payable.

 

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As of December 31, 2008, the Company had approximately $39,676,000outstanding of the total committed amount of $46,000,000. In addition, theCompany has $3,859,000 outstanding on the loan related to the construction ofthe corporate headquarters.

 

The Company was in compliance with all covenants as of December 31,2008.

 

The following table summarizes our significant contractual commitmentsat December 31, 2008:

 
| ** **                                            | ** ** | **Payment Due by Period** | ** ** |
|-------------------------------------------------------|------------|---------------------------|------------|
| **Contractual Obligations**                           | ** ** | **Total**                 | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012 and  beyond** | ** ** |
| ** **                                            | ** ** | **(In Thousands)**        | ** ** |
| Line of credit/acquisition facility                   |       | $                         | 39,676     |   | $ | 1,333 |   | $ | 2,000 |   | $ | 36,343 |   |   |   |
| Estimated future interest payments on line of  credit |       | 3,155                     |       | 1,262 |   | 1,262 |   | 631 |   |   |   |
| Operating leases                                      |       | 4,793                     |       | 1,707 |   | 1,458 |   | 811 |   | $ | 817 |   |
| Capital leases                                        |       | 397                       |       | 215 |   | 161 |   | 31 |   |   |   |
| Construction loan                                     |       | 3,859                     |       | 105 |   | 112 |   | 120 |   | 3,522 |   |
| Total contractual cash obligations                    |       | $                         | 51,880     |   | $ | 4,622 |   | $ | 4,993 |   | $ | 37,936 |   | $ | 4,339 |   |

 

Estimated future interest payments on our line of credit were basedupon the interest rates in effect at December 31, 2008.

 

**Off-Balance Sheet Arrangements**

 

We did not have any off-balance sheet arrangements during either of theyears ended December 31, 2008 and 2007.

 

**Non-GAAP Discussion**

 

In addition to our GAAP results, we also disclose non-GAAP measures ofour performance. Adjusted EBITDA, as defined below, is an importantsupplemental financial measure of our performance that is not required by, orpresented in accordance with, GAAP. As used herein, “Adjusted EBITDA”represents net income (loss) before income taxes, interest expense, anddepreciation and amortization and non-cash stock option expense. We believethat the presentation of Adjusted EBITDA provides useful information regardingour results of operations because it assists in analyzing and benchmarking theperformance and value of our business. We believe that Adjusted EBITDA isuseful to stockholders as a measure of comparative operating performance, as itis less susceptible to variances in actual performance resulting fromdepreciation and amortization and more reflective of changes in pricingdecisions, cost controls and other factors that affect operating performance.

 

Adjusted EBITDA also is used by our management for multiple purposes,including:

 

·                  to calculate and supportvarious coverage ratios with our lenders;

 

·                  to allow lenders tocalculate total proceeds they are willing to loan to us based on our relativestrength compared to other competitors; and

 

·                  to more accurately compareour operating performance from period to period and company to company byeliminating differences caused by variations in capital structures (whichaffect relative interest expense), tax positions and amortization ofintangibles.

 

Although we use Adjusted EBITDA as a financial measure to assess theperformance of our business, there are material limitations to using a measuresuch as Adjusted EBITDA, including the difficulty associated with using it asthe sole measure to compare the results of one company to another and theinability to analyze significant items that directly affect a company’s netincome (loss) or operating income because it does not include certain materialcosts, such as interest and taxes, necessary to operate its business. Inaddition, our calculation of Adjusted EBITDA may not be consistent withsimilarly titled measures of other companies and should be viewed inconjunction with measures that are computed in accordance with GAAP. Ourmanagement compensates for these limitations in considering Adjusted EBITDA inconjunction with its analysis of other GAAP financial measures, such as netincome (loss).

 

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The following table presents a reconciliation of Adjusted EBITDA to netincome, its most directly comparable GAAP financial measure, on a historicalbasis, for the periods presented:

 

**Reconciliation of Income before interest to unauditedAdjusted EBITDA**

 
| ** **                                 | ** ** | **Year Ended  December 31** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|
| ** **                                 | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                                 | ** ** | **(In Thousands)**               | ** ** |
| Income before interest                     |       | $                                | 9,339      |   | $ | 5,963 |   |
| Plus: depreciation and amortization        |       | 2,903                            |       | 1,378 |   |
| Plus: litigation and deal related expenses |       | 214                              |       | 305 |   |
| Plus: non-cash stock option expense        |       | 360                              |       | 376 |   |
| Adjusted EBITDA, as defined                |       | $                                | 12,816     |   | $ | 8,022 |   |

 

The increase in Adjusted EBITDA for the past year has been primarilythe result of the sales increases that have occurred. Sales increased from$80,500,000 in 2007 to $132,369,000 in 2008.

 

For the years ended December 31, 2008 and 2007, “Adjusted EBITDA”,as defined, includes the addition of certain litigation and deal-relatedexpenses that we believe to be nonrecurring.

 

**Recently Issued Accounting Pronouncements**

 

In September 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements.” SFAS No. 157 defines fair value, establishes a frameworkfor measuring fair value in generally accepted accounting principles andexpands disclosures about fair value measurements. SFAS No. 157 appliesunder other accounting pronouncements that require or permit fair valuemeasurements and accordingly, does not require any new fair value measurements.SFAS No. 157 is effective for fiscal years beginning after November 15,2007. The Company adopted FAS 157 for its financial assets and liabilitieseffective January 1, 2008.

 

In June 2006, the FASB issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109”(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in incometaxes recognized in a company’s financial statements in accordance with SFAS No. 109,“Accounting for Income Taxes.” FIN 48 prescribes a recognition thresholdand measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.FIN 48 is effective for fiscal years beginning after December 15,2006. This was adopted effective January 1, 2007. As a result of theimplementation of FIN 48, we recognized no adjustments in uncertain taxbenefits. As of December 31, 2008, we have $0 of accrued interest relatedto uncertain tax positions.

 

In December 2007, the FASB issued Statement of FinancialAccounting Standards No. 141(R), “Business Combinations”, or SFAS No. 141(R).This statement establishes principles and requirements for how the acquirer ofa business recognizes and measures in its financial statements the identifiableassets acquired, the liabilities assumed, and any non-controlling interest inthe acquired. SFAS No. 141(R) also provides guidance for recognizingand measuring the goodwill acquired in the business combination and determineswhat information to disclose to enable users of the financial statements toevaluate the nature and financial effects of the business combination. Theprovisions of SFAS No. 141(R) are effective for financial statementsissued for fiscal years beginning after December 15, 2008. The Companywill adopt this statement, as applicable on January 1, 2009.

 

In December 2007, the FASB issued Statement of FinancialAccounting Standards No. 160, “Non-controlling Interests in ConsolidatedFinancial Statements-An Amendment to Accounting Research Bulletin (“ARB”) No. 51”,or SFAS No. 160. This statement amends ARB No. 51, “ConsolidatedFinancial Statements”, to establish accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. This statement also amends certain of ARB No. 51’sconsolidation procedures for consistency with the requirements of SFAS No. 141(R).In addition, SFAS No. 160 also includes expanded disclosure requirementsregarding interests of the parent and its non-controlling interest. Theprovisions of SFAS No. 160 are effective for financial statements issuedfor fiscal years beginning after December 15, 2008. The Company will adoptthis statement, as applicable, on January 1, 2009.

 

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In February 2008, the FASB issued Staff Position (“FSP”) No. 157-1and FSP No. FSP 157-2. FSP No. 157-1 removes certain leasingtransactions from the scope of SFAS No. 157. FSP No. 157-2 partiallydefers the effective date of SFAS No. 157 for one year for certainnonfinancial assets and nonfinancial liabilities that are recognized at fairvalue on a nonrecurring basis. Under FSP No. 157-2, the effective date fornon-financial assets and liabilities that are recognized at the fair value on anonrecurring basis will be for fiscal years beginning after November 15,2008. FSP No. 157-2 is effective for the Company of January 1, 2009.The Company is assessing the potential impact of adopting FSP No. 157-2,but does not believe that the adoption will have a significant impact on theCompany’s consolidated financial statements.

 

In April 2008, the FASB issued FSP No. FAS 142-3, “Determinationof the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSPFAS 142-3 amends the factors that should be considered in developingrenewal or extension assumptions used to determine the useful life of arecognized intangible asset under SFAS No. 142, “*Goodwill and Other Intangible Assets* “(SFASNo. 142”). The intent of the position is to improve the consistencybetween the useful life of an recognized intangible asset under SFAS No. 142and the period of expected cash flows used to measure the fair value of theasset under SFAS No. 141 (R). FSP FAS 142-3 is effective for fiscalyears beginning after December 15, 2008 and is effective for the Companybeginning January 1, 2009. The Company is assessing the potential impactthat the adoption of FSP FAS 142-3 will have on the useful lives of itsintangible assets but does not expect it to have a material impact on itsconsolidated results of operations and financial condition.

 

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Management does not believe that any other recently issued, but not yeteffective, accounting standards if currently adopted would have a materialeffect on the accompanying financial statements.

 

**Item 8.  Financial Statements and Supplementary Data**

 

The financial statements required by this item are attached to this AnnualReport on Form 10-K beginning on Page F-1.

 

**Item 9A(T) Controls and Procedures**

 

*(a) Evaluation of Disclosure Controls andProcedures*

 

As required by Rule 13a-15 under the Securities Exchange Act of1934, as of the end of the period covered by this Annual report, we carried outan evaluation, under the supervision and with the participation of our ChiefExecutive Officer and our Chief Financial Officer, of the effectiveness of ourdisclosure controls and procedures as of December 31, 2008. Our principalexecutive officer and principal financial officer have concluded, based ontheir evaluation, that as of the end of the period covered by this report, ourdisclosure controls and procedures were effective as of December 31, 2008.

 

*(b) Management’s Report on Internal Control overFinancial Reporting*

 

Management of the Company is responsible for establishing andmaintaining adequate internal control over financial reporting. As defined in Rule 13a-15(f) underthe Exchange Act, internal control over financial reporting is a processdesigned by, or under the supervision of , a company’s principal executive andprincipal financial officers and effected by a company’s board of directors,management and other personnel, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples. It includes those policies and procedures that:

 

a)             Pertainto the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of the assets of a company;

 

b)            Providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of a company arebeing made only in accordance with authorizations of management and the boardof directors of the company; and

 

c)             Providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or deposition of a company’s assets that could have a materialeffect on its financial statements.

 

Because of the inherent limitations, internal control over financialreporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

 

The Company’s management has used the criteria established in “InternalControl-Integrated Framework” issued by the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”) to evaluate the effectivenessof the Company’s internal control over financial reporting. Management hasselected the COSO framework for its evaluation as it is a control frameworkrecognized by the SEC and the Public Company Accounting Oversight Board, thatis free from bias, permits reasonably consistent qualitative and quantitativemeasurement of the Company’s internal controls, is sufficiently complete sothat relevant controls are not omitted, and is relevant to an evaluation ofinternal controls over financial reporting.

 

Based on our assessment, management has concluded that our internalcontrol over financial reporting, based on criteria established in “InternalControl-Integrated Framework” issued by COSO was effective as of December 31,2008 and for the year then ended.

 

The annual report does not include an attestation report of ourregistered public accounting firm regarding internal control over financialreporting. Our management’s report was not subject to attestation by ourregistered public accounting 

 

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firmpursuant to temporary rules of the Securities and Exchange Commission thatpermit us to provide only our management’s report in this annual report.

 

*(c) Changes in Internal Control Over FinancialReporting*

 

There was no change in our internal control over financial reportingthat occurred during the fourth quarter that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

**Item 9B.  Other Information**

 

Not applicable.

 

**PART III**

 

**Item 10. Directors, ExecutiveOfficers and Corporate Governance**

 

Pursuant to our Amended andRestated Certificate of Incorporation, our Board of Directors is divided intothree classes.  The terms of current Class Adirectors Myra Hart and Robert Stebenne will expire at the annual meeting ofstockholders to be held in 2011.  Theterms of current Class B directors Steven Gibree, Martin Fogelman andRichard Wenz will expire at the at the annual meeting of stockholders to beheld in 2009.  The terms of current Class Cdirector, Jason Macari, expires at the annual meeting of stockholders to beheld in 2010.

 

Based on its review of therelationships between its existing directors and our company and oursubsidiaries, our Board of Directors has affirmatively determined that amajority of our directors are independent under the rules of the NasdaqStock Market.

 

On March 6, 2007, underan Agreement and Plan of Reorganization, dated as of September 1, 2006, weacquired Summer Infant, Inc. (“Summer Predecessor”), through the merger ofour acquisition subsidiary and Summer Predecessor.  Prior to the merger, we were referred to asKBL Healthcare Acquisition II, Inc. (“KBL”).  Effective upon closing this merger, wechanged our name to Summer Infant, Inc. Upon completion of the merger, our Board of Directors was increased toseven members.  Two persons who weredesignated by the former stockholders of Summer Predecessor, Jason P. Macariand Steven Gibree, were added to our Board of Directors.  Two persons, Marlene Krauss and MartinFogelman, were designated by certain of our founding stockholders.  The other three members of our Board ofDirectors, Myra Hart, Robert Stebenne and Richard Wenz, were mutuallydesignated by these founding stockholders and by these former SummerPredecessor stockholders.  Ms. Kraussresigned from the Board of Directors in 2008 and her seat on the Board ofDirectors will be filled at the Company’s 2010 Annual Meeting when it comes upfor election.  These stockholders haveentered into a voting agreement with respect to the election of directors.  See “Voting Agreement” below.

 

##### ***Board of  Directors***

##### ** **

Thefollowing table sets forth certain information with respect to our Board ofDirectors, their principal occupations, ages, independence status, asdetermined in accordance with rules of the Nasdaq Stock Market, andperiods of service on our Board of Directors. Information regarding their ownership of shares of our common stock asof April 27, 2009 may be found at “*Security Ownership ofCertain Beneficial Owners and Management*.”

 

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| **Class** | ** ** | **Name**             | ** ** | **Age** | ** ** | **Principal  Occupation**                   | ** ** | **Independent  Status** | ** ** | **Director  Since** | ** ** | **Term of  Office Will  Expire** |
|-----------|------------|----------------------|------------|---------|------------|---------------------------------------------|------------|-------------------------|------------|---------------------|------------|----------------------------------|
| A         |       | Myra  Hart (1)       |       | 68      |       | Consultant                                  |       | Y                       |       | March 2007     |       | 2011                             |
| A         |       | Robert  Stebenne (2) |       | 55      |       | Owner,  Bob Stebenne Associates             |       | Y                       |       | March 2007     |       | 2011                             |
| B         |       | Steven  Gibree (3)   |       | 42      |       | EVP  of Prod. Dev. Summer Infant, Inc. |       | N                       |       | March 2007     |       | 2009                             |
| B         |       | Martin  Fogelman (4) |       | 65      |       | Indep.  Consultant Baby Prod. Industry      |       | Y                       |       | March 2007     |       | 2009                             |
| B         |       | Richard  Wenz (5)    |       | 59      |       | Consultant  /Private Investor               |       | Y                       |       | March 2007     |       | 2009                             |
| C         |       | Jason  Macari (6)    |       | 46      |       | CEO,  Summer Infant, Inc.              |       | N                       |       | March 2007     |       | 2010                             |

 

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(1)           Dr. Hart serves on the seniorfaculty of Harvard Business School where she taught entrepreneurship from July 1995to 2007.  From 1990 to 1995, she was afull-time doctoral candidate at Harvard University. From 1985 until 1990, Ms. Hartwas a member of the founding team of Staples, Inc. where she was vicepresident of growth and development.  Ms. Hartis a Director of Office Depot, Inc. (ODP:NYSE), Kraft Foods Inc.(KFT:NYSE), and Nina McLemore Inc., a privately held company.  She is a director of the Center for Women’sBusiness Research, a Trustee of Babson College, and a Presidential Councillorof Cornell University. Ms. Hart received a B.A. from Cornell Universityand MBA and DBA from Harvard University.

 

(2)           Mr. Stebenne currently owns andmanages Bob Stebenne Associates, a firm that provides consulting services inthe areas of brand development, product development and strategic planning,among other areas.  Mr. Stebennefounded the firm in 2002.  Prior to thattime, from February 1999 to July 2002, Mr. Stebenne was thepresident of new business development for Hasbro Industries.  From 1991 to January 1999, he waspresident of Hasbro’s FOB/LC division, where he created a U.S. marketing, sales,product development, finance and logistics group.  From 1982 to 1991, he was president of Hasbro’sPlayskool Baby division.

 

(3)           Mr. Gibree is our executive vicepresident of product development with management oversight of research anddevelopment, product design and engineering and manufacturing relations.  Prior to March 2007, Mr. Gibreeheld these same positions at Summer Predecessor, with whom he had been employedsince November 2001.  Prior to thattime, Mr. Gibree was the vice president of engineering for Little Kids, Inc.,a manufacturer of innovative toys, from March 2001 to November 2001.From May 1997 to March 2001, Mr. Gibree was director ofengineering at Safety 1st, Inc. From May 1985 to May 1997, Mr. Gibree was employed byHasbro, rising to project manager for the Kid Dimension Division.

