Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Under Section 13 or 15d

of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2008

 

Summer Infant, 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)

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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 mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.

Yes  o    No  x

 

As of October 29, 2008, there were 15,055,782 shares outstanding of the registrant’s Common Stock, $.0001 par value per share.

 

 

 



Table of Contents

 

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 September 30, 2008 (unaudited) and December 31, 2007

3

 

 

 

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2008 and 2007 (unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 (unaudited)

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

N/A

 

 

 

Item 4T. Controls and Procedures

18

 

 

Part II.

Other Information

19

 

 

 

Item 1.

Legal Proceedings

 

Item 1A. Risk Factors

19

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

19

Item 5. Other Information

19

Item 6. Exhibits

19

 

 

Signatures

20

 

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Table of Contents

 

Summer Infant, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

Note that all dollar amounts presented in the table below are in thousands of US dollars except share and per share amounts.

 

 

 

September 30,
2008

 

December 31,
2007

 

 

 

Unaudited

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

1,451

 

$

1,771

 

Trade receivables, net of allowance for doubtful accounts

 

29,402

 

21,245

 

Inventory, primarily finished goods

 

31,164

 

19,327

 

Prepaids and other current assets

 

1,417

 

970

 

Deferred tax assets

 

402

 

134

 

TOTAL CURRENT ASSETS

 

63,836

 

43,447

 

Property and equipment, net

 

10,407

 

9,279

 

Goodwill

 

44,723

 

30,820

 

Other intangible assets, net

 

10,906

 

9,463

 

Other assets

 

244

 

216

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

130,116

 

$

93,225

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Line of credit - bank

 

$

 

$

17,591

 

Accounts payable and accrued expenses

 

24,171

 

17,574

 

Current portion of long term liabilities

 

2,312

 

265

 

TOTAL CURRENT LIABILITIES

 

26,483

 

35,430

 

Long term liabilities, less current portion

 

41,315

 

3,977

 

Deferred tax liabilities

 

573

 

548

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

68,371

 

39,955

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common Stock $.0001 par value, issued and outstanding 15,055,782 and 13,907,892 shares, respectively

 

2

 

1

 

Additional paid in capital

 

54,005

 

49,078

 

Retained earnings

 

8,031

 

4,095

 

Accumulated other comprehensive income (loss)

 

(293

)

96

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

 

61,745

 

53,270

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

130,116

 

$

93,225

 

 

See notes to condensed consolidated financial statements

 

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Table of Contents

 

Summer Infant, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

 

Note that all dollar amounts presented in the table below are in thousands of US dollars except share and per share amounts.

 

 

 

Unaudited

 

Unaudited

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30,
2008

 

September 30,
2007

 

September 30,
2008

 

September 30,
2007

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

35,575

 

$

21,198

 

$

97,982

 

$

44,644

 

Cost of goods sold

 

23,109

 

13,224

 

63,263

 

27,564

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

12,466

 

7,974

 

34,719

 

17,080

 

Selling, general and administrative expenses (a)

 

9,537

 

6,179

 

26,998

 

14,001

 

 

 

 

 

 

 

 

 

 

 

Net operating income

 

2,929

 

1,795

 

7,721

 

3,079

 

Interest income (expense), net

 

(506

)

(78

)

(1,473

)

474

 

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

2,423

 

1,717

 

6,248

 

3,553

 

Income tax expense

 

817

 

657

 

2,312

 

1,364

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

1,606

 

$

1,060

 

$

3,936

 

2,189

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE- BASIC

 

$

0.11

 

$

0.08

 

$

0.27

 

$

0.17

 

Weighted average shares outstanding - basic

 

15,055,782

 

13,907,892

 

14,627,137

 

13,263,000

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE - DILUTED

 

$

0.11

 

$

0.08

 

$

0.27

 

$

0.17

 

Weighted average shares outstanding- diluted

 

15,055,782

 

13,907,892

 

14,627,137

 

13,263,000

 

 

See notes to condensed consolidated financial statements.

 


(a) Includes non-cash stock compensation expense of $270 and $281 for the nine months ended September 30, 2008 and 2007, and expense of $90 for each of the three months ended September 30, 2008 and 2007, respectively.  The total also includes non-capitalizable deal-related fees of $214 for the nine months ended September 30, 2008.

 

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Table of Contents

 

Summer Infant, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

 

Note that all dollar amounts presented in the table below are in thousands of US dollars except share and per share amounts.

