Use these links to rapidly review the document
TABLE OF CONTENT
Summer Infant, Inc. and Subsidiaries Index to Financial Statements

Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

(Mark One)    

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 28, 2019

Or

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 No. 001-33346



SUMMER INFANT, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation)
  20-1994619
(I.R.S. Employer
Identification No.)

1275 Park East Drive, Woonsocket, Rhode Island
(Address of principal executive offices)

 

02895
(Zip Code)

(401) 671-6550
(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

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 ý    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 ý    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 ý   Smaller reporting company ý

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 Act). Yes o    No ý

         The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates as of June 29, 2019, was $4.2 million (and has not been adjusted to reflect the reverse stock split effective March 13, 2020). For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant.

         The number of shares issued and outstanding of the registrant's common stock as of March 16, 2020 was 2,108,743 (excluding unvested restricted shares that have been issued to employees) reflecting the reverse stock split effective March 13, 2020.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's Proxy Statement for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

   


Table of Contents


INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 2019

 
   
  PAGE  

 

PART I

       

ITEM 1.

 

Business

    3  

ITEM 1A.

 

Risk Factors

    8  

ITEM 1B.

 

Unresolved Staff Comments

    16  

ITEM 2.

 

Properties

    16  

ITEM 3.

 

Legal Proceedings

    16  

ITEM 4.

 

Mine Safety Disclosures

    16  

 

PART II

       

ITEM 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    17  

ITEM 6.

 

Selected Financial Data

    17  

ITEM 7.

 

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

    17  

ITEM 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

    27  

ITEM 8.

 

Financial Statements and Supplementary Data

    27  

ITEM 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    27  

ITEM 9A.

 

Controls and Procedures

    28  

ITEM 9B.

 

Other Information

    28  

 

PART III

       

ITEM 10.

 

Directors, Executive Officers and Corporate Governance

    29  

ITEM 11.

 

Executive Compensation

    29  

ITEM 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

    29  

ITEM 13.

 

Certain Relationships and Related Transactions, and Director Independence

    29  

ITEM 14.

 

Principal Accountant Fees and Services

    29  

 

PART IV

       

ITEM 15.

 

Exhibits and Financial Statement Schedules

    30  

ITEM 16.

 

Form 10-K Summary

    30  

SIGNATURES

    34  

2


Table of Contents


PART I

        When used in this report, the terms "Summer," the "Company," "we," "us," and "our" mean Summer Infant, Inc. and its subsidiaries. Note that all dollar amounts in Part I are in thousands of U.S. dollars unless otherwise noted.

Item 1.    Business

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 product 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, 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 2019, we announced our new brand and product strategy, and are doing business under the name SUMR Brands. We believe this "family of brands" approach better reflects our strategic vision and evolving consumer expectations. As described below in "Sales and Marketing," we seek to leverage our brands, Summer™, SwaddleMe® and born free®, to cover multiple consumer demographics, retailers, and channels.

Strategic Priorities

        Our goal is to become a globally recognized leader in the juvenile product industry by creating products that families everywhere need, want, love and depend on. We will continue to support a roadmap for sustainable growth in 2020 and beyond by developing and launching new products based on consumer demand, while also strengthening our core product offerings. Additionally, we will continue to expand our reach through a portfolio of brands, strategically positioned to appeal to multiple consumer demographics, and further develop our key customer relationships. We believe the following key strategic priorities position us to capitalize on market trends and fuel our future growth:

3


Table of Contents

Products

        We currently market our products in several product categories including gates, potty, bath, entertainers, baby monitors, specialty blankets, strollers, car seats and travel systems. We are a North American market leader in the gate, bath, and the potty categories as well as a North American market leader in the convenience stroller segment. We market our core products, under our Summer™, SwaddleMe®, and born free® brand names.

        Within gates, we offer a product range of more than 30 products. Our line of gates offer versatility that covers use in home, ease of installation, and aesthetically pleasing designs. We appeal to consumers with our combination of high quality and various designs matching home décor. We continue to receive positive feedback from retailers as we expand our portfolio.

        We first entered the infant bathing category in 2002, and we have continued to create useful and safe solutions for bathing. Our innovative bath product, My Bath Seat™ continues to be extremely popular with consumers. We have an established roadmap for developing products in the four phases of bathing (sponges, bathers, bath tubs, and bath seats) to address consumer needs as baby grows, and to create loyalty to our brands, with new products available in 2020.

        Our My Size™ Potty and the My Size™ Potty Train & Transition have been well-received by retailers and consumers alike. In 2020, we expect to continue to offer consumers more options in this product line and to obtain incremental placements with our retail customers. We are a market share leader in potties, with additional offerings that support different consumer needs and various price points in regards to potty training.

        We are a North American market leader in the convenience segment of strollers. Our 3Dlite® Convenience Stroller continues to be a favorite among parents. We have continued to expand our 3D line of lightweight, affordable, feature rich strollers with the 3Dlite® +, a new lightweight convenience stroller with refined fashion and new features as well as the 3Dgo and 3D Pac. In 2020, we will also be launching the modular travel system with an infant car seat.

4


Table of Contents

        Our monitors were first introduced in 2001 and are distinguished by ease of use, innovative features, and their high quality. Currently, we offer audio and video monitors under the Summer™ brand. Our monitors feature high quality components, intended to fulfill the desire for consumers to connect with baby at any time or place. 2019 saw the successful launch of our Baby Pixel monitor, and we have continued to expand the product line with offerings including Baby Pixel Zoom HD and Baby Pixel Cadet.

        Our specialty blankets include SwaddleMe® specialty blankets as well as our expanded line of Slumber Buddy soothers. Acquired in 2008, SwaddleMe® continues to be a trusted brand synonymous with infant safe sleep. A new brand refresh, SwaddleMe branded website, and an expanded range of products are expected to launch in early 2020.

Product Development and Design

        A thorough understanding of our consumer, the competition, and our customer retail partners drives our product development. Developing and marketing innovative solutions are a critical element of our strategy. We strive to produce proprietary products that offer distinctive benefits, are visually appealing, and provide safe, thoughtful solutions.

        We conduct market analysis in our geographic regions of priority, evaluate identified opportunities, and design products accordingly. The majority of our products are currently designed at our Rhode Island headquarters. When appropriate, we also partner with manufacturers in Asia on product development. In addition to new product development, we continuously look for ways to improve upon existing products based on consumer insights with a strong focus on the end-user experience.

Suppliers and Manufacturing

        The majority of our products are manufactured in Asia (primarily China). We also use manufacturers in the United States and Mexico for certain injection-molded products, including bath tubs, potty seats and booster seats.

        We are not dependent on any one supplier as we use many different manufacturers and presently own the tooling and molds used for our products. Our Hong Kong subsidiary provides us with an Asian sourcing presence and the ability to oversee quality, electronic engineering and other issues that may arise during production. Generally, we buy finished goods from manufacturers, and thus do not directly procure raw materials for product manufacturing. Historically, we have not experienced any significant disruption of supply as a result of raw material shortages or other manufacturing factors, but there is the possibility that shortages could occur in the future based on a variety of factors beyond our control.

        Asian-made goods are shipped on the water to our warehouses, which typically takes up to four weeks. We also utilize a direct import program, to reduce costs and shipping time to certain customers. We maintain inventory in warehouses located in the United States and Canada as well as a third-party logistics warehouse in China. Most of our customers pick up their goods at our warehouses. We also deliver shipments direct to customers for sales from our own website and our consumer replacements program as well as for other smaller retail partners that request such arrangements.

Sales and Marketing

        Our products are largely marketed and sold through our own direct sales force. We have also established a strong network of independent manufacturers' representatives and distributors to provide sales and customer service support for retail customers in North America and internationally. We seek to expand our direct-to-consumer sales, which we believe will also increase overall brand awareness. Sales are recognized upon transfer of title to our customers and are made utilizing standard credit terms of approximately 60 days. We generally accept returns only for defective merchandise.

5


Table of Contents

        Marketing, promotion and consumer engagement are key elements in the juvenile industry. Historically, a significant percentage of our promotional spending has been structured in coordination with large retail partners. We continue to focus our marketing efforts on growing brand awareness among our target consumer demographic, optimizing marketing investments, and executing an integrated marketing strategy. We believe an important component of our future growth is based on speaking to the right customer, with the right content, in the right channel, at the right time. We have implemented online marketing, social media, and digital analytics tools, which allow us to better measure the performance of our marketing activities, learn from our consumers, and receive valuable insights into industry and competitor activities.

        Customer service is a critical component of our marketing strategy. We maintain a U.S.-based internal customer service department that responds to customer inquiries, investigates and resolves issues, and is available to assist customers and consumers during business hours. In 2019, we launched live chat on our direct-to-consumer websites to allow consumers to connect with the consumer service team as they research products or shop on our branded websites.

Competition

        The juvenile product industry has many participants, none of which has dominant market share, though certain companies may have disproportionate strength in specific product categories. We compete with a number of different companies in a variety of categories, although there is no single company that competes with us across all of our product categories. Our largest direct competitors are Tomy Company, Ltd., Dorel Industries, Inc., Regalo Baby®, Munchkin®, GB® (Goodbaby International Holdings, Ltd.), Graco® (a subsidiary of Newell Rubbermaid), Chicco®, Fisher-Price® (a subsidiary of Mattel, Inc.), Aden & Anais®, and Motorola® (a licensed brand of Binatone Communications Group).

        The primary method of competition in the industry consists of brand positioning, product innovation, quality, price, and timely distribution. Our competitive strengths include our ability to develop innovative new products, speed to market, our relationships with major retailers, and the quality and pricing of our products.

Intellectual Property

        We rely on a combination of trademarks, patents, and trade secrets to protect our intellectual property. Our current U.S. patents include various design features related to safety gates, bouncers, bathers, and monitors with several other patents under review by the United States Patent and Trademark Office (USPTO). The issued patents expire at various times depending on the date of issuance during the next 15 years. In certain circumstances, we will partner with third parties to develop proprietary products, and, where appropriate, we have license agreements related to the use of third-party innovation in our products. The duration of our trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained.