 

(4)           Mr. Fogelman has been anindependent consultant to the baby products industry since April 2007.  From May 2003 until March 2007, Mr. Fogelmanwas President of Baby Trend, Inc., a manufacturer of infant products.  From 1983 to April 2003, he was seniorvice president and general merchandise manager of both Toys *R* Us, a leading retailer of children’stoys, and Babies *R* Us juvenileproducts division, a leading retailer of products for infants and toddlers.

 

(5)           Mr. Wenz is a consultant andprivate investor and currently serves on the Board of Directors of CoachAmerica, Inc., Strategic Partners, Inc. and Easton Bell Sports, Inc.  From October 2000 to July 2003, Mr. Wenzwas an operating partner/affiliate of DB Capital Partners, the private equityarm of Deutsche Bank A.G. and served on the board of directors of a number ofportfolio companies, including NewRoads, Inc. and Jenny CraigInternational.  Mr. Wenz also servedas chief executive officer of Jenny Craig International from March 2002 to

 

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January 2003.  Mr. Wenz was president and chiefoperating officer of Safety 1st, from February 1997 to May 2000.During 1995 and 1996, Mr. Wenz was the partner in charge of the Chicagooffice with The Lucas Group, a business strategy consulting firm. Prior to1995, Mr. Wenz held senior executive positions with Wilson Sporting GoodsCo., Electrolux Corporation, The Regina Company and Professional GolfCorporation. Mr. Wenz began his career in 1971 with Arthur Young &Company (predecessor of Ernst & Young) and left the firm as a partnerin 1983.  Mr. Wenz is a certifiedpublic accountant.

 

(6)           Mr. Macari has been our ChiefExecutive Officer and a director since March 2007.  Prior to March 2007, Mr. Macari wasChief Executive Officer and founder of Summer Predecessor, which he founded in2001.  Prior to that time, Mr. Macariwas vice president of product development and general manager of Safety 1st, Inc.,a leading manufacturer of safety and baby products from August 1994 to June 2001.From May 1988 to August 1994, Mr. Macari managed themanufacturing engineering group of the Davol Division of CR Bard, amanufacturer of surgical products.

 

##### **Board of Directors Meetings and Committees of theBoard**

##### ** **

*Attendanceof Directors*

 

In 2008, four meetings of our Board of Directors were held.  All directors attended more than seventy-fivepercent of the meetings.  All directorsattended in excess of 75% of the meetings of the committees of our Board ofDirectors on which they served.  Ourdirectors are encouraged, but not required, to attend annual meetings.

 

*Compensationof Directors*

 

We do not pay our directors who are also executive officers anyadditional compensation for service as directors.

 

In 2008, the compensation for non-employee directors included thefollowing:

 

·                  Cash Board ofDirectors meeting attendance fee of $1,000 per meeting attended in person and$500 for each meeting by telephone;

 

·                  Cash meetingattendance fee of $1,000 for each meeting of the Audit Committee and $500 foreach meeting of any other committee of our Board of Directors;

 

·                  $10,000 annualretainer for all directors;

 

·                  $5,000 annualretainer for the Chairman of the Audit Committee;

 

·                  $2,500 annualretainer for the Chairman of any other committee of our Board of Directors;

 

·                  $1,500 annualretainer for other members of the committees of our Board of Directors;

 

·                  Expensereimbursement for all reasonable expenses incurred in attending meetings andtending to our business; and

 

·                  In 2007, therewas a grant of 40,000 stock options under the 2006 Performance Equity Plan toeach director, which vested 25% on the date of grant and 25% annually on eachanniversary of the grant date.

 

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The following table shows non-employee director compensation in 2008:

 
| **Name  (1)**   | ** ** | **Fees  Earned  or  Paid in  Cash  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Options  Awards  ($) (2)** | ** ** | **Non-Equity  Incentive Plan  Compensation  Earnings** | ** ** | **Change in  Pension  Value and  Non-qualified  Deferred  Compensation  Earnings** | ** ** | **All Other  ($)** | ** ** | **Total ($)** | ** ** |
|-----------------|------------|------------------------------------------|------------|------------------------|------------|------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|--------------------|------------|---------------|------------|
| Martin Fogelman |       | $                                        | 22,000     |                   | —     |                         | $          | 13,400                                                 |       | —                                                                             |       | —             |       | $             | 57,000     | (3) | $ | 92,400 |   |
| Myra Hart       |       | $                                        | 25,500     |                   | —     |                         | $          | 13,400                                                 |       | —                                                                             |       | —             |       | —        |       | $ | 38,900 |   |
| Robert Stebenne |       | $                                        | 23,500     |                   | —     |                         | $          | 13,400                                                 |       | —                                                                             |       | —             |       | —        |       | $ | 36,900 |   |
| Richard Wenz    |       | $                                        | 33,000     |                   | —     |                         | $          | 13,400                                                 |       | —                                                                             |       | —             |       | —        |       | $ | 46,400 |   |
|                 |            |                                          |            |                        |            |                              |            |                                                        |            |                                                                                    |            |                    |            |               |            |  |  |  |  |

 

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(1)           Messrs. Macariand Gibree are not included in this table as they are executive officers and,accordingly, receive no compensation for their service as directors. The compensation received by Messrs. Macariand Gibree as executive officers is shown in the Summary Compensation Tablebelow.

 

(2)           The amounts in this columndo not reflect compensation actually received by the named director or theactual value that may be recognized with respect to these awards in the future.The amounts in this column reflect the dollar amount recognized for financialstatement reporting purposes for the fiscal year ended December 31, 2008,in accordance with FAS 123(R) for awards granted in 2007. Assumptions usedin the calculation of these amounts are included in Note 7 in the notes to ouraudited consolidated financial statements for the fiscal year ended December 31,2008 included in our Annual Report on Form 10-K filed with the Securitiesand Exchange Commission on March 25, 2009.

 

(3)           Mr. Fogelman receives$4,750 per month as a paid consultant to our company.

 

*Committeesof the Boards of Directors*

 

Our Board of Directors has designated the following committees: anAudit Committee, a Compensation Committee and a Nominating Committee.  The composition and objectives of eachcommittee are described below.  Our Boardof Directors continues to review its committees and the independence andqualifications of its current committee members in light of changes requiredunder the Sarbanes-Oxley Act of 2002 and by the Securities and ExchangeCommission (the “SEC”) and the Nasdaq Stock Market.

 

OurBoard of Directors has determined that a majority of the members of our Boardof Directors are independent directors under the rules of the Nasdaq StockMarket.  See “*CorporateGovernance*” below.

 

*AuditCommittee*

 

TheAudit Committee held four meetings in 2008. As described in the Audit Committee’s charter, a copy of which isavailable on our website at www.summerinfant.com, the primary function of theAudit Committee is to appoint, retain, set compensation of, and supervise ourindependent accountants, review the results and scope of the audit and otheraccounting related services and review our accounting practices and systems ofinternal accounting and disclosure controls.

 

TheAudit Committee currently consists of three members:  Richard Wenz, Chairman, Myra Hart and RobertStebenne.  Each member of the AuditCommittee is an “independent” director under SEC rules.  No member of the Audit Committee is anemployee of our company or any of its subsidiaries.  We have not relied on exemptions for AuditCommittee independence requirements contained in Rule 10A-3 under theSecurities Exchange Act of 1934.  Themembers of the Audit Committee are required to have extensive business andfinancial experience. They are also required to have a good understanding offinancial statements, including our 

 

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balancesheet, income statement, cash flow statement and its quarterly and annualreports on Forms 10-Q and 10-K and related financial statements anddisclosures.  Our Board of Directors hasdetermined that Mr. Wenz qualifies as an Audit Committee “financialexpert.”

 

TheAudit Committee meets with our external and internal auditors and principalfinancial personnel to review quarterly financial results and the results ofthe annual audit (in both regular and executive sessions).  The Audit Committee reviews and approvesannual external auditor engagement plans, scopes and fees.  The Audit Committee approves all fees andterms related to the annual independent audit as well as all permissiblenon-audit engagements of the external auditors. The Audit Committee pre-approves all audit and permissible non-auditservices to be performed by the external auditors.

 

*CompensationCommittee*

 

TheCompensation Committee met four times in 2008. As described in the Compensation Committee’s charter, which is availableon our website at www.summerinfant.com, the Compensation Committee isresponsible for the review and approval of our compensation paid to ourexecutive officers and to the administration of our incentive compensationplans, which includes authority to make and modify awards under those plans.

 

TheCompensation Committee currently consists of three members:  Myra Hart, Chairman, Martin Fogelman andRichard Wenz.   Each member of theCompensation Committee is an “independent” director under SEC rules.  No member of the Compensation Committee is anemployee of our company or any of its subsidiaries.

 

*NominatingCommittee*

 

TheNominating Committee met two times in 2008. As described in the Nominating Committee’s charter, which is availableon our website at www.summerinfant.com, the Nominating Committee is responsiblefor overseeing the selection of persons to be nominated to serve on our Boardof Directors.

 

TheNominating Committee currently consists of three members:  Robert Stebenne, Chairman, Martin Fogelmanand Richard Wenz.   Each member of theNominating Committee is an “independent” director under SEC rules.  No member of the Nominating Committee is anemployee of our company or any of its subsidiaries.

 

TheNominating Committee will consider persons identified by its members,management, stockholders, investment bankers and others.  Until our annual meeting of stockholders tobe held in 2010, the nominees for our Board of Directors are determinedpursuant to the terms of the voting agreement described below and approved bythe Nominating Committee.

 

The Nominating Committeewill identify, evaluate and recommend candidates to become members of our Boardof Directors with the goal of creating a balance of knowledge and experience.Nominations to our Board of Directors may also be submitted to the NominatingCommittee by our stockholders in accordance with our policy, as described below.  Candidates will be reviewed in the context ofthe current composition of our Board of Directors, our operating requirementsand the long-term interests of our stockholders.  In conducting this assessment, the NominatingCommittee will consider and evaluate each director-candidate based upon itsassessment of the following criteria:

 

·      Whether the candidate is independent pursuant to therequirements of the Nasdaq Stock Market.

 

·      Whether the candidate isaccomplished in his or her field and has a reputation, both personal andprofessional, that is consistent with our image and reputation.

 

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·      Whether the candidate hasthe ability to read and understand basic financial statements. The NominatingCommittee also will determine if a candidate satisfies the criteria for beingan “audit committee financial expert,” as defined by the SEC.

 

·      Whether the candidate hasrelevant experience and expertise and would be able to provide insights andpractical wisdom based upon that experience and expertise.

 

·      Whether the candidate hasknowledge of us and issues affecting us.

 

·      Whether the candidate iscommitted to enhancing stockholder value.

 

·      Whether the candidate fullyunderstands, or has the capacity to fully understand, the legalresponsibilities of a director and the governance processes of a publiccompany.

 

·      Whether the candidate is ofhigh moral and ethical character and would be willing to apply sound, objectiveand independent business judgment, and to assume broad fiduciaryresponsibility.

 

·      Whether the candidate has,and would be willing to commit, the required hours necessary to discharge theduties of Board membership.

 

·      Whether the candidate hasany prohibitive interlocking relationships or conflicts of interest.

 

·      Whether the candidate isable to develop a good working relationship with other Board members andcontribute to the Board’s working relationship with our senior management.

 

·      Whether the candidate isable to suggest business opportunities to us.

 

Stockholders who wish torecommend to the Nominating Committee a candidate for election to our Board ofDirectors should send their letters to us, Attention: NominatingCommittee.  Our Corporate Secretary willpromptly forward all letters to the members of the Nominating Committee.Stockholders must follow certain procedures to recommend to the NominatingCommittee candidates for election as directors. In general, in order to providesufficient time to enable the Nominating Committee to evaluate candidatesrecommended by stockholders in connection with selecting candidates fornomination in connection with our annual meeting of stockholders, the CorporateSecretary must receive the stockholder’s recommendation no later than thirty(30) days after the end of our fiscal year.

 

The recommendation mustcontain the following information about the candidate:

 

·      Name;

 

·      Age;

 

·      Business and currentresidence addresses, as well as residence addresses for the past 20 years;

 

·      Principal occupation oremployment and employment history (name and address of employer and job title)for the past 10 years (or such shorter period as the candidate has been in theworkforce);

 

·      Educational background;

 

·      Permission for us to conducta background investigation, including the right to obtain education, employmentand credit information;

 

·      The number of shares of ourcommon stock beneficially owned by the candidate;

 

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·      The information that wouldbe required to be disclosed by us about the candidate under the rules ofthe SEC in a Proxy Statement soliciting proxies for the election of suchcandidate as a director (which currently includes information required by Items401, 404 and 405 of Regulation S-K); and

 

·      A signed consent of thenominee to serve as a director, if elected.

 

**Voting Agreement**

 

Messrs. Macariand Gibree and certain of our other stockholders entered into a votingagreement in connection with the KBL/Summer Predecessor merger.  The individuals that were party to this votingagreement owned approximately 38.5% of our outstanding common stock in theaggregate at the date of the agreement. The voting agreement provides that Messrs. Macari and Gibree, onthe one hand, and the other founding stockholders party to this votingagreement, on the other hand, will each designate two directors and mutuallydesignate three additional directors to our Board of Directors.  Each of the parties to the voting agreementwill vote for these designees as directors until immediately following theelection to be held in 2010.

 

Underthe terms of the voting agreement, Messrs. Macari and Gibree, on the onehand, and the other founding stockholders party to this agreement, on the otherhand, have agreed to vote for the designees to our Board of Directors throughthe election in 2010 as follows:

 

·      Class A—MyraHart and Robert Stebenne

 

·      Class B—StevenGibree, Martin Fogelman and Richard Wenz

 

·      Class C—JasonMacari

 

**CorporateGovernance**

 

*Independence*

 

OurBoard of Directors has adopted categorical standards to assist it in makingindependence determinations.  Under thosestandards, in determining independence each year, our Board of Directors willanalyze each director’s relationship with us and our subsidiaries to determinewhether our directors are independent under the rules of the Nasdaq StockMarket.  Our Board of Directors has determined that all of our currentdirectors, except Messrs. Macari and Gibree, are “independent” within themeaning of the independence rules of the Nasdaq Stock Market.

 

*ExecutiveSessions*

 

Alldirectors who are not employees of our company or our subsidiaries meet inexecutive session at least quarterly.

 

*Code ofEthics*

 

Wehave adopted a comprehensive Code of Ethics for all employees and directors,which can be found on our website at www.summerinfant.com.

 

*Communicationswith Directors*

 

Stockholdersmay send communications to our Board of Directors, the Chairman, or one or morenon-management directors by using the contact information provided on ourwebsite.  Stockholders also may sendcommunications by letter addressed to our Corporate Secretary at Summer Infant, Inc.,1275 Park East Drive, Woonsocket, Rhode Island 02895.  All communications will be received andreviewed by our Corporate Secretary. Stockholder concerns about our accounting, internal controls, auditingmatters or business practices will be reported to the Audit Committee.  All other concerns will be reported to theappropriate committee(s) of

 

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ourBoard of Directors.

 

##### **EXECUTIVE OFFICERS**

##### ** **

Our executive officers areset forth below.

 
| **Name**             | ** ** | **Age** | ** ** | **Position**                                                    |
|----------------------|------------|---------|------------|-----------------------------------------------------------------|
|                 |       |    |       |                                                            |
| Jason  Macari (1)    |       | 46      |       | Chairman  of the Board of Directors and Chief Executive Officer |
| Steven  Gibree (2)   |       | 42      |       | EVP  of Product Development and director                        |
| Joseph  Driscoll (3) |       | 44      |       | Chief  Financial Officer and Treasurer                          |

 

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(1)           Mr. Macari has been ourChief Executive Officer and a director since March 2007.  Prior to March 2007, Mr. Macari wasChief Executive Officer and founder of Summer Predecessor, which he founded in2001.  Prior to that time, Mr. Macariwas vice president of product development and general manager of Safety 1st, Inc.,a leading manufacturer of safety and baby products from August 1994 to June 2001.From May 1988 to August 1994, Mr. Macari managed themanufacturing engineering group of the Davol Division of CR Bard, amanufacturer of surgical products.

 

(2)           Mr. Gibree is ourexecutive vice president of product development with management oversight ofresearch and development, product design and engineering and manufacturingrelations.  Prior to March 2007, Mr. Gibreeheld these same positions at Summer Predecessor, with whom he had been employedsince November 2001.  Prior to thattime, Mr. Gibree was the vice president of engineering for Little Kids, Inc.,a manufacturer of innovative toys, from March 2001 to November 2001.From May 1997 to March 2001, Mr. Gibree was director ofengineering at Safety 1st, Inc. From May 1985 to May 1997, Mr. Gibree was employed byHasbro, rising to project manager for the Kid Dimension Division.

