Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

----

 

**FORM 10-K/A**

**(AmendmentNo. 3)**

 

**(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** |

 

**Forthe transition periodfrom             to              **

 

**CommissionFile No. 001-33346**

 

----

 

**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’sTelephone Number, Including Area Code)

 

----

 

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 ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.  YES o  NO x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  YES o  NO x

 

Indicate by check mark whetherthe registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days.  YES x  NO o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter)during the preceeding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes o  No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendmentto this Form 10-K.  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company. 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 markwhether registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  YES o  NO x

 

The aggregate marketvalue of the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was sold, or theaverage bid and asked price of such common equity, as of December 31, 2008approximately $21,400,000.

 

The number of sharesoutstanding of the registrant’s common stock as of March 25, 2009 was15,404,782.

 

 

 

----

Tableof Contents

 

**ExplanatoryNote**

 

On November 2,2009, we announced that certain of our previously issued financial statementsfor the fourth quarter and full year 2008 must be restated because they containerrors under accounting principles generally accepted in the United Statesrelating to accounting for interest rate swap agreements. In 2007 and 2008 weentered into various interest rate swap agreements that are required by ourloan agreement with Bank of America.  Thefair value of the swaps approximated the stated value from the inception of theswaps until the fourth quarter of 2008. During the fourth quarter of 2008, thefair value of the swaps declined due to the dislocation in the financialmarkets, but this was not recorded by us. Therefore, we are restating our 2008results to record an increase in net liabilities and a reduction ofstockholders’ equity (through an after-tax charge in the income statement) ofapproximately $0.7 million, which reflects the reduced fair value of the swapsat December 31, 2008.  This willreduce stockholders’ equity from $62.2 million to $61.5 million at December 31,2008.   We are filing this Amendment No. 3(the “Amended Report”) to our Annual Report on Form 10-K for the fiscalyear ended December 31, 2008 (as amended from time to time  prior to the date hereof, the “OriginalReport”) in order to restate our 2008 financial statements to correct theseerrors in the Original Report and in the consolidated financial statements as ofand for the year ended December 31, 2008 contained therein.

 

Forthe reasons discussed above, we are filing this Amended Report in order toamend Item 7 “Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” Item 8 “Financial Statements and SupplementaryData,” Item 9A “Controls and Procedures,” and Item 15 “Exhibits, FinancialStatement Schedules” of the Original Report to the extent necessary to reflectthe adjustments discussed above and a few other minor revisions. The remainingItems of our Original Report are not amended hereby and are repeated hereinonly for the reader’s convenience.

 

Inorder to preserve the nature and character of the disclosures set forth in theOriginal Report, except as expressly noted above, this report speaks as of thedate of the filing of the Original Report, March 25, 2009, as amended on April 30,2009 and August 18, 2009, and we have not updated the disclosures in thisreport to speak as of a later date. All information contained in this AmendedReport is subject to updating and supplementing as provided in our reportsfiled with the SEC subsequent to the date of the Original Report.

 

----

Tableof Contents

 

**INDEXTO FORM 10-K**

**FORTHE FISCAL 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**    |                                                                                                                |

 

----

Tableof Contents

 

**FORWARD-LOOKINGSTATEMENTS**

 

This annual report on Form 10-Kcontains, in addition to historical information, forward-looking statementswithin the meaning of the Private Securities Litigation Reform Act of 1995.These forward-looking statements are based on management’s current expectationsand are subject to a number of factors and uncertainties, which could causeactual results to differ materially from those described in such statements. Wecaution investors that actual results or business conditions may differmaterially from those projected or suggested in forward-looking statements as aresult of various factors including, but not limited to, the risk factorsdescribed below. We cannot assure you that we have identified all the factorsthat create uncertainties. Readers should not place undue reliance onforward-looking statements.

 

**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 Healthcare Acquisition Corp. II (“KBL”),and its wholly owned subsidiary, SII Acquisition Corp. (“Acquisition Sub”),consummated a transaction by which (i) Summer Infant, Inc. (“SII”)was merged with and into Acquisition Sub and (ii) all of the outstanding capitalstock of each of Summer Infant Europe, Limited (“SIE”) and Summer InfantAsia, Ltd. (“SIA” and, collectively, with SII and SIE, the “Targets”) wasacquired directly by KBL. As used in this Report, the term “Summer” includeseach of the Targets. As used in this Report, the term “Company” means theregistrant on a post-acquisition basis. On March 7, 2007, the securitiesof the Company commenced listing on the Nasdaq Capital Market under the symbolsSUMR (common stock), SUMRW (warrants) and SUMRU (units).

 

Effective upon closing,the Company changed its name to Summer Infant, Inc. and SII changed itsname to Summer Infant (USA), Inc. Thus, the Company is now a holdingcompany called Summer Infant, Inc. operating though its wholly-ownedsubsidiaries, Summer Infant (USA), Inc., Summer Infant Europe, Limited,Summer Infant Canada, Ltd. (“SIC”) and Summer Infant Asia, Ltd.

 

**General**

 

We are a designer,marketer, and distributor of branded juvenile health, safety and wellnessproducts which are sold principally to large North American and UK retailers.We currently have more than 80 proprietary products in various productcategories including nursery audio/video monitors, safety gates, durable bathproducts, bed rails, related health and safety products, booster and pottyseats, bouncers and a product line of soft goods/bedding. In addition, theBasic Comfort and Kiddopotamus acquisitions added items such as infant sleeppositioners, head supports, portable changing pads, as well as nursery andfeeding accessories. Our products are sold primarily to U.S. retailersincluding Babies R Us, Target, KMart, Buy Buy Baby, Meijer, Baby Depot(Burlington Coat Factory) and Wal-Mart.

 

We maintain through SIE asales, marketing and distribution office in England, which services the UnitedKingdom and other parts of Europe. SIE’s largest customers are Mothercare, ToysR Us, Argos, and Tesco. In 2008, Summer Infant (USA), including internationalsales managed out of the U.S., accounted for approximately 90% of revenue, SICaccounted for approximately 4%, and SIE accounted for approximately 6%.

 

We maintain through SIA aproduct development, engineering and quality assurance office, which overseesthe production of all product lines made in China.

 

**Strategy**

 

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

 

·                         increased product penetration (moreproducts at each store);

 

·                         increased store penetration (more storeswithin each retail customer);

 

·                         new products (at existing and newcustomers);

 

1

----

Tableof Contents

 

·                         new mass merchant retail customers;

 

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

 

·                         new geographies (international expansion);

 

·                         new product categories; and

 

·                         acquisitions.

 

We have been able to growour annual revenues historically through a combination of all of the abovefactors. Each year, we have been able to expand the number of products in ourmain distribution channel, mass merchant retailers, and have also added newcustomers each year. Therefore, even without new product introductions, wecould grow our business by simply selling more of our existing product line toexisting customers.

 

In the future, our growthstrategy will be to continue to develop and sell new products to our existingcustomer base, sell new and existing products to new customers (or expandrelationships with existing customers), to expand our sales of products fromour soft goods product line, and to expand in the UK and in other geographicregions (including Japan, Mexico and Australia, among others). In addition,there are a number of potential acquisition candidates that could be pursued inorder to obtain new innovative products, new product categories, new retailcustomers or new sales territories. There are approximately 400 active juvenileproduct companies, of which approximately 300 have less than $10 millionin sales. In addition, there are various product categories that we do notcurrently compete in, including car seats, high chairs, walkers, nursery care,and other categories. We may look to develop our own products in thesecategories or attempt to gain entrance into these categories throughacquisitions.

 

**Products**

 

We sell over eightyproprietary products listed in order of dollar volume importance: (i) nurseryaudio/video monitors (approximately 27% of net sales for the year ended December 31,2008), (ii) baby gates (approximately 17% of net sales for the year ended December 31,2008), (iii) durable bath products (approximately 11% of net sales for theyear ended December 31, 2008), (iv) bed rails, booster seats, pottyseats, soft goods, bouncers and other products (approximately 45% of net salesfor the year ended December 31, 2008).

 

New product developmentteams have also been established to enter several new categories in 2008 and2009. One team is focused on play yards, swings, high chairs and other “babygear” categories. The other team is focused on the infant soft goods marketcomprised mainly of bedding, blankets, home furnishings, layette and soft bathproducts.

 

**ProductDevelopment and Design**

 

Our management believesthat product development is a critical element of our strategy and success todate. Our product strategy is to produce proprietary products that providedistinctive benefits, are visually appealing, provide convenience and willappeal to the mid-tier and upper-tier buyers. Our U.S. retailers arestrategically motivated to buy innovative, up-market products. Our main productdevelopment efforts are located at our Rhode Island corporate office, but wealso have development efforts in China (six person sourcing, electronics and QAteam), Colorado, South Carolina (five person soft goods design office) andEngland (two-person team focused on meeting UK and EU standards and marketdemands).

 

**Suppliersand Manufacturing**

 

Except for certaininjection-molded bath tubs, potty seats and gates, which are manufactured inthe U.S., substantially all of our other products are manufactured in southernChina at factories near Hong Kong. We use many different suppliers, andtherefore we are not dependent on any one manufacturer. We own our own molds.SIA provides us with a local sourcing presence and the ability to overseequality, electronic engineering and other issues that may arise duringproduction.

 

Transportation ofChina-made goods to our warehouses typically takes three to four weeks,depending on the location of the warehouse. We maintain our inventory atwarehouses located in California, Rhode Island, Canada, and the

 

2

----

Tableof Contents

 

United Kingdom. Most ofour customers pick up their goods at regional warehouses. We also use UPS andother common carriers to arrange shipments to customers who request sucharrangements, primarily smaller retailers and specialty stores.

 

We use severalmanufacturers in the U.S. for our injection molded products that account forbetween 15% and 20% of our annual net sales.

 

**Salesand Marketing**

 

Our sales are primarilyderived from the sale of juvenile health, safety and wellness products and arerecognized upon transfer of title of product to our customers. Our products aremarketed and sold through several distribution channels including chainretailers, specialty retailers and direct to consumers.

 

Sales are made utilizingstandard credit terms of 30 to 60 days. We generally accept returns onlyfor defective merchandise.

 

**Competition**

 

The juvenile health,safety and wellness industry has many participants, none of which have dominantmarket share, though certain companies have disproportionate strength incertain segments. Our largest direct competitors are Dorel Industries (Safety1st and Cosco brands), Evenflo (Evenflo, Gerry, and Snugli brands),Fisher-Price (part of Mattel, Inc.), The First Years (a subsidiary of RC2Corporation) and Graco (a subsidiary of Newell Rubbermaid). In addition, wecompete in certain of our product lines with a number of smaller privatecompanies, such as KidCo, Inc. and Munchkin.

 

The primary methods ofcompetition in the industry consist of product innovation, brand positioning,quality, price and other factors such as timely distribution. Our competitivestrengths include our experienced product development staff, our ability todevelop new products, brand positioning, relationships with major retailers,and the quality and pricing of our products.

 

**IntellectualProperty**

 

We rely on a combinationof patents, licenses and trade secrets to protect our intellectual property.Our patents currently in effect include various design features related tobedrails, infant seats, bouncers, and potty chairs, with several other patentspending for monitors, baby swings, and other items. The patents expire atvarious times over the next 20 years. We also have license agreementsrelating to the use of patented technology owned by third parties in certain ofour products. We are the sole owner of the molds used in manufacturing ourproducts.

 

**Customers**

 

Our top 15 customers inNorth America and the United Kingdom together comprised over 90% of our salesin fiscal 2008. Some of these customers include Babies 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 significantvariations in seasonal demand for our products. Sales to our retail customersare generally higher in the time frame when retailers take initial shipments ofnew products. These orders usually incorporate enough product to fill eachstore plus additional amounts to be kept at the customer’s distribution center.The timing of these initial shipments varies by customer depending on when theyfinalize store layouts for the upcoming year, and whether there are anymid-year product introductions.

 

**GeographicRegions**

 

Approximately 92% of oursales in fiscal 2008 were made in North America, primarily the United States(88%) and Canada (4%). The remaining 8% of sales in fiscal 2008 were made inthe United Kingdom and all other international accounts.

 

3

----

Tableof Contents

 

**Facilities**

 

We are headquartered in a52,000 square foot headquarters/warehouse facility in Woonsocket, Rhode Island.This facility provides for 24,000 square feet of office space and a 40,000square foot warehouse. We are the owner of this facility.

 

We have a 36 month,3,750 square foot lease for office space in South Carolina, which expires in2010. We have a 24 month lease for office space in Hong Kong, whichexpires in 2009, as well as a 60 month lease for office space in theUnited Kingdom, which expires in 2012.

 

We maintain inventory atleased warehouses in California (two warehouses which total approximately170,000 square feet) and Rhode Island (approximately 72,000 square feet),Colorado (approximately 90,000 square feet), Canada (approximately 31,000square feet) and the United Kingdom (approximately 16,000 square feet). Theleases expire at various times between 2009 and 2013.

 

**RegulatoryMatters**

 

We obtain all necessaryregulatory agency approvals for each of our products. In the U.S., theseapprovals may include, among others, one or more of the Consumer Product SafetyCommission (“CPSC”), the American Society of Test Methods (“ASTM”), theJuvenile Products Manufacturing Association (“JPMA”), the FederalCommunications Commission (“FCC”) and the Food and Drug Administration (“FDA”).We conduct our own internal testing, which utilizes a “foreseeable use andabuse” 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 productliability insurance policy that provides us with $9,000,000 of liabilitycoverage with a minimal deductible. We consult with our insurers to ascertainappropriate liability coverage for our product mix. We anticipate increasingour insurance coverage in the future in line with our expanding sales andproduct breadth.

 

**Employees**

 

As of December 31,2008, we employed a total of 170 people, 95 of whom work in the headquartersand distribution centers in Rhode Island. Our employees are not covered by acollective bargaining agreement. We consider our employee relations to be good.

 

4

----

Tableof Contents

 

**AvailableInformation**

 

We maintain our corporatewebsite 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 orcircumstances described in the following risks actually occur, our business,financial condition or results of operations could be materially adverselyaffected. In those cases, the trading price of our common stock could decline.

 

***The concentration of our business with a base of retailcustomers that make no binding long-term commitments means that economicdifficulties or changes in the purchasing policies of our major customers couldhave a significant impact on our business.***

 

A number of large, retailcustomers account for a majority of our net sales. Customers that generatedmore than 10% of net sales for the year ended December 31, 2008 were ToysR Us (48% of net sales), and Target (10% of net sales). Because of theconcentration of our business with these customers, and because we have no longterm contracts with these customers, our success depends on our customers’willingness to purchase and provide shelf space for our products. An adversechange in our relationship with any of our large customers or a change in thefinancial viability of any of these customers could adversely affect ourresults of operations and financial condition.

 

***Our ability to grow and compete will be harmed if we do notsuccessfully satisfy consumer preferences, enhance existing products, developand introduce new products, and achieve market acceptance of those products.***

 

Our business andoperating results depend largely upon the appeal of our products. Consumerpreferences, particularly among parents, who are the end purchasers of ourproducts, are constantly changing. Our success will, in large part, depend onour ability to identify emerging trends in the health, safety and wellnessmarketplace, and design products that address consumer demand and prove safeand cost effective. Our product offerings compete with those of many other companies,many of which are much larger and enjoy broader brand recognition andsignificant distribution channel relationships, which means that our marketposition is always at risk. Our ability to maintain and increase our currentmarket share will depend upon our ability to anticipate changes in consumerpreferences and satisfy these preferences, enhance existing products, developand introduce new products and establish and grow distribution channels forthese products, and ultimately achieve market acceptance of these products.

 

***We are dependent on key personnel, and our ability to growand compete in our industry will be harmed if we do not retain the continuedservices of our key personnel, or we fail to identify, hire, and retainadditional qualified personnel.***

 

We are dependent on theefforts of our management team, and the loss of services of members of ourmanagement team, each of whom has substantial experience in the juvenilehealth, safety and wellness markets, could have an adverse effect on our business.If any members of management leave, their departure could have an adverseeffect on our operations and could adversely affect our ability to design newproducts and to maintain and grow the distribution channels for our products.

 

In addition, if ouroperations continue to grow in a manner consistent with our historical growthrates, it will be necessary for us to attract and retain additional qualifiedpersonnel. The market for qualified and talented product development personnelin the consumer goods market, and the juvenile health, safety and wellnessproducts market specifically is intensely competitive. If we are unable toattract or retain qualified personnel as needed, the growth of our operationscould be slowed or hampered. However, we believe that Summer Infant’scompensation including salary, performance-based bonuses, and stock awardprograms provides incentives that are competitive within our industry.

 

5

----

Table of Contents

 

***Intellectual property claims relating to our products couldincrease our costs and adversely affect our business.***

 

We have, from time totime, received claims of alleged infringement of patents relating to certain ofour products, and we may face similar claims in the future. These claims relateto alleged patent infringement and are primarily the result of newly issuedpatents that were not in force when we initially brought the subject productsto market. The defense of intellectual property claims can be costly and timeconsuming, even in circumstances where the claim is without merit. We may berequired to pay substantial damages or settlement costs in order to resolvethese types of claims. In addition, these claims could materially harm ourbrand name, reputation and operations.

 

***We rely on foreign suppliers in China to manufacture themajority of our products, and any adverse change in our relationship with oursuppliers could harm our business.***

 

We rely on numerousthird-party suppliers located in China for the manufacture of most of ourproducts. While we believe that alternative suppliers could be located ifrequired, our product sourcing could be affected if any of these suppliers donot continue to manufacture our products in required quantities or at all, orwith the required levels of quality. We enter into purchase orders with ourforeign suppliers and do not enter into any long term contracts. In addition,difficulties encountered by these suppliers, such as fire, accident, naturaldisasters, outbreaks of contagious diseases, or political unrest, could halt ordisrupt production at the affected locations, resulting in delay orcancellation of orders. Any of these events could result in delayed deliveriesby us of our products, causing reduced sales and harm to our reputation andbrand name.

