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** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q/A**

**(Amendment No. 1)**

 

**Quarterly Report Under Section 13or 15d**

**of the Securities Exchange Act of1934**

 

**For the quarterly period ended March 31,2009**

 

**Summer Infant, Inc.**

(Name of Registrant as Specified in ItsCharter)

 

**Commission file 001-33346**

 

| **Delaware**                              | ** ** | **IRS  Employment Number 20-1994619** |
|-------------------------------------------|------------|---------------------------------------|
| (State of  Incorporation)                 |       |                                  |
|                                      |       |                                  |
| **1275  Park East Drive**                 |       |                                  |
| **Woonsocket,  RI 02895**                 | ** ** | **(401)  671-6550**                   |
| (Address of  principal executive offices) |       | (Registrant’s  telephone number) |

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the last 90 days.  Yes x No o.

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes o No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting 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) |   |                              |

 

Indicateby check mark whether the registrant is a shell company as defined in Rule 12b-2of the Exchange Act.  Yes o No  x

 

As of May 8,2009, there were 15,392,782 shares outstanding (including unvested restrictedshares) of the registrant’s Common Stock, $.0001 par value per share.

 

 

 

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**ExplanatoryNote**

 

**This firstamendment on Form 10-Q/A (the “Amendment”) amends our quarterly report forthe quarter ended March 31, 2009 originally filed with the Securities andExchange Commission (“SEC”) on May 14, 2009 (the “Original Report”).  We are filing this amendment primarily torespond to comment letters received from the SEC dated May 21,2009 and June 30, 2009.**

 

**Asrequired by Rule 12b-15 under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), we are also filing new certifications by theCompany’s Principal Executive Officer and Principal Financial Officer asexhibits to this Form 10-Q/A under Item 15. Exhibits and FinancialStatement Schedules. No other information in the Original Report, otherthan as set forth below, is amended hereby. Except for the foregoing, theAmendment speaks as of the filing date of the Original Report and does notupdate or discuss any other Company developments after the date of the OriginalReport.**

 

**The onlychanges to the text from the Form 10-Q are as follows:**

 

**1)  TheNon-GAAP discussion in Management’s Discussion and Analysis was revised toclarify that the performance measure that the Company used was Adjusted EBITDA;**

 

**2)  In thesection entitled  “Evaluation ofDisclosure Controls and Procedures” was revised to remove redundant languagerelating to the effectiveness of the Company’s controls and procedures; and**

 

**3)  We haveadded as exhibits conformed copies of the Purchase and Sale Agreement and theLease relating to the Company’s headquarters that were disclosed in the CurrentReport on Form 8-K filed with the SEC on March 27, 2009.**

 

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**SummerInfant, Inc.**

**Form 10Q**

**Table ofContents**

 
| ** **                                                            | ** **                                                                                                            | **Page Number** |
|-----------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|-----------------|
| ** **                                                            | ** **                                                                                                            | ** **      |
| **Part  1.**                                                          | **Financial Information**                                                                                             |            |
| ** **                                                            | ** **                                                                                                            |            |
| **Item  1.**                                                          | **Condensed Consolidated  Financial Statements (unaudited)**                                                          |            |
| ** **                                                            | ** **                                                                                                            |            |
| ** **                                                            | **Condensed Consolidated Balance Sheets   March 31, 2009 (unaudited) and December 31, 2008**                          | **3**           |
| ** **                                                            | ** **                                                                                                            | ** **      |
| ** **                                                            | **Condensed Consolidated Statements of Income for the  three months ended   March 31, 2009 and 2008 (unaudited)**     | **4**           |
| ** **                                                            | ** **                                                                                                            | ** **      |
| ** **                                                            | **Condensed Consolidated Statements of Cash Flows for  the three months ended   March 31, 2009 and 2008 (unaudited)** | **5**           |
| ** **                                                            | ** **                                                                                                            | ** **      |
| ** **                                                            | **Notes to Condensed Consolidated Financial Statements**                                                              | **6**           |
| ** **                                                            | ** **                                                                                                            | ** **      |
| **Item 2.**                                                           | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                       | **12**          |
| ** **                                                            | ** **                                                                                                            | ** **      |
| **Item  3.**                                                          | **Quantitative and Qualitative  Disclosures About Market Risk**                                                       | **N/A**         |
| ** **                                                            | ** **                                                                                                            |            |
| **Item 4T.**                                                          | **Controls and  Procedures**                                                                                          | **20**          |
| ** **                                                            | ** **                                                                                                            | ** **      |
| **Part II.**                                                          | **Other Information**                                                                                                 | **21**          |
| ** **                                                            | ** **                                                                                                            | ** **      |
| **Item  1. Legal Proceedings**                                        |                                                                                                                  |
| **Item  1A. Risk Factors**                                            | **21**                                                                                                                |
| **Item 2. Unregistered Sales of Equity Securities and  Use of Funds** | **21**                                                                                                                |
| **Item 3. Defaults Upon Senior Securities**                           | **21**                                                                                                                |
| **Item 4. Submission of Matters to a Vote of Security  Holders**      | **21**                                                                                                                |
| **Item  5. Other Information**                                        | **21**                                                                                                                |
| **Item 6.  Exhibits**                                                 | **23**                                                                                                                |
| ** **                                                            | ** **                                                                                                            |
| **Signatures**                                                        | **22**                                                                                                                |

 

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**Summer Infant, Inc. andSubsidiaries**

**Condensed Consolidated Balance Sheets**

 

Note that all amountspresented in the attached table are in thousands of US dollars except shareamounts.

