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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q/A**

**(Amendment No. 1)**

 

**QuarterlyReport Under Section 13 or 15d of the Securities Exchange Act of 1934**

 

**For the quarterly period ended June 30, 2009**

 

**SummerInfant, Inc.**

(Name of Registrant as Specified in Its Charter)

 

**Commission file 001-33346**

 

| **Delaware**                             | ** ** | **20-1994619**                       |
|------------------------------------------|------------|--------------------------------------|
| (State of Incorporation)                 |       | IRS Employment Number                |
|                                     |       |                                 |
| **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   Noo .

 

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 of this chapter) during the preceding 12 months (or for such shorterperiod that the 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 reportingcompany.

 

| Large accelerated filero |   | Accelerated filero         |
|--------------------------|--------|----------------------------|
|                     |   |                       |
| Non-accelerated filero   |   | Smaller reporting companyx |

 

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

 

Asof July 15, 2009, there were 15,392,782 shares outstanding (includingunvested restricted shares) of the registrant’s Common Stock, $.0001 par valueper share.

 

 

 

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**ExplanatoryNote**

 

**This firstamendment on Form 10-Q/A (the “Amendment”) amends our quarterly report forthe quarter ended June 30, 2009 originally filed with the Securities andExchange Commission (“SEC”) on August 11, 2009 (the “Original Report”).  We are filing this amendment to respondto comment letter received from the SEC dated August 20, 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 only changes to the text from the Form 10-Qis to clarify that the performance measure that the Company used in theNon-GAAP discussion in Management’s Discussion and Analysis was AdjustedEBITDA.**

 

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**Summer Infant, Inc.**

**Form 10Q**

**Table of Contents**

 
| ** **        | ** **                                                                                                                   | **Page Number** |
|-------------------|------------------------------------------------------------------------------------------------------------------------------|----------------------|
| **Part 1.**  | **Financial Information**                                                                                                    | ** **           |
|              |                                                                                                                         |                 |
| **Item 1.**       | **Condensed Consolidated Financial  Statements (unaudited)**                                                                 | ** **           |
|              |                                                                                                                         |                 |
| ** **        | **Condensed  Consolidated Balance Sheets June 30, 2009 (unaudited) and  December 31, 2008**                        | **3**                |
|              |                                                                                                                         |                 |
|              | **Condensed  Consolidated Statements of Income for the three and six months ended  June 30, 2009 and 2008 (unaudited)** | **4**                |
|              |                                                                                                                         |                 |
|              | **Condensed  Consolidated Statements of Cash Flows for the six months ended June 30,  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**                              | **15**               |
|              |                                                                                                                         |                 |
| **Item 3.**       | **Quantitative and Qualitative  Disclosures About Market Risk**                                                              | **N/A**              |
|              |                                                                                                                         |                 |
| **Item 4T.**      | **Controls and  Procedures**                                                                                                 | **27**               |
|              |                                                                                                                         |                 |
| **Part II.** | **Other Information**                                                                                                        | **28**               |
|              |                                                                                                                         |                 |
| **Item 1.**       | **Legal Proceedings**                                                                                                        | ** **           |
| **Item  1A.**     | **Risk Factors**                                                                                                             |                 |
| **Item 2.**       | **Unregistered Sales of Equity  Securities and Use of Funds**                                                                | ** **           |
| **Item 3.**       | **Defaults Upon Senior Securities**                                                                                          | ** **           |
| **Item 4.**       | **Submission  of Matters to a Vote of Security Holders**                                                                     |                 |
| **Item 5.**       | **Other Information**                                                                                                        | ** **           |
| **Item 6.**       | **Exhibits**                                                                                                                 |                 |
|              |                                                                                                                         |
| **Signatures**    |                                                                                                                         |

 

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**Summer Infant, Inc. and Subsidiaries**

**CondensedConsolidated Balance Sheets**

 

Notethat all dollar amounts presented in the table below are in thousands of USdollars except share amounts.