 

In particular, in 2008,our suppliers based in China faced significant additional costs, as a result ofraw materials shortages, the further strengthening of the Chinese currency(“RMB”) versus the US dollar, rising labor rates and increases in energyprices. While we anticipate being able to pass on some portion of theseincreased costs to our customers, continued cost pressures on our supplierswill inevitably be passed on to us

 

***Increases in the cost of materials or labor used tomanufacture our products could decrease our profitability and thereforenegatively impact our business and financial condition.***

 

Because our products aremanufactured by third-party suppliers, we do not directly purchase thematerials used in the manufacture of our products. However, the prices paid byus to these suppliers could increase if raw materials, labor, or other costsincrease. If we cannot pass these increases along to our customers, ourprofitability will be adversely affected.

 

***Because we rely on foreign suppliers and we sell in toforeign markets, we are subject to numerous risks associated with internationalbusiness that could increase our costs or disrupt the supply of our products,resulting in a negative impact on our business and financial condition.***

 

Our internationaloperations subject us to risks, including:

 

·        economic and political instability,

 

·        restrictive actions by foreign governments,

 

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

 

·        changes in import duties or import or exportrestrictions,

 

·        timely shipping of product and unloading of productthrough West Coast ports, as well as timely truck delivery to our warehouses,

 

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

 

·        complications in complying with trade and foreign taxlaws.

 

Any of these events orcircumstances could disrupt the supply of our products or increase ourexpenses.

 

6

----

Tableof Contents

 

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

 

Because we sell infantand juvenile health, safety and wellness products to consumers, we face productliability risks relating to the use of our products. We also must comply with avariety of product safety and product testing regulations. If we face a productliability claim or fail to comply with these regulations, we may be subject tocostly litigations, damage awards, fines or settlement costs that exceed ourinsurance coverage. We also would incur significant costs in connection withany product recall requirements. Even if a product liability claim is withoutmerit, the claim could harm our reputation and divert management’s attentionand resources from our business.

 

***Competition in our markets could reduce our net sales andprofitability.***

 

We operate in highlycompetitive markets. We compete with several large domestic and foreigncompanies and with other producers of infant products. Many of our competitorshave longer operating histories, greater brand recognition, and greaterfinancial, technical, marketing and other resources than we have. In addition,we may face competition from new participants in our markets because the infantproduct industry has limited barriers to entry. We experience price competitionfor our products, competition for shelf space at retailers and competition forlicenses, all of which may increase in the future. If we cannot competesuccessfully in the future, our net sales and profitability will likelydecline.

 

***We may experience difficulties in integrating strategicacquisitions.***

 

As part of our growthstrategy, we intend to pursue acquisitions that are consistent with our missionand enable us to leverage our competitive strengths. The integration ofacquired companies and their operations into our operations involves a numberof risks, including:

 

·        the acquired business may experience losses that couldadversely affect our profitability;

 

·        unanticipated costs relating to the integration ofacquired businesses may increase our expenses;

 

·        possible failure to obtain any necessary consents tothe transfer of licenses or other agreements of the acquired company;

 

·        possible failure to maintain customer, licensor andother relationships after the closing of the transaction of the acquiredcompany;

 

·        difficulties in achieving planned cost-savings andsynergies may increase our expenses or decrease our net sales;

 

·        diversion of management’s attention could impair theirability to effectively manage our business operations; and

 

·        unanticipated management or operational problems orliabilities may adversely affect our profitability and financial condition.

 

In addition, any futureacquisitions or investments may result in:

 

·        issuances of dilutive equity securities, which may besold at a discount to market price;

 

·        use of significant amounts of cash;

 

·        the incurrence of debt;

 

·        the assumption of significant liabilities;

 

·        unfavorable financing terms;

 

·        large one-time expenses; and

 

7

----

Tableof Contents

 

·        the creation of intangible assets, including goodwill,the write-down of which may result in significant charges to earnings.

 

***Our debt covenants may limit our ability to completeacquisitions, incur debt, make investments, sell assets, merge or completeother significant transactions.***

 

Our line of credit includesprovisions that place limitations on a number of our activities, including ourability to:

 

·        incur additional debt;

 

·        create liens on our assets or make guarantees;

 

·        make certain investments or loans;

 

·        pay dividends; or

 

·        dispose of or sell assets or enter into a merger orsimilar transaction.

 

***We could issue additional common stock, which might dilutethe book value of our common stock.***

 

Our board of directorshas authority, without action or vote of our stockholders in most cases, toissue all or a part of our authorized but unissued shares. These stockissuances could be made at a price that reflects a discount from thethen-current trading price of our common stock. In addition, to raise capital,we may need to issue securities that are convertible into or exchangeable for asignificant amount of our common stock. These issuances would dilute currentshareholders’ ownership percentage which would have the effect of reducingtheir influence on matters on which stockholders vote, and could dilute thebook value of Summer Infant common stock. Stockholders may incur additionaldilution if holders of stock options, whether currently outstanding orsubsequently granted, exercise their options, or if warrant holders exercisetheir warrants to purchase shares of Summer Infant common stock.

 

***As a “thinly-traded” stock, large sales can place downwardpressure on our stock price.***

 

Our common stockexperiences periods when it could be considered “thinly traded.” Financetransactions resulting in a large amount of newly issued shares that becomereadily tradable, or other events that cause current stockholders to sellshares, could place downward pressure on the trading price of our stock. Inaddition, the lack of a robust resale market may require a stockholder to sella large number of shares in increments over time to mitigate any adverse impactof the sales on the market price of our stock.

 

***Anti-takeover provisions in our organizational documents andDelaware law may limit the ability of our stockholders to control our policiesand effect a change of control of our company and may prevent attempts by ourstockholders to replace or remove our current management, which may not be inyour best interests.***

 

There are provisions inour certificate of incorporation and bylaws that may discourage a third partyfrom making a proposal to acquire us, even if some of our stockholders mightconsider the proposal to be in their best interests, and may prevent attemptsby our stockholders to replace or remove our current management. Theseprovisions include the following:

 

·        our certificate of incorporation provides for threeclasses of directors with the term of office of one class expiring each year,commonly referred to as a staggered board. By preventing stockholders fromvoting on the election of more than one class of directors at any annualmeeting of stockholders, this provision may have the effect of keeping thecurrent members of our board of directors in control for a longer period oftime than stockholders may desire;

 

·        our certificate of incorporation authorizes our boardof directors to issue shares of preferred stock without stockholder approvaland to establish the preferences and rights of any preferred stock issued,which would allow the board to issue one or more classes or series of preferredstock that could discourage or delay a tender offer or change in control; and

 

·        our bylaws require advance written notice ofstockholder proposals and director nominations.

 

8

----

Tableof Contents

 

Additionally, we aresubject to Section 203 of the Delaware General Corporation Law, which, ingeneral, imposes restrictions upon acquirers of 15% or more of our stock.Finally, the board of directors may in the future adopt other protectivemeasures, such as a stockholder rights plan, which could delay, deter orprevent a change of control.

 

***The global economic downturn could result in a reduceddemand for our products and increased volatility in our stock price.***

 

Current uncertainty inglobal economic conditions pose a risk to the overall economy as consumers andretailers may defer or choose not to make purchases in response to tightercredit and negative financial news, which could negatively affect demand forour products. Additionally, due to the weak economic conditions and tightenedcredit environment, some of our retailers and distributors may not have thesame purchasing power, leading to lower purchases of our products for placementinto distribution channels. Consequently, demand for our products could bematerially different from expectations, which could negatively affect ourprofitability and cause our stock price to decline.

 

**Item 1B. Unresolved Staff Comments**

 

None.

 

**Item 2. Properties**

 

We are headquartered in a52,000 square foot headquarters/warehouse facility in Woonsocket, Rhode Island.This facility provides for 24,000 square feet of office space and a 28,000square foot warehouse. We are the owner of this facility.

 

We have a 36 month,3,750 square foot lease for office space in South Carolina, which expires in2010. We have a 24 month lease for office space in Hong Kong, whichexpires in 2009, as well as a 60 month lease for office space in theUnited Kingdom, which expires in 2012.

 

We maintain inventory atleased warehouses in California (approximately 170,000 square feet, whichincludes two warehouses), Rhode Island (approximately 72,000 square feet),Colorado (approximately 90,000 square), Canada (approximately 31,000 squarefeet), and the United Kingdom (approximately 16,000 square feet). These leasesexpire at various times between 2009 and 2013.

 

9

----

Tableof Contents

 

**Item 3. Legal Proceedings**

 

None.

 

**Item 4. Submission of Matters to a Voteof Security Holders**

 

No matter was submittedto a vote of our stockholders during the fourth quarter of the year ended December 31,2008.

 

**PART II**

 

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

 

*PriceRange of Common Stock*

 

On March 7, 2007,our common stock, warrants and units commenced listing on the Nasdaq CapitalMarket under the symbols “SUMR”, “SUMRW” and “SUMRU”, respectively.

 

On March 17, 2008,we announced that effective March 28, 2008, the units will be separatedinto its component securities, consisting of one share of common stock and twowarrants. As a result, beginning on March 28, 2008, the units ceasedtrading.

 

The high and low closingprices for our common stock as reported on the Nasdaq Capital Market for theperiods 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 |   |

 

*Holdersof Common Stock*

 

As of March 14,2009, there were approximately thirteen shareholders of record of our commonstock. Because shares of our common stock are held by depositaries, brokers andother nominees, the number of beneficial holders of our shares is substantiallylarger than the number of record holders.

 

*DividendPolicy*

 

There have been no cashdividends declared on our common stock since our company was formed. Dividendsare declared at the sole discretion of our Board of Directors. Our intention isnot to declare cash dividends and retain all cash for our operations.

 

*IssuerRepurchases of Equity Securities*

 

On October 9, 2007,we made a tender offer to all holders of our warrants to repurchase eachwarrant for $1.00. The tender offer expired on November 8, 2007. The totalnumber of warrants purchased in the tender offer was 14,766,047. All of thewarrants which remained after the tender offer expired on April 20, 2009.

 

10

----

Tableof Contents

 

**Item 6. Selected Consolidated FinancialData**

 

N/A

 

**Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations (dollar amounts in thousands, except share and per sharedata)**

 

The information containedin this section has been derived from our consolidated financial statements andshould be read together with our consolidated financial statements and relatednotes included elsewhere in this filing.

 

The following discussionis intended to assist in the assessment of significant changes and trendsrelated to our results of operations and financial condition. This discussionand analysis should be read in conjunction with our consolidated financialstatements and notes thereto included herein. Our business has grownorganically in all of our markets. We derive our revenues from the sale ofhealth, safety and wellness products for infants and toddlers. Our revenue isdriven by our ability to design and market desirable products, identifybusiness opportunities and secure new and renew existing distribution channels.Our income from operations is derived from our ability to generate revenue andcollect cash in excess of labor and other costs of providing our products andselling, general and administrative costs.

 

**CompanyOverview**

 

We are a designer,marketer, and distributor of branded juvenile health, safety and wellnessproducts which are sold principally to large North American and UK retailers.We currently have more than 80 proprietary products in various productcategories including nursery audio/video monitors, safety gates, durable bathproducts, bed rails, infant thermometers, related health and safety products,booster and potty seats, bouncers and a product line of soft goods/bedding.

 

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

 

·        increased product penetration (more products at eachstore);

 

·        increased store penetration (more stores within eachretail customer);

 

·        new products (at existing and new customers);

 

·        new mass merchant retail customers;

 

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

 

·        new geographies (international expansion); and

 

·        new product categories.

 

We have has been able togrow our annual revenues historically through a combination of all of the abovefactors. Each year, we have been able to expand the number of products in ourmain distribution channel, mass merchant retailers, and have also added newcustomers each year. Therefore, even without new product introductions, wecould grow our business by simply selling more of our existing product line toexisting customers.

 

In the future, our growthstrategy will be to continue to develop and sell new products to our existingcustomer base, sell new and existing products to new customers (or expandrelationships with existing customers), expand our sales of products from oursoft goods product line, and expand in the UK and in other geographic regions(including Japan, Mexico and Australia, among others). In addition, there are anumber of potential acquisition candidates that could be pursued in order toobtain new innovative products, new product categories, new retail customers ornew sales territories. There are approximately 400 active juvenile productcompanies, of which approximately 300 have less than $10 million in sales.In addition, there are various product categories that we do not currentlycompete in, including car seats, high chairs, walkers, nursery care, and othercategories. We may look to develop our own products in these categories or attemptto gain entrance into these categories through acquisitions.

 

As we continue to growthrough internal initiatives and any future acquisitions, we will incuradditional expenses. Two of the key areas in which those increased expenseswill likely occur are sales and product development. In order to grow

 

11

----

Tableof Contents

 

sales, we will likelyhire additional sales personnel to service new geographic territories, focusexisting resources on specific parts of the United States market and retainproduct line specialists to drive sales of new and existing products inspecific 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 oneor more companies as part of our growth strategy, we would face variouschallenges such as the integration of the acquired companies’ product lines,employees, marketing requirements and information systems. Ongoinginfrastructure investment also may be required to support realized growth,including expenditures with respect to upgraded and expanded informationsystems and enhancing our management team.

 

*Sales*

 

Our revenues areprimarily derived from the sale of juvenile health, safety and wellnessproducts and are recognized upon transfer of title of product to our customers.Our products are marketed through several distribution channels including chainretailers, specialty retailers and direct to consumers.

 

A number of large, retailcustomers account a majority of our net sales. Customers that generated morethan 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 net sales). Because of theconcentration of our business with these customers, and because we have no longterm contracts with these customers, our success depends on our customers’willingness to purchase and provide shelf space for our products.

 

Over 90% of sales arecurrently made to customers in North America, with the remaining salesprimarily made to customers in the UK. Sales are made utilizing standard creditterms of 30 to 60 days. We generally accept returns only for defectivemerchandise.

 

*Cost ofgoods sold and other expenses*

 

Our products aremanufactured by third parties, with approximately 80-85% of the dollar value ofproducts being manufactured in China and the majority of the balance being manufacturedin the United States. Cost of goods sold primarily represents purchases offinished products from these third party manufacturers. The remainder of ourcost of goods sold includes duties on certain imported items, freight-in fromsuppliers and miscellaneous charges from contract manufacturers. Substantiallyall of our purchases are made in US dollars; therefore, most of this activityis not subject to currency fluctuations. If our suppliers experience increasedraw materials, labor or other costs and pass along those cost increases throughhigher prices for finished goods, our cost of sales would increase, and to theextent we are unable to pass these price increases along to our customers, ourgross margins would decrease.

 

Selling, general andadministrative expenses primarily consist of payroll, insurance, professionalfees, royalties, freight out to customers, product development costs,advertising and marketing expenses (including co-op advertising allowances asnegotiated with certain customers) and sales commissions. Several of theseitems fluctuate with sales, some are based on sales to particular customers andothers are based on sales of particular products.

 

In particular, in 2008,our suppliers based in China faced significant additional costs, as a result ofraw materials shortages, the further strengthening of the Chinese currency(“RMB”) versus the US dollar, rising labor rates and increases in energyprices. Additionally, Chinese suppliers were impacted by Government imposedreductions on tax refunds. While we anticipate being able to pass on someportion of these increased costs to our customers, continued cost pressures onour suppliers will inevitably be passed on to us; although recently we haveexperienced some stabilization with our orient suppliers.

 

There are not significantvariations in seasonal demand for our products. Sales to our retail customersare generally higher in the time frame when retailers take initial shipments ofnew products. These orders usually incorporate enough product to fill eachstore plus additional amounts to be kept at the customer’s distribution center.The timing of these initial shipments varies by customer depending on when theyfinalize store layouts for the upcoming year, and whether there are anymid-year product introductions.

 

**Summaryof critical accounting policies and estimates**

 

This summary of ourcritical accounting policies is presented to assist in understanding ourconsolidated financial statements. The consolidated financial statements andnotes are representations of our management, which is responsible for

 

12

----

Tableof Contents

 

their integrity andobjectivity. These accounting policies conform to accounting principlesgenerally accepted in the United States of America and have been consistentlyapplied in the preparation of the consolidated financial statements.

 

We make certain estimatesand assumptions that affect the reported amounts of assets and liabilities andthe reported amounts of revenues and expenses. The accounting policiesdescribed below are those we consider critical in preparing our financialstatements. Some of these policies include significant estimates made bymanagement using information available at the time the estimates were made.However, these estimates could change materially if different information orassumptions were used.

 

*Revenuerecognition*

 

We follow the guidance ofthe Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin 104for revenue recognition. We record 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, product placement fees, customer discounts and other sales relateddiscounts. We base our estimates for discounts, returns and allowances onnegotiated customer terms and historical experience. These estimates aresubject to variability, as actual deductions taken by customers may bedifferent from the estimates recorded.

 

Sales incentives or otherconsideration given by us to customers that are considered adjustments of theselling price of its products, such as allowances and product placement fees,are reflected as reductions of revenue. Sales incentives and otherconsideration that represent costs incurred by us for assets or servicesreceived, such as the appearance of our products in a customer’s nationalcircular ad, are reflected as selling and marketing expenses in theaccompanying statements of income.

 

*Tradereceivables*

 

We carry our tradereceivables at net realizable value. On a periodic basis, we evaluate our tradereceivables and establish an allowance for doubtful accounts based on a historyof past bad debt expense, collections and current credit conditions. Theallowance is adjusted based on actual write-offs that occur. We have a creditinsurance policy to protect against potential losses up to stated amounts fromcertain customers.

 

We do not accrue intereston trade receivables. A receivable is considered past due if payments have notbeen received within the credit terms on the account, typically 60 daysfor most customers.

 

We will turn an accountover for collection around 120 days past due. Accounts are considereduncollectible if no payments are received 60 to 90 days after they havebeen turned over for collection.

