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** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

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

**of the Securities Exchange Act of 1934**

 

**Forthe quarterly period ended March 31, 2009**

 

**Summer Infant, Inc.**

**(Name ofRegistrant as Specified in Its Charter)**

 

**Commissionfile 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) |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe last 90 days.  Yes x No o.

 

Indicate bycheck 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 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes oNo o

 

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

 

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

 

Indicate by check markwhether the registrant is a shell company as defined in Rule 12b-2 of theExchange Act.  Yes o No  x

 

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

 

 

 

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Table ofContents

 

**Summer Infant, 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**                           | **10**               |
|                                                                  |                                                                                                                      |                 |
| **Item 3.**                                                           | **Quantitative and Qualitative Disclosures About  Market Risk**                                                           | **N/A**              |
|                                                                  |                                                                                                                      |                 |
| **Item 4T.**                                                          | **Controls and  Procedures**                                                                                              |                 |
|                                                                  |                                                                                                                      | **15**               |
| **Part II.**                                                     | **Other Information**                                                                                                     | **17**               |
|                                                                  |                                                                                                                      |                 |
| **Item 1. Legal Proceedings**                                         |                                                                                                                      |
| **Item 1A. Risk  Factors**                                            | **17**                                                                                                                    |
| **Item 2. Unregistered Sales of Equity Securities and  Use of Funds** | **17**                                                                                                                    |
| **Item 3. Defaults Upon Senior Securities**                           | **17**                                                                                                                    |
| **Item 4. Submission of Matters to a Vote of Security  Holders**      | **17**                                                                                                                    |
| **Item 5.  Other Information**                                        | **17**                                                                                                                    |
| **Item 6. Exhibits**                                                  | **17**                                                                                                                    |
|                                                                  |                                                                                                                      |                 |
| **Signatures**                                                        |                                                                                                                      | **18**               |

 

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**Summer Infant, Inc. andSubsidiaries**

**Condensed Consolidated Balance Sheets**

 

Notethat all amounts presented in the attached table are in thousands of US dollarsexcept share amounts.

 
| ** **                                                                                      | ** ** | **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**

 

Notethat all amounts presented in the attached table are in thousands of US dollarsexcept share amounts.

 
| ** **                                                                                 | ** ** | **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**

 

Notethat all amounts presented in the attached table are in thousands of US dollarsexcept share amounts.

 
| ** **                                                                                | ** ** | **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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**SUMMERINFANT, INC.  AND SUBSIDIARIES**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****                      ****SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

Theaccompanying interim condensed consolidated financial statements of SummerInfant, Inc. (the “Company”) are unaudited, but in the opinion ofmanagement, reflect all adjustments, consisting of normal recurring accruals,necessary for a fair presentation of the results for the interim periods.Accordingly, they do not include all information and notes required bygenerally accepted accounting principles for complete financial statements. Theresults of operations for interim periods are not necessarily indicative ofresults to be expected for the entire fiscal year or any other period. Thebalance sheet at December 31, 2008 has been derived from the auditedfinancial statements at that date but does not include all of the informationand footnotes required by accounting principles generally accepted in theUnited States of America for complete financial statements. These interimconsolidated financial statements should be read in conjunction with theCompany’s consolidated financial statements and notes for the year ended December 31,2008 filed on Form 10-K on March 25, 2009.

 

All significant intercompany accounts andtransactions have been eliminated in the condensed consolidated financialstatements.

 

*Income taxes.*

 

The provision for income taxes is based on the Company’s estimatedannualized effective tax rate for 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 are computed using the asset andliability method of accounting. Under the asset and liability method, adeferred tax asset or liability is recognized for estimated future tax effectsattributable to temporary differences and carryforwards. The measurement ofdeferred income tax assets is adjusted by a valuation allowance, if necessary,to recognize future tax benefits only to the extent, based on availableevidence, it is more likely than not such benefits will be realized.  The Company recognizes interest andpenalties, if any, related to uncertain tax positions in selling, general andadministrative expenses.  No interest and penalties related to uncertaintax positions were accrued at March 31, 2009. The tax years 2005 through2008 remain open to examination by the major taxing jurisdictions in which theCompany operates. The Company expects no material changes to unrecognized taxpositions within the next twelve months.

