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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-Q**

 

**Quarterly Report Pursuant toSection 13 or 15d of the Securities Exchange Act of 1934**

 

**For the quarterly period ended September 30, 2010**

 

**Summer Infant, Inc.**

(Nameof Registrant as Specified in Its Charter)

 

Commission file number **001-33346**

 

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

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the last 90 days.  Yes x  No o  .

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).  Yes o  No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an acceleratedfiler,  a non-accelerated filer or a smaller reporting company.

 

| Large  accelerated filer o |   | Accelerated  filer o         |
|---------------------------------|--------|-----------------------------------|
|                            |   |                              |
| Non-accelerated  filer o   |   | Smaller  reporting company x |

 

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 October 15, 2010,there were 15,437,477 shares outstanding of the registrant’s Common Stock,$.0001 par value per share.

 

 

 

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**SummerInfant, Inc.**

**Form 10-Q**

**Table of Contents**

 
| ** **        | ** ** | ** **                                                                                                                         | ** ** | **Page Number** |
|-------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|
| **Part 1.**  | ** ** | **Financial  Information**                                                                                                         |       |                 |
|              |       |                                                                                                                               |       |                 |
| **Item 1.**       | ** ** | **Condensed  Consolidated Financial Statements (unaudited)**                                                                       |       |                 |
|              |       |                                                                                                                               |       |                 |
| ** **        | ** ** | **Condensed  Consolidated Balance Sheets at September 30, 2010 (unaudited) and  December 31, 2009**                      | ** ** | **3**                |
|              |       |                                                                                                                               |       |                 |
|              | ** ** | **Condensed  Consolidated Statements of Income for the three and nine months ended  September 30, 2010 and 2009 (unaudited)** | ** ** | **4**                |
|              |       |                                                                                                                               |       |                 |
|              | ** ** | **Condensed Consolidated Statements of Cash Flows for  the nine months ended September 30, 2010 and 2009 (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**                                                                    | ** ** | **17**               |
|              |       |                                                                                                                               |       |                 |
| **Item 4T.**      | ** ** | **Controls and  Procedures**                                                                                                       | ** ** | **17**               |
|              |       |                                                                                                                               |       |                 |
| **Part II.** | ** ** | **Other Information**                                                                                                              | ** ** | **18**               |
| ** **        | ** ** | ** **                                                                                                                         | ** ** | ** **           |
| **Item 1.**       | ** ** | **Legal Proceedings**                                                                                                              | ** ** | **18**               |
| **Item 1A.**      | ** ** | **Risk Factors**                                                                                                                   | ** ** | **18**               |
| **Item 2.**       | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                                                   | ** ** | **18**               |
| **Item 3.**       | ** ** | **Defaults  Upon Senior Securities**                                                                                               | ** ** | **18**               |
| ** **        | ** ** | ** **                                                                                                                         | ** ** | ** **           |
| **Item 5.**       | ** ** | **Other Information**                                                                                                              | ** ** | **18**               |
| **Item 6.**       | ** ** | **Exhibits**                                                                                                                       | ** ** | **18**               |
| ** **        | ** ** | ** **                                                                                                                         | ** ** | ** **           |
| **Signatures**    | ** ** | **19**                                                                                                                             |

 

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**Summer Infant, Inc. and Subsidiaries**

**Condensed Consolidated Balance Sheets**

 

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

 
| ** **                                                                                      | ** ** | **September 30,********2010** | ** ** | **December 31,********2009** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                      | ** ** | **Unaudited**                      | ** ** | ** **                        | ** ** |
| ASSETS                                                                                          |       |                               |       |                              |       |
|                                                                                            |       |                               |       |                              |       |
| CURRENT  ASSETS                                                                                 |       |                               |       |                              |       |
|                                                                                            |       |                               |       |                              |       |
| Cash  and cash equivalents                                                                      |       | $                                  | 1,263      |                              | $          | 932 |   |
| Trade  receivables, net of allowance for doubtful accounts                                      |       | 42,628                             |       | 32,520                            |       |
| Inventory,  net                                                                                 |       | 45,832                             |       | 32,012                            |       |
| Prepaids  and other current assets                                                              |       | 3,658                              |       | 3,566                             |       |
| TOTAL  CURRENT ASSETS                                                                           |       | 93,381                             |       | 69,030                            |       |
| Property  and equipment, net                                                                    |       | 14,614                             |       | 11,486                            |       |
| Goodwill                                                                                        |       | 45,820                             |       | 45,496                            |       |
| Other  intangible assets, net                                                                   |       | 14,982                             |       | 15,704                            |       |
| Other  assets                                                                                   |       | 185                                |       | 237                               |       |
| TOTAL  ASSETS                                                                                   |       | $                                  | 168,982    |                              | $          | 141,953 |   |
|                                                                                            |       |                               |       |                              |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                      |       |                               |       |                              |       |
|                                                                                            |       |                               |       |                              |       |
| CURRENT  LIABILITIES                                                                            |       |                               |       |                              |       |
|                                                                                            |       |                               |       |                              |       |
| Accounts  payable and accrued expenses                                                          |       | $                                  | 37,060     |                              | $          | 29,966 |   |
| Current  portion of long term debt                                                              |       | 1,704                              |       | 2,663                             |       |
| TOTAL  CURRENT LIABILITIES                                                                      |       | 38,764                             |       | 32,629                            |       |
| Long  term debt, less current portion                                                           |       | 47,249                             |       | 31,780                            |       |
| Other  liabilities, including deferred taxes                                                    |       | 7,525                              |       | 8,564                             |       |
| TOTAL  LIABILITIES                                                                              |       | 93,538                             |       | 72,973                            |       |
|                                                                                            |       |                               |       |                              |       |
| COMMITMENTS  AND CONTINGENCIES (Note 6)                                                         |       |                               |       |                              |       |
|                                                                                            |       |                               |       |                              |       |
| STOCKHOLDERS’  EQUITY                                                                      |       |                               |       |                              |       |
| Common  Stock $.0001 par value, issued and outstanding 15,437,477 and 15,356,727,  respectively |       | 1                                  |       | 1                                 |       |
| Additional  paid in capital                                                                     |       | 55,840                             |       | 55,342                            |       |
| Retained  earnings                                                                              |       | 19,935                             |       | 13,903                            |       |
| Accumulated  other comprehensive loss                                                           |       | (332                               | )          | (266                              | )          |
|                                                                                            |       |                               |       |                              |       |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                |       | 75,444                             |       | 68,980                            |       |
|                                                                                            |       |                               |       |                              |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                |       | $                                  | 168,982    |                              | $          | 141,953 |   |