 
| ** **                                                                                            | ** ** | **June 30,******** 2009** | ** ** | **December 31,******** 2008** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                            | ** ** | **Unaudited**                       | ** ** | ** **                              | ** ** |
| ASSETS                                                                                                |       |                                |       |                                    |       |
| CURRENT ASSETS                                                                                        |       |                                |       |                                    |       |
| Cash and cash equivalents                                                                             |       | $                                   | 2,457      |                                    | $          | 988 |   |
| Trade receivables, net of allowance for doubtful  accounts                                            |       | 31,502                              |       | 29,358                                  |       |
| Inventory, primarily finished goods                                                                   |       | 26,909                              |       | 30,882                                  |       |
| Prepaids and other current assets                                                                     |       | 1,314                               |       | 1,495                                   |       |
| Deferred tax assets                                                                                   |       | 602                                 |       | 602                                     |       |
| TOTAL CURRENT ASSETS                                                                                  |       | 62,784                              |       | 63,325                                  |       |
| Property and equipment, net                                                                           |       | 11,224                              |       | 11,212                                  |       |
| Goodwill                                                                                              |       | 40,452                              |       | 40,452                                  |       |
| Other intangible assets, net                                                                          |       | 15,014                              |       | 15,130                                  |       |
| Other assets                                                                                          |       | 222                                 |       | 416                                     |       |
| TOTAL ASSETS                                                                                          |       | $                                   | 129,696    |                                    | $          | 130,535 |   |
|                                                                                                  |       |                                |       |                                    |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                             |       |                                |       |                                    |       |
| CURRENT LIABILITIES                                                                                   |       |                                |       |                                    |       |
| Accounts payable and accrued expenses                                                                 |       | $                                   | 21,580     |                                    | $          | 23,045 |   |
| Current portion of long-term debt                                                                     |       | 2,300                               |       | 1,654                                   |       |
| TOTAL CURRENT LIABILITIES                                                                             |       | 23,880                              |       | 24,699                                  |       |
| Long-term debt, less current portion                                                                  |       | 35,530                              |       | 42,277                                  |       |
| Other liabilities                                                                                     |       | 3,614                               |       | —                                  |       |
| Deferred tax liabilities                                                                              |       | 1,348                               |       | 1,348                                   |       |
| TOTAL LIABILITIES                                                                                     |       | $                                   | 64,372     |                                    | 68,324     |   |
|                                                                                                  |       |                                |       |                                    |       |
| COMMITMENTS AND CONTINGENCIES (note 4)                                                                |       |                                |       |                                    |       |
|                                                                                                  |       |                                |       |                                    |       |
| STOCKHOLDERS’ EQUITY                                                                             |       |                                |       |                                    |       |
| Common Stock $.0001 par value, issued and  outstanding 15,392,782 and 15,055,782 shares, respectively |       | 1                                   |       | 1                                       |       |
| Additional paid in capital                                                                            |       | 54,594                              |       | 54,095                                  |       |
| Retained earnings                                                                                     |       | 11,043                              |       | 8,997                                   |       |
| Accumulated other comprehensive loss                                                                  |       | (314                                | )          | (882                                    | )          |
| TOTAL STOCKHOLDERS’ EQUITY                                                                       |       | 65,324                              |       | 62,211                                  |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                       |       | $                                   | 129,696    |                                    | $          | 130,535 |   |

 

See notes to condensed consolidated financial statements

 

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**Summer Infant, Inc. and Subsidiaries**

**CondensedConsolidated Statements of Income**

 

Notethat all dollar amounts presented in the table below are in thousands of USdollars except share amounts.

 
| ** **                                       | ** ** | **Unaudited**                   | ** ** | **Unaudited**                 | ** ** |
|--------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                       | ** ** | **For  the three months ended** | ** ** | **For  the six months ended** | ** ** |
| ** **                                       | ** ** | **June 30,**               | ** ** | **June 30,**             | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                       | ** ** | **2009**                        | ** ** | **2008**                      | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                       | ** ** | ** **                      | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues                                     |       | $                               | 38,361     |                          | $          | 33,982 |   | $ | 73,210 |   | $ | 62,407 |   |
| Cost of goods sold                               |       | 24,744                          |       | 21,665                        |       | 47,936 |   | 40,154 |   |
| Gross profit                                     |       | 13,617                          |       | 12,317                        |       | 25,274 |   | 22,253 |   |
| Selling, general and administrative expenses (a) |       | 10,795                          |       | 9,573                         |       | 21,455 |   | 17,461 |   |
| Net operating income                             |       | 2,822                           |       | 2,744                         |       | 3,819 |   | 4,792 |   |
| Interest income (expense), net                   |       | (475                            | )          | (585                          | )          | (896 | ) | (967 | ) |
| Income before provision for income taxes         |       | 2,347                           |       | 2,159                         |       | 2,923 |   | 3,825 |   |
| Income tax expense                               |       | 704                             |       | 833                           |       | 877 |   | 1,495 |   |
| NET INCOME                                       |       | $                               | 1,643      |                          | $          | 1,326 |   | $ | 2,046 |   | $ | 2,330 |   |
|                                             |       |                            |       |                          |       |   |   |   |   |
| NET INCOME PER SHARE- BASIC                      |       | $                               | 0.11       |                          | $          | 0.09 |   | $ | 0.14 |   | $ | 0.16 |   |
| Weighted average shares outstanding - basic      |       | 15,143,032                      |       | 14,917,738                    |       | 15,135,801 |   | 14,415,605 |   |
|                                             |       |                            |       |                          |       |   |   |   |   |
| NET INCOME PER SHARE - DILUTED                   |       | $                               | 0.11       |                          | $          | 0.09 |   | $ | 0.13 |   | $ | 0.16 |   |
| Weighted average shares outstanding- diluted     |       | 15,392,782                      |       | 14,917,738                    |       | 15,392,782 |   | 14,415,605 |   |

 

Seenotes to condensed consolidated financial statements.