 

*Use of Estimates*

 

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

 

*Net Income Per Share*

 

Basic earnings per share for the Company is computed by dividing netincome by the weighted-average number of shares of common stock outstandingduring the period. Options to purchase 1,452,600 and 1,044,000 shares of theCompany’s common stock, and 3,633,953 warrants to purchase shares of commonstock, were not included in the calculation, because these options and warrantswere anti-dilutive for the three months ended March 31, 2009 and 2008,respectively.  All outstanding warrantsexpired on April 20, 2009.

 

*Acquisitions*

 

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

 

(dollars inthousands, 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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*New Accounting Pronouncements*

 

InSeptember 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements.” SFAS No. 157 defines fair value, establishes a frameworkfor measuring fair value in generally accepted accounting principles andexpands disclosures about fair value measurements. SFAS No. 157 appliesunder other accounting pronouncements that require or permit fair valuemeasurements, and accordingly, does not require any new fair valuemeasurements. SFAS No. 157 is effective for fiscal years beginning after November 15,2007. The Company adopted SFAS 157 for its financial assets andliabilities. The adoption of SFAS 157 did not have a material impact on theCompany’s financial position or results of operations.

 

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 141(R), “Business Combinations”, or SFAS No. 141(R). Thisstatement establishes principles and requirements for how the acquirer of abusiness recognizes and measures in its financial statements the identifiableassets acquired, the liabilities assumed, and any non-controlling interest inthe acquiree. SFAS No. 141(R) also provides guidance for recognizingand measuring the goodwill acquired in the business combination and determineswhat information to disclose to enable users of the financial statements toevaluate the nature and financial effects of the business combination. Theprovisions of SFAS No. 141(R) are effective for financial statementsissued for fiscal years beginning after December 15, 2008. The Companyadopted this statement, as applicable on January 1, 2009. The adoption ofSFAS 141(R) did not have a material impact on the Company’s financialposition or results of operations.

 

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 160, “Non-controlling Interests in Consolidated FinancialStatements-An Amendment to Accounting Research Bulletin (“ARB”) No. 51”,or SFAS No. 160. This statement amends ARB No. 51, “ConsolidatedFinancial Statements”, to establish accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. This statement also amends certain of ARB No. 51’sconsolidation procedures for consistency with the requirements of SFAS No. 141(R).In addition, SFAS No. 160 also includes expanded disclosure requirementsregarding interests of the parent and its non-controlling interest. Theprovisions of SFAS No. 160 are effective for financial statements issuedfor fiscal years beginning after December 15, 2008. The Company adoptedthis statement, as applicable on January 1, 2009. The adoption ofSFAS 160 did not have a material impact on the Company’s financialposition or results of operations.

 

InFebruary 2008, the FASB issued Staff Position (“FSP”) No. 157-1 andFSP No. FSP 157-2. FSP No. 157-1 removes certain leasing transactionsfrom the scope of SFAS No. 157. FSP No. 157-2 partially defers theeffective date of SFAS No. 157 for one year for certain nonfinancialassets and nonfinancial liabilities that are recognized at fair value on anonrecurring basis. Under FSP No. 157-2, the effective date fornon-financial assets and liabilities that are recognized at the fair value on anonrecurring basis will be for fiscal years beginning after November 15,2008. FSP No. 157-2 is effective for the Company as of January 1,2009. The adoption of FSP 157-2 did not have a material impact on the Company’sfinancial position.

 

InApril 2008, the FASB issued FSP No. FAS 142-3, “Determination ofthe Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSPFAS 142-3 amends the factors that should be considered in developingrenewal or extension assumptions used to determine the useful life of arecognized intangible asset under SFAS No. 142, “*Goodwill and Other Intangible assets* “(SFASNo. 142”). The intent of the position is to improve the consistencybetween the useful life of a recognized intangible asset under SFAS No. 142and the period of expected cash flows used to measure the fair value of theasset under SFAS No. 141 (R). FSP FAS 142-3 is effective for fiscalyears beginning after December 15, 2008 and is effective for the Company January 1,2009. The adoption of FSP 142-3 did not have a material impact on the Company’sfinancial position or results of operations.