 

See notes to condensedconsolidated financial statements

 

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**Summer Infant, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Income(unaudited)**

 

Note that all dollar amountspresented in the table below are in thousands of US dollars except share andper share amounts.

 
| ** **                                        | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                        | ** ** | **September 30,**                             | ** ** | **September 30,**                            | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                        | ** ** | **2010**                                           | ** ** | **2009**                                          | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                        | ** ** | ** **                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  revenues                                     |       | $                                                  | 49,800     |                                              | $          | 40,984 |   | $ | 143,399 |   | $ | 114,194 |   |
| Cost  of goods sold                               |       | 31,854                                             |       | 26,080                                            |       | 90,022 |   | 74,016 |   |
| Gross  profit                                     |       | 17,946                                             |       | 14,904                                            |       | 53,377 |   | 40,178 |   |
| Selling,  general and administrative expenses (a) |       | 14,762                                             |       | 11,879                                            |       | 43,864 |   | 33,334 |   |
| Net  operating income                             |       | 3,184                                              |       | 3,025                                             |       | 9,513 |   | 6,844 |   |
| Interest  expense, net                            |       | (454                                               | )          | (232                                              | )          | (1,135 | ) | (1,128 | ) |
| Income  before provision for income taxes         |       | 2,730                                              |       | 2,793                                             |       | 8,378 |   | 5,716 |   |
| Income  tax expense                               |       | 652                                                |       | 838                                               |       | 2,346 |   | 1,715 |   |
| NET  INCOME                                       |       | $                                                  | 2,078      |                                              | $          | 1,955 |   | $ | 6,032 |   | $ | 4,001 |   |
|                                              |       |                                               |       |                                              |       |   |   |   |   |
| NET  INCOME PER SHARE - BASIC                     |       | $                                                  | 0.14       |                                              | $          | 0.13 |   | $ | 0.39 |   | $ | 0.26 |   |
| Weighted  average shares outstanding - basic      |       | 15,437,477                                         |       | 15,319,546                                        |       | 15,429,225 |   | 15,198,042 |   |
|                                              |       |                                               |       |                                              |       |   |   |   |   |
| NET  INCOME PER SHARE - DILUTED                   |       | $                                                  | 0.13       |                                              | $          | 0.12 |   | $ | 0.37 |   | $ | 0.26 |   |
| Weighted  average shares outstanding- diluted     |       | 16,524,547                                         |       | 16,009,543                                        |       | 16,360,771 |   | 15,607,590 |   |

 

See notes to condensedconsolidated financial statements.

 

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(a) Includes non-cashstock-based compensation expense of $498 and $632 for the nine months endedSeptember 30, 2010 and 2009, respectively, and expense of $159 and $133for the three months ended September 30, 2010 and 2009, respectively.  The total includes non-capitalized deal costsof $215 for the nine months ended September 30, 2009.

 

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**Summer Infant, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Cash Flows**

 

Note that all dollar amountspresented in the table below are in thousands of US dollars.

 
| ** **                                                                        | ** ** | **Unaudited********For the nine months ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **September 30,********2010**                                 | ** ** | **September 30,********2009** | ** ** |
|                                                                              |       |                                                               |       |   |   |
| Cash  flows from operating activities:                                            |       |                                                               |       |   |   |
| Net  income                                                                       |       | $                                                                  | 6,032      |   | $ | 4,001 |   |
| Adjustments  to reconcile net income to net cash used in operating activities     |       |                                                               |       |   |   |
| Depreciation  and amortization                                                    |       | 3,813                                                              |       | 3,043 |   |
| Non-cash  stock option expense                                                    |       | 498                                                                |       | 632 |   |
| Deferred  Taxes                                                                   |       | —                                                             |       | 63 |   |
| Change  in value of interest rate swap agreements                                 |       | (332                                                               | )          | (211 | ) |
| Changes  in assets and liabilities net of effects of acquisition:                 |       |                                                               |       |   |   |
| (Increase)  in accounts receivable                                                |       | (10,626                                                            | )          | (5,555 | ) |
| (Increase)  in inventory                                                          |       | (14,410                                                            | )          | 3,703 |   |
| Increase  in accounts payable and accrued expenses                                |       | 6,144                                                              |       | 838 |   |
| (Increase  in prepaids and other current assets                                   |       | (15                                                                | )          | 139 |   |
| Decrease  in other assets                                                         |       | 52                                                                 |       | 27 |   |
| Net  cash provided by (used in) operating activities                              |       | (8,844                                                             | )          | 6,680 |   |
| Cash  flows from investing activities:                                            |       |                                                               |       |   |   |
| Acquisitions  of property and equipment                                           |       | (6,542                                                             | )          | (2,633 | ) |
| Acquisitions,  net of cash aquired                                                |       |                                                               |       | (74 | ) |
| Net  cash used in investing activities                                            |       | (6,542                                                             | )          | (2,707 | ) |
| Cash  flows from financing activities:                                            |       |                                                               |       |   |   |
| Net  borrowings (repayments) on debt and other long-term liabilities              |       | 14,939                                                             |       | (6,156 | ) |
| Proceeds  from sale of building                                                   |       | —                                                             |       | 3,903 |   |
| Net  cash provided by (used in) financing activities                              |       | 14,939                                                             |       | (2,253 | ) |
| Effect  of exchange rate changes on cash and cash equivalents                     |       | 778                                                                |       | 7 |   |
| NET  INCREASE IN CASH AND CASH EQUIVALENTS                                        |       | 331                                                                |       | 1,727 |   |
| CASH  AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                   |       | 932                                                                |       | 988 |   |
| CASH  AND CASH EQUIVALENTS, END OF PERIOD                                         |       | $                                                                  | 1,263      |   | $ | 2,715 |   |
| Non  cash investing activities:                                                   |       |                                                               |       |   |   |
| Building  related finance obligation                                              |       | $                                                                  | —     |   | $ | 3,903 |   |
|                                                                              |       |                                                               |       |   |   |
| Cash  paid for interest                                                           |       | $                                                                  | 1,412      |   | $ | 1,263 |   |
|                                                                              |       |                                                               |       |   |   |
| Cash  paid for taxes                                                              |       | $                                                                  | 1,245      |   | $ | 541 |   |
|                                                                              |       |                                                               |       |   |   |
| Issuance  of common stock in conjunction with the acquisition of Butterfly Living |       |                                                               |       | $ | 461 |   |
|                                                                              |       |                                                               |       |   |   |
| Assets  acquired under capital lease obligation                                   |       | $                                                                  | 286        |   | $ | 271 |   |

