Table of Contents

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 28, 2019

 

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                 to

 

Commission file number: 001-33346

 

Summer Infant, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-1994619

(State or other jurisdiction

 

(IRS Employer Identification No.)

of incorporation or organization)

 

 

 

1275 Park East Drive

 

 

Woonsocket, RI 02895

 

(401) 671-6550

(Address of principal executive offices) (Zip Code)

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001

 

SUMR

 

Nasdaq Capital Market

 

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 past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 registrant was required to submit such files).  Yes x  No o

 

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

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company x

 

 

Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

 

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 November 7, 2019, there were 18,941,459 shares outstanding of the registrant’s Common Stock, $0.0001 par value per share.

 

 

 


Table of Contents

 

Summer Infant, Inc.

Form 10-Q

Table of Contents

 

 

 

Page Number

 

 

 

Part I.

Financial Information

1

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets as of September 28, 2019 (unaudited) and December 29, 2018

1

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 28, 2019 and September 29, 2018 (unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 28, 2019 and September 29, 2018 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 28, 2019 and September 29, 2018 (unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Stockholder’s Equity for the Nine Months Ended September 28, 2019 and September 29, 2018 (unaudited)

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

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

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

 

 

 

Item 4.

Controls and Procedures

19

 

 

 

Part II.

Other Information

20

 

 

 

Item 1.

Legal Proceedings

20

 

 

 

Item 1A.

Risk Factors

20

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

20

 

 

 

Item 3.

Defaults Upon Senior Securities

20

 

 

 

Item 4.

Mine Safety Disclosures

20

 

 

 

Item 5.

Other Information

20

 

 

 

Item 6.

Exhibits

20

 

 

 

Exhibit Index

 

21

 

 

 

Signatures

 

22

 


Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.                Condensed Consolidated Financial Statements (unaudited)

 

Summer Infant, Inc.

Condensed Consolidated Balance Sheets

 

Note that all amounts presented in the table below are in thousands of U.S. dollars, except share and par value amounts.

 

 

 

(Unaudited)

 

 

 

 

 

September 28,
2019

 

December 29,
2018

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

659

 

$

721

 

Trade receivables, net of allowance for doubtful accounts

 

29,676

 

31,223

 

Inventory, net

 

30,160

 

36,066

 

Prepaid and other current assets

 

1,315

 

997

 

TOTAL CURRENT ASSETS

 

61,810

 

69,007

 

Property and equipment, net

 

9,102

 

9,685

 

Other intangible assets, net

 

13,027

 

13,300

 

Right to use assets, noncurrent

 

4,842

 

 

Deferred tax assets, net

 

2,128

 

2,127

 

Other assets

 

100

 

97

 

TOTAL ASSETS

 

$

91,009

 

$

94,216

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

24,480

 

$

28,120

 

Accrued expenses

 

6,439

 

8,939

 

Lease liabilities, current

 

2,324

 

 

Current portion of long term debt

 

875

 

875

 

TOTAL CURRENT LIABILITIES

 

34,118

 

37,934

 

Long-term debt, less current portion and unamortized debt issuance costs

 

45,468

 

44,641

 

Lease liabilities, noncurrent

 

3,034

 

 

Other liabilities

 

2,064

 

2,371

 

TOTAL LIABILITIES

 

84,684

 

84,946

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Preferred Stock, $0.0001 par value, 1,000,000 authorized, none issued or outstanding at September 28, 2019 and December 29, 2018, respectively

 

 

 

Common Stock $0.0001 par value, authorized, issued and outstanding of 49,000,000, 19,213,108 and 18,941,459 at September 28, 2019 and 49,000,000, 19,092,251, and 18,820,602 at December 29, 2018, respectively

 

2

 

2

 

Treasury Stock at cost (271,649 shares at September 28, 2019 and December 29, 2018)

 

(1,283

)

(1,283

)

Additional paid-in capital

 

77,620

 

77,396

 

Accumulated deficit

 

(67,167

)

(63,885

)

Accumulated other comprehensive loss

 

(2,847

)

(2,960

)

TOTAL STOCKHOLDERS’ EQUITY

 

6,325

 

9,270

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

91,009

 

$

94,216

 

 

See notes to condensed consolidated financial statements

 

1


Table of Contents

 

Summer Infant, Inc.

Condensed Consolidated Statements of Operations

 

Note that all amounts presented in the table below are in thousands of U.S. dollars, except share and per share amounts.

 

 

 

Unaudited

 

Unaudited

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 28,
2019

 

September 29,
2018

 

September 28,
2019

 

September 29,
2018

 

Net sales

 

$

41,523

 

$

43,838

 

$

130,486

 

$

133,571

 

Cost of goods sold

 

28,928

 

30,227

 

89,599

 

90,974

 

Gross profit

 

12,595

 

13,611

 

40,887

 

42,597

 

General & administrative expenses

 

8,353

 

7,623

 

26,255

 

29,587

 

Selling expenses

 

3,597

 

3,658

 

10,981

 

9,427

 

Depreciation and amortization

 

919

 

1,012

 

2,808

 

3,087

 

Operating (loss) income

 

(274

)

1,318

 

843

 

496

 

Interest expense, net

 

1,191

 

1,118

 

3,733

 

3,300

 

(Loss) income before provision (benefit) for income taxes

 

(1,465

)

200

 

(2,890

)

(2,804

)

Provision (benefit) for income taxes

 

195

 

82

 

392

 

(513

)

Net (loss) income

 

$

(1,660

)

$

118

 

$

(3,282

)

$

(2,291

)

Net (loss) income per share:

 

 

 

 

 

 

 

 

 

BASIC

 

$

(0.09

)

$

0.01

 

$

(0.17

)

$

(0.12

)

DILUTED

 

$

(0.09

)

$

0.01

 

$

(0.17

)

$

(0.12

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

BASIC

 

18,937,860

 

18,788,650

 

18,889,969

 

18,723,477

 

DILUTED

 

18,937,860

 

18,878,112

 

18,889,969

 

18,723,477

 

 

See notes to condensed consolidated financial statements.

 

2


Table of Contents

 

Summer Infant, Inc.

Condensed Consolidated Statements of Comprehensive Loss

 

Note that all amounts presented in the table below are in thousands of U.S. dollars.

 

 

 

Unaudited
For the three
months ended

 

Unaudited
For the nine
months ended

 

 

 

September 28,
2019

 

September 29,
2018

 

September 28,
2019

 

September 29,
2018

 

Net (loss) income

 

$

(1,660

)

$

118

 

$

(3,282

)

$

(2,291

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

Changes in foreign currency translation adjustments

 

(100

)

95

 

113

 

(305

)

 

 

 

 

 

 

 

 

 

 

Comprehensive net (loss) income

 

$

(1,760

)

$

213

 

$

(3,169

)

$

(2,596

)

 

See notes to condensed consolidated financial statements.

 

3


Table of Contents

 

Summer Infant, Inc.

Condensed Consolidated Statements of Cash Flows

 

Note that all amounts presented in the table below are in thousands of U.S. dollars.

 

 

 

(Unaudited)

 

 

 

For the nine months ended

 

 

 

September 28,
2019

 

September 29,
2018

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(3,282

)

$

(2,291

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

2,808

 

3,087

 

Stock-based compensation expense

 

224

 

433

 

Write off of unamortized deferred financing costs

 

 

518

 

Provision for allowance for doubtful accounts

 

21

 

1,496

 

Non cash lease expense

 

1,569

 

 

Changes in assets and liabilities:

 

 

 

 

 

Decrease (Increase) in trade receivables

 

1,666

 

(2,418

)

Decrease in inventory

 

6,098

 

6,474

 

Increase in prepaids and other assets

 

(351

)

(359

)

Decrease in lease liability

 

(1,053

)

 

Decrease in accounts payable and accrued expenses

 

(6,558

)

(1,496

)

Net cash provided by operating activities

 

1,142

 

5,444

 

Cash flows from investing activities:

 

 

 

 

 

Acquisitions of property and equipment

 

(1,632

)

(2,644

)

Acquisitions of other intangible assets

 

(281

)

 

Net cash used in investing activities

 

(1,913

)

(2,644

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

25

 

Repayment of Prior Term Loan Facility

 

 

(5,000

)

Repayment of Prior FILO

 

 

(1,250

)

Payment of financing fees and expenses

 

 

(1,958

)

Proceeds from New Term Loan Facility

 

 

17,500

 

Repayment of Term Loan Facility

 

(656

)

 

Net borrowings (repayment) on revolving facilities

 

1,484

 

(11,871

)

Net cash provided by (used in) financing activities

 

828

 

(2,554

)

Effect of exchange rate changes on cash and cash equivalents

 

(119

)

132

 

Net (decrease) increase in cash and cash equivalents

 

(62

)

378

 

Cash and cash equivalents, beginning of period

 

721

 

681

 

Cash and cash equivalents, end of period

 

$

659

 

$

1,059

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

2,878

 

$

2,207

 

Cash paid for income taxes

 

$

5

 

$

4

 

 

See notes to condensed consolidated financial statements.

 

4


Table of Contents

 

Summer Infant, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

Note that all amounts presented in the table below are in thousands of U.S. dollars, except share and per share data.