 

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

 

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

 

On April 10, 2008, the Company entered intotwo new three-year secured credit facilities (the “Loan Agreement”) with Bankof America, N.A., as Administrative Agent, and each of the financialinstitutions that were a signatory to the Loan Agreement.  The Loan Agreement provides for a $36,000,000working capital revolving credit facility and a $10,000,000 non-restoringacquisition credit facility.  The newcredit facilities mature on June 30, 2011. The Company and its subsidiaries, Summer Infant (USA), Inc. SummerInfant Europe Limited, Summer Infant Asia Limited and Summer Infant Canada,Limited are the borrowers under this Loan Agreement.

 

The Company’s ability to borrow under theLoan Agreement is subject to its ongoing compliance with a  number of financial and other covenants,including the following: (i) that the Company and its subsidiaries maintain a net worth of $50,000,000plus the  sum of 50% of net income  earned in each fiscal year, (ii) thatthe Company and its subsidiaries maintain a ratio of total funded debt  to EBITDA of not greater than 3.50:1.00, and (iii) thatthe Company and  its subsidiariesmaintain a ratio of operating cash flow to debt service of 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 credit facilities bear interest ata floating rate based on a spread over LIBOR ranging from 150 basis points to200 basis points, depending upon the ratio of the Company’s total funded debtto EBITDA.  As of March 31, 2009,the interest 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 Agreement also contains customaryevents of default, including a cross default provision and a change of controlprovision.  In the event of a default,all of the obligations of the Company and its subsidiaries under the loanAgreement may be declared immediately due and payable.   For certain events of default relating toinsolvency and receivership, all outstanding obligations become due andpayable.

 

**3.        REALESTATE TRANSACTION**

 

On March 24, 2009 the Company entered into adefinitive agreement with Faith Realty II, LLC, a Rhode Island limitedliability company (“Faith Realty”) (the members of which are Jason Macari, thecurrent Chairman of the board of Directors and President of the Company, andhis spouse), pursuant to which Faith Realty will purchase the corporateheadquarters of the Company located at 1275 Park East Drive, Woonsocket, RhodeIsland (the “Headquarters”) and subsequently lease the Headquarters back toSummer USA (collectively, the “Transactions”). Pursuant to the terms of that certain Purchase and Sale Agreementbetween Summer USA and Faith Realty, dated as of March 24, 2009, FaithRealty purchased the Headquarters for $4,052,500 and then leased theHeadquarters back to Summer USA for an annual rent of $390,000 during theinitial seven (7) year term of the lease, payable monthly and inadvance.  The lease will expire on theseventh (7th) anniversary of its commencement unless an option period isexercised by Summer USA.  At that time,Summer USA will have the opportunity to extend the lease for one (1) additionalperiod of five (5) years.  If SummerUSA 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) months of the last lease year of the initial termof the lease Summer USA has the option to repurchase the Headquarters for$4,457,750 (110% of the initial sale price). The Transactions were consummated concurrently with the execution of thedefinitive agreements.  With the majorityof the proceeds of the sale of the headquarters, Summer USA paid off theconstruction loan relating to the Headquarters. Mr. Macari has given a personal guarantee to secure the Faith Realtydebt on its mortgage; therefore, due to his continuing involvement in thebuilding transaction and the Company’s option to repurchase the building, thebuilding will remain on the books of the Company and the transaction has beenrecognized as a financing, with no gain. The Company also has recorded a finance obligation under other liabilitiesof $3,902,000 in regards to this transaction, of which $228,000 is recorded asa current liability.