 

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(a) Includesnon-cash stock compensation expense of $499 and $180 for the six months ended June 30,2009 and 2008, respectively, and expense of $134 and $90 for the three monthsended June 30, 2009 and 2008, respectively.  The total also includesnon-capitalizable deal-related fees of $214 for the three and six months ended June 30,2008.

 

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**Summer Infant, Inc. and Subsidiaries**

**CondensedConsolidated Statements of Cash Flows**

 

Notethat all dollar amounts presented in the table below are in thousands of USdollars except share amounts.

 
| ** **                                                                                                                          | ** ** | **Unaudited**                                | ** **   |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|--------------|
| ** **                                                                                                                          | ** ** | **For the  six months ended** | ** **   |
| ** **                                                                                                                          | ** ** | **June 30,******** 2009**          | ** **   | **June 30,******** 2008** | ** ** |
|                                                                                                                                |       |                                         |         |   |   |
| Cash flows from operating activities:                                                                                               |       |                                         |         |   |   |
| Net income                                                                                                                          |       | $                                            |  2,046  |   | $ |  2,330 |   |
| Adjustments to reconcile net income to net cash  used in operating activities                                                       |       |                                         |         |   |   |
| Depreciation and amortization                                                                                                       |       | 2,029                                        |         | 1,125 |   |
| Non-cash stock option expense                                                                                                       |       | 499                                          |         | 180 |   |
| Deferred taxes                                                                                                                      |       | —                                       |         | (243 | ) |
| Changes in assets and liabilities net of effects  of acquisition:                                                                   |       |                                         |         |   |   |
| Increase in accounts receivable                                                                                                     |       | (3,033                                       | )            | (2,806 | ) |
| (Increase) decrease in inventory                                                                                                    |       | 4,304                                        |         | (2,724 | ) |
| Increase (decrease) in accounts payable and  accrued expenses                                                                       |       | (544                                         | )            | 1,203 |   |
| Decrease in prepaids and other current assets                                                                                       |       | 213                                          |         | 437 |   |
| (Increase) decrease in other assets                                                                                                 |       | 194                                          |         | (50 | ) |
| Net cash provided by (used in) operating  activities                                                                                |       | 5,708                                        |         | (548 | ) |
| Cash flows from investing activities:                                                                                               |       |                                         |         |   |   |
| Acquisitions of property and equipment                                                                                              |       | (1,897                                       | )            | (1,339 | ) |
| Acquisition of Basic Comfort, Inc.,  Kiddopotamus & Company and Summer Infant, Inc. net of cash  acquired of $61 |       | —                                       |         | (15,374 | ) |
| Net cash used in investing activities                                                                                               |       | (1,897                                       | )            | (16,713 | ) |
| Cash flows from financing activities:                                                                                               |       |                                         |         |   |   |
| Net borrowings (repayments) on debt and other  long-term liabilities                                                                |       | (6,389                                       | )            | 18,500 |   |
| Proceeds from sale of building                                                                                                      |       | 3,903                                        |         | 0 |   |
| Net cash provided by (used in) financing activities                                                                                 |       | (2,486                                       | )            | 18,500 |   |
| Effect of exchange rate changes on cash and cash  equivalents                                                                       |       | 144                                          |         | (134 | ) |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                                                               |       | 1,469                                        |         | 1,105 |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                                      |       | 988                                          |         | 1,771 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                                            |       | $                                            |  2,457  |   | $ |  2,876 |   |
| Non cash investing activities:                                                                                                      |       |                                         |         |   |   |
| Issuance of common stock in conjunction with the  acquisition of Basic Comfort, Inc., Kiddopotamus & Company  (2008)  |       | $                                            |  — |   | $ |  4,657 |   |
| New capital lease obligations                                                                                                       |       | $                                            |  234    |   | $ |  148 |   |

 

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**SUMMER INFANT, INC.  AND SUBSIDIARIES**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****                        ****SUMMARY OFSIGNIFICANT ACCOUNTING 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.

 

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

 

*Income taxes.*

 

Theprovision for income taxes is based on the Company’s estimated annualizedeffective tax rate for the year.