 

See notes to condensedconsolidated financial statements.

 

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**SUMMER INFANT, INC.  AND SUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

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

 

The accompanying interimcondensed consolidated financial statements of Summer Infant, Inc. (the “Company”)are unaudited but, in the opinion of management, reflect all adjustments,consisting of normal recurring accruals, necessary for a fair presentation ofthe results for the interim periods. Accordingly, they do not include allinformation and notes required by generally accepted accounting principles forcomplete financial statements. The results of operations for interim periodsare not necessarily indicative of results to be expected for the entire fiscalyear or any other period. The balance sheet at December 31, 2009 has beenderived from the audited financial statements at that date but does not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States of America for complete financialstatements. These interim consolidated financial statements should be read inconjunction with the Company’s consolidated financial statements and notes forthe year ended December 31, 2009 filed on Form 10-K on March 10,2010.

 

All significant intercompanyaccounts and transactions have been eliminated in the condensed consolidatedfinancial statements.

 

*Incometaxes*

 

The provision for incometaxes is based on the Company’s estimated annualized effective tax rate for theyear.

 

Income taxes are computedusing the asset and liability method of accounting. Under the asset andliability method, a deferred tax asset or liability is recognized for estimatedfuture tax effects attributable to temporary differences and carryforwards. Themeasurement of deferred income tax assets is adjusted by a valuation allowance,if necessary, to recognize future tax benefits only to the extent, based onavailable evidence, it is more likely than not such benefits will berealized.  The Company recognizes interest and penalties, if any, relatedto uncertain tax positions in selling, general and administrativeexpenses.  No interest and penalties related to uncertain tax positionswere accrued at September 30, 2010 or 2009. The tax years 2006 through2009 remain open to examination by the major taxing jurisdictions. The Companyexpects no material changes to unrecognized tax positions within the nexttwelve months.

 

*Use ofEstimates*

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect certain reported amounts and disclosures. Accordingly, actualresults could differ from those estimates.

 

*Net IncomePer Share*

 

Basic earnings per share forthe Company are computed by dividing net income by the weighted-average numberof shares of common stock outstanding during the period. Diluted earnings pershare includes the dilutive impact of outstanding stock options and unvestedrestricted shares.

 

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

 

On August 2, 2010, the Companyentered into a secured credit facility (the “Loan Agreement”) with Bank ofAmerica, N.A., as Administrative Agent, and each of the financial institutionsthat were a signatory to the Loan Agreement.  The Loan Agreement providesfor a $60,000,000 working capital revolving credit facility and a $10,000,000 “accordionfeature” which would allow up to $70,000,000 in total borrowings.  Thecredit facilities mature on June 30, 2012.  The Company and itssubsidiaries, Summer Infant (USA), Inc., Summer Infant Europe Limited,Summer Infant Asia Limited and Summer Infant Canada, Limited are the borrowersunder this Loan Agreement.

 

The Company’s ability toborrow under the Loan Agreement is subject to its ongoing compliance with a numberof financial and other covenants, including the following: (i) that theCompany and its subsidiaries achieve EBITDA of at least $15 million on atrailing 12 month basis which escalates to $17 million by the end of the loandeal, (ii) that the Company and its subsidiaries maintain a ratio of totalfunded debt to EBITDA of not greater than 3.25:1.00, and (iii) that theCompany and its subsidiaries maintain a ratio of operating cash flow to debtservice of not less than 1.50:1.00.

 

The credit facility bearsinterest at a floating rate based on the highest for any day of (a) the FederalFunds Rate as published by the Federal Reserve Bank of New York plus half of1%, (b) the rate of interest in effect for such day as publicly announced fromtime to time by Bank of America as its “prime rate”, and (c) the Eurodollarrate plus 2.00%.  As of September 30,2010, the blended interest rate for this credit facility was 3.3%. In addition,these credit facilities have an unused line fee based on the unused amount ofthe credit facilities equal to 25 basis points.  The total amountoutstanding on these facilities at September 30, 2010 was $47,000,000.  There are no minimum payments required andthe facility does not come due until June 30, 2012, therefore the entireoutstanding balance is classified as long term.

 

The Loan Agreement alsocontains customary events of default, including a cross default provision and achange of control provision.  In the event of a default, all of theobligations of the Company and its subsidiaries under the Loan Agreement may bedeclared immediately due and payable.  For certain events of defaultrelating to insolvency and receivership, all outstanding obligations become dueand payable.  The Company was incompliance with all covenants at September 30, 2010.