 
| ** **                                                                                      | ** ** | **Unaudited**            | ** ** | ** **                  | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                      | ** ** | **March 31,  2009** | ** ** | **December 31,  2008** | ** ** |
|                                                                                            |       |                     |       |                        |       |
| ASSETS                                                                                          |       |                     |       |                        |       |
|                                                                                            |       |                     |       |                        |       |
| CURRENT  ASSETS                                                                                 |       |                     |       |                        |       |
|                                                                                            |       |                     |       |                        |       |
| Cash  and cash equivalents                                                                      |       | $                        | 812        |                        | $          | 988 |   |
| Trade  receivables, net of allowance for doubtful accounts                                      |       | 32,567                   |       | 29,358                      |       |
| Inventory,  primarily finished goods                                                            |       | 27,074                   |       | 30,882                      |       |
| Prepaids  and other current assets                                                              |       | 1,254                    |       | 1,495                       |       |
| Deferred  tax assets                                                                            |       | 602                      |       | 602                         |       |
| TOTAL  CURRENT ASSETS                                                                           |       | 62,309                   |       | 63,325                      |       |
| Property  and equipment, net                                                                    |       | 11,181                   |       | 11,212                      |       |
| Goodwill                                                                                        |       | 40,452                   |       | 40,452                      |       |
| Other  intangible assets, net                                                                   |       | 15,050                   |       | 15,130                      |       |
| Other  assets                                                                                   |       | 236                      |       | 416                         |       |
| TOTAL  ASSETS                                                                                   |       | $                        | 129,228    |                        | $          | 130,535 |   |
|                                                                                            |       |                     |       |                        |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                      |       |                     |       |                        |       |
|                                                                                            |       |                     |       |                        |       |
| CURRENT  LIABILITIES                                                                            |       |                     |       |                        |       |
|                                                                                            |       |                     |       |                        |       |
| Accounts  payable and accrued expenses                                                          |       | $                        | 19,006     |                        | $          | 23,045 |   |
| Current  portion of long term debt                                                              |       | 2,042                    |       | 1,654                       |       |
| TOTAL  CURRENT LIABILITIES                                                                      |       | 21,048                   |       | 24,699                      |       |
| Long  term liabilities, less current portion                                                    |       | 40,229                   |       | 42,277                      |       |
| Other  liabilities                                                                              |       | 3,674                    |       | —                      |       |
| Deferred  tax liabilities                                                                       |       | 1,348                    |       | 1,348                       |       |
| TOTAL  LIABILITIES                                                                              |       | 66,299                   |       | 68,324                      |       |
|                                                                                            |       |                     |       |                        |       |
| COMMITMENTS  AND CONTINGENCIES                                                                  |       |                     |       |                        |       |
|                                                                                            |       |                     |       |                        |       |
| STOCKHOLDERS’  EQUITY                                                                      |       |                     |       |                        |       |
| Common  Stock $.0001 par value, issued and outstanding 15,392,782 and 15,055,782,  respectively |       | 1                        |       | 1                           |       |
| Additional  paid in capital                                                                     |       | 54,460                   |       | 54,095                      |       |
| Retained  earnings                                                                              |       | 9,400                    |       | 8,997                       |       |
| Accumulated  other comprehensive loss                                                           |       | (932                     | )          | (882                        | )          |
|                                                                                            |       |                     |       |                        |       |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                |       | 62,929                   |       | 62,211                      |       |
|                                                                                            |       |                     |       |                        |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                |       | $                        | 129,228    |                        | $          | 130,535 |   |

 

See notes to condensed consolidated financial statements

 

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**Summer Infant, Inc. andSubsidiaries**

**Condensed Consolidated Statements ofIncome**

 

Note that all amountspresented in the attached table are in thousands of US dollars except shareamounts.

 
| ** **                                                                                  | ** ** | **Unaudited**                   | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                  | ** ** | **For  the three months ended** | ** ** |
| ** **                                                                                  | ** ** | **March 31,  2009**        | ** ** | **March 31,  2008** | ** ** |
|                                                                                        |       |                            |       |   |   |
| Net  revenues                                                                               |       | $                               | 34,849     |   | $ | 28,425 |   |
|                                                                                        |       |                            |       |   |   |
| Cost  of goods sold                                                                         |       | 23,192                          |       | 18,490 |   |
|                                                                                        |       |                            |       |   |   |
| Gross  profit                                                                               |       | 11,657                          |       | 9,935 |   |
|                                                                                        |       |                            |       |   |   |
| Selling,  general and administrative expenses (including stock-based compensation  expense) |       | 10,660                          |       | 7,887 |   |
|                                                                                        |       |                            |       |   |   |
| Net  operating income                                                                       |       | 997                             |       | 2,048 |   |
|                                                                                        |       |                            |       |   |   |
| Interest  income (expense), net                                                             |       | (421                            | )          | (382 | ) |
|                                                                                        |       |                            |       |   |   |
| Income  before provision for income taxes                                                   |       | 576                             |       | 1,666 |   |
|                                                                                        |       |                            |       |   |   |
| Income  tax expense                                                                         |       | 173                             |       | 662 |   |
|                                                                                        |       |                            |       |   |   |
| NET  INCOME                                                                                 |       | $                               | 403        |   | $ | 1,004 |   |
|                                                                                        |       |                            |       |   |   |
| Net  income per share                                                                       |       |                            |       |   |   |
|                                                                                        |       |                            |       |   |   |
| BASIC                                                                                       |       | $                               | 0.03       |   | $ | 0.07 |   |
|                                                                                        |       |                            |       |   |   |
| DILUTED                                                                                     |       | $                               | 0.03       |   | $ | 0.07 |   |
|                                                                                        |       |                            |       |   |   |
| Weighted  average shares outstanding                                                        |       |                            |       |   |   |
|                                                                                        |       |                            |       |   |   |
| BASIC                                                                                       |       | 15,128,490                      |       | 13,907,892 |   |
|                                                                                        |       |                            |       |   |   |
| DILUTED                                                                                     |       | 15,392,782                      |       | 13,907,892 |   |

 

See notes to condensedconsolidated financial statements.

 

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**Summer Infant, Inc. andSubsidiaries**

**Condensed Consolidated Statements ofCash Flows**

 

Note that all amountspresented in the attached table are in thousands of US dollars except shareamounts.