 

 

 

Unaudited

 

 

 

For the nine months ended

 

 

 

September 30,
2008

 

September 30,
2007

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

3,936

 

$

2,189

 

Adjustments to reconcile net income to net cash used in operating activities

 

 

 

 

 

Depreciation and amortization

 

1,866

 

804

 

Non-cash stock option expense

 

270

 

281

 

Deferred taxes

 

(243

)

 

 

Changes in assets and liabilities net of effects of acquisition:

 

 

 

 

 

Increase in accounts receivable

 

(4,489

)

(6,706

)

Increase in inventory

 

(7,020

)

(4,716

)

Increase in accounts payable and accrued expenses

 

3,083

 

4,436

 

(Increase) decrease in prepaid expenses and other current assets

 

85

 

(218

)

Increase in other assets

 

(26

)

 

 

 

 

 

 

 

Net cash used in operating activities

 

(2,538

)

(3,930

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Acquisitions of property and equipment

 

(2,273

)

(2,876

)

Acquisition of Basic Comfort, Inc., Kiddopotamus & Company (2008) and Summer Infant, Inc. (2007) net of cash acquired of $61 and $897, respectively

 

(15,586

)

(23,361

)

Acquisition of intangible assets

 

(1,000

)

 

 

 

 

 

 

 

Net cash used in investing activities

 

(18,859

)

(26,237

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net borrowings (repayments) on debt

 

21,611

 

(13,886

)

Principal payments on capital lease obligations

 

(144

)

 

Redemptions of common stock

 

 

(6,883

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

21,467

 

(20,769

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(390

)

149

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(320

)

(50,787

)

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

1,771

 

52,094

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

1,451

 

$

1,307

 

 

 

 

 

 

 

Non cash investing activities:

 

 

 

 

 

Issuance of common stock in conjunction with the acquisition of Basic Comfort, Inc., Kiddopotamus & Company (2008), and Summer Infant, Inc. (2007), respectively

 

$

4,657

 

$

20,563

 

New capital lease obligations incurred

 

322

 

 

Cash paid for interest

 

1,373

 

515

 

Cash paid for income taxes

 

1,721

 

574

 

 

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Table of Contents

 

SUMMER INFANT, INC.  AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.                       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying interim condensed consolidated financial statements of Summer Infant, Inc. (“Summer” or “the Company”) are unaudited, but in the opinion of management, 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 by generally accepted accounting principles for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year or any other period. The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes for the year ended December 31, 2007 filed on Form 10-K on March 27, 2008.

 

Acquisition of Summer Infant, Inc. by KBL Healthcare Acquisition Corp. II

 

On March 6, 2007, under an Agreement and Plan of Reorganization, dated as of September 1, 2006 (“Acquisition Agreement”), KBL Healthcare Acquisition Corp. II (“KBL”), and its wholly owned subsidiary, SII Acquisition Corp. (“Acquisition Sub”), consummated a transaction by which (i) Summer Infant, Inc. (“SII”) was merged with and into Acquisition Sub and (ii) all of the outstanding capital stock of each of Summer Infant Europe, Limited (“SIE”) and Summer Infant Asia, Ltd. (“SIA” and, collectively, with SII and SIE, the “Targets”) was acquired directly by KBL. As used in this Report, the term “Summer” includes each of the Targets. As used in this Report, the term “Company” means the registrant on a post-acquisition basis.  On March 7, 2007, the securities of the Company commenced listing on the Nasdaq Capital Market under the symbols SUMR (common stock), SUMRW (warrants) and SUMRU (units).

 

Nature of Operations and Basis of Presentation

 

The Condensed Consolidated Statement of Income for the nine months ended September 30, 2007 consists of the period from March 6, 2007 through September 30, 2007 for Summer plus the full nine months of results of KBL (unaudited).  The acquisition of Summer by KBL occurred on March 6, 2007, and therefore the results of Summer are included from that date forward. The interim financial information as of September 30, 2008, and for the three and nine months then ended, is unaudited and has been prepared on the same basis as the audited financial statements as of December 31, 2007.  The 2008 results include the results of Basic Comfort, Inc. and Kiddopotamus & Company from the dates of acquisition, which were March 31, 2008 and April 18, 2008, respectively.  In the opinion of management, such unaudited financial information includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the interim information. Operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, 2008.

 

All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

 

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Table of Contents

 

Basic Comfort Acquisition

 

On March 31, 2008, through Summer Infant (USA), Inc. (“Summer USA”) the Company acquired substantially all of the assets of Basic Comfort, Inc.  (“Basic”), a leading manufacturer and supplier of infant comfort and safety products, including infant sleep positioners, infant head supports and portable changing pads.  The acquisition price was approximately $4,700,000 in cash and 450,000 shares of unregistered Summer common stock (which were valued at $1,777,500 using the March 31, 2008 closing price of $3.95). The cash portion of the purchase price was funded through borrowings under the Company’s prior credit facility.  A portion of the common stock issued at closing was deposited into escrow to secure the post-closing indemnification obligations of the Basic stockholders.   The owners of Basic can receive additional payments based on the achievement of certain EBITDA targets for the twelve months ended March 31, 2009.