 

During 2009, the Companyinitiated an agreement to borrow against certain internationalreceivables.  Approximately $1,405,000 relating to this agreement isincluded in current portion of long-term debt at September 30, 2010.

 

3.**FAIR VALUE MEASUREMENTS**

 

Effective January 1,2008, the Company adopted the new standard regarding fair value whichestablishes a new framework for measuring fair value and expands relateddisclosures. Broadly, the framework requires fair value to be determined basedon the exchange price that would be received for an asset or paid to transfer aliability (an exit price) in the principal or most advantageous market for theasset or liability in an orderly transaction between market participants. Thestandard established a three-level valuation hierarchy based upon observableand non-observable inputs.

 

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

 

Level 1—Quoted pricesfor identical instruments in active markets.

 

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

 

Level 3—Significantinputs to the valuation model are unobservable.

 

The Company maintainspolicies and procedures to value instruments using the best and most relevantdata available. In addition, the Company utilizes risk management resourcesthat review valuation, including independent price validation. Management

 

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concludes there has been nomaterial change in the Company’s credit risk nor that of Bank of America andtherefore the valuation of the liability is reasonable.

 

The Company recognizes thefair value of interest rate swaps using Level 2 inputs (see below).

 

**4. DERIVATIVE INSTRUMENTS**

 

The Company is exposed tointerest rate risk primarily through its borrowing activities.  TheCompany’s long-term debt is a variable rate instrument.  The Companyentered into three interest rate swap contracts under which the Company agreedto pay an amount equal to a specified fixed rate of interest times a notionalprincipal amount, and to in turn receive an amount equal to a specifiedvariable rate of interest times the same notional principal amount.

 

The Company uses derivativesto fix interest rates. As a matter of policy, the Company does not usederivatives for speculative purposes. This is a requirement in the Company’sloan agreement to mitigate interest rate risk.

 

The interest rate swapcontracts require payment of a fixed rate of interest and the receipt of avariable rate of interest at the LIBOR one month index rate plus 200-250 basispoints on a notional amount of indebtedness.

 
| ** ** | ** ** | **Rate** | ** ** | **Notional Amt** | ** ** | **Effective Date** | ** ** | **Maturity Date** | ** ** | **Mark-to-Market  At September 30, 2010** | ** ** |
|------------|------------|----------|------------|-----------------------|------------|-------------------------|------------|------------------------|------------|-------------------------------------------|------------|
| Swap  1    |       | 7.06     | %          | 3,671,231             |       | June 21, 2007           |       | June 7, 2012           |       | $                                         | (326,323   | ) |
| Swap  2    |       | 3.50     | %          | 6,000,000             |       | May 12, 2008            |       | April 8, 2011          |       | $                                         | (117,315   | ) |
| Swap  3    |       | 2.92     | %          | 10,000,000            |       | November 3, 2008        |       | November 1, 2010       |       | $                                         | (45,104    | ) |
|       |       |     |       |                  |       |                    |       |                   |       | $                                         | (488,742   | ) |

 

As of September 30, 2010 thefair value of the swaps now reflects a liability of approximately $489,000,which is included in “other liabilities” on the accompanying condensedconsolidated balance sheet. The change in fair value of the swap liability isrecorded in “interest expense-net”. The interest rate swaps are not accountedfor as hedges.

 

The notional amounts underthe interest rate swap agreements total approximately $20 million, whichis approximately 42% of the Company’s total outstanding bank debt at September30, 2010.

 

**5.****                        ****REAL ESTATETRANSACTION**

 

On March 24, 2009 theCompany entered into a definitive agreement with Faith Realty II, LLC, a RhodeIsland limited liability company (“Faith Realty”) (the members of which areJason Macari, the current Chairman and CEO of the Company, and his spouse),pursuant to which Faith Realty purchased the corporate headquarters of theCompany located at 1275 Park East Drive, Woonsocket, Rhode Island (the “Headquarters”)and subsequently leased the Headquarters back to Summer USA (collectively, the “Transactions”). Pursuant to the terms of a Purchase and Sale Agreement between Summer USA andFaith Realty, dated as of March 24, 2009, Faith Realty purchased theHeadquarters for $4,052,500 and then leased the Headquarters back to Summer USAfor an annual rent of $390,000 during the initial seven year term of thelease, payable monthly and in advance.  The lease will expire on theseventh anniversary of its commencement unless an option period is exercised bySummer USA.  At that time, Summer USA will have the opportunity to extendthe lease for one additional period of five years.  If SummerUSA elects to extend the term of the lease for an additional five years,the annual rent for the first two years of the extension term shall beequal to $429,000 and for the final three years of the extension termshall be equal to $468,000.  In addition, during the first six months ofthe last lease year of the initial term of the lease Summer USA has the optionto 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 to secure theFaith Realty debt on its mortgage; therefore, due to his continuing involvementin the building transaction and the Company’s option to repurchase thebuilding, the building remains on the books of the Company and the transactionhas been recognized as a financing, with no gain recognized.  The Companyalso has recorded a finance obligation under other liabilities in regards tothis transaction; the outstanding liability at September 30, 2010 was$3,683,000 of which $139,000 is current and $3,544,000 is long term.

 

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

 

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

 

In addition, the Company’sAudit Committee approved the Transactions (as a related party transaction) andthe potential waiver and recommended the matter to a vote of the entire Boardof Directors.

 

6.                          **COMMITMENTS AND CONTINGENCIES**

 

*Litigation*

 

The Company is a party toroutine litigation and administrative complaints incidental to its business. Management does not believe that the resolution of any or all of suchroutine litigation and administrative complaints is likely to have a materialadverse effect on the Company’s financial condition or results of operations.