 
| ** **                                                                                 | ** ** | **Unaudited**                                  | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **For the  three months ended** | ** ** |
| ** **                                                                                 | ** ** | **March 31,  2009**                       | ** ** | **March 31,  2008** | ** ** |
|                                                                                       |       |                                           |       |   |   |
| Cash  flows from operating activities:                                                     |       |                                           |       |   |   |
|                                                                                       |       |                                           |       |   |   |
| Net  income                                                                                |       | $                                              | 403        |   | $ | 1,004 |   |
|                                                                                       |       |                                           |       |   |   |
| Adjustments  to reconcile net income to net cash used in operating activities              |       |                                           |       |   |   |
|                                                                                       |       |                                           |       |   |   |
| Depreciation  and amortization                                                             |       | 1,001                                          |       | 471 |   |
|                                                                                       |       |                                           |       |   |   |
| Stock-based  compensation                                                                  |       | 365                                            |       | 90 |   |
|                                                                                       |       |                                           |       |   |   |
| Changes  in assets and liabilities net of effects of acquisitions:                         |       |                                           |       |   |   |
|                                                                                       |       |                                           |       |   |   |
| Increase  in trade receivables                                                             |       | (3,209                                         | )          | (3,941 | ) |
|                                                                                       |       |                                           |       |   |   |
| Decrease  (increase) in inventory                                                          |       | 3,808                                          |       | (1,365 | ) |
|                                                                                       |       |                                           |       |   |   |
| Decrease  in prepaids and other assets                                                     |       | 412                                            |       | 77 |   |
|                                                                                       |       |                                           |       |   |   |
| Decrease  in accounts payable and accrued expenses                                         |       | (4,268                                         | )          | (856 | ) |
|                                                                                       |       |                                           |       |   |   |
| Net  cash used in operating activities                                                     |       | (1,488                                         | )          | (4,520 | ) |
|                                                                                       |       |                                           |       |   |   |
| Cash  flows from investing activities:                                                     |       |                                           |       |   |   |
|                                                                                       |       |                                           |       |   |   |
| Acquisitions  of property and equipment                                                    |       | (844                                           | )          | (622 | ) |
|                                                                                       |       |                                           |       |   |   |
| Acquisition  of Basic Comfort, Inc. net of cash acquired of $61                       |       | —                                         |       | (4,896 | ) |
|                                                                                       |       |                                           |       |   |   |
| Acquisition  of intangible assets                                                          |       | (37                                            | )          | — |   |
|                                                                                       |       |                                           |       |   |   |
| Net  cash used in investing activities                                                     |       | (881                                           | )          | (5,518 | ) |
|                                                                                       |       |                                           |       |   |   |
| Cash  flows from financing activities:                                                     |       |                                           |       |   |   |
|                                                                                       |       |                                           |       |   |   |
| Proceeds  from sale of building (net of closing costs of $150)                             |       | 3,903                                          |       | — |   |
|                                                                                       |       |                                           |       |   |   |
| Net  borrowings (repayments) on line of credit and other debt                              |       | (1,660                                         | )          | 10,657 |   |
|                                                                                       |       |                                           |       |   |   |
| Net  cash provided by financing activities                                                 |       | 2,243                                          |       | 10,657 |   |
|                                                                                       |       |                                           |       |   |   |
| Effect  of exchange rate changes on cash and cash equivalents                              |       | (50                                            | )          | (107 | ) |
|                                                                                       |       |                                           |       |   |   |
| NET  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      |       | (176                                           | )          | 512 |   |
|                                                                                       |       |                                           |       |   |   |
| CASH  AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                            |       | 988                                            |       | 1,771 |   |
|                                                                                       |       |                                           |       |   |   |
| CASH  AND CASH EQUIVALENTS, END OF PERIOD                                                  |       | $                                              | 812        |   | $ | 2, 283 |   |
|                                                                                       |       |                                           |       |   |   |
| Issuance  of common stock in conjunction with the acquisition of Basic  Comfort, Inc. |       | $                                              | —     |   | $ | 1,778 |   |
|                                                                                       |       |                                           |       |   |   |
| Building  related finance obligation                                                       |       | $                                              | 3,902      |   | $ | — |   |
|                                                                                       |       |                                           |       |   |   |
| Cash  paid for interest                                                                    |       | $                                              | 395        |   | $ | 361 |   |
|                                                                                       |       |                                           |       |   |   |
| Cash  paid for income taxes                                                                |       | $                                              | 145        |   | $ | 716 |   |

 

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**SUMMER INFANT, INC.  ANDSUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

**1.****                      ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

The accompanying interim condensed consolidatedfinancial statements of Summer Infant, Inc. (the “Company”) are unaudited,but in the opinion of management, reflect all adjustments, consisting of normalrecurring accruals, necessary for a fair presentation of the results for theinterim periods. Accordingly, they do not include all information and notesrequired by generally accepted accounting principles for complete financialstatements. The results of operations for interim periods are not necessarilyindicative of results to be expected for the entire fiscal year or any otherperiod. The balance sheet at December 31, 2008 has been derived from theaudited financial statements at that date but does not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America for complete financial statements. Theseinterim consolidated financial statements should be read in conjunction withthe Company’s consolidated financial statements and notes for the year ended December 31,2008 filed on Form 10-K on March 25, 2009.

 

Allsignificant intercompany accounts and transactions have been eliminated in thecondensed consolidated financial statements.

 

*Incometaxes.*

 

The provision forincome taxes is based on the Company’s estimated annualized effective tax ratefor the year.

 

Effective January 1,2007, the Company adopted the provisions of FASB Interpretation No. 48 (“FIN48”), “Accounting for Uncertainty in Income Taxes — An Interpretation of FASBStatement No. 109.” FIN 48 provides detailed guidance for the financialstatement recognition, measurement and disclosure of uncertain tax positionsrecognized 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 in subsequentperiods. Upon the adoption of FIN 48, the Company had no unrecognized taxbenefits. During the first quarter of 2009, the Company recognized noadjustments for uncertain tax benefits.

 

Income taxes arecomputed using the asset and liability method of accounting. Under the assetand liability method, a deferred tax asset or liability is recognized forestimated future tax effects attributable to temporary differences andcarryforwards. The measurement of deferred income tax assets is adjusted by avaluation allowance, if necessary, to recognize future tax benefits only to theextent, based on available evidence, it is more likely than not such benefitswill be realized.  The Company recognizes interest and penalties, if any,related to uncertain tax positions in selling, general and administrativeexpenses.  No interest and penalties related to uncertain tax positionswere accrued at March 31, 2009. The tax years 2005 through 2008 remainopen to examination by the major taxing jurisdictions in which the Companyoperates. The Company expects no material changes to unrecognized tax positionswithin the next twelve months.

 

*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.

 

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*NetIncome Per Share*

 

Basic earnings pershare for the Company is computed by dividing net income by theweighted-average number of shares of common stock outstanding during theperiod. Options to purchase 1,452,600 and 1,044,000 shares of the Company’scommon stock, and 3,633,953 warrants to purchase shares of common stock, werenot included in the calculation, because these options and warrants wereanti-dilutive for the three months ended March 31, 2009 and 2008,respectively.  All outstanding warrants expired on April 20, 2009.

 

*Acquisitions*

 

The pro formaeffect on net revenues, earnings, and diluted earnings per share amounts forthe three months ended March 31, 2008, assuming the Basic Comfort andKiddopotamus transactions had closed on January 1, 2008 are as follows

 

(dollars in thousands,except per share amounts):

 
| ** **                             | ** ** | **2008** | ** **     |
|----------------------------------------|------------|----------|----------------|
|                                   |       |     |           |
| Net  revenues                          |       | $        | 34,354         |   |
| Net  income                            |       | $        | 1,471          |   |
| Earnings  per share: basic and diluted |       | $        | 0.10 per share |   |

 

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*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. The Companyadopted SFAS 157 for its financial assets and liabilities. The adoption ofSFAS 157 did not have a material impact on the Company’s financialposition 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 adopted this statement, as applicable on January 1,2009. The adoption of SFAS 141(R) did not have a material impact onthe Company’s financial position or results of operations.