Customers

        Sales to the Company's top seven customers together comprised approximately 81% of our sales in fiscal 2019 and 77% of our sales in fiscal 2018. Of these customers, three generated more than 10% of sales for fiscal 2019: Amazon.com (26%), Walmart (25%), and Target (17%). In fiscal 2018, three customers generated more than 10% of sales: Amazon.com (23%), Walmart (23%), and Target (16%)

        We have no long-term contracts with these customers, and as a result, our success depends heavily on our customers' willingness to purchase and provide shelf space for our products.

6


Table of Contents

Seasonality

        We do experience some variations in seasonal demand for our products in our second and third quarters of each year. However, we expect to generate higher than average volumes for the initial shipment of new products which typically includes enough inventory to fill each store plus additional amounts to be kept at the customer's distribution center. The timing of these initial shipments varies by customer depending on when they finalize store layouts for the upcoming year and whether there are any mid-year product introductions.

Regulatory Matters

        Each of our products is designed to comply with all applicable mandatory and voluntary safety standards. In the United States, these safety standards are promulgated by federal, state and independent agencies such as the US Consumer Product Safety Commission, ASTM, the Federal Communications Commission, the Food and Drug Administration, the Federal Trade Commission, and various states Attorney Generals and state regulatory agencies. All of our products are independently tested by third party laboratories accepted by the Consumer Product Safety Commission to verify compliance to applicable safety standards. A similar approach is used to design and test products sold internationally.

Insurance

        We carry product liability insurance that provides us with $15 million coverage with a minimal deductible. We consult with our insurers to ascertain appropriate liability coverage for our product mix. We believe our current coverage is adequate for our existing business and will continue to evaluate our coverage in the future in line with our expanding sales and product breadth.

Employees

        As of December 28, 2019, we had 159 employees, 156 of whom were full time employees and 74 of whom worked in our Rhode Island headquarters.

Available Information

        The Company is incorporated under the laws of the State of Delaware. Our principal executive offices are located at 1275 Park East Drive, Woonsocket, Rhode Island 02895, and our telephone number is (401) 671 6550. We maintain our corporate website at www.summerinfant.com.

        We file reports with the Securities and Exchange Commission ("SEC"), including an annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that we file with, or furnish to, the SEC. The SEC maintains an Internet website, www.sec.gov, that contains reports, proxy and information statements and other information that we file electronically with the SEC. Our website also includes corporate governance information, including our Code of Ethics and our Board committee charters. The information contained on our website does not constitute a part of this report.

7


Table of Contents

Item 1A.    Risk Factors

        An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. If any of the events or circumstances described in the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected and the trading price of our common stock could decline. The risk factors listed below are not exhaustive. We operate in a very competitive and rapidly changing environment in which new factors may emerge from time to time, and it is not possible for management to predict the impact of all of these factors on our business, financial condition or results of operations.

Our business may be materially adversely impacted due to the recent coronavirus outbreak in the U.S.

        Our business may be materially adversely impacted by the effects of the recent coronavirus outbreak in the U.S. In addition to other risks related to the outbreak noted below, such as to our supply chain or a temporary closure of our distribution facility, as of the date of this filing, multiple retail stores in the U.S. have temporarily closed their stores in response to the outbreak, and state governments are taking action to curtail public activities. A significant portion of our sales in 2019 were made to large and small retail stores. We cannot at this time accurately predict what effects the closure of our customers' stores and the coronavirus outbreak in the U.S. will have on our sales in 2020, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, the length of voluntary business closures and governmental actions taken in response to the outbreak. More generally, a widespread health crisis could adversely affect the U.S. economy, resulting in an economic downturn that could affect demand for our products and therefore impact our results.

The concentration of our business with certain retail customers means that changes in the purchasing policies of these customers could have a significant impact on our business and operating results.

        In fiscal 2019, sales to our top seven customers, including Amazon.com, Wal-Mart, and Target, accounted for approximately 81% of our total sales. We do not have long-term commitments or contracts with any of our retail customers, and retailers make purchases by delivering one-time purchase orders. As such, any customer could potentially renegotiate the terms of our business relationship at any time, which might include reducing overall purchases of our products, altering pricing, reducing the number and variety of our products carried and the shelf space allotted for our products, and reducing cooperative advertising or marketing support. Because of the current concentration of our business with these retail customers, a change in our relationship with any of these customers could adversely affect our results of operations and financial condition.

Increased tariffs, additional tariffs or other import or export taxes on our products could have an adverse impact on the cost of our product, the demand for our products and our business, financial condition and results of operations. Further, any suspension, revocation, expiration, non-renewal or other loss of our temporary exemption from certain tariffs could adversely affect our business, financial condition and results of operations.

        The United States and other countries have levied tariffs and taxes on certain goods, including products imported into the United States from China. The majority of our products are manufactured outside the United States, mainly in China, and imported for sale in the United States. Tariffs enacted in 2018 and 2019 impacted our 2018 and 2019 results, and caused market disruption amongst our major customers. While we took actions to mitigate the impact of these tariffs and are exploring alternative sources of supply outside of China, if existing tariffs are increased or if additional tariffs or trade restrictions are implemented by the United States, China or other countries, the cost of our products

8


Table of Contents

manufactured in China or other countries and imported into the United States would increase substantially, which would force us to increase the prices of the affected products.

        In December 2019, an exclusion for metal safety gates was granted by the USTR, retroactive to the date of implementation (September 2018). Any amounts we paid in respect of such tariffs between the time of their implementation and the date the exclusion was granted will be refunded. However, the exclusion is temporary and expires in August 2020. While the USTR is expected to publish a process to seek extension of the exclusion, there can be no guarantee that the exclusion will be extended past August 2020. Any suspension, revocation, expiration, non-renewal or other loss of the granted exclusion could adversely affect our business, financial condition and results of operations. We would be required to negotiate for increased prices to mitigate the impact of the tariffs, which in turn could impact demand for our products.

        There is no assurance that we would be successful in mitigating the impact of increased or additional tariffs, and any increase in pricing to allow us to maintain reasonable margins could adversely affect the demand for those products and may result in decreased profitability and lower sales, thereby having an adverse effect on our business, results of operations and financial condition.

We may not achieve some or all of the expected benefits of or savings from our restructuring initiatives, and our restructuring initiatives may adversely impact our business, financial condition and results of operations.

        In 2020, we announced restructuring initiatives to further streamline our operations and improve our financial outlook. We may not be able to obtain the cost savings and benefits that are initially anticipated in connection with these restructuring initiatives. Reorganization and restructuring can require a significant amount of management and other employees' time and focus, which may divert attention from operating and growing our business. If these initiatives are not implemented in a timely manner, anticipated cost savings and benefits are not realized, business disruption occurs during the pendency of or following such actions, or unanticipated charges are incurred, particularly if material, there may be a negative effect on our business, financial condition and results of operations.

The intense competition in our market could reduce our net sales and profitability.

        We operate in a highly competitive market and compete with several large domestic and foreign companies and with smaller producers of infant and juvenile products. Many of our competitors have longer operating histories, greater brand recognition, and greater financial, technical, marketing and other resources than us, or have greater e-commerce and social media presence than us. We experience price competition for our products and competition for shelf space at retailers, all of which may increase in the future. If we cannot adjust to changes in our market and compete successfully in the future, our net sales and profitability will likely decline.

Our ability to grow and compete will be harmed if we do not successfully satisfy consumer preferences, enhance existing products, develop and introduce new products, and successfully market and achieve acceptance of our products.

        Our business and operating results depend largely upon providing our customers with products that appeal to the end user. Consumer preferences are constantly changing, particularly among parents whom are often the end purchasers of our products. Our success largely depends on our ability to identify emerging trends in the infant and juvenile health, safety and wellness marketplace, and to design quality products that address consumer preferences and prove safe and cost effective.

        Our ability to maintain and increase our current market share will depend upon our ability to anticipate changes in consumer preferences and satisfy these preferences, enhance existing products, develop and introduce new products, grow existing distribution channels and seek additional distribution channels for these products, successfully market the products and, ultimately, achieve

9


Table of Contents

consumer acceptance of these products. A failure to achieve market acceptance of our products could harm our ability to grow our business.

An inability to develop and introduce planned new products or product lines in a timely and cost-effective manner may damage our business.

        In developing new products and product lines, we have anticipated dates for associated product introductions. When we state that we will introduce, or anticipate introducing, a particular product or product line at a certain time in the future, those expectations are based on completing the associated development, implementation, marketing work, and manufacturing in accordance with our currently anticipated development schedule. Unforeseen delays or difficulties in the development process, significant increases in the planned cost of development, changes in anticipated consumer demand for our products, and delays in the manufacturing process may cause the introduction date for products to be later than anticipated or, in some situations, may cause a product introduction to be discontinued. The risk is also heightened by the sophistication of certain products we are designing, in terms of combining digital and analog technologies, and providing greater innovation and product differentiation. If we are unable to manufacture, source and ship new products in a timely manner and on a cost effective basis, it could have an adverse effect on our business and operating results.

If we do not maintain sufficient inventory levels or if we are unable to deliver our products to our customers in sufficient quantities, or on a timely basis, or if our inventory levels are too high, our operating results will be adversely affected.

        Our business places stringent demands on our inventory forecasting and production planning processes. This inventory management approach may be particularly challenging when combined with "just-in-time" inventory management systems commonly used by customers to minimize their inventory levels. If we fail to meet tight shipping schedules, we could damage our relationships with customers, increase our shipping costs or cause sales opportunities to be delayed or lost. To deliver our merchandise on a timely basis, we need to maintain adequate inventory levels of the desired products. This approach requires us to begin to place orders for components for certain products up to a year in advance, and we procure a significant amount of product months in advance of certain time periods. At the time we place factory orders, we may not have firm orders from customers or a complete understanding of what consumer demand for those products will be. If our inventory forecasting processes are not accurate, it may result in inventory levels in excess of the levels forecasted and we may not have sufficient space at our main distribution center to accommodate excess inventory. As a result, we could be required to record inventory write-downs for excess and obsolete inventory, and/or incur additional expense for storage of excess inventory, which would adversely affect our operating results. In addition, if our processes result in our inventory levels being too low to meet customer demand, we may lose sales, which could adversely affect our operating results.