 

*Contingencies*

 

On September 29, 2010 theU.S. Consumer Product Safety Commission and the U.S. Food and DrugAdministration issued a blanket warning related to all infant sleeppositioners. The Company has had no reported injuries from its line of sleeppositioners, however it has stopped production of these products and iscooperating with retailers who request product returns. The Company is stillevaluating its exposure while at the same time working closely with suppliersto minimize any financial impact. The Company will record any potentialone-time charge in the fourth quarter of 2010 once all relevant information hasbeen analyzed. Net sales of sleep positioners are projected to be less than 1%of full year 2010 sales.

 

7.                          **STOCK OPTIONS AND RESTRICTED SHARES**

 

Summer has granted stockoptions under its 2006 Performance Equity Plan (“2006 Plan”).  Under the2006 Plan, awards may be granted to participants in the form of Non-QualifiedStock Options, Incentive Stock Options, Restricted Stock, Deferred Stock, StockReload Options and other stock-based awards.  Subject to the provisions ofthe plan, awards may be granted to employees, officers, directors, advisors andconsultants who are deemed to have rendered or are able to render significantservices to us or our subsidiaries and who are deemed to have contributed or tohave the potential to contribute to our success. The Company has issuedboth stock options and restricted shares to employees and board members.

 

Share-based compensationexpense for the nine months ended September 30, 2010 and 2009 was approximately$498,000 and $632,000, respectively, and for the 3 months ended September 30,2010 and 2009 was $159,000 and $133,152 respectively.  As of September 30,2010, there were 2,167,600 stock options outstanding and 158,500 unvestedrestricted shares outstanding. During the three months ended September 30, 2010the Company granted 28,000 stock options to employees.

 

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

*The statements contained in this Form 10-Q, that arenot purely historical, are forward-looking information and statements withinthe meaning of Section 27A of the Securities Act of 1933 andSection 21E of the Securities Exchange Act of 1934. These includestatements regarding our expectations, intentions, or strategies regardingfuture matters, such as our ability to create new product categories, increaseour customer base, and achieve expected growth in sales. All forward-lookingstatements included in this document are based on information available to uson the date hereof. It is important to note that our actual results coulddiffer materially from those projected in such forward-looking statementscontained in this Form 10-Q. The forward-looking statements containedherein are based on current expectations that involve numerous risks anduncertainties.  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; the Company’s ability to meet its debt obligations; andother risks as detailed in the Company’s Annual Report on Form 10-K forthe fiscal year ended December 31, 2009, and subsequent filings with theSecurities and Exchange Commission All these matters are difficult orimpossible to predict accurately, and many of which may be beyond our control.Although we believe that the assumptions underlying our forward-lookingstatements are reasonable, any of the assumptions could be inaccurate and,therefore, there can be no assurance that the forward-looking statementsincluded in this Form 10-Q will prove to be accurate.*

 

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

 

The following discussion isintended to assist in the assessment of significant changes and trends relatedto the results of operations and financial condition of SummerInfant, Inc. This discussion and analysis should be read in conjunctionwith our consolidated financial statements and notes thereto included herein.

 

*Summary ofcritical accounting policies and estimates*

 

Our critical accountingpolicies are disclosed in the Company’s Annual Report on Form 10-K.  Form10-Q “GAAP” refers to generally accepted accounting principles.  There have been no material changes to thesepolicies during the first nine months of 2010. This summary of criticalaccounting policies is presented to assist in understanding our condensedconsolidated financial statements. The condensed consolidated financialstatements and notes are representations of management, which is responsiblefor their integrity and objectivity. These accounting policies conform toaccounting

 

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principles generallyaccepted in the United States of America and have been consistently applied inthe preparation of the consolidated financial statements.

 

We make certain estimatesand assumptions that affect the reported amounts of assets and liabilities andthe reported amounts of revenues and expenses. Some of these policies includesignificant estimates made by management using information available at thetime the estimates were made. However, these estimates could change materiallyif different information or assumptions were used.

 

*Incometaxes*

 

Effective January 1,2007, we adopted the provisions of new accounting guidance which providesdetailed guidance for the financial statement recognition, measurement anddisclosure of uncertain tax positions recognized in the financial statements.Tax positions must meet a “more-likely-than-not” recognition threshold at theeffective date to be recognized upon adoption and in subsequent periods. Uponadoption, we had no unrecognized 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 recognizes interest and penalties, if any, relatedto uncertain tax positions in selling, general and administrativeexpenses.  No interest and penalties related to uncertain tax positionswere accrued at September 30, 2010 or 2009. The tax years 2006 through 2009remain open to examination by the major taxing jurisdictions. We do not expectany material changes to unrecognized tax positions within the next twelvemonths.

 

**CompanyOverview**

 

Summer is a designer,marketer, and distributor of branded juvenile health, safety and wellnessproducts which are sold principally to large North American and UKretailers.  We currently have more than 100 proprietary products in variousproduct categories including nursery audio/video monitors, safety gates,durable bath products, bed rails, cribs, and a variety of other categories.  Our business has grown organically in all ofits markets.  We derive revenue from thesale of health, safety and wellness products for infants and toddlers, which isdriven by our ability to design and market desirable products, identifybusiness opportunities and secure new and renew existing distribution channels.  Our income from operations is derived fromour ability to generate revenue and collect cash in excess of labor and othercosts of providing our products and selling, general and administrative costs.

 

Our strategy is to grow salesthrough a variety of methods, including:

 

·                     Increased productpenetration (more products at each store);

 

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

 

·                     New products (at existingand new customers);

 

·                     New mass merchant retailcustomers;

 

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

 

·                     New geographies(international expansion);

 

·                     New product categories; and

 

·                     Acquisitions.

 

Historically, we have beenable to grow our annual revenues significantly through a combination of all ofthe above factors. Each year we have been able to expand the number of productsinto our main distribution channel, mass merchant retailers, and have alsoadded new customers each year. Therefore, even without new product introductions,we could continue to grow our business by simply selling more of our existingproduct line to existing customers.