 

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition of Basic by Summer (amounts in thousands of US dollars):

 

Trade receivables

 

$

1,384

 

Inventory

 

1,559

 

Other Current Assets

 

121

 

Property and equipment

 

152

 

Goodwill

 

5,373

 

Total assets acquired

 

8,589

 

Total liabilities assumed

 

1,854

 

Net assets acquired

 

$

6,735

 

 

The pro forma effect on net revenues, net income, and net income per share amounts, assuming the transaction closed on January 1, 2008, are not considered material, and therefore are not presented here.

 

Kiddopotamus Acquisition

 

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

 

Under the merger agreement, the total purchase price paid by the Company to the holders of Kiddopotamus common and preferred stock was $12,500,000, plus the payment of certain expenses.  Of the total purchase price, approximately $9,600,000 was paid in cash, and approximately $2,900,000 was paid by the issuance of 697,890 unregistered shares of the Company’s common stock at $4.126 per share, which represented the ten day trading average ending on the trading day two business days prior to the closing of the merger.  Each holder of Kiddopotamus common and preferred stock other than J. Chris Snedeker and Kristen Peterson Snedeker (the “Principal Stockholders”) elected to receive their allocation of the total net purchase price in cash.  As required by the Merger Agreement, the Principal Stockholders received one half of their allocation of the total net purchase price in shares and one half in cash.

 

The Company funded the cash portion of the total net purchase price with borrowings under its two new secured credit facilities.  Approximately 10% of the total net purchase price was deposited in escrow to secure the post-closing indemnification obligations of the former Kiddopotamus stockholders, including the Principal Stockholders, under the terms of the Merger Agreement.

 

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Table of Contents

 

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition of Kiddopotamus by Summer (amounts in thousands of US dollars):

 

Trade receivables

 

$

2,284

 

Inventory

 

3,258

 

Other Assets

 

740

 

Property and equipment

 

48

 

Goodwill

 

8,300

 

Total assets acquired

 

14,630

 

Total liabilities assumed

 

1,524

 

Net assets acquired

 

$

13,106

 

 

The pro forma effect on net revenues, net income, and net income per share amounts for the nine months ended September 30, 2008, assuming the Kiddopotamus transaction had closed on January 1, 2008, are as follows:

 

Net revenues:

 

$

101,771,000

 

Net income:

 

$

4,424,000

 

Net income per share:

 

$

0.30 per share

 

 

Income taxes.    The provision for income taxes is based on the Company’s estimated annualized effective tax rate for the year.

 

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109.” FIN 48 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS No. 109. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. Upon the adoption of FIN 48, the Company had no unrecognized tax benefits. During the first nine months of 2008, the Company recognized no adjustments for uncertain tax benefits.

 

Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence; it is more likely than not such benefits will be realized.  The Company recognizes interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses.  No interest and penalties related to uncertain tax positions were accrued at September 30, 2008. The tax years 2004 through 2007 remain open to examination by the major taxing jurisdictions in which the Company operates. The Company expects no material changes to unrecognized tax positions within the next twelve months.

 

Use of Estimates

 

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

 

Net Income Per Share

 

Basic net income per share for the Company is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Options to purchase

 

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Table of Contents

 

1,039,200 and 975,200 shares of the Company’s common stock, and 3,633,953 and 18,400,000 warrants to purchase shares of common stock, were not included in the calculation, because these options and warrants were anti-dilutive for the three and nine months ended September 30, 2008 and 2007, respectively.

 

Reclassifications

 

Certain prior period amounts were reclassified to conform to current period presentation.

 

2.                                       DEBT

 

New Credit Facilities

 

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

 

The Company and its subsidiaries, Summer Infant (USA), Inc. Summer Infant Europe Limited, Summer Infant Asia Limited and Summer Infant Canada, Limited are the borrowers under this Loan Agreement.  The Loan Agreement is secured by substantially all assets of the Company and its subsidiaries.  These new credit facilities replace the Company’s prior line of credit and are being used principally to fund growth opportunities and for working capital purposes.