Covenants in our credit facility and term loan agreement may affect our liquidity or limit our ability to complete acquisitions, incur debt, make investments, sell assets, merge or complete other significant transactions. Deviations from expected results of operations and expected cash requirements could result in a failure to meet financial covenants, which would adversely affect our financial condition and results of operations.

        We rely on our credit facility and cash generated from our operations to meet our working capital needs. Our credit facility and term loan agreement include certain covenants that place limitations on or restrict a number of our activities, including our ability to incur additional debt, create liens on our assets or make guarantees, make certain investments or loans, pay dividends or make distributions, dispose of or sell assets, or enter into a merger or similar transaction.

10


Table of Contents

        These restrictive covenants may limit our ability to engage in acts that may be in our best long-term interests. In addition, if we do not maintain a specified level of availability under our credit facility and term loan agreement, we will be required to comply with a fixed charge coverage ratio financial covenant. Any significant deviation in actual results from our expected results of operations, or in the timing of material expenditures from current estimates, any significant business or product acquisitions, or other significant unanticipated expenses could result in us not meeting applicable financial covenants.

        Non-compliance with the covenants in our credit facility and term loan agreement could result in us being unable to utilize borrowings under our credit facility, a circumstance which potentially could occur when operating shortfalls would most require supplementary borrowings to enable us to continue to fund our operations. If access to our credit facility is limited or terminated, our liquidity would be constrained, affecting our operations and growth prospects, and we would need to seek amendments to our credit facility or obtain additional equity or debt financing or face default. There is no assurance that such financing would be available on acceptable terms or at all. Furthermore, any equity financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants that could impede our ability to effectively operate and grow our business in the future.

Liquidity problems or bankruptcy of our key retail customers could have a significant adverse effect on our business, financial condition, and results of operations.

        A significant portion of our revenue is with key retail customers. Due to the current pressure on traditional brick-and-mortar retailers, there is increased risk that retailers may suffer material losses or file for a petition for bankruptcy. Sales to retail customers are typically made on credit without collateral. If a customer files for bankruptcy, our pre-petition accounts receivable may not be realized and post-petition orders reduced or cancelled. The bankruptcy laws may severely limit our ability to collect pre-petition accounts receivable. If key customers, cease doing business as a result of bankruptcy, or significantly reduce the number of stores operated and therefore the amount of products ordered from us, it could have an adverse effect on our business, financial condition, and results of operations, including our ability to access availability under our credit facility.

Because we rely on foreign suppliers and we sell our products in foreign markets, we are subject to numerous risks associated with international business that could increase our costs or disrupt the supply of our products, resulting in a negative impact on our business and financial condition.

        While most of our sales continue to be in North America, we operate facilities and sell products in countries outside the United States. Additionally, as we discuss below, we utilize third-party suppliers and manufacturers located in Asia to produce a majority of our products. These sales and manufacturing operations, including operations in emerging markets that we have entered, may enter, or may increase our presence in, are subject to the risks associated with international operations, including:

11


Table of Contents

        Future changes to the U.S. tariff and import/export regulations could have a negative effect on our results of operations. Due to our reliance of manufacturers located in China, from which we import a majority of our products, the occurrence of such trade reforms or restrictions could impact our business in an adverse manner.

        As a result of our international operations, we are subject to the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption and anti-bribery laws. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws, with more frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC resulting in record fines and penalties, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. Our failure to successfully comply with any such legal requirements could subject us to monetary liabilities and other sanctions that could harm our business and financial condition.

        Also, because we generate some of our revenue outside the United States but report our financial results in U.S. dollars, our financial results are impacted by fluctuations in foreign currency exchange rates. If the U.S. dollar is strong against foreign currencies, our translation of foreign currency denominated revenue or expense could result in lower U.S. dollar denominated net revenue and expense.

Earthquakes, floods, fire, epidemics or other catastrophic events out of our control may damage or impact the operations of our primary distribution facility and harm our results of operations.

        Our primary distribution facility is located in Riverside, California, near major earthquake faults. A catastrophic event, such as an earthquake, flood, fire, or other natural or manmade disaster, could impact operations at this facility. In addition, the state of California has declared a state of emergency related to the recent coronavirus outbreak, and operations at our distribution facility could be disrupted or required to close if there are any employees who are diagnosed with the coronavirus or there is a governmentally-imposed quarantine or other geographic limitations imposed on companies doing business in California. Any of these events could impair distribution of our products, damage inventory, interrupt critical functions, or otherwise affect our business negatively, harming our results of operations.

12


Table of Contents

Any adverse change in our relationship with our suppliers could harm our business.

        We rely on numerous third-party suppliers located in Asia for the manufacture of most of our products. While we believe that alternative suppliers could be located if required, our product sourcing could be affected if any of these suppliers do not continue to manufacture our products in required quantities or at all, or with the required levels of quality. We do not have any long-term supply contracts with our foreign suppliers; rather, we enter into purchase orders with these suppliers. In addition, difficulties encountered by these suppliers in the countries where they operate, such as fire, accident, natural disasters, outbreaks of contagious diseases, or political unrest, could halt or disrupt production at the affected locations, resulting in delay or cancellation of orders. For instance, the recent coronavirus outbreak in China may result in delays in manufacturing of our products due to closure of factories and delays in shipping products to the U.S., which could impact our sale forecasts and inventory levels. Any of these events could result in delayed deliveries by us of our products, causing reduced sales and harm to our reputation and brand name.

Increases in the cost of materials or labor used to manufacture our products could decrease our profitability and therefore negatively impact our business and financial condition.

        Because our products are manufactured by third-party suppliers, we do not directly purchase the materials used in the manufacture of our products. However, the prices paid by us to these suppliers could increase if raw materials, labor, or other costs increase. If we cannot pass these increases along to our customers, our profitability will be adversely affected.

Intellectual property claims relating to our products could increase our costs and adversely affect our business.

        We receive, from time to time, claims of alleged infringement of patents relating to certain of our products, and we may face similar claims in the future. The defense of intellectual property claims can be costly and time consuming, even in circumstances where the claim is without merit. We may be required to pay substantial damages or settlement costs in order to resolve these types of claims. In addition, these claims could materially harm our brand name, reputation and operations.

As a manufacturer of consumer products, we are subject to various government regulations and may be subject to additional regulations in the future, violation of which could subject us to sanctions or otherwise harm our business. In addition, we could be the subject of future product liability suits, product recalls, and other claims relating to the use of our products, which could harm our business.

        Because we produce infant and juvenile health, safety and wellness consumer products, we are subject to significant government regulation and face product liability risks relating to consumer use of our products. We must comply with a variety of state and federal product safety and product testing regulations. In particular, our products are subject to the Consumer Product Safety Act, the Federal Hazardous Substances Act ("FHSA") and the Consumer Product Safety Improvement Act ("CPSIA"), which empower the Consumer Product Safety Commission (the "CPSC"), to take action against hazards presented by consumer products. With expanded authority under the CPSIA, the CPSC has and continues to adopt new regulations for safety and products testing that apply to our products. These regulations have or likely will significantly increase the regulatory requirements governing the manufacture and sale of children's products and increase the potential penalties for noncompliance with applicable regulations. The CPSC has the authority to exclude from the market and recall certain consumer products that are found to be potentially hazardous. Consumer product safety laws also exist in some states and cities within the United States and in Canada and Europe, as well as certain other countries. If we fail to comply with these laws and regulations, or if we face product liability claims, we may be subject to damage awards or settlement costs that exceed any available insurance coverage and we may incur significant costs in complying with recall requirements.

13


Table of Contents

        We maintain a quality control program to help ensure compliance with applicable product safety requirements. Nonetheless, we have experienced, and may in the future experience, issues in products that may lead to product liability, personal injury or property damage claims, recalls, withdrawals, replacements of products, or regulatory actions by governmental authorities. A product recall could have an adverse effect on our results of operations and financial condition, depending on the product affected by the recall and the extent of the recall efforts required. A product recall could also negatively affect our reputation and the sales of other products. Furthermore, concerns about potential liability may lead us to voluntarily recall selected products. Complying with existing or new regulations or requirements could impose increased costs on our business operations, decrease sales, increase legal fees and other costs, and put us at a competitive disadvantage compared to other manufacturers not affected by similar issues with products, any of which could have an adverse effect on our financial condition. Similarly, increased penalties for non-compliance could subject us to greater expense if our products were found to not comply with such regulations.

        In addition to product liability risks relating to the use by consumers of our products, we also must comply with a variety of state and federal laws and regulations which prohibit unfair or deceptive trade practices, including dissemination of false or misleading advertising. While we take steps that we believe are necessary to comply with these laws and regulations, there can be no assurance that we will always be in compliance. Compliance with these various laws and regulations could impose significant costs on our business if we fail to comply, and could result in monetary liabilities and other penalties and lead to significant negative media attention and consumer dissatisfaction, which could have an adverse effect on our business, financial condition and results of operations.

Our success is dependent in part on our executive officers, and management turnover can create uncertainties and could disrupt and impact our business.

        Our success depends in part on the efforts of our senior management team and other key personnel. Changes in our company as a result of management transition, including the fact that our current Chief Executive Officer is serving on an interim basis, can be inherently difficult to manage and may cause disruption to our business due to, among other things, diverting management's attention away from the Company's day-to-day business, negatively impacting relationships with our key retail customers, suppliers and employees, or causing a deterioration in workplace morale. If our interim CEO were to resign, we would be forced to expend significant time and money in the pursuit of a replacement.

We may have exposure to greater than anticipated tax liabilities that, if not identified, could negatively affect our consolidated operating results and net worth.

        Our provision for income taxes is subject to volatility and could be adversely affected by nondeductible equity-based compensation, earnings being lower than anticipated in jurisdictions where we have lower statutory rates and being higher than anticipated in jurisdictions where we have higher statutory rates, transfer pricing adjustments, not meeting the terms and conditions of tax holidays or incentives, changes in the valuation of our deferred tax assets and liabilities, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles or interpretations thereof, and taxes relating to deemed dividends resulting from foreign guarantees made by certain of our foreign subsidiaries. In addition, like other companies, we may be subject to examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities. While we regularly assess the likelihood of adverse outcomes from such examinations and the adequacy of our provision for income taxes, there can be no assurance that such provision is sufficient and that a determination by a tax authority will not have an adverse effect on our results of operations.