 

For 2010 and beyond, ourgrowth strategy is to continue to develop and sell new products to our existingcustomer base, sell new and existing products to new customers (or expandrelationships with existing customers), and to expand in the UK and in othergeographic regions (including Japan, Mexico and Australia, among others).

 

Our growth strategy hasincluded, and will continue to include, strategic acquisitions.

 

On March 31, 2008, weacquired substantially all of the assets of Basic Comfort, Inc., a leadingmanufacturer and supplier of infant comfort and safety products, includinginfant sleep positioners, infant head supports and portable changing pads.

 

On April 18, 2008, weacquired Kiddopotamus & Company, a leading manufacturer and supplierof infant nursery, travel and feeding accessories.

 

On July 17, 2009 we acquiredButterfly Living, Inc., a manufacturer of cribs and related nursery furniture.

 

We intend to pursueadditional potential acquisitions in order to obtain new innovative products,new product categories, new retail customers or new sales territories. There are approximately 400 active juvenile product companies, of whichapproximately 300 have less than $10,000,000 in sales. In addition, there arevarious product categories that we do not currently compete in, including carseats, strollers, walkers, feeding, and other categories. We may look todevelop our own products in these categories or attempt to gain entrance intothese categories through acquisitions.

 

As we continue to growthrough internal initiatives and potential future acquisitions, we will incuradditional expenses. Two key areas in which such increased expenses will likelyoccur are sales and product development. To grow sales, we will likely hireadditional sales personnel to service new geographic territories, focus existingresources on specific parts of the United States market and retain product linespecialists to drive sales of new and existing products in specific areas inwhich we believe we can readily increase sales. Product development expenseswill increase as we develop new products in existing and new categories. As aresult of our acquisition strategy, we 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, including expenditures with respectto upgraded and expanded information systems and enhancing the Company’smanagement team.

 

*Sales*

 

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

 

Over 90% of sales arecurrently made to customers in North America. Sales are made utilizing standardcredit terms of 30 to 90 days. We generally accept returns only for defectivemerchandise.

 

*Cost ofgoods sold and other expenses*

 

Our products aremanufactured by third parties, with approximately 80-85% of the dollar value ofproducts being manufactured in China and the majority of the balance beingmanufactured in the United States and other countries.  Cost of goods soldprimarily represents purchases of finished products from these third partymanufacturers. The remainder of cost of goods sold includes toolingdepreciation, freight-in from suppliers and miscellaneous charges from contractmanufacturers. Substantially all of our purchases are made in US dollars,therefore most of this activity is not subject to currency fluctuations. If oursuppliers experience increased raw materials, labor or other costs and passalong such cost increases through higher prices for finished goods, our costsof sales would increase, and to the extent the Company is unable to pass suchprice increases along to our customers, gross margins would decrease.

 

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

 

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

 

**Results ofOperations**

 

**Summer Infant, Inc. and Subsidiaries**

**Condensed****Consolidated Statements of Income**

**For the Three and Nine Months Ending September 30, 2010and 2009**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                                                     | ** ** | **Three Months********Ended September 30,********2010** | ** **   | **Three Months********Ended September 30,********2009** | ** ** | **Nine Months Ended********September 30, 2010** | ** ** | **Nine Months Ended********September 30, 2009** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|--------------|------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
|                                                                                                                           |       |                                                                   |         |                                                                   |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Net  Sales                                                                                                                     |       | $                                                                      |  49,800 |                                                                   | 100.0      | %                                                                   | $          |  40,984                                                        |       | 100.0 | % | $ |  143,399 |   | 100.0 | % | $ |  114,194 |   | 100.0 | % |
| Cost  of Goods Sold                                                                                                            |       | 31,854                                                                 |         | 63.9                                                                   | %          | 26,080                                                              |       | 63.6                                                                | %          | 90,022 |   | 62.8 | % | 74,016 |   | 64.8 | % |
| Gross  Profit                                                                                                                  |       | 17,946                                                                 |         | 36.1                                                                   | %          | 14,904                                                              |       | 36.4                                                                | %          | 53,377 |   | 37.2 | % | 40,178 |   | 35.2 | % |
| OPERATING  EXPENSES                                                                                                            |       |                                                                   |         |                                                                   |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Selling,  general and administrative expenses (excluding depreciation, amortization,  and non-cash stock compensation expense) |       | 13,189                                                                 |         | 26.5                                                                   | %          | 10,517                                                              |       | 25.7                                                                | %          | 39,469 |   | 27.5 | % | 29,444 |   | 25.8 | % |
|                                                                                                                           |       |                                                                   |         |                                                                   |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Adjusted  EBITDA(a)                                                                                                            |       | $                                                                      |  4,757  |                                                                   | 9.5        | %                                                                   | $          |  4,387                                                         |       | 10.7 | % | $ |  13,908 |   | 9.7 | % | $ |  10,734 |   | 9.4 | % |

 

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(a)             See non-GAAP discussionbelow regarding the computation of Adjusted EBITDA.

 

*Threemonths ended September 30, 2010 compared with three months endedSeptember 30, 2009*

 

Net sales increased from$40,984,000 in the three months ended September 30, 2009 to $49,800,000for the three months ended September 30, 2010, an increase of approximately22%. This sales increase was primarily attributable to increased distributionof our products throughout our customer base, plus new productintroductions.  Increases were noted in most of the Company’s significantcustomers.

 

Gross profit increased from$14,904,000 for the three months ended September 30, 2009 to $17,946,000for the three months ended September 30, 2010.  The gross profit as apercentage of sales decreased to 36.1% from 36.4% in the prior year. Thedecrease as a percentage of sales is due to commodity price increases during2010.