 

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-controlling interest. The provisions of SFAS No. 160are effective for financial statements issued for fiscal years beginning after December 15,2008. The Company adopted this statement, as applicable on January 1,2009. The adoption of SFAS 160 did not have a material impact on theCompany’s financial position or results of operations.

 

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 as of January 1, 2009. The adoption of FSP 157-2did not have a material impact on the Company’s financial position.

 

In April 2008,the FASB issued FSP No. FAS 142-3, “Determination of the Useful Lifeof Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends thefactors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder SFAS No. 142, “*Goodwill and OtherIntangible assets* “(SFAS No. 142”). The intent of the positionis to improve the consistency between the useful life of a 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 January 1, 2009. The adoption of FSP142-3 did not have a material impact on the Company’s financial position orresults of operations.

 

TheCompany does not believe that any other recently issued, but not yet effectiveaccounting standards will have a material effect on the Company’s consolidatedfinancial position, results of operations, or cash flows.

 

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**2.****                      ****DEBT**

 

On April 10,2008, the Company entered into two new three-year secured credit facilities(the “Loan Agreement”) with Bank of America, N.A., as Administrative Agent, andeach of the financial institutions that were a signatory to the LoanAgreement.  The Loan Agreement provides for a $36,000,000 working capitalrevolving credit facility and a $10,000,000 non-restoring acquisition creditfacility.  The new credit facilities mature on June 30, 2011. The Company and its subsidiaries, Summer Infant (USA), Inc. Summer InfantEurope Limited, Summer Infant Asia Limited and Summer Infant Canada, Limitedare the borrowers under this Loan Agreement.

 

The Company’sability to borrow under the Loan Agreement is subject to its ongoing compliancewith a  number of financial and other covenants, including the following: (i) that the Company and its subsidiaries maintain a net worth of $50,000,000 plusthe  sum of 50% of net income  earned in each fiscal year, (ii) thatthe Company and its subsidiaries maintain a ratio of total funded debt  toEBITDA of not greater than 3.50:1.00, and (iii) that the Company and its subsidiaries maintain a ratio of operating cash flow  to debt serviceof not less than 1.25:1.00.  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 March 31, 2009, theinterest rate for these credit facilities was 3.73%. In addition, these newcredit facilities have an unused line fee based on the unused amount of thecredit facilities equal to 25 basis points.

 

The Loan Agreementalso contains customary events of default, including a cross default provisionand a change of control provision.  In the event of a default, all of theobligations of the Company and its subsidiaries under the loan Agreement may bedeclared immediately due and payable.   For certain events of defaultrelating to insolvency and receivership, all outstanding obligations become dueand payable.

 

**3.****                      ****REAL ESTATE TRANSACTION**

 

On March 24,2009 the Company entered into a definitive agreement with Faith Realty II, LLC,a Rhode Island limited liability company (“Faith Realty”) (the members of whichare Jason Macari, the current Chairman of the board of Directors and Presidentof the Company, and his spouse), pursuant to which Faith Realty will purchasethe corporate headquarters of the Company located at 1275 Park East Drive,Woonsocket, Rhode Island (the “Headquarters”) and subsequently lease theHeadquarters back to Summer USA (collectively, the “Transactions”). Pursuant to the terms of that certain Purchase and Sale Agreement betweenSummer USA and Faith Realty, dated as of March 24, 2009, Faith Realtypurchased the Headquarters for $4,052,500 and then leased the Headquarters backto Summer USA for an annual rent of $390,000 during the initial seven (7) yearterm of the lease, payable monthly and in advance.  The lease will expireon the seventh (7th) anniversary of its commencement unless an option period isexercised by Summer USA.  At that time, Summer USA will have theopportunity to extend the lease for one (1) additional period of five (5) years. If Summer USA elects to extend the term of the lease for an additional five (5) years,the annual rent for the first two (2) years of the extension term shall beequal to $429,000 and for the final three (3) years of the extension termshall be equal to $468,000.  In addition, during the first six (6) monthsof the last lease year of the initial term of the lease Summer USA has theoption to repurchase the Headquarters for $4,457,750 (110% of the initial saleprice).  The Transactions were consummated concurrently with the executionof the definitive agreements.  With the majority of the proceeds of thesale of the headquarters, Summer USA paid off the construction loan relating tothe Headquarters.  Mr. Macari has given a personal guarantee tosecure the Faith Realty debt on its mortgage; therefore, due to his continuinginvolvement in the building transaction and the Company’s option to repurchasethe building, the building will remain on the books of the Company and thetransaction has been 

 

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recognized as a financing,with no gain.  The Company also has recorded a finance obligation underother liabilities of $3,902,000 in regards to this transaction, of which$228,000 is recorded as a current liability.

 

On February 25,2009, the Company’s board of Directors (with Mr. Macari and Mr. Gibreeabstaining from such action) approved the Transactions, subject to thenegotiation and execution of definitive agreements within the parametersapproved by the Board.  In connection therewith, the board granted apotential waiver, to the extent necessary, if at all, of the conflict ofinterest provisions of the Company’s Model code of Ethics, effective uponexecution of definitive agreements within the parameters approved by theBoard.  In connection with granting such potential waiver, the Board ofDirectors engaged independent counsel to review the proposed Transactions andan independent appraiser to ascertain (i) the value of the Headquartersand (ii) the market rent for the Headquarters.  In reaching itsconclusion that the Transactions are fair to the

 

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Company, the Board ofDirectors considered a number of factors, including Summer USA’s ability torepurchase the headquarters at 110% of the initial sale price at the end of theinitial term.

 

In addition, theCompany’s Audit Committee approved the Transactions (as a related partytransaction) and the potential waiver and recommended the matter to a vote ofthe entire Board of Directors.

 

4.                        **COMMITMENTS AND CONTINGENCIES**

 

*Litigation*

 

The Company is aparty to routine litigation and administrative complaints incidental to itsbusiness.  Management does not believe that the resolution of any or allof such routine litigation and administrative complaints is likely to have amaterial adverse effect on the Company’s financial condition or results ofoperations.

 

5.                        **STOCK OPTIONS ANDRESTRICTED SHARES**

 

Summer has grantedstock options under its 2006 Performance Equity Plan (“2006 Plan”).  Underthe 2006 Plan, awards may be granted to participants in the form ofNon-Qualified Stock Options, Incentive Stock Options, Restricted Stock,Deferred Stock, Stock Reload Options and other stock-based awards. Subject to the provisions of the plan, awards may be granted to employees, officers,directors, advisors and consultants who are deemed to have rendered or are ableto render significant services to us or our subsidiaries and who are deemed tohave contributed or to have the potential to contribute to our success. Incentive stock options may only be awarded to individuals who are ouremployees at the time of grant.