 

 

 

Common Stock

 

Additional
Paid in

 

Treasury

 

Accumulated

 

Accumulated
Comprehensive

 

Total

 

 

 

Shares

 

Amount

 

Capital

 

Stock

 

Deficit

 

Loss

 

Equity

 

Balance at December 30, 2017

 

18,629,737

 

$

2

 

$

76,848

 

$

(1,283

)

$

(59,634

)

$

(2,291

)

$

13,642

 

Issuance of common stock upon vesting of restricted shares

 

55,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

99

 

 

 

 

 

 

 

99

 

Net loss for the period

 

 

 

 

 

 

 

 

 

(2,707

)

 

 

(2,707

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(52

)

(52

)

Balance at March 31, 2018

 

18,685,237

 

$

2

 

$

76,947

 

$

(1,283

)

$

(62,341

)

$

(2,343

)

$

10,982

 

Issuance of common stock upon vesting of restricted shares

 

67,728

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock options

 

16,050

 

 

 

20

 

 

 

 

 

 

 

20

 

Stock-based compensation

 

 

 

 

 

215

 

 

 

 

 

 

 

215

 

Net income for the period

 

 

 

 

 

 

 

 

 

298

 

 

 

298

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(348

)

(348

)

Balance at June 30, 2018

 

18,769,015

 

$

2

 

$

77,182

 

$

(1,283

)

$

(62,043

)

$

(2,691

)

$

11,167

 

Issuance of common stock upon vesting of restricted shares

 

22,847

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock options

 

4,500

 

 

 

5

 

 

 

 

 

 

 

5

 

Stock-based compensation

 

 

 

 

 

119

 

 

 

 

 

 

 

119

 

Net income for the period

 

 

 

 

 

 

 

 

 

118

 

 

 

118

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

95

 

95

 

Balance at September 28, 2018

 

18,796,362

 

$

2

 

77,306

 

(1,283

)

(61,925

)

(2,596

)

11,504

 

 

 

 

Common Stock

 

Additional
Paid in

 

Treasury

 

Accumulated

 

Accumulated
Comprehensive

 

Total

 

 

 

Shares

 

Amount

 

Capital

 

Stock

 

Deficit

 

Loss

 

Equity

 

Balance at December 29, 2018

 

18,820,602

 

$

2

 

$

77,396

 

$

(1,283

)

$

(63,885

)

$

(2,960

)

$

9,270

 

Issuance of common stock upon vesting of restricted shares

 

33,125

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

48

 

 

 

 

 

 

 

48

 

Net loss for the period

 

 

 

 

 

 

 

 

 

(1,398

)

 

 

(1,398

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

165

 

165

 

Balance at March 30, 2019

 

18,853,727

 

$

2

 

$

77,444

 

$

(1,283

)

$

(65,283

)

$

(2,795

)

$

8,085

 

Issuance of common stock upon vesting of restricted shares

 

72,977

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

104

 

 

 

 

 

 

 

104

 

Net loss for the period

 

 

 

 

 

 

 

 

 

(224

)

 

 

(224

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

48

 

48

 

Balance at June 29, 2019

 

18,926,704

 

$

2

 

$

77,548

 

$

(1,283

)

$

(65,507

)

$

(2,747

)

$

8,013

 

Issuance of common stock upon vesting of restricted shares

 

14,755

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

72

 

 

 

 

 

 

 

72

 

Net loss for the period

 

 

 

 

 

 

 

 

 

(1,660

)

 

 

(1,660

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(100

)

(100

)

Balance at September 28, 2019

 

18,941,459

 

$

2

 

77,620

 

(1,283

)

(67,167

)

(2,847

)

6,325

 

 

5


 

Table of Contents

 

SUMMER INFANT, INC.  AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.                                      BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

The Company designs, markets and distributes branded juvenile health, safety and wellness products that are sold globally to large national retailers as well as independent retailers, primarily in North America. The Company currently markets its products in several product categories including safety, nursery, monitoring, and baby gear. Most products are sold under our core brand names of Summer™, SwaddleMe®, and born freeTM. When used herein, the terms the “Company,” “we,” “us,” and “our” mean Summer Infant, Inc. and its consolidated subsidiaries.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying interim condensed consolidated financial statements of 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 in the United States of America (“GAAP”) 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 29, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes for the year ended December 29, 2018 included in its Annual Report on Form 10-K filed with the SEC on February 20, 2019, as amended on March 22, 2019.

 

It is the Company’s policy to prepare its financial statements on the accrual basis of accounting in conformity with GAAP. The interim condensed consolidated financial statements include the accounts of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidation.

 

All dollar amounts included in the Notes to Condensed Consolidated Financial Statements are in thousands of U.S. dollars, except share and per share amounts.

 

Revenue Recognition

 

The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services.

 

The Company’s principal activities from which it generates its revenue is product sales. The Company has one reportable segment of business.

 

Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation in a contract by transferring control over a product to a customer when product delivery occurs. Consideration is typically paid approximately 60 days from the time control is transferred. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in selling costs.

 

A performance obligation is a promise in a contract to transfer a distinct product to the customer, which for the Company is transfer of juvenile products to its customers. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.

 

A transaction price is the amount of consideration the Company expects to receive under the arrangement. The Company is required to estimate variable consideration (if any) and to factor that estimation into the determination of the transaction price. The Company conducts its business with customers through valid purchase or sales orders each of which is considered a separate contract because individual orders are not interdependent on one another. Product transaction prices on a purchase or sale order are discrete and stand-alone. Purchase or sales orders may be issued under either a customer master service agreement or a reseller allowance agreement. Purchase or sales orders, master service agreements, and reseller allowance agreements, which are specific and unique to each customer, may include product price discounts, markdown allowances, return allowances, and/or volume rebates which reduce the consideration due from customers. Variable consideration is estimated using the most likely amount method, which is based on historical experience as well as current information such as sales forecasts.

 

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Table of Contents

 

Contracts may also include cooperative advertising arrangements where the Company allows a discount from invoiced product amounts in exchange for customer purchased advertising that features the Company’s products. These allowances are generally based upon product purchases or specific advertising campaigns. Such allowances are accrued when the related revenue is recognized. These cooperative advertising arrangements provide a distinct benefit and fair value and are accounted for as direct selling expenses.

 

Use of Estimates

 

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts of revenues, expenses, assets, liabilities and related disclosures. These estimates are based on management’s best knowledge as of the date the financial statements are published of current events and actions the Company may undertake in the future.  Accordingly, actual results could differ from those estimates.

 

Trade Receivables

 

Trade receivables are carried at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates doubtful accounts based on historical bad debts, factors related to specific customers’ ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible. Amounts are considered to be uncollectable based upon historical experience and management’s evaluation of outstanding accounts receivable.

 

Changes in the allowance for doubtful accounts are as follows:

 

 

 

For the
Nine months ended

 

 

 

September
28, 2019

 

September
29, 2018

 

Allowance for doubtful accounts, beginning of period

 

$

304

 

$

1,622

 

Charges to costs and expenses, net

 

21

 

1,768

 

Account write-offs

 

 

(272

)

Allowance for doubtful accounts, end of period

 

$

325

 

$

3,118

 

 

Inventory Valuation

 

Inventory is comprised mostly of finished goods and some component parts and is stated at the lower of cost using the first-in, first-out (“FIFO”) method, or net realizable value. The Company regularly reviews slow-moving and excess inventories, and writes down inventories to net realizable value if the expected net proceeds from the disposals of excess inventory are less than the carrying cost of the merchandise.

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Company’s condensed consolidated balance sheets.

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company’s uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

 

The components of a lease should be split into three categories: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components. Although separation of lease and non-lease components is required, certain practical expedients are available to entities. Entities electing the practical expedient would not separate lease and non-lease components. Rather, they would account for each lease component and the related non-lease component together as a single component. The Company’s facilities operating leases have lease and non-lease components to which the Company has elected to apply the practical expedient and account for each lease component and related non-lease component as one single component. The lease component results in a ROU asset being recorded on the balance sheet. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

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Income Taxes

 

Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred income tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry-forwards. 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, that it is more likely than not that such benefits will be realized. The net deferred tax assets and liabilities are presented as noncurrent.

 

The Company utilized the discrete method of accounting for income taxes in the U.S. for the three and nine months ended September 28, 2019 as it believes the discrete method results in a more accurate representation of the income tax provision for the period.

 

The Company follows the appropriate guidance relative to uncertain tax positions. This standard provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Uncertain tax positions must meet a recognition threshold of more-likely-than-not in order for those tax positions to be recognized in the financial statements.

 

Net Loss/Income Per Share

 

Basic loss per share for the Company is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share includes the dilutive impact of outstanding stock options and unvested restricted shares.

 

Translation of Foreign Currencies

 

All assets and liabilities of the Company’s foreign subsidiaries, each of whose functional currency is its local currency, are translated into U.S. dollars at the exchange rate in effect at the end of the quarter and the income and expense accounts of these affiliates have been translated at average rates prevailing during each respective quarter. Resulting translation adjustments are made to a separate component of stockholders’ equity within accumulated other comprehensive loss. Foreign exchange transaction gains and losses are included in the accompanying interim condensed consolidated statement of operations.

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases are classified as either operating or finance, and classification is based on criteria similar to past lease accounting, but without explicit bright lines. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU No. 2018-11, “Leases (Topic 842) — Targeted Improvements” (ASU 2018-11), which addresses implementation issues related to the new lease standard. The guidance became effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years.

 

The Company adopted the standard on the effective date of December 30, 2018 by applying the new lease requirements at the effective date. The Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows the Company to carry forward the historical lease classification. The impact of the adoption of ASC 842-Leases (“ASC 842”) on the condensed consolidated balance sheet on the date of adoption was an increase of $6,411 in assets and an increase of $7,037 of liabilities for the recognition of right-of-use assets and lease liabilities. The adoption of ASC 842 was immaterial to the condensed consolidated results of operations and cash flows.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

 

2.             REVENUE

 

Disaggregation of Revenue

 

The Company’s revenue is primarily from distinct fixed-price product sales in the juvenile product market, to similar customers and channels utilizing similar types of contracts that are short term in nature (less than one year). The Company does not sell service agreements or goods over a period of time and does not sell or utilize customer financing arrangements or time-and-material contracts.

 

The following is a table that presents net sales by geographical area:

 

 

 

For the three
months ended
September 28, 2019

 

For the three months
ended
September 29, 2018

 

United States

 

$

35,833

 

$

36,707

 

All Other

 

5,690

 

7,131

 

Net Sales

 

$

41,523

 

$

43,838

 

 

 

 

For the nine
months ended
September 28, 2019

 

For the nine months
ended
September 29, 2018

 

United States

 

$

111,133

 

$

111,210

 

All Other

 

19,353

 

22,361

 

Net Sales

 

$

130,486

 

$

133,571

 

 

 

 

 

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All Other consists of Canada, Europe, South America, Mexico, Asia, and the Middle East.