 

The Company’s ability to borrow under the Loan Agreement is subject to its ongoing compliance with a number of financial and other covenants, including the following: (i) that the Company and its subsidiaries maintain a net worth of $50,000,000 plus the sum of 50% of net income earned in each fiscal year, (ii) that the Company and its subsidiaries maintain a ratio of total funded debt to EBITDA (as defined in the Loan Agreement) of not greater than 3.50:1.00, and (iii) that the Company and its subsidiaries maintain a ratio of operating cash flow to debt service of not less than 1.25:1,00.  In addition, if the Company’s ratio of total funded debt to EBITDA is greater than 3.25:1.00 as of December 31, 2008, the total commitment amount under the working capital revolving credit facility will reduce by $4,000,000 on March 31, 2009.  Furthermore, if the Company’s ratio of total funded debt to EBITDA is greater than 3.25:1.00 for any fiscal year, the aggregate amount that may be borrowed under the Loan Agreement will be determined by reference to a borrowing base formula.

 

Borrowings under the Loan Agreement bear interest at a floating rate based on a spread over LIBOR ranging from 150 basis points to 200 basis points, depending upon the ratio of the Company’s total funded debt to EBITDA.  As of September 30, 2008, the rate on these credit facilities was approximately 5.46%.  In addition, these new credit facilities have an unused line fee based on the unused amount of the credit facilities equal to 25 basis points.

 

The Loan Agreement also contains customary events of default, including a cross default provision and a change of control provision.  In the event of a default, all of the obligations of the Company and its subsidiaries under the Loan Agreement may be declared immediately due and payable.   For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.

 

Amendment to Construction Loan

 

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

 

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Table of Contents

 

3.                       COMMITMENTS AND CONTINGENCIES

 

Litigation

 

The Company is involved in various claims and legal actions arising in the ordinary course of business. Management is of the opinion that the ultimate outcome of these matters would not have a material adverse impact on the financial position of the Company or the results of its operations.

 

4. STOCK OPTIONS

 

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

 

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R), using the modified prospective transition method.  The adoption of SFAS 123(R) resulted in share-based compensation expense for the nine months ended September 30, 2008 and 2007 of approximately $270,000 and $281,000, respectively, and expense for the three months ended September 30, 2008 and 2007 was approximately $90,000 and $90,000, respectively.  There were no grants of stock options for the three or nine months ended September 30, 2008.  As of September 30, 2008, there were 1,039,200 stock options outstanding.

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model.

 

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Table of Contents

 

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

 

The statements contained in this Report on Form 10-Q, that are not purely historical, are forward-looking information and statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These include statements regarding our expectations, intentions, or strategies regarding future matters. All forward-looking statements included in this document are based on information available to us on the date hereof. It is important to note that our actual results could differ materially from those projected in such forward-looking statements contained in this Form 10-Q. The forward-looking statements contained herein are based on current expectations that involve numerous risks and uncertainties.  These risks include the concentration of the Company’s business with retail customers; the ability of the Company to compete in the industry; the Company’s dependence on key personnel; the Company’s reliance on foreign suppliers; and other risks as detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and subsequent filings with the Securities and Exchange Commission. All these matters are difficult or impossible to predict accurately, many of which may be beyond our control. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate.

 

The following discussion is intended to assist in the assessment of significant changes and trends related to the results of operations and financial condition of Summer Infant, Inc. This discussion and analysis should be read in conjunction with Summer’s consolidated financial statements and notes thereto included herein. Summer’s business has grown organically in all of its markets. Summer derives its revenues from the sale of health, safety and wellness products for infants and toddlers.  Summer’s revenue is driven by its ability to design and market desirable products, identify business opportunities and secure new and renew existing distribution channels. Summer’s income from operations is derived from its ability to generate revenue and collect cash in excess of labor and other costs of providing its products and selling, general and administrative costs.

 

Summary of critical accounting policies and estimates

 

The Company’s critical accounting policies are disclosed in the Company’s Annual Report on Form 10-K.  There have been no changes to these policies during the first nine months of 2008. This summary of critical accounting policies of Summer is presented to assist in understanding Summer’s consolidated financial statements. The consolidated financial statements and notes are representations of Summer’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements.

 

Summer makes certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. The accounting policies described below are those Summer considers critical in preparing its financial statements. Some of these policies include significant estimates made by management using information available at the time the estimates were made. However, these estimates could change materially if different information or assumptions were used.

 

Nature of operations

 

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

 

Income taxes

 

The provision for income taxes is based on our estimated annualized effective tax rate for the year.

 

Effective January 1, 2007, we adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109.” FIN 48 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS No. 109. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. Upon the adoption of FIN 48, we had no unrecognized tax benefits. During the third quarter of 2008, we recognized no adjustments for uncertain tax benefits.

 

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Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence, it is more likely than not such benefits will be realized.  We recognize interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses.  No interest and penalties related to uncertain tax positions were accrued at September 30, 2008. The tax years 2004 through 2007 remain open to examination by the major taxing jurisdictions in which we operate. We expect no material changes to unrecognized tax positions within the next twelve months.