 

Effective January 1,2006, the Company adopted the fair value recognition provisions of SFAS 123(R),using the modified prospective transition method.  The adoption of SFAS123(R) resulted in share-based compensation expense for the three monthsended March 31, 2009 and 2008 of approximately $365,000 and $90,000,respectively.  There were 475,000 stock options granted during the threemonths ended March 31, 2009 at a fair value of $0.66 per option.  Asof March 31, 2009, there were 1,452,600 stock options outstanding. In addition, there were 349,000 restricted shares issued to employees anddirectors in the three months ended March 31, 2009 at a fair value of$2.17 per share; 87,250 of these shares vested immediately.

 

The keyassumptions used in the Black-Scholes Valuation were as follows:

 
| Expected  life of options |   | — |   | 4 years |   |
|---------------------------|--------|--------|--------|---------|--------|
| Volatility                |   | — |   | 35%     |   |
| Discount  rate            |   | — |   | 2.49%   |   |

 

There were nostock option or restricted shares issued during the three months ended March 31,2008.

 

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**ITEM 2.  SUMMER’S MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*The statements contained in this Report on Form 10-Q,that are not purely historical, are forward-looking information and statementswithin the meaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934. These include statements regarding ourexpectations, intentions, or strategies regarding future matters. Allforward-looking statements included in this document are based on informationavailable to us on the date hereof. It is important to note that our actualresults could differ materially from those projected in such forward-lookingstatements contained in this Form 10-Q. The forward-looking statementscontained herein are based on current expectations that involve numerous risksand uncertainties.  These risks include the concentration of the Company’sbusiness with retail customers; the ability of the Company to compete in theindustry; the Company’s dependence on key personnel; the Company’s reliance onforeign suppliers; and other risks as detailed in the Company’s Annual Reporton Form 10-K for the fiscal year ended December 31, 2008, andsubsequent filings with the Securities and Exchange Commission All thesematters are difficult or impossible to predict accurately, many of which may bebeyond our control. Although we believe that the assumptions underlying ourforward-looking statements are reasonable, any of the assumptions could beinaccurate and, therefore, there can be no assurance that the forward-lookingstatements included in this Form 10-Q will prove to be accurate.*

 

Theinformation contained in this section has been derived from Summer’sconsolidated financial statements and should be read together with theconsolidated financial statements and related notes included elsewhere in thisfiling.

 

Thefollowing discussion is intended to assist in the assessment of significantchanges and trends related to the results of operations and financial conditionof Summer Infant, Inc. This discussion and analysis should be read inconjunction with Summer’s consolidated financial statements and notes theretoincluded herein. Summer’s business has grown organically in all of its markets.Summer derives its revenues from the sale of health, safety and wellnessproducts for infants and toddlers.  Summer’s revenue is driven by itsability to design and market desirable products, identify businessopportunities and secure new and renew existing distribution channels. Summer’sincome from operations is derived from its ability to generate revenue andcollect cash in excess of labor and other costs of providing its products andselling, general and administrative costs.

 

*Summary of critical accounting policies and estimates*

 

TheCompany’s critical accounting policies are disclosed in the Company’s AnnualReport on Form 10-K.  There have been no material changes to thesepolicies during the first three months of 2009. This summary of criticalaccounting policies of Summer is presented to assist in understanding Summer’sconsolidated financial statements. The consolidated financial statements andnotes are representations of Summer’s management, which is responsible fortheir integrity and objectivity. These accounting policies conform toaccounting principles generally accepted in the United States of America andhave been consistently applied in the preparation of the consolidated financialstatements.

 

Summermakes certain estimates and assumptions that affect the reported amounts ofassets and liabilities and the reported amounts of revenues and expenses. Theaccounting policies described below are those Summer considers critical inpreparing its financial statements. Some of these policies include significantestimates made by management using information available at the time theestimates were made. However, these estimates could change materially ifdifferent information or assumptions were used.

 

*Nature of operations*

 

Summeris engaged in the design, marketing and distribution of juvenileproducts.  The majority of its revenues are derived from retail customersin North America, with approximately 10% of the business 

 

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being generated in theUK.  The Company also maintains a research and development staff in Asia(no revenues are generated directly out of Asia).

 

*Income taxes*

 

The provision forincome taxes is based on the estimated annualized effective tax rate for theyear.

 

Effective January 1,2007, the Company adopted the provisions of FASB Interpretation No. 48 (“FIN48”), “Accounting for Uncertainty in Income Taxes — An Interpretation of FASBStatement No. 109.” FIN 48 provides detailed guidance for the financialstatement recognition, measurement and disclosure of uncertain tax positionsrecognized 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 in subsequentperiods. Upon the adoption of FIN 48, we had no unrecognized tax benefits.During the first quarter of 2009, there were no adjustments for uncertain taxbenefits.

 

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Income taxes arecomputed using the asset and liability method of accounting. Under the assetand liability method, a deferred tax asset or liability is recognized forestimated future tax effects attributable to temporary differences andcarry-forwards. The measurement of deferred income tax assets is adjusted by avaluation allowance, if necessary, to recognize future tax benefits only to theextent, based on available evidence; it is more likely than not such benefitswill be realized.  The Company recognizes interest and penalties, if any,related to uncertain tax positions in selling, general and administrativeexpenses.  No interest and penalties related to uncertain tax positionswere accrued at March 31, 2009. The tax years 2005 through 2008 remainopen to examination by the major taxing jurisdictions. The Company expects nomaterial changes to unrecognized tax positions within the next twelve months.

 

**CompanyOverview**

 

Summeris a designer, marketer, and distributor of branded juvenile health, safety andwellness products which are sold principally to large North American and UKretailers.  Summer currently has more than 70 proprietary products in variousproduct categories including nursery audio/video monitors, safety gates,durable bath products, bed rails, infant thermometers and related health andsafety products, booster and potty seats and bouncers.

 

Summer’sstrategy is to grow its 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);

 

·                  New mass merchant retail customers;

 

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

 

·                  New geographies (internationalexpansion); and

 

·                  New product categories (for example, thesoft goods division started in 2006).

 

·                  Acquisitions

 

Summerhas been able to grow its annual revenues by over $100,000,000 over the pastsix years through a combination of all of the above factors. Each year it hasbeen able to expand the number of products into its main distribution channel,mass merchant retailers, and has also added new customers each year. Therefore,even without new product introductions, Summer could grow its business bysimply selling more of its existing product line to existing customers.