 

Contract Balances

 

The Company does not have any contract assets such as work-in-process or contract liabilities such as customer advances. All trade receivables on the Company’s condensed consolidated balance sheet are from contracts with customers.

 

Contract Costs

 

Costs incurred to obtain a contract are capitalized unless short term in nature. As a practical expedient, costs to obtain a contract that are short term in nature are expensed as incurred. All contract costs incurred in the nine months ended September 28, 2019 and nine months ended September 29, 2018 fall under the provisions of the practical expedient and have therefore been expensed.

 

3.             DEBT

 

Credit Facilities

 

Bank of America Credit Facility.  On June 28, 2018, the Company and Summer Infant (USA), Inc., as borrowers, entered into a Second Amended and Restated Loan and Security Agreement with Bank of America, N.A., as agent, the financial institutions party to the agreement from time to time as lenders, and certain subsidiaries of the Company as guarantors (as amended, the “Restated BofA Agreement”). The Restated BofA Agreement replaced the Company’s prior credit facility with Bank of America, and provides for a $60,000, asset-based revolving credit facility, with a $5,000 letter of credit sub-line facility. The total borrowing capacity is based on a borrowing base, which is defined as 85% of eligible receivables plus the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory, less applicable reserves. The scheduled maturity date of loans under the Restated BofA Agreement is June 28, 2023 (subject to customary early termination provisions).  On March 25, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 1 to the Second Amended and Restated Loan and Security Agreement that modified the definitions of Capital Lease, EBITDA, Eligible Account and Revolver Borrowing Base in the Restated BofA Agreement in order to account for FASB mandated changes to lease accounting standards and provide additional financing flexibility to the Company. On November 1, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 2 to the Second Amended and Restated Loan and Security Agreement.  See Note 8 for information regarding this amendment.

 

All obligations under the Restated BofA Agreement are secured by substantially all the assets of the Company, including a first priority lien on accounts receivable and inventory and a junior lien on certain assets subject to the term loan lender’s first priority lien described below. Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the Restated BofA Agreement. Proceeds from the loans were used to satisfy existing debt, pay fees and transaction expenses associated with the closing of the Restated BofA Agreement and may be used to pay obligations under the Restated BofA Agreement, and for lawful corporate purposes, including working capital.

 

Loans under the Restated BofA Agreement bear interest, at the Company’s option, at a base rate or at LIBOR, plus applicable margins based on average quarterly availability under the Restated BofA Agreement. Interest payments are due monthly, payable in arrears. The Company is also required to pay an annual non-use fee on unused amounts, as well as other customary fees as are set forth in the Restated BofA Agreement. The Restated BofA Agreement contains customary affirmative and negative covenants. Among other restrictions, the Company is restricted in its ability to incur additional debt, make acquisitions or investments, dispose of assets, or make distributions unless in each case certain conditions are satisfied. In addition, if availability falls below a specified amount, a springing covenant would be in effect requiring the Company to maintain a fixed charge coverage ratio at the end of each fiscal month of at least 1.0 to 1.0 for the twelve-month period then ended.

 

The Restated BofA Agreement also contains customary events of default, including a cross default with the Term Loan Agreement or the occurrence of a change of control. In the event of a default, the lenders may declare all of the obligations of the Company and its subsidiaries under the Restated BofA immediately due and payable. For events of default relating to insolvency and receivership, all outstanding obligations automatically become due and payable without any action on the part of the lenders.

 

As of September 28, 2019, under the Restated BofA Agreement, the rate on base-rate loans was 6.25% and the rate on LIBOR-rate loans was 4.375%. The amount outstanding on the Restated BofA Agreement at September 28, 2019, was $32,000. Total borrowing capacity at September 28, 2019 was $38,852 and borrowing availability was $6,852.

 

Prior to entering into the Restated BofA Agreement, the Company and Summer Infant (USA), Inc. were parties to an amended and restated loan and security agreement with Bank of America, N.A., as agent, which provided for an asset-based credit facility (the “Prior Credit Facility”). The Prior Credit Facility consisted of a $60,000 asset-based revolving credit facility, with a $10,000 letter of credit sub-line facility (the “Revolving Facility”), a $5,000 “first in last out” revolving credit facility (the “FILO

 

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Facility”) and a $10,000 term loan facility (the “Term Loan Facility”). The total borrowing capacity under the Revolving Facility was based on a borrowing base, generally defined as 85% of the value of eligible accounts plus the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory, less reserves. The total borrowing capacity under the FILO Facility was based on a borrowing base, generally defined as a specified percentage of the value of eligible accounts that steps down over time, plus a specified percentage of the value of eligible inventory that stepped down over time. As noted above, all obligations under the Revolving Facility and Term Loan Facility were repaid in connection with the Restated BofA Agreement and Term Loan Agreement described below. Loans under the FILO Facility were repaid on April 21, 2018.

 

Term Loan Agreement.  On June 28, 2018, the Company and Summer Infant (USA), Inc., as borrowers, entered into a Term Loan and Security Agreement (as amended, the “Term Loan Agreement”) with Pathlight Capital LLC, as agent, each lender from time to time a party to the Term Loan Agreement, and certain subsidiaries of the Company as guarantors, providing for a $17,500 term loan (the “Term Loan”). Proceeds from the Term Loan were used to satisfy existing debt, pay fees and transaction expenses associated with the closing of the Term Loan and may be used to pay obligations under the Term Loan Agreement, and for lawful corporate purposes, including working capital. The Term Loan is secured by a lien on certain assets of the Company, including a first priority lien on intellectual property, machinery and equipment, and a pledge of (i) 100% of the ownership interests of domestic subsidiaries and (ii) 65% of the ownership interests in certain foreign subsidiaries of the Company, and a junior lien on certain assets subject to the liens under the Restated BofA Agreement described above. The Term Loan matures on June 28, 2023. Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the Term Loan Agreement.  On March 25, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 1 to the Term Loan and Security Agreement that modified definitions consistent with the amendment of the Restated BofA Agreement and also modified the IP Advance Rate Reduction Amount definition in order to provide additional financing flexibility to the Company. On November 1, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 2 to the Term Loan and Security Agreement.  See Note 8 for information regarding this amendment.

 

The principal of the Term Loan is being repaid, on a quarterly basis, in installments of $219, with the first installment having been paid on December 1, 2018, until paid in full on termination. The Term Loan bears interest at an annual rate equal to LIBOR, plus 9.0%. Interest payments are due monthly, in arrears. Obligations under the Term Loan Agreement are also subject to restrictions on prepayment and a prepayment penalty if the Term Loan is repaid prior to the third anniversary of the closing of the Term Loan.

 

The Term Loan Agreement contains customary affirmative and negative covenants that are substantially the same as the Restated BofA Agreement. In addition, if availability falls below a specified amount, then the Company must maintain a fixed charge coverage ratio at the end of each fiscal month of at least 1.0 to 1.0 for the twelve-month period then ended. The Term Loan Agreement also contains events of default, including a cross default with the Restated BofA Agreement or the occurrence of a change of control. In the event of a default, the lenders may declare all of the obligations of the Company and its subsidiaries under the Term Loan Agreement immediately due and payable. For events of default relating to insolvency and receivership, all outstanding obligations automatically become due and payable without any action on the part of the lenders.

 

As of September 28, 2019, the interest rate on the Term Loan was 11.13%. The amount outstanding on the Term Loan at September 28, 2019 was $16,625.

 

Aggregate maturities of bank debt related to the Restated BofA Agreement and the Term Loan Agreement:

 

Fiscal Year ending:

 

 

 

2019

 

219

 

2020

 

875

 

2021

 

875

 

2022

 

875

 

2023 and thereafter

 

$

45,781

 

Total

 

$

48,625

 

 

Unamortized debt issuance costs were $2,282 at September 28, 2019 and $2,395 at December 29, 2018, and are presented as a direct deduction of long-term debt on the consolidated balance sheets.

 

4.                                      INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

 

 

September 28,
2019

 

December 29,
2018

 

 

 

 

 

 

 

Brand names

 

$

11,819

 

$

11,819

 

Patents and licenses

 

4,047

 

3,766

 

Customer relationships

 

6,946

 

6,946

 

Other intangibles

 

1,882

 

1,882

 

 

 

24,694

 

24,413

 

Less: Accumulated amortization

 

(11,667

)

(11,113

)

Intangible assets, net

 

$

13,027

 

$

13,300

 

 

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The amortization period for the majority of the intangible assets ranges from 5 to 20 years for those assets that have an estimated life; certain of the assets have indefinite lives (brand names). Total of intangibles not subject to amortization amounted to $8,400 as of September 28, 2019 and December 29, 2018.

 

5.                                      COMMITMENTS AND CONTINGENCIES

 

Leases

 

The Company leases office space and distribution centers primarily related to its Riverside California, Canada, United Kingdom, and Hong Kong operations.  In connection with these leases, there were no cash incentives from the landlord to be used for the construction of leasehold improvements within the facility. Our headquarters in Woonsocket, Rhode Island continues to be accounted for as a sale-leaseback lease.

 

The Company identified and assessed the following significant assumptions in recognizing the right-of-use asset and corresponding liabilities:

 

·                  Expected lease term — The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods when it is reasonably certain that the Company would exercise such options. These leases have remaining lease terms between 1 month and 3.75 years. The Canada lease has one 5-year extension option that has also not been included in the lease term.

 

·                  Incremental borrowing rate — The Company’s lease agreements do not provide an implicit rate. As the Company does not have any external borrowings for comparable terms of its leases, the Company estimated the incremental borrowing rate based on secured borrowings available to the Company for the next 5 years. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment.