 

(3)           Mr. Driscoll has beenour chief financial officer since March 2007.  Prior to March 2007, Mr. Driscollwas the chief financial officer at Summer Predecessor, with whom he had beenemployed since September 2006.  FromMay 2001 to September 2006, Mr. Driscoll was employed as vicepresident of finance and later served as chief financial officer for ACTElectronics, Inc., an electronics manufacturer.  From May 2000 to May 2001, Mr. Driscollwas employed as vice president of finance for PCI, Inc., an internet basedmarketing services company.  From April 1997to May 2000, Mr. Driscoll was employed as vice president of financeand later served as chief financial officer for Safety 1st, Inc.  From September 1993 to April 1997, Mr. Driscollwas employed as assistant corporate controller and later served as director offinancial reporting for Staples, Inc. From July 1986 to February 1992, Mr. Driscoll wasemployed as an audit manager for KPMG Peat Marwick. From February 1992 to September 1993,Mr. Driscoll was employed as corporate controller for E-II Holdings, Inc.,an international consumer products company. Mr. Driscoll is a licensedCertified Public Accountant.

 

*Section 16(a) Beneficial Ownership Reporting Compliance*

 

Section 16(a) of the Securities Exchange Act of 1934 requiresour directors and executive officers, and persons who own more than 10% of aregistered class of our equity securities, to file with the SEC reports ofownership and changes in ownership of our common stock and other equitysecurities. Officers, directors and greater than 10% stockholders are requiredby SEC regulations to furnish us with copies of all Section 16(a) formsthey file.

 

Based solely on review of the copies of those reports furnished to usor written or oral representations that no other reports were required, webelieve that during 2008, all filing requirements applicable to its officers,directors and greater than 10% beneficial owners were complied with.

 

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**Item 11.********ExecutiveCompensation**

 

*Compensation Discussion andAnalysis*

 

The compensation committee of the board of directorsconsists of independent directors who are responsible, on behalf of the Boardof Directors, for reviewing and approving the amounts and types of compensationpaid to the Company’s executive officers and the non-employee directors, aswell as all bonus and equity compensation paid to other Company employees.

 

The committee is responsible for determining thatcompensation paid under the Company’s programs is equitable (i.e., that it isappropriate to the responsibilities of the position), the performance of thecompany and the individual, and meets the standards of the competitive marketplace.  The committee typically meets four times peryear and additionally as needed.   Thecommittee met 4 times during 2008.  Thecompensation committee’s chairman regularly reports to the board of directorson compensation committee policy, procedures, actions, and recommendations. TheCompany’s compensation committee has authority to retain (at the Company’sexpense) outside counsel, compensation consultants and other advisors to assistas needed.

 

The individuals who served as the Company’s chiefexecutive officer, executive vice president of product development, and chieffinancial officer during fiscal year 2008, are referred to as the “namedexecutive officers.” With respect to the named executive officers (NEOs), thisCompensation Discussion and Analysis identifies the Company’s currentcompensation philosophy and objectives and describes the various methodologies,policies and practices for establishing and administering the compensationprograms of the named executive officers.

 

*Compensation Objectives*

 

Thegoals of the compensation program are:

 

·      To attract, retain andmotivate qualified executives who will lead the company to in achieving highperformance.

 

·      To support businessstrategies that result in superior long term shareholder value.

 

·      To align pay withperformance by making a substantial portion of compensation dependent onachievement of corporate financial and strategic objectives as well asindividual performance goals.

 

·      To align managementinterests with those of our shareholder base by making a substantial portion ofcompensation equity-based.

 

The compensation committee believes that a properlystructured compensation program attracts and retains talented individuals andmotivates them to achieve specific short- and long-term strategicobjectives.  In order to do that, asignificant percentage of executive pay is based on the principle ofpay-for-performance. The compensation committee is committed to ensuring thatthe total compensation package of named executive officers is competitive withcompensation at peer-group companies.  The peer group used by HR Xpress includedvarious consumer product companies in New England.

 

TheCompany’s executive compensation programs are designed to provide:

 

·      levels of base compensationthat are appropriate to the responsibilities of the position and competitivewith comparable companies;

 

·      annual incentive awards thatvary in a manner consistent with the achievement of the performance targets forthe company and of individual performance objectives. 

 

·      long-term incentivecompensation that focuses executive efforts on building shareholder valuethrough meeting longer-term financial and strategic goals; and

 

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·      executive benefits that arecompetitive with comparable companies.

 

In designing and administering Summer Infant’s executive compensationprograms, the compensation committee attempts to strike an appropriate balanceamong these various elements.

 

·      The committee considers thepay practices of the compensation peer group to assess the appropriate pay mixand compensation levels.

 

·      With respect toperformance-based pay, the compensation committee believes that executivecompensation should be closely tied to achievement of the financial andoperational goals established in advance by the Board of Directors of theCompany, as well as to the achievement individual performance goals of thenamed executive officers.

 

·      The committee usesequity-based compensation to align the executives’ interests with those of theCompany’s shareholders over a longer period of time. For purposes of retention,the compensation committee believes that the equity-based compensation shouldhave meaningful conditions that encourage valued employees to remain in theemploy of the Company as well as to achieve the performance goals of thecompany.

 

·      The committee also considersexecutive benefit programs as a means to attract, retain and motivate highlyqualified executives

 

*Methodology for EstablishingCompensation*

 

The compensation committee is comprised of threeindependent directors who satisfy the Nasdaq listing requirements and relevantSEC regulations. There are no interlocking relationships between any member ofour compensation committee and any of our executive officers. None of thecompensation committee members is an officer, employee or former officer oremployee of the Company.

 

The compensation committee is responsible for allcompensation decisions for the chief executive officer and other namedexecutive officers. The chief executive officer annually reviews theperformance of the other named executive officers, including consideration ofmarket pay practices of the compensation peer group in conjunction with bothCompany and individual performance. The conclusions and recommendations of thechief executive officer are presented to the compensation committee forapproval. The compensation committee has absolute discretion as to whether itapproves the recommendations of the chief executive officer or makesadjustments, as it deems appropriate.

 

*The Elements of Compensation*

 

Total direct compensation includes cash, in the form of base salary andannual incentives.  Equity in the form ofrestricted stock and options is used as a long-term incentive. The compensationcommittee evaluates the mix between these three elements of compensation basedon the pay practices of comparable companies. Summer Infant is a young company and its compensation design is verymuch a work in progress. In 2008, with the assistance of a professionalcompensation consultant, HR Xpress, the company and the compensation committeereviewed all professional positions and classified them as to level ofresponsibility, appropriate base pay ranges and incentive payout ranges.  The compensation decisions were made on thebasis of competitive information provided by the consultant.

 

Thecompanies included in the compensation peer group were selected primarily onthe basis of their comparability to the Company based on a combination ofgeography (companies based in New England) and size, as measured through annualrevenue, market capitalization and other financial measures. Although thecompensation committee also considered and reviewed information from proxystatements and other relevant survey data, it particularly focused on thepractices of the compensation 

 

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peergroup in considering compensation levels for the chief executive officer andthe other named executive officers.

 

Inits annual review, the compensation committee considers the opinions andrecommendations of the chief executive officer and various outside counsel andstrives to be fully informed in its determination of the appropriatecompensation mix and award levels for the named executive officers. Allcompensation decisions are made with consideration of the compensationcommittee’s guiding principles of fairness to employees, retention of talentedexecutives and the achievement of improved Company performance, whichultimately benefits the Company’s shareholders. With respect to the namedexecutive officers, the following describes in greater detail the objectivesand policies behind the various elements of the compensation mix.

 

*BaseSalary*

 

Thecompensation committee strives to provide that employees are paid a base salarythat is competitive with salaries paid by comparable organizations for similarwork, based on each employee’s experience, performance and geographic location.Generally, the Company has chosen to target cash compensation at market medianlevels in order to remain competitive in attracting and retaining executivetalent. The allocation of total cash between base salary and incentive bonusawards is based on a variety of factors. The compensation committee considers acombination of the executive’s performance, the performance of the Company andthe individual business or corporate function for which the executive isresponsible, the nature and importance of the position and role within theCompany, the scope of the executive’s responsibility, internal relationships orcomparisons and the current compensation package in place for that executive,including the executive’s current annual salary and potential bonus awardsunder the Company’s short-time incentive plan.

 

The compensation committee generally evaluatesexecutive salaries annually. An analysis of executive compensation indicatedthat base salaries for the named executive officers were generally positionedat the market median. For the 2008 fiscal year, based upon the compensationcommittee’s assessment of the information and factors described above, thecompensation committee determined to increase the base salaries of the namedexecutive officers incrementally to maintain market median levels.

 

*Annual Incentive Bonus*

 

The Company intends to continue its strategy of compensating the namedexecutive officers through programs that emphasize performance-based incentivecompensation. The Company’s short-term incentive compensation program isdesigned to recognize and reward executive officers and other employees whocontribute meaningfully to an increase in stockholder value and profitability.

 

In general, the funding of the annual incentive bonus pool is dependentupon earnings before interest, taxes, depreciation and amortization (afterdeducting incentive compensation) of the Company, in addition to meetingcertain other targets. If the plan is fully funded, each named executiveofficer has the ability to receive the target bonus payout. The percentage ofthe target bonus actually paid to each named executive officer depends on theattainment of corporate financial goals and individual performance targets.

 

TheEBITDA target for 2008 was $13.8 million (after deducting incentive compensation)on a pro forma basis (which incorporates a full 12 months of results of thecompanies acquired by Summer during 2008). The company was able to fund $700,000 of bonus payments for 2008 andstill meet the $13.8 million target.  Theactual payout by person is dependent upon the Company achieving its EBITDAtargets and the achievement of personal goals.

 

Thetarget bonus payouts are 50% of salary for Jason Macari and Steve Gibree and30% of salary for Joseph Driscoll.

 

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Thenamed executive officers earned bonuses in 2008 that were below their targetpercentages.  The bonus determination for2008 was based on Company performance (specifically EBITDA) plus individualachievements.  The company is formalizingits bonus programs in 2009 so that there is even greater structure around thecomputation and payment of bonuses.

 

*Long-Term Incentive Awards*

 

Long-term incentive awards are the third componentof the Company’s total compensation package. The compensation committeebelieves that equity-based compensation ensures that the Company’s officershave a continuing stake in the long-term success of the Company. The Company’s2006 Incentive Plan provides for equity incentive awards, which includequalified and nonqualified stock options, restricted stock, stock appreciationrights, long-term incentive compensation units consisting of a combination ofcash and common stock or any combination thereof within the limitations setforth in the plan. The compensation committee approves all awards under theplan and acts as the administrator of the plan.

 

Award levels under the plan are determined based onthe compensation practices of the compensation peer group. In general,long-term incentive awards are targeted at the median of the compensation peergroup with appropriate adjustments for individual and Company performance,although past awards have generally been below market levels. Options grantedunder the plan vest and become exercisable in equal installments over afour-year period from the grant date. All stock options have been granted witha ten-year term and have an exercise price equal to the fair market value of theCompany’s common stock on the date of grant. Restricted stock awards under theplan vest over a four year period. Restricted stock cannot be sold ortransferred until the shares vest. Should a named executive officer leave theCompany prior to the completion of the applicable vesting schedule, theunvested portion of the grant is forfeited.

 

There were no issuances of stock options orrestricted stock awards in fiscal 2008.

 

TheCompany is still formalizing how long term incentive awards will be handled goingforward.  In 2008 there was not a formalprocess in place for administering long term incentives and there were nogrants of long term incentive awards in 2008. The Company is actively working on preparing a more formal plan for2009.

 

*Broad-Based Benefits Programs*

 

The named executive officers are entitled toparticipate in the benefits programs that are available to all full-timeemployees. These benefits include health, dental, and life insurance,healthcare reimbursement accounts, paid vacation and company contributions to a401(k) profit-sharing retirement plan. Two of the named executive officersalso receive a car allowance.  TheCompany’s 401(k) plan provides for matching contributions by the Companyin an amount equal to the first 2% of employee compensation deferred, plus 50%of the next 1% of employee compensation deferred. All full-time employeesage 21 and older are eligible to participate in the plan after six monthsof service.

 

**Evaluation of Chief Executive Officer Compensation and ExecutivePerformance**

 

*Role of Compensation Consultantsand Benchmarking*

 

Overthe past year, the Company assessed the effectiveness of its compensationstructure and, as part of this process, the Company has obtained a compensationstudy from HR Xpress, Inc. (“HR Xpress”). The most recent study wasobtained on May 16, 2008 for the purpose of evaluating the competitivenessof the Company’s executive compensation. The HR Xpress study includedcomparisons against a peer group consisting of the

 

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followingcompanies, which were chosen because of their relation in size to the Companyand their geographic location:

 
| Buxton  Company        | CR  Bard, Inc.     |
|------------------------|--------------------|
| Hasbro,  Inc.          | FGX                |
| Kenney  Manufacturing  | The  Moore Company |
| North  Safety Products | Princess  House    |
| Reed  & Barton     | Sperian            |
| Swaroski,  Inc.        | Vectrix,  Inc.     |

 

HRXpress’ review covered all key components of these companies’ compensation,including base and incentive pay, benefit and pay practices. The compensationcommittee has had the discretion to determine how the HR Xpress data should beused and has chosen to use the data as a point of reference and only one factorin assisting it with evaluating the effectiveness and fairness of its executivecompensation structure and pay levels as the compensation committee.  While these benchmarks represent usefulguidelines, the compensation committee exercises discretion in settingindividual executive pay so that it appropriately reflects and addresses therelative complexity of the executive’s role within the organization, the valueand contributions of each executive, as well as the executive’s leadership,commitment to our values, potential for advancement, and internal pay equity considerations.  The compensation committee has not used thedata to target executive officer compensation against the peer companycompensation.

 

*Compensation of Chief ExecutiveOfficer*

 

The compensation committee meets with the other independent directorseach year in executive session to evaluate the performance of the chiefexecutive officer. The compensation committee also consults with itsindependent consultant in setting the chief executive officer’s compensation.Neither the compensation committee nor its independent consultant confers withthe chief executive officer or any other members of management when setting hisbase salary. The compensation committee does not rely solely on predeterminedformulas or a limited set of criteria when it evaluates the performance of thechief executive officer and the other named executive officers. For fiscal year2008, the compensation committee considered the chief executive officer’srecent performance, his achievements in prior years, his achievement of specificshort-term goals and the Company’s performance in fiscal year 2007. Based onits review, the compensation committee at its February 2008 meeting approved amerit increase to raise the chief executive officer’s salary to $350,000effective on March 1, 2008.

 

*Compensation of Other NamedExecutive Officers*

 

The chief executive officer met with the compensation committee toreview his compensation recommendations for the other named executive officers.He described the findings of his performance evaluation of all such persons andprovided the basis of his recommendations with the compensation committee,including the scope of each person’s duties, oversight responsibilities andindividual objectives and goals against results achieved for fiscal year 2007.

 

In addition to approving adjustments to Mr. Macari’s base salary, atits February 2008 meeting, the compensation committee approved a merit increaseto raise the base salaries of the Company’s other named executive officers,effective on March 1, 2008, as follows: Steve Gibree, $240,000 and JosephDriscoll, $200,000. In its analysis of the other named executive officers, thecompensation committee 

 

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appliedthe same rationale to this group as it applied when considering the chiefexecutive officer’s base salary. While the compensation committee does notwholly base its compensation decisions on benchmarking against certain peergroups it does in part use the information received with respect tocompensation paid to employees of companies in its peer group as one factor indetermining the compensation that is paid to the Company’s employees.

 

*Administrative Policies andPractices*

 

Toevaluate and administer the compensation programs of the chief executiveofficer and other named executive officers, the compensation committee meetsperiodically each year in conjunction with regularly scheduled board meetings.The compensation committee also holds “special” meetings and meetstelephonically to discuss extraordinary items.

 

Thefollowing table describes the compensation awarded to the Chief ExecutiveOfficer, the EVP of Product Development, and the Chief Financial Officer in2008 and 2007 (the “named executive officers”):

 

**SUMMARY COMPENSATION TABLE**

 
| **Name &********Principal Position** | ** ** | **Year** | ** ** | **Salary********($)** | ** ** | **(1)********Bonus********($)** | ** ** | **(2)********Option********Awards********($)** | ** ** | **All Other********Compensation********($)** | ** ** | **Total********($)** | ** ** |
|------------------------------------------|------------|----------|------------|-----------------------|------------|---------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|----------------------|------------|
|                                     |       |     |       |                  |       |                            |       |                                           |       |                                         |       |                 |       |
| Jason Macari                             |       | 2008     |       | $                     | 347,596    |                            | $          | 140,000                                        |       | —                                       |       | $                    | 19,849     | (3) | $ | 507,445 |   |
| Chief Executive Officer                  |       | 2007     |       | $                     | 275,000    |                            | $          | 137,500                                        |       | —                                       |       | $                    | 229,996    | (3) | $ | 648,496 |   |
|                                     |       |     |       |                  |       |                            |       |                                           |       |                                         |       |                 |       |
| Steve Gibree                             |       | 2008     |       | $                     | 235,769    |                            | $          | 84,000                                         |       | $                                            | 56,950     |                 | $          | 17,034 | (4) | $ | 393,663 |   |
| EVP of Product Development               |       | 2007     |       | $                     | 220,000    |                            | $          | 110,000                                        |       | $                                            | 99,663     |                 | $          | 37,268 | (4) | $ | 466,931 |   |
|                                     |       |     |       |                  |       |                            |       |                                           |       |                                         |       |                 |       |
| Joseph Driscoll                          |       | 2008     |       | $                     | 189,566    |                            | $          | 50,000                                         |       | $                                            | 56,950     |                 | $          | 4,600 | (5) | $ | 301,116 |   |
| Chief Financial Officer                  |       | 2007     |       | $                     | 170,000    |                            | $          | 92,500                                         |       | $                                            | 99,663     |                 | $          | 3,269 | (5) | $ | 365,432 |   |

 

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(1)         The bonusamounts shown for 2007 were earned in 2007 and paid in 2008, with the exceptionof a $50,000 bonus paid to Mr. Driscoll in connection with the completion ofthe KBL/Summer Predecessor merger in March 2007.  The 2008 bonus column reflects approvedamounts for the named executives; no cash payments have been paid to date in2009 related to the approved 2008 bonus.