 

Company Overview

 

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

 

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

 

·                  increased product penetration (more products at each store);

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

·                  New products (at existing and new customers);

·                  New mass merchant retail customers;

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

·                  New geographies (international expansion); and

·                  New product categories

·                  Acquisitions

 

Summer has been able to substantially grow its revenues over the past seven years through a combination of all of the above factors. Each year it has been 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 by simply selling more of its existing product line to existing customers.

 

For 2008 and beyond, the growth strategy of Summer will be to continue to develop and sell new products to its existing customer base, sell new and existing products to new customers (or expand relationships with existing customers), to begin to sell products from its soft goods product line, and to expand in the UK and in other geographic regions (including Japan, Mexico and Australia, among others).

 

Summer’s growth strategy has included acquisitions.

 

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

 

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

 

Summer may pursue additional potential acquisition candidates to obtain new innovative products, new product categories, new retail customers or new sales territories.  There are approximately 400 active juvenile product companies, of which approximately 300 have less than $10,000,000 in sales. In addition, there are various product categories that Summer does not currently compete in, including car seats, strollers, walkers, and other categories. Summer may look to develop its own products in these categories or attempt to gain entrance into these categories through acquisitions.

 

As Summer continues to grow through internal initiatives and any additional future acquisitions, it will incur additional expenses.  Two of the key areas in which such increased expenses will likely occur are sales and product development. To grow sales, Summer will likely hire additional sales personnel to service new geographic territories, focus existing resources on specific parts of the United States market and retain product line specialists to drive sales of new and existing products in specific areas in which Summer believes it can readily increase sales. Product development expenses will increase as Summer develops new products in existing and new categories. As a result of its acquisition strategy, Summer

 

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will 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 realized growth, including expenditures with respect to upgraded and expanded information systems and enhancing the Company’s management team.

 

Sales

 

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

 

Approximately 90% of sales are currently made to customers in North America, with the remaining 10% made to customers in the UK. Sales are made utilizing standard credit terms of 30 to 60 days. Summer generally accepts returns only for defective merchandise.

 

Cost of goods sold and other expenses

 

Summer’s products are manufactured by third parties, with approximately 80-85% of the dollar value of products being manufactured in China and the majority of the balance being manufactured in Massachusetts. Cost of goods sold primarily represents 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 contract manufacturers. Substantially all of Summer’s purchases are made in US dollars; therefore most of this activity is not subject to currency fluctuations. If Summer’s suppliers experience increased raw materials, labor or other costs and pass along such cost increases through higher prices for finished goods, Summer’s costs of sales would increase, and to the extent it is unable to pass such price increases along to Summer’s customers, Summer’s gross margins would decrease.

 

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

 

There are not significant variations in seasonal demand for Summer’s products. Sales to its retail customers are generally higher in the time frame when retailers take initial shipments of new products; these orders usually incorporate enough product to fill each store plus additional amounts to be kept at the distribution centers of the customer. The timing of these initial shipments varies by customer depending on when they finalize store layouts for the upcoming year, and whether there are any mid-year product introductions.

 

Results of Operations

 

Summer Infant Inc. and Subsidiaries

Condensed Consolidated Statements of Income

For the Three and Nine Months Ending September 30, 2008 and 2007

(In thousands of US dollars)

 

 

 

Three Months Ended
September 30, 2008

 

Three Months Ended
September 30, 2007

 

Nine Months Ended
September 30, 2008

 

Nine Months Ended
September30, 2007

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Net revenues

 

$

35,575

 

$

21,198

 

$

97,982

 

$

44,644

 

Cost of goods sold

 

23,109

 

13,224

 

63,263

 

27,564

 

Gross profit

 

12,466

 

7,974

 

34,719

 

17,080

 

 

 

 

 

 

 

 

 

 

 

Operating expenses including interest

 

10,043

 

6,257

 

28,471

 

13,527

 

Income tax expense

 

817

 

657

 

2,312

 

1,364

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,606

 

$

1,060

 

$

3,936

 

$

2,189

 

 

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The results of operations for the nine months ended September 30, 2007 represents the combined activity of KBL Healthcare from January 1, 2007 through March 6, 2007 (which represents general and administrative expenses of KBL Healthcare, net of interest income generated by the $52,000,000 cash balance prior to the acquisition of Summer Infant on March 6, 2007) and the activity of Summer Infant from March 6, 2007 through September 30, 2007.