 

EffectiveJanuary 1, 2007, the Company adopted the provisions of FASB InterpretationNo. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — AnInterpretation of FASB Statement No. 109.” FIN 48 provides detailedguidance for the financial statement recognition, measurement and disclosure ofuncertain tax positions recognized in the financial statements in accordancewith SFAS No. 109. Tax positions must meet a “more-likely-than-not”recognition threshold at the effective date to be recognized upon the adoptionof FIN 48 and in subsequent periods. Upon the adoption of FIN 48, the Companyhad no unrecognized tax benefits. During the second quarter of 2009, theCompany recognized no adjustments for uncertain tax benefits.

 

Incometaxes are computed using the asset and liability method of accounting. Underthe asset and liability method, a deferred tax asset or liability is recognizedfor estimated 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 June 30, 2009. The tax years 2005 through 2008 remain opento examination by the major taxing jurisdictions in which the Company operates.The Company expects no material changes to unrecognized tax positions withinthe next twelve months.

 

*Use of Estimates*

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect certain reported amounts and disclosures.Accordingly, actual results could differ from those estimates.

 

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*Net Income Per Share*

 

Basicearnings per share for the Company is computed by dividing net income by theweighted-average number of shares of common stock outstanding during theperiod. The number of common shares outstanding includes 249,750 unvestedrestricted shares that were issued in the first quarter of 2009. Options topurchase 1,452,600 and 1,040,000 shares of the Company’s common stock were notincluded in the calculation, due to the fact that these options wereanti-dilutive for the three and six months ended June 30, 2009 and 2008,respectively.

 

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*Acquisitions*

 

Thepro forma results for the six (6) months ended June 30, 2008,assuming the Basic Comfort and Kiddopotamus transactions had closed on January 1,2008 are as follows (in thousands of US dollars, except per share data):

 
| ** **                  | ** ** | **2008**       | ** ** |
|-----------------------------|------------|----------------|------------|
|                        |       |           |       |   |
| Net revenues                |       | $              | 68,336     |   |
|                        |       |           |       |
| Net income                  |       | $              | 2,797      |   |
|                        |       |           |       |
| Earnings per share: diluted |       | 0.19 per share |       |

 

*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 applies underother accounting pronouncements that require or permit fair value measurements,and accordingly, does not require any new fair value measurements. SFAS No. 157is effective for fiscal years beginning after November 15, 2007. TheCompany adopted SFAS 157 for its financial assets and liabilities. Theadoption of SFAS 157 did not have a material impact on the Company’sfinancial 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

 

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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 on January 1,2009.  The adoption of this pronouncement did not have a material impacton the Company’s financial position or results of operations.

 

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*  “(SFAS No. 142”). The intent of theposition is 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 adoptionof this pronouncement did not have a material impact on the Company’s financialposition or results of operations.

 

InJune 2008, the FASB issued EITF No. 03-6-1, “Determining WhetherInstruments Granted in Share-Based Payment Transactions Are ParticipatingSecurities” (“EITF 03-6-1”).  EITF 03-6-1 states that unvested share-basedpayment

 

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awardsthat contain nonforfeitable rights to dividends or dividend equivalents are “participatingsecurities” as defined in EITF 03-6-1, Participating Securities and the Two-Class Methodunder FASB Statement No. 128, and therefore should be included in computingearnings per share using the two-class method.  According to EITF-03-6-1,a share-based payment award is a participating security when the award includesnonforfeitable rights to dividends or dividend equivalents. The EITF waseffective for the Company beginning January 1, 2009.  The adoption ofEITF 03-6-1 did not have a material impact on the financial statements.

 

InMay 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“FAS 165”),which establishes general standards of accounting and disclosure for eventsthat occur after the balance sheet date but before financial statements areissued.  The Company adopted the provisions of FAS 165 for the quarterended June 30, 2009.  The adoption of FAS 165 did not have a materialeffect on the consolidated financial statements.

 

InJune 2009, the FASB issued FAS 168, “The FASB Accounting StandardsCodification and the Hierarchy of Generally Accepted Accounting Principles”. FAS 168 will become the source of authoritative U.S. generally acceptedaccounting principles, superceding all then-existing non-SEC accounting andreporting standards. This statement is effective for financial statementsissued for interim and annual periods ending after September 15,2009.  The Company does not expect the adoption of FAS 168 to have animpact on the Company’s results of operations, financial condition, or cashflows.

 

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.

 

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

 

*Credit Facilities*

 

OnApril 10, 2008, the Company 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 as 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.

 

TheCompany’s ability to borrow under the Loan Agreement is subject to its ongoingcompliance with a  number of financial and other covenants, including thefollowing: (i) that  the Company and its subsidiaries maintain a networth of $50,000,000 plus the  sum of 50% of net income  earned ineach fiscal year, (ii) that the Company and its subsidiaries maintain aratio of total funded debt  to EBITDA of not greater than 3.50:1.00, and (iii) thatthe Company and  its subsidiaries maintain a ratio of operating cashflow  to debt service of not less than 1.25:1.00.  Furthermore, ifthe Company’s ratio of total funded debt to EBITDA is greater than 3.25:1.00for any fiscal year, the aggregate amount that may be borrowed under the LoanAgreement will be determined by reference to a borrowing base.  TheCompany is in compliance with all covenants as of June 30, 2009.