 

·                  Lease and non-lease components — In certain cases the Company is required to pay for certain additional charges for operating costs, including insurance, maintenance, taxes, and other costs incurred, which are billed based on both usage and as a percentage of the Company’s share of total square footage. The Company determined that these costs are non-lease components and they are not included in the calculation of the lease liabilities because they are variable. Payments for these variable, non-lease components are considered variable lease costs and are recognized in the period in which the costs are incurred.

 

The components of the Company’s lease expense for the three and nine months ended September 28, 2019 were as follows:

 

 

 

Three Months Ended
September 28, 2019

 

Nine Months Ended
September 28, 2019

 

Operating lease cost

 

$

622

 

$

1,867

 

Variable lease cost

 

262

 

890

 

Total lease expense

 

$

884

 

$

2,757

 

 

Weighted-average remaining lease term

 

2.34 years

 

Weighted-average discount rate:

 

5.00%

 

 

Cash paid for amounts included in the measurement of the Company’s lease liabilities were $1,946 for the nine months ended September 28, 2019.

 

As of September 28, 2019, the present value of maturities of the Company’s operating lease liabilities were as follows:

 

Fiscal Year Ending:

 

 

 

2019

 

$

643

 

2020

 

2,545

 

2021

 

2,036

 

2022

 

316

 

2023

 

151

 

Less imputed interest

 

(333

)

Total

 

$

5,358

 

 

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Prior to the adoption of ASU 2016-02 and for the nine months ended September 29, 2018, the Company recognized rent expense on a straight-line basis over the lease period and recorded deferred rent expense for rent expense incurred but not yet paid. The Company also recorded deferred rent attributable to cash incentives received under its lease agreements which are amortized to rent expense over the lease term. During the three and nine months ended September 29, 2018, the Company recognized rent expense of $614 and $1,842 respectively.

 

Disclosures related to periods prior to adoption of the new lease standard:

 

Under ASC 840 “Leases”, approximate future minimum rental payments due under these leases as of December 29, 2018 were as follows:

 

Fiscal Year Ending:

 

 

 

2019

 

$

2,627

 

2020

 

2,556

 

2021

 

2,048

 

2022

 

323

 

2023 and beyond

 

154

 

Total (a)

 

$

7,708

 

 


(a)         Amounts exclude payments for sales-leaseback transaction of the Woonsocket headquarters.

 

Litigation

 

The Company is a party to various routine claims, litigation and administrative complaints incidental to its business, including claims involving product liability, employee matters and other general liability claims, most of which are covered by insurance. We are not aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, results of operations or financial condition.

 

6.                                      SHARE BASED COMPENSATION

 

The Company is currently authorized to issue up to 1,700,000 shares for equity awards under the Company’s 2012 Incentive Compensation Plan (as amended, “2012 Plan”). Periodically, the Company may also grant equity awards outside of its 2012 Plan as inducement grants for new hires.

 

Under the 2012 Plan, awards may be granted to participants in the form of non-qualified stock options, incentive stock options, restricted stock, deferred stock, restricted stock units and other stock-based awards. Subject to the provisions of the plans, 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 the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the Company’s success. The Company accounts for options under the fair value recognition standard. Share-based compensation expense for the nine months ended September 28, 2019 and September 29, 2018 was $224 and $433, respectively. Share based compensation expense is included in general and administrative expenses.

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the table below. The Company uses the simplified method to estimate the expected term of the options, but used an estimate for grants of “plain vanilla” stock options based on a formula prescribed by the Securities and Exchange Commission. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Share-based compensation expense recognized in the consolidated financial statements is based on awards that are ultimately expected to vest.

 

As of September 28, 2019, there were 1,010,623 stock options outstanding and 280,275 unvested restricted shares outstanding.

 

During the nine months ended September 28, 2019, the Company granted 244,000 stock options and 172,500 shares of restricted stock, respectively. The following table summarizes the weighted average assumptions used for stock options granted during the nine months ended September 28, 2019 and September 29, 2018.

 

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For the Nine
Months Ended
September 28, 2019

 

For the Nine
Months Ended
September 29, 2018

 

Expected life (in years)

 

5.0

 

4.9

 

Risk-free interest rate

 

2.3

%

2.7

%

Volatility

 

64.2

%

64.0

%

Dividend yield

 

0

%

0

%

Forfeiture rate

 

24.2

%

23.1

%

 

As of September 28, 2019, there were 558,208 shares available to grant under the 2012 Plan.

 

7.                                      WEIGHTED AVERAGE COMMON SHARES

 

Basic and diluted earnings or loss per share (“EPS”) is based upon the weighted average number of common shares outstanding during the period. Diluted weighted average number of common shares outstanding also included common stock equivalents such as stock options and restricted shares, using the treasury stock method. The Company does not include the anti-dilutive effect of common stock equivalents in the calculation of dilutive common shares outstanding. The computation of diluted common shares for the three months ended September 28, 2019 excluded the effect of 1,010,623 stock options and 280,275 shares of restricted stock outstanding because the effects would be anti-dilutive due to the Company’s net loss and the three months ended September 29, 2018 excluded the effect of 1,117,327 stock options and 312,471 shares of restricted stock outstanding. The computation of diluted common shares for the nine months ended September 28, 2019 excluded the effect of 1,010,623 stock options and 280,275 shares of restricted stock outstanding and the nine months ended September 29, 2018 excluded the effect of 1,183,510 stock options and 335,775 shares of restricted stock outstanding because the effects would be anti-dilutive due to the Company’s net loss for both periods.

 

8.                                      SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q and determined that no subsequent events occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto except as set forth herein.

 

Following the end of the period covered by this report, the Company and Summer Infant (USA), Inc., as borrowers, entered into amendments to each of the Restated BofA Agreement and the Term Loan Agreement as described below.  Please see Note 3 for additional information regarding the Restated BofA Agreement and the Term Loan Agreement.

 

Amendment to Restated BofA Agreement.  On November 1, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 2 to the Restated BofA Agreement (the “BofA Amendment”).  The BofA Amendment amended the terms of the Restated BofA Agreement to, among other things, (a) increase the applicable margins on base rate and LIBOR revolver loans by 50 basis points, (b) modify the definition of Financial Covenant Trigger Amount so that the amount is (i) $4,000,000 through January 15, 2020, (ii) from January 16, 2020 through March 31, 2020, the amount will be (A) $4,000,000 or (B) $5,000,000 if the Company is not in compliance with certain covenants, and (iii) from and after April 1, 2020, $5,000,000; and (c) require that the Company engage a financial advisor to assist with providing a weekly, 13-week cash flow forecast.

 

Amendment to Term Loan Agreement.  On November 1, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 2 to the Term Loan Agreement (the “Term Loan Amendment”).  The Term Loan Amendment amended the terms of the Term Loan Agreement to, among other things, (a) amend the definition of Financial Covenant Trigger Amount to be consistent with the BofA Amendment, (b) amend the definition of IP Advance Rate Reduction to provide that the amount of reduction will be (i) zero through December 31, 2019, (ii) 5.0 percentage points from January 1, 2020 through March 30, 2020, provided the Company complies with certain covenants, and (iii) 10.0 percentage points on and after March 31, 2020; and (c) consistent with the BofA Amendment, require that the Company engage a financial advisor to assist with providing a weekly, 13-week cash flow forecast.

 

 

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ITEM 2.                        Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The statements contained in this Quarterly 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. 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 Quarterly Report on Form 10-Q. These forward-looking statements include statements concerning our expectations regarding the impact of existing tariffs or new tariffs on the cost of our imported products and pricing of our products, as well as the expected effect of our mitigation efforts; our business strategy and future growth and profitability; our ability to deliver high quality, innovative products to the marketplace; our ability to maintain and build upon our existing customer and supplier relationships; our expected cash flow and liquidity for the next 12 months; our ability to obtain additional capital for our business or identify potential strategic transactions; and our ability to build awareness of our core brands. These statements are based on current expectations that involve numerous risks and uncertainties.  These risks and uncertainties include the concentration of our business with retail customers; our ability to comply with financial and other covenants in our debt agreements; our ability to introduce new products or improve existing products that satisfy consumer preferences; our ability to develop new or improved products in a timely and cost-efficient manner; our ability to meet the continued listing requirements for the listing of our common stock on the Nasdaq Capital Market; liquidity problems or bankruptcy of our customers and their ability to pay us in a timely manner; our ability to compete with larger and more financially stable companies in our markets; our dependence on key personnel; our reliance on foreign suppliers and potential disruption in foreign markets in which we operate; increases in the cost of products or the cost raw materials used to manufacture our products; changes in international trade policy and the imposition of tariffs or other fees by the United States or other countries on our products; compliance with safety and testing regulations for our products; product liability claims arising from use of our products; unanticipated tax liabilities; an impairment of other intangible assets; and other risks as detailed in our Annual Report on Form 10-K for the year ended December 29, 2018, as amended, 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 Quarterly Report on 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 our Company and our consolidated subsidiaries.  This Management’s Discussion and Analysis should be read together with the unaudited interim condensed consolidated financial statements and related notes included elsewhere in this filing and with our consolidated financial statements for the year ended December 29, 2018 included in our Annual Report on Form 10-K for the year ended December 29, 2018, as amended (“2018 Form 10-K”).

 

Note that all dollar amounts in this section are in thousands of U.S. dollars, except share and per share data.

 

Overview

 

We are an infant and juvenile products company originally founded in 1985 and have publicly traded on the Nasdaq Stock Market since 2007 under the symbol “SUMR.” We are a recognized authority in the juvenile industry, providing parents and caregivers a full range of innovative, high-quality, and high-value products to care for babies and toddlers. We seek to improve the quality of life of parents, caregivers, and babies through our product offerings, while at the same time maximizing shareholder value over the long term.

 

We operate in one principal industry segment across geographically diverse marketplaces, selling our products globally to large, national retailers as well as independent retailers, and on our partner’s websites, and our own direct to consumer websites. In North America, our customers include Amazon.com, Wal-Mart, Target, Buy Buy Baby, Home Depot, and Lowe’s. Our largest European-based customers are Argos and Amazon. We also sell through international distributors, representatives, and to select international retail customers in geographic locations where we do not have a direct sales presence.