 

To give the reader some additional information on the performance of the underlying Summer Infant operations, the following table represents the unaudited results of Summer for the three and nine months ended September 30, 2008 and the unaudited results of the Summer Infant operating company for the three and nine months ended September 30, 2007.  This table is being presented to give the reader more information about the underlying performance of the ongoing operating company.

 

Summer Infant and Subsidiaries

Condensed Consolidated Statements of Income

For the Three and Nine Months Ending September 30, 2008 and 2007

(In thousands of US dollars)

 

 

 

Three Months Ended
September 30, 2008

 

Three Months
Ended September
30, 2007

 

Nine Months
Ended
September30,
2008

 

Nine Months
Ended
September 30,
2007

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

Net Sales

 

$

35,575

 

100.0

%

$

21,198

 

100.0

%

$

97,982

 

100.0

%

$

57,043

 

100.0

%

Cost of Goods Sold

 

23,109

 

65.0

%

13,224

 

62.4

%

63,263

 

64.6

%

35,246

 

61.8

%

Gross Profit

 

12,466

 

35.0

%

7,974

 

37.6

%

34,719

 

35.4

%

21,797

 

38.2

%

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses (excluding depreciation, amortization, non-capitalizable deal fees and non- cash stock option expense)

 

8,706

 

24.4

%

5,717

 

27.0

%

24,648

 

25.1

%

16,038

 

28.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA (a)

 

$

3,760

 

10.6

%

$

2,257

 

10.6

%

$

10,071

 

10.3

%

$

5,759

 

10.1.

%

 


(a)          See “Non-GAAP Discussion” below regarding the computation of EBITDA.

 

Three months ended September 30, 2008 compared with three months ended September 30, 2007

 

Net sales increased from approximately $21,198,000 in the three months ended September 30, 2007 to approximately $35,575,000 for the three months ended September 30, 2008, an increase of approximately 68%. This sales increase was primarily attributable to increased distribution of Summer’s products throughout Summer’s customer base, plus new product introductions.  Significant increases were noted in large accounts such as Babies R Us, in addition to several other new accounts which have been added over the past year, including Lowe’s and Wal-Mart.  The acquisitions of Basic Comfort and Kiddopotamus contributed approximately $6,500,000 to sales for the three months ended September 30, 2008.

 

Gross profit increased from approximately $7,974,000 for the three months ended September 30, 2007 to approximately $12,466,000 for the three months ended September 30, 2008.  The gross profit as a percentage of sales decreased to 35.0% from 37.6% in the prior year.  The decrease as a percentage of sales is due to increased costs of finished goods from the Company’s vendors in Asia and the US.  The increase in these costs is due to increased raw material and labor costs from our Chinese contract manufacturers.

 

Selling, general and administrative expenses increased from approximately $5,717,000 for the three months ended June 30, 2007 to approximately $8,706,000 for the three months ended September 30, 2008. This increase was primarily attributable to increases in headcount, higher variable selling expenses due to the increase in sales, and costs associated with the opening of new distribution centers to support the increase in sales.  Selling, general and administrative expenses decreased to 24.4% of net sales in the three months ended September 30, 2008 from 27.0% of net sales in the three months ended September 30, 2007.  This decrease as a percentage of sales was primarily due to the leveraging of the Company’s fixed cost structure over a larger sales base.

 

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EBITDA (as herein defined) increased from approximately $2,257,000 for the three months ended September 30, 2007 to approximately $3,760,000 for the three months ended September 30, 2008, an increase of approximately 67%. This increase was primarily attributable to the increased sales and gross profit dollars as described above.

 

Nine months ended September 30, 2008 compared with nine months ended September 30, 2007

 

Net sales increased from approximately $57,043,000 in the nine months ended September 30, 2007 to approximately $97,982,000 for the nine months ended September 30, 2008, a 72% increase. This sales increase was primarily attributable to increased distribution of Summer’s products throughout Summer’s customer base, plus new product introductions.  Significant increases were noted in large accounts such as Babies R Us, in addition to several other new accounts which have been added over the past year, including Lowe’s and Wal-Mart.  The acquisitions of Basic Comfort and Kiddopotamus contributed approximately $12,200,000 to sales for the nine months ended September 30, 2008.

 

Gross profit increased from approximately $21,797,000 for the nine months ended September 30, 2007 to approximately $34,719,000 for the nine months ended September 30, 2008.  The gross profit as a percentage of sales decreased to 35.4% from 38.2% in the prior year.  The decrease as a percentage of sales is due to increased costs of finished goods from the Company’s vendors in Asia and the US.  The increase in these costs is due to increased raw material and labor costs from our Chinese contract manufacturers.