14


Table of Contents

A material impairment in the carrying value of other intangible assets could negatively affect our consolidated results of operations and net worth.

        A portion of our assets are intangible, which are reviewed on an annual basis and/or whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying value of these assets exceeds the current fair value, the asset is considered impaired and is reduced to fair value, resulting in a non-cash charge to earnings during the period in which any impairment is determined. If we make changes in our business strategy, our future operating performance was to fall significantly below forecast levels or if external conditions adversely affect our business operations, we may be required to record an impairment charge for intangibles, which would lead to decreased assets and reduced net operating results and net worth.

We may be unable to adequately protect our information systems from cyberattacks, which could result in the disclosure of confidential or proprietary information, including personal data, damage our reputation, disrupt our operations and subject us to significant financial and legal exposure.

        We rely on information technology systems, including systems managed by third parties, across our operations, including for management of our supply chain, sale and delivery of our products, and various other processes and transactions, including credit card processing for online sales. In the course of our operations, we may collect and use confidential customer data and a variety of personal data. A successful cyberattack could result in the theft or destruction of intellectual property, data, or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyberattacks are increasing in their frequency, sophistication and intensity, including wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, denial-of-service and social engineering fraud. Cyberattacks have become increasingly difficult to detect, and a successful cyberattack could cause serious negative consequences for us, including the disruption of operations and the misappropriation of confidential business information or personal data. Although we devote resources to protect our information systems, we realize that cyberattacks are a threat, and there can be no assurance that our efforts will prevent information security breaches that would result in business, legal, financial or reputational harm to us, or would have a material adverse effect on our results of operations and financial condition. Any failure to prevent or mitigate security breaches or improper access to, use of, or disclosure of personal data could result in significant liability under state, federal and international laws regarding data privacy, and may cause a material adverse impact to our reputation and potentially disrupt our business.

Our stock price has been and may continue to be volatile.

        The market price of our common stock has been, and is likely to continue to be, volatile. When we or our competitors announce new products, experience quarterly fluctuations in operating results, announce strategic relationships, acquisitions or dispositions, change earnings estimates, publish financial results or other material news, our stock price is often affected. The volatility of our stock price may be accentuated during periods of low volume trading, which may require a stockholder wishing to sell a large number of shares to do so in increments over time to mitigate any adverse impact of the sales on the market price of our stock.

We may not be able to maintain our listing on Nasdaq.

        Our common stock currently trades on The Nasdaq Capital Market. This market has continued listing requirements that we must continue to maintain to avoid delisting, including, among others, a minimum bid price requirement of $1.00 per share and any of: (i) a minimum stockholders' equity of $2.5 million; (ii) a market value of listed securities of $35 million; or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three fiscal years.

15


Table of Contents

Our results of operations and our fluctuating stock price directly impact our ability to satisfy these listing standards. If we are unable to maintain these listing standards, we may be subject to delisting. In 2019, we received a letter from the Nasdaq Stock Market notifying us that we are not in compliance with the minimum bid price requirement. In order to regain compliance with this requirement, on March 13, 2020 we implemented a 1-for-9 reverse stock split. As of March 16, 2020, the closing bid price of our common stock was $2.55 per share. However, there is no guarantee that our stock price will remain above $1.00, and the history of similar reverse stock splits for companies in like circumstances is varied. A delisting from The Nasdaq Capital Market would result in our common stock being eligible for quotation on "over-the-counter" markets, which is generally considered to be a less efficient system than listing on markets such as Nasdaq or other national exchanges because of lower trading volumes, transaction delays and reduced security analyst and news media coverage. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our common stock. Additionally, trading of our common stock on over-the-counter markets may make us less desirable to institutional investors and may, therefore, limit our future equity financing options and could negatively affect the liquidity of our stock.

Anti-takeover provisions in our organizational documents and Delaware law may limit the ability of our stockholders to control our policies and effect a change of control of our Company and may prevent attempts by our stockholders to replace or remove our current management, which may not be in your best interests.

        There are provisions in our certificate of incorporation and bylaws that may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests, and may prevent attempts by our stockholders to replace or remove our current management. These provisions in our certificate of incorporation include authorization for our Board of Directors to issue shares of preferred stock without stockholder approval and to establish the preferences and rights of any preferred stock issued, and to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or change in control. Our bylaws require advance written notice of stockholder proposals and director nominations.

        Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which, in general, imposes restrictions upon acquirers of 15% or more of our stock. Finally, the Board of Directors may in the future adopt other protective measures, such as a stockholder rights plan, which could delay, deter or prevent a change of control.

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        We are headquartered in a 62,500 square foot facility in Woonsocket, Rhode Island. We have a lease on this facility, which will expire in 2021. We also lease small offices in Arkansas, Canada, the United Kingdom and Hong Kong.

        We maintain inventory at leased warehouses in California (approximately 460,000 square feet) and Canada (approximately 61,000 square feet). These leases expire at various times through 2023.

Item 3.    Legal Proceedings

        The Company is a party to routine litigation and administrative complaints incidental to its business. The Company does not believe that the resolution of any or all of such current routine litigation and administrative complaints is likely to have a material adverse effect on the Company's financial condition or results of operations.

Item 4.    Mine Safety Disclosures

        Not applicable.

16


Table of Contents


PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

        Our common stock is traded on the Nasdaq Capital Market under the symbol "SUMR".

Holders of Common Stock

        As of March 16, 2020, there were 35 holders of record of our common stock. Because shares of our common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of record holders.

Issuer Repurchases of Equity Securities

        None.

Recent Sales of Unregistered Securities

        Not applicable.

Item 6.    Selected Consolidated Financial Data

        Not required.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion is intended to assist in the assessment of significant changes and trends related to our results of operations and financial condition. The information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this report. Readers should also review and consider our disclosures under the heading "Special Note Regarding Forward-Looking Statements" describing various factors that could affect our business and the disclosures under the heading "Risk Factors" in this report.

        Note that all dollar amounts in this Item 7 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 product 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, 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.

17


Table of Contents

        While sales in the fourth quarter of 2019 increased 6.6% from the previous year quarter, sales for the full year 2019 remained relatively flat, declining by 0.3%. The year over year decrease reflected the loss of $2,954 of sales to Babies R Us, a subsidiary of Toys R Us ("TRU"), that did not recur in fiscal 2019 as a result of the liquidation of TRU in 2018. We also experienced softened demand in the latter half of 2019, that we believe was as a result of price increases instituted to mitigate trade tariffs. In addition, sales in 2019 to our mid-tier customers and international sales declined, affected by fewer channels and a stronger dollar. We were encouraged to see increased business with other customers and we also achieved sales growth in our gate, potty, stroller, changing pad, soother, and booster categories.

        Our results in 2019 were impacted by trade tariffs on imported Chinese goods that were first instituted in September 2018. We believe that we have mitigated most of the effect of tariffs during fiscal 2019 through increased wholesale price increases, cost concessions, and moving certain production to other countries. In addition, in December 2019, the Office of the U.S. Trade Representative announced the exclusion of tariffs on metal baby gates effective immediately and retroactive to September 2018. As a result of previously paid metal baby gate tariffs, we recognized a $1,848 tariff refund receivable and reduced the value of our metal baby gate inventory by $378 on our balance sheet as of December 28, 2019 and recorded a $1,470 benefit to cost of sales in the fourth quarter of 2019. While certain of our products are still subject to ongoing tariffs, in light of the recent trade agreement between the U.S. and China, we expect an improved tariff outlook for 2020, but there is no assurance that our mitigation efforts will be successful, or that U.S. and China trade relations will improve in the future.

        Gross margins were flat in fiscal 2019 with the prior year at 31.7%. Selling expenses increased in fiscal 2019 by $2,110 due to an increase in customer program terms and higher digital marketing costs primarily for new product launches and on-line marketing initiatives. General and administrative expenses declined in fiscal 2019 by $4,057 due to lower labor and other costs as a result of cost reduction actions taken in the three months ended March 30, 2019 and fiscal 2018 included a non-recurring $1,813 increase in our allowance for bad debts due to the liquidation of TRU's U.S. assets. We also recorded a $911 non-cash, deferred tax charge relating to the valuation of non-deductible interest expense in 2019.

        Primarily as a result of higher selling costs and the $911 deferred tax valuation charge, we ended fiscal 2019 with a net loss of $1.98 per share as compared to a net loss of $2.07 per share in fiscal 2018.

        In early 2020, we announced restructuring initiatives to further streamline operations and improve our financial outlook. If all the anticipated initiatives are implemented, we expect that these actions will result in annualized cost savings of approximately $7.5 million when complete. In addition to headcount savings and supplier cost concessions already implemented, we expect to sublease a portion of our warehousing facility in Riverside, California, and to vacate our distribution center located in the U.K. by the end of the first quarter of fiscal 2020.

        As discussed below in Liquidity and Capital Resources, we recently amended our loan agreements, and as noted above, we began implementing restructuring initiatives to streamline operations and reduce costs. We are currently assessing the potential impact of the coronavirus outbreak on our business, including on our suppliers outside of the U.S. and on our distribution center located in California. Based on the information currently available to us, we expect that we may experience delays in shipment of our products to the U.S. and some delays in manufacturing of products. These potential delays may adversely affect our financial condition and results of operations in the near term, however, at this point, the extent of such impact is uncertain. To the extent we do not meet our financial projections, are unable to mitigate the impact of ongoing tariffs, are impacted by the coronavirus outbreak, or are not successful in implementing or realizing the savings anticipated from our

18


Table of Contents

restructuring initiatives, our business, financial position, results of operations and cash flows would be adversely affected.

        In March 2020, we successfully completed a 1-for-9 reverse stock split of our Company's issued and outstanding shares of common stock in order to regain compliance with Nasdaq's minimum bid price requirement. Unless otherwise indicated, the financial statements and accompanying notes included in this Annual Report on Form 10-K give effect to the reverse stock split as if it occurred at the first period presented.