 

In the third quarter of 2019, sales declined 5.3% as compared to the prior year period. While sales to our top customers remained strong during the quarter, higher retail price points in response to tariffs imposed on goods imported from China softened demand and resulted in a decline in sales. Our mid-tier and international customers  were also affected by fewer channels and a strong dollar. Gross profit dollars decreased by 7.5% as compared to the same prior year period principally due to the decline in sales levels combined with higher tariffs while selling expenses decreased 1.7% as a result of lower sales. General and administrative expenses increased 9.6% as compared to the prior period largely due to $284 in legal settlement charges in the third quarter while the prior year quarter included a credit of $535 to decrease a bad debt allowance for a partial recovery from the TRU bankruptcy. Net loss per diluted share for the quarter was $0.09 per share as compared to a net income of $0.01 per share for the comparable prior period.

 

During the third quarter, tariffs continued to impact our results and as a consequence we faced some liquidity constraints.   Based on our current projections, we believe we will continue to face some liquidity constraints in the near term.  As discussed below in Liquidity and Capital Resources, on November 1, 2019, we amended our loan agreements to provide additional flexibility as we ramp up for fiscal 2020, and expect that the steps we have taken to mitigate the impact of tariffs start to take effect. To the extent we are unable to

 

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offset the impact of  tariffs on our net sales or are unable to raise additional capital or engage in a strategic transaction, our business, financial position, results of operations and cash flows would be adversely affected.

 

Summary of Critical Accounting Policies and Estimates

 

There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 28, 2019 from our critical accounting policies and estimates disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K except for the adoption of the new lease accounting rules in the first quarter of fiscal 2019 as noted in Note 1 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

 

Results of Operations

 

 

 

For the three months ended
(Unaudited)

 

For the nine months ended
(Unaudited)

 

 

 

September 28, 2019

 

September 29, 2018

 

September 28, 2019

 

September 29, 2018

 

Net sales

 

$

41,523

 

$

43,838

 

$

130,486

 

$

133,571

 

Cost of goods sold

 

28,928

 

30,227

 

89,599

 

90,974

 

Gross profit

 

12,595

 

13,611

 

40,887

 

42,597

 

General & administrative expenses

 

8,353

 

7,623

 

26,255

 

29,587

 

Selling expenses

 

3,597

 

3,658

 

10,981

 

9,427

 

Depreciation and amortization

 

919

 

1,012

 

2,808

 

3,087

 

Operating income (loss)

 

(274

)

1,318

 

843

 

496

 

Interest expense, net

 

1,191

 

1,118

 

3,733

 

3,300

 

Income (loss) before provision (benefit) for income taxes

 

(1,465

)

200

 

(2,890

)

(2,804

)

Provision (benefit) for income taxes

 

195

 

82

 

392

 

(513

)

Net income (loss)

 

$

(1,660

)

$

118

 

$

(3,282

)

$

(2,291

)

 

Three Months ended September 28, 2019 compared with Three Months ended September 29, 2018

 

Net sales decreased 5.3% from $43,838 for the three months ended September 29, 2018 to $41,523 for the three months ended September 28, 2019. Sales to our top customers remained strong and we increased sales across several of our product categories, including strollers, boosters, changing pads, and soothers for the three months ended September 28, 2019 as compared to the three months ended September 29, 2018. However, these increases were offset by the negative impact of increased tariffs imposed on goods imported into the United States from China that led to higher retail price points that resulted in softened demand and a decline in our mid-tier and international sales were affected by fewer channels and a stronger dollar.

 

Cost of goods sold includes cost of the finished product from suppliers, tariffs/duties on certain imported items, freight-in from suppliers, and miscellaneous charges. The components of cost of goods sold remained substantially the same for the quarter ended September 28, 2019 as compared to the quarter ended September 29, 2018.

 

Gross profit decreased 7.5% from $13,611 for the three months ended September 29, 2018 to $12,595 for the three months ended September 28, 2019. Gross profit as a percent of net sales declined slightly from 31.1% for the three months ended September 29, 2018 to 30.3% for the three months ended September 28, 2019. Gross profit dollars declined principally due to lower sales and increased tariffs that were offset only in part by increased wholesale prices, a shift in sales mix, and the decline in value of foreign currency sales. Gross margin as a percent of net sales declined due to increased tariffs, a shift in sales mix, and the decline in value of foreign currency sales.

 

General and administrative expenses increased 9.6% from $7,623 for the three months ended September 29, 2018 to $8,353 for the three months ended September 28, 2019.  General and administrative expenses increased from 17.4% of net sales for the three months ended September 29, 2018 to 20.1% of net sales for the three months ended September 28, 2019.  The increase in dollars and as a percent of sales was primarily attributable to $284 in legal settlement costs in the three months ended September 28, 2019 while the three months ended September 29, 2018 included a one-time $535 adjustment to decrease the allowance for bad debt due to a partial recovery from the TRU bankruptcy.

 

Selling expenses decreased 1.7% from $3,658 for the three months ended September 29, 2018 to $3,597 for the three months ended September 28, 2019. Selling expenses increased as a percent of net sales from 8.3% for the three months ended September 29, 2018 to 8.7% for the three months ended September 28, 2019. The decrease in selling expense dollars is attributable to lower sales. The increase as a percent of sales for the three months ended September 28, 2019 as compared to the three months ended Setember 29, 2018 was primarily attributable to increased cooperative advertisements and consumer advertisement primarily for new product launches and on-line marketing initiatives as compared to the three months ended September 29, 2018.

 

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Depreciation and amortization decreased 9.2% from $1,012 for the three months ended September 29, 2018 to $919 for the three months ended September 28, 2019. The decrease in depreciation and amortization was attributable to lower capital investment over the past year.

 

Interest expense increased 6.5% from $1,118 for the three months ended September 29, 2018 to $1,191 for the three months ended September 28, 2019.  Interest expense increased due to higher debt levels and increased interest rates under our credit facilities.

 

For the three months ended September 29, 2018, we recorded an $82 provision for income taxes on $200 of pretax income, reflecting an estimated 41.0% tax rate for the quarter. For the three months ended September 28, 2019, we recorded a $195 provision for income taxes on $1,465 of pretax loss. The provision for income tax for the three months ended September 28, 2019 included a $311 discrete valuation allowance charge for nondeductible interest expense.

 

Nine Months ended September 28, 2019 compared with Nine Months ended September 29, 2018

 

Net sales decreased 2.3% from $133,571 for the nine months ended September 29, 2018 to $130,486 for the nine months ended September 28, 2019 due mainly to the fact that the nine months ended September 29, 2018 included $2,954 of sales to Babies R Us, a subsidiary of Toys R Us (“TRU”), that did not recur in the nine months ended September 28, 2019 as a result of the liquidation of TRU in 2018. For the nine months ended September 28, 2019, sales to our top four customers increased by 6.5% over the prior year period and sales increased across several of our product categories such as in gates, potty, strollers, changing pads, and soothers. However, these increases were offset by the negative impact of increased tariffs imposed on goods imported into the United States from China that led to higher retail price points that resulted in softened demand and a decline in our mid-tier and international sales were affected by fewer channels and a stronger dollar.

 

Cost of goods sold includes cost of the finished product from suppliers, tariffs/duties on certain imported items, freight-in from suppliers, and miscellaneous charges. The components of cost of goods sold remained substantially the same for the nine months ended September 28, 2019 as compared to the nine months ended September 29, 2018.

 

Gross profit decreased 4.0% from $42,597 for the nine months ended September 29, 2018 to $40,887 for the nine months ended September 28, 2019. Gross margin as a percent of net sales decreased from 31.9% for the nine months ended September 29, 2018 to 31.3% for the nine months ended September 28, 2019. Gross profit dollars declined principally due to lower sales and increased tariffs that were offset only in part by increased wholesale prices, a shift in sales mix, and the decline in value of foreign currency sales. Gross margin as a percent of net sales declined due to increased tariffs, a shift in sales mix, and the decline in value of foreign currency sales.

 

General and administrative expenses decreased 11.3% from $29,587 for the nine months ended September 29, 2018 to $26,255 for the nine months ended September 28, 2019.  General and administrative expenses decreased from 22.2% of net sales for the nine months ended September 29, 2018 to 20.1% of net sales for the nine months ended September 28, 2019.  The decrease in dollars and as a percent of sales was primarily attributable to a non-recurring $1,813 increase in our allowance for bad debts due to the liquidation of TRU’s U.S. assets in the nine months ended September 29, 2018 as well as lower labor and other costs as a result of cost reduction actions taken in the three months ended March 30, 2019.

 

Selling expenses increased 16.5% from $9,427 for the nine months ended September 29, 2018 to $10,981 for the nine months ended September 28, 2019. Selling expenses also increased as a percent of net sales from 7.1% for the nine months ended September 29, 2018 to 8.4% for the nine months ended September 28, 2019. The increase in selling expense dollars and as a percent of net sales for the nine months ended September 28, 2019 was primarily attributable to increased cooperative advertisements and consumer advertisement costs primarily for new product launches and on-line marketing initiatives as compared to the nine months ended September 29, 2018, which also included a larger component of direct import sales.

 

Depreciation and amortization decreased 9.0% from $3,087 for the nine months ended September 29, 2018 to $2,808 for the nine months ended September 28, 2019. The decrease in depreciation was attributable to the decline in capital investment primarily over the past year.

 

Interest expense increased 13.1% from $3,300 for the nine months ended September 29, 2018 to $3,733 for the nine months ended September 28, 2019.  The increase in interest expense was primarily attributable to higher debt levels, increased interest rates under our new credit facilities. Interest expense for the nine months ended September 29, 2018, included a write off of $518 of previously unamortized prepaid finance fees associated with the repayment of existing debt from the proceeds of our June 2018 refinancing.