 

*InventoryValuation*

 

Inventory is comprised offinished goods and is stated at the lower of cost, inclusive of freight andduty, or market (net realizable value) using the first-in, first-out (FIFO)method. Our warehousing costs are charged to expense as incurred. Inventorywrite-downs are recorded for damaged, obsolete or slow-moving inventory.Management uses estimates to record write-downs based on its review ofinventory by product category, including length of time on hand and estimatesof future orders for each product. Changes in consumer preferences, as well asdemand for products, customer buying patterns and inventory management couldimpact the inventory valuation.

 

*Impairmentof long-lived assets, goodwill and other intangible assets.*

 

Long-lived assets havebeen reviewed for impairment based on Statement of Financial AccountingStandards (SFAS) No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.” This Statement requires that an impairment loss berecognized whenever the carrying value of an asset exceeds the sum of theundiscounted cash flows expected to result from the use and eventfuldisposition of that asset, excluding future interest costs the entity wouldrecognize as an expense when incurred. Goodwill and other intangible assetshave been reviewed for impairment based on SFAS No. 142, “Goodwill andOther Intangible Assets.” Under this Statement, goodwill and other intangibleassets that have indefinite useful lives are not amortized, but rather testedat least annually for impairment. The Company’s management reviews forindicators that might suggest an impairment loss could exist. Testing forimpairment requires estimates of expected cash flows to be generated from theuse of the assets. Various uncertainties, including changes in consumer

 

13

----

Tableof Contents

 

preference, deteriorationin the political environment, continued adverse conditions in the capitalmarkets or changes in general economic conditions, could impact the expectedcash flows to be generated by an asset or group of assets. Intangible assetsthat have finite useful lives are amortized over their useful lives.

 

*Allowancefor doubtful accounts.*

 

The allowance fordoubtful accounts represents adjustments to customer trade accounts receivablefor amounts deemed uncollectible. The allowance for doubtful accounts reducesgross trade receivables to their estimated net realizable value. The Company’sallowance is based on managements’ assessment of the business environment,customers’ financial condition, historical trends, customer payment practices,receivable aging and customer disputes. The Company will continue toproactively review its credit risks and adjust its customer terms to reflectthe current environment.

 

*Incometaxes*

 

Effective January 1,2007, we adopted the provisions of FASB Interpretation No. 48(“FIN 48”), “Accounting for Uncertainty in Income Taxes—An Interpretationof FASB Statement No. 109.” FIN 48 provides detailed guidance for thefinancial statement recognition, measurement and disclosure of uncertain taxpositions recognized in the financial statements in accordance with SFAS No. 109.Tax positions must meet a “more-likely-than-not” recognition threshold at theeffective date to be recognized upon the adoption of FIN 48 and insubsequent periods. Upon the adoption of FIN 48, we had no unrecognizedtax benefits.

 

Deferred income taxassets are adjusted by a valuation allowance, if necessary, to recognize futuretax benefits only to the extent, based on available evidence; it is“more-likely-than-not” such benefits will be realized. We recognize interestand penalties, if any, related to uncertain tax positions in selling, generaland administrative expenses.

 

The tax years 2004through 2007 remain open to examination by the major taxing jurisdictions inwhich we operate. We expect no material changes to unrecognized tax positionswithin the next twelve months.

 

**Resultsof Operations**

 

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

**ConsolidatedStatements of Income**

**Forthe Years Ended December 31, 2008 and 2007**

**(Inthousands)**

 
| ** **                               | ** ** | **Year  Ended********December 31, 2008********(restated)** | ** ** | **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(as restated)         |       | 1,976                                                           |       | 1,678                                         |       |
| Net  income                              |       | $                                                               | 4,154      |                                          | $          | 3,115 |   |

 

The results of operationsfor the year ended December 31, 2007 represent the combined activity ofKBL Healthcare from January 1, 2007 through March 6, 2007 and theactivity of Summer Infant from March 6, 2007 through December 31,2007. KBL Healthcare historically had no sales or gross profit, while SummerInfant has both sales and gross profit, in addition to other normal operatingexpenses. Therefore, the amounts in the two above periods cannot be compared ina meaningful fashion.

 

To give the reader someadditional information on the performance of the underlying Summer Infantoperations, the following table represents the results of the Summer Infantoperating company for the years ended December 31, 2008 and 2007. Thistable is being presented to give the reader more information about theunderlying performance of the ongoing operating company, because KBL Healthcarehad no operating business in 2007. The 2008 operating results includeKiddopotamus and Basic Comfort from their respective acquisition dates of April 18 th  and March 31 st , through December 31, 2008.

 

14

----

Tableof Contents

 

**SummerInfant, Inc. and Subsidiaries**

**ConsolidatedStatements of Income**

**Forthe Years Ended December 31, 2008 and 2007**

**(Inthousands)**

 
| ** **            | ** ** | **Year  Ended********December 31, 2008********(restated)** | ** ** | **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 | % |

 

----

(a)           Excluding depreciation, amortization, deal-relatedfees, and Non-Cash stock option expense.

 

(b)           See non-GAAP discussion below regarding thecomputation of EBITDA.

 

*Yearended December 31, 2008 compared with year ended December 31, 2007*

 

Net sales increased 64%from approximately $80,517,000 in the year ended December 31, 2007 toapproximately $132,369,000 for the year ended December 31, 2008. Thisincrease was primarily attributable to increased distribution of existingproducts 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 increased54% from approximately $30,480,000 for the year ended December 31, 2007 toapproximately $46,855,000 for the year ended December 31, 2008. Thisincrease was primarily attributable to the 64% increase in net sales, offset byincreased cost of goods due to raw material increases and a change in productmix. The increase in raw materials costs and labor were passed along as costincreases, and to the extent we were unable to pass such price increases alongto our customers, our gross profit percentage year-over-year has decreased.

 

Selling, general andadministrative expenses increased from approximately $22,458,000 for the yearended December 31, 2008 to approximately $34,039,000 for the year ended December 31,2008. This increase was primarily attributable to increased variable costs suchas co-op advertising allowances as a result of the significant increase insales. In addition, there were increased expenditures in product development,headcount, professional fees, and warehouse operations.

 

**Liquidityand Capital Resources**

 

We generally fund ouroperations and working capital needs through cash generated from operations andborrowings under our credit facility.

 

Our sales have increasedsignificantly over the past several years. For the year ended December 31,2003, net sales for the Summer Infant Operating Companies were approximately$17,600,000. For the year ended December 31, 2008, net sales wereapproximately $132,369,000. This sales growth has led to a substantial increasein working capital requirements, specifically accounts receivable andinventory. The typical cash flow cycle is as follows:

 

·        Inventory is purchased to meet expected demand plus asafety stock. Because the majority of our vendors are based in Asia, inventorytakes from four to six weeks to arrive from Asia to the various distributionpoints we maintain in the US, Canada and the UK. Payment terms for thesevendors are approximately 30- 60 days from the date the product ships fromAsia, therefore we are generally paying for the product a short time after itis physically received in the US. The increased sales we have experiencedresult in increased levels of inventory, and therefore an increase in theamount of cash required to fund our inventory level.

 

·        Sales to customers generally have payment terms of60 days. The increased sales have resulted in an increase in the level ofaccounts receivable, and therefore have increased the amount of cash requiredto fund working capital.

 

We have traditionallybeen able to fund our increased working capital through lines of credit withbanks.

 

15

----

Tableof Contents

 

The majority of ourcapital expenditures are for tools related to new product introductions. Wereceive indications from retailers generally around the middle of each year asto what products the retailer will be taking into its product line for theupcoming year. Based on these indications, we will then acquire the toolsrequired to build the products. In most cases the payments for the tools arespread out over a three to four month period.

 

For the year ended December 31,2008, net cash used in operating activities totaled $16,000. This was due tothe positive net income generated during the year, plus non-cash charges, lessworking capital increases (primarily accounts receivable and inventory, whichincreased due to the significant sales increase).

 

Net cash used ininvesting activities was approximately $21,503,000 which primarily relates tothe cash portion of the Basic Comfort and Kiddopotamus acquisitions, inaddition to year to date capital expenditures of approximately $3,863,000 andpurchases of intangible assets totaling $1,682,000.

 

Net cash provided byfinancing activities was approximately $21,714,000 which relates to amountsborrowed to fund increases in working capital and the acquisitions of BasicComfort and Kiddopotamus.

 

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

 

Summer believes that itscash on hand and current banking facilities are sufficient to fund its cashrequirements for at least the next 12 months. However, unforeseencircumstances, such as softness in the retail industry or deterioration in thebusiness of a significant customer, could create a situation where Summercannot access all of the available lines of credit due to not having sufficientassets or EBITDA. In addition, there is no assurance that Summer will meet allof its bank covenants in the future, or that its lender will grant waivers ifthere are covenant violations.

 

Summer’s strategy forfunding its business going forward is a combination of increased profitability,and if necessary, negotiation of increased borrowing lines as required withtraditional lenders.

 

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

 

Summer and itssubsidiaries, Summer Infant (USA), Inc., Summer Infant Europe Limited,Summer Infant Asia Limited and Summer Infant Canada, Limited are the borrowersunder the Loan Agreement. These credit facilities replaced Summer’s prior lineof credit and are being used principally to fund growth opportunities and forworking capital purposes.

 

Summer’s ability toborrow under the Loan Agreement is subject to its ongoing compliance with anumber of financial and other covenants, including the following (i) thatSummer and its subsidiaries maintain a net worth of $50,000,000 plus the sum of50% of net income earned in each fiscal year, (ii) that Summer and itssubsidiaries maintain a ratio of total funded debt to EBITDA of not greaterthan 3.50:1.00, and (iii) that Summer and its subsidiaries maintain aratio of operating cash flow to debt service of not less than 1.25:1.00. Inaddition, if Summer’s ratio of total funded debt to EBITDA is greater than3.25:1.00 as of December 31, 2008, the total commitment amount under theworking capital revolving credit facility will reduce by $4,000,000 on March 31,2009. Furthermore, if Summer’s ratio of total funded debt to EBITDA is greaterthan 3.25:1.00 for any fiscal year, the agreegate amount that may be borrowedunder the Loan Agreement will be determined by reference to a borrowing base.

 

These credit facilitiesbear interest at a floating rate based on a spread over LIBOR ranging from 150basis points to 200 basis points, depending upon the ratio of the Company’stotal funded debt to EBITDA. As of December 31, 2008, the rate on thesecredit facilities ranged between 1.95% and 4.42%. In addition, these creditfacilities have an unused line fee based on the unused amount of the creditfacilities equal to 25 basis points. The Company has also entered into variousinterest swap agreements which fixes the interest rates on a portion of theoutstanding debt.

 

The Loan Agreement alsocontains customary events of default, including a cross default provision and achange of control provision. In the event of a default, all of the obligationsof the Company and its subsidiaries under the Loan Agreement may be declaredimmediately due and payable. For certain events of default relating toinsolvency and receivership, all outstanding obligations become due andpayable.

 

16

----

Tableof Contents

 

As of December 31,2008, the Company had approximately $39,676,000 outstanding of the totalcommitted amount of $46,000,000. In addition, the Company has $3,859,000outstanding on the loan related to the construction of the corporateheadquarters.

 

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

 

The following tablesummarizes our significant contractual commitments at 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 interestpayments on our line of credit were based upon the interest rates in effect at December 31,2008.

 

**Off-BalanceSheet Arrangements**

 

We did not have anyoff-balance sheet arrangements during either of the years ended December 31,2008 and 2007.

 

**Non-GAAPDiscussion**

 

In addition to our GAAPresults, we also disclose non-GAAP measures of our performance. AdjustedEBITDA, as defined below, is an important supplemental financial measure of ourperformance that is not required by, or presented in accordance with, GAAP. Asused herein, “Adjusted EBITDA” represents net income (loss) before incometaxes, interest expense, and depreciation and amortization and non-cash stockoption expense. We believe that the presentation of Adjusted EBITDA providesuseful information regarding our results of operations because it assists inanalyzing and benchmarking the performance and value of our business. Webelieve that Adjusted EBITDA is useful to stockholders as a measure ofcomparative operating performance, as it is less susceptible to variances inactual performance resulting from depreciation and amortization and morereflective of changes in pricing decisions, cost controls and other factorsthat affect operating performance.

 

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

 

·      to calculate and support various coverageratios with our lenders;

 

·      to allow lenders to calculate totalproceeds they are willing to loan to us based on our relative strength comparedto other competitors; and

 

·      to more accurately compare our operatingperformance from period to period and company to company by eliminatingdifferences caused by variations in capital structures (which affect relativeinterest expense), tax positions and amortization of intangibles.

 

Although we use AdjustedEBITDA as a financial measure to assess the performance of our business, thereare material limitations to using a measure such as Adjusted EBITDA, includingthe difficulty associated with using it as the sole measure to compare theresults of one company to another and the inability to analyze significantitems that directly affect a company’s net income (loss) or operating incomebecause it does not include certain material costs, such as interest and taxes,necessary to operate its business. In addition, our calculation of AdjustedEBITDA may not be consistent with similarly titled measures of other companiesand should be viewed in conjunction with measures that are computed inaccordance with GAAP. Our management compensates for these limitations inconsidering Adjusted EBITDA in conjunction with its analysis of other GAAPfinancial measures, such as net income (loss).

 

17

----

Tableof Contents

 

The following tablepresents a reconciliation of Adjusted EBITDA to net income, its most directlycomparable GAAP financial measure, on a historical basis, for the periodspresented:

 

**Reconciliationof Income before interest to unaudited Adjusted EBITDA**

 
| ** **                                  | ** ** | **Year  Ended********December 31********(restated)** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                  | ** ** | **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 AdjustedEBITDA for the past year has been primarily the result of the sales increasesthat have occurred. Sales increased from $80,500,000 in 2007 to $132,369,000 in2008.

 

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

 

**RecentlyIssued Accounting Pronouncements**

 

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles and expands disclosures about fairvalue measurements. SFAS No. 157 applies under other accountingpronouncements that require or permit fair value measurements and accordingly,does not require any new fair value measurements. SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007. The Companyadopted FAS 157 for its financial assets and liabilities effective January 1,2008.

 

In June 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes—an Interpretation of FASB Statement No. 109” (“FIN 48”).FIN 48 clarifies the accounting for uncertainty in income taxes recognizedin 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 Financial Accounting Standards No. 141(R),“Business Combinations”, or SFAS No. 141(R). This statement establishesprinciples and requirements for how the acquirer of a business recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, and any non-controlling interest in the acquired. SFAS No. 141(R) alsoprovides guidance for recognizing and measuring the goodwill acquired in thebusiness combination and determines what information to disclose to enableusers of the financial statements to evaluate the nature and financial effectsof the business combination. The provisions of SFAS No. 141(R) areeffective for financial statements issued for fiscal years beginning after December 15,2008. The Company will adopt this statement, as applicable on January 1,2009.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 160,“Non-controlling Interests in Consolidated Financial Statements-An Amendment toAccounting Research Bulletin (“ARB”) No. 51”, or SFAS No. 160. Thisstatement amends ARB No. 51, “Consolidated Financial Statements”, toestablish accounting and reporting standards for the non-controlling interestin a subsidiary and for the deconsolidation of a subsidiary. This statementalso amends certain of ARB No. 51’s consolidation procedures forconsistency with the requirements of SFAS No. 141(R). In addition, SFAS No. 160also includes expanded disclosure requirements regarding interests of theparent and its non-controlling interest. The provisions of SFAS No. 160are effective for financial statements issued for fiscal years beginning after December 15,2008. The Company will adopt this statement, as applicable, on January 1,2009.

 

18

----

Tableof Contents

 

In February 2008,the FASB issued Staff Position (“FSP”) No. 157-1 and FSP No. FSP157-2. FSP No. 157-1 removes certain leasing transactions from the scopeof 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 liabilitiesthat are recognized at the fair value on a nonrecurring basis will be forfiscal years beginning after November 15, 2008. FSP No. 157-2 iseffective for the Company of January 1, 2009. The Company is assessing thepotential impact of adopting FSP No. 157-2, but does not believe that theadoption will have a significant impact on the Company’s consolidated financialstatements.

 

In April 2008, theFASB issued FSP No. FAS 142-3, “Determination of the Useful Life ofIntangible 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 andOther Intangible Assets* “(SFAS No. 142”). The intent of theposition is to improve the consistency between the useful life of an recognizedintangible asset under SFAS No. 142 and the period of expected cash flowsused to measure the fair value of the asset under SFAS No. 141 (R). FSPFAS 142-3 is effective for fiscal years beginning after December 15,2008 and is effective for the Company beginning January 1, 2009. TheCompany is assessing the potential impact that the adoption of FSPFAS 142-3 will have on the useful lives of its intangible assets but doesnot expect it to have a material impact on its consolidated results ofoperations and financial condition.

 

19

----

Tableof Contents

 

Management does notbelieve that any other recently issued, but not yet effective, accountingstandards if currently adopted would have a material effect on the accompanyingfinancial statements.

 

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

 

The financial statementsrequired by this item are attached to this Annual Report on Form 10-Kbeginning on Page F-1.

 

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

 

On November 2, 2009,we announced that certain of our previously issued financial statements must berestated because they contain errors under GAAP relating to accounting forinterest rate swap agreements. We determined that the fair value of the swapsdeclined due to the dislocation in the financial markets, but this was notrecorded by us. Therefore, as a result we are restating our 2008results to record an increase in net liabilities and a reduction ofstockholders’ equity (through an after-tax charge in the income statement) ofapproximately $0.7 million, which reflects the reduced fair value of the swapsat December 31, 2008. This will reduce stockholders’ equity from $62.2million to $61.5 million at December 31, 2008. For a more detaileddiscussion regarding the restatements, see Note 2 to our consolidatedfinancial statements included herein.