 

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 June 30,2009, the blended interest rate for these credit facilities was 3.81%. Inaddition, these new credit facilities have an unused line fee based on theunused amount of the credit facilities equal to 25 basis points.

 

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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.

 

**3.****                        ****SALE —LEASEBACK**

 

OnMarch 24, 2009 the Company entered into a definitive agreement with FaithRealty II, LLC, a Rhode Island limited liability company (“Faith Realty”) (themembers of which are Jason Macari, the current Chairman of the board ofDirectors and President of the Company, and his spouse), pursuant to whichFaith Realty will purchase the corporate headquarters of

 

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theCompany located at 1275 Park East Drive, Woonsocket, Rhode Island (the “Headquarters”)and subsequently lease the Headquarters 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 recognized as a financing, with no gain.  In Q1 of2009 the Company recorded a finance obligation under Other Liabilities of$3,902,000 in regards to this transaction, of which $228,000 was recorded as acurrent liability.  This obligation is reduced each month as the rentpayment is made to Faith Realty.

 

OnFebruary 25, 2009, the Company’s board of Directors (with Mr. Macariand Mr. Gibree abstaining from such action) approved the Transactions,subject to the negotiation and execution of definitive agreements within theparameters approved by the Board.  In connection therewith, the boardgranted a potential waiver, to the extent necessary, if at all, of the conflictof interest 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 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.

 

Inaddition, the Company’s Audit Committee approved the Transactions (as a relatedparty transaction) and the potential waiver and recommended the matter to avote of the entire Board of Directors (which approved the transaction).

 

4.                          **COMMITMENTS AND CONTINGENCIES**

 

*Litigation*

 

TheCompany is a party to routine litigation and administrative complaintsincidental to its business.  Management does not believe that theresolution of any or all of such routine litigation and administrativecomplaints is likely to have a material adverse effect on the Company’sfinancial condition or results of operations.

 

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5.                          **STOCK OPTIONS AND RESTRICTED SHARES**

 

Summerhas granted stock options under its 2006 Performance Equity Plan (“2006 Plan”). Under the 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 renderedor are able to render significant services to us or our subsidiaries and whoare deemed to have contributed or to have the potential to contribute to oursuccess.  Incentive stock options may only be awarded to individuals whoare our employees at the time of grant.

 

EffectiveJanuary 1, 2006, the Company adopted the fair value recognition provisionsof SFAS 123(R), using the modified prospective transition method.  Theadoption of SFAS 123(R) resulted in share-based compensation expense forthe

 

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threeand six months ended June 30, 2009 of approximately $365,000 and $499,000,respectively.  There were 475,000 stock options granted during the sixmonths ended June 30, 2009.  As of June 30, 2009, there were1,452,600 stock options outstanding.  In addition, there were 349,000restricted shares issued to employees during the six months ended June 30,2009. The key assumptions used in the Black-Scholes valuation for the optionsgranted in 2009 were as follows:

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

 

6.                           **SUBSEQUENT EVENT- ACQUISITION**

 

OnJuly 17, 2009, the Company acquired certain assets and assumed certainliabilities of Butterfly Living, Inc., a developer and distributor ofinfant cribs.  The purchase price includes potential earn out paymentsover the next 4.5 years which could total up to $5,000,000 over that time frameif all targets are reached.

 

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**ITEM2.  SUMMER’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND 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 these policiesduring the first six months of 2009. This summary of critical accountingpolicies 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.

 

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*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. The Company also maintains a research and development staffin Asia (no revenues are generated directly out of Asia).

 

*Income taxes*

 

Theprovision for income taxes is based on our estimated annualized effective taxrate for the year. Effective January 1, 2007, we adopted the provisions ofFASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty inIncome Taxes — An Interpretation of FASB Statement No. 109.” FIN 48provides detailed guidance for the financial statement recognition, measurementand disclosure of uncertain tax positions recognized in the financialstatements in accordance with SFAS No. 109. Tax positions must meet a “more-likely-than-not”recognition threshold at the effective

 

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dateto be recognized upon the adoption of FIN 48 and in subsequent periods. Uponthe adoption of FIN 48, we had no unrecognized tax benefits. During the secondquarter of 2009, we recognized no adjustments for uncertain tax benefits.

 

Incometaxes are computed using the asset and liability method of accounting. Underthe asset and liability method, a deferred tax asset or liability is recognizedfor estimated 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.  We recognize interest and penalties, if any, related touncertain tax positions in selling, general and administrative expenses. No interest and penalties related to uncertain tax positions were accrued at June 30,2009. The tax years 2005 through 2008 remain open to examination by the majortaxing jurisdictions in which we operate. We expect no material changes tounrecognized tax positions within the next twelve months.