 

For the nine months ended September 29, 2018, we recorded a $513 benefit for income taxes on $2,804 of pretax loss, reflecting an estimated 18.3% tax rate. For the nine months ended September 28, 2019, we recorded a $392 provision for income taxes on $2,890 of pretax loss. The provision for income taxes for the nine months ended September 28, 2019, included a $805 discrete valuation allowance charge for nondeductible interest expense.

 

Liquidity and Capital Resources

 

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

 

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In our typical operational cash flow cycle, inventory is purchased in U.S. dollars to meet expected demand plus a safety stock. Because the majority of our suppliers are based in Asia, inventory takes from three to four weeks to arrive from Asia to the various distribution points we maintain in the United States, Canada and the United Kingdom. Payment terms for these vendors are approximately 60-75 days from the date the product ships from Asia and therefore we are generally paying for the product a short time after it is physically received in the United States.  In turn, sales to customers generally have payment terms of 60 days, resulting in an accounts receivable and increasing the amount of cash required to fund working capital.  To bridge the gap between paying our suppliers and receiving payment from our customers for goods sold, we rely on our credit facilities.

 

The majority of our capital expenditures are for tools and molds related primarily to new product introductions. We receive indications from retailers near the middle of each year as to what products they will be taking into their product lines for the upcoming year. Based on these indications, we will then acquire the tools and molds required to build and produce the products. In most cases, the payments for the tools are spread out over a three to four month period.

 

For the nine months ended September 28, 2019, net cash provided by operating activities totaled $1,142 primarily due to a reduction in accounts receivable and inventory during the year offset by a decrease in accounts payable and accrued expenses. Net cash provided by operating activities for the nine months ended September 29, 2018 was $5,444 primarily due to a reduction in inventory offset by a reduction in accounts payable.

 

For the nine months ended September 28, 2019, net cash used in investing activities was approximately $1,913. For the nine months ended September 29, 2018, net cash used in investing activities was $2,644. The company reduced its investment in capital expenditures in the nine months ended September 28, 2019.

 

Net cash provided by financing activities was approximately $828 for the nine months ended September 28, 2019 and reflected borrowings on our credit facilities primarily to reduce supplier payables. Net cash used by financing activities was approximately $2,554 for the nine months ended September 29, 2018, reflecting repayments on our credit facilities with funds generated from operating activities.

 

Based primarily on the above factors, net cash decreased for the nine months ended September 28, 2019 by $62, resulting in a cash balance of approximately $659 at September 28, 2019.

 

In addition to operating cash flow, we also rely on our asset-based revolving credit facility with Bank of America, N.A. and our term loan agreement with Pathlight Capital to meet our financing requirements, which are subject to changes in our inventory and account receivable levels. We regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure. As discussed below, on November 1, 2019, we negotiated amendments to our credit agreement and term loan agreement to provide additional flexibility.

 

If we are unable to meet our current financial projections, do not adequately control expenses, or adjust our operations accordingly, we may continue to experience constraints on our liquidity and may not meet the requirements under our credit agreement and term loan agreement to maintain a specified level of availability.  If our availability drops below specified levels, we will be required to meet certain financial covenants under our credit agreement and term loan agreement as discussed below. There is no assurance that we will meet all of our financial or other covenants in the future, or that our lenders will grant waivers or agree to amend the terms of our agreements with them if there are covenant violations. Therefore, in light of our current liquidity constraints, we may be required to seek to raise additional funds through debt or equity financings, restructure our existing debt, engage in strategic collaborations, and/or a strategic transaction that is in the best interest of our stockholders.  Any such financing or strategic transaction could result in significant dilution to our existing stockholders, depending on the terms of the transaction. While we have engaged a strategic advisor to assist us in identifying and evaluating potential strategic transactions, if we are unable to identify a strategic transaction, raise additional funds, and/or restructure our existing debt, our operations could be limited and we may not be able to meet all of our obligations under our credit agreement and term loan agreement.

 

Based on past performance and current expectations, we believe that our anticipated cash flow from operations and availability under our existing credit facility are sufficient to fund our working capital, capital expenditures and debt service requirements for at least the next 12 months.

 

Credit Facilities

 

On June 28, 2018, the Company and Summer Infant (USA), Inc., as borrowers, entered into a Second Amended and Restated Loan and Security Agreement with Bank of America, N.A., as agent, the financial institutions party to the agreement from time to time as lenders, and certain subsidiaries of the Company as guarantors (as amended, the “Restated BofA Agreement”). The Restated BofA Agreement replaced the Company’s prior credit facility with Bank of America, and provides for a $60,000, asset-based revolving credit facility, with a $5,000 letter of credit sub-line facility. The total borrowing capacity is based on a borrowing base, which is defined as 85% of eligible receivables plus the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory, less applicable reserves. The scheduled maturity date of loans under the Restated BofA Agreement is June 28, 2023 (subject to customary early termination provisions).

 

On March 25, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 1 to the Restated BofA Agreement that modified the definitions of Capital Lease, EBITDA, Eligible Account and Revolver Borrowing Base in the Restated BofA

 

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Agreement in order to account for FASB mandated changes to lease accounting standards and provide additional financing flexibility to the Company. On November 1, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 2 to the Restated BofA Agreement (“BofA Amendment”).  The BofA Amendment amended the terms of the Restated BofA Agreement to, among other things, (a) increase the applicable margins on base rate and LIBOR revolver loans by 50 basis points, (b) modify the definition of Financial Covenant Trigger Amount so that the amount is (i) $4,000,000 through January 15, 2020, (ii) from January 16, 2020 through March 31, 2020, the amount will be (A) $4,000,000 or (B) $5,000,000 if the Company is not in compliance with certain covenants, and (iii) from and after April 1, 2020, $5,000,000; and (c) require that the Company engage a financial advisor to assist with providing a weekly, 13-week cash flow forecast.

 

All obligations under the Restated BofA Agreement are secured by substantially all the assets of the Company, including a first priority lien on accounts receivable and inventory and a junior lien on certain assets subject to the term loan lender’s first priority lien described below. Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the Restated BofA Agreement. Proceeds from the loans were used to satisfy existing debt, pay fees and transaction expenses associated with the closing of the Restated BofA Agreement and may be used to pay obligations under the Restated BofA Agreement, and for lawful corporate purposes, including working capital.

 

Loans under the Restated BofA Agreement bear interest, at the Company’s option, at a base rate or at LIBOR, plus applicable margins based on average quarterly availability under the Restated BofA Agreement. Interest payments are due monthly, payable in arrears. The Company is also required to pay an annual non-use fee on unused amounts, as well as other customary fees as are set forth in the Restated BofA Agreement. The Restated BofA Agreement contains customary affirmative and negative covenants. Among other restrictions, the Company is restricted in its ability to incur additional debt, make acquisitions or investments, dispose of assets, or make distributions unless in each case certain conditions are satisfied. In addition, if availability falls below a specified amount, a springing covenant would be in effect requiring the Company to maintain a fixed charge coverage ratio at the end of each fiscal month of at least 1.0 to 1.0 for the twelve-month period then ended.

 

The Restated BofA Agreement also contains customary events of default, including a cross default with the Term Loan Agreement or the occurrence of a change of control. In the event of a default, the lenders may declare all of the obligations of the Company and its subsidiaries under the Restated BofA Agreement immediately due and payable. For events of default relating to insolvency and receivership, all outstanding obligations automatically become due and payable without any action on the part of the lenders.

 

As of September 28, 2019, under the Restated BofA Agreement, the rate on base-rate loans was 6.25% and the rate on LIBOR-rate loans was 4.375%. The amount outstanding on the Restated BofA Agreement at September 28, 2019 was $32,000. Total borrowing capacity at September 28, 2019 was $38,852 and borrowing availability was $6,852.

 

Term Loan Agreement.  On June 28, 2018, the Company and Summer Infant (USA), Inc., as borrowers, entered into a Term Loan and Security Agreement (the “Term Loan Agreement”) with Pathlight Capital LLC, as agent, each lender from time to time a party to the Term Loan Agreement, and certain subsidiaries of the Company as guarantors, providing for a $17,500 term loan (the “Term Loan”). Proceeds from the Term Loan were used to satisfy existing debt, pay fees and transaction expenses associated with the closing of the Term Loan and may be used to pay obligations under the Term Loan Agreement, and for lawful corporate purposes, including working capital. The Term Loan is secured by a lien on certain assets of the Company, including a first priority lien on intellectual property, machinery and equipment, and a pledge of (i) 100% of the ownership interests of domestic subsidiaries and (ii) 65% of the ownership interests in certain foreign subsidiaries of the Company, and a junior lien on certain assets subject to the liens under the Restated BofA Agreement described above. The Term Loan matures on June 28, 2023. Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the Term Loan Agreement. 

 

On March 25, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 1 to the Term Loan Agreement that modified definitions consistent with the amendment of the Restated BofA Agreement, and also modified the IP Advance Rate Reduction Amount definition in order to provide additional financing flexibility to the Company. On November 1, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 2 to the Term Loan Agreement (the “Term Loan Amendment”).  The Term Loan Amendment amended the terms of the Term Loan Agreement to, among other things, (a) amend the definition of Financial Covenant Trigger Amount to be consistent with the BofA Amendment, (b) amend the definition of IP Advance Rate Reduction to provide that the amount of reduction will be (i) zero through December 31, 2019, (ii) 5.0 percentage points from January 1, 2020 through March 30, 2020, provided the Company complies with certain covenants, and (iii) 10.0 percentage points on and after March 31, 2020; and (c) consistent with the BofA Amendment, require that the Company deliver engage a financial advisor to assist with providing a weekly, 13-week cash flow forecast.

 

The principal of the Term Loan is being repaid, on a quarterly basis, in installments of $219, with the first installment having been paid on December 1, 2018, until paid in full on termination. The Term Loan bears interest at an annual rate equal to LIBOR, plus 9.0%. Interest payments are due monthly, in arrears. Obligations under the Term Loan Agreement are also subject to restrictions on prepayment and a prepayment penalty if the Term Loan is repaid prior to the third anniversary of the closing of the Term Loan.