Summary of Critical Accounting Policies and Estimates

        The following summary of our critical accounting policies is presented to assist in understanding our consolidated financial statements. The consolidated financial statements and notes are representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements. Additional information about our accounting policies and estimates may be found in Note 1 to our consolidated financial statements included in this report.

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

Revenue Recognition

        We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what we expect to receive in exchange for the goods or services. Our principal activity from which we generate revenue is product sales. 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. 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 our historical experience as well as current information such as sales forecasts.

19


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.

Trade Receivables

        Trade receivables are carried at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The allowance for doubtful accounts represents adjustments to customer trade accounts receivable for amounts deemed uncollectible. The allowance for doubtful accounts reduces gross trade receivables to their estimated net realizable value. 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.

Inventory Valuation

        Inventory is comprised of finished goods and is stated at the lower of cost, inclusive of freight and duty, or market (net realizable value) using the first-in, first-out (FIFO) method or net realizable value. Our warehousing costs are charged to expense as incurred. We regularly review slow-moving and excess inventory and write-down inventories as appropriate. Management uses estimates to record write-downs based on its review of inventory by product category including length of time on hand and estimates of future orders for each product. Changes in consumer preferences, as well as demand for products, customer buying patterns and inventory management could impact the inventory valuation.

Long-Lived Assets with Finite Lives

        We review long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered to be impaired when its carrying amount exceeds both the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition and the asset's fair value. Long-lived assets include property and equipment and finite-lived intangible assets. The amount of impairment loss, if any, is charged by us to current operations.

Indefinite-Lived Intangible Assets

        We account for indefinite-lived intangible assets in accordance with accounting guidance that requires indefinite-lived intangible assets be tested annually for impairment and more frequently if events or changes in circumstances indicate that the asset might be impaired. Our annual impairment testing is conducted in the fourth quarter of every year.

        We test indefinite-lived intangible assets for impairment by comparing the asset's fair value to its carrying amount. If the fair value is less than the carrying amount, the excess of the carrying amount over fair value is recognized as an impairment charge and the adjusted carrying amount becomes the asset's new accounting basis.

        Management also evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, it is amortized prospectively over its estimated remaining useful life.

20


Table of Contents

Income Taxes

        Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and 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, it is more likely than not that such benefit will be realized.

        We recognize interest and penalties, if any, related to uncertain tax positions in interest expense. On a global basis, the open tax years subject to examination by major taxing jurisdictions in which we operate is between 2013 and 2019.

Results of Operations

        The following table presents selected consolidated financial information for our Company for the fiscal years ended December 28, 2019 ("fiscal 2019") and December 29, 2018 ("fiscal 2018").

 
  Year ended December 28, 2019   Year Ended December 29, 2018  

Net sales

    173,181     100.0 % $ 173,619     100.0 %

Cost of goods sold

    118,296     68.3 %   118,500     68.3 %

Gross profit

    54,885     31.7 %   55,119     31.7 %

General and administrative expenses

    34,823     20.1 %   38,880     22.4 %

Selling expenses

    14,540     8.4 %   12,430     7.1 %

Depreciation and amortization

    3,720     2.2 %   4,182     2.4 %

Income (loss) from operations

    1,802     1.0 %   (373 )   (0.2 )%

Interest expense, net

    4,871     2.8 %   4,442     2.5 %

Loss before provision (benefit) for income taxes

    (3,069 )   (1.8 )%   (4,815 )   (2.7 )%

Provision (benefit) for income taxes

    1,095     (0.6 )%   (564 )   0.3 %

Net loss

  $ (4,164 )   (2.4 )% $ (4,251 )   (2.4 )%

Fiscal 2019 Compared with Fiscal 2018

        Net sales decreased 0.3% to $173,181 for fiscal 2019 from $173,619 for fiscal 2018 due mainly to the fact that fiscal 2018 included $2,954 of sales to Babies R Us, a subsidiary of Toys R Us ("TRU"), which did not recur in fiscal 2019 as a result of the liquidation of TRU in 2018. For fiscal 2019, sales to our top three customers increased by approximately 7.1% over the prior fiscal year and sales increased across several of our product categories such as in gates, potty, strollers, changing pads, soothers, and boosters. However, these increases were offset by (a) 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 by (b) a decline in our mid-tier and international sales that were affected by fewer distribution channels and a stronger dollar.

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

        Gross profit decreased 0.4% to $54,885 for fiscal 2019 from $55,119 for fiscal 2018, and gross margin was the same for fiscal 2019 and fiscal 2018 at 31.7%. The additional tariffs imposed in fiscal 2019 depressed our gross margins throughout the fiscal year as compared to fiscal 2018. By the fourth quarter, however, we were able to offset much of the existing tariffs through increased customer prices,

21


Table of Contents

supplier cost concessions, and moving certain production to other lower or non-tariff countries. In addition, in December 2019, the Office of the U.S. Trade Representative announced the exclusion of tariffs on metal baby gates effective immediately and retroactive to September 2018 resulting in a $1,848 tariff refund due to the Company. We recorded $1,470 of the tariff refund as a benefit to cost of sales in the fourth quarter of 2019 to reflect the portion attributable to fiscal 2019. The remaining $378 of the tariff refund will be taken as a benefit when the remaining tariffed metal baby gate inventory held as of December 28, 2019 is sold off in fiscal 2020.

        General and administrative expenses declined 10.4% to $34,823 for fiscal 2019 compared to $38,880 for fiscal 2018 and decreased as a percent of sales to 20.1% for fiscal 2019 from 22.4% for fiscal 2018. The decrease in dollars and as a percent of sales was primarily attributable to lower labor and other costs as a result of cost reduction actions taken in the three months ended March 30, 2019 and a non-recurring $1,813 increase in our allowance for bad debts due to the liquidation of TRU's U.S. assets in fiscal 2018.

        Selling expenses increased by 17.0% to $14,540 for fiscal 2019 from $12,430 for fiscal 2018 and as a percent of sales to 8.4% for fiscal 2019 from 7.1% for fiscal 2018. The increase in selling expense dollars and as a percent of net sales for the fiscal 2019 was primarily attributable to increased cooperative advertisement and consumer advertisement costs primarily for new product launches and on-line marketing initiatives as compared to fiscal 2018, which also included a larger component of direct import sales.

        Depreciation and amortization decreased to $3,720 for fiscal 2019 from $4,182 in fiscal 2018. Capital expenditures decreased in fiscal 2019 to $1,991 from $3,472 in fiscal 2018.

        Net interest expense increased 9.7% to $4,871 for fiscal 2019 from $4,442 in fiscal 2018. Interest expense increased primarily as a result of higher debt levels during fiscal 2019 compared to fiscal 2018. In addition, average interest rates under our current credit facilities signed in June 2018 are higher than our previous credit facilities on a full year basis.

        For fiscal 2019, we recorded a $1,095 tax provision on $3,069 of pretax loss for the period. The tax provision for fiscal 2019 included a $911 valuation allowance for nondeductible interest expense, a $191 adjustment for the forfeiture of unexercised stock options, and a $333 valuation allowance against our United Kingdom subsidiary's net operating loss deferred tax asset until such time as we can demonstrate it is more likely than not that these assets will be used in the near future. For fiscal 2018, we recorded a $564 tax benefit on $4,815 of pretax loss for the period. The tax provision for fiscal 2018 included a $933 charge due to the new Tax Act. The Tax Act allows for interest expense to be deductible for tax purposes up to 30% of adjusted taxable income. Any interest not deductible can be carried forward indefinitely. We recorded an interest deduction limitation deferred tax asset of $933 and recorded an offsetting full valuation allowance on this asset until such time as we can demonstrate it is more likely than not that the asset will be used in the near future.

Liquidity and Capital Resources

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

Cash Flows

        The majority of our inventory is sourced from Asia which takes approximately three to four weeks to arrive at the various distribution points we maintain in the United States, Canada and the United Kingdom and payment terms for these vendors are approximately 60-75 days from the date the product ships from Asia. In turn, sales to customers generally have payment terms of approximately 60 days, resulting in an account receivable and increasing the amount of cash required to fund working capital.

22


Table of Contents

To bridge the gap between paying our suppliers and receiving payment from our customers for goods sold, we rely on our credit facility.

        The majority of our capital expenditures are for tools and molds related to new product introductions. We receive indications from retailers generally 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 acquire tools and molds required to build and produce the products. In most cases, the payments for the tools and molds are spread over a three to four month period.

        For fiscal 2019, net cash provided by operating activities was approximately $1,535 generated primarily from operating performance. For fiscal 2018, net cash provided by operating activities was approximately $5,546 generated primarily from operating performance and a reduction in net working capital.

        For fiscal 2019, net cash used in investing activities was approximately $2,326. For fiscal 2018, net cash used in investing activities was approximately $3,472. The decline in the use of cash in investing activities was primarily attributable to a reduction in capital expenditures in fiscal 2019.

        For fiscal 2019, net cash provided by financing activities was approximately $719 to fund our capital expenditures. For fiscal 2018, net cash used in financing activities was approximately $1,999, reflecting repayments on our credit facility and the proceeds from our new Term Loan.

        Based primarily on the above factors, net cash decreased for fiscal 2019 by $326, resulting in a cash balance of approximately $395 at fiscal year end.

        The following table summarizes our significant contractual commitments at fiscal 2019 year end:

 
   
  Payment Due by Fiscal Period  
Contractual Obligations
  Total   2020   2021   2022   2023   2024 and
beyond
 

Revolving Facility

  $ 32,226                 32,226        

Term Loan Facility

    16,406     875     875     875     13,781        

Estimated future interest payments on Revolving Facility

    4,880     1,440     1,347     1,255     838        

Estimated future interest payments on Term Loan Facility

    6,398     1,743     1,647     1,552     1,456        

Operating leases

    5,356     2,709     2,170     323     154        

Capital leases and other liabilities

    786     669     117                    

Total contractual cash obligations

  $ 66,052   $ 7,436   $ 6,156   $ 4,005   $ 48,455   $ 0  

        Estimated future interest payments on our Revolving Facility and Term Loan Facility are based upon the interest rates in effect at December 28, 2019.

Capital Resources

        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 is 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.