 

Selling, general and administrative expenses increased from approximately $16,038,000 for the nine months ended September 30, 2007 to approximately $24,648,000 for the nine months ended September 30, 2008. This increase was primarily attributable to increases in headcount, higher variable selling expenses due to the increase in sales, and costs associated with the opening of new distribution centers to support the increase in sales.  Selling, general and administrative expenses decreased to 25.1% of net sales in the nine months ended September 30, 2008 from 28.1% of net sales in the nine months ended September 30, 2007.  This decrease as a percentage of sales is due to the leveraging of the Company’s fixed cost structure over a larger sales base.

 

EBITDA as defined herein increased from approximately $5,759,000 for the nine months ended September 30, 2007 to approximately $10,071,000 for the nine months ended September 30, 2008, an increase of 75%. This increase was primarily attributable to the increased sales and gross profit dollars as described above.

 

Liquidity and Capital Resources

 

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

 

Summer’s sales have increased significantly over the past several years. For the year ended December 31, 2003, net sales were $17,600,000. For the year ended December 31, 2007, net sales exceeded $80,000,000. This sales growth has led to a substantial increase in working capital requirements, specifically accounts receivable and inventory. The typical cash flow cycle is as follows:

 

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

 

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

 

Summer had traditionally been able to fund its increased working capital through asset-based lines of credit with banks. The lenders generally follow a borrowing base formula that allows advances based on the levels of accounts receivable and inventory.

 

The majority of capital expenditures for Summer are for tools related to new product introductions. Summer receives indications from retailers generally around the middle of each year as to what products the retailer will be taking into its product line for the upcoming year. Based on these indications, Summer will then acquire the tools required to build the products. The majority of these expenditures are therefore made in the third and fourth quarters of each year so that initial

 

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shipments of products can be made in December and January (the typical time frame for new product shipments). In most cases the payments for the tools are spread out over a three to four month period.

 

For the nine months ended September 30, 2008, net cash used in operating activities was approximately $2,538,000.  This was primarily due to increases in accounts receivable and inventory, which are a direct result of the significant increase in sales for the Company, partially offset by the net income generated by Summer.  Total sales were over $97,000,000 for the nine months ended September 30, 2008, which represents a 72% increase over the sales in the first nine months of the prior year.  See detailed discussion of the working capital cycle of Summer above.

 

Net cash used in investing activities was approximately $18,859,000 which primarily relates to the cash portion of the Basic Comfort and Kiddopotamus acquisitions, in addition to year to date capital expenditures of approximately $2,273,000.

 

Net cash provided by financing activities was approximately $21,467,000, which relates to amounts borrowed to fund increases in working capital and the acquisitions of Basic Comfort and Kiddopotamus.

 

Based on the above factors, the net cash decrease for the nine months ended September 30, 2008 was approximately $320,000, resulting in a cash balance of approximately $1,451,000 at September 30, 2008.

 

Summer believes that its cash on hand and current banking facilities are sufficient to fund its cash requirements for at least the next 12 months. However, unforeseen circumstances, such as softness in the retail industry or deterioration in the business of a significant customer, could create a situation where Summer cannot access all of the available lines of credit due to not having sufficient assets or EBITDA. In addition, there is no assurance that Summer will meet all of its bank covenants in the future, or that its lenders will grant waivers if there are covenant violations.

 

Summer’s strategy for funding its business going forward is a combination of increased profitability, and if necessary, negotiation of increased borrowing lines as required with traditional lenders.  Summer is in regular communication with its lenders, and considers its relationship to be strong at the present time.

 

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

 

Summer and its subsidiaries, Summer Infant (USA), Inc. Summer Infant Europe Limited, Summer Infant Asia Limited and Summer Infant Canada, Limited are the borrowers under the Loan Agreement.  These credit facilities are secured by all assets of Summer and its subsidiaries.  These credit facilities replaced Summer’s prior line of credit, and are being used principally to fund growth opportunities and for working capital purposes.

 

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

 

These credit facilities bear interest at a floating rate based on a spread over LIBOR ranging from 150 basis points to 200 basis points, depending upon the ratio of the Company’s total funded debt to EBITDA.  As of September 30, 2008, the rate on these credit facilities was 5.46%.  In addition, these credit facilities have an unused line fee based on the unused amount of the credit facilities equal to 25 basis points.

 

The Loan Agreement also contains customary events of default, including a cross default provision and a change of control provision.  In the event of a default, all of the obligations of the Company and its subsidiaries under the loan Agreement may be declared immediately due and payable.   For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.

 

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As of September 30, 2008 the Company had approximately $39,276,000 outstanding of the total committed amount of $46,000,000.  In addition, the Company has $3,884,000 outstanding on the loan related to the construction of the corporate headquarters.