 

(2)         The amounts inthis column do not reflect compensation actually received by the namedexecutive or the actual value that may be recognized with respect to theseawards in the future. The amounts reflect the dollar amount recognized forfinancial statement reporting purposes for the fiscal year ended December 31,2007 and 2008, in accordance with FAS 123(R) for awards granted in 2007.Assumptions used in the calculation of these amounts are included in Note 7 inthe notes to our audited consolidated financial statements for the fiscal yearended December 31, 2008 included in our Annual Report on Form 10-K filed withthe Securities and Exchange Commission on March 25, 2009. These options have anexercise price of $5.25 and are therefore out of the money as of December 31,2008.

 

(3)         The 2007 amountrepresents (a) $210,600 in additional contingent amounts paid to Mr. Macariunder the KBL/Summer Predecessor merger agreement, (b) $14,118 in compensationas a result of a company 

 

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automobileprovided to Mr. Macari, and (c) $5,278 in matching contributions made by usunder our 401(k) plan for Mr. Macari’s benefit. The 2008 amount includes$15,249 for the automobile benefit and $4,600 for the company 401(k) match.

 

(4)          The 2007 amount represents (a)$23,400 in additional contingent amounts paid to Mr. Gibree under theKBL/Summer Predecessor merger agreement, (b) $9,706 in compensation as a resultof a company automobile provided to Mr. Gibree, and (c) $4,162 in matchingcontributions made by us under our 401(k) plan for Mr. Gibree’s benefit.  The 2008 amount includes $12,434 for theautomobile benefit and $4,600 for the company 401(k) match.

 

(5)          The 2007 amount represents$3,269 in matching contributions made by us under our 401(k) plan for Mr. Driscoll’sbenefit. The 2008 amount includes $4,600 for the company 401(k) match.

 

**NARRATIVEDISCLOSURE TO SUMMARY COMPENSATION TABLE**

 

*MaterialTerms of Employment Contracts of Named Executive Officers*

 

*Jason Macari, Chief Executive Officer*.  In connection withKBL/Summer Predecessor merger, Mr. Macari entered into an employment agreementwith Summer Infant.  This employmentagreement is an appendix to the proxy statement we filed with the SEC inconnection with the merger.   Under theterms of this employment agreement, Mr. Macari serves as the chief executiveofficer for an initial term of three years. The employment agreement provides that Mr. Macari will receive an annualbase salary of $275,000.  Mr. Macari alsomay be awarded a bonus in an amount equal to up to 50% of his base salary duringany fiscal year during the employment term. One half of that bonus would be based on his performance againstperformance criteria for that fiscal year to be set, in writing, by theCompensation Committee within 45 days after the Board of Directors approves thebudget for that year and the remaining portion would be awarded in thediscretion of the Compensation Committee.

 

Theemployment agreement provides that, in the event of the termination of Mr. Macari’semployment without cause or upon termination of his employment as a result of abreach of the employment agreement, the company will continue to pay him hisbase salary in accordance with our normal payroll schedule for a period of 12months from the date of termination.  Theemployment agreement contains certain restrictive covenants that prohibit Mr. Macarifrom disclosing information that is confidential to Summer Infant and itssubsidiaries and generally prohibits him, during the employment term and forone year thereafter, from soliciting or hiring employees or competing withSummer Infant.

 

*Steven Gibree, Executive Vice President-ProductDevelopment. *In connectionwith KBL/Summer Predecessor merger, Mr. Gibree entered into an employmentagreement with Summer Infant.  Thisemployment agreement is an appendix to the proxy statement filed with the SECin connection with the merger.   Underthe terms of this employment agreement, Mr. Gibree serves as Summer Infant’sexecutive vice president of product development for an initial term of threeyears.  The employment agreement providesthat Mr. Gibree is to receive an annual base salary of $220,000.  Mr. Gibree also may be awarded a bonus in anamount equal to up to 50% of his base salary during any fiscal year during theemployment term.  One half of that bonuswould be based on his performance against performance criteria for that fiscalyear to be set, in writing, by the Compensation Committee within 45 days afterthe Board of Directors approves the budget for that year and the remainingportion would be awarded in the discretion of the Compensation Committee.

 

Theemployment agreement provides that, in the event of the termination of Mr. Gibree’semployment without cause or upon termination of his employment as a result ofour breach of the employment agreement, Summer Infant will continue to pay himhis base salary in accordance with the normal payroll schedule for a period of12 months from the date of termination. The employment agreement contains certain restrictive covenants thatprohibit Mr. Gibree from disclosing information that is confidential to SummerInfant and its subsidiaries and generally prohibits him, during the employmentterm and for one year thereafter, from soliciting or hiring employees orcompeting with Summer Infant.

 

*Joseph Driscoll, Chief Financial Officer*.  In September 2006, Mr. Driscollentered into a full-time 

 

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employmentagreement with Summer Predecessor.  Thisemployment agreement is an appendix to the proxy statement we filed with theSEC in connection with the merger.  Under the terms of this employment agreement, Mr. Driscoll serves as ourchief financial officer for an initial term of two years.  The employment agreement provides that Mr. Driscollis to receive an annual base salary of $170,000.  Mr. Driscoll was also eligible to receive$92,500 in bonus payments in 2007 based on the company achieving its 2007performance goals in addition to successfully completing the KBL merger.

 

Theemployment agreement provides that, in the event of the termination of Mr. Driscoll’semployment by Summer Infant without cause or upon termination of his employmentas a result of breach of the employment agreement, the company will continue topay him his base salary in accordance with the normal payroll schedule for aperiod of six months from the date of termination.  The employment agreement contains certainrestrictive covenants that prohibit Mr. Driscoll from disclosing informationthat is confidential to Summer Infant and its subsidiaries and generallyprohibits him, during the employment term and for one year thereafter, fromsoliciting or hiring our employees or competing with Summer Infant.

 

**OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR END**

 

The following table provides information about outstanding equityawards held by the named executive officers at the end of fiscal 2008:

** **
| ** **      | ** ** | **Stock Option Awards**      | ** ** |
|-----------------|------------|------------------------------|------------|
| **Name**        | ** ** | **Option********Grant Date** | ** ** | **Number of   Securities   Underlying   Unexercised   Options (#)   Exercisable** | ** ** | **Number of   Securities   Underlying   Unexercised Options (#)   Unexercisable** | ** ** | **Option   Exercise   Price Per   Share ($)** | ** ** | **Option   Expiration   Date** | ** ** |
|            |       |                         |       |   |   |   |   |   |   |   |   |
| Jason Macari    |       | —                       |       | — |   | — |   | — |   | — |   |
|            |       |                         |       |   |   |   |   |   |   |   |   |
| Steven Gibree   |       | 03/07/2007                   |       | 127,500 |   | 63,750 |   | 5.25 |   | 03/07/2017 |   |
|            |       |                         |       |   |   |   |   |   |   |   |   |
| Joseph Driscoll |       | 03/07/2007                   |       | 127,500 |   | 63,750 |   | 5.25 |   | 03/07/2017 |   |

## ** **

25%of the total number of shares subject to the options vested on March 7, 2007,and an additional 25% of the options vested on March 7, 2008, the total numberof shares subject to the option will vest and become exercisable on each of thesecond and third anniversaries of the March 7, 2007 vesting commencement date,subject to continued employment. All of the stock options in the above tableare out of the money based on the stock price as of April 29, 2009.

 

**Item 12. Security Ownership ofCertain Beneficial Ownersand Management and Related Stockholder Matters**

 

*Ownershipof Summer Infant, Inc. Common Stock*

 

Thefollowing table sets forth information regarding the beneficial ownership ofour common stock as of April 27, 2009 by:

 

·                  each personknown by us to be the beneficial owner of more than 5% of our outstandingshares of common stock;

 

·                  each of ourcurrent executive officers and directors; and

 

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·                  all our currentexecutive officers and directors as a group

 
| **Name and Address of Beneficial  Owner(1)**                                                  | ** ** | **Amount and Nature of   Beneficial Ownership   (2)(3)** | ** ** | **Percent of********Common Stock  (3)** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|-----------------------------------------|------------|
| **5% Stockholders**                                                                           |       |                                                     |       |                                    |       |
|                                                                                          |       |                                                     |       |                                    |       |
| Pine River Capital Management L.P.(6)

601 Carlson Parkway 

Suite 330 

Minnetonka, MN 55305 |       | 1,374,986                                                |       | 8.9                                     | %          |
|                                                                                          |       |                                                     |       |                                    |       |
| **Directors and Named Executive  Officers**                                                   |       |                                                     |       |                                    |       |
|                                                                                          |       |                                                     |       |                                    |       |
| Jason Macari                                                                                  |       | 3,484,503                                                |       | 22.6                                    | %          |
| Steven Gibree                                                                                 |       | 708,952                                                  |       | 4.6                                     | %          |
| Joseph Driscoll                                                                               |       | 142,500                                                  |       | *                                       |       |
| Myra Hart                                                                                     |       | 32,000                                                   |       | *                                       |       |
| Martin Fogelman                                                                               |       | 32,000                                                   |       | *                                       |       |
| Robert Stebenne                                                                               |       | 32,000                                                   |       | *                                       |       |
| Richard Wenz                                                                                  |       | 32,000                                                   |       | *                                       |       |
|                                                                                          |       |                                                     |       |                                    |       |
| Directors and officers as a group (7 persons)                                                 |       | 4,463,955                                                |       | 29.0                                    | %          |

 

----

*  Less than 1%

 

(1)           Unless otherwise noted, the business address of eachof the following is 1275 Park East Drive, Woonsocket, Rhode Island 02895.

 

(2)           Includes shares for whichthe named person:

 

·                  has sole voting and investment power, and

 

·                  has sharedvoting and investment power with his spouse, unless otherwise indicated in thefootnotes.

 

(3)           May includeshares underlying warrants that expired as of April 20, 2009. The total alsoincludes vested restricted shares, in addition to the following number ofshares that can be acquired through stock option exercises through August 5,2009 as follows:

 
| **Directors  and Named Executive   Officers** | ** ** | **Options Exercisable   through August 5, 2009** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|
| Mr. Macari                                    |       | 77,500                                           |       |
| Mr. Gibree                                    |       | 133,750                                          |       |
| Ms. Hart                                      |       | 30,000                                           |       |
| Mr. Fogelman                                  |       | 30,000                                           |       |
| Mr. Stebenne                                  |       | 30,000                                           |       |
| Mr. Wenz                                      |       | 30,000                                           |       |
| Mr. Driscoll                                  |       | 132,500                                          |       |

 

Notethat all exercisable stock options in the above table have an exercise price inexcess of the current stock price 

 

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andtherefore are out of the money as of April 3, 2009.

 

(4)           All informationrelating to beneficial ownership of common stock was obtained from an amended Form4 filed on April 22, 2009 with the SEC.

 

(5)           All informationrelating to beneficial ownership of common stock was obtained from Schedule 13G/A filed on February 12, 2009 with the SEC.

 

(6)           All informationrelating to beneficial ownership of common stock was obtained from a Schedule 13Gfiled on February 10, 2009 with the SEC.

 

*EquityCompensation Plan Information*

 

The following tablesummarizes share information, as of December 31, 2008, for our equitycompensation plans, including the 2006 Performance Equity Plan.

 
| **Plan Category**                                      | ** ** | **Number of********Common Shares to Be********Issued Upon Exercise********of Outstanding********Options** | ** ** | **Weighted Average********Exercise Price of********Outstanding Options** | ** ** | **Number of********Common Shares********Available for Future********Issuance Under********Equity********Compensation Plans****(1)** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plansapproved by stockholders     |       | 999,200                                                                                                   |       | $                                                                        | 5.23       |                                                                                                                                | 2,000,800  |   |
| Equity  compensation plans notapproved by stockholders |       |                                                                                                      |       |                                                                     |       |                                                                                                                                |       |
| Total                                                  |       | 999,200                                                                                                   |       | $                                                                        | 5.23       |                                                                                                                                | 2,000,800  |   |

 

**Item 13. Certain Relationships, Related Transactions and DirectorIndependence**

 

*Certain Relationships and Related Transactions*

 

InMarch 2009, the Company entered into a sale-leaseback transaction related toits corporate headquarters in Woonsocket, Rhode Island.  Under the terms of the transaction, theCompany sold its facility to Faith Realty II, LLC, a company owned by JasonMacari, CEO and Chairman of Summer Infant and his spouse, for $4.05 million andsubsequently entered into an agreement to lease the facility for an initialterm of 7 years with one (1) 5 year extension option.  The purchase price, which was determined byindependent appraisals of the property, approximates the net book value of thebuilding on the Company’s books, and therefore will result in an immaterialP&L impact.  The company will beleasing back the building for approximately the same amount it currently paysin principal and interest payments each month on its real estate loan.  This transaction enables the Company to paydown outstanding debt and provides greater borrowing flexibility.

 

*DirectorIndependence*

 

OurBoard of Directors has adopted categorical standards to assist it in makingindependence determinations.  Under thosestandards, in determining independence each year, our Board of Directors willanalyze each director’s relationship with us and our subsidiaries to determinewhether our directors are independent under the rules of the Nasdaq StockMarket.  Our Board of Directors hasdetermined that all of our current directors, except Messrs. Macari and Gibree,are “independent” within the meaning of the independence rules of the NasdaqStock Market.

 

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**Item 14. Principal Accounting Fees and Services**

 

*Independent Registered Public Accountants*

 

The Audit Committee has engaged McGladrey & Pullen, LLP as ourindependent registered public accountants for the current fiscal year.

 

As our independent registered public accountants, McGladrey &Pullen, LLP was engaged to conduct quarterly reviews of us and to conduct anaudit of our consolidated financial statements for the full year 2008.

 

*Principal Accountant Fees and Services*

 

Aswe previously disclosed, certain of the partners of Goldstein Golub Kessler LLPbecame partners of McGladrey & Pullen, LLP in a limited asset purchaseagreement effective October 3, 2007.  Asa result, Goldstein Golub Kessler LLP resigned as our auditors effective November15, 2007 and McGladrey & Pullen, LLP was appointed as the auditors of ourannual financial statements for the year ended December 31, 2008.

 

ThroughNovember 15, 2007, Goldstein Golub Kessler LLP had a continuing relationshipwith RSM McGladrey, Inc., from which it leased auditing staff who were fulltime, permanent employees of RSM McGladrey, Inc. and through which its partnersprovide non-audit services.  GoldsteinGolub Kessler LLP had no full time employees and therefore, none of the auditservices performed were provided by permanent full-time employees of theGoldstein Golub Kessler LLP.  GoldsteinGolub Kessler LLP managed and supervised the audit staff, and was exclusivelyresponsible for the opinion rendered in connection with its examination.

 

Thefollowing table shows the fees paid or accrued for the audit and other servicesprovided for the years ended December 31, 2008 and 2007:

 
| ** **         | ** ** | **2008 Fees** | ** ** | **2007 Fees** | ** ** |
|--------------------|------------|---------------|------------|---------------|------------|
|               |       |          |       |          |       |
| Audit Fees         |       | $             | 239,000    |          | $          | 181,465 |   |
| Audit-Related Fees |       | 77,500        |       | —        |       |
| Tax Fees           |       | —        |       | —        |       |
| All Other Fees     |       | —        |       | —        |       |
| Total Fees         |       | $             | 316,500    |          | $          | 181,465 |   |

 

·*             AuditFees*****were for professional services rendered for theaudit of our annual consolidated financial statements and review ofconsolidated financial statements included in our Quarterly Reports on Form 10-Qand services that are normally provided by the independent registered publicaccounting firm in connection with statutory and regulatory filings orengagements.

 

·      *Audit-Related Fees*****were for assurance and related services that are reasonablyrelated to the performance of the audit or review of our financial statementsand are not reported under “Audit Fees.”