 

*(a) Evaluationof Disclosure Controls and Procedures*

 

As required by Rule 13a-15under the Securities Exchange Act of 1934, as of the end of the period coveredby this Annual report, we carried out an evaluation, under the supervision andwith the participation of our Chief Executive Officer and our Chief FinancialOfficer, of the effectiveness of our disclosure controls and procedures as of December 31,2008. Our principal executive officer and principal financial officer haveconcluded, based on their evaluation, that as of the end of the period coveredby this report, our disclosure controls and procedures were ineffective as of December 31,2008. The Company had a deficiency as a result of not recording the fair valueof its swap agreements in accordance with generally accepted accountingprinciples.

 

*(b) Management’sReport on Internal Control over Financial Reporting*

 

Management of the Companyis responsible for establishing and maintaining adequate internal control overfinancial reporting. As defined in Rule 13a-15(f) under the ExchangeAct, internal control over financial reporting is a process designed by, orunder the supervision of , a company’s principal executive and principalfinancial officers and effected by a company’s board of directors, managementand other personnel, to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. Itincludes those policies and procedures that:

 

1)            Pertain to the maintenance of recordsthat in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of a company;

 

2)            Provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of a company are being made only in accordancewith authorizations of management and the board of directors of the company;and

 

3)            Provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or depositionof a company’s assets that could have a material effect on its financialstatements.

 

Because of the inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

The Company’s managementhas used the criteria established in “Internal Control-Integrated Framework”issued by the Committee of Sponsoring Organizations of the Treadway Commission(“COSO”) to evaluate the effectiveness of the Company’s internal control overfinancial reporting. Management has selected the COSO framework for itsevaluation as it is a control framework recognized by the SEC and the PublicCompany Accounting Oversight Board, that is free from bias, permits reasonablyconsistent qualitative and quantitative measurement of the Company’s internalcontrols, is sufficiently complete so that relevant controls are not omitted,and is relevant to an evaluation of internal controls over financial reporting.

 

Management of theCompany conducted an evaluation of the effectiveness, as of December 31,2008, of the Company’s internal control over financial reporting based on theInternal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (the “COSO Framework”). Based on itsevaluation under the COSO Framework, management has concluded that theCompany’s internal control over financial reporting was not effective asof December 31, 2008.

 

*Identificationof a Material Weakness*

 

A material weakness is asignificant deficiency, or a combination of significant deficiencies, thatresults in more than a remote likelihood that a material misstatement of theannual or interim financial statements will not be prevented or detected.

 

In November 2009, it wasdetermined that the Company’s method for calculating interest on its financingagreements, specifically the interest rate swaps and their fair value, were notcorrect as further described under (a) above, and the Company’s management haselected to restate the financial statements for 2008.

 

*Remediation*** ***of a Material Weakness*

 

The Company conducted aninternal review of its accounting for interest rate swap transactions to ensureits accounting for the interest rate swaps are in accordance with GenerallyAccepted Accounting Principles. The Company believes that controls are in placeat this time to ensure proper accounting of interest rate swaps.

 

The annual report doesnot include an attestation report of our registered public accounting firmregarding internal control over financial reporting. Our management’s reportwas not subject to attestation by our registered public accounting

 

20

----

Tableof Contents

 

firm pursuant totemporary rules of the Securities and Exchange Commission that permit usto provide only our management’s report in this annual report.

 

*(c) Changesin Internal Control Over Financial Reporting*

 

There was no change inour internal control over financial reporting that occurred during the quarterended December 31, 2008 that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

 

**Item 9B. Other Information**

 

Not applicable.

 

**PART III**

 

**Item 10.Directors, Executive Officers and Corporate Governance**

 

Pursuant to our Amendedand Restated Certificate of Incorporation, our Board of Directors is dividedinto three classes.  The terms of current Class A directors Myra Hartand Robert Stebenne will expire at the annual meeting of stockholders to beheld in 2011.  The terms of current Class B directors Steven Gibree,Martin Fogelman and Richard Wenz will expire at the at the annual meeting ofstockholders to be held 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 ofthe relationships 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,under an Agreement and Plan of Reorganization, dated as of September 1,2006, we acquired Summer Infant, Inc. (“Summer Predecessor”), through themerger of our acquisition subsidiary and Summer Predecessor.  Prior to themerger, we were referred to as KBL Healthcare Acquisition II, Inc.(“KBL”).  Effective upon closing this merger, we changed our name toSummer Infant, Inc.  Upon completion of the merger, our Board ofDirectors was increased to seven members.  Two persons who were designatedby the former stockholders of Summer Predecessor, Jason P. Macari and StevenGibree, were added to our Board of Directors.  Two persons, Marlene Kraussand Martin Fogelman, were designated by certain of our foundingstockholders.  The other three members of our Board of Directors, MyraHart, Robert Stebenne and Richard Wenz, were mutually designated by thesefounding stockholders and by these former Summer Predecessorstockholders.  Ms. Krauss resigned from the Board of Directors in2008 and her seat on the Board of Directors will be filled at the Company’s2010 Annual Meeting when it comes up for election.  These stockholdershave entered into a voting agreement with respect to the election ofdirectors.  See “Voting Agreement” below.

 

*Boardof Directors*

 

The following table setsforth certain information with respect to our Board of Directors, theirprincipal occupations, ages, independence status, as determined in accordancewith rules of the Nasdaq Stock Market, and periods of service on our Boardof Directors.  Information regarding their ownership of shares of ourcommon stock as of April 27, 2009 may be found at “*Security Ownership of Certain Beneficial Owners andManagement* .”

 

21

----

Tableof Contents

 
| **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                                          |       |

 

----

(1)           Dr. Hart serves on the senior faculty of HarvardBusiness School where she taught entrepreneurship from July 1995 to2007.  From 1990 to 1995, she was a full-time doctoral candidate atHarvard University. From 1985 until 1990, Ms. Hart was a member of thefounding team of Staples, Inc. where she was vice president of growth anddevelopment.  Ms. Hart is a Director of Office Depot, Inc.(ODP:NYSE), Kraft Foods Inc. (KFT:NYSE), and Nina McLemore Inc., a privatelyheld company.  She is a director of the Center for Women’s BusinessResearch, a Trustee of Babson College, and a Presidential Councillor of CornellUniversity. Ms. Hart received a B.A. from Cornell University and MBA andDBA from Harvard University.

 

(2)           Mr. Stebenne currently owns and manages BobStebenne Associates, a firm that provides consulting services in the areas ofbrand development, product development and strategic planning, among otherareas.  Mr. Stebenne founded 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 toJanuary 1999, he was president of Hasbro’s FOB/LC division, where hecreated a U.S. marketing, sales, product development, finance and logisticsgroup.  From 1982 to 1991, he was president of Hasbro’s Playskool Babydivision.

 

(3)           Mr. Gibree is our executive vice president ofproduct development with management oversight of research and development,product design and engineering and manufacturing relations.  Prior to March 2007,Mr. Gibree held these same positions at Summer Predecessor, with whom hehad been employed since November 2001.  Prior to that time, Mr. Gibreewas the vice president of engineering for Little Kids, Inc., a manufacturerof innovative toys, from March 2001 to November 2001. From May 1997to March 2001, Mr. Gibree was director of engineering at Safety 1st, Inc. From May 1985 to May 1997, Mr. Gibree was employed by Hasbro,rising to project manager for the Kid Dimension Division.

 

(4)           Mr. Fogelman has been an independent consultantto the baby products industry since April 2007.  From May 2003until March 2007, Mr. Fogelman was President of Baby Trend, Inc.,a manufacturer of infant products.  From 1983 to April 2003, he wassenior vice 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 and private investor andcurrently serves on the Board of Directors of Coach America, Inc.,Strategic Partners, Inc. and Easton Bell Sports, Inc.  From October 2000to July 2003, Mr. Wenz was an operating partner/affiliate of DBCapital Partners, the private equity arm of Deutsche Bank A.G. and served onthe board of directors of a number of portfolio companies, including NewRoads, Inc.and Jenny Craig International.  Mr. Wenz also served as chiefexecutive officer of Jenny Craig International from March 2002 to

 

22

----

Table of Contents

 

January 2003.  Mr. Wenzwas president and chief operating officer of Safety 1st, from February 1997to May 2000. During 1995 and 1996, Mr. Wenz was the partner in chargeof the Chicago office with The Lucas Group, a business strategy consultingfirm. Prior to 1995, Mr. Wenz held senior executive positions with WilsonSporting Goods Co., Electrolux Corporation, The Regina Company and ProfessionalGolf Corporation. 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 certified public accountant.

 

(6)           Mr. Macari has been our Chief Executive Officerand a director since March 2007.  Prior to March 2007, Mr. Macariwas Chief Executive Officer and founder of Summer Predecessor, which he foundedin 2001.  Prior to that time, Mr. Macari was vice president ofproduct development and general manager of Safety 1st, Inc., a leadingmanufacturer 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 ofDirectors Meetings and Committees of the Board**

 

*Attendanceof Directors*

 

In 2008, four meetings ofour Board of Directors were held.  All directors attended more thanseventy-five percent of the meetings.  All directors attended in excess of75% of the meetings of the committees of our Board of Directors on which theyserved.  Our directors are encouraged, but not required, to attend annualmeetings.

 

*Compensationof Directors*

 

We do not pay ourdirectors who are also executive officers any additional compensation forservice as directors.

 

In 2008, the compensationfor non-employee directors included the following:

 

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

 

·      Cash meeting attendance fee of $1,000 for each meetingof the Audit Committee and $500 for each meeting of any other committee of ourBoard of Directors;

 

·      $10,000 annual retainer for all directors;

 

·      $5,000 annual retainer for the Chairman of the AuditCommittee;

 

·      $2,500 annual retainer for the Chairman of any othercommittee of our Board of Directors;

 

·      $1,500 annual retainer for other members of thecommittees of our Board of Directors;

 

·      Expense reimbursement for all reasonable expensesincurred in attending meetings and tending to our business; and

 

·      In 2007, there was a grant of 40,000 stock optionsunder the 2006 Performance Equity Plan to each director, which vested 25% onthe date of grant and 25% annually on each anniversary of the grant date.

 

23

----

Table of Contents

 

The following table showsnon-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 |   |
|                  |            |                                                                        |            |                                    |            |                                          |            |                                                                          |            |                                                                                                                         |            |                           |            |                |            |  |  |  |  |

 

----

(1)           Messrs. Macari and Gibree are notincluded in this table as they are executive officers and, accordingly, receiveno 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 column do not reflect compensationactually received by the named director or the actual value that may berecognized with respect to these awards in the future. The amounts in thiscolumn reflect the dollar amount recognized for financial statement reportingpurposes for the fiscal year ended December 31, 2008, in accordance withFAS 123(R) for awards granted in 2007. Assumptions used in the calculationof these amounts are included in Note 7 in the notes to our auditedconsolidated 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 paidconsultant to our company.

 

*Committeesof the Boards of Directors*

 

Our Board of Directorshas designated the following committees: an Audit Committee, a CompensationCommittee and a Nominating Committee.  The composition and objectives ofeach committee are described below.  Our Board of Directors continues toreview its committees and the independence and qualifications of its currentcommittee members in light of changes required under the Sarbanes-Oxley Act of2002 and by the Securities and Exchange Commission (the “SEC”) and the NasdaqStock Market.

 

Our Board of Directorshas determined that a majority of the members of our Board of Directors areindependent directors under the rules of the Nasdaq Stock Market. See “*Corporate Governance* “below.

 

*AuditCommittee*

 

The Audit Committee heldfour meetings in 2008.  As described in the Audit Committee’s charter, acopy of which is available on our website at www.summerinfant.com, the primaryfunction of the Audit Committee is to appoint, retain, set compensation of, andsupervise our independent accountants, review the results and scope of theaudit and other accounting related services and review our accounting practicesand systems of internal accounting and disclosure controls.

 

The Audit Committeecurrently consists of three members:  Richard Wenz, Chairman, Myra Hartand Robert Stebenne.  Each member of the Audit Committee is an “independent”director under SEC rules.  No member of the Audit Committee is an employeeof our company or any of its subsidiaries.  We have not relied onexemptions for Audit Committee independence requirements contained in Rule 10A-3under the Securities Exchange Act of 1934.  The members of the AuditCommittee are required to have extensive business and financial experience.They are also required to have a good understanding of financial statements,including our

 

24

----

Table of Contents

 

balance sheet, incomestatement, cash flow statement and its quarterly and annual reports on Forms10-Q and 10-K and related financial statements and disclosures.  Our Boardof Directors has determined that Mr. Wenz qualifies as an Audit Committee “financialexpert.”

 

The Audit Committee meetswith our external and internal auditors and principal financial personnel toreview quarterly financial results and the results of the annual audit (in bothregular and executive sessions).  The Audit Committee reviews and approvesannual external auditor engagement plans, scopes and fees.  The AuditCommittee approves all fees and terms related to the annual independent auditas well as all permissible non-audit engagements of the externalauditors.  The Audit Committee pre-approves all audit and permissiblenon-audit services to be performed by the external auditors.

 

*CompensationCommittee*

 

The CompensationCommittee met four times in 2008.  As described in the CompensationCommittee’s charter, which is available on our website at www.summerinfant.com,the Compensation Committee is responsible for the review and approval of ourcompensation paid to our executive officers and to the administration of ourincentive compensation plans, which includes authority to make and modifyawards under those plans.

 

The CompensationCommittee currently consists of three members:  Myra Hart, Chairman, MartinFogelman and Richard Wenz.   Each member of the CompensationCommittee is an “independent” director under SEC rules.  No member of theCompensation Committee is an employee of our company or any of itssubsidiaries.

 

*NominatingCommittee*

 

The Nominating Committeemet two times in 2008.  As described in the Nominating Committee’scharter, which is available on our website at www.summerinfant.com, theNominating Committee is responsible for overseeing the selection of persons tobe nominated to serve on our Board of Directors.

 

The Nominating Committeecurrently consists of three members:  Robert Stebenne, Chairman, MartinFogelman and Richard Wenz.   Each member of the Nominating Committeeis an “independent” director under SEC rules.  No member of the NominatingCommittee is an employee of our company or any of its subsidiaries.

 

The Nominating Committeewill consider persons identified by its members, management, stockholders,investment bankers and others.  Until our annual meeting of stockholdersto be 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 of the current composition of ourBoard of Directors, our operating requirements and the long-term interests ofour stockholders.  In conducting this assessment, the Nominating Committeewill consider and evaluate each director-candidate based upon its assessment ofthe following criteria:

 

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

 

·         Whether the candidate is accomplished inhis or her field and has a reputation, both personal and professional, that isconsistent with our image and reputation.

 

25

----

Table of Contents

 

·         Whether the candidate has the ability toread and understand basic financial statements. The Nominating Committee alsowill determine if a candidate satisfies the criteria for being an “auditcommittee financial expert,” as defined by the SEC.

 

·         Whether the candidate has relevantexperience and expertise and would be able to provide insights and practical wisdombased upon that experience and expertise.

 

·         Whether the candidate has knowledge of usand issues affecting us.

 

·         Whether the candidate is committed toenhancing stockholder value.

 

·         Whether the candidate fully understands,or has the capacity to fully understand, the legal responsibilities of adirector and the governance processes of a public company.

 

·         Whether the candidate is of high moraland ethical character and would be willing to apply sound, objective andindependent business judgment, and to assume broad fiduciary responsibility.

 

·         Whether the candidate has, and would bewilling to commit, the required hours necessary to discharge the duties ofBoard membership.

 

·         Whether the candidate has any prohibitiveinterlocking relationships or conflicts of interest.

 

·         Whether the candidate is able to developa good working relationship with other Board members and contribute to theBoard’s working relationship with our senior management.

 

·         Whether the candidate is able to suggestbusiness 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 will promptly forward all letters tothe members of the Nominating Committee. Stockholders must follow certainprocedures to recommend to the Nominating Committee candidates for election asdirectors. In general, in order to provide sufficient time to enable theNominating Committee to evaluate candidates recommended by stockholders inconnection with selecting candidates for nomination in connection with ourannual meeting of stockholders, the Corporate Secretary must receive thestockholder’s recommendation no later than thirty (30) days after the end ofour fiscal year.

 

Therecommendation must contain the following information about the candidate:

 

·         Name;

 

·         Age;

 

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

 

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

 

·         Educational background;

 

·         Permission for us to conduct a backgroundinvestigation, including the right to obtain education, employment and creditinformation;

 

·         The number of shares of our common stockbeneficially owned by the candidate;

 

26

----

Table of Contents

 

·        The information that would be required tobe disclosed by us about the candidate under the rules of the SEC in aProxy Statement soliciting proxies for the election of such candidate as adirector (which currently includes information required by Items 401, 404 and405 of Regulation S-K); and

 

·        A signed consent of the nominee to serveas a director, if elected.

 

**VotingAgreement**

 

Messrs. Macari andGibree and certain of our other stockholders entered into a voting agreement inconnection with the KBL/Summer Predecessor merger.  The individuals thatwere party to this voting agreement owned approximately 38.5% of ouroutstanding common stock in the aggregate at the date of the agreement. The voting agreement provides that Messrs. Macari and Gibree, on the onehand, and the other founding stockholders party to this voting agreement, onthe other hand, will each designate two directors and mutually designate threeadditional directors to our Board of Directors.  Each of the parties tothe voting agreement will vote for these designees as directors untilimmediately following the election to be held in 2010.

 

Under the terms of thevoting agreement, Messrs. Macari and Gibree, on the one hand, and theother founding stockholders party to this agreement, on the other hand, haveagreed to vote for the designees to our Board of Directors through the electionin 2010 as follows:

 

·        Class A—Myra Hart and RobertStebenne

 

·        Class B—Steven Gibree, MartinFogelman and Richard Wenz

 

·        Class C—Jason Macari

 

**CorporateGovernance**

 

*Independence*

 

Our Board of Directorshas adopted categorical standards to assist it in making independencedeterminations.  Under those standards, in determining independence eachyear, our Board of Directors will analyze each director’s relationship with usand our subsidiaries to determine whether our directors are independent underthe rules of the Nasdaq Stock Market.  Our Board of Directors hasdetermined that all of our current directors, except Messrs. Macari andGibree, are “independent” within the meaning of the independence rules ofthe Nasdaq Stock Market.