 

The Company was in compliance with all covenants as of September 30, 2008.

 

Summer’s management believes that the Company’s cash flows from operations, cash on hand, and available borrowings will be sufficient to meet Summer’s working capital and capital expenditure requirements and provide the Company with adequate liquidity to meet anticipated operating needs for at least the next 12 months. Summer’s cash requirements for the period beyond that are expected to be met by the continued use of bank facilities to meet working capital requirements.

 

Non-GAAP Discussion

 

In addition to its GAAP results, Summer considers non-GAAP measures of its performance. EBITDA, as defined below, is an important supplemental financial measure of Summer’s performance that is not required by, or presented in accordance with, GAAP. EBITDA represents net income (loss) before income taxes, interest expense, non-cash stock option expense, deal-related fees, and depreciation and amortization. Summer’s management uses EBITDA as a financial measure to assess the ability of its assets to generate cash sufficient to pay interest on its indebtedness, meet capital expenditure and working capital requirements, and otherwise meet its obligations as they become due. Summer’s management believes that the presentation of EBITDA provides useful information regarding Summer’s results of operations because they assist in analyzing and benchmarking the performance and value of Summer’s business. Summer believes that EBITDA is useful to stockholders as a measure of comparative operating performance, as it is less susceptible to variances in actual performance resulting from depreciation and amortization and more reflective of changes in pricing decisions, cost controls and other factors that affect operating performance.

 

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

 

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

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

·                  to more accurately compare Summer’s operating performance from period to period and company to company by eliminating differences caused by variations in capital structures (which affect relative interest expense), tax positions and amortization of intangibles.

 

In addition, EBITDA is an important valuation tool used by potential investors when assessing the relative performance of a company in comparison to other companies in the same industry. Although Summer uses EBITDA as a financial measure to assess the performance of its business, there are material limitations to using a measure such as EBITDA, including the difficulty associated with using it as the sole measure to compare the results of one company to another and the inability to analyze significant items that directly affect a company’s net income or operating income because it does not include certain material costs, such as interest and taxes, necessary to operate its business. In addition, Summer’s calculation of EBITDA may not be consistent with similarly titled measures of other companies and should be viewed in conjunction with measures that are computed in accordance with GAAP. Summer’s management compensates for these limitations in considering EBITDA in conjunction with its analysis of other GAAP financial measures, such as net income.

 

The following table presents a reconciliation of the Summer EBITDA to net income; it’s most directly comparable GAAP financial measure, on a historical basis, for the nine months ended September 30, 2008 and 2007:

 

Reconciliation of unaudited EBITDA to Net Income (in thousands of US dollars):

 

 

 

Nine Months Ended
September 30

 

 

 

2008

 

2007

 

Net income (assuming 9 months as a taxable entity in 2007)

 

$

3,936

 

$

2,690

 

Income taxes (assuming 9 months as a taxable entity in 2007)

 

2,312

 

1,793

 

Non-cash stock option expense

 

270

 

281

 

Non-capitalizable deal-related fees

 

214

 

 

Interest expense (income)

 

1,473

 

(7

)

Depreciation and amortization

 

1,866

 

1,002

 

 

 

 

 

 

 

EBITDA, as defined

 

$

10,071

 

$

5,759

 

 

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ITEM 4T.  Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report, Summer carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of September 30, 2008. Summer’s management has concluded, based on their evaluation, that as of the end of the period covered by this report, the Company’s controls and procedures were effective as of September 30, 2008 to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b) Changes in Internal Control Over Financial Reporting

 

There was no change in Summer’s internal control over financial reporting that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, Summer’s internal control over financial reporting.

 

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PART II.  OTHER INFORMATION

 

ITEM 1A. Risk Factors

 

There have been no material changes pertaining to risk factors that were contained in the Annual Report on Form 10-K for the year ended December 31, 2007, filed on March 27, 2008.

 

ITEM 4.  Submission of Matters to a Vote of Security Holders

 

None.

 

ITEM 5. Other Information

 

Prior to March 28, 2008, the Company’s units, consisting of one share of common stock and two warrants, separately traded on the Nasdaq Capital Market under the symbol “SUMRU”.  On March 28, 2008, these units were separated into their component securities.  As a result, beginning on March 28, 2008, the units ceased trading.

 

ITEM 6. Exhibits

 

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

 

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

 

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

 

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

 

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Signatures

 

 

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

 

 

Summer Infant, Inc.

 

 

November 7, 2008

 

 

/s/ Jason Macari

 

 

Jason Macari

 

 

Chief Executive Officer

 

 

November 7, 2008

 

 

/s/ Joseph Driscoll

 

 

Joseph Driscoll

 

Chief Financial Officer

 

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