 

Selling, general andadministrative expenses (excluding depreciation, amortization and non-cashstock compensation expense) increased from $10,518,000 for the three monthsended September 30, 2009 to $13,188,000 for the three months endedSeptember 30, 2010. This increase was primarily attributable to increasesin headcount, higher variable selling expenses due to the increase in sales,and costs associated with the opening of new distribution centers to supportthe increase in sales.  Selling, general and administrative expensesincreased to 26.5% of net sales in the three months ended September 30,2010 from 25.7% of net sales in the three months ended September 30, 2009.

 

Adjusted EBITDA (as defined)increased from $4,387,000 for the three months ended September 30, 2009 to$4,754,000 for the three months ended September 30, 2010, an increase ofapproximately 8%. Net income increased from $1,955,000 for the 3 months endedSeptember 30, 2009 to $2,078,000 for the 3 months ended September 30, 2010, anincrease of approximately 6.3%. This increase was primarily attributable to theincreased sales and gross profit dollars as described above.

 

*Ninemonths ended September 30, 2010 compared with nine months endedSeptember 30, 2009*

 

Net sales increased from$114,194,000 in the nine months ended September 30, 2009 to $143,399,000for the nine months ended September 30, 2010, a 26% increase. This salesincrease was primarily attributable to increased distribution of our productsthroughout our customer base, plus new product introductions.  Increaseswere noted in most of the Company’s significant customers.

 

Gross profit increased from$40,178,000 for the nine months ended September 30, 2009 to $53,377,000 orthe nine months ended September 30, 2010.  The gross profit as apercentage of sales increased to 37.2% from 35.2% in the prior year. Theincrease as a percentage of sales is due to cost reductions achieved during thesecond half of 2009, which resulted in significant improvements in margin forthe first half of 2010.

 

Selling, general andadministrative expenses (excluding depreciation, amortization and non-cashstock compensation expense) increased from $29,444,000 for the nine monthsended September 30, 2009 to $39,469,000 or the nine months endedSeptember 30, 2010. This increase was primarily attributable to increasesin headcount and higher variable selling expenses due to the increase in sales,and costs associated with the opening of new distribution centers to supportthe increase in sales.  Selling, general and administrative expensesincreased to 27.5% of net sales in the nine months ended September 30,2010 from 25.8% of net sales in the nine months ended September 30, 2009.

 

Adjusted EBITDA increasedfrom $10,734,000 for the nine months ended September 30, 2009 to equal tothe $13,908,000 for the nine months ended September 30, 2010, an increase ofapproximately 30%. Net income increased from $4,001,000 for the 9 months endedSeptember 30, 2009 to $6,032,000 for the 9 months ended September 30, 2010, anincrease of approximately 50.8%. This increase was primarily attributable tothe increased sales and gross profit dollars as described above.

 

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**Liquidityand Capital Resources**

 

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

 

Our sales have increasedsignificantly over the past several years. This sales growth has led to asubstantial increase in working capital requirements, specifically tradereceivables and inventory. The typical cash flow cycle is as follows:

 

·                  Inventory ispurchased to meet expected demand plus a safety stock. Since the majority of ourvendors are based in Asia, inventory takes from four to six weeks to arrivefrom Asia to the various distribution points we maintain in the US and the UK.Payment terms for these vendors average 60 days from the date the product shipsfrom Asia, therefore we are generally paying for the product a short time afterit is physically received in the US. The increased sales that we experienceresult in increased levels of inventory, and therefore an increase in theamount of cash required to fund our inventory level.

 

·                  Sales tocustomers generally have payment terms of 30 to 60 days. The increased saleshave resulted in an increase in the level of accounts receivable, and thereforehave increased the amount of cash required to fund working capital.

 

We have traditionally beenable to fund our increased working capital through asset-based lines of creditwith banks. The lenders generally follow a borrowing base formula that allowsadvances based on the levels of accounts receivable and inventory.

 

The majority of our capitalexpenditures are for tools related to new product introductions. We receiveindications from retailers generally around the middle of each year as to whatproducts the retailer will be taking into its product line for the upcomingyear. Based on these indications, we will then acquire the tooling required tobuild the products. The majority of these expenditures are therefore made inthe third and fourth quarters of each year so that initial shipments of productscan be made in December and January (the typical time frame for newproduct shipments). In most cases the payments for the tools are spread outover a three to four month period.

 

For the nine months endedSeptember 30, 2010, net cash used in operating activities was$7,901,000.  This was primarily due to increases in trade receivables andinventory, which is a direct result of the significant increase in revenues.

 

Net cash used in investingactivities was $6,546,000, which primarily relates to the purchase of toolingused in the manufacturing process, spending related to a new distributioncenter and other additions to property, plant and equipment.

 

Net cash provided byfinancing activities was $14,510,000, which relates to borrowings on the lineof credit to fund working capital increases and capital spending.

 

Based on the above factors,the net cash increase for the nine months ended September 30, 2010 was$331,000, resulting in a cash balance of $1,263,000 at September 30, 2010.

 

Our strategy for funding ourbusiness going forward is a combination of increased profitability, and ifnecessary, negotiation of increased borrowing lines as required withtraditional lenders.

 

On August 2, 2010, weentered into a secured credit facility (the “Loan Agreement”) with Bank ofAmerica, N.A., as Administrative Agent, and each of the financial institutionsa signatory to the Loan Agreement.  The Loan Agreement provides for a$60,000,000 working capital revolving credit facility and a $10,000,000 “accordionfeature” which brings the total borrowing capacity to $70 million.  Thecredit facilities mature on June 30, 2012.

 

The Company and itssubsidiaries, Summer Infant (USA), Inc. Summer Infant Europe Limited,Summer Infant Asia Limited and Summer Infant Canada, Limited are the borrowersunder this Loan Agreement.  This facility is secured by all assets of

 

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the Company and itssubsidiaries.  These credit facilities replace our prior line of credit, andare being used principally to fund growth opportunities and for working capitalpurposes.