 

·      *Tax Fees* were for professionalservices rendered for federal, state and international tax compliance, taxadvice and tax planning.

 

·      *All Other Fees*were for servicesother than the services reported above and include agreed-upon procedures in2008.

 

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·                  *Policy on Audit Committee Pre-Approval of Audit andPermissible Non-Audit Services of Independent Auditors*

 

·                     The AuditCommittee pre-approves all audit and permissible non-audit services provided bythe independent registered public accounting firm. These services may includeaudit services, audit-related services, tax services and other services.Pre-approval is generally provided for up to one year, and any pre-approval isdetailed as to the particular service or category of services and is generallysubject to a specific budget. The independent registered public accounting firmand management are required to periodically report to the Audit Committeeregarding the extent of services provided by the independent registered publicaccounting firm in accordance with the pre-approval, and the fees for theservices performed to date. The Audit Committee may also pre-approve particularservices on a case-by-case basis.

 

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**SummerInfant, Inc. And Subsidiaries**

 

**Index toFinancial Statements**

 
| Report  of Independent Registered Public Accounting Firm                                             | F-2        |
|------------------------------------------------------------------------------------------------------|------------|
| Consolidated  Balance Sheets                                                                         | F-3        |
| Consolidated  Statements of Income                                                                   | F-4        |
| Consolidated  Statements of Cash Flows                                                               | F-5        |
| Consolidated Statements of Stockholders’ Equity for  the Years Ended December 31, 2008 and 2007 | F-6        |
| Notes to Consolidated Financial Statements                                                           | F-7 - F-20 |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Tothe Board of Directors and Stockholders

SummerInfant, Inc.

 

We have audited the accompanying consolidated balance sheets of SummerInfant, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the relatedconsolidated statements of income, stockholders’ equity and cash flows for theyears then ended. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of SummerInfant, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the resultsof their operations and their cash flows for the years then ended in conformitywith U.S. generally accepted accounting principles.

 

We were not engaged to examine management’s assertion about theeffectiveness of Summer Infant’s internal control over financial reporting asof December 31, 2008 included in the “Management’s Report on Internal ControlOver Financial Reporting” and, accordingly, we do not express an opinionthereon.

 
| /s/  MCGLADREY & PULLEN, LLP     |   |
|--------------------------------------|--------|
| New  York, New York   March 24, 2009 |

 

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**SummerInfant, Inc. and Subsidiaries**

 

**Consolidated Balance Sheets**

 

Note that all dollar amounts presented in the table below are inthousands of U.S. dollars, except share amounts and par value per share.

 
| ** **                                                                                                                    | ** ** | **December 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ASSETS                                                                                                                        |       |                  |       |                  |       |
| CURRENT ASSETS                                                                                                                |       |                  |       |                  |       |
| Cash and Cash Equivalents                                                                                                     |       | $                     | 988        |                  | $          | 1,771 |   |
| Trade Receivables, net of allowance for doubtful  accounts of $335 and $124 at December 31, 2008 and 2007, respectively       |       | 29,358                |       | 21,245                |       |
| Inventory                                                                                                                     |       | 30,882                |       | 19,327                |       |
| Prepaids and Other Current Assets                                                                                             |       | 1,495                 |       | 970                   |       |
| Deferred Tax Assets                                                                                                           |       | 602                   |       | 134                   |       |
| TOTAL CURRENT ASSETS                                                                                                          |       | 63,325                |       | 43,447                |       |
| Property and Equipment, net                                                                                                   |       | 11,212                |       | 9,279                 |       |
| Goodwill                                                                                                                      |       | 40,452                |       | 30,820                |       |
| Other Intangible Assets, net                                                                                                  |       | 15,130                |       | 9,463                 |       |
| Other Assets, net                                                                                                             |       | 416                   |       | 216                   |       |
| TOTAL ASSETS                                                                                                                  |       | $                     | 130,535    |                  | $          | 93,225 |   |
|                                                                                                                          |       |                  |       |                  |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                     |       |                  |       |                  |       |
| CURRENT LIABILITIES                                                                                                           |       |                  |       |                  |       |
| Line of Credit and Current Portion of Long-Term  Debt                                                                         |       | $                     | 1,654      |                  | 17,856     |   |
| Accounts Payable and Accrued Expenses                                                                                         |       | 23,045                |       | 17,574                |       |
| TOTAL CURRENT LIABILITIES                                                                                                     |       | 24,699                |       | 35,430                |       |
| Long-term Debt, less current portion                                                                                          |       | 42,277                |       | 3,977                 |       |
| Deferred Tax Liabilities                                                                                                      |       | 1,348                 |       | 548                   |       |
| TOTAL LIABILITIES                                                                                                             |       | 68,324                |       | 39,955                |       |
| STOCKHOLDERS’ EQUITY                                                                                                     |       |                  |       |                  |       |
| Common Stock $.0001 par value, issued and  outstanding 15,055,782 and 13,907,892 at December 31, 2008 and 2007,  respectively |       | 1                     |       | 1                     |       |
| Additional Paid-in Capital                                                                                                    |       | 54,095                |       | 49,078                |       |
| Retained Earnings                                                                                                             |       | 8,997                 |       | 4,095                 |       |
| Accumulated Other Comprehensive Income (Loss)                                                                                 |       | (882                  | )          | 96                    |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                               |       | 62,211                |       | 53,270                |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                               |       | $                     | 130,535    |                  | $          | 93,225 |   |

 

See notes to consolidatedfinancial statements

 

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**SummerInfant, Inc. and Subsidiaries**

 

**Consolidated Statements of Income**

 

Note that all dollar amounts presented in the table and the notes tothe table below are in thousands of U.S. dollars, except share and per shareamounts.

 
| ** **                                      | ** ** | **For the year ended** | ** ** |
|-------------------------------------------------|------------|------------------------|------------|
| ** **                                      | ** ** | **December 31, 2008**  | ** ** | **December 31, 2007** | ** ** |
| Net revenues                                    |       | $                      | 132,369    |   | $ | 68,117 |   |
| Cost of goods sold                              |       | 85,514                 |       | 42,356 |   |
| Gross profit                                    |       | 46,855                 |       | 25,761 |   |
| Selling, general and administrative expenses(a) |       | 34,613                 |       | 20,016 |   |
| Depreciation and amortization                   |       | 2,903                  |       | 1,180 |   |
| Net operating income                            |       | 9,339                  |       | 4,565 |   |
| Interest income (expense), net                  |       | (2,059                 | )          | 228 |   |
| Income before provision for income taxes        |       | 7,280                  |       | 4,793 |   |
| Income tax expense                              |       | 2,378                  |       | 1,678 |   |
| Net income                                      |       | $                      | 4,902      |   | $ | 3,115 |   |
| Net income per share basic                      |       | $                      | 0.33       |   | $ | 0.23 |   |
| Weighted average shares outstanding basic       |       | 14,734,299             |       | 13,426,000 |   |
| Net income per share diluted                    |       | $                      | 0.33       |   | $ | 0.23 |   |
| Weighted average shares outstanding diluted     |       | 14,734,299             |       | 13,507,097 |   |

 

----

(a)                                  Includesnon-cash stock option compensation expense of $360 and $376 for the years endedDecember 31, 2008, and December 31, 2007, respectively. Also includesdeal-related fees of $214 for the year ended December 31, 2008.

 

See notes to consolidatedfinancial statements

 

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**SummerInfant, Inc. and Subsidiaries**

 

**Consolidated Statements of Cash Flows**

 

Note that all dollar amounts presented in the attached table are inthousands of U.S. dollars.

 
| ** **                                                                                                                                                            | ** ** | **For the year ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                            | ** ** | **December 31,  2008** | ** ** | **December 31,  2007** | ** ** |
| **Cash flows from operating  activities:**                                                                                                                            |       |                   |       |   |   |
| Net income                                                                                                                                                            |       | $                      | 4,902      |   | $ | 3,115 |   |
| Adjustments to reconcile net income to net cash  used in operating activities                                                                                         |       |                   |       |   |   |
| Depreciation and amortization                                                                                                                                         |       | 2,903                  |       | 1,180 |   |
| Stock-based compensation                                                                                                                                              |       | 360                    |       | 376 |   |
| Deferred income taxes                                                                                                                                                 |       | 838                    |       | 923 |   |
| Changes in assets and liabilities, net of effects  of acquisitions                                                                                                    |       |                   |       |   |   |
| Increase in accounts receivable                                                                                                                                       |       | (4,444                 | )          | (9,115 | ) |
| Increase in inventory                                                                                                                                                 |       | (6,738                 | )          | (9,266 | ) |
| Decrease (increase) in prepaids and other current  assets                                                                                                             |       | 336                    |       | (31 | ) |
| Increase in other assets                                                                                                                                              |       | (200                   | )          |   |   |
| Increase in accounts payable and accrued expenses                                                                                                                     |       | 2,027                  |       | 8,603 |   |
| Net cash used in operating activities                                                                                                                                 |       | (16                    | )          | (4,215 | ) |
|                                                                                                                                                                  |       |                   |       |   |   |
| **Cash flows from investing  activities:**                                                                                                                            |       |                   |       |   |   |
| Acquisitions of property and equipment                                                                                                                                |       | (3,863                 | )          | (3,570 | ) |
| Acquisitions of other intangible assets                                                                                                                               |       | (1,682                 | )          |   |   |
| Acquisitions of Basic Comfort, Inc., Kiddopotamus &  Company (2008) and Summer Infant, Inc. (2007), net of cash acquired of $61  and $867, respectively           |       | (15,958                | )          | (24,371 | ) |
| Net cash used in investing activities                                                                                                                                 |       | (21,503                | )          | (27,941 | ) |
|                                                                                                                                                                  |       |                   |       |   |   |
| **Cash flows from financing  activities:**                                                                                                                            |       |                   |       |   |   |
| Net repayments on line of credit                                                                                                                                      |       | —                 |       | (14,992 | ) |
| Net borrowings on line of credit and payments on  other debt                                                                                                          |       | 21,714                 |       | 18,668 |   |
| Redemptions of common stock                                                                                                                                           |       |                   |       | (6,883 | ) |
| Redemption of warrants                                                                                                                                                |       |                   |       | (15,058 | ) |
| Net cash provided by (used in) financing  activities                                                                                                                  |       | 21,714                 |       | (18,265 | ) |
| Effect on exchange rate changes on cash and cash  equivalents                                                                                                         |       | (978                   | )          | 98 |   |
| Net decrease in cash and cash equivalents                                                                                                                             |       | (783                   | )          | (50,323 | ) |
| Cash and cash equivalents at beginning of year                                                                                                                        |       | 1,771                  |       | 52,094 |   |
| Cash and cash equivalents at end of year                                                                                                                              |       | $                      | 988        |   | $ | 1,771 |   |
|                                                                                                                                                                  |       |                   |       |   |   |
| Supplemental disclosure of cash flow information:                                                                                                                     |       |                   |       |   |   |
| Cash paid during the year for interest                                                                                                                                |       | $                      | 1,906      |   | $ | 895 |   |
| Cash paid during the year for income taxes                                                                                                                            |       | $                      | 1,424      |   | $ | 700 |   |
| Non cash investing/financing activities                                                                                                                               |       |                   |       |   |   |
| Issuance of common stock in conjunction with the  acquisitions of Basic Comfort, Inc., Kiddopotamus and Company (2008), and  Summer Infant, Inc. (2007), respectively |       | $                      | 4,657      |   | $ | 20,182 |   |
| Capital lease obligations incurred                                                                                                                                    |       | $                      | 380        |   | $ | — |   |

 

See notes to consolidatedfinancial statements

 

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** **

**Summer Infant, Inc. and Subsidiaries**

 

**Consolidated Statements of Stockholders’ Equity**

 

**For theYears Ended December 31, 2008 and 2007**

 

Note that all dollar amounts presented in the attached table are inthousands of U.S. dollars.

 
| ** **                              | ** ** | **Commons Stock** | ** ** | **Additional  Paid in** | ** ** | **Retained** | ** ** | **Accumulated  Comprehensive** | ** ** | **Comprehensive** | ** ** | **Total  Stockholders** | ** ** |
|-----------------------------------------|------------|-------------------|------------|-------------------------|------------|--------------|------------|--------------------------------|------------|-------------------|------------|-------------------------|------------|
| ** **                              | ** ** | **Shares**        | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Earnings**                   | ** ** | **Income (Loss)** | ** ** | **Income**              | ** ** | **Equity** | ** ** |
| **Balance at December 31, 2006**        |       | 11,200,000        |       | $                       | 1          |         | $          | 50,461                         |       | $                 | 980        |                    |       |   |   |   | $ | 51,442 |   |
| Acquisition of Summer Infant, Inc.      |       | 3,916,667         |       |                    |       | 20,182       |       |                           |       |              |       |                    |       | 20,182 |   |
| Redemption of shares                    |       | (1,208,775        | )          |                    |       | (6,883       | )          |                           |       |              |       |                    |       | (6,883 | ) |
| Redemption of warrants                  |       |              |       |                    |       | (15,058      | )          |                           |       |              |       |                    |       | (15,058 | ) |
| Stock based compensation                |       |              |       |                    |       | 376          |       |                           |       |              |       |                    |       | 376 |   |
| Net income for the year                 |       |              |       |                    |       |         |       | 3,115                          |       |              |       | $                       | 3,115      |   |   |   |
| Foreign currency translation adjustment |       |              |       |                    |       |         |       |                           |       | $                 | 96         |                    | 96         |   |   |   |
| Total comprehensive income              |       |              |       |                    |       |         |       |                           |       |              |       | $                       | 3,211      |   | 3,211 |   |
| **Balance at December 31, 2007**        |       | 13,907,892        |       | $                       | 1          |         | $          | 49,078                         |       | $                 | 4,095      |                    | $          | 96 |   |   |   | $ | 53,270 |   |
| Acquisition of Basic Comfort            |       | 450,000           |       |                    |       | 1,778        |       |                           |       |              |       |                    |       | 1,778 |   |
| Acquisition of Kiddopotamus             |       | 697,890           |       |                    |       | 2,879        |       |                           |       |              |       |                    |       | 2,879 |   |
| Stock based compensation                |       |              |       |                    |       | 360          |       |                           |       |              |       |                    |       | 360 |   |
| Net income for the year                 |       |              |       |                    |       |         |       | 4,902                          |       |              |       | 4,902                   |       |   |   |
| Foreign currency translation adjustment |       |              |       |                    |       |         |       |                           |       | (978              | )          | (978                    | )          |   |   |
| Total comprehensive income              |       |              |       |                    |       |         |       |                           |       |              |       | $                       | 3,924      |   | 3,924 |   |
| **Balance at December 31, 2008**        |       | 15,055,782        |       | $                       | 1          |         | $          | 54,095                         |       | $                 | 8,997      |                    | $          | (882 | ) |   |   | $ | 62,211 |   |

 

See notes to consolidatedfinancial statements

 

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**SUMMERINFANT, INC. AND SUBSIDIAIRES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

*Acquisition of Summer Infant, Inc. by KBL HealthcareAcquisition Corp. II*

 

On March 6, 2007, under an Agreement and Plans of Reorganization, datedas of September 1, 2006 (“Acquisition Agreement”), KBL Healthcare AcquisitionCorp. II (“KBL”), and its wholly owned subsidiary, SII Acquisition Corp. (“AcquisitionSub”), consummated a transaction by which (i) Summer Infant, Inc. (“SII”) wasmerged with and into Acquisition Sub and (ii) all of the outstanding capitalstock of each of Summer Infant Europe, Limited (“SIE”) and Summer Infant Asia, Ltd.(“SIA” and, collectively, with SII and SIE, the “Targets”) was acquireddirectly by KBL. As used in this Report, the term “Summer” includes each of theTargets. As used in this Report, the term “Company” means the registrant on apost-acquisition basis.

 

Effective upon closing, the Company changed its name to Summer Infant, Inc.and SII changed its name to Summer Infant (USA), Inc. Thus, the Company is nowa holding company called Summer Infant, Inc. operating through its wholly-ownedsubsidiaries, Summer Infant (USA), Inc., Summer Infant Europe, Limited, andSummer Infant Asia, Ltd.

 

At the closing of the acquisition, the Summer stockholders receivedfrom the Company an aggregate of $20,000,000 cash and 3,916,667 shares ofCompany common stock (“Transaction Shares”). The Summer stockholders also willbe entitled to receive up to an additional aggregate of 2,500,000 shares ofCompany common stock (“Contingent Shares”) in the event that the last salesprice of Company common stock is equal to or exceeds $8.50 on any twenty (20) tradingdays during any thirty (30) consecutive trading day period commencing on thethree-month anniversary of the closing of the acquisition and ending on April 20,2009. The Summer stockholders also are entitled to receive cash payments equalto 50% of the difference between actual EBITDA (as defined in the AcquisitionAgreement) for the years ended or ending December 31, 2006, 2007 and 2008 andprescribed EBITDA benchmarks for each of those years of $4,200,000, $10,000,000and $15,000,000 respectively. These cash payments shall not exceed $5,000,000in the aggregate for the three years. No amounts were earned for the yearsended December 31, 2008 and 2007.