        If we are unable to meet our current financial projections, do not adequately control expenses, or adjust our operations accordingly, we may experience constraints on our liquidity and may not meet the financial and other covenants under our credit facility and term loan agreement, which could impact our availability. There is no assurance that we will meet all of our financial or other covenants in the

23


Table of Contents

future, or that our lenders will grant waivers or agree to amend the terms of our agreements with them if there are covenant violations. In such case, 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. 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 facility 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

        We and our wholly owned subsidiary, Summer Infant (USA), Inc., are parties to a Second Amended and Restated Loan and Security Agreement with Bank of America, N.A., as agent, that provides for a $48,000 asset-based revolving credit facility (as it may be amended from time to time, the "Restated BofA Agreement"). Total borrowing capacity under the Restated BofA Agreement 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. Loans under the Restated BofA Agreement are scheduled to mature on June 28, 2023 (subject to customary early termination provisions). 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, and certain of our subsidiaries are guarantors.

        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. We are 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 and certain financial 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. Through the end of fiscal 2020, the Company is required to achieve (i) a minimum net sales amount for each three consecutive months, measured at the end of each month, and (ii) a trailing 12-month minimum adjusted EBITDA amount, measured at the end of each month. 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.

        As of December 28, 2019, the interest rates for base-rate loans and LIBOR-rate loans under the Restated BofA Agreement were 6.50% and 4.625%, respectively. At December 28, 2019, the amount outstanding under the asset-based revolving credit facilty was $32,226, total borrowing capacity was $39,109, and borrowing availability was $6,883.

        Following the end of fiscal 2019, we amended the Restated BofA Agreement on January 17, 2020 and March 10, 2020. For additional information on the Restated BofA Agreement and the recent amendments, please see Note 5 and Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K.

24


Table of Contents

Term Loan

        We and our wholly owned subsidiary, Summer Infant (USA), Inc., are parties to a Term Loan and Security Agreement with Pathlight Capital LLC, as agent, pursuant to which we received a $17,500 term loan (as it may be amended from time to time, the "Term Loan Agreement"). Principal on the term loan is repaid on a quarterly basis in installments of $219, and interest payments are due monthly, in arrears, provided that, in connection with the recent amendments to our Term Loan Agreement, principal payments for March, June and September 2020 have been suspended. In addition, in connection with the recent amendments to our Term Loan Agreement, the term loan began to accrue PIK (payment in kind) interest at an annual rate of 4.0% in March 2020, which interest will become payable upon repayment of the term loan or earlier upon the occurrence of certain events. The term loan matures on June 28, 2023. Obligations under the Term Loan Agreement are also subject to a prepayment penalty if the term loan is repaid prior to the third anniversary of the closing of the term loan. 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 asset-based revolving credit facilty, and certain of our subsidiaries are guarantors.

        The Term Loan Agreement contains customary affirmative and negative covenants and certain financial covenants that are substantially the same as the Restated BofA Agreement described above.

        The interest rate for the Term Loan Agreement was 10.91% as of December 28, 2019. The amount outstanding under the Term Loan Agreement at December, 28, 2019 was $16,406.

        Following the end of fiscal 2019, we amended the Term Loan Agreement on January 17, 2020 and March 10, 2020. For additional information on the Term Loan Agreement and recent amendments, please see Note 5 and Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

        We did not have any off-balance sheet arrangements during the year ended December 28, 2019 or the year ended December 29, 2018.

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 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

25


Table of Contents

assets and lease liabilities. The adoption of ASC 842 was immaterial to the consolidated results of operations and cash flows.

        In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and a subsequent amendment to the initial guidance, ASU 2018-19 Codification Improvements to Topic 325, Financial Instruments-Credit Losses (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held, which include, but are not limited to, trade and other receivables. The new standard is effective for fiscal years beginning after December, 15, 2022. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

        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.

Special Note Regarding Forward Looking Statements

        This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements concern management's current assumptions, estimates, beliefs, plans, strategies and expectations and anticipated events or trends and similar expressions concerning matters that are not historical facts. Such forward-looking information may be identified by terms such as "expect," "anticipate," "believe," "outlook," "may," "estimate," "should," "predict" and similar terms or variations thereof, and includes statements regarding our expectations with respect to the benefits of and savings from our restructuring initiatives, including an expected $7.5 million of annualized cost savings, the potential impact of the coronavirus outbreak in China on our results of operations, our liquidity for the next 12 months, and expected trends and product offerings in 2020. These statements are based on a series of expectations, assumptions, estimates and projections about our Company, are not guarantees of future results or performance, and involve significant risks, uncertainties and other factors, including assumptions and projections, for all forward periods. Our actual results may differ materially from any future results expressed or implied by such forward-looking statements. Such factors include, among others, the following:

26


Table of Contents

        The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, please refer to the "Risk Factors" section of this report for additional information regarding factors that could affect our results of operations, financial condition and liquidity.

        We intend our forward-looking statements to speak only as of the time of such statements and do not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results. We cannot give any assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this report or included in our other periodic reports filed with the SEC could materially and adversely impact our operations and our future financial results.

        Any public statements or disclosures by us following this report that modify or impact any of the forward-looking statements contained in or accompanying this report will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this report.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        Not required.

Item 8.    Financial Statements and Supplementary Data

        The financial statements required by this item are attached to this Annual Report on Form 10-K beginning on Page F-1.

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

        None.

27


Table of Contents

Item 9A.    Controls and Procedures

(a)
Evaluation of Disclosure Controls and Procedures

        As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Interim Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 28, 2019. Our principal executive officer and principal financial officer have concluded, based on their evaluation, that our disclosure controls and procedures were effective as of December 28, 2019.

(b)
Management's Report on Internal Control over Financial Reporting

        Management of our Company is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under the supervision of, a company's principal executive and principal financial officers and effected by a company's board of directors, management and other personnel, 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. It includes those policies and procedures that:

        Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        The Company's management has used the criteria established in the 2013 "Internal Control—Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO Framework") to evaluate the effectiveness of the Company's internal control over financial reporting.

        Management of the Company conducted an evaluation of the effectiveness, as of December 28, 2019, of the Company's internal control over financial reporting and based on its evaluation under the COSO Framework, management has concluded that the Company's internal control over financial reporting was effective as of December 28, 2019.

(c)
Changes in Internal Control Over Financial Reporting

        There was no change in our internal control over financial reporting that occurred during the quarter ended December 28, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

        None.

28


Table of Contents


PART III

Item 10.    Directors, Executive Officers and Corporate Governance

        The information relating to directors, director nominees and executive officers of the Company is set forth in our definitive Proxy Statement to be filed with the SEC in connection with our 2020 Annual Meeting of Stockholders (the "2020 Proxy Statement") and is incorporated herein by reference.

        The information relating to Section 16(a) beneficial ownership reporting compliance is set forth in the 2020 Proxy Statement and is incorporated herein by reference.

        We have adopted a Code of Ethics that applies to all of our directors, officers and employees. The Code of Ethics is publicly available in the Investor Relations section of our website at www.summerinfant.com. Amendments to the Code of Ethics and any grant of a waiver from a provision of the Code of Ethics requiring disclosure under applicable SEC and Nasdaq rules will be disclosed on our website.

        The information relating to the Company's Audit Committee and its designated audit committee financial expert is set forth in the 2020 Proxy Statement and is incorporated herein by reference.

        The information concerning procedures by which stockholders may recommend director nominees is set forth in the 2020 Proxy Statement and is incorporated herein by reference.

Item 11.    Executive Compensation

        The information relating to executive compensation and the Company's Compensation Committee is set forth in the 2020 Proxy Statement and is incorporated herein by reference, provided that the information under the caption "Compensation Committee Report" shall be deemed "furnished" and shall not be deemed "filed" with this report, not deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, except only as may be expressly set forth in any such filing by specific reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        The information relating to security ownership of management, certain beneficial owners, and the Company's equity plans is set forth in the 2020 Proxy Statement and is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

        The information relating to certain relationships and related party transactions and director independence is set forth in the 2020 Proxy Statement and is incorporated herein by reference.

Item 14.    Principal Accountant Fees and Services

        The information relating to the independent registered public accounting firm fees and services and the Company's pre-approval policies and procedures for audit and non-audit services provided by such accounting firm is set forth in the 2020 Proxy Statement and is incorporated herein by reference.

29


Table of Contents


PART IV

Item 15.    Exhibits and Financial Statement Schedules

(a)
(1) Financial Statements

        The list of consolidated financial statements and notes required by this Item 15(a)(1) is set forth in the "Index to Financial Statements" on page F-1 of this Annual Report on Form 10-K.

        All schedules have been omitted because the required information is included in the financial statements or notes thereto.

        The exhibits required by Item 601 of Regulation S-K and Item 15(b) are listed in the "Index to Exhibits" below.

(b)
Exhibits

        The exhibits listed in the "Index to Exhibits" below are filed as part of this Annual Report on Form 10-K.

Item 16.    Form 10-K Summary

        Not applicable.