 

On February 25, 2009, the Company’s board ofDirectors (with Mr. Macari and Mr. Gibree abstaining from suchaction) approved the Transactions, subject to the negotiation and execution ofdefinitive agreements within the parameters approved 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 upon executionof definitive agreements within the parameters approved by the Board.  In connection with granting such potentialwaiver, the Board of Directors engaged independent counsel to review theproposed Transactions and an independent appraiser to ascertain (i) thevalue of the Headquarters and (ii) the market rent for theHeadquarters.  In reaching its conclusionthat the Transactions are fair to the

 

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

 

In addition, the Company’s Audit Committee approvedthe Transactions (as a related party transaction) and the potential waiver andrecommended the matter to a vote of the entire Board of Directors.

 

4.                        **COMMITMENTS AND CONTINGENCIES**

 

*Litigation*

 

The Company is a party to routine litigation and administrativecomplaints incidental to its business.  Management does not believe thatthe resolution of any or all of such routine litigation and administrativecomplaints is likely to have a material adverse effect on the Company’s financialcondition or results of operations. 

 

5.                        **STOCK OPTIONS AND RESTRICTED SHARES**

 

Summer has granted stock options under its 2006 Performance Equity Plan(“2006 Plan”).  Under the 2006 Plan,awards may be granted to participants in the form of Non-Qualified StockOptions, Incentive Stock Options, Restricted Stock, Deferred Stock, StockReload Options and other stock-based awards. Subject to the provisions of the plan, awards may be granted toemployees, officers, directors, advisors and consultants who are deemed to haverendered or are able to render significant services to us or our subsidiariesand who are deemed to have contributed or to have the potential to contributeto our success.  Incentive stock optionsmay only be awarded to individuals who are our employees at the time of grant.

 

Effective January 1, 2006, the Company adopted the fair valuerecognition provisions of SFAS 123(R), using the modified prospectivetransition 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 stockoptions granted during the three months ended March 31, 2009 at a fairvalue of $0.66 per option.  As of March 31,2009, there were 1,452,600 stock options outstanding.  In addition, there were 349,000 restrictedshares issued to employees and directors in the three months ended March 31,2009 at a fair value of $2.17 per share; 87,250 of these shares vestedimmediately.

 

The key assumptions used in the Black-Scholes Valuation were asfollows:

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

 

There were no stock option or restricted shares issued during the threemonths ended March 31, 2008.

 

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**ITEM2.  SUMMER’S MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*Thestatements contained in this Report on Form 10-Q, that are not purelyhistorical, are forward-looking information and statements within the meaningof Section 27A of the Securities Act of 1933 and Section 21E of theSecurities 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 includethe concentration of the Company’s business with retail customers; the abilityof the Company to compete in the industry; the Company’s dependence on keypersonnel; the Company’s reliance on foreign suppliers; and other risks asdetailed in the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2008, and subsequent filings with the Securities andExchange Commission All these matters are difficult or impossible to predictaccurately, many of which may be beyond our control. Although we believe thatthe assumptions underlying our forward-looking statements are reasonable, anyof the assumptions could be inaccurate and, therefore, there can be noassurance that the forward-looking statements included in this Form 10-Qwill prove to be accurate.*

 

The information contained in this section has beenderived from Summer’s consolidated financial statements and should be readtogether with the consolidated financial statements and related notes includedelsewhere in this filing.

 

The following discussion is intended to assist inthe assessment of significant changes and trends related to the results ofoperations and financial condition of Summer Infant, Inc. This discussionand analysis should be read in conjunction with Summer’s consolidated financialstatements and notes thereto included herein. Summer’s business has grownorganically in all of its markets. Summer derives its revenues from the sale ofhealth, safety and wellness products for infants and toddlers.  Summer’s revenue is driven by its ability todesign and market desirable products, identify business opportunities andsecure new and renew existing distribution channels. Summer’s income fromoperations is derived from its ability to generate revenue and collect cash inexcess of labor and other costs of providing its products and selling, generaland administrative costs.

 

*Summary ofcritical accounting policies and estimates*

 

The Company’s critical accounting policies aredisclosed in the Company’s Annual Report 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.