 

For2009 and beyond, the growth strategy of Summer will be to continue to developand sell new products to its existing customer base, sell new and existingproducts to new customers (or expand relationships with existing customers),and to expand in the UK and in other geographic regions (including Japan,Mexico and Australia, among others).

 

Summer’sgrowth strategy has included acquisitions.

 

On March 31,2008,  Summer acquired substantially all of the assets of Basic Comfort, Inc.,a leading manufacturer and supplier of infant comfort and safety products,including infant sleep positioners, infant head supports and portable changingpads.

 

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On April 18,2008, Summer acquired Kiddopotamus & Company, a leading manufacturerand supplier of infant nursery, travel and feeding accessories.

 

Summerintends to pursue additional potential acquisition candidates in order toobtain new innovative products, new product categories, new retail customers ornew sales territories.  There are approximately 400 active juvenileproduct companies, of which approximately 300 have less than $10,000,000 insales. In addition, there are various product categories that Summer does notcurrently compete in, including car seats, strollers, walkers, nursery care,and other categories. Summer may look to develop its own products in thesecategories or attempt to gain entrance into these categories throughacquisitions.

 

AsSummer continues to grow through internal initiatives and any additional futureacquisitions, it will incur additional expenses.  Two of the key areas inwhich such increased expenses will likely occur are sales and productdevelopment. In order to grow sales, Summer will likely hire additional salespersonnel to service new geographic territories, focus existing resources onspecific parts of the United States market and retain product line specialiststo drive sales of new and existing products in specific areas in which Summerbelieves it can readily increase sales. Product development expenses willincrease as Summer develops new products in existing and new categories. As aresult of its acquisition strategy, Summer will face various challenges such asthe integration of the acquired companies’ product lines, employees, marketingrequirements and information systems. Ongoing infrastructure investment alsomay be required to support realized growth,

 

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including expenditureswith respect to upgraded and expanded information systems and enhancing thecompany’s management team.

 

*Sales*

 

Summer’ssales are primarily derived from the sale of juvenile health, safety andwellness products and are recognized upon transfer of title of product toSummer’s customers. Summer’s products are marketed through several distributionchannels including chain retailers, specialty retailers and direct toconsumers.

 

Approximately90% of sales are currently made to customers in North America, with theremaining 10% made to customers in the UK. Sales are made utilizing standardcredit terms of 30 to 90 days. Summer generally accept returns only for defectivemerchandise.

 

*Cost of goods sold and other expenses*

 

Summer’sproducts are manufactured by third parties, with approximately 80-85% of thedollar value of products being manufactured in China and the majority of thebalance being manufactured in Massachusetts. Cost of goods sold primarilyrepresents purchases of finished products from these third party manufacturers.The remainder of Summer’s cost of goods sold includes tooling depreciation,freight-in from suppliers and miscellaneous charges from contractmanufacturers. Substantially all of Summer’s purchases are made in US dollars,therefore most of this activity is not subject to currency fluctuations. IfSummer’s suppliers experience increased raw materials, labor or other costs andpass along such cost increases through higher prices for finished goods, Summer’scosts of sales would increase, and to the extent we are unable to pass suchprice increases along to Summer’s customers, Summer’s gross margins woulddecrease.

 

Selling,general and administrative expenses primarily consist of payroll, insurance,professional fees, royalties, freight out to customers, product developmentcosts, advertising and marketing expenses (including co-op advertisingallowances as negotiated with certain customers) and sales commissions. Severalof these items fluctuate with sales, some based on sales to particularcustomers and others based on sales of particular products.

 

Thereare not significant variations in seasonal demand for Summer’s products. Salesto its retail customers are generally higher in the time frame when retailerstake initial shipments of new products; these orders usually incorporate enoughproduct to fill each store plus additional amounts to be kept at the customer’sdistribution center. The timing of these initial shipments varies by customerdepending on when they finalize store layouts for the upcoming year, andwhether there are any mid-year product introductions.

 

**Resultsof Operations**

 

**Condensed Consolidated Statements ofIncome**

**For the Three Months Ending March 31,2009 and 2008**

**(In thousands)**

 
| ** **                                                                                                                  | ** ** | **Three Months Ended  March 31, 2009** | ** ** | **Three Months Ended  March 31, 2008** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                                                                                  | ** ** | **(Unaudited)**                                            | ** ** | **(Unaudited)**                                            | ** ** |
| Net  sales                                                                                                                  |       | $                                                          | 34,849     |                                                       | 100.0      | % | $ | 28,425 |   | 100.0 | % |
| Cost  of goods sold                                                                                                         |       | 23,192                                                     |       | 66.6                                                       | %          | 18,490 |   | 65.0 | % |
| Gross  profit                                                                                                               |       | 11,657                                                     |       | 33.4                                                       | %          | 9,935 |   | 35.0 | % |
|                                                                                                                        |       |                                                       |       |                                                       |       |   |   |   |   |
| OPERATING  EXPENSES                                                                                                         |       |                                                       |       |                                                       |       |   |   |   |   |
| Selling,  general and administrative expenses (excluding depreciation, amortization,  and stock-based compensation expense) |       | 9,294                                                      |       | 26.7                                                       | %          | 7,326 |   | 25.8 | % |
| EBITDA(a)                                                                                                                   |       | $                                                          | 2,363      |                                                       | 6.8        | % | $ | 2,609 |   | 9.2 | % |

 

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See non-GAAP discussionbelow regarding the computation of EBITDA.

 

*Three months ended March 31, 2009 compared with threemonths ended March 31, 2008*

 

Netsales increased 22.6% from approximately $28,425,000 for the three months endedMarch 31, 2008 to approximately $34,849,000 for the three months ended March 31,2009. This sales increase was primarily attributable to increased distributionof Summer’s products throughout Summer’s customer base, the acquisition ofBasic Comfort and Kiddopotomus in 2008, and new product introductions. Significant increases were noted in large accounts such as Babies R Us, inaddition to several other accounts which have been added over the past fewyears, including Lowe’s and Wal-Mart.

 

Grossprofit increased 17% from approximately $9,935,000 for the three months ended March 31,2008 to approximately $11,657,000 for the three months ended March 31,2009.  The gross profit as a percentage of sales decreased to 33.4% from35.0% in the prior year.  The decrease as a percentage of sales isprimarily due to increased costs of finished goods from the Company’s vendorsin Asia and the US.  The increase in these costs is primarily due to increasedraw material costs and labor.  The Company also sold approximately$1,000,000 of excess inventory at reduced prices in the three months ended March 31,2009.