 

*ExecutiveSessions*

 

All directors who are notemployees of our company or our subsidiaries meet in executive session at leastquarterly.

 

*Code ofEthics*

 

We have adopted acomprehensive Code of Ethics for all employees and directors, which can be foundon our website at www.summerinfant.com.

 

*Communicationswith Directors*

 

Stockholders may sendcommunications to our Board of Directors, the Chairman, or one or morenon-management directors by using the contact information provided on ourwebsite.  Stockholders also may send communications by letter addressed toour 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 ouraccounting, internal controls, auditing matters or business practices will bereported to the Audit Committee.  All other concerns will be reported tothe appropriate committee(s) of

 

27

----

Table of Contents

 

our Board of Directors.

 

**EXECUTIVEOFFICERS**

 

Our executive officersare set 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                          |

 

----

(1)           Mr. Macari has been our Chief Executive Officerand a director since March 2007.  Prior to March 2007, Mr. Macariwas Chief Executive Officer and founder of Summer Predecessor, which he foundedin 2001.  Prior to that time, Mr. Macari was vice president ofproduct development and general manager of Safety 1st, Inc., a leadingmanufacturer 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 our executive vice president ofproduct development with management oversight of research and development,product design and engineering and manufacturing relations.  Prior to March 2007,Mr. Gibree held these same positions at Summer Predecessor, with whom hehad been employed since November 2001.  Prior to that time, Mr. Gibreewas the vice president of engineering for Little Kids, Inc., amanufacturer 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 by Hasbro, rising to project manager for the KidDimension Division.

 

(3)           Mr. Driscoll has been our chief financial officersince March 2007.  Prior to March 2007, Mr. Driscoll wasthe chief financial officer at Summer Predecessor, with whom he had beenemployed since September 2006.  From May 2001 to September 2006,Mr. Driscoll was employed as vice president of finance and later served aschief financial officer for ACT Electronics, Inc., an electronicsmanufacturer.  From May 2000 to May 2001, Mr. Driscoll wasemployed as vice president of finance for PCI, Inc., an internet basedmarketing services company.  From April 1997 to May 2000, Mr. Driscollwas employed as vice president of finance and later served as chief financialofficer for Safety 1st, Inc.  From September 1993 to April 1997,Mr. Driscoll was employed as assistant corporate controller and laterserved as director of financial reporting for Staples, Inc.  From July 1986to February 1992, Mr. Driscoll was employed as an audit manager forKPMG Peat Marwick. From February 1992 to September 1993, Mr. Driscollwas employed as corporate controller for E-II Holdings, Inc., aninternational consumer products company. Mr. Driscoll is a licensedCertified Public Accountant.

 

*Section 16(a) BeneficialOwnership Reporting Compliance*

 

Section 16(a) ofthe Securities Exchange Act of 1934 requires our directors and executiveofficers, and persons who own more than 10% of a registered class of our equitysecurities, to file with the SEC reports of ownership and changes in ownershipof our common stock and other equity securities. Officers, directors andgreater than 10% stockholders are required by SEC regulations to furnish uswith copies of all Section 16(a) forms they file.

 

Based solely on review ofthe copies of those reports furnished to us or written or oral representationsthat no other reports were required, we believe that during 2008, all filingrequirements applicable to its officers, directors and greater than 10%beneficial owners were complied with.

 

28

----

Table of Contents

 

**Item 11.ExecutiveCompensation**

 

*CompensationDiscussion and Analysis*

 

The compensationcommittee of the board of directors consists of independent directors who areresponsible, on behalf of the Board of Directors, for reviewing and approvingthe amounts and types of compensation paid to the Company’s executive officersand the non-employee directors, as well as all bonus and equity compensationpaid to other Company employees.

 

The committee isresponsible for determining that compensation paid under the Company’s programsis equitable (i.e., that it is appropriate to the responsibilities of theposition), the performance of the company and the individual, and meets thestandards of the competitive marketplace.  The committee typically meetsfour times per year and additionally as needed.   The committee met 4times during 2008.  The compensation committee’s chairman regularlyreports to the board of directors on compensation committee policy, procedures,actions, and recommendations. The Company’s compensation committee hasauthority to retain (at the Company’s expense) outside counsel, compensationconsultants and other advisors to assist as needed.

 

The individuals whoserved as the Company’s chief executive officer, executive vice president ofproduct development, and chief financial officer during fiscal year 2008, arereferred to as the “named executive officers.” With respect to the namedexecutive officers (NEOs), this Compensation Discussion and Analysis identifiesthe Company’s current compensation philosophy and objectives and describes thevarious methodologies, policies and practices for establishing andadministering the compensation programs of the named executive officers.

 

*CompensationObjectives*

 

The goals of thecompensation program are:

 

·    To attract, retain and motivate qualifiedexecutives who will lead the company to in achieving high performance.

 

·    To support business strategies thatresult in superior long term shareholder value.

 

·    To align pay with performance by making asubstantial portion of compensation dependent on achievement of corporatefinancial and strategic objectives as well as individual performance goals.

 

·    To align management interests with thoseof our shareholder base by making a substantial portion of compensationequity-based.

 

The compensationcommittee believes that a properly structured compensation program attracts andretains talented individuals and motivates them to achieve specific short- andlong-term strategic objectives.  In order to do that, a significantpercentage of executive pay is based on the principle of pay-for-performance.The compensation committee is committed to ensuring that the total compensationpackage of named executive officers is competitive with compensation atpeer-group companies.  The peer group used by HR Xpress included variousconsumer product companies in New England.

 

The Company’s executivecompensation programs are designed to provide:

 

·    levels of base compensation that areappropriate to the responsibilities of the position and competitive withcomparable companies;

 

·    annual incentive awards that vary in amanner consistent with the achievement of the performance targets for thecompany and of individual performance objectives.

 

·    long-term incentive compensation thatfocuses executive efforts on building shareholder value through meetinglonger-term financial and strategic goals; and

 

29

----

Table of Contents

 

·    executive benefits that are competitivewith comparable companies.

 

In designing andadministering Summer Infant’s executive compensation programs, the compensationcommittee attempts to strike an appropriate balance among these variouselements.

 

·    The committee considers the pay practicesof the compensation peer group to assess the appropriate pay mix andcompensation levels.

 

·    With respect to performance-based pay,the compensation committee believes that executive compensation should beclosely tied to achievement of the financial and operational goals establishedin advance by the Board of Directors of the Company, as well as to theachievement individual performance goals of the named executive officers.

 

·    The committee uses equity-based compensationto align the executives’ interests with those of the Company’s shareholdersover a longer period of time. For purposes of retention, the compensationcommittee believes that the equity-based compensation should have meaningfulconditions that encourage valued employees to remain in the employ of theCompany as well as to achieve the performance goals of the company.

 

·    The committee also considers executivebenefit programs as a means to attract, retain and motivate highly qualifiedexecutives

 

*Methodologyfor Establishing Compensation*

 

The compensationcommittee is comprised of three independent directors who satisfy the Nasdaqlisting requirements and relevant SEC regulations. There are no interlockingrelationships between any member of our compensation committee and any of ourexecutive officers. None of the compensation committee members is an officer,employee or former officer or employee of the Company.

 

The compensationcommittee is responsible for all compensation decisions for the chief executiveofficer and other named executive officers. The chief executive officerannually reviews the performance of the other named executive officers,including consideration of market pay practices of the compensation peer groupin conjunction with both Company and individual performance. The conclusionsand recommendations of the chief executive officer are presented to thecompensation committee for approval. The compensation committee has absolutediscretion as to whether it approves the recommendations of the chief executiveofficer or makes adjustments, as it deems appropriate.

 

*TheElements of Compensation*

 

Total direct compensationincludes cash, in the form of base salary and annual incentives.  Equityin the form of restricted stock and options is used as a long-term incentive.The compensation committee evaluates the mix between these three elements ofcompensation based on the pay practices of comparable companies.  SummerInfant is a young company and its compensation design is very much a work inprogress. In 2008, with the assistance of a professional compensationconsultant, HR Xpress, the company and the compensation committee reviewed allprofessional positions and classified them as to level of responsibility,appropriate base pay ranges and incentive payout ranges.  The compensationdecisions were made on the basis of competitive information provided by the consultant.

 

The companies included inthe compensation peer group were selected primarily on the basis of theircomparability to the Company based on a combination of geography (companiesbased in New England) and size, as measured through annual revenue, marketcapitalization and other financial measures. Although the compensationcommittee also considered and reviewed information from proxy statements andother relevant survey data, it particularly focused on the practices of thecompensation

 

30

----

Table of Contents

 

peer group in consideringcompensation levels for the chief executive officer and the other namedexecutive officers.

 

In its annual review, thecompensation committee considers the opinions and recommendations of the chiefexecutive officer and various outside counsel and strives to be fully informedin its determination of the appropriate compensation mix and award levels forthe named executive officers. All compensation decisions are made withconsideration of the compensation committee’s guiding principles of fairness toemployees, retention of talented executives and the achievement of improvedCompany performance, which ultimately benefits the Company’s shareholders. Withrespect to the named executive officers, the following describes in greaterdetail the objectives and policies behind the various elements of thecompensation mix.

 

*Base Salary*

 

The compensation committeestrives to provide that employees are paid a base salary that is competitivewith salaries paid by comparable organizations for similar work, based on eachemployee’s experience, performance and geographic location. Generally, theCompany has chosen to target cash compensation at market median levels in orderto remain competitive in attracting and retaining executive talent. Theallocation of total cash between base salary and incentive bonus awards isbased 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 compensationcommittee generally evaluates executive salaries annually. An analysis ofexecutive compensation indicated that base salaries for the named executiveofficers were generally positioned at the market median. For the 2008 fiscalyear, based upon the compensation committee’s assessment of the information andfactors described above, the compensation committee determined to increase thebase salaries of the named executive officers incrementally to maintain marketmedian levels.

 

*AnnualIncentive Bonus*

 

The Company intends tocontinue its strategy of compensating the named executive officers throughprograms that emphasize performance-based incentive compensation. The Company’sshort-term incentive compensation program is designed to recognize and rewardexecutive officers and other employees who contribute meaningfully to anincrease in stockholder value and profitability.

 

In general, the fundingof the annual incentive bonus pool is dependent upon earnings before interest,taxes, depreciation and amortization (after deducting incentive compensation)of the Company, in addition to meeting certain other targets. If the plan isfully funded, each named executive officer has the ability to receive thetarget bonus payout. The percentage of the target bonus actually paid to eachnamed executive officer depends on the attainment of corporate financial goalsand individual performance targets.

 

The EBITDA target for2008 was $13.8 million (after deducting incentive compensation) on a pro formabasis (which incorporates a full 12 months of results of the companies acquiredby Summer during 2008).  The company was able to fund $700,000 of bonuspayments for 2008 and still meet the $13.8 million target.  The actualpayout by person is dependent upon the Company achieving its EBITDA targets andthe achievement of personal goals.

 

The target bonus payoutsare 50% of salary for Jason Macari and Steve Gibree and 30% of salary forJoseph Driscoll.

 

31

----

Table of Contents

 

The named executiveofficers earned bonuses in 2008 that were below their target percentages. The bonus determination for 2008 was based on Company performance (specificallyEBITDA) plus individual achievements.  The company is formalizing itsbonus programs in 2009 so that there is even greater structure around thecomputation and payment of bonuses.

 

*Long-TermIncentive Awards*

 

Long-term incentiveawards are the third component of the Company’s total compensation package. Thecompensation committee believes that equity-based compensation ensures that theCompany’s officers have a continuing stake in the long-term success of theCompany. The Company’s 2006 Incentive Plan provides for equity incentiveawards, which include qualified and nonqualified stock options, restrictedstock, stock appreciation rights, long-term incentive compensation unitsconsisting of a combination of cash and common stock or any combination thereofwithin the limitations set forth in the plan. The compensation committeeapproves all awards under the plan and acts as the administrator of the plan.

 

Award levels under theplan are determined based on the compensation practices of the compensationpeer group. In general, long-term incentive awards are targeted at the medianof the compensation peer group with appropriate adjustments for individual andCompany performance, although past awards have generally been below marketlevels. Options granted under the plan vest and become exercisable in equalinstallments over a four-year period from the grant date. All stock optionshave been granted with a ten-year term and have an exercise price equal to thefair market value of the Company’s common stock on the date of grant.Restricted stock awards under the plan vest over a four year period. Restrictedstock cannot be sold or transferred until the shares vest. Should a namedexecutive officer leave the Company prior to the completion of the applicablevesting schedule, the unvested portion of the grant is forfeited.

 

There were no issuancesof stock options or restricted stock awards in fiscal 2008.

 

The Company is stillformalizing how long term incentive awards will be handled going forward. In 2008 there was not a formal process in place for administering long termincentives and there were no grants of long term incentive awards in2008.  The Company is actively working on preparing a more formal plan for2009.

 

*Broad-BasedBenefits Programs*

 

The named executiveofficers are entitled to participate in the benefits programs that areavailable to all full-time employees. These benefits include health, dental,and life insurance, healthcare reimbursement accounts, paid vacation andcompany contributions to a 401(k) profit-sharing retirement plan. Two ofthe named executive officers also receive a car allowance.  The Company’s401(k) plan provides for matching contributions by the Company in anamount equal to the first 2% of employee compensation deferred, plus 50% of thenext 1% of employee compensation deferred. All full-time employees age 21and older are eligible to participate in the plan after six months of service.

 

**Evaluationof Chief Executive Officer Compensation and Executive Performance**

 

*Role ofCompensation Consultants and Benchmarking*

 

Over the past year, theCompany assessed the effectiveness of its compensation structure and, aspart of this process, the Company has obtained a compensation studyfrom 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

 

32

----

Table of Contents

 

following companies,which were chosen because of their relation in size to the Company and theirgeographic 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. |

 

HR Xpress’ review coveredall key components of these companies’ compensation, including base andincentive pay, benefit and pay practices. The compensation committee has hadthe discretion to determine how the HR Xpress data should be used and haschosen to use the data as a point of reference and only one factor in assistingit with evaluating the effectiveness and fairness of its executive compensationstructure and pay levels as the compensation committee.  While thesebenchmarks represent useful guidelines, the compensation committee exercisesdiscretion in setting individual executive pay so that it appropriatelyreflects and addresses the relative complexity of the executive’s role withinthe organization, the value and contributions of each executive, as well as theexecutive’s leadership, commitment to our values, potential for advancement,and internal pay equity considerations.  The compensation committee hasnot used the data to target executive officer compensation against the peercompany compensation.

 

*Compensationof Chief Executive Officer*

 

The compensationcommittee meets with the other independent directors each year in executivesession to evaluate the performance of the chief executive officer. Thecompensation committee also consults with its independent consultant in settingthe chief executive officer’s compensation. Neither the compensation committeenor its independent consultant confers with the chief executive officer or anyother members of management when setting his base salary. The compensationcommittee does not rely solely on predetermined formulas or a limited set of criteriawhen it evaluates the performance of the chief executive officer and the othernamed executive officers. For fiscal year 2008, the compensation committeeconsidered the chief executive officer’s recent performance, his achievementsin prior years, his achievement of specific short-term goals and the Company’sperformance in fiscal year 2007. Based on its review, the compensationcommittee at its February 2008 meeting approved a merit increase to raisethe chief executive officer’s salary to $350,000 effective on March 1,2008.

 

*Compensationof Other Named Executive Officers*

 

The chief executiveofficer met with the compensation committee to review his compensationrecommendations for the other named executive officers. He described thefindings of his performance evaluation of all such persons and provided thebasis of his recommendations with the compensation committee, including thescope of each person’s duties, oversight responsibilities and individualobjectives and goals against results achieved for fiscal year 2007.

 

In addition to approvingadjustments to Mr. Macari’s base salary, at its February 2008meeting, the compensation committee approved a merit increase to raise the basesalaries of the Company’s other named executive officers, effective on March 1,2008, as follows: Steve Gibree, $240,000 and Joseph Driscoll, $200,000. In itsanalysis of the other named executive officers, the compensation committee

 

33

----

Table of Contents

 

applied the samerationale to this group as it applied when considering the chief executiveofficer’s base salary. While the compensation committee does not wholly baseits compensation decisions on benchmarking against certain peer groups it doesin part use the information received with respect to compensation paid toemployees of companies in its peer group as one factor in determining thecompensation that is paid to the Company’s employees.

 

*AdministrativePolicies and Practices*

 

To evaluate andadminister the compensation programs of the chief executive officer and othernamed executive officers, the compensation committee meets periodically eachyear in conjunction with regularly scheduled board meetings. The compensationcommittee also holds “special” meetings and meets telephonically to discussextraordinary items.

 

The following tabledescribes the compensation awarded to the Chief Executive Officer, the EVP ofProduct Development, and the Chief Financial Officer in 2008 and 2007 (the “namedexecutive officers”):

 

**SUMMARYCOMPENSATION 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 |   |

 

----

(1)     The bonus amounts shown for 2007 were earned in 2007and paid in 2008, with the exception of a $50,000 bonus paid to Mr. Driscollin connection with the completion of the KBL/Summer Predecessor merger in March 2007. The 2008 bonus column reflects approved amounts for the named executives; nocash payments have been paid to date in 2009 related to the approved 2008bonus.

 

(2)     The amounts in this column do not reflect compensationactually received by the named executive or the actual value that may berecognized with respect to these awards in the future. The amounts reflect thedollar amount recognized for financial statement reporting purposes for thefiscal year ended December 31, 2007 and 2008, in accordance with FAS 123(R) forawards granted in 2007. Assumptions used in the calculation of these amountsare included in Note 7 in the notes to our audited consolidated financialstatements for the fiscal year ended December 31, 2008 included in ourAnnual Report on Form 10-K filed with the Securities and Exchange Commissionon March 25, 2009. These options have an exercise price of $5.25 and aretherefore out of the money as of December 31, 2008.