 

Holders of 1,208,775 shares of KBL common stock voted against theacquisition and elected to convert their shares into a pro rata portion of thetrust fund (approximately $5.69 per share or an aggregate of approximately$6,883,000). The Company prior to March 6, 2007 was in the development stage.Effective upon the acquisition of Summer Infant, Inc. the Company is no longera developmental stage company.

 

On November 7, 2008, Summer Infant (USA), Inc. created a wholly-ownedsubsidiary called Summer Infant Canada, Ltd. (“SIC”).

 

*Nature of Operations and Basis of Presentation andPrinciples of Consolidation*

 

The Consolidated Statement of Income for the year ended December 31,2007 consists of the period from March 6, 2007 through December 31, 2007 forSummer plus the full year results of KBL. The acquisition of Summer by KBLoccurred on March 6, 2007, and therefore the results of Summer are includedfrom that date forward.

 

It is the Company’s policy to prepare its financial statements on theaccrual basis of accounting in conformity with accounting principles generallyaccepted in the United States of America. The consolidated financial statementsinclude the accounts of its wholly-owned subsidiaries.

 

All significant intercompany accounts and transactions have beeneliminated in the consolidation.

 

*Revenue Recognition*

 

The Company follows the guidance of the Securities and ExchangeCommission’ (“SEC”) Staff Accounting Bulletin 104 for revenue recognition. Ingeneral, the Company records revenue when all of the following occur:persuasive evidence of an arrangement exists, product delivery has occurred,the sales price to the customer is fixed or determinable, and collectability isreasonably assured. Sales are recorded net of provisions for returns andallowances, customer discounts, and other sales related discounts. The Companybases its estimates for discounts, returns and allowances on negotiatedcustomer 

 

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termsand historical experience. Customers do not have the right to return productsunless the products are defective. The Company records a reduction of sales forestimated future defective product deductions based on historical experience.

 

Sales incentives or other consideration given by the Company tocustomers that are considered adjustments of the selling price of its products,such as allowances and product placement fees, are reflected as reductions ofrevenue. Sales incentives and other consideration that represent costs incurredby the Company for assets or services received, such as the appearance of theCompany’s products in a customer’s national circular ad, are reflected asselling and marketing expenses in the accompanying statements of income.

 

*Cash and Cash Equivalents*

 

For purposes of the statement of cash flows, cash and cash equivalentsinclude money market accounts and investments with an original maturity ofthree months or less. At times, the Company possesses cash balances in excessof federally-insured limits.

 

*Trade Receivables*

 

Trade receivables are reported at their outstanding unpaid principalbalances reduced by an allowance for doubtful accounts. The Company estimatesdoubtful accounts based on historical bad debts, factors related to specificcustomers’ ability to pay and current economic trends. The Company writes offaccounts receivable against the allowance when a balance is determined to beuncollectible.

 

*Inventory*

 

Inventory is comprised of finished goods and is stated at the lower ofcost using the first-in, first-out (FIFO) method, or market (net realizablevalue). The Company regularly reviews slow-moving and excess inventories, andwrites down inventories to net realizable value if the ultimate expectedproceeds from the disposals of excess inventory are less than the carrying costof the merchandise.

 

*Property and Equipment*

 

Property and equipment are recorded at cost. The Company owns the moldsused in the production of its products by third party manufacturers.Capitalized mold costs include costs incurred for the pre-production design anddevelopment of the molds.

 

Depreciation is provided over the estimated useful lives of therespective assets using either straight-line or accelerated methods.

 

*Impairment of Long-Lived Assets*

 

The Company reviews long-lived assets for impairment whenever events orchanges in circumstances indicate that the carrying amount of a long-livedasset may not be recoverable. An asset is considered to be impaired when itscarrying amount exceeds the sum of the undiscounted future net cash flowsexpected to result from the use of the asset and its eventual disposition.Long-lived assets include property and equipment. The amount of impairmentloss, if any, is charged by the Company to current operations. For each of theyears ended December 31, 2008 and 2007, no such impairment existed.

 

*Goodwill and Other Intangible Assets*

 

The Company accounts for Goodwill and Other Intangible Assets inaccordance with Financial Accounting Standards Board SFAS No. 142, “*Goodwill and Other Intangible Assets.”*SFAS 142 requires that goodwill and intangible assets that have indefiniteuseful lives no longer be subject to amortization and be tested at leastannually for impairment. Intangible assets that have useful lives are amortizedover such lives on a straight-line basis.

 

*Summer Infant Acquisition*

 

The following table summarizes the fair values of the assets acquiredand liabilities assumed at the date of acquisition of Summer by KBL. The fairvalues of intangible assets acquired were obtained through a third partyvaluation.

 

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| ** **                | ** ** | **(In Thousands)** | ** ** |
|---------------------------|------------|--------------------|------------|
| Accounts receivable       |       | $                  | 12,130     |   |
| Inventory                 |       | 10,061             |       |
| Other current assets      |       | 1,500              |       |
| Property and equipment    |       | 6,884              |       |
| Brand Name                |       | 8,400              |       |
| Patents                   |       | 1,300              |       |
| Goodwill                  |       | 30,833             |       |
| Other Assets              |       | 164                |       |
| Total assets acquired     |       | 71,272             |       |
| Debt                      |       | 18,822             |       |
| Other liabilities assumed |       | 8,836              |       |
| Total liabilities assumed |       | 27,658             |       |
| Net assets acquired       |       | $                  | 43,614     |   |

 

*Basic Comfort Acquisition*

 

On March 31, 2008, through Summer (USA), the Company acquiredsubstantially all of the assets of Basic Comfort, Inc. (“Basic”), a leadingmanufacturer and supplier of infant comfort and safety products, includinginfant sleep positioners, infant head supports and portable changing pads. Theacquisition price was approximately $4,700,000 in cash and 450,000 shares ofunregistered Summer common stock (which were valued at $1,777,500 using the March31, 2008 closing price of $3.95). The cash portion of the purchase price wasfunded through borrowings under the Company’s credit facility. A portion of thecommon stock issued at closing was deposited into escrow to secure thepost-closing indemnification obligations of the Basic stockholders. The ownersof Basic can receive additional payments based on the achievement of certainEBITDA targets for the year ended March 31, 2009.

 

The following table summarizes the fair values of the assets acquiredand liabilities assumed at the date of acquisition of Basic by Summer:

 
| ** **                | ** ** | **(In Thousands)** | ** ** |
|---------------------------|------------|--------------------|------------|
| Trade receivables         |       | $                  | 1,384      |   |
| Inventory                 |       | 1,559              |       |
| Other Current Assets      |       | 121                |       |
| Property and equipment    |       | 152                |       |
| Other Intangible Assets   |       | 614                |       |
| Goodwill                  |       | 4,769              |       |
| Deferred tax benefits     |       | 200                |       |
| Total assets required     |       | 8,799              |       |
| Total liabilities assumed |       | 1,854              |       |
| Net assets acquired       |       | $                  | 6,945      |   |

 

*Kiddopotamus Acquisition*

 

On April 18, 2008, the Company, through Summer USA, entered into anAgreement and Plan of Merger (the “Merger Agreement”), among Summer USA, KiddoAcquisition Co., Inc., a wholly-owned subsidiary of Summer USA (“Merger Sub”),Kiddopotamus & Company (“Kiddopotamus”), J. Chris Snedeker, KristenPeterson Snedeker and Thomas K. Manning, under which the Company acquiredKiddopotamus, a leading manufacturer and supplier of infant nursery, travel andfeeding accessories. Pursuant to the terms of the Merger Agreement, on April 18,2008, Merger Sub merged with and into Kiddopotamus, with Kiddopotamuscontinuing as the surviving entity (the “Merger”). As a result of the Merger,Kiddopotamus became an indirect, wholly-owned subsidiary of the Company.

 

Under the merger agreement, the total purchase price paid by the Companyto the holders of Kiddopotamus common and preferred stock, plus the payment ofvarious closing expenses, was $12,500,000. Of the total purchase price,approximately $9,600,000 was paid in cash, and approximately $2,900,000 waspaid by the issuance of 697,890 unregistered shares of the Company’s commonstock at $4.126 per share, which represented the ten day trading average endingon the trading day two business days prior to the closing of the merger. Eachholder of Kiddopotamus common and preferred stock (other than J. Chris Snedekerand Kristen Peterson Snedeker (the “Principal Stockholders”) elected to receivetheir allocation 

 

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ofthe total net purchase price in cash. As required by the Merger Agreement, thePrincipal Stockholders received one half of their allocation of the total netpurchase price in common stock of the Company and one half in cash.

 

The Company funded the cash portion of the total net purchase pricewith borrowings under its secured credit facilities. Approximately 10% of thetotal net purchase price was deposited in escrow to secure the post-closingindemnification obligations of the former Kiddopotamus stockholders, includingthe Principal Stockholders, under the terms of the agreement.

 

The following table summarizes the fair values of the assets acquiredand liabilities assumed at the date of acquisition of Kiddopotamus by Summer:

 
| ** **                             | ** ** | **(In Thousands)** | ** ** |
|----------------------------------------|------------|--------------------|------------|
| Trade receivables                      |       | $                  | 2,284      |   |
| Inventory                              |       | 3,258              |       |
| Other Assets                           |       | 740                |       |
| Property and equipment                 |       | 48                 |       |
| Trade name and other intangible assets |       | 3,710              |       |
| Goodwill                               |       | 4,850              |       |
| Deferred tax benefits                  |       | 305                |       |
| Total assets acquired                  |       | 15,195             |       |
| Total liabilities assumed              |       | 1,524              |       |
| Net assets acquired                    |       | $                  | 13,671     |   |

 

The pro forma effect on net revenues, earnings, and diluted earningsper share amounts for the years ended December 31, 2008 and 2007, assuming theBasic Comfort and Kiddopotamus transactions had closed on January 1, 2007, areas follows:

 
| ** **                  | ** ** | **2008** | ** **     | **2007** | ** ** |
|-----------------------------|------------|----------|----------------|----------|------------|
| Net revenues:               |       | $        | 138,298,000    |     | $          | 91,128,000 |   |
| Net income:                 |       | $        | 5,369,000      |     | $          | 4,482,000 |   |
| Earnings per share: diluted |       | $        | 0.36 per share |     | $          | 0.31 per share |   |

 

*Income taxes*

 

Effective January 1, 2007, the Company adopted the provisions of FASBInterpretation No. 48 (“FIN 48”), *“Accountingfor Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109.”*FIN 48 provides detailed guidance for the financial statement recognition,measurement and disclosure of uncertain tax positions recognized in thefinancial statements in accordance with SFAS No. 109. Tax positions must meet a“more-likely-than-not” recognition threshold at the effective date to berecognized upon the adoption of FIN 48 and in subsequent periods. Upon theadoption of FIN 48, the Company had no unrecognized tax benefits.

 

Income taxes are computed using the asset and liability method ofaccounting. Under the asset and liability method, a deferred tax asset orliability is recognized for estimated future tax effects attributable totemporary differences and carryforwards. The measurement of deferred income taxassets is adjusted by a valuation allowance, if necessary, to recognize futuretax benefits only to the extent, based on available evidence; it is more likelythan not such benefits will be realized. The Company recognizes interest andpenalties, if any, related to uncertain tax positions in selling, general andadministrative expenses. No interest and penalties related to uncertain tax positionswere accrued at December 31, 2008 and 2007.

 

The tax years 2004 through 2007 remain open to examination by the majortaxing jurisdictions in which the Company operates. The Company expects nomaterial changes to unrecognized tax positions within the next twelve months.

 

*Translation of Foreign Currencies*

 

The assets and liabilities of the Company’s European and Asianoperations have been translated into U.S. dollars at year-end exchange rates.All assets and liabilities of the Company’s foreign affiliates are translatedinto U.S. dollars at the exchange rate in effect at the end of the year and theincome and expense accounts of these affiliates have been translated at 

 

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averagerates prevailing during each respective year. Resulting translation adjustmentsare made to a separate component of stockholders’ equity within accumulatedother comprehensive income (loss).

 

*Shipping Costs*

 

Shipping costs are included in selling expenses and amounted toapproximately $1,882,000 and $1,491,000 for the years ended December 31, 2008and 2007, respectively.

 

*Advertising Costs*

 

The Company charges advertising costs to expense as incurred.Advertising expense, which consists primarily of promotional and cooperativeadvertising allowances provided to customers, was approximately $8,749,000 and$5,145,000, for the years ended December 31, 2008 and 2007, respectively.

 

*Selling Expenses*

 

The primary components of selling expense include shipping costs, aswell as commissions and royalty based payments to third party vendors.

 

*Use of Estimates*

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect certain reportedamounts and disclosures. Accordingly, actual results could differ from thoseestimates.

 

*Net Income Per Share*

 

Basic earnings per share for the Company is computed by dividing netincome by the weighted-average number of shares of common stock outstandingduring the period. The shares used in computing diluted earnings per shareinclude 0 equivalent shares from warrants since they were anti-dilutive in bothyears ended December 31, 2008 and 2007. Options to purchase 999,200, and1,055,000 shares of the Company’s common stock were not included in thecalculation, due to the fact that these options were anti-dilutive for theyears ended December 31, 2008, and 2007.

 

*New Accounting Pronouncements*

 

In September 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements.” SFAS No. 157 defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles and expandsdisclosures about fair value measurements. SFAS No. 157 applies under otheraccounting pronouncements that require or permit fair value measurements, andaccordingly, does not require any new fair value measurements. SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007. Effective January1, 2008, the Company adopted SFAS 157 for its financial assets and liabilities.The adoption of SFAS 157 did not have a material impact on the Company’sfinancial position or results of operations.

 

In December 2007, the FASB issued Statement of Financial AccountingStandards No. 141(R), “Business Combinations”, or SFAS No. 141(R). Thisstatement establishes principles and requirements for how the acquirer of abusiness recognizes and measures in its financial statements the identifiableassets acquired, the liabilities assumed, and any non-controlling interest inthe acquiree. SFAS No. 141(R) also provides guidance for recognizing andmeasuring the goodwill acquired in the business combination and determines whatinformation to disclose to enable users of the financial statements to evaluatethe nature and financial effects of the business combination. The provisions ofSFAS No. 141(R) are effective for financial statements issued for fiscal yearsbeginning after December 15, 2008. The Company will adopt this statement, asapplicable on January 1, 2009.

 

In December 2007, the FASB issued Statement of Financial AccountingStandards No. 160, “Non-controlling Interests in Consolidated FinancialStatements-An Amendment to Accounting Research Bulletin (“ARB”) No. 51”, orSFAS No. 160. This statement amends ARB No. 51, “Consolidated FinancialStatements”, to establish accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. This statement also amends certain of ARB No. 51’s consolidationprocedures for consistency with the requirements of SFAS No. 141(R). Inaddition, SFAS No. 160 also includes expanded disclosure requirements regardinginterests of the parent and its non-

 

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controllinginterest. The provisions of SFAS No. 160 are effective for financial statementsissued for fiscal years beginning after December 15, 2008. The Company willadopt this statement, as applicable, on January 1, 2009.

 

In February 2008, the FASB issued Staff Position (“FSP”) No. 157-1 andFSP No. FSP 157-2. FSP No. 157-1 removes certain leasing transactions from thescope of SFAS No. 157. FSP No. 157-2 partially defers the effective date ofSFAS No. 157 for one year for certain nonfinancial assets and nonfinancialliabilities that are recognized at fair value on a nonrecurring basis. UnderFSP No. 157-2, the effective date for non-financial assets and liabilities thatare recognized at the fair value on a nonrecurring basis will be for fiscalyears beginning after November 15, 2008. FSP No. 157-2 is effective for theCompany of January 1, 2009. The Company is assessing the potential impact ofadopting FSP No. 157-2, but does not believe that the adoption will have asignificant impact on the Company’s consolidated financial statements.

 

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of theUseful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends thefactors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder SFAS No. 142, “*Goodwill and OtherIntangible assets* “(SFAS No. 142”). The intent of the position is toimprove the consistency between the useful life of a recognized intangibleasset under SFAS No. 142 and the period of expected cash flows used to measurethe fair value of the asset under SFAS No. 141 (R). FSP FAS 142-3 is effectivefor fiscal years beginning after December 15, 2008 and is effective for theCompany January 1, 2009. The Company is assessing the potential impact that theadoption of FSP FAS 142-3 will have on the useful lives of its intangibleassets but does not expect it to have a material impact on its consolidatedresults of operations and financial condition.

 

The Company does not believe that any other recently issued, but notyet effective accounting standards will have a material effect on the Company’sconsolidated financial position, results of operations, or cash flows.

 

Certain items as of and for the year ended December 31, 2007 have beenreclassified to conform with the current year presentation.