 

**Company Overview**

 

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

 

Summer’sstrategy is to grow its sales through a variety of methods, including:

 

·                     increasedproduct penetration (more products at each store);

 

·                     Increased storepenetration (more stores within each retail customer);

 

·                     New products(at existing and new customers);

 

·                     New massmerchant retail customers;

 

·                     Newdistribution channels (food and drug chains, price clubs, home centers, andweb-based retailers);

 

·                     New geographies(international expansion); and

 

·                     New productcategories

 

Summerhas been able to grow its annual revenues by over $100,000,000 over the pastseven 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).

 

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Summer’sgrowth strategy has included acquisitions.

 

OnMarch 31, 2008, Summer acquired substantially all of the assets of BasicComfort, Inc., a leading manufacturer and supplier of infant comfort andsafety products, including infant sleep positioners, infant head supports andportable changing pads.

 

OnApril 18, 2008, Summer acquired Kiddopotamus & Company, a leadingmanufacturer and supplier of infant nursery, travel and feeding accessories.

 

OnJuly 17, 2009, the Company acquired certain assets of Butterfly Living, Inc.,a developer and distributor of infant cribs.

 

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, and othercategories. Summer may look to develop its own products in these categories orattempt to gain entrance into these categories through acquisitions.

 

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

 

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productsin specific areas in which Summer believes it can readily increase sales.Product development expenses will increase as Summer develops new products inexisting and new categories. As a result of its acquisition strategy, Summerwill face various challenges such as the integration of the acquired companies’product lines, employees, marketing requirements and information systems.Ongoing infrastructure investment also may be required to support realizedgrowth, including expenditures with respect to upgraded and expandedinformation systems and enhancing the company’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.

 

Approximately95% of sales are currently made to customers in North America, with theremaining 5% made to customers in the UK. Sales are made utilizing standardcredit terms of 30 to 90 days. Summer generally accept returns only fordefective merchandise.

 

*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.

 

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**Results of Operations**

 

**Summer Infant and Subsidiaries**

**Consolidated Statements of Income**

**For the Three and Six Months Ending June 30, 2009and 2008**

**(In thousands)**

 
| ** **                                                                                                                                           | ** ** | **Three Months********Ended June 30,********2009** | ** ** | **Three Months********Ended June 30,********2008** | ** ** | **Six Months  Ended********June 30, 2009** | ** ** | **Six Months  Ended********June 30, 2008** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                                                                                           | ** ** | **(unaudited)**                                                   | ** ** | **(unaudited)**                                                   | ** ** | **(unaudited)**                                           | ** ** | **(unaudited)**                                           | ** ** |
| Net Sales                                                                                                                                            |       | $                                                                 | 38,361     |                                                              | 100.0      | %                                                         | $          | 33,982                                                    |       | 100.0 | % | $ | 73,210 |   | 100.0 | % | $ | 62,407 |   | 100.0 | % |
| Cost of Goods Sold                                                                                                                                   |       | 24,744                                                            |       | 64.5                                                              | %          | 21,665                                                    |       | 63.8                                                      | %          | 47,936 |   | 65.5 | % | 40,154 |   | 64.3 | % |
| Gross Profit                                                                                                                                         |       | 13,617                                                            |       | 35.5                                                              | %          | 12,317                                                    |       | 36.2                                                      | %          | 25,274 |   | 34.5 | % | 22,253 |   | 35.7 | % |
| OPERATING EXPENSES                                                                                                                                   |       |                                                              |       |                                                              |       |                                                      |       |                                                      |       |   |   |   |   |   |   |   |   |
| Selling, general and administrative expenses  (excluding depreciation, amortization, non-capitalizable deal fees and  non-cash stock option expense) |       | 9,633                                                             |       | 25.1                                                              | %          | 8,615                                                     |       | 25.3                                                      | %          | 18,927 |   | 25.8 | % | 15,942 |   | 25.6 | % |
|                                                                                                                                                 |       |                                                              |       |                                                              |       |                                                      |       |                                                      |       |   |   |   |   |   |   |   |   |
| EBITDA(a)                                                                                                                                            |       | $                                                                 | 3,984      |                                                              | 10.4       | %                                                         | $          | 3,702                                                     |       | 10.9 | % | $ | 6,347 |   | 8.7 | % | $ | 6,311 |   | 10.1 | % |

 

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

 

*Three months ended June 30, 2009 compared withthree months ended June 30, 2008*

 

Netsales increased from approximately $33,982,000 in the three months ended June 30,2008 to approximately $38,361,000 for the three months ended June 30,2009, an increase of approximately 13%. This sales increase was primarily attributableto increased distribution of Summer’s products throughout Summer’s customerbase, plus new product introductions.  Increases were noted in most of thesignificant customers.