 

(3)     The 2007 amount represents (a) $210,600 inadditional contingent amounts paid to Mr. Macari under the KBL/Summer Predecessormerger agreement, (b) $14,118 in compensation as a result of a company

 

34

----

Table of Contents

 

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

 

(4)     The 2007 amount represents (a) $23,400 in additionalcontingent amounts paid to Mr. Gibree under the KBL/Summer Predecessormerger agreement, (b) $9,706 in compensation as a result of a companyautomobile provided to Mr. Gibree, and (c) $4,162 in matchingcontributions made by us under our 401(k) plan for Mr. Gibree’sbenefit.  The 2008 amount includes $12,434 for the automobile benefit and$4,600 for the company 401(k) match.

 

(5)     The 2007 amount represents $3,269 in matchingcontributions 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*

 

*JasonMacari, Chief Executive Officer*. In connection with KBL/Summer Predecessormerger, Mr. Macari entered into an employment agreement with SummerInfant.  This employment agreement is an appendix to the proxy statementwe filed with the SEC in connection with the merger.   Under theterms of this employment agreement, Mr. Macari serves as the chiefexecutive officer for an initial term of three years.  The employmentagreement provides that Mr. Macari will receive an annual base salary of$275,000.  Mr. Macari also may be awarded a bonus in an amount equalto up to 50% of his base salary during any fiscal year during the employmentterm.  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.

 

The employment agreementprovides that, in the event of the termination of Mr. Macari’s employmentwithout cause or upon termination of his employment as a result of a breach ofthe employment agreement, the company will continue to pay him his base salaryin accordance with our normal payroll schedule for a period of 12 months fromthe date of termination.  The employment agreement contains certainrestrictive covenants that prohibit Mr. Macari from disclosing informationthat is confidential to Summer Infant and its subsidiaries and generallyprohibits him, during the employment term and for one year thereafter, from solicitingor hiring employees or competing with Summer Infant.

 

*StevenGibree, Executive Vice President-Product Development. *In connection with KBL/Summer Predecessormerger, Mr. Gibree entered into an employment agreement with SummerInfant.  This employment agreement is an appendix to the proxy statementfiled with the SEC in connection with the merger.   Under the termsof this employment agreement, Mr. Gibree serves as Summer Infant’sexecutive vice president of product development for an initial term of threeyears.  The employment agreement provides that Mr. Gibree is toreceive an annual base salary of $220,000.  Mr. Gibree also may beawarded a bonus in an amount equal to up to 50% of his base salary during anyfiscal year during the employment term.  One half of that bonus would bebased on his performance against performance criteria for that fiscal year tobe set, in writing, by the Compensation Committee within 45 days after theBoard of Directors approves the budget for that year and the remaining portionwould be awarded in the discretion of the Compensation Committee.

 

The employment agreementprovides that, in the event of the termination of Mr. Gibree’s employmentwithout cause or upon termination of his employment as a result of our breachof the employment agreement, Summer Infant will continue to pay him his basesalary in accordance with the normal payroll schedule for a period of 12 monthsfrom the date of termination.  The employment agreement contains certainrestrictive covenants that prohibit Mr. Gibree 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 employees or competing with Summer Infant.

 

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

 

35

----

Table of Contents

 

employment agreement withSummer Predecessor.  This employment agreement is an appendix to the proxystatement we filed with the SEC 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 employmentagreement provides that Mr. Driscoll is to receive an annual base salaryof $170,000.  Mr. Driscoll was also eligible to receive $92,500 inbonus payments in 2007 based on the company achieving its 2007 performancegoals in addition to successfully completing the KBL merger.

 

The employment agreementprovides 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 employmentagreement contains certain restrictive covenants that prohibit Mr. Driscollfrom 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 our employees or competing withSummer Infant.

 

**OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR END**

 

The following tableprovides information about outstanding equity awards held by the namedexecutive 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 numberof shares subject to the options vested on March 7, 2007, and anadditional 25% of the options vested on March 7, 2008, the total number ofshares subject to the option will vest and become exercisable on each of thesecond and third anniversaries of the March 7, 2007 vesting commencementdate, subject to continued employment. All of the stock options in the abovetable are out of the money based on the stock price as of April 29, 2009.

 

**Item12. Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

 

*Ownershipof Summer Infant, Inc. Common Stock*

 

The following table setsforth information regarding the beneficial ownership of our common stock as of April 27,2009 by:

 

·        each person known by us to be the beneficial owner ofmore than 5% of our outstanding shares of common stock;

 

·        each of our current executive officers and directors;and

 

36

----

Table of Contents

 

·        all our current executive officers and directors as agroup

 
| **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 businessaddress of each of the following is 1275 Park East Drive, Woonsocket, RhodeIsland 02895.

 

(2)    Includes shares for which the named person:

 

·        has sole voting and investment power, and

 

·        has shared voting and investment power with hisspouse, unless otherwise indicated in the footnotes.

 

(3)    May include shares underlying warrants thatexpired as of April 20, 2009. The total also includes vested restrictedshares, in addition to the following number of shares that can be acquiredthrough 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                                                     |       |

 

Note that all exercisablestock options in the above table have an exercise price in excess of thecurrent stock price

 

37

----

Table of Contents

 

and therefore are out ofthe money as of April 3, 2009.

 

(4)    All information relating to beneficial ownership ofcommon stock was obtained from an amended Form 4 filed on April 22,2009 with the SEC.

 

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

 

(6)    All information relating to beneficial ownership ofcommon stock was obtained from a Schedule 13G filed on February 10, 2009with 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  |   |

 

**Item13. Certain Relationships, Related Transactions and Director Independence**

 

*CertainRelationships and Related Transactions*

 

In March 2009, theCompany entered into a sale-leaseback transaction related to its corporateheadquarters in Woonsocket, Rhode Island.  Under the terms of the transaction,the Company 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 purchaseprice, which was determined by independent appraisals of the property,approximates the net book value of the building on the Company’s books, andtherefore will result in an immaterial P&L impact.  The company willbe leasing back the building for approximately the same amount it currentlypays in principal and interest payments each month on its real estateloan.  This transaction enables the Company to pay down outstanding debtand provides greater borrowing flexibility.

 

*DirectorIndependence*

 

Our Board of Directorshas adopted categorical standards to assist it in making independencedeterminations.  Under those standards, in determining independence eachyear, our Board of Directors will analyze each director’s relationship with usand our subsidiaries to determine whether our directors are independent underthe rules of the Nasdaq Stock Market.  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 theNasdaq Stock Market.

 

38

----

Table of Contents

 

**Item14. Principal Accounting Fees and Services**

 

*IndependentRegistered Public Accountants*

 

The Audit Committee hasengaged McGladrey & Pullen, LLP as our independent registered publicaccountants for the current fiscal year.

 

As our independentregistered public accountants, McGladrey & Pullen, LLP was engaged toconduct quarterly reviews of us and to conduct an audit of our consolidatedfinancial statements for the full year 2008.

 

*PrincipalAccountant Fees and Services*

 

As we previouslydisclosed, certain of the partners of Goldstein Golub Kessler LLP becamepartners of McGladrey & Pullen, LLP in a limited asset purchaseagreement effective October 3, 2007.  As a result, Goldstein GolubKessler LLP resigned as our auditors effective November 15, 2007 andMcGladrey & Pullen, LLP was appointed as the auditors of our annualfinancial statements for the year ended December 31, 2008.

 

Through November 15,2007, Goldstein Golub Kessler LLP had a continuing relationship with RSMMcGladrey, Inc., from which it leased auditing staff who were full time,permanent employees of RSM McGladrey, Inc. and through which its partnersprovide non-audit services.  Goldstein Golub Kessler LLP had no full timeemployees and therefore, none of the audit services performed were provided bypermanent full-time employees of the Goldstein Golub Kessler LLP. Goldstein Golub Kessler LLP managed and supervised the audit staff, andwas exclusively responsible for the opinion rendered in connection with itsexamination.

 

The following table showsthe fees paid or accrued for the audit and other services provided for theyears 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 |   |

 

·*              **Audit Fees*were for professional services renderedfor the audit 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 servicesthat are reasonably related to the performance of the audit or review of ourfinancial statements and are not reported under “Audit Fees.”

 

·      *Tax Fees* were for professional services renderedfor federal, state and international tax compliance, tax advice and taxplanning.

 

·      *All Other Fees* were for services other than the servicesreported above and include agreed-upon procedures in 2008.

 

39

----

Table of Contents

 

·        *Policy on Audit CommitteePre-Approval of Audit and Permissible Non-Audit Services of IndependentAuditors*

 

·        The Audit Committee pre-approves all audit andpermissible non-audit services provided by the independent registered publicaccounting firm. These services may include audit services, audit-relatedservices, tax services and other services. Pre-approval is generally providedfor up to one year, and any pre-approval is detailed as to the particularservice or category of services and is generally subject to a specific budget.The independent registered public accounting firm and management are requiredto periodically report to the Audit Committee regarding the extent of servicesprovided by the independent registered public accounting firm in accordancewith the pre-approval, and the fees for the services performed to date. TheAudit Committee may also pre-approve particular services on a case-by-casebasis.

 

40

----

Table of Contents

 

**SummerInfant, Inc. And Subsidiaries**

 

**Indexto Financial 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-22 |

 

F-1

----

Table of Contents

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To the Board of Directorsand Stockholders

Summer Infant, Inc.

 

We have audited theaccompanying consolidated balance sheets of Summer Infant, Inc. andSubsidiaries 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 auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Summer Infant, Inc. andSubsidiaries as of December 31, 2008 and 2007, and the results of theiroperations and their cash flows for the years then ended in conformity with U.S.generally accepted accounting principles.

 

As explained in note 2,the consolidated financial statements for 2008 have been restated.

 

We were not engaged toexamine management’s assertion about the effectiveness of Summer Infant’sinternal control over financial reporting as of December 31, 2008 includedin the “Management’s Report on Internal Control Over Financial Reporting” and,accordingly, we do not express an opinion thereon.

 
| /s/  MCGLADREY & PULLEN, LLP                                               |   |
|-------------------------------------------------------------------------------------|--------|
| New  York, New York                                                                 |
| March 24,  2009, except for note 2, for which the date is January 4, 2010 |

 

F-2

----

Table of Contents

 

**SummerInfant, Inc. and Subsidiaries**

 

**Consolidated Balance Sheets**

 

Note that all dollaramounts presented in the table below are in thousands of U.S. dollars, exceptshare amounts and par value per share.

 
| ** **                                                                                                                         | ** ** | **December 31,  2008********(restated)** | ** ** | **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                       |       |
| Other  Liabilities                                                                                                                 |       | 1,150                                         |       | —                      |       |
| Deferred  Tax Liabilities                                                                                                          |       | 946                                           |       | 548                         |       |
| TOTAL  LIABILITIES                                                                                                                 |       | 69,072                                        |       | 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                                                                                                                 |       | 8,249                                         |       | 4,095                       |       |
| Accumulated  Other Comprehensive Income (Loss)                                                                                     |       | (882                                          | )          | 96                          |       |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                                                   |       | 61,463                                        |       | 53,270                      |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                   |       | $                                             | 130,535    |                        | $          | 93,225 |   |

 

See notes toconsolidated financial statements

 

F-3

----

Table of Contents

 

**SummerInfant, Inc. and Subsidiaries**

 

**Consolidated Statements of Income**

 

Note that all dollaramounts presented in the table and the notes to the table below are inthousands of U.S. dollars, except share and per share amounts.

 
| ** **                                       | ** ** | **For  the year ended**                       | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                       | ** ** | **December 31,  2008********(restated)** | ** ** | **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                  |       | (3,209                                        | )          | 228 |   |
| Income  before provision for income taxes        |       | 6,130                                         |       | 4,793 |   |
| Income  tax expense                              |       | 1,976                                         |       | 1,678 |   |
| Net  income                                      |       | $                                             | 4,154      |   | $ | 3,115 |   |
| Net  income per share basic                      |       | $                                             | 0.28       |   | $ | 0.23 |   |
| Weighted  average shares outstanding basic       |       | 14,734,299                                    |       | 13,426,000 |   |
| Net  income per share diluted                    |       | $                                             | 0.28       |   | $ | 0.23 |   |
| Weighted  average shares outstanding diluted     |       | 14,734,299                                    |       | 13,507,097 |   |

 

----

(a)                                  Includes non-cash stock optioncompensation expense of $360 and $376 for the years ended December 31,2008, and December 31, 2007, respectively. Also includes deal-related feesof $214 for the year ended December 31, 2008.

 

See notes toconsolidated financial statements

 

F-4

----

Table of Contents

 

**SummerInfant, Inc. and Subsidiaries**

 

**Consolidated Statements of Cash Flows**

 

Note that all dollaramounts presented in the attached table are in thousands of U.S. dollars.

 
| ** **                                                                                                                                                                       | ** ** | **For  the year ended**                             | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **December 31,********2008********(restated)** | ** ** | **December 31,********2007** | ** ** |
| **Cash flows from operating activities:**                                                                                                                                        |       |                                                |       |   |   |
| Net  income                                                                                                                                                                      |       | $                                                   | 4,154      |   | $ | 3,115 |   |
| Loss  on value of interest rate swap agreements                                                                                                                                  |       | 1,150                                               |       | — |   |
| 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                                                                                                                                                           |       | 436                                                 |       | 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  of 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 toconsolidated financial statements

 

F-5

----

Table of Contents

 

**SummerInfant, Inc. and Subsidiaries**

 

**Consolidated Statements ofStockholders’ Equity**

 

**Forthe Years Ended December 31, 2008 and 2007**

 

Note that all dollaramounts presented in the attached table are in thousands 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(restated) Note 2       |       |               |       |                          |       |         |       | 4,154                                |       |               |       | 4,154                         |       |   |   |
| Foreign  currency translation adjustment        |       |               |       |                          |       |         |       |                                 |       | (978               | )          | (978                          | )          |   |   |
| Total  comprehensive income(restated)           |       |               |       |                          |       |         |       |                                 |       |               |       | $                             | 3,176      |   | 3,176 |   |
| **Balance at December 31, 2008(restated)** |       | 15,055,782         |       | $                             | 1          |         | $          | 54,095                               |       | $                  | 8,249      |                          | $          | (882 | ) |   |   | $ | 61,463 |   |

 

See notes toconsolidated financial statements

 

F-6

----

Table of Contents

 

**SUMMERINFANT, INC. AND SUBSIDIAIRES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

*Acquisitionof Summer Infant, Inc. by KBL Healthcare Acquisition Corp. II*

 

On March 6, 2007,under an Agreement and Plans of Reorganization, dated as of September 1,2006 (“Acquisition Agreement”), KBL Healthcare Acquisition Corp. II (“KBL”),and its wholly owned subsidiary, SII Acquisition Corp. (“Acquisition Sub”),consummated a transaction by which (i) Summer Infant, Inc. (“SII”)was merged with and into Acquisition Sub and (ii) all of the outstandingcapital stock of each of Summer Infant Europe, Limited (“SIE”) and SummerInfant 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.

 

Effective upon closing,the Company changed its name to Summer Infant, Inc. and SII changed itsname to Summer Infant (USA), Inc. Thus, the Company is now a holdingcompany called Summer Infant, Inc. operating through its wholly-ownedsubsidiaries, Summer Infant (USA), Inc., Summer Infant Europe, Limited,and Summer Infant Asia, Ltd.

 

At the closing of theacquisition, the Summer stockholders received from the Company an aggregate of$20,000,000 cash and 3,916,667 shares of Company common stock (“TransactionShares”). The Summer stockholders also will be entitled to receive up to anadditional aggregate of 2,500,000 shares of Company common stock (“ContingentShares”) in the event that the last sales price of Company common stock isequal to or exceeds $8.50 on any twenty (20) trading days during any thirty(30) consecutive trading day period commencing on the three-month anniversaryof the closing of the acquisition and ending on April 20, 2009. The Summerstockholders also are entitled to receive cash payments equal to 50% of thedifference between actual EBITDA (as defined in the Acquisition Agreement) forthe years ended or ending December 31, 2006, 2007 and 2008 and prescribedEBITDA benchmarks for each of those years of $4,200,000, $10,000,000 and $15,000,000respectively. These cash payments shall not exceed $5,000,000 in the aggregatefor the three years. No amounts were earned for the years ended December 31,2008 and 2007.

 

Holders of 1,208,775shares of KBL common stock voted against the acquisition and elected to converttheir shares into a pro rata portion of the trust fund (approximately $5.69 pershare 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 SummerInfant, Inc. the Company is no longer a developmental stage company.

 

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

 

*Natureof Operations and Basis of Presentation and Principles of Consolidation*

 

The ConsolidatedStatement of Income for the year ended December 31, 2007 consists of theperiod from March 6, 2007 through December 31, 2007 for Summer plusthe full year results of KBL. The acquisition of Summer by KBL occurred on March 6,2007, and therefore the results of Summer are included from that date forward.

 

It is the Company’spolicy to prepare its financial statements on the accrual basis of accountingin conformity with accounting principles generally accepted in the UnitedStates of America. The consolidated financial statements include the accountsof its wholly-owned subsidiaries.

 

All significantintercompany accounts and transactions have been eliminated in theconsolidation.

 

*RevenueRecognition*

 

The Company follows theguidance of the Securities and Exchange Commission’ (“SEC”) Staff AccountingBulletin 104 for revenue recognition. In general, the Company records revenuewhen all 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, customer discounts, and other salesrelated discounts. The Company bases its estimates for discounts, returns andallowances on negotiated customer

 

F-7

----

Table of Contents

 

terms and historicalexperience. Customers do not have the right to return products unless theproducts are defective. The Company records a reduction of sales for estimatedfuture defective product deductions based on historical experience.