 

The Term Loan Agreement contains customary affirmative and negative covenants that are substantially the same as the Restated BofA Agreement. In addition, if availability falls below a specified amount, then the Company must maintain a fixed charge coverage ratio at the end of each fiscal month of at least 1.0 to 1.0 for the twelve-month period then ended. The Term Loan Agreement also contains events of default, including a cross default with the Restated BofA Agreement or the occurrence of a change of control. In the event of a default, the lenders may declare all of the obligations of the Company and its subsidiaries under the Term Loan Agreement immediately due and payable. For events of default relating to insolvency and receivership, all outstanding obligations automatically become due and payable without any action on the part of the lenders.

 

As of September 28, 2019, the interest rate on the Term Loan was 11.13%. The amount outstanding on the Term Loan at September 28, 2019 was $16,625.

 

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ITEM 3.                        Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

 

ITEM 4.                        Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of September 28, 2019. Our Chief Executive Officer and Chief Financial Officer have concluded, based on this evaluation, that our controls and procedures were effective as of September 28, 2019.

 

Changes in Internal Control Over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II.  OTHER INFORMATION

 

ITEM 1.                        Legal Proceedings

 

The Company is a party to various routine claims, litigation and administrative complaints incidental to its business, including claims involving product liability, employee matters and other general liability claims, most of which are covered by insurance. We are not aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, results of operations or financial condition.

 

ITEM 1A.               Risk Factors

 

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our 2018 Form 10-K and Part II, Item 1A, “Risk Factors,” of our Quarterly Report on Form 10-Q for the quarter ended March 30, 2019.

 

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

 

None.

 

ITEM 3.                        Defaults Upon Senior Securities

 

None.

 

ITEM 4.                        Mine Safety Disclosures

 

Not applicable.

 

ITEM 5.                        Other Information.

 

None.

 

ITEM 6.                        Exhibits

 

The exhibits listed in the Exhibit Index immediately preceding the signature page hereto are filed as part of this Quarterly Report on Form 10-Q.

 

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EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

31.1

 

Certification of Chief Executive Officer

 

 

 

31.2

 

Certification of Chief Financial Officer

 

 

 

32.1

 

Section 1350 Certification of Chief Executive Officer

 

 

 

32.2

 

Section 1350 Certification of Chief Financial Officer

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

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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.

 

 

 

 

 

 

Date: November 12, 2019

By:

/s/ Mark Messner

 

 

Mark Messner

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

Date: November 12, 2019

By:

/s/ Paul Francese

 

 

Paul Francese

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

22


Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 

I, Mark Messner, certify that:

 

1.                                      I have reviewed this Quarterly Report on Form 10-Q of Summer Infant, Inc.;

 

2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                                      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)                                 Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)                                 Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)                                  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)                                 Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)                                 All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)                                 Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 12, 2019

/s/ Mark Messner

 

Mark Messner

 

Chief Executive Officer

 


Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

 

I, Paul Francese, certify that:

 

1.                                      I have reviewed this Quarterly Report on Form 10-Q of Summer Infant, Inc.;

 

2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.;

 

3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.;

 

4.                                      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)                                 Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)                                 Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)                                  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)                                 Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)                                 All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)                                 Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 12, 2019

/s/ Paul Francese

 

Paul Francese

 

Chief Financial Officer

 


Exhibit 32.1

 

SECTION 1350 CERTIFICATION

 

In connection with the Quarterly Report on Form 10-Q of Summer Infant, Inc. (the “Company”) for the quarter ended September 28, 2019 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Mark Messner, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.                                      The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

 

2.                                      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 12, 2019

/s/ Mark Messner

 

Mark Messner

 

Chief Executive Officer

 


Exhibit 32.2

 

SECTION 1350 CERTIFICATION

 

In connection with the Quarterly Report on Form 10-Q of Summer Infant, Inc. (the “Company”) for the quarter ended September 28, 2019 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Paul Francese, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.                                      The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

 

2.                                      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 12, 2019

/s/ Paul Francese

 

Paul Francese

 

Chief Financial Officer

 


v3.19.3
WEIGHTED AVERAGE COMMON SHARES (Details) - shares
3 Months Ended 9 Months Ended
Sep. 28, 2019
Sep. 29, 2018
Sep. 28, 2019
Sep. 29, 2018
Stock Options        
WEIGHTED AVERAGE COMMON SHARES        
Anti-dilutive securities excluded from the computation of diluted earnings per share (in shares) 1,010,623 1,117,327 1,010,623 1,183,510
Restricted Stock Awards        
WEIGHTED AVERAGE COMMON SHARES        
Anti-dilutive securities excluded from the computation of diluted earnings per share (in shares) 280,275 312,471 280,275 335,775
v3.19.3
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Common Stock
Additional Paid in Capital
Treasury Stock
Retained Earnings
Accumulated Comprehensive Loss
Total
Balance, beginning of period at Dec. 30, 2017 $ 2 $ 76,848 $ (1,283) $ (59,634) $ (2,291) $ 13,642
Balance, beginning of period (in shares) at Dec. 30, 2017 18,629,737          
Increase (Decrease) in Shareholders' Equity            
Issuance of common stock upon vesting of restricted shares (in shares) 55,500          
Stock-based compensation   99       99
Net income (loss) for the period       (2,707)   (2,707)
Foreign currency translation adjustment         (52) (52)
Balance, end of period at Mar. 31, 2018 $ 2 76,947 (1,283) (62,341) (2,343) 10,982
Balance, end of period (in shares) at Mar. 31, 2018 18,685,237          
Increase (Decrease) in Shareholders' Equity            
Issuance of common stock upon vesting of restricted shares (in shares) 67,728          
Issuance of common stock upon exercise of stock options   20       20
Issuance of common stock upon exercise of stock options (in shares) 16,050          
Stock-based compensation   215       215
Net income (loss) for the period       298   298
Foreign currency translation adjustment         (348) (348)
Balance, end of period at Jun. 30, 2018 $ 2 77,182 (1,283) (62,043) (2,691) 11,167
Balance, end of period (in shares) at Jun. 30, 2018 18,769,015          
Increase (Decrease) in Shareholders' Equity            
Issuance of common stock upon vesting of restricted shares (in shares) 22,847          
Issuance of common stock upon exercise of stock options   5       5
Issuance of common stock upon exercise of stock options (in shares) 4,500          
Stock-based compensation   119       119
Net income (loss) for the period       118   118
Foreign currency translation adjustment         95 95
Balance, end of period at Sep. 28, 2018 $ 2 77,306 (1,283) (61,925) (2,596) 11,504
Balance, end of period (in shares) at Sep. 28, 2018 18,796,362          
Balance, beginning of period at Dec. 29, 2018 $ 2 77,396 (1,283) (63,885) (2,960) 9,270
Balance, beginning of period (in shares) at Dec. 29, 2018 18,820,602          
Increase (Decrease) in Shareholders' Equity            
Issuance of common stock upon vesting of restricted shares (in shares) 33,125          
Stock-based compensation   48       48
Net income (loss) for the period       (1,398)   (1,398)
Foreign currency translation adjustment         165 165
Balance, end of period at Mar. 30, 2019 $ 2 77,444 (1,283) (65,283) (2,795) 8,085
Balance, end of period (in shares) at Mar. 30, 2019 18,853,727          
Balance, beginning of period at Dec. 29, 2018 $ 2 77,396 (1,283) (63,885) (2,960) 9,270
Balance, beginning of period (in shares) at Dec. 29, 2018 18,820,602          
Increase (Decrease) in Shareholders' Equity            
Net income (loss) for the period           (3,282)
Foreign currency translation adjustment           113
Balance, end of period at Sep. 28, 2019 $ 2 77,620 (1,283) (67,167) (2,847) 6,325
Balance, end of period (in shares) at Sep. 28, 2019 18,941,459          
Balance, beginning of period at Mar. 30, 2019 $ 2 77,444 (1,283) (65,283) (2,795) 8,085
Balance, beginning of period (in shares) at Mar. 30, 2019 18,853,727          
Increase (Decrease) in Shareholders' Equity            
Issuance of common stock upon vesting of restricted shares (in shares) 72,977          
Stock-based compensation   104       104
Net income (loss) for the period       (224)   (224)
Foreign currency translation adjustment         48 48
Balance, end of period at Jun. 29, 2019 $ 2 77,548 (1,283) (65,507) (2,747) 8,013
Balance, end of period (in shares) at Jun. 29, 2019 18,926,704          
Increase (Decrease) in Shareholders' Equity            
Issuance of common stock upon vesting of restricted shares (in shares) 14,755          
Stock-based compensation   72       72
Net income (loss) for the period       (1,660)   (1,660)
Foreign currency translation adjustment         (100) (100)
Balance, end of period at Sep. 28, 2019 $ 2 $ 77,620 $ (1,283) $ (67,167) $ (2,847) $ 6,325
Balance, end of period (in shares) at Sep. 28, 2019 18,941,459          
v3.19.3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 28, 2019
Dec. 29, 2018
Condensed Consolidated Balance Sheets    
Preferred Stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Preferred Stock, authorized 1,000,000 1,000,000
Preferred Stock, issued 0 0
Preferred Stock, outstanding 0 0
Common Stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Common Stock, authorized 49,000,000 49,000,000
Common Stock, issued 19,213,108 19,092,251
Common Stock, outstanding 18,941,459 18,820,602
Treasury Stock at cost, shares 271,649 271,649
v3.19.3
DEBT (Tables)
9 Months Ended
Sep. 28, 2019
DEBT  
Schedule of aggregate maturities of bank debt

 

 

 

 

 

Fiscal Year ending:

    

 

 

2019

 

 

219

2020

 

 

875

2021

 

 

875

2022

 

 

875

2023 and thereafter

 

$

45,781

Total

 

$

48,625

 

v3.19.3
SUBSEQUENT EVENTS
9 Months Ended
Sep. 28, 2019
SUBSEQUENT EVENTS  
SUBSEQUENT EVENTS

8.          SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q and determined that no subsequent events occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto except as set forth herein.