 

Selling,general and administrative expenses increased from approximately $7,326,000 forthe three months ended March 31, 2008 to approximately $9,294,000 for thethree months ended March 31, 2009. This increase was primarilyattributable to increases in headcount, higher variable selling expenses due tothe increase in sales, and  costs associated with  the opening of newdistribution centers to support the increase in sales.  Selling, generaland administrative expenses increased to 26.7% of net sales in the three monthsended March 31, 2009 from 25.8% of net sales in the three months ended March 31,2008.  In response, the Company has reduced headcount by 10% in an effortto align the Company’s fixed cost structure to its current sales base.

 

EBITDAdecreased from approximately $2,609,000 for the three months ended March 31,2008 to approximately $2,363,000 for the three months ended March 31,2009, a decrease of 9%. This decrease was primarily attributable to the lowergross profit percentage as described above.

 

**Liquidity and Capital Resources**

 

Summergenerally funds its operations and working capital needs through cash generatedfrom operations and borrowings under its secured credit facilities.

 

Summer’ssales have increased significantly over the past several years. For the yearended December 31, 2003, net sales were $17,600,000. For the year ended December 31,2008, net sales exceeded $132,000,000. This sales growth has led to asubstantial increase in working capital requirements, specifically tradereceivables and inventory. The typical cash flow cycle is as follows:

 

·                  Inventory is purchased to meet expecteddemand plus a safety stock. Since the majority of Summer’s vendors are based inAsia, inventory takes from four to six weeks to arrive from Asia to the variousdistribution points Summer maintains in the US and the UK. Payment terms forthese vendors average 60 days from the date the product ships from Asia,therefore Summer is generally paying for the product a short time after it isphysically received in the US. The increased sales Summer has experiencedresult in increased levels of inventory, and therefore an increase in theamount of cash required to fund its inventory level.

 

·                  Sales to customers generally have paymentterms of 30 to 60 days. The increased sales have resulted in an increase in thelevel of accounts receivable, and therefore have increased the amount of cashrequired to fund working capital.

 

Summerhad traditionally been able to fund its increased working capital throughasset-based lines of credit with banks. The lenders generally follow aborrowing base formula that allows advances based on the levels of accountsreceivable and inventory.

 

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Themajority of capital expenditures for Summer are for tools related to newproduct introductions. Summer receives indications from retailers generallyaround the middle of each year as to what products the retailer will be takinginto its product line for the upcoming year. Based on these indications, Summerwill then acquire the tooling required to build the products. The majority ofthese expenditures are therefore made in the third and fourth quarters of eachyear so that initial shipments of products can be made in December and January (thetypical time frame for new product shipments). In most cases the payments forthe tools are spread out over a three to four month period.

 

Forthe three months ended March 31, 2009, net cash used in operatingactivities was $1,488,000.  This was primarily due to increases in tradereceivables of $3,209,000 and a decrease in accounts payable of $4,268,000offset by a decrease in inventory of $3,808,000, which is a direct result ofthe significant increase in sales for the Company.   Total sales wereover $34,800,000 for the three months ended March 31, 2009, whichrepresents a 23% increase over the sales in the first three months of the prioryear.  See detailed discussion of the working capital cycle of Summerabove.

 

Netcash used in investing activities was $881,000, which primarily relates to thepurchase of tooling used in the manufacturing process.

 

Netcash provided by financing activities was $2,243,000, which relates to fundsprovided by the sale/leaseback of Summer’s principal offices in Woonsocket,Rhode Island, net of borrowings on the line of credit to fund working capital.

 

Based onthe above factors, the net cash decrease for the three months ended March 31,2009 was $176,000, resulting in a cash balance of $812,000 at March 31,2009.

 

Summerbelieves that its cash on hand and current banking facilities are sufficient tofund its cash requirements 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 lenders will grant waivers ifthere are covenant violations.

 

Summer’sstrategy for funding its business going forward is a combination of increasedprofitability, and if necessary, negotiation of increased borrowing lines asrequired with traditional 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 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 newcredit facilities mature on June 30, 2011.

 

Summerand its subsidiaries, Summer Infant (USA), Inc. Summer Infant EuropeLimited, Summer Infant Asia Limited and Summer Infant Canada, Limited are theborrowers under this Loan Agreement.  These new credit facilities aresecured by all assets of Summer and its subsidiaries.  These new creditfacilities replace Summer’s prior line of credit, and are being usedprincipally to fund growth opportunities and for working capital purposes.

 

Summer’sability to borrow under the Loan Agreement is subject to its ongoing compliancewith a  number of financial and other covenants, including the following: (i) that Summer and its subsidiaries maintain a new worth of $50,000,000 plus the sum of 50% of net income  earned in each fiscal year, (ii) thatSummer and its subsidiaries maintain a ratio of total funded debt  toEBITDA of not greater than 3.50:1.00, and (iii) that Summer and  itssubsidiaries maintain a ratio of operating cash flow  to debt service ofnot less than 1.25:1.00.  In addition, if Summer’s ratio of total fundeddebt to EBITDA is greater than 3.25:1.00 as of December 31, 2008, thetotal commitment amount under the working capital revolving credit facilitywill reduce by $4,000,000 on March 31, 2009.  Furthermore, if Summer’sratio of total 

 

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funded debt to EBITDA isgreater than 3.25:1.00 for any fiscal year, the aggregate amount that may beborrowed under the Loan Agreement will be determined by reference to aborrowing base.

 

Thesenew credit facilities bear interest at a floating rate based on a spread overLIBOR ranging from 150 basis points to 200 basis points, depending upon theratio of the Company’s total funded debt to EBITDA.  As of March 31,2009, the blended interest rate for these credit facilities was 3.73%.  Inaddition, these new credit facilities have an unused line fee based on theunused amount of the credit facilities equal to 25 basis points.

 

TheLoan Agreement also contains customary events of default, including a crossdefault provision and a change of control provision.  In the event of adefault, all of the obligations of the Company and its subsidiaries under theloan Agreement may be declared immediately due and payable.   Forcertain events of default relating to insolvency and receivership, alloutstanding obligations become due and payable.

 

TheCompany was in compliance with all covenants under its line of credit as of March 31,2009.

 

Webelieve that Summer’s cash flows from operations, cash on hand, and availableborrowings will be sufficient to meet Summer’s working capital and capitalexpenditure requirements and provide us with adequate liquidity to meetanticipated operating needs for at least the next 12 months. Summer’s cashrequirements for the period beyond that are expected to be met by the continueduse of bank facilities to meet working capital requirements.