 

**2. PROPERTY AND EQUIPMENT**

 

Property and equipment, at cost, consist of the following:

 
| ** **                    | ** ** | **December**       | ** ** | **Depreciation/  Amortization** | ** ** |
|-------------------------------|------------|--------------------|------------|---------------------------------|------------|
| ** **                    | ** ** | **2008**           | ** ** | **2007**                        | ** ** | **Period** | ** ** |
| ** **                    | ** ** | **(In Thousands)** | ** ** | ** **                      | ** ** |
| Computer                      |       | $                  | 1,463      |                            | $          | 758 |   | 5 years |   |
| Tools and dies and Prototypes |       | 7,608              |       | 4,503                           |       | 1-5 years |   |
| Building                      |       | 4,156              |       | 4,213                           |       | 30 years |   |
| Other                         |       | 1,526              |       | 749                             |       | various |   |
|                          |       | 14,753             |       | 10,233                          |       |   |   |
| Less accumulated depreciation |       | 3,541              |       | 944                             |       |   |   |
| Property and Equipment, net   |       | $                  | 11,212     |                            | $          | 9,279 |   |   |   |

 

Property and equipment includes amounts acquired under capital leasesof approximately $827,000 and $447,000 at December 31, 2008 and 2007,respectively, with related accumulated depreciation of approximately $164,000and $125,000, respectively. Depreciation is included in general andadministrative expenses in the accompanying consolidated statements of income.

 

**3. GOODWILL AND INTANGIBLE ASSETS**

 

*Goodwill*

 

Goodwill is tested for impairment on an annual basis and morefrequently if facts and circumstances indicate goodwill carrying values exceedestimated fair values. Because the Company has fully integrated itsacquisitions, it has determined that it has only one reporting unit forpurposes of testing for goodwill impairment. Based on the impairment testsperformed, there was no impairment of goodwill in 2008 or 2007.

 

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The change in goodwill during the years ended December 31, 2007and 2008, respectively was as follows (in thousands):

 
| Balance at December 31, 2006       |   | $      | — |   |
|-----------------------------------------|--------|--------|--------|--------|
| Acquisition of Summer Infant, Inc. |   | 30,820 |   |
| Balance at December 31, 2007       |   | 30,820 |   |
| Acquisition of Basic Comfort            |   | 4,769  |   |
| Acquisition of Kiddopotamus             |   | 4,850  |   |
| Other additions                         |   | 13     |   |
| Balance at December 31, 2008       |   | $      | 40,452 |   |

 

*Intangible assets*

 

Intangible assets consist of the following:

 
| ** **                     | ** ** | **December 31,** | ** ** | **Amortization** | ** ** |
|--------------------------------|------------|-----------------------|------------|------------------|------------|
| ** **                     | ** ** | **2008**              | ** ** | **2007**         | ** ** | **Period** | ** ** |
| ** **                     | ** ** | **(In Thousands)**    | ** ** | ** **       | ** ** |
| Brand Names                    |       | $                     | 10,900     |             | $          | 8,400 |   | Indefinite |   |
| Patents and Licenses           |       | 1,300                 |       | 1,300            |       | 5 years |   |
| Customer Lists                 |       | 1,543                 |       | —           |       | Indefinite |   |
| Other Intangibles              |       | 1,949                 |       | —           |       | 5-10 years |   |
|                           |       | 15,692                |       | 9,700            |       |   |   |
| Less: Accumulated Amortization |       | (562                  | )          | (237             | )          |   |   |
| Intangible Assets, net         |       | $                     | 15,130     |             | $          | 9,463 |   |   |   |

 

The amortization period for the intangible assets ranges from 5 to10 years for those assets that have an estimated life; certain of theassets have indefinite lives. There was no impairment of intangible assets in2008 or 2007.

 

Amortization expense amounted to $390,000 and $237,000 for the yearsended December 31, 2008 and 2007, respectively. Estimated amortizationexpense for the next five years is as follows:

 
| **Year ending December 31,** | ** ** | **(In Thousands)** | ** ** |
|-----------------------------------|------------|--------------------|------------|
| 2009                              |       | $                  | 465        |   |
| 2010                              |       | 465                |       |
| 2011                              |       | 465                |       |
| 2012                              |       | 228                |       |
| 2013                              |       | 200                |       |
|                                   |            |                    |            |  |

 

**4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES**

 

Accounts payable and accrued expenses consist of the following:

 
| ** **                                           | ** ** | **December 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **2008**              | ** ** | **2007** | ** ** |
| ** **                                           | ** ** | **(In Thousands)**    | ** ** |
| Accounts payable                                     |       | $                     | 14,694     |   | $ | 12,203 |   |
| Customer advertising and allowances                  |       | 2,652                 |       | 1,757 |   |
| Accrued purchases of inventory                       |       | 3,217                 |       | 874 |   |
| Other (none in excess of 5% of current  liabilities) |       | 2,482                 |       | 2,740 |   |
| Total                                                |       | $                     | 23,045     |   | $ | 17,574 |   |

 

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**5. DEBT**

 

*New Credit Facilities*

 

On April 10, 2008, the Company entered into two new three-yearsecured credit facilities (the “Loan Agreement”) with Bank of America, N.A., asAdministrative Agent, and each of the financial institutions a signatory to theLoan Agreement. The Loan Agreement provides for a $36,000,000 working capitalrevolving credit facility and a $10,000,000 non-restoring acquisition creditfacility. The new credit facilities mature on June 30, 2011. Theacquisition credit facility has been utilized in its entirety as of December 31,2008. The amount outstanding on the working capital revolving credit facilityat December 31, 2008 was $29,676,000.

 

Aggregate maturities of long term debt related to this note are asfollows:

 
| ** **                    | ** ** | ** ** | ** ** | **(In Thousands)** | ** ** |
|-------------------------------|------------|------------|------------|--------------------|------------|
| Year ending December 31: |       | 2009       |       | $                  | 1,333      |   |
|                          |       | 2010       |       | 2,000              |       |
|                          |       | 2011       |       | 36,343             |       |
|                          |       | Total      |       | $                  | 39,676     |   |

 

The Company and its subsidiaries, Summer Infant (USA), Inc. SummerInfant Europe Limited, Summer Infant Asia Limited and Summer Infant Canada,Limited are the borrowers under this Loan Agreement. These new creditfacilities replace the Company’s prior line of credit and are being usedprincipally to fund growth opportunities and for working capital purposes. Thiscredit facility is secured by substantially all of the assets of the Company.

 

The Company’s ability to borrow under the Loan Agreement is subject toits ongoing compliance with a number of financial and other covenants,including the following: (i) that the Company and its subsidiariesmaintain a net worth of $50,000,000 plus the sum of 50% of net income earned ineach fiscal year, (ii) that the Company and its subsidiaries maintain aratio of total funded debt to EBITDA of not greater than 3.50:1.00, and (iii) thatthe Company and its subsidiaries maintain a ratio of operating cash flow todebt service of not less than 1.25:1,00. In addition, if the Company’s ratio oftotal funded debt to EBITDA is greater than 3.25:1.00 as of December 31,2008, the total commitment amount under the working capital revolving creditfacility will reduce by $4,000,000 on March 31, 2009. Furthermore, if theCompany’s ratio of total funded debt to EBITDA is greater than 3.25:1.00 forany fiscal year, the aggregate amount that may be borrowed under the LoanAgreement will be determined by reference to a borrowing base.

 

These new credit facilities bear interest at a floating rate based on aspread over LIBOR ranging from 150 basis points to 200 basis points, dependingupon the ratio of the Company’s total funded debt to EBITDA. As of December 31,2008, the rate on these credit facilities ranged between 1.95% and 4.42%. Inaddition, these new credit facilities have an unused line fee based on theunused amount of the credit facilities equal to 25 basis points.

 

The Loan Agreement also contains customary events of default, includinga cross default provision and a change of control provision. In the event of adefault, all of the obligations of the Company and its subsidiaries under theloan Agreement may be declared immediately due and payable. For certain eventsof default relating to insolvency and receivership, all outstanding obligationsbecome due and payable.

 

At December 31, 2007, there was $17,591,000 outstanding on theCompany’s prior line of credit facility.

 

*Amendment to Construction Loan*

 

In connection with the Company’s construction of its principal officesin Woonsocket, Rhode Island, the Company previously assumed all obligations ofFaith Realty under a $4,000,000 Construction Loan between Faith Realty and Bankof America, N.A. (the “Real Estate Loan”). In connection with the new creditfacilities described above, the Company and Bank of America, N.A. amended theReal Estate Loan to include a cross default provision with these new creditfacilities.

 

As of December 31, 2008, the Company had an outstanding term loandue in 2017 of approximately $3,859,000 related to the construction of its newcorporate headquarters/distribution center, which was completed in 2007. Theinterest rate has been fixed at 7.06% and the building is the collateral forthe note. The loan requires monthly payments of principal and interest.Aggregate maturities of long term debt related to this note are as follows:

 

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| ** **                    | ** ** | ** ** | ** ** | **(In Thousands)** | ** ** |
|-------------------------------|------------|------------|------------|--------------------|------------|
| Year ending December 31: |       | 2009       |       | $                  | 105        |   |
|                          |       | 2010       |       | 112                |       |
|                          |       | 2011       |       | 121                |       |
|                          |       | 2012       |       | 130                |       |
|                          |       | 2013       |       | 143                |       |
|                          |       | Thereafter |       | 3,248              |       |
|                          |       |       |       | $                  | 3,859      |   |

 

**6. INCOME TAXES**

 

Income tax expense (benefit) is summarized as follows:

 
| ** **                   | ** ** | **2008**           | ** ** | **2007** | ** ** |
|------------------------------|------------|--------------------|------------|----------|------------|
| ** **                   | ** ** | **(In thousands)** | ** ** |
| Current:                     |       |               |       |     |       |
| Federal                      |       | $                  | 36         |     | $          | 815 |   |
| Foreign                      |       | 1,204              |       | 342      |       |
| State and Local              |       | 313                |       | 234      |       |
| Total Current                |       | 1,553              |       | 1,391    |       |
| Deferred (primarily federal) |       | 825                |       | 287      |       |
| Total expense                |       | $                  | 2,378      |     | $          | 1,678 |   |

 

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**SUMMERINFANT, INC. AND SUBSIDIAIRES**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**6. INCOME TAXES**

 

The tax effects of temporary differences that comprise the deferred taxliabilities and assets are as follows:

 
| ** **                                      | ** ** | **2008**           | ** ** | **2007** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|----------|------------|
| ** **                                      | ** ** | **(In thousands)** | ** ** |
| Assets (Liabilities)                            |       |               |       |     |       |
| Deferred tax asset-current:                     |       |               |       |     |       |
| Accounts receivable and inventory reserves      |       | $                  | 602        |     | $          | 134 |   |
| Net deferred tax asset-current                  |       | 602                |       | 134      |       |
| Deferred tax (liability) asset-non-current:     |       | 1,348              |       |     |       |
| Intangible assets                               |       |               |       | (91      | )          |
| Property, plant and equipment                   |       |               |       | (457     | )          |
| Net deferred tax (liability) asset-non-current: |       | 1,348              |       | (548     | )          |
| Net deferred income tax asset (liability)       |       | $                  | (746       | )        | $          | (414 | ) |

 

The following reconciles the income tax expense (benefit) at the U.S.federal income tax statutory rate to that in the consolidated financialstatements:

 
| ** **                                                  | ** ** | **2008**           | ** ** | **2007** | ** ** |
|-------------------------------------------------------------|------------|--------------------|------------|----------|------------|
| ** **                                                  | ** ** | **(In thousands)** | ** ** |
| Tax expense at statutory rate                               |       | $                  | 2,475      |     | $          | 1,598 |   |
| State income taxes, net of U.S. federal income tax  benefit |       | 280                |       | 269      |       |
| Tax credits                                                 |       | (300               | )          | (300     | )          |
| Non-deductible expenses                                     |       | 31                 |       | 136      |       |
| Other                                                       |       | (108               | )          | (25      | )          |
| Total expense                                               |       | $                  | 2,378      |     | $          | 1,678 |   |

 

**7. STOCK OPTIONS**

 

The Company has granted stock options under its 2006 Performance EquityPlan (“2006 Plan”). Under the 2006 Plan, awards may be granted to participantsin the form of Non-Qualified Stock Options, Incentive Stock Options, RestrictedStock, Deferred Stock, Stock Reload Options and other stock-based awards.Subject to the provisions of the plan, awards may be granted to employees,officers, directors, advisors and consultants who are deemed to have renderedor are able to render significant services to us or our subsidiaries and whoare deemed to have contributed or to have the potential to contribute to our success.As discussed in Note 1, Summary of Significant Accounting Policies—NewAccounting Pronouncements, effective January 1, 2006, the Company adoptedthe fair value recognition provisions of SFAS 123(R), using the modifiedprospective transition method. The adoption of SFAS 123(R) resultedin share-based compensation expense for the years ended December 31, 2008and 2007 of $360,000 and $376,000, respectively. Stock based compensationexpense is included in selling, general and administrative expenses.

 

The fair value of each option award is estimated on the date of grantusing the Black-Scholes option valuation model that uses the assumptions notedin the following table. Because the Company’s common shares have only tradedpublicly since April 2005, expected volatility for the year ended December 31,2008 is estimated based on an arithmetic average of the volatility of fourpublicly-traded companies that operate in Summer’s industry or sell intosimilar markets. Summer has insufficient history by which to estimate theexpected term of the options, but used an estimate for grants of “plain vanilla”stock options based on a formula prescribed by the Securities and ExchangeCommission’s Staff Accounting Bulletin No. 107. Because Summer’s employeestock options have characteristics significantly different from those of tradedoptions and because changes in the subjective input assumptions can materiallyaffect the fair value estimate, in management’s opinion, the existing models donot necessarily provide a reliable single measure of the fair value of itsstock options.

 

The following table summarizes the assumptions used for options grantedduring the year ended December 31, 2007. There were no option grantsduring the year ended December 31, 2008.

 

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| Expected life (in years) |   | 3.5 to 5.5     |   |
|--------------------------|--------|----------------|--------|
| Risk-free interest rate  |   | 4.50% and 4.75 | %      |
| Volatility               |   | 25.0           | %      |
| Dividend yield           |   | 0              |   |

 

The weighted-average grant date fair value of options granted duringthe year ended December 31, 2007 of $1.55 per share which totals$1,665,010 for the 1,074,200 options granted during such period.

 

A summary of the status of the Company’s options as of December 31,2008 and changes during the year then ended is presented below:

 
| ** **                                    | ** ** | **Number Of  Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|-----------------------------------------|------------|
| Outstanding at beginning of year              |       | 1,055,000             |       | $                                       | 5.22       |   |
| Granted                                       |       | —                |       | —                                  |       |
| Canceled                                      |       | (55,800               | )          | $                                       | 5.20       |   |
| Outstanding at end of year                    |       | 999,200               |       | $                                       | 5.23       |   |
| Options exercisable at December 31, 2008 |       | 374,800               |       | $                                       | 5.23       |   |

 

The aggregate intrinsic value of options outstanding at December 31,2008 was $0.

 

The following table summarizes information about stock options at December 31,2008:

 
| ** **                   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                  | ** ** |
|------------------------------|------------|-------------------------|------------|------------------------------------------|------------|
| **Range of Exercise Prices** | ** ** | **Number  Outstanding** | ** ** | **Remaining  Contractual  Life (years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $5.25                        |       | 500,000                 |       | 8.2                                      |       | $ | 5.25 |   | 125,000 |   | $ | 5.25 |   |
| $5.20                        |       | 466,000                 |       | 8.5                                      |       | $ | 5.20 |   | 0 |   | $ | 5.20 |   |
| $5.21                        |       | 33,200                  |       | 8.8                                      |       | $ | 5.21 |   | 0 |   | $ | 5.21 |   |

 
| ** **                                   | ** ** | **Number of  Options** | ** ** | **Grant Date  Fair Value** | ** ** | **Remaining  Contractual  Life** | ** ** |
|----------------------------------------------|------------|------------------------|------------|----------------------------|------------|----------------------------------|------------|
| Non-Vested options at December 31, 2007 |       | 930,000                |       | $                          | 1.57       |                             | 9.5        |   |
|                                         |       | —                 |       | $                          | —     |                             | —     |   |
| Options Vested                               |       | 249,800                |       | $                          | 1.53       |                             | 8.2        |   |
| Options forfeited                            |       | (55,800                | )          | 1.73                       |       | 8.5                              |       |
| Non-Vested options at December 31, 2008 |       | 624,400                |       | $                          | 1.57       |                             | 8.5        |   |

 

As of December 31, 2008, there was approximately $983,000 ofunrecognized compensation cost related to non-vested stock option awards, whichis expected to be recognized over a remaining weighted-average vesting periodof 2.5 years. The total fair value of options vested during the year endedDecember 31, 2008 was approximately $383,000.