 

We believe that cash on handand our current banking facilities are sufficient to fund our cash requirementsfor at least the next 12 months. However, unforeseen circumstances, such assoftness in the retail industry or deterioration in the business of asignificant customer, could create a situation where we cannot access all ofthe available lines of credit due to not having sufficient assets or AdjustedEBITDA. In addition, there is no assurance that we will meet all of our bankcovenants in the future, or that our lenders will grant waivers if there arecovenant violations.

 

**Non-GAAPDiscussion**

 

In addition to its GAAPresults, we consider non-GAAP measures of our performance. Adjusted EBITDA, asdefined below, is an important supplemental financial measure of ourperformance that is not required by, or presented in accordance with, GAAP. Asused herein, “Adjusted EBITDA” represents net income (loss) before incometaxes, interest expense, non-cash stock option expense, and depreciation andamortization. Management uses Adjusted EBITDA as a financial measure to assessthe ability of our assets to generate cash sufficient to pay interest on ourindebtedness, meet capital expenditure and working capital requirements, andotherwise meet our obligations as they become due. Management believes that thepresentation of Adjusted EBITDA provides useful information regarding ourresults of operations because it assists in analyzing and benchmarking theperformance and value of our business. The Company believes that AdjustedEBITDA is useful to stockholders as a measure of comparative operatingperformance, as it is less susceptible to variances in actual performanceresulting from depreciation and amortization and more reflective of changes inpricing decisions, cost controls and other factors that affect operating performance.

 

Adjusted EBITDA also is usedby management for multiple purposes, including:

 

·                    To calculateand support various coverage ratios with our lenders;

 

·                    To allowlenders to calculate total proceeds they are willing to loan to us based on ourrelative strength compared to other competitors; and

 

·                    to moreaccurately compare our operating performance from period to period and companyto company by eliminating differences caused by variations in capitalstructures (which affect relative interest expense), tax positions andamortization of intangibles.

 

In addition, Adjusted EBITDAis an important valuation tool used by potential investors when assessing therelative performance of a company in comparison to other companies in the sameindustry. Although we use Adjusted EBITDA as a financial measure to assess theperformance of our business, there are material limitations to using a measuresuch as Adjusted EBITDA, including the difficulty associated with using it asthe sole measure to compare the results of one company to another and theinability to analyze significant items that directly affect a company’s netincome or operating income because it does not include certain material costs,such as interest and taxes, necessary to operate its business. In addition, ourcalculation of Adjusted EBITDA may not be consistent with similarly titledmeasures of other companies and should be viewed in conjunction with measures

 

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that are computed inaccordance with GAAP. Management compensates for these limitations inconsidering Adjusted EBITDA in conjunction with its analysis of other GAAPfinancial measures, such as net income.

 

The following table presentsa reconciliation of Adjusted EBITDA to net income, its most directly comparableGAAP financial measure, on a historical basis, for the periods presented:

 

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

 
| ** **                            | ** ** | **Nine Months Ended********September 30** | ** **   |
|---------------------------------------|------------|----------------------------------------------------------|--------------|
| ** **                            | ** ** | **2010**                                                 | ** **   | **2009** | ** ** |
|                                  |       |                                                     |         |   |   |
| Net  income                           |       | $                                                        |  6,032  |   | $ |  4,001 |   |
|                                  |       |                                                     |         |   |   |
| Income  taxes                         |       | 2,346                                                    |         | 1,715 |   |
|                                  |       |                                                     |         |   |   |
| Non-cash  stock option expense        |       | 498                                                      |         | 632 |   |
|                                  |       |                                                     |         |   |   |
| Non-capitalizable  deal related costs |       | —                                                   |         | 215 |   |
|                                  |       |                                                     |         |   |   |
| Interest  expense                     |       | 1,135                                                    |         | 1,128 |   |
|                                  |       |                                                     |         |   |   |
| Depreciation  and amortization        |       | 3,897                                                    |         | 3,043 |   |
|                                  |       |                                                     |         |   |   |
| Adjusted  EBITDA, as defined          |       | $                                                        |  13,908 |   | $ |  10,734 |   |

 

ITEM 3. Quantitative andQualitative Disclosures About Market Risk.

 

Not applicable.

 

**ITEM4T.  Controls and Procedures**

 

*(a) Evaluationof Disclosure Controls and Procedures*

 

As required byRule 13a-15 under the Securities Exchange Act of 1934, as of the end ofthe period covered by this Quarterly Report, we carried out an evaluation,under the supervision and with the participation of the Chief Executive Officerand Chief Financial Officer, of the effectiveness of our disclosure controlsand procedures, as of September 30, 2010. Our Chief Executive Officer andChief Financial Officer have concluded, based on their evaluation, that the Company’scontrols and procedures were effective as of September 30, 2010.

 

*(b) Changesin Internal Control Over Financial Reporting*

 

There was no change in ourinternal 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 1.Legal Proceedings**

 

None.

 

**ITEM1A.  Risk Factors**

 

There have been no materialchanges from the risk factors previously disclosed in Part 1, Item 1A(“Risk Factors”), of our Annual Report on Form 10-K for the fiscal yearended December 31, 2009.

 

**ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds**

 

None.

 

**ITEM3.  Defaults Upon Senior Securities**

 

None.

 

**ITEM 5.Other Information**

 

None.

 

**ITEM 6.Exhibits**

 

31.1 Chief Executive OfficerCertification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2 Chief Financial OfficerCertification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

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

 

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

 

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**Signatures**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
| **Summer  Infant, Inc.** |                    |
|-------------------------------|-------------------------|
|                          |                    |
|                          |                    |
| November 10, 2010        |                    |
|                          |                    |
|                          | /s/ Jason Macari        |   |
|                          | Jason Macari            |   |
|                          | Chief Executive Officer |   |
|                          |                    |
|                          |                    |
| November 10, 2010        |                    |
|                          |                    |
|                          | /s/ Joseph Driscoll     |   |
|                          | Joseph Driscoll         |   |
|                          | Chief Financial Officer |   |

 

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