 

Sales incentives or otherconsideration given by the Company to customers that are considered adjustmentsof the selling price of its products, such as allowances and product placementfees, are reflected as reductions of revenue. Sales incentives and otherconsideration that represent costs incurred by the Company for assets orservices received, such as the appearance of the Company’s products in acustomer’s national circular ad, are reflected as selling and marketingexpenses in the accompanying statements of income.

 

*Cashand Cash Equivalents*

 

For purposes of thestatement of cash flows, cash and cash equivalents include money marketaccounts and investments with an original maturity of three months or less. Attimes, the Company possesses cash balances in excess of federally-insuredlimits.

 

*TradeReceivables*

 

Trade receivables arereported at their outstanding unpaid principal balances reduced by an allowancefor doubtful accounts. The Company estimates doubtful accounts based onhistorical bad debts, factors related to specific customers’ ability to pay andcurrent economic trends. The Company writes off accounts receivable against theallowance when a balance is determined to be uncollectible.

 

*Inventory*

 

Inventory is comprised offinished goods and is stated at the lower of cost using the first-in, first-out(FIFO) method, or market (net realizable value). The Company regularly reviewsslow-moving and excess inventories, and writes down inventories to netrealizable value if the ultimate expected proceeds from the disposals of excessinventory are less than the carrying cost of the merchandise.

 

*Propertyand Equipment*

 

Property and equipmentare recorded at cost. The Company owns the molds used in the production of itsproducts by third party manufacturers. Capitalized mold costs include costsincurred for the pre-production design and development of the molds.

 

Depreciation is providedover the estimated useful lives of the respective assets using eitherstraight-line or accelerated methods.

 

*Impairmentof Long-Lived Assets*

 

The Company reviewslong-lived assets for impairment whenever events or changes in circumstancesindicate that the carrying amount of a long-lived asset may not be recoverable.An asset is considered to be impaired when its carrying amount exceeds the sumof the undiscounted future net cash flows expected to result from the use ofthe asset and its eventual disposition. Long-lived assets include property andequipment. The amount of impairment loss, if any, is charged by the Company tocurrent operations. For each of the years ended December 31, 2008 and2007, no such impairment existed.

 

*Goodwilland Other Intangible Assets*

 

The Company accounts forGoodwill and Other Intangible Assets in accordance with Financial AccountingStandards Board SFAS No. 142, “*Goodwill and Other Intangible Assets.”*  SFAS 142 requires that goodwill andintangible assets that have indefinite useful lives no longer be subject toamortization and be tested at least annually for impairment. Intangible assetsthat have useful lives are amortized over such lives on a straight-line basis.

 

*SummerInfant Acquisition*

 

The following tablesummarizes the fair values of the assets acquired and liabilities assumed atthe date of acquisition of Summer by KBL. The fair values of intangible assetsacquired were obtained through a third party valuation.

 

F-8

----

Tableof Contents

 
| ** **                 | ** ** | **(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     |   |

 

*BasicComfort Acquisition*

 

On March 31, 2008,through Summer (USA), the Company acquired substantially all of the assets ofBasic Comfort, Inc. (“Basic”), a leading manufacturer and supplier ofinfant comfort and safety products, including infant sleep positioners, infanthead supports and portable changing pads. The acquisition price wasapproximately $4,700,000 in cash and 450,000 shares of unregistered Summercommon stock (which were valued at $1,777,500 using the March 31, 2008closing price of $3.95). The cash portion of the purchase price was fundedthrough borrowings under the Company’s credit facility. A portion of the commonstock issued at closing was deposited into escrow to secure the post-closingindemnification obligations of the Basic stockholders. The owners of Basic canreceive additional payments based on the achievement of certain EBITDA targetsfor the year ended March 31, 2009.

 

The following tablesummarizes the fair values of the assets acquired and liabilities assumed atthe 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      |   |

 

*KiddopotamusAcquisition*

 

On April 18, 2008,the Company, through Summer USA, entered into an Agreement and Plan of Merger(the “Merger Agreement”), among Summer USA, Kiddo Acquisition Co., Inc., awholly-owned subsidiary of Summer USA (“Merger Sub”), Kiddopotamus &Company (“Kiddopotamus”), J. Chris Snedeker, Kristen Peterson Snedeker andThomas K. Manning, under which the Company acquired Kiddopotamus, a leadingmanufacturer and supplier of infant nursery, travel and feeding accessories.Pursuant to the terms of the Merger Agreement, on April 18, 2008, MergerSub merged with and into Kiddopotamus, with Kiddopotamus continuing as thesurviving entity (the “Merger”). As a result of the Merger, Kiddopotamus becamean indirect, wholly-owned subsidiary of the Company.

 

Under the mergeragreement, the total purchase price paid by the Company to the holders ofKiddopotamus common and preferred stock, plus the payment of various closingexpenses, was $12,500,000. Of the total purchase price, approximately$9,600,000 was paid in cash, and approximately $2,900,000 was paid by theissuance of 697,890 unregistered shares of the Company’s common stock at $4.126per share, which represented the ten day trading average ending on the tradingday two business days prior to the closing of the merger. Each holder ofKiddopotamus common and preferred stock (other than J. Chris Snedeker andKristen Peterson Snedeker (the “Principal Stockholders”) elected to receivetheir allocation

 

F-9

----

Table of Contents

 

of the total net purchaseprice in cash. As required by the Merger Agreement, the Principal Stockholdersreceived one half of their allocation of the total net purchase price in commonstock of the Company and one half in cash.

 

The Company funded thecash portion of the total net purchase price with borrowings under its securedcredit facilities. Approximately 10% of the total net purchase price wasdeposited in escrow to secure the post-closing indemnification obligations ofthe former Kiddopotamus stockholders, including the Principal Stockholders,under the terms of the agreement.

 

The following tablesummarizes the fair values of the assets acquired and liabilities assumed atthe 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 restated (see note 2)pro forma effect on net revenues, earnings, and diluted earnings per shareamounts for the years ended December 31, 2008 and 2007, assuming the BasicComfort and Kiddopotamus transactions had closed on January 1, 2007, areas follows:

 
| ** **                   | ** ** | **2008** | ** **           | **2007** | ** ** |
|------------------------------|------------|----------|----------------------|----------|------------|
| Net  revenues:               |       | $        |  138,298,000    |     | $          |  91,128,000 |   |
| Net  income:                 |       | $        |  4,763,000      |     | $          |  4,482,000 |   |
| Earnings  per share: diluted |       | $        |  0.31 per share |     | $          |  0.31 per share |   |

 

*FairValue Measurements*

 

Effective January 1,2008, we adopted the new standard regarding fair value which establishes a newframework for measuring fair value and expands related disclosures. Broadly,the framework requires fair value to be determined based on the exchange pricethat would be received for an asset or paid to transfer a liability (an exitprice) in the principal or most advantageous market for the asset or liabilityin an orderly transaction between market participants. The standard establisheda three-level valuation hierarchy based upon observable and non-observableinputs.

 

Observable inputs reflectmarket data obtained from independent sources, while unobservable inputsreflect our market assumptions. Preference is given to observable inputs. Thesetwo types of inputs create the following fair value hierarchy:

 

Level 1 — Quoted pricesfor identical instruments in active markets.

 

Level 2 — Quoted pricesfor similar instruments in active markets; quoted prices for identical orsimilar instruments in markets that are not active; and model-derivedvaluations whose inputs are observable or whose significant value drivers areobservable.

 

Level 3 — Significantinputs to the valuation model are unobservable.

 

We maintain policies andprocedures to value instruments using the best and most relevant dataavailable. In addition, we utilize risk management resources that reviewvaluation, including independent price validation.

 

The Company recognizesthe fair value of interest rate swaps using Level 2 inputs.

 

In the fourth quarter of2008, Company recorded a change in fair value of its interest rate swap. Theeffect was a decrease in the fair value of the swaps of approximately$1,150,000, and an increase in interest expense of $1,150,000 (See Note 2).

 

We use derivatives forrisk management purposes. As a matter of policy, we do not use derivatives forspeculative purposes. This is a key requirement in our loan agreement tomitigate interest rate risk.

 

F-10

----

Table of Contents

 

The notional amountsunder the interest rate swap agreements total $20 million, which isapproximately 50% of the Company’s total outstanding bank debt at December 31,2008.

 

The following tableprovides information about the fair value of our derivatives, by contract type,identifying those derivatives not accounted for as hedges:

 
| ** **                    | ** ** | **At December 31, 2008** | ** ** |
|-------------------------------|------------|-------------------------------|------------|
| ** **                    | ** ** | **Fair Value Liabilities**    | ** ** |
| **Derivatives**               |       |                          |       |
| Interest  rate swap contracts |       | $                             | 1,150,000  |   |
|                               |            |                               |            |  |

 

The above liability isclassified in the caption “other liabilities” and the gains and losses areclassified in “interest expense” in the accompanying financial statements sincethe swaps do not qualify for hedge accounting.

 

*Incometaxes*

 

Effective January 1,2007, the Company adopted the provisions of FASB Interpretation No. 48 (“FIN48”),*“Accounting for Uncertainty in IncomeTaxes—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, the Companyhad no unrecognized tax benefits.

 

Income taxes are computedusing the asset and liability method of accounting. Under the asset andliability method, a deferred tax asset or liability is recognized for estimatedfuture tax effects attributable to temporary differences and carryforwards. Themeasurement of deferred income tax assets is adjusted by a valuation allowance,if necessary, to recognize future tax benefits only to the extent, based onavailable evidence; it is more likely than not such benefits will be realized.The Company recognizes interest and penalties, if any, related to uncertain taxpositions in selling, general and administrative expenses. No interest andpenalties related to uncertain tax positions were accrued at December 31,2008 and 2007.

 

The tax years 2004through 2007 remain open to examination by the major taxing jurisdictions inwhich the Company operates. The Company expects no material changes tounrecognized tax positions within the next twelve months.

 

*Translationof Foreign Currencies*

 

The assets andliabilities of the Company’s European and Asian operations have been translatedinto U.S. dollars at year-end exchange rates. All assets and liabilities of theCompany’s foreign affiliates are translated into U.S. dollars at the exchangerate in effect at the end of the year and the income and expense accounts ofthese affiliates have been translated at

 

F-11

----

Table of Contents

 

average rates prevailingduring each respective year. Resulting translation adjustments are made to aseparate component of stockholders’ equity within accumulated othercomprehensive income (loss).

 

*ShippingCosts*

 

Shipping costs areincluded in selling expenses and amounted to approximately $1,882,000 and$1,491,000 for the years ended December 31, 2008 and 2007, respectively.

 

*AdvertisingCosts*

 

The Company chargesadvertising costs to expense as incurred. Advertising expense, which consistsprimarily of promotional and cooperative advertising allowances provided tocustomers, was approximately $8,749,000 and $5,145,000, for the years ended December 31,2008 and 2007, respectively.

 

*SellingExpenses*

 

The primary components ofselling expense include shipping costs, as well as commissions and royaltybased payments to third party vendors.

 

*Use ofEstimates*

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect certain reported amounts and disclosures.Accordingly, actual results could differ from those estimates.

 

*NetIncome Per Share*

 

Basic earnings per sharefor the Company is computed by dividing net income by the weighted-averagenumber of shares of common stock outstanding during the period. The shares usedin computing diluted earnings per share include 0 equivalent shares fromwarrants since they were anti-dilutive in both years ended December 31,2008 and 2007. Options to purchase 999,200, and 1,055,000 shares of the Company’scommon stock were not included in the calculation, due to the fact that theseoptions were anti-dilutive for the years ended December 31, 2008, and2007.

 

*NewAccounting Pronouncements*

 

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles and expands disclosures about fairvalue measurements. SFAS No. 157 applies under other accountingpronouncements that require or permit fair value measurements, and accordingly,does not require any new fair value measurements. SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007. Effective January 1,2008, 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 Accounting Standards No. 141(R), “BusinessCombinations”, or SFAS No. 141(R). This statement establishes principlesand requirements for how the acquirer of a business recognizes and measures inits financial statements the identifiable assets acquired, the liabilitiesassumed, and any non-controlling interest in the acquiree. SFAS No. 141(R) alsoprovides guidance for recognizing and measuring the goodwill acquired in thebusiness combination and determines what information to disclose to enableusers of the financial statements to evaluate the nature and financial effectsof the business combination. The provisions of SFAS No. 141(R) areeffective for financial statements issued for fiscal years beginning after December 15,2008. The Company will adopt this statement, as applicable on January 1,2009.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 160, “Non-controllingInterests in Consolidated Financial Statements-An Amendment to AccountingResearch Bulletin (“ARB”) No. 51”, or SFAS No. 160. This statementamends ARB No. 51, “Consolidated Financial Statements”, to establishaccounting and reporting standards for the non-controlling interest in asubsidiary and for the deconsolidation of a subsidiary. This statement alsoamends certain of ARB No. 51’s consolidation procedures for consistencywith the requirements of SFAS No. 141(R). In addition, SFAS No. 160also includes expanded disclosure requirements regarding interests of theparent and its non-

 

F-12

----

Table of Contents

 

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.

 

In February 2008,the FASB issued Staff Position (“FSP”) No. 157-1 and FSP No. FSP157-2. FSP No. 157-1 removes certain leasing transactions from the scopeof 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 liabilitiesthat are recognized at the fair value on a nonrecurring basis will be forfiscal years beginning after November 15, 2008. FSP No. 157-2 iseffective for the Company of January 1, 2009. The Company is assessing thepotential impact of adopting FSP No. 157-2, but does not believe that theadoption will have a significant impact on the Company’s consolidated financialstatements.

 

In April 2008, theFASB issued FSP No. FAS 142-3, “Determination of the Useful Life ofIntangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors thatshould be considered in developing renewal or extension assumptions used todetermine the useful life of a recognized intangible asset under SFAS No. 142,“*Goodwill and Other Intangible assets*“(SFAS No. 142”). The intent of the position is to improve the consistencybetween the useful life of a 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 fiscal yearsbeginning after December 15, 2008 and is effective for the Company January 1,2009. The Company is assessing the potential impact that the adoption of FSP FAS142-3 will have on the useful lives of its intangible assets but does notexpect it to have a material impact on its consolidated results of operationsand financial condition.

 

The Company does notbelieve that any other recently issued, but not yet effective accountingstandards will have a material effect on the Company’s consolidated financialposition, results of operations, or cash flows.

 

Certain items as of andfor the year ended December 31, 2007 have been reclassified to conformwith the current year presentation.

 

**2.RESTATEMENT**

 

In 2007 and 2008 theCompany entered into various interest rate swap agreements that are required bythe Company’s loan agreement with Bank of America. The interest rate swaps areused to hedge against potential increases in interest rates by locking in aportion of the outstanding debt at a fixed rate. The fair value of the swapswas determined to be immaterial from the inception of the swaps until thefourth quarter of 2008. During the fourth quarter of 2008, the fair valuedeclined due to the dislocation in the financial markets, but this was notrecorded by the Company. In addition, the Company concluded the swaps do notqualify for hedge accounting treatment. Therefore, the Company has restated its2008 results to record an increase in net liabilities and a reduction ofstockholders’ equity (through an after-tax charge in the income statement) ofapproximately $0.7 million, which reflects the reduced fair value of the swapsat December 31, 2008. This reduced stockholders’ equity from $62.2 millionto $61.5 million at December 31, 2008. As long as the Company keeps theseswaps in place until they terminate (as required by the bank), the fair valuewill be adjusted each quarter and will ultimately return to zero. The restatementof 2008 fourth quarter and annual results has no impact on operating income,EBITDA or cash flow of the Company.

 

For clarity purposes, theeffect of this restatement on the financial statements is presented in acondensed illustration below (amounts in $000’s):

 
| ** **                                                    | ** ** | **Originally reported** | ** ** | **Fair value of swap** | ** ** | **Restated**              | ** ** |
|---------------------------------------------------------------|------------|------------------------------|------------|---------------------------------------|------------|---------------------------|------------|
| ** **                                                    | ** ** | **December 31,2008**    | ** ** | **December 31,2008**             | ** ** | **December 31,2008** | ** ** |
| **Income Statement**                                          |       |                         |       |                                  |       |                      |       |
| Net operating income                                          |       | $                            | 9,339      |                                  | —     |                      | $          | 9,339 |   |
| Interest income(expense),net                                  |       | (2,059                       | )          | (1,150                                | )          | (3,209                    | )          |
| Income tax expense                                            |       | 2,378                        |       | 402                                   |       | 1,976                     |       |
| Net income                                                    |       | $                            | 4,902      |                                  | (748       | )                         | $          | 4,154 |   |
| Net income per share basic/diluted                            |       | $                            | 0.33       |                                  | (0.05      | )                         | $          | 0.28 |   |
|                                                          |       |                         |       |                                  |       |                      |       |
| **Balance Sheet**                                             |       |                         |       |                                  |       |                      |       |
| Total Assets                                                  |       | $                            | 130,535    |                                  | —     |                      | $          | 130,535 |   |
| Other liabilities                                             |       | —                       |       | 1,150                                 |       | 1,150                     |       |
| Deferred tax liabilities                                      |       | 1,348                        |       | (402                                  | )          | 946                       |       |
| Total Liabilities                                             |       | 68,324                       |       | 748                                   |       | 69,072                    |       |
| Retained Earnings                                             |       | 8,997                        |       | (748                                  | )          | 8,249                     |       |
| Total Stockholders’ Equity                               |       | $                            | 62,211     |                                  | (748       | )                         | $          | 61,463 |   |
|                                                          |       |                         |       |                                  |       |                      |       |
| **Cash Flow**                                                 |       |                         |       |                                  |       |                      |       |
| Net cash used in operating activities                         |       | $                            | (16        | )                                     | —     |                      | $          | (16 | ) |
| Net cash used in investing activities                         |       | (21,503                      | )          | —                                |       | (21,503                   | )          |
| Net cash provided by financing activities                     |       | 21,714                       |       | —                                |       | 21,714                    |       |
| Effect of exchange rate changes on cash and cash  equivalents |       | (978                         | )          | —                                |       | (978                      | )          |
| Net decrease in cash and cash equivalents                     |       | (783                         | )          | —                                |       | (783                      | )          |
| Cash and cash equivalents at end of year                      |       | $                            | 988        |                                  | —     |                      | $          | 988 |   |

 

F-13

----

Tableof Contents

 

Foradditional disclosure and detail of the interest rate swaps, see Fair ValueMeasurements

 

**3.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 equipmentincludes amounts acquired under capital leases of approximately $827,000 and$447,000 at December 31, 2008 and 2007, respectively, with relatedaccumulated depreciation of approximately $164,000 and $125,000, respectively.Depreciation is included in general and administrative expenses in theaccompanying consolidated statements of income.