30


Table of Contents


Index to Exhibits

Exhibit
No.
  Description
  2.1   Agreement and Plans of Reorganization, dated as of September 1, 2006, by and among KBL Healthcare Acquisition Corp. II, and its wholly owned subsidiary, SII Acquisition Inc., and Summer Infant, Inc., Summer Infant Europe Limited, Summer Infant Asia, Ltd. and their respective stockholders (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on September 5, 2006)
        
  2.2   Purchase and Sale Agreement, dated March 24, 2009, between Summer Infant (USA), Inc. and Faith Realty II, LLC (Incorporated by reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q/A filed on August 18, 2009)
        
  2.3   Lease Agreement, dated March 24, 2009, between Summer Infant (USA), Inc. and Faith Realty II, LLC (Incorporated by reference to Exhibit 2.2 to the Registrant's Quarterly Report on Form 10-Q/A filed on August 18, 2009)
        
  2.4   Stock Purchase Agreement, dated as of March 24, 2011, by and among the Registrant, Summer Infant (USA), Inc., Born Free Holdings Ltd., and each stockholder of Born Free Holdings Ltd. (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on March 28, 2011)
        
  3.1 + Amended and Restated Certificate of Incorporation, as amended
        
  3.2   Amended and Restated Bylaws, as amended through May 5, 2016 (Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on May 9, 2016)
        
  4.1   Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.2 to the Registrant's Form 8-A filed on March 6, 2007)
        
  4.2 + Description of Registrant's Securities
        
  10.1   Registration Rights Agreement by and among the Registrant, Jason Macari and Steven Gibree (Incorporated by reference to Exhibit 10.9 to the Registrant's Current Report on Form 8-K filed on September 5, 2006)
        
  10.2 * 2006 Performance Equity Plan (Incorporated by reference to Appendix A to the Registrant's Definitive Proxy Statement on Schedule 14A filed on April 29, 2008, SEC File No. 001-33346)
        
  10.3 ** Second Amended and Restated Loan and Security Agreement, dated as of June 28, 2018, among Summer Infant, Inc. and Summer Infant (USA), Inc., as borrowers, the guarantors from time to time party thereto, the financial institutions from time to time party thereto as lenders, and Bank of America, N.A., as agent for the lenders (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on June 29, 2018)
        
  10.4   Amendment No. 1 to Second Amended and Restated Loan and Security Agreement, dated as of March 25, 2019, among Summer Infant, Inc. and Summer Infant (USA), Inc., as borrowers, the guarantors from time to time party thereto, the financial institutions from time to time party thereto as lenders, and Bank of America, N.A., as agent for the lenders (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on May 7, 2019)
 
   

31


Table of Contents

Exhibit
No.
  Description
  10.5 ** Amendment No. 2 to Second Amended and Restated Loan and Security Agreement, dated as of November 1, 2019, among Summer Infant, Inc. and Summer Infant (USA) Inc., as borrowers, the guarantors from time to time party thereto, the financial institutions from time to time party thereto as lenders, and Bank of America, N.A., as agent for the lenders (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on November 5, 2019)
        
  10.6 ** Term Loan and Security Agreement, dated as of June 28, 2018, among Summer Infant, Inc. and Summer Infant (USA),  Inc., as borrowers, the guarantors from time to time party thereto, the financial institutions from time to time party thereto as lenders, and Pathlight Capital LLC, as agent for the lenders (Incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on June 29, 2018)
        
  10.7   Amendment No. 1 to Term Loan and Security Agreement, dated as of March 25, 2019, among Summer Infant, Inc. and Summer Infant (USA), Inc., as borrowers, the guarantors from time to time party thereto, the financial institutions from time to time party thereto as lenders, and Pathlight Capital LLC, as agent for the lenders (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on May 7, 2019)
        
  10.8 ** Amendment No. 2 to Term Loan and Security Agreement, dated as of November 1, 2019, among Summer Infant, Inc. and Summer Infant (USA) Inc., as borrowers, the guarantors from time to time party thereto, the financial institutions from time to time party thereto as lenders, and Pathlight Capital LLC, as agent for the lenders (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on November 5, 2019)
        
  10.9 * 2012 Incentive Compensation Plan, as amended (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on August 5, 2015)
        
  10.10 * Summer Infant, Inc. Form of Indemnification Agreement (for officers and directors) (Incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on January 17, 2014, SEC File No. 001-33346)
        
  10.11   Amendment to Lease, dated May 13, 2015, by and between Faith Realty II, LLC and Summer Infant (USA), Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on May 19, 2015)
        
  10.12   Second Amendment to Lease, dated January 22, 2018, by and between Faith Realty II, LLC and Summer Infant (USA), Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on January 26, 2018)
        
  10.13 * Summer Infant, Inc. Change in Control Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on February 9, 2018)
        
  10.14 * Offer Letter by and between the Registrant and Paul Francese (Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K filed on February 20, 2019)
        
  10.15 * Separation Agreement and General Release by and among Summer Infant, Inc., Summer Infant (USA), Inc. and Mark Messner, dated as of November 19, 2019 (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on November 20, 2019)
        
  10.16 + Engagement Letter, effective as of December 9, 2019, between Summer Infant, Inc. and Winter Harbor LLC

32


Table of Contents

Exhibit
No.
  Description
  21.1   List of Subsidiaries (Incorporated by reference to Exhibit 21.1 to the Registrant's Annual Report on Form 10-K filed on March 13, 2013)
        
  23.1 + Consent of Independent Registered Public Accounting Firm
        
  31.1 + Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
        
  31.2 + Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
        
  32.1 + Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
        
  32.2 + Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
        
  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

*
Management contract or compensatory plan or arrangement.

**
Portions of this Exhibit have been omitted pursuant to a grant of confidential treatment.

+
Filed herewith.

33


Table of Contents


SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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 on the 18th day of March, 2020.

    SUMMER INFANT, INC.

 

 

By:

 

/s/ PAUL FRANCESE

Paul Francese
Chief Financial Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name
 
Title
 
Date

 

 

 

 

 
/s/ STUART NOYES

Stuart Noyes
  Interim Chief Executive Officer (Principal Executive Officer)   March 18, 2020

/s/ PAUL FRANCESE

Paul Francese

 

Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

 

March 18, 2020

/s/ ROBIN MARINO

Robin Marino

 

Chairwoman of the Board

 

March 18, 2020

/s/ EVELYN D'AN

Evelyn D'An

 

Director

 

March 18, 2020

/s/ MARTIN FOGELMAN

Martin Fogelman

 

Director

 

March 18, 2020

/s/ ALAN MUSTACCHI

Alan Mustacchi

 

Director

 

March 18, 2020

/s/ ANDREW W. TRAIN

Andrew W. Train

 

Director

 

March 18, 2020

/s/ STEPHEN ZELKOWICZ

Stephen Zelkowicz

 

Director

 

March 18, 2020

34


Table of Contents


Summer Infant, Inc. and Subsidiaries
Index to Financial Statements

Report of Independent Registered Public Accounting Firm

  F-2

Consolidated Balance Sheets

  F-3

Consolidated Statements of Operations

  F-4

Consolidated Statements of Comprehensive Loss

  F-5

Consolidated Statements of Cash Flows

  F-6

Consolidated Statements of Stockholders' Equity

  F-7

Notes to Consolidated Financial Statements

  F-8 - F-30

F-1


Table of Contents


Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Summer Infant Inc.

Opinion on the Financial Statements

        We have audited the accompanying consolidated balance sheets of Summer Infant, Inc. and its subsidiaries (the Company) as of December 28, 2019 and December 29, 2018, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2019 and December 29, 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

        These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

        We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

        Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ RSM US LLP

We have served as the Company's auditor since 2010.

Boston, Massachusetts
March 18, 2020

F-2


Table of Contents


Summer Infant, Inc. and Subsidiaries

Consolidated Balance Sheets

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

 
  December 28,
2019
  December 29,
2018
 

ASSETS

             

CURRENT ASSETS

             

Cash and cash equivalents

  $ 395   $ 721  

Trade receivables, net of allowance for doubtful accounts of $542 and $304 at December 28, 2019 and December 29, 2018, respectively

    32,787     31,223  

Inventory, net

    28,056     36,066  

Prepaids and other current assets

    2,946     997  

TOTAL CURRENT ASSETS

    64,184     69,007  

Property and equipment, net

    8,788     9,685  

Intangible assets, net

    12,896     13,300  

Right of use assets, noncurrent

    4,578      

Deferred tax assets, net

    996     2,127  

Other assets

    101     97  

TOTAL ASSETS

  $ 91,543   $ 94,216  

LIABILITIES AND STOCKHOLDERS' EQUITY

             

CURRENT LIABILITIES

             

Accounts payable

  $ 25,396   $ 28,120  

Accrued expenses

    7,289     8,939  

Lease liabilities, current

    2,495      

Current portion of long-term debt

    875     875  

TOTAL CURRENT LIABILITIES

    36,055     37,934  

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

    45,359     44,641  

Lease liabilities, noncurrent

    2,546      

Other liabilities

    2,000     2,371  

TOTAL LIABILITIES

    85,960     84,946  

STOCKHOLDERS' EQUITY

             

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

         

Common Stock $0.0009 par value, authorized, issued and outstanding of 5,444,445, 2,138,926, and 2,108,743 at December 28, 2019 and 5,444,445, 2,121,362, and 2,091,178 at December 29, 2018, respectively

    2     2  

Treasury Stock at cost (30,184 shares at December 28, 2019 and December 29, 2018)

    (1,283 )   (1,283 )

Additional paid-in capital

    77,715     77,396  

Accumulated deficit

    (69,088 )   (64,924 )

Accumulated other comprehensive loss

    (1,763 )   (1,921 )

TOTAL STOCKHOLDERS' EQUITY

    5,583     9,270  

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 91,543   $ 94,216  

   

See notes to consolidated financial statements.

F-3


Table of Contents


Summer Infant, Inc. and Subsidiaries

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.

 
  For the fiscal year ended  
 
  December 28,
2019
  December 29,
2018
 

Net sales

  $ 173,181   $ 173,619  

Cost of goods sold

    118,296     118,500  

Gross profit

    54,885     55,119  

General and administrative expenses

    34,823     38,880  

Selling expenses

    14,540     12,430  

Depreciation and amortization

    3,720     4,182  

Operating income (loss)

    1,802     (373 )

Interest expense, net

    4,871     4,442  

Loss before provision (benefit) for income taxes

    (3,069 )   (4,815 )

Provision (benefit) for income taxes

    1,095     (564 )

Net loss

  $ (4,164 ) $ (4,251 )

Net loss per share, basic and diluted

  $ (1.98 ) $ (2.04 )

Weighted average shares outstanding, basic and diluted

    2,100,730     2,082,714  

   

See notes to consolidated financial statements.

F-4


Table of Contents


Summer Infant, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

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

 
  For the fiscal year
ended
 
 
  December 28,
2019
  December 29,
2018
 

Net loss

  $ (4,164 ) $ (4,251 )

Other comprehensive income (loss):

             

Foreign currency translation adjustments

    158     (669 )

Comprehensive loss

  $ (4,006 ) $ (4,920 )

   

See notes to consolidated financial statements.