 

Following the end of the period covered by this report, the Company and Summer Infant (USA), Inc., as borrowers, entered into amendments to each of the Restated BofA Agreement and the Term Loan Agreement as described below.  Please see Note 3 for additional information regarding the Restated BofA Agreement and the Term Loan Agreement.

 

Amendment to Restated BofA Agreement. On November 1, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 2 to the Restated BofA Agreement (the “BofA Amendment”). The BofA Amendment amended the terms of the Restated BofA Agreement to, among other things, (a) increase the applicable margins on base rate and LIBOR revolver loans by 50 basis points, (b) modify the definition of Financial Covenant Trigger Amount so that the amount is (i) $4,000,000 through January 15, 2020, (ii) from January 16, 2020 through March 31, 2020, the amount will be (A) $4,000,000 or (B) $5,000,000 if the Company is not in compliance with certain covenants, and (iii) from and after April 1, 2020, $5,000,000; and (c) require that the Company engage a financial advisor to assist with providing a weekly, 13-week cash flow forecast.

 

Amendment to Term Loan Agreement. On November 1, 2019, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 2 to the Term Loan Agreement (the “Term Loan Amendment”). The Term Loan Amendment amended the terms of the Term Loan Agreement to, among other things, (a) amend the definition of Financial Covenant Trigger Amount to be consistent with the BofA Amendment, (b) amend the definition of IP Advance Rate Reduction to provide that the amount of reduction will be (i) zero through December 31, 2019, (ii) 5.0 percentage points from January 1, 2020 through March 30, 2020, provided the Company complies with certain covenants, and (iii) 10.0 percentage points on and after March 31, 2020; and (c) consistent with the BofA Amendment, require that the Company engage a financial advisor to assist with providing a weekly, 13-week cash flow forecast.

 

v3.19.3
INTANGIBLE ASSETS
9 Months Ended
Sep. 28, 2019
INTANGIBLE ASSETS  
INTANGIBLE ASSETS

4.          INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

 

 

 

 

 

 

 

 

    

September 28,

    

December 29,

 

    

2019

 

2018

Brand names

 

$

11,819

    

$

11,819

Patents and licenses 

 

 

4,047

 

 

3,766

Customer relationships 

 

 

6,946

 

 

6,946

Other intangibles 

 

 

1,882

 

 

1,882

 

 

 

24,694

 

 

24,413

Less: Accumulated amortization 

 

 

(11,667)

 

 

(11,113)

Intangible assets, net 

 

$

13,027

 

$

13,300

 

The amortization period for the majority of the intangible assets ranges from 5 to 20 years for those assets that have an estimated life; certain of the assets have indefinite lives (brand names). Total of intangibles not subject to amortization amounted to $8,400 as of September 28, 2019 and December 29, 2018.

v3.19.3
DEBT - Term Loan Agreement (Details)
$ in Thousands
Jun. 28, 2018
USD ($)
Sep. 28, 2019
USD ($)
Dec. 29, 2018
USD ($)
DEBT      
Unamortized debt issuance costs   $ 2,282 $ 2,395
Term Loan      
DEBT      
Face amount of loan $ 17,500    
Percentage of ownership interests of domestic subsidiaries pledged 100.00%    
Percentage of ownership interests of foreign subsidiaries pledged 65.00%    
Quarterly basis installment amount $ 219    
Interest rate on borrowings   11.13%  
Amount outstanding   $ 16,625  
Term Loan | Minimum      
DEBT      
Fixed charge coverage ratio 1.0    
Term Loan | LIBOR      
DEBT      
Interest rate basis LIBOR    
Applicable margin (as a percent) 9.00%    
v3.19.3
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue Recognition and Trade Receivables (Details)
$ in Thousands
9 Months Ended
Sep. 28, 2019
USD ($)
segment
Sep. 29, 2018
USD ($)
Revenue Recognition    
Number of reportable segment | segment 1  
Days in accounts receivable P60D  
Changes in the allowance for doubtful accounts    
Allowance for doubtful accounts, beginning of period $ 304 $ 1,622
Charges to costs and expenses 21 1,768
Account write-offs   (272)
Allowance for doubtful accounts, end of period $ 325 $ 3,118
v3.19.3
DEBT - Bank of America Credit Facility (Details)
$ in Thousands
6 Months Ended 9 Months Ended
Jun. 28, 2018
USD ($)
Jun. 27, 2018
USD ($)
Sep. 28, 2019
USD ($)
Restated Bank of America Agreement | Credit Facility      
DEBT      
Amount outstanding on credit facility     $ 32,000
Borrowing capacity     38,852
Borrowing availability     $ 6,852
Restated Bank of America Agreement | Credit Facility | Minimum      
DEBT      
Fixed charge coverage ratio 1.0    
Restated Bank of America Agreement | Credit Facility | LIBOR      
DEBT      
Interest rate during the period     4.375%
Restated Bank of America Agreement | Credit Facility | Base rate      
DEBT      
Interest rate during the period     6.25%
Restated Bank of America Agreement | Revolving Facility      
DEBT      
Maximum borrowing capacity $ 60,000    
Borrowing base as a percentage of eligible receivables 85.00%    
Borrowing base as a percentage of eligible inventory 70.00%    
Borrowing base as a percentage of net orderly liquidation value of eligible inventory and less reserves 85.00%    
Restated Bank of America Agreement | Letter of Credit      
DEBT      
Maximum borrowing capacity $ 5,000    
Prior Credit Facility | Revolving Facility      
DEBT      
Maximum borrowing capacity   $ 60,000  
Borrowing base as a percentage of eligible receivables   85.00%  
Borrowing base as a percentage of eligible inventory   70.00%  
Borrowing base as a percentage of net orderly liquidation value of eligible inventory and less reserves   85.00%  
Prior Credit Facility | Letter of Credit      
DEBT      
Maximum borrowing capacity   $ 10,000  
Prior Credit Facility | FILO Facility      
DEBT      
Maximum borrowing capacity   5,000  
Prior Credit Facility | Term Loan Facility      
DEBT      
Maximum borrowing capacity   $ 10,000  
v3.19.3
SHARE BASED COMPENSATION (Tables)
9 Months Ended
Sep. 28, 2019
SHARE BASED COMPENSATION  
Summary of weighted average assumptions used for stock options granted

 

 

 

 

 

 

 

 

 

 

For the Nine

 

For the Nine

 

 

 

 Months Ended

 

 Months Ended

 

 

    

September 28, 2019

    

September 29, 2018

 

Expected life (in years)

 

5.0

 

4.9

 

Risk-free interest rate

 

2.3

%  

2.7

%

Volatility

 

64.2

%  

64.0

%

Dividend yield

 

0

%  

0

%

Forfeiture rate

 

24.2

%  

23.1

%

 

v3.19.3
SUBSEQUENT EVENTS (Details) - Subsequent events
Nov. 01, 2019
USD ($)
Restated Bank of America Agreement | Financial Covenant  
Subsequent events  
Increase in applicable margins 50.00%
Period for cash flow forecast 91 days
Restated Bank of America Agreement | Through January 15, 2020  
Subsequent events  
Financial covenant trigger amount $ 4,000,000
Restated Bank of America Agreement | January 16, 2020 through March 31, 2020  
Subsequent events  
Financial covenant trigger amount 4,000,000
Financial covenant trigger amount, if the entity is not in compliance with certain covenants 5,000,000
Restated Bank of America Agreement | Starting April 1, 2020  
Subsequent events  
Financial covenant trigger amount $ 5,000,000
Term Loan Agreement | Financial Covenant  
Subsequent events  
Period for cash flow forecast 91 days
Term Loan Agreement | Through December 31, 2019  
Subsequent events  
Advance rate reduction (as a percent) 0.00%
Term Loan Agreement | January 1, 2020 through March 30, 2020  
Subsequent events  
Advance rate reduction (as a percent) 5.00%
Term Loan Agreement | Starting March 31, 2020  
Subsequent events  
Advance rate reduction (as a percent) 10.00%
v3.19.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 28, 2019
Sep. 29, 2018
Cash flows from operating activities:    
Net loss $ (3,282) $ (2,291)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 2,808 3,087
Stock-based compensation expense 224 433
Write off of unamortized deferred financing costs   518
Provision for allowance for doubtful accounts 21 1,496
Non cash lease expense 1,569  
Changes in assets and liabilities:    
Decrease (Increase) in trade receivables 1,666 (2,418)
Decrease in inventory 6,098 6,474
Increase in prepaids and other assets (351) (359)
Decrease in lease liability (1,053)  
Decrease in accounts payable and accrued expenses (6,558) (1,496)
Net cash provided by operating activities 1,142 5,444
Cash flows from investing activities:    
Acquisitions of property and equipment (1,632) (2,644)
Acquisitions of other intangible assets (281)  
Net cash (used) in investing activities (1,913) (2,644)
Cash flows from financing activities:    
Proceeds from issuance of common stock upon exercise of stock options   25
Repayment of Prior Term Loan Facility   (5,000)
Repayment of Prior FILO   (1,250)
Payment of financing fees and expenses   (1,958)
Proceeds from New Term Loan Facility   17,500
Repayment of Term Loan Facility (656)  
Net borrowings (repayment) on revolving facilities 1,484 (11,871)
Net cash provided by (used in) financing activities 828 (2,554)
Effect of exchange rate changes on cash and cash equivalents (119) 132
Net (decrease) increase in cash and cash equivalents (62) 378
Cash and cash equivalents, beginning of period 721 681
Cash and cash equivalents, end of period 659 1,059
Supplemental disclosure of cash flow information:    
Cash paid for interest 2,878 2,207
Cash paid for income taxes $ 5 $ 4