 

Grossprofit increased from approximately $12,317,000 for the three months ended June 30,2008 to approximately $13,617,000 for the three months ended June 30,2009.  The gross profit as a percentage of sales decreased to 35.5% from36.2% in the prior year.  The decrease as a percentage of sales is due toincreased costs of finished goods from the Company’s vendors in Asia and theUS.  The increase in these costs is due to increased raw material andlabor costs, in addition to the devaluation of the US dollar relative to theChinese RMB.

 

Selling,general and administrative expenses increased from approximately $8,615,000 forthe three months ended June 30, 2008 to approximately $9,633,000 for thethree months ended June 30, 2009. This increase was primarily attributableto increases in headcount, higher variable selling expenses due to the increasein sales, and costs associated with the opening of new distribution centers tosupport the increase in sales.  Selling, general and administrativeexpenses decreased to 25.1% of net sales in the three months ended June 30,2009 from 25.3% of net sales in the three months ended June 30,2008.  This decrease as a percentage of sales was primarily due to theleveraging of the Company’s fixed cost structure over a larger sales base.

 

EBITDA(as defined) increased from approximately $3,702,000 for the three months endedJune 30, 2008 to approximately $3,984,000 for the three months ended June 30,2009, an increase of approximately 8%. This increase was primarily attributableto the increased sales and gross profit dollars as described above.

 

*Six months ended June 30, 2009 compared with sixmonths ended June 30, 2008*

 

Netsales increased from approximately $62,407,000 in the six months ended June 30,2008 to approximately $73,210,000 for the six months ended June 30, 2009,a 17% increase. This sales increase was primarily attributable to increaseddistribution of Summer’s products throughout Summer’s customer base, plus newproduct introductions.  Increases were noted in most of the significantcustomers.  In addition, the year to date sales in 2009 includes sixmonths of activity for the products acquired from Kiddopotamus and BasicComfort (businesses which were acquired in March and April of 2008),while the prior year numbers only include approximately three months ofactivity for these products, which accounts for approximately $5,000,000 of theyear to date increase.

 

Grossprofit increased from approximately $22,253,000 for the six months ended June 30,2008 to approximately $25,274,000 for the six months ended June 30,2009.  The gross profit as a percentage of sales decreased to 34.5% from35.7% in the prior year.  The decrease as a percentage of sales is due toincreased costs of finished goods from the Company’s vendors in Asia and theUS.  The increase in these costs is due to increased raw material andlabor costs, in addition to the devaluation of the US dollar relative to theChinese RMB.

 

Selling,general and administrative expenses increased from approximately $15,942,000for the six months ended June 30, 2008 to approximately $18,927,000 forthe six months ended June 30, 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, 

 

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generaland administrative expenses increased to 25.8% of net sales in the six monthsended June 30, 2009 from 25.6% of net sales in the six months ended June 30,2008.

 

EBITDAtabled from approximately $6,311,000 for the six months ended June 30,2008 to approximately equal to the $6,347,000 for the six months ended June 30,2009.

 

**Liquidity and Capital Resources**

 

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

 

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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 accountsreceivable and inventory. The typical cash flow cycle is as follows:

 

·                    Inventory ispurchased to meet expected demand plus a safety stock. Since the majority ofSummer’s vendors are based in Asia, inventory takes from four to six weeks toarrive from Asia to the various distribution points Summer maintains in the USand the UK. Payment terms for these vendors average 60 days from the date theproduct ships from Asia, therefore Summer is generally paying for the product ashort time after it is physically received in the US. The increased salesSummer has experienced result in increased levels of inventory, and thereforean increase in the amount 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 through linesof credit with banks.

 

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 tools 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 six months ended June 30, 2009, net cash provided by operatingactivities was $5,708,000.  This was primarily due to the net incomegenerated year to date, in addition to the significant reduction in inventorydue to improved working capital management.

 

Netcash used in investing activities was $1,897,000, which primarily relates tocash paid for additions to property, plant and equipment.

 

Netcash used in financing activities was $2,486,000, which relates to repaymentson the construction loan with funds provided by the sale/leaseback of Summer’sprinciple offices in Woonsocket, Rhode Island and repayments of the line ofcredit due to positive cash flow.

 

Basedon the above factors, the net cash increase for the six months ended June 30,2009 was $1,469,000, resulting in a cash balance of $2,457,000 at June 30,2009.

 

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.

 

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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.

 

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 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.