 

**4.GOODWILL AND INTANGIBLE ASSETS**

 

*Goodwill*

 

Goodwill is tested forimpairment on an annual basis and more frequently if facts and circumstancesindicate goodwill carrying values exceed estimated fair values. Because theCompany has fully integrated its acquisitions, it has determined that it hasonly one reporting unit for purposes of testing for goodwill impairment. Basedon the impairment tests performed, there was no impairment of goodwill in 2008or 2007.

 

F-14

----

Table of Contents

 

The change in goodwillduring the years ended December 31, 2007 and 2008, respectively wasas 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       |   |

 

*Intangibleassets*

 

Intangible assets consistof 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 periodfor the intangible assets ranges from 5 to 10 years for those assets thathave an estimated life; certain of the assets have indefinite lives. There wasno impairment of intangible assets in 2008 or 2007.

 

Amortization expenseamounted to $390,000 and $237,000 for the years ended December 31, 2008and 2007, respectively. Estimated amortization expense for the next five yearsis as follows:

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

 

**5.ACCOUNTS PAYABLE AND ACCRUED EXPENSES**

 

Accounts payable andaccrued 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 |   |

 

F-15

----

Table of Contents

 

**6. DEBT**

 

*NewCredit Facilities*

 

On April 10, 2008,the Company entered into two new three-year secured credit facilities (the “LoanAgreement”) with Bank of America, N.A., as Administrative Agent, and each ofthe financial institutions a signatory to the Loan Agreement. The LoanAgreement provides for a $36,000,000 working capital revolving credit facilityand a $10,000,000 non-restoring acquisition credit facility. The new creditfacilities mature on June 30, 2011. The acquisition credit facility hasbeen utilized in its entirety as of December 31, 2008. The amountoutstanding on the working capital revolving credit facility at December 31,2008 was $29,676,000.

 

Aggregate maturities oflong term debt related to this note are as follows:

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

 

The Company and itssubsidiaries, Summer Infant (USA), Inc. Summer Infant Europe Limited,Summer Infant Asia Limited and Summer Infant Canada, Limited are the borrowersunder this Loan Agreement. These new credit facilities replace the Company’sprior line of credit and are being used principally to fund growth opportunitiesand for working capital purposes. This credit facility is secured bysubstantially all of the assets of the Company.

 

The Company’s ability toborrow under the Loan Agreement is subject to its ongoing compliance with anumber of financial and other covenants, including the following: (i) thatthe Company and its subsidiaries maintain a net worth of $50,000,000 plus thesum of 50% of net income earned in each fiscal year, (ii) that the Companyand its subsidiaries maintain a ratio of total funded debt to EBITDA of notgreater than 3.50:1.00, and (iii) that the Company and its subsidiariesmaintain a ratio of operating cash flow to debt service of not less than1.25:1,00. In addition, if the Company’s ratio of total funded debt to EBITDAis greater 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 the Company’s ratio of totalfunded debt to EBITDA is greater than 3.25:1.00 for any fiscal year, theaggregate amount that may be borrowed under the Loan Agreement will bedetermined by reference to a borrowing base.

 

These new creditfacilities bear interest at a floating rate based on a spread over LIBORranging from 150 basis points to 200 basis points, depending upon the ratio ofthe Company’s total funded debt to EBITDA. As of December 31, 2008, therate on these credit facilities ranged between 1.95% and 4.42%. In addition,these new credit facilities have an unused line fee based on the unused amountof the credit facilities equal to 25 basis points.

 

The Loan Agreement alsocontains customary events of default, including a cross default provision and achange of control provision. In the event of a default, all of the obligations ofthe Company and its subsidiaries under the loan Agreement may be declaredimmediately due and payable. For certain events of default relating toinsolvency and receivership, all outstanding obligations become due andpayable.

 

At December 31,2007, there was $17,591,000 outstanding on the Company’s prior line of creditfacility.

 

*Amendmentto Construction Loan*

 

In connection with theCompany’s construction of its principal offices in Woonsocket, Rhode Island,the Company previously assumed all obligations of Faith Realty under a$4,000,000 Construction Loan between Faith Realty and Bank of America, N.A.(the “Real Estate Loan”). In connection with the new credit facilitiesdescribed above, the Company and Bank of America, N.A. amended the Real EstateLoan to include a cross default provision with these new credit facilities.

 

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

 

F-16

----

Table of Contents

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

 

**7.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)(as restated see note 2) |       | 423                 |       | 287      |       |
| Total  expense                                        |       | $                   | 1,976      |     | $          | 1,678 |   |

 

F-17

----

Table of Contents

 

**SUMMERINFANT, INC. AND SUBSIDIAIRES**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**7.INCOME TAXES**

 

The tax effects oftemporary differences that comprise the deferred tax liabilities and assets areas 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:     |       |                |       |     |       |
| Intangible  assets                               |       | (137                | )          | (91      | )          |
| Interest  rate swap liability                    |       | 402                 |       | (457     |       |
| Property,  plant and equipment                   |       | (1,211              | )          | (457     | )          |
| Net  deferred tax (liability) asset-non-current: |       | (946                | ))         | (548     | )          |
| Net  deferred income tax asset (liability)       |       | $                   | (344       | )        | $          | (414 | ) |

 

The following reconcilesthe income tax expense (benefit) at the U.S. federal income tax statutory rateto that in the consolidated financial statements:

 
| ** **                                                  | ** ** | **2008**            | ** ** | **2007** | ** ** |
|-------------------------------------------------------------|------------|---------------------|------------|----------|------------|
| ** **                                                  | ** ** | **(In  thousands)** | ** ** |
| Tax  expense at statutory rate(as restated)                 |       | $                   | 2,073      |     | $          | 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                                              |       | $                   | 1,976      |     | $          | 1,678 |   |

 

**8. STOCKOPTIONS**

 

The Company has grantedstock options under its 2006 Performance Equity Plan (“2006 Plan”). Under the2006 Plan, awards may be granted to participants in the form of Non-QualifiedStock Options, Incentive Stock Options, Restricted Stock, Deferred Stock, StockReload Options and other stock-based awards. Subject to the provisions of theplan, awards may be granted to employees, officers, directors, advisors and consultantswho are deemed to have rendered or are able to render significant services tous or our subsidiaries and who are deemed to have contributed or to have thepotential to contribute to our success. As discussed in Note 1, Summary ofSignificant Accounting Policies—New Accounting Pronouncements, effective January 1,2006, the Company adopted the fair value recognition provisions ofSFAS 123(R), using the modified prospective transition method. Theadoption of SFAS 123(R) resulted in share-based compensation expensefor the years ended December 31, 2008 and 2007 of $360,000 and $376,000,respectively. Stock based compensation expense is included in selling, generaland administrative expenses.

 

The fair value of eachoption award is estimated on the date of grant using the Black-Scholes optionvaluation model that uses the assumptions noted in the following table. Becausethe Company’s common shares have only traded publicly since April 2005,expected volatility for the year ended December 31, 2008 is estimatedbased on an arithmetic average of the volatility of four publicly-tradedcompanies that operate in Summer’s industry or sell into similar markets.Summer has insufficient history by which to estimate the expected term of theoptions, but used an estimate for grants of “plain vanilla” stock options basedon a formula prescribed by the Securities and Exchange Commission’s StaffAccounting Bulletin No. 107. Because Summer’s employee stock options havecharacteristics significantly different from those of traded options andbecause changes in the subjective input assumptions can materially affect thefair value estimate, in management’s opinion, the existing models do notnecessarily provide a reliable single measure of the fair value of its stockoptions.

 

The following tablesummarizes the assumptions used for options granted during the year ended December 31,2007. There were no option grants during the year ended December 31, 2008.

 

F-18

----

Table of Contents

 
| 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-averagegrant date fair value of options granted during the year ended December 31,2007 of $1.55 per share which totals $1,665,010 for the 1,074,200 optionsgranted during such period.

 

A summary of the statusof the Company’s options as of December 31, 2008 and changes during theyear 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 intrinsicvalue of options outstanding at December 31, 2008 was $0.

 

The following tablesummarizes 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 of unrecognized compensation costrelated to non-vested stock option awards, which is expected to be recognizedover a remaining weighted-average vesting period of 2.5 years. The totalfair value of options vested during the year ended December 31, 2008 wasapproximately $383,000.

 

**9.WARRANTS**

 

The Company had18,400,000 redeemable common stock purchase warrants (the “Warrants”) outstandingat December 31, 2006. Each Warrant entitles the holder to purchase oneshare of common stock at an exercise price of $5.00 per share. The Warrantsexpire in April 2009. The Warrants are redeemable at a price of $0.01 perWarrant, only in the event that the last sale price of the common stock is atleast $8.50 per share for any 20 trading days within a 30 trading day period.In November, 2007, the Company completed a tender offer to all warrant holdersto purchase each warrant for $1.00. The total number of warrants tendered was14,766,047. The Company used a combination of cash on hand plus amountsavailable under its line of credit to fund the tender offer. The amount paid tothe warrant holders who tendered their warrants was charged to additional paid-incapital. At December 31, 2008, total warrants outstanding were 3,633,953.

 

F-19

----

Table of Contents

 

**10.CAPITAL LEASE OBLIGATIONS**

 

The Company leasesvarious equipment under capital leases which expire during 2009 and 2011.

 

The leases requiremonthly payments of principal and interest, imputed at interest rates rangingfrom 3% to 19% per annum.

 

The capital leaseliability balance of approximately $398,000 and $288,000 is included inliabilities on the consolidated balance sheets as of December 31, 2008 and2007, (of which approximately $215,000 and $120,000 is included in long-termdebt, and the balance is in current liabilities). The minimum future leasepayments, including principal and interest, are approximately $434,000 and$265,000, respectively.

 

**11.PROFIT SHARING PLAN**

 

Summer Infant (USA), Incmaintains a defined contribution salary deferral plan (the Plan) under Section 401(k) ofthe Internal Revenue Code. All employees who meet the Plan’s eligibilityrequirements can participate. Employees may elect to make contributions up to25% of their compensation. In 2007, the Company adopted a matching plan whichwas funded throughout the year. For the years ended December 31, 2008 and2007, the Company recorded 401(k) matching expense of $116,000 and$68,000, respectively.

 

**12.MAJOR CUSTOMERS**

 

Sales to two customerscomprised approximately 48% and 10% of net sales for the year ended December 31,2008, and 42% and 15% for December 31, 2007, respectively. Amounts duefrom these customers comprised approximately 63% and 61% of trade receivablesat December 31, 2008 and 2007, respectively.

 

**13.COMMITMENTS AND CONTINGENCIES**

 

*RoyaltyCommitments*

 

Summer Infant (USA), Inchas entered into various license agreements with third parties for the use ofproduct designs and trade names for the products manufactured by the Company.These agreements have termination dates through August, 2013. Royalty expenseunder these licensing agreements for the years ended December 31, 2008 and2007 were approximately $214,000 and $149,000, respectively.

 

*CustomerAgreements*

 

The Company enters intoannual agreements with its customers in the normal course of business. Theseagreements define the terms of product sales including in some instancescooperative advertising costs and product return privileges (for defectiveproducts only) or defective allowances (which are based upon historicalexperience). These contracts are generally annual in nature and obligate theCompany only as to products actually sold to the customer.

 

*LicenseAgreements and Lease Commitments*

 

During 2005, SummerInfant (USA), Inc entered into formal contracts with providers of long distancecommunications, electronic data interchange services, telephone andcommunication equipment, and computer equipment. These contracts in theaggregate represent minimum monthly payments of approximately $2,000 whichexpire at various times through October 2009.

 

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

 

Summer (USA) leasescertain vehicles under non-cancelable operating lease agreements. These leasesare for a three-year term requiring monthly payments of approximately $3,000through April 2011.

 

SIE leases office spaceunder a non-cancelable operating lease agreement. This lease is for a five-yearterm through April 2012, and requires monthly payments of approximately$5,000. In addition, SIE is required to pay its proportionate share of propertytaxes.

 

F-20

----

Table of Contents

 

Summer InfantCanada, Ltd. entered into a five-year lease for office and warehouse spaceunder a non-cancelable operating lease agreement expiring March 2013. TheCompany is obligated as part of the lease to pay maintenance expenses as wellas property taxes and insurance costs as defined in the agreement. Monthlypayments for the initial year are approximately $14,000 and escalate over thecourse of the lease term. Summer Infant Canada Ltd. has the option torenew this lease for one additional period of five years under the same termsand conditions.

 

Summer Infant (USA)entered into a two-year lease for office space under a non-cancellableoperating lease agreement expiring July 2010. The company is obligated topay insurance as part of the lease. Monthly payments for the initial year areapproximately $15,000, and escalate to approximately $15,545 through the secondyear. Summer (USA) has the option to renew this lease for one additional periodof two years under the same terms and conditions.

 

Summer Infant (USA) Inc.entered into a five-year lease for office and warehouse space under acancelable operating lease agreement. The agreement states, after month 18,there is a 90-day period to cancel. Should either party exercise this option,the agreement shall terminate 180 days after written notice is provided tothe other party. After the 90-day period to cancel passes, the lease becomesnon-cancelable. The Company is obligated to pay certain common area maintenancecharges including insurance and utilities. Monthly payments for the initialyear are approximately $29,400 and escalate over the course of the lease term.

 

During March 2006,Summer (USA) entered into a three-year lease for warehouse space under anon-cancelable operating lease agreement expiring April 2009. The Companyis obligated as part of the lease to pay maintenance expenses as well asproperty taxes and insurance costs, as defined in the agreement. Monthlypayments for the initial year are approximately $27,000, and escalate over thecourse of the lease term. Summer (USA) has the option to renew this lease fortwo additional periods of three years under the same terms and conditions.

 

During September 2007,Summer (USA) entered into a two year lease for warehouse space under anon-cancelable operating lease agreement expiring in Aug 2009. The Company isobligated as part of the lease to pay maintenance expenses, as defined in theagreement. Monthly payments for the two year agreement are approximately$16,000.

 

During December 2007,Summer (USA) entered into a three year lease for warehouse space under anon-cancelable operating lease agreement expiring in February 2011. Summer(USA) is obligated as part of the lease to pay maintenance expenses as well asproperty taxes and insurance costs, as defined in the agreement. Monthlypayments for the initial year are approximately $70,000, and escalate over thecourse of the lease term. Summer (USA) has the option to renew this lease forone additional period of three years under the same general terms and conditions.During November 2007, SIA entered into a two year office lease whichrequires monthly payments of $3,000 through October 2009.

 

Approximate futureminimum rental payments due under these leases are as 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 yearended December 31, 2008 and 2007 totaled approximately $1,923,000 and$664,000, respectively.

 

*EmploymentContracts*

 

In accordance with UK andEU law, SIE has employment contracts with all employees. In connection withthese contracts, SIE is required to fund the individual pension contributionsof certain employees at varying rates from 5% to 10% of the employee’s annualsalary, as part of their total compensation package. These pensioncontributions are expensed as incurred. There are no termination benefitprovisions in these contracts.

 

F-21

----

Table of Contents

 

*Litigation*

 

The Company is involvedin various claims and legal actions arising in the ordinary course of business.Management is of the opinion that the ultimate outcome of these matters wouldnot have a material adverse impact on the financial position of the Company orthe results of its operations.

 

**14.GEOGRAPHICAL INFORMATION**

 

The Company distributesbranded durable baby products throughout the United States, Canada, and theUnited Kingdom, and various other parts of the world.

 

The following is a tablethat presents net revenue by geographic area at 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 tablethat 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 |   |

 

F-22

----

Table of Contents

 

**SIGNATURES**

 

Pursuant to therequirements of the Section 13 or 15 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized on the 4th day of January 2010.

 
|   | 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 theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

 

| **Name**             | ** ** | **Title**                                                     | ** ** | **Date**              |
|----------------------|------------|---------------------------------------------------------------|------------|-----------------------|
|                 |       |                                                          |       |                  |
| /s/ Jason Macari     |       | Director and Chief  Executive Officer                         |       | January 4,  2010 |
| Jason Macari         |       |  (Principal Executive Officer)                           |       |                  |
|                 |       |                                                          |       |                  |
| /s/ Joseph  Driscoll |       | Chief Financial Officer                                       |       | January 4,  2010 |
| Joseph Driscoll      |       |  (Principal Financial and Accounting Officer)            |       |                  |
|                 |       |                                                          |       |                  |
| /s/ Steven  Gibree   |       | Executive Vice  President of Product Development and Director |       | January 4,  2010 |
| Steven Gibree        |       |                                                          |       |                  |
|                 |       |                                                          |       |                  |
| /s/ Martin  Fogelman |       | Director                                                      |       | January 4,  2010 |
| Martin Fogelman      |       |                                                          |       |                  |
|                 |       |                                                          |       |                  |
| /s/ Robert  Stebenne |       | Director                                                      |       | January 4,  2010 |
| Robert Stebenne      |       |                                                          |       |                  |
|                 |       |                                                          |       |                  |
| /s/ Richard Wenz     |       | Director                                                      |       | January 4,  2010 |
| Richard Wenz         |       |                                                          |       |                  |

 

41

----

Table of Contents

 

**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)                                                                                                                                                                                                                                                                                                                                                   |

 

42

----

Table of Contents

 
| 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                                       |

 

43

----