F-5


Table of Contents


Summer Infant, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

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

 
  For the fiscal year
ended
 
 
  December 28,
2019
  December 29,
2018
 

Cash flows from operating activities:

             

Net loss

  $ (4,164 ) $ (4,251 )

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

             

Bad debt expense

    316     1,963  

Depreciation and amortization

    3,720     4,182  

Stock-based compensation

    319     523  

Write off of unamortized deferred financing costs

        518  

Deferred income taxes

    1,084     (193 )

Amortization of right of use assets

    1,833      

Changes in assets and liabilities, net of effects of acquisitions

             

(Increase) decrease in accounts receivable

    (1,583 )   3,035  

Decrease (increase) in inventory

    8,328     (2,524 )

(Increase) in prepaids and other current assets

    (1,939 )   (71 )

(Decrease) in lease liabilities

    (1,370 )    

Decrease (increase) in other assets

    (10 )   (42 )

(Decrease) increase in accounts payable and accrued expenses

    (4,999 )   2,406  

Net cash provided by operating activities

    1,535     5,546  

Cash flows from investing activities:

             

Acquisitions of property and equipment

    (1,991 )   (3,472 )

Acquisitions of intangible assets

    (335 )    

Net cash used in investing activities

    (2,326 )   (3,472 )

Cash flows from financing activities:

             

Repayment of Prior Term Loan Facility

        (5,000 )

Repayment of Prior FILO Facility

        (1,250 )

Payment of financing fees and expenses

        (1,958 )

Proceeds from New Term Loan Facility

        17,500  

Repayment of New Term Loan Facility

    (875 )   (219 )

Net borrowings (repayments) on revolving facilities

    1,594     (11,097 )

Issuance of common stock upon exercise of stock options

        25  

Net cash provided by (used in) financing activities

    719     (1,999 )

Effect of exchange rate changes on cash and cash equivalents

    (254 )   (35 )

Net (decrease) increase in cash and cash equivalents

    (326 )   40  

Cash and cash equivalents at beginning of year

    721     681  

Cash and cash equivalents at end of year

  $ 395   $ 721  

Supplemental disclosure of cash flow information:

             

Cash paid during the year for interest

  $ 3,781   $ 2,944  

Cash paid during the year for income taxes

  $ 7   $ 280  

   

See notes to consolidated financial statements.

F-6


Table of Contents


Consolidated Statements of Stockholders' Equity

For the Fiscal Years Ended December 28, 2019 and December 29, 2018

        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
Capital
  Treasury
Stock
  Accumulated
Deficit
  Accumulated
Comprehensive
Loss
  Total
Equity
 
 
  Shares   Amount  

Balance at December 30, 2017, as reported

    2,069,971   $ 2   $ 76,848   $ (1,283 ) $ (59,634 ) $ (2,291 ) $ 13,642  

Revision for foreign currency adjustments

                            (1,039 )   1,039        

Balance at December 30, 2017, as revised

    2,069,971   $ 2   $ 76,848   $ (1,283 ) $ (60,673 ) $ (1,252 ) $ 13,642  

Issuance of common stock upon vesting of restricted shares

    18,923                                      

Issuance of common stock upon exercise of stock options

    2,284           25                       25  

Stock-based compensation

                523                       523  

Net loss for the year

                            (4,251 )         (4,251 )

Foreign currency translation adjustment

                                  (669 )   (669 )

Balance at December 29, 2018

    2,091,178   $ 2   $ 77,396   $ (1,283 ) $ (64,924 ) $ (1,921 ) $ 9,270  

Issuance of common stock upon vesting of restricted shares

    17,565                                      

Stock-based compensation

                319                       319  

Net loss for the year

                            (4,164 )         (4,164 )

Foreign currency translation adjustment

                                  158     158  

Balance at December 28, 2019

    2,108,743   $ 2     77,715   $ (1,283 ) $ (69,088 ) $ (1,763 ) $ 5,583  

   

See notes to consolidated financial statements.

F-7


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. 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 monitoring, safety, nursery, and baby gear. Most products are sold under our core brand names of Summer™, SwaddleMe®, and born free®.

Reverse Stock Split

        As a subsequent event, on March 13, 2020, the Company successfully completed its reverse stock split and reduced its common stock outstanding by a ratio of one for nine. Per ASC 505-10, if a reverse stock split occurs after the date of the latest reported balance sheet but before the release of the financial statements, then such changes in the capital structure must be given retroactive effect in the balance sheet. As such, the reverse stock split has been retroactively applied to all years reported in these financial statements.

Basis of Presentation and Principles of Consolidation

        It is the Company's policy to prepare its financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. The 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 Consolidated Financial Statements are in thousands of U.S. dollars except share and per share amounts.

Fiscal Year

        The Company's fiscal year ends on the Saturday closest to December 31 of each calendar year. There were fifty two weeks in the fiscal years ended December 28, 2019 and December 29, 2018.

Reclassification

        Previously reported amounts have been revised in the accompanying consolidated balance sheet and statements of stockholders' equity to properly state certain foreign currency transactions. As of December 29, 2018 and December 30, 2017, accumulated deficit has been increased by $1,039 and accumulated comprehensive loss has been decreased by the same amount. These revisions had no impact on the company's net income and total stockholders' equity for the year ended December 29, 2018.

Summary of Significant Accounting Policies

Revenue Recognition

        As of December 31, 2017, the Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). The guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP.

F-8


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The underlying principle of the new standard is that a business or other organization will recognize 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 standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance.

        The Company reviewed all contracts at the date of initial application and elected to use the modified retrospective transition method, where the cumulative effect of the initial application is recognized as an adjustment to opening retained earnings at December 31, 2017. The impact of the adoption was immaterial. Refer to Note 2 for additional information regarding the Company's adoption of ASC 606.

        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 our historical experience as well as current information such as sales forecasts.

        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.

F-9


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

        Cash flows, cash and cash equivalents include money market accounts and investments with an original maturity of three months or less. At times, the Company possesses cash balances in excess of federally-insured limits.

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
fiscal year ended
 
 
  December 28,
2019
  December 29,
2018
 

Allowance for doubtful accounts, beginning of period

  $ 304   $ 1,622  

Charges to costs and expenses

    316     1,963  

Account write-offs and other

    (78 )   (3,281 )

Allowance for doubtful accounts, end of period

  $ 542   $ 304  

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 ultimate 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 lease liabilities in the Company's consolidated balance sheets.

F-10


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        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.

Property and Equipment

        Property and equipment are recorded at cost. The Company owns the tools and molds used in the production of its products by third party manufacturers. Capitalized mold costs include costs incurred for the pre-production design and development of the molds.

        Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method.

Long-Lived Assets with Finite Lives

        The Company reviews long-lived assets with finite lives for impairment on an asset group level whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered to be impaired when its carrying amount exceeds both the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition and the assets' fair value. Long-lived assets include property and equipment and finite-lived intangible assets. The amount of impairment loss, if any, is charged by the Company to current operations.

Indefinite-Lived Intangible Assets

        The Company accounts for intangible assets in accordance with accounting guidance that requires that intangible assets with indefinite useful lives be tested annually for impairment and more frequently

F-11


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

if events or changes in circumstances indicate that the asset might be impaired. The Company's annual impairment testing is conducted in the fourth quarter of every year.

        The Company tests indefinite-lived intangible assets for impairment by comparing the asset's fair value to its carrying amount. If the fair value is less than the carrying amount, the excess of the carrying amount over fair value is recognized as an impairment charge and the adjusted carrying amount becomes the assets' new cost basis.

        Management also evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, it is amortized prospectively over its estimated remaining useful life.

Fair Value Measurements

        The Company follows ASC 820, "Fair Value Measurements and Disclosures" which includes a framework for measuring fair value and expanded related disclosures. Broadly, the framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The standard established a three-level valuation hierarchy based upon observable and non-observable inputs.

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

        The Company maintains policies and procedures to value instruments using the best and most relevant data available. In addition, the Company utilizes third party specialists that review valuation, including independent price validation.

        The Company's financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, accrued expenses, and short and long-term borrowings. Because of their short maturity, the carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, and accrued expenses approximate fair value. The carrying value of the Company's debt approximates fair value since the stated rate is similar to rates currently available to the Company for debt with similar terms and remaining maturities.

        The Company's assets measured at fair value on a nonrecurring basis include long-lived assets and finite-lived intangibles. The Company tests its indefinite-lived assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable or that the carrying value may exceed its fair value. The resulting fair value measurements are considered to be Level 3 inputs.

F-12


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income taxes

        Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence, it is more likely than not that such benefits will be realized. Deferred income tax assets are recorded on a net basis as a long term asset.

        The Company follows the applicable 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.

Translation of Foreign Currencies

        The assets and liabilities of the Company's European, Canadian, Israeli, and Asian operations, each of which uses its local currency as their functional currency, have been translated into U.S. dollars at year-end exchange rates and the income and expense accounts of these subsidiaries have been translated at average rates prevailing during each respective year. 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 consolidated statements of operations.

Shipping Costs

        Shipping costs to customers are included in selling expenses and amounted to approximately $3,509 and $2,045 for the fiscal years ended December 28, 2019 and December 29, 2018, respectively.

Advertising Costs

        The Company charges advertising costs to selling expense as incurred. Advertising expense, which consists primarily of promotional and cooperative advertising allowances provided to customers, was approximately $10,379 and $9,555 for the fiscal years ended December 28, 2019 and December 29, 2018, respectively.

Segment Information

        Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment utilizing an omni-channel distribution strategy.

Net Loss Per Share

        Basic earnings per share is calculated by dividing net loss for the period by the weighted average number of common stock outstanding during the period.

F-13


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Diluted loss per share for the Company is computed by dividing net loss by the dilutive weighted average shares outstanding which includes: the dilutive impact (using the "treasury stock" method) of "in the money" stock options and unvested restricted shares issued to employees. Options to purchase 101,320 and 123,114 shares of the Company's common stock and 22,392 and 30,220 of restricted shares were not included in the calculation, due to the fact that these instruments were anti-dilutive for the fiscal years ended December 28, 2019 and December 29, 2018, respectively.

New 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 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 consolidated results of operations and cash flows.

        In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and a subsequent amendment to the initial guidance, ASU 2018-19 Codification Improvements to Topic 325, Financial Instruments-Credit Losses