 

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) thatSummer and its subsidiaries maintain a new worth of $50,000,000 plus the sum of50% of net income earned in each fiscal year, (ii) that Summer and itssubsidiaries maintain a

 

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ratioof total funded debt to EBITDA of not greater than 3.50:1.00, and (iii) thatSummer and its subsidiaries maintain a ratio of operating cash flow to debtservice of not less than 1.25:1,00.  Furthermore, if Summer’s ratio oftotal funded 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 June 30,2009, the blended interest rate for these credit facilities was 3.81%.  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 June 30,2009.

 

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-GAAP Discussion**

 

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 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.

 

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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 the difficultyassociated with using it as the sole measure to compare the results of onecompany to another and the inability to analyze significant items that directlyaffect a company’s net income or operating income because it does not includecertain material costs, such as interest and taxes, necessary to operate itsbusiness. In addition, Summer’s calculation of Adjusted 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 AdjustedEBITDA in conjunction with its analysis of other GAAP financial measures, suchas 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:

 

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**Reconciliation of unaudited Adjusted EBITDA to Net Income (in$000’s) :**

 
| ** **                          | ** ** | **Six Months Ended******** June 30** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                          | ** ** | **2009**                                                 | ** ** | **2008** | ** ** |
|                                |       |                                                     |       |   |   |
| Net income                          |       | $                                                        | 2,046      |   | $ | 2,330 |   |
|                                |       |                                                     |       |   |   |
| Income taxes                        |       | 877                                                      |       | 1,495 |   |
|                                |       |                                                     |       |   |   |
| Non-cash stock option expense       |       | 499                                                      |       | 180 |   |
|                                |       |                                                     |       |   |   |
| Non-capitalizable deal-related fees |       | —                                                   |       | 214 |   |
|                                |       |                                                     |       |   |   |
| Interest expense                    |       | 896                                                      |       | 967 |   |
|                                |       |                                                     |       |   |   |
| Depreciation and amortization       |       | 2,029                                                    |       | 1,125 |   |
|                                |       |                                                     |       |   |   |
| Adjusted EBITDA, as defined         |       | $                                                        | 6,347      |   | $ | 6,311 |   |

 

**ITEM 4T.  Controls and Procedures**

 

*(a) Evaluation of Disclosure Controls and Procedures*

 

Asrequired by Rule 13a-15 under the Securities Exchange Act of 1934, as ofthe end of the period covered by this Quarterly Report, Summer carried out anevaluation, under the supervision and with the participation of its ChiefExecutive Officer and its Chief Financial Officer, of the effectiveness of ourdisclosure controls and procedures, as of June 30, 2009. Summer’sPrincipal Executive Officer and Principal Financial Officer have concluded,based on their evaluation, that as of the end of the period covered by thisreport, the Company’s controls and procedures were effective as of June 30,2009.

 

*(b) Changes in Internal Control Over FinancialReporting*

 

Therewas no change in Summer’s internal control over financial reporting thatoccurred during the period covered by this Quarterly Report that has materiallyaffected, or is reasonably likely to materially affect, Summer’s internalcontrol over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**ITEM 1A. Risk Factors**

 

Therehave been no material changes pertaining to risk factors that were contained inthe Annual Report on Form 10-K for the year ended December 31, 2008,filed on March 25, 2009, and amended by Amendment No. I, filed on April 30,2009.

 

**ITEM 4.  Submission of Matters to a Vote ofSecurity Holders**

 

TheCompany’s Annual Meeting of Shareholders was held on June 10, 2009. There was one matter presented to shareholders for a vote; total shares votedwere 11,560,485, and the results of the voting were as follows:

 

1.                  Election ofdirectors - to elect three directors to serve for three years, with termsexpiring in 2012:

 

SteveGibree — Votes for:10,924,203; votes withheld 636,282

MartinFogelman — Votes for: 8,802,303; votes withheld 2,758,182

RichardWenz — Votes for: 9,478,181; votes withheld 2,082,314

 

Eachindividual was, therefore, elected to the Board of Directors to servethree-year terms.

 

**ITEM 6. Exhibits**

 

31.1Chief Executive Officer Certification Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

31.2Chief Financial Officer Certification Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

32.1Certification of Jason Macari, Chief Executive Officer of Summer Infant, Inc.,pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002.

 

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

 

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**Signatures**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| **Summer Infant, Inc.** | ** **               |
|------------------------------|--------------------------|
| ** **                   | ** **               |
| ** **                   | ** **               |
| September 1,  2009      |                     |
|                         |                     |   |
|                         | /s/  Jason Macari        |   |
|                         | Jason  Macari            |   |
|                         | Chief  Executive Officer |   |
|                         |                     |   |
|                         |                     |
| September 1,  2009      |                     |
|                         |                     |   |
|                         | /s/  Joseph Driscoll     |   |
|                         | Joseph  Driscoll         |   |
|                         | Chief  Financial Officer |   |

 

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