 

Summer makes certain estimates and assumptions thataffect the reported amounts of assets and liabilities and the reported amountsof revenues and expenses. The accounting policies described below are thoseSummer considers critical in preparing its financial statements. Some of thesepolicies include significant estimates made by management using informationavailable at the time the estimates were made. However, these estimates couldchange materially if different information or assumptions were used.

 

*Nature ofoperations*

 

Summer is engaged in the design, marketing anddistribution of juvenile products.  Themajority of its revenues are derived from retail customers in North America,with approximately 10% of the business being generated in the UK.  The Company also maintains a research anddevelopment staff in Asia (no revenues are generated directly out of Asia).

 

*Income taxes*

 

The provision for incometaxes is based on the estimated annualized effective tax rate for the year.

Effective January 1, 2007, the Companyadopted the provisions of FASB Interpretation No. 48 (“FIN 48”), “Accountingfor Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109.”FIN 48 provides detailed guidance for the financial statement recognition,measurement and disclosure of uncertain tax positions recognized in thefinancial statements in accordance with SFAS No. 109. Tax positions mustmeet a “more-likely-than-not” recognition threshold at the effective date to berecognized upon the adoption of FIN 48 and in subsequent periods. Upon theadoption of FIN 48, we had no unrecognized tax benefits. During the firstquarter of 2009, there were no adjustments for uncertain tax benefits.

 

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Income taxes are computedusing the asset and liability method of accounting. Under the asset andliability method, a deferred tax asset or liability is recognized for estimatedfuture tax effects attributable to temporary differences and carry-forwards.The measurement of deferred income tax assets is adjusted by a valuationallowance, if necessary, to recognize future tax benefits only to the extent,based on available evidence; it is more likely than not such benefits will berealized.  The Company recognizesinterest and penalties, if any, related to uncertain tax positions in selling,general and administrative expenses.  No interest and penalties related touncertain tax positions were accrued at March 31, 2009. The tax years 2005through 2008 remain open to examination by the major taxing jurisdictions. The Companyexpects no material changes to unrecognized tax positions within the nexttwelve months.

 

**Company Overview**

 

Summer is a designer, marketer, and distributor ofbranded juvenile health, safety and wellness products which are soldprincipally to large North American and UK retailers.  Summer currently has more than 70 proprietaryproducts in various product categories including nursery audio/video monitors,safety gates, durable bath products, bed rails, infant thermometers and relatedhealth and safety products, booster and potty seats and bouncers.

 

Summer’s strategy is to grow its sales through avariety of methods, including:

 

·                  increased product penetration (more productsat each store);

 

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

 

·                  New products (at existing and new customers);

 

·                  New mass merchant retail customers;

 

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

 

·                  New geographies (international expansion);and

 

·                  New product categories (for example, the softgoods division started in 2006).

 

·                  Acquisitions

 

Summer has been able to grow its annual revenues byover $100,000,000 over the past six years through a combination of all of theabove factors. Each year it has been able to expand the number of products intoits main distribution channel, mass merchant retailers, and has also added newcustomers each year. Therefore, even without new product introductions, Summercould grow its business by simply selling more of its existing product line toexisting customers.

 

For 2009 and beyond, the growth strategy of Summerwill be to continue to develop and sell new products to its existing customerbase, sell new and existing products to new customers (or expand relationshipswith existing customers), and to expand in the UK and in other geographicregions (including Japan, Mexico and Australia, among others).

 

Summer’s growth 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.

 

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

 

Summer intends to pursue additional potentialacquisition candidates in order to obtain new innovative products, new productcategories, new retail customers or new 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.

 

As Summer continues to grow through internalinitiatives and any additional future acquisitions, it will incur additionalexpenses.  Two of the key areas in whichsuch increased expenses will likely occur are sales and product development. Inorder to grow sales, Summer will likely hire additional sales personnel toservice new geographic territories, focus existing resources on specific partsof the United States market and retain product line specialists to drive salesof new and existing products in specific areas in which Summer believes it canreadily increase sales. Product development expenses will increase as Summerdevelops new products in existing and new categories. As a result of itsacquisition strategy, Summer will face various challenges such as theintegration 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 expenditures with respect to upgraded and expandedinformation systems and enhancing the company’s management team.