 

**8. WARRANTS**

 

The Company had 18,400,000 redeemable common stock purchase warrants(the “Warrants”) outstanding at December 31, 2006. Each Warrant entitlesthe holder to purchase one share of common stock at an exercise price of $5.00per share. The Warrants expire in April 2009. The Warrants are redeemableat a price of $0.01 per Warrant, only in the event that the last sale price ofthe common stock is at least $8.50 per share for any 20 trading days within a30 trading day period. In November, 2007, the Company completed a tender offerto all warrant holders to purchase each warrant for $1.00. The total number ofwarrants tendered was 14,766,047. The Company used a combination of cash onhand plus amounts available under its line of credit to fund the tender offer.The amount paid to the warrant holders who tendered their warrants was chargedto additional paid-in capital. At December 31, 2008, total warrantsoutstanding were 3,633,953.

 

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**9. CAPITAL LEASE OBLIGATIONS**

 

The Company leases various equipment under capital leases which expireduring 2009 and 2011.

 

The leases require monthly payments of principal and interest, imputedat interest rates ranging from 3% to 19% per annum.

 

The capital lease liability balance of approximately $398,000 and$288,000 is included in liabilities on the consolidated balance sheets as of December 31,2008 and 2007, (of which approximately $215,000 and $120,000 is included inlong-term debt, and the balance is in current liabilities). The minimum futurelease payments, including principal and interest, are approximately $434,000and $265,000, respectively.

 

**10. PROFIT SHARING PLAN**

 

Summer Infant (USA), Inc maintains a defined contribution salarydeferral plan (the Plan) under Section 401(k) of the Internal RevenueCode. All employees who meet the Plan’s eligibility requirements canparticipate. Employees may elect to make contributions up to 25% of theircompensation. In 2007, the Company adopted a matching plan which was fundedthroughout the year. For the years ended December 31, 2008 and 2007, theCompany recorded 401(k) matching expense of $116,000 and $68,000, respectively.

 

**11. MAJOR CUSTOMERS**

 

Sales to two customers comprised approximately 48% and 10% of net salesfor the year ended December 31, 2008, and 42% and 15% for December 31,2007, respectively. Amounts due from these customers comprised approximately63% and 61% of trade receivables at December 31, 2008 and 2007,respectively.

 

**12. COMMITMENTS AND CONTINGENCIES**

 

*Royalty Commitments*

 

Summer Infant (USA), Inc has entered into various license agreementswith third parties for the use of product designs and trade names for theproducts manufactured by the Company. These agreements have termination datesthrough August, 2013. Royalty expense under these licensing agreements for theyears ended December 31, 2008 and 2007 were approximately $214,000 and$149,000, respectively.

 

*Customer Agreements*

 

The Company enters into annual agreements with its customers in thenormal course of business. These agreements define the terms of product salesincluding in some instances cooperative advertising costs and product returnprivileges (for defective products only) or defective allowances (which arebased upon historical experience). These contracts are generally annual innature and obligate the Company only as to products actually sold to thecustomer.

 

*License Agreements and Lease Commitments*

 

During 2005, Summer Infant (USA), Inc entered into formal contractswith providers of long distance communications, electronic data interchangeservices, telephone and communication equipment, and computer equipment. Thesecontracts in the aggregate represent minimum monthly payments of approximately$2,000 which expire at various times through October 2009.

 

Summer Infant (USA) leases an office under a three-year agreement whichrequires monthly payments of approximately $3,000 through September 2010.

 

Summer (USA) leases certain vehicles under non-cancelable operatinglease agreements. These leases are for a three-year term requiring monthlypayments of approximately $3,000 through April 2011.

 

SIE leases office space under a non-cancelable operating leaseagreement. This lease is for a five-year term through April 2012, andrequires monthly payments of approximately $5,000. In addition, SIE is requiredto pay its proportionate share of property taxes.

 

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Summer Infant Canada, Ltd. entered into a five-year lease foroffice and warehouse space under a non-cancelable operating lease agreementexpiring March 2013. The Company is obligated as part of the lease to paymaintenance expenses as well as property taxes and insurance costs as definedin the agreement. Monthly payments for the initial year are approximately$14,000 and escalate over the course of the lease term. Summer InfantCanada Ltd. has the option to renew this lease for one additional periodof five years under the same terms and conditions.

 

Summer Infant (USA) entered into a two-year lease for office spaceunder a non-cancellable operating lease agreement expiring July 2010. Thecompany is obligated to pay insurance as part of the lease. Monthly paymentsfor the initial year are approximately $15,000, and escalate to approximately$15,545 through the second year. Summer (USA) has the option to renew thislease for one additional period of two years under the same terms andconditions.

 

Summer Infant (USA) Inc. entered into a five-year lease for officeand warehouse space under a cancelable operating lease agreement. The agreementstates, after month 18, there is a 90-day period to cancel. Should either partyexercise this option, the agreement shall terminate 180 days after writtennotice is provided to the other party. After the 90-day period to cancelpasses, the lease becomes non-cancelable. The Company is obligated to paycertain common area maintenance charges including insurance and utilities.Monthly payments for the initial year are approximately $29,400 and escalateover the course of the lease term.

 

During March 2006, Summer (USA) entered into a three-year leasefor warehouse space under a non-cancelable operating lease agreement expiring April 2009.The Company is obligated as part of the lease to pay maintenance expenses aswell as property taxes and insurance costs, as defined in the agreement.Monthly payments for the initial year are approximately $27,000, and escalateover the course of the lease term. Summer (USA) has the option to renew thislease for two additional periods of three years under the same terms and conditions.

 

During September 2007, Summer (USA) entered into a two year leasefor warehouse space under a non-cancelable operating lease agreement expiringin Aug 2009. The Company is obligated as part of the lease to pay maintenanceexpenses, as defined in the agreement. Monthly payments for the two yearagreement are approximately $16,000.

 

During December 2007, Summer (USA) entered into a three year leasefor warehouse space under a non-cancelable operating lease agreement expiringin February 2011. Summer (USA) is obligated as part of the lease to paymaintenance expenses as well as property taxes and insurance costs, as definedin the agreement. Monthly payments for the initial year are approximately$70,000, and escalate over the course of the lease term. Summer (USA) has theoption to renew this lease for one additional period of three years under thesame general terms and conditions. During November 2007, SIA entered intoa two year office lease which requires monthly payments of $3,000 through October 2009.

 

Approximate future minimum rental payments due under these leases areas follows:

 
| **Year Ending**        | ** ** | **(In Thousands)** | ** ** |
|------------------------|------------|--------------------|------------|
| December 31, 2009 |       | $                  | 1,707      |   |
| December 31, 2010 |       | 1,458              |       |
| December 31, 2011 |       | 811                |       |
| December 31, 2012 |       | 663                |       |
| December 31, 2013 |       | 155                |       |
| Total                  |       | $                  | 4,794      |   |

 

Rent expense for the year ended December 31, 2008 and 2007 totaledapproximately $1,923,000 and $664,000, respectively.

 

*Employment Contracts*

 

In accordance with UK and EU law, SIE has employment contracts with allemployees. In connection with these contracts, SIE is required to fund theindividual pension contributions of certain employees at varying rates from 5%to 10% of the employee’s annual salary, as part of their total compensationpackage. These pension contributions are expensed as incurred. There are notermination benefit provisions in these contracts.

 

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*Litigation*

 

The Company is involved in various claims and legal actions arising inthe ordinary course of business. Management is of the opinion that the ultimateoutcome of these matters would not have a material adverse impact on thefinancial position of the Company or the results of its operations.

 

**13. GEOGRAPHICAL INFORMATION**

 

The Company distributes branded durable baby products throughout theUnited States, Canada, and the United Kingdom, and various other parts of theworld.

 

The following is a table that presents net revenue by geographic areaat December 31, 2008:

 
| ** **    | ** ** | **December 31,** | ** ** |
|---------------|------------|-----------------------|------------|
| ** **    | ** ** | **2008**              | ** ** | **2007** | ** ** |
| ** **    | ** ** | **(In Thousands)**    | ** ** |
| North America |       | $                     | 125,018    |   | $ | 62,264 |   |
| All Other     |       | 7,351                 |       | 5,853 |   |
|          |       | $                     | 132,369    |   | $ | 68,117 |   |

 

The following is a table that presents total assets by geographic area:

 
| ** **    | ** ** | **2008**           | ** ** | **2007** | ** ** |
|---------------|------------|--------------------|------------|----------|------------|
| ** **    | ** ** | **(In Thousands)** | ** ** |
| North America |       | $                  | 127,189    |     | $          | 89,643 |   |
| Europe        |       | 3,273              |       | 3,514    |       |
| Asia          |       | 73                 |       | 68       |       |
|          |       | $                  | 130,535    |     | $          | 93,225 |   |

 

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**SIGNATURES**

 

Pursuant to the requirements of the Section 13 or 15 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized on the18th day of August 2009.

 
|   | SUMMER  INFANT, INC. |
|--------|---------------------------|
|   | By:                       | /s/ Jason Macari |
|   |                      | Jason Macari*Chief Executive Officer  (Principal Executive Officer)* |
|   | By:                       | /s/ Joseph Driscoll |
|   |                      | Joseph Driscoll*Chief Financial Officer  (Principal Financial and Accounting Officer)* |

 

In accordance with the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

 
| **Name**            | ** ** | **Title**                                                              | ** ** | **Date**             |
|---------------------|------------|------------------------------------------------------------------------|------------|----------------------|
| ** **          | ** ** | ** **                                                             | ** ** | ** **           |
| /s/ Jason Macari    |       | Director  and Chief Executive Officer  (Principal Executive Officer)   |       | August 18, 2009 |
| Jason Macari        |       |                                                                   |
|                |       |                                                                   |       |                 |
| /s/ Joseph Driscoll |       | Chief  Financial Officer  (Principal Financial and Accounting Officer) |       | August 18, 2009 |
| Joseph Driscoll     |       |                                                                   |
|                |       |                                                                   |       |                 |
| /s/ Steven Gibree   |       | Executive  Vice President of Product Development and Director          |       | August 18, 2009 |
| Steven Gibree       |       |                                                                   |
|                |       |                                                                   |       |                 |
| /s/ Martin Fogelman |       | Director                                                               |       | August 18, 2009 |
| Martin Fogelman     |       |                                                                   |
|                |       |                                                                   |       |                 |
| /s/ Robert Stebenne |       | Director                                                               |       | August 18, 2009 |
| Robert Stebenne     |       |                                                                   |
|                |       |                                                                   |       |                 |
| /s/ Richard Wenz    |       | Director                                                               |       | August 18, 2009 |
| Richard Wenz        |       |                                                                   |

 

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**Exhibits.**

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1         |       | Agreement and Plans of  Reorganization dated as of September 1, 2006, by and among KBL  Healthcare Acquisition Corp. II, and its wholly owned subsidiary, SII  Acquisition Corp. (“Acquisition Sub”), Summer Infant,  Inc. (“SII”),  Summer Infant Europe, Limited (“SIE”) and Summer Infant Asia, Ltd.  (“SIA” and, collectively, with SII and SIE, the “Targets”) and the  stockholders of the Targets (1) |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.2         |       | Warranty Deed dated  March 1, 2007 (2)                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.1         |       | Amended and Restated  Certificate of Incorporation (3)                                                                                                                                                                                                                                                                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.2         |       | Bylaws (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1         |       | Specimen Common Stock  Certificate (3)                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.2         |       | Specimen Warrant  Certificate (3)                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.3         |       | Warrant Agreement (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1        |       | Revolving  Credit Agreement by and among Bank of America, N.A. and Summer  Infant, Inc., Et al, dated April 10, 2008 (7)                                                                                                                                                                                                                                                                                                                                            |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2*       |       | Amendment  to Revolving Credit Agreement by and among Bank of America, N.A. and Summer  Infant, Inc., Et al, dated June 30, 2008.                                                                                                                                                                                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 103         |       | Construction Loan  Agreement by and between the Bank of America, N.A. and Faith Realty, LLC  dated December 21, 2006(2)                                                                                                                                                                                                                                                                                                                                             |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.4        |       | Secured Promissory Note  made by Faith Realty in favor of Bank of America, N.A.(2)                                                                                                                                                                                                                                                                                                                                                                                            |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.5        |       | Open-End Mortgage and  Security Agreement by and between Faith Realty, LLC and Bank of America,  N.A. dated December 21, 2006(2)                                                                                                                                                                                                                                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.6        |       | Collateral Assignment  of Leases and Rents made by Faith Realty, LLC in favor of Bank of  America, N.A. dated December 21, 2006(2)                                                                                                                                                                                                                                                                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.7        |       | Assignment of Project  Contracts made by Faith Realty, LLC in favor of Bank of America, N.A.  dated December 21, 2006(2)                                                                                                                                                                                                                                                                                                                                            |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.8        |       | Assumption and  Modification Agreement by and among Faith Realty, LLC, Summer  Infant, Inc., and Bank of America, N.A. dated March 6, 2007(2)                                                                                                                                                                                                                                                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.9        |       | Revolving Credit  Agreement by and among Bank of America, N.A. and Summer Infant, Inc.,  Summer Infant Europe Limited, and Summer Infant Asia Limited dated  July 19, 2005, as amended on December 29, 2005, April 30,  2006, July 31 2006, and December 21, 2006(2)                                                                                                                                                                            |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.10       |       | Amendment to Revolving  Credit Agreement dated January 30, 2008 by and among Bank of America,  N.A. and Summer Infant, Inc., Summer Infant Europe Limited, and Summer  Infant Asia Limited dated July 19, 2005, as amended. (5)                                                                                                                                                                                                                                |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.11       |       | Security Agreement by  and between Summer Infant, Inc. and Bank of America, N.A. dated  July 19, 2005(2)                                                                                                                                                                                                                                                                                                                                                            |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.12       |       | Deed of Guarantee and  Debenture between Summer Infant Europe Limited and Bank of America, N.A.  dated October 28, 2005 (2)                                                                                                                                                                                                                                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.13       |       | Acquisition  agreement by and between Kiddopotamus and Company and Summer  Infant, Inc., dated April 18, 2008 (6)                                                                                                                                                                                                                                                                                                                                                   |

 

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| 10.14   |   | Registration  Rights Agreement, dated as f April 18, 2008, by and among Summer  Infant, Inc. and J. Chris Snedeker and Kristen Peterson Snedeker (6) |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                           |
| 10.15   |   | Voting Agreement (1)                                                                                                                                           |
|    |   |                                                                                                                                                           |
| 10.16   |   | Escrow Agreement (1)                                                                                                                                           |
|    |   |                                                                                                                                                           |
| 10.17   |   | Registration Rights  Agreement by and among the Company and Jason Macari and Steven Gibree (1)                                                                 |
|    |   |                                                                                                                                                           |
| 10.18** |   | Dr. Marlene Krauss  Employment Agreement (1)                                                                                                              |
|    |   |                                                                                                                                                           |
| 10.19** |   | Jason Macari Employment  Agreement (1)                                                                                                                         |
|    |   |                                                                                                                                                           |
| 10.20** |   | Steven Gibree  Employment Agreement (1)                                                                                                                        |
|    |   |                                                                                                                                                           |
| 10.21** |   | Joseph Driscoll  Employment Agreement (1)                                                                                                                      |
|    |   |                                                                                                                                                           |
| 10.22** |   | 2006 Performance Equity  Plan (1)                                                                                                                              |
|    |   |                                                                                                                                                           |
| 10.23   |   | Distribution and  License Agreement by and between The Blanket Factory Ltd. and Summer  Infant, Inc. dated February 9, 2007 (2)                 |
|    |   |                                                                                                                                                           |
| 21.1    |   | List of Subsidiaries  (5)                                                                                                                                      |
|    |   |                                                                                                                                                           |
| 23.1*   |   | Consent  of Independent Registered Public Accounting Firm                                                                                                      |
|    |   |                                                                                                                                                           |
| 31.1*   |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                      |
|    |   |                                                                                                                                                           |
| 31.2*   |   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                      |
|    |   |                                                                                                                                                           |
| 32.1*   |   | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906  of the Sarbanes-Oxley Act of 2002)                        |
|    |   |                                                                                                                                                           |
| 32.2*   |   | Certification of Chief  Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906  of the Sarbanes-Oxley Act of 2002)                        |

 

----

| *      | Filed herewith                                                                                                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                               |
| **     | Management contract or  compensatory plan or arrangement                                                                           |
|   |                                                                                                                               |
| (1)    | Incorporated by  reference to Annex A of the Definitive Proxy Statement  (No. 000-51228), filed February 13, 2007   |
|   |                                                                                                                               |
| (2)    | Incorporated by  reference to the Current Report on Form 8-K filed March 12, 2007                                        |
|   |                                                                                                                               |
| (3)    | Incorporated by reference  to the Form 8-A filed March 6, 2007                                                           |
|   |                                                                                                                               |
| (4)    | Incorporated by  reference to the Registration Statement on Form S-1 (File  No. 333-122988) filed February 25, 2005 |
|   |                                                                                                                               |
| (5)    | Incorporated by  reference to the Annual Report on Form 10-K filed March 27, 2008                                        |
|   |                                                                                                                               |
| (6)    | Incorporated by  reference to the Current Report on Form 8-K filed April 18, 2008                                        |
|   |                                                                                                                               |
| (7)    | Incorporated by  reference to the Quarterly Report on Form 10-Q filed May 12, 2008                                       |

 

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