 

**Non-GAAPDiscussion**

 

Inaddition to its GAAP results, Summer considers non-GAAP measures of itsperformance. Adjusted EBITDA, as defined below, is an important supplementalfinancial measure of Summer’s performance that is not required by, or presentedin accordance with, GAAP. As used herein, “Adjusted EBITDA” represents netincome (loss) before income taxes, interest expense, non-cash stock optionexpense, and depreciation and amortization. Summer’s management uses AdjustedEBITDA as a financial measure to assess the ability of its assets to generatecash sufficient to pay interest on its indebtedness, meet capital expenditureand working capital requirements, and otherwise meet its obligations as theybecome due. Summer’s management believes that the presentation of AdjustedEBITDA provides useful information regarding Summer’s results of operationsbecause they assist in analyzing and benchmarking the performance and value ofSummer’s business. Summer believes that Adjusted EBITDA is useful tostockholders as a measure of comparative operating performance, as it is lesssusceptible to variances in actual performance resulting from depreciation andamortization and more reflective of changes in pricing decisions, cost controlsand other factors that affect operating performance.

 

AdjustedEBITDA also is used by Summer’s management for multiple purposes, including:

 

·                  To calculate and support various coverageratios with Summer’s lenders;

 

·                  To allow lenders to calculate totalproceeds they are willing to loan to Summer based on its relative strengthcompared to other competitors; and

 

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

 

Inaddition, Adjusted EBITDA is an important valuation tool used by potentialinvestors when assessing the relative performance of a company in comparison toother companies in the same industry. Although Summer uses Adjusted EBITDA as afinancial measure to assess the performance of its business, there are materiallimitations to using a measure such as Adjusted EBITDA, including thedifficulty associated with using it as the sole measure to compare the resultsof one company to another and the inability to analyze significant items thatdirectly affect a company’s net income or operating income because it does notinclude certain material costs, such as interest and taxes, necessary tooperate its 

 

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business. In addition,Summer’s calculation of Adjusted EBITDA may not be consistent with similarlytitled measures of other companies and should be viewed in conjunction withmeasures that are computed in accordance with GAAP. Summer’s managementcompensates for these limitations in considering Adjusted EBITDA in conjunctionwith its analysis of other GAAP financial measures, such as net income.

 

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

 

**Reconciliationof unaudited****Adjusted EBITDA****to Net Income (in thousands ofdollars):**

 
| ** **                     | ** ** | **Three Months Ended  March 31** | ** ** |
|--------------------------------|------------|-------------------------------------------------|------------|
| ** **                     | ** ** | **2009**                                        | ** ** | **2008** | ** ** |
| Net  income                    |       | $                                               | 403        |   | $ | 1,004 |   |
| Income  taxes                  |       | 173                                             |       | 662 |   |
| Non  cash stock option expense |       | 365                                             |       | 90 |   |
| Interest  expense              |       | 421                                             |       | 382 |   |
| Depreciation  and amortization |       | 1,001                                           |       | 471 |   |
| Adjusted  EBITDA, as defined   |       | $                                               | 2,363      |   | $ | 2,609 |   |

 

**ITEM 4T.  Controls and Procedures**

 

*(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 Quarterly Report, we carried out an evaluation, under the supervisionand with the participation of our Chief Executive Officer and our ChiefFinancial Officer, of the effectiveness of our disclosure controls andprocedures, as of March 31, 2009.  Our principal executive officerand principal financial officer have concluded, based on their evaluation, thatas of the end of the period covered by this report, our controls and procedureswere effective as of March 31, 2009.

 

*(b) Changesin Internal Control Over Financial Reporting*

 

There was nochange in our internal control over financial reporting that occurred duringthe period covered by this Quarterly Report that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II.  OTHER INFORMATION**

 
| **ITEM  1A.**                                                                                                                                                                                               | ** ** | **Risk  Factors**                                              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|
|                                                                                                                                                                                                        |       |                                                           |
|  There have been no material changes  pertaining to risk factors that were contained in the Annual Report on  Form 10-K for the year ended December 31, 2008, filed on  March 25, 2009. |
|                                                                                                                                                                                                        |       |                                                           |
| **ITEM  2.**                                                                                                                                                                                                | ** ** | **Unregistered  Sales of Equity Securities and Use of Funds.** |
|                                                                                                                                                                                                        |       |                                                           |
|                                                                                                                                                                                                        |       | None.                                                          |
|                                                                                                                                                                                                        |       |                                                           |
| **ITEM  3.**                                                                                                                                                                                                | ** ** | **Defaults  Upon Senior Securities**                           |
|                                                                                                                                                                                                        |       |                                                           |
|                                                                                                                                                                                                        |       | None.                                                          |
|                                                                                                                                                                                                        |       |                                                           |
| **ITEM  4.**                                                                                                                                                                                                | ** ** | **Submission  of Matters to a Vote of Security Holders.**      |
|                                                                                                                                                                                                        |       |                                                           |
|                                                                                                                                                                                                        |       | None.                                                          |
|                                                                                                                                                                                                        |       |                                                           |
| **ITEM  5.**                                                                                                                                                                                                | ** ** | **Other  Information.**                                        |
|                                                                                                                                                                                                        |       |                                                           |
|                                                                                                                                                                                                        |       | None.                                                          |

 

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**Signatures**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 

**SummerInfant, Inc.**

 

 
| August 18, 2009  |
|-----------------------|
|                  |   |
|                  | /s/ Jason Macari |   |
|                  | Jason Macari |
|                  | Chief Executive Officer |
|                  |   |
|                  |
| August  18, 2009 |
|                  |   |
|                  | /s/ Joseph Driscoll |   |
|                  | Joseph Driscoll |
|                  | Chief Financial Officer |

 

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**ITEM 6.**                      **Exhibits**

 

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                             |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** ** | ** **                                                                                                                                                                                                  |
| 2.1*        |       | Purchase and Sale  Agreement dated March 24, 2009 between Summer Infant (USA), Inc.  (“Summer (USA)”) and Faith Realty II, LLC (“Faith Realty”)                               |
|        |       |                                                                                                                                                                                                        |
| 2.2*        |       | Lease Agreement dated  March 24, 2009 between Summer (USA) and Faith Realty                                                                                                                            |
|        |       |                                                                                                                                                                                                        |
| 31.1*       |       | Chief Executive Officer  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                       |
|        |       |                                                                                                                                                                                                        |
| 31.2*       |       | Chief Financial Officer  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                       |
|        |       |                                                                                                                                                                                                        |
| 32.1*       |       | Certification of Jason  Macari, Chief Executive Officer of Summer Infant, Inc., pursuant to 18  U.S.C Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002    |
|        |       |                                                                                                                                                                                                        |
| 32.2*       |       | Certification of Joseph  Driscoll, Chief Financial Officer of Summer Infant, Inc., pursuant to 18  U.S.C Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

----

*  Filed herewith

 

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