 

*Sales*

 

Summer’s sales are primarily derived from the saleof juvenile health, safety and wellness products and are recognized upontransfer of title of product to Summer’s customers. Summer’s products aremarketed through several distribution channels including chain retailers,specialty retailers and direct to consumers.

 

Approximately 90% of sales are currently made tocustomers in North America, with the remaining 10% made to customers in the UK.Sales are made utilizing standard credit terms of 30 to 90 days. Summergenerally accept returns only for defective merchandise.

 

*Cost ofgoods sold and other expenses*

 

Summer’s products are manufactured by third parties,with approximately 80-85% of the dollar value of products being manufactured inChina and the majority of the balance being manufactured in Massachusetts. Costof goods sold primarily represents purchases of finished products from thesethird party manufacturers. The remainder of Summer’s cost of goods soldincludes tooling depreciation, freight-in from suppliers and miscellaneouscharges from contract manufacturers. Substantially all of Summer’s purchasesare made in US dollars, therefore most of this activity is not subject tocurrency fluctuations. If Summer’s suppliers experience increased rawmaterials, labor or other costs and pass along such cost increases throughhigher prices for finished goods, Summer’s costs of sales would increase, andto the extent we are unable to pass such price increases along to Summer’scustomers, Summer’s gross margins would decrease.

 

Selling, general and administrative expensesprimarily consist of payroll, insurance, professional fees, royalties, freightout to customers, product development costs, advertising and marketing expenses(including co-op advertising allowances as negotiated with certain customers)and sales commissions. Several of these items fluctuate with sales, some basedon sales to particular customers and others based on sales of particularproducts.

 

There are not significant variations in seasonaldemand for Summer’s products. Sales to its retail customers are generallyhigher in the time frame when retailers take initial shipments of new products;these orders usually incorporate enough product to fill each store plusadditional amounts to be kept at the customer’s distribution center. The timingof these initial shipments varies by customer depending on when they finalizestore layouts for the upcoming year, and whether there are any mid-year productintroductions.

 

**Results of Operations**

 

**Condensed ConsolidatedStatements of Income**

**For theThree Months Ending March 31, 2009 and 2008**

**(Inthousands)**

 
| ** **                                                                                                                   | ** ** | **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 discussion below regarding thecomputation of EBITDA.

 

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

 

Net sales increased 22.6% from approximately$28,425,000 for the three months ended March 31, 2008 to approximately$34,849,000 for the three months ended March 31, 2009. This sales increasewas primarily attributable to increased distribution of Summer’s productsthroughout Summer’s customer base, the acquisition of Basic Comfort andKiddopotomus in 2008, and new product introductions.  Significant increases were noted in largeaccounts such as Babies R Us, in addition to several other accounts which havebeen added over the past few years, including Lowe’s and Wal-Mart.

 

Gross profit 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 decreasedto 33.4% from 35.0% in the prior year. The decrease as a percentage of sales is primarily due to increasedcosts of finished goods from the Company’s vendors in Asia and the US.  The increase in these costs is primarily dueto increased raw material costs and labor. The Company also sold approximately $1,000,000 of excess inventory atreduced prices in the three months ended March 31, 2009.

 

Selling, general and administrative expensesincreased from approximately $7,326,000 for the three months ended March 31,2008 to approximately $9,294,000 for the three months ended March 31,2009. This increase was primarily attributable to increases in headcount,higher variable selling expenses due to the increase in sales, and  costs associated with  the opening of new distribution centers tosupport the increase in sales.  Selling,general and administrative expenses increased to 26.7% of net sales in thethree months ended March 31, 2009 from 25.8% of net sales in the threemonths ended March 31, 2008.  In response,the Company has reduced headcount by 10% in an effort to align the Company’sfixed cost structure to its current sales base.

 

EBITDA decreased from approximately $2,609,000 forthe three months ended March 31, 2008 to approximately $2,363,000 for thethree months ended March 31, 2009, a decrease of 9%. This decrease wasprimarily attributable to the lower gross profit percentage as described above.

 

 **Liquidity and Capital Resources**

 

Summer generally funds its operations and workingcapital needs through cash generated from operations and borrowings under itssecured credit facilities.

 

Summer’s sales have increased significantly over thepast several years. For the year ended 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 a substantial increase in workingcapital requirements, specifically trade receivables and inventory. The typicalcash 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.

 

Summer had traditionally been able to fund itsincreased working capital through asset-based lines of credit with banks. Thelenders generally follow a borrowing base formula that allows advances based onthe levels of accounts receivable and inventory.

 

The majority of capital expenditures for Summer arefor tools related to new product introductions. Summer receives indicationsfrom retailers generally around the middle of each year as to what products theretailer will be taking into its product line for the upcoming year. Based onthese indications, Summer will then acquire the tooling required to build theproducts. The majority of these expenditures are therefore made in the thirdand fourth quarters of each year so that initial shipments of products can bemade in December and January (the typical time frame for new productshipments). In most cases the payments for the tools are spread out over athree to four month period.

 

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For the three months ended March 31, 2009, netcash used in operating activities 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 were over $34,800,000 for thethree months ended March 31, 2009, which represents a 23% increase over thesales in the first three months of the prior year.  See detailed discussion of the workingcapital cycle of Summer above.

 

Net cash used in investing activities was $881,000,which primarily relates to the purchase of tooling used in the manufacturing process.

 

Net cash provided by financing activities was $2,243,000,which relates to funds provided by the sale/leaseback of Summer’s principaloffices in Woonsocket, Rhode Island, net of borrowings on the line of credit tofund working capital.

 

Based on the above factors, the net cash decreasefor the three months ended March 31, 2009 was $176,000, resulting in acash balance of $812,000 at March 31, 2009.

 

Summer believes that its cash on hand and currentbanking facilities are sufficient to fund its cash requirements for at leastthe next 12 months. However, unforeseen circumstances, such as softness in theretail industry or deterioration in the business of a significant customer,could create a situation where Summer cannot access all of the available linesof credit due to not having sufficient assets or EBITDA. In addition, there isno assurance that Summer will meet all of its bank covenants in the future, orthat its lenders will grant waivers if there are covenant violations.

 

Summer’s strategy for funding its business goingforward is a combination of increased profitability, and if necessary,negotiation of increased borrowing lines as required with traditional lenders.

 

OnApril 10, 2008, Summer entered into two new three-year secured creditfacilities (the “Loan Agreement”) with Bank of America, N.A., as AdministrativeAgent, and each of the financial institutions a signatory to the LoanAgreement.  The Loan Agreement providesfor a $36,000,000 working capital revolving credit facility and a $10,000,000non-restoring acquisition credit facility. The new credit 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 are secured by all assets of Summer and itssubsidiaries.  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 othercovenants, including the following: (i) that  Summer and its subsidiaries maintain a newworth of $50,000,000 plus the  sum of 50%of net income  earned in each fiscalyear, (ii) that Summer and its subsidiaries maintain a ratio of totalfunded debt  to EBITDA of not greaterthan 3.50:1.00, and (iii) that Summer and its subsidiaries maintain a ratio of operating cash flow  to debt service of not less than 1.25:1.00.  In addition, if Summer’s ratio of totalfunded debt to EBITDA is greater than 3.25:1.00 as of December 31, 2008,the total commitment amount under the working capital revolving credit facilitywill reduce by $4,000,000 on March 31, 2009.  Furthermore, if Summer’s ratio of totalfunded debt to EBITDA is greater than 3.25:1.00 for any fiscal year, theaggregate amount that may be borrowed under the Loan Agreement will bedetermined by reference to a borrowing 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 blendedinterest rate for these credit facilities was 3.73%.  In addition, these new credit facilities havean unused line fee based on the unused amount of the credit facilities equal to25 basis points.

 

TheLoan Agreement also contains customary events of default, including a crossdefault provision and 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 default relating to insolvency and receivership,all outstanding obligations become due and payable.

 

The Company was in compliance with all covenantsunder its line of credit as of March 31, 2009.

 

We believe that Summer’s cash flows from operations,cash on hand, and available borrowings will be sufficient to meet Summer’sworking capital and capital expenditure requirements and provide us withadequate liquidity to meet anticipated operating needs for at least the next 12months. Summer’s cash requirements for the period beyond that are expected tobe met by the continued use of bank facilities to meet working capitalrequirements.

 

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**Non-GAAP Discussion**

 

In addition to its GAAP results, Summer considersnon-GAAP measures of its performance. EBITDA, as defined below, is an importantsupplemental financial measure of Summer’s performance that is not required by,or presented in accordance with, GAAP. EBITDA represents net income (loss)before income taxes, minority interest in net income of affiliates, interestexpense, non-cash stock option expense, and depreciation and amortization.Summer’s management uses EBITDA as a financial measure to assess the ability ofits assets to generate cash sufficient to pay interest on its indebtedness,meet capital expenditure and working capital requirements, and otherwise meetits obligations as they become due. Summer’s management believes that thepresentation of EBITDA provides useful information regarding Summer’s resultsof operations because they assist in analyzing and benchmarking the performanceand value of Summer’s business. Summer believes that 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.

 

EBITDA also is used by Summer’s management formultiple purposes, including:

 

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

 

·                  To allow lenders to calculate total proceedsthey are willing to loan to Summer based on its relative strength compared toother competitors; and

 

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

 

In addition, EBITDA is an important valuation toolused by potential investors when assessing the relative performance of acompany in comparison to other companies in the same industry. Although Summeruses EBITDA as a financial measure to assess the performance of its business,there are material limitations to using a measure such as 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 business. In addition, Summer’s calculation of EBITDA may not beconsistent with similarly titled measures of other companies and should beviewed in conjunction with measures that are computed in accordance with GAAP.Summer’s management compensates for these limitations in considering EBITDA inconjunction with its analysis of other GAAP financial measures, such as netincome.

 

The following table presents a reconciliation of theSummer EBITDA to net income, its most directly comparable GAAP financialmeasure, on a historical basis, for the periods presented:

 

**Reconciliation of unaudited EBITDAto Net Income (in thousands of dollars):**

 
| ** **                     | ** ** | **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 |   |
| 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 management has concluded, based on their evaluation, that as of theend of the period covered by this report, our controls and

 

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procedures were effectiveas of March 31, 2009 to ensure that information required to be disclosedby us in the reports we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms.

 

*(b) Changesin Internal Control Over Financial Reporting*

 

There was no change inour internal control over financial reporting that occurred during the periodcovered by this Quarterly Report that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

 

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**PART II.  OTHER INFORMATION**

 
| **ITEM  1A.** | **Risk Factors** |
|---------------|------------------|

 

There have been nomaterial changes pertaining to risk factors that were contained in the AnnualReport 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.                                                          |
|        |                                                           |
| **ITEM 6.** | **Exhibits**                                                   |

 

31.1 Chief ExecutiveOfficer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of2002.

 

31.2 Chief FinancialOfficer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of2002.

 

32.1 Certification ofJason Macari, Chief Executive Officer of Summer Infant, Inc., pursuant to18 U.S.C Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

32.2 Certification ofJoseph Driscoll, Chief Financial Officer of Summer Infant, Inc., pursuantto 18 U.S.C Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

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Table of Contents

 

**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.**

 

 
| May 14, 2009 |
|-------------------|
|              |   |
|              | /s/ Jason Macari |   |
|              | Jason Macari |   |
|              | Chief Executive Officer |
|              |   |
|              |   |
| May 14, 2009 |
|              |   |
|              | /s/ Joseph Driscoll |   |
|              | Joseph  Driscoll |   |
|              | Chief Financial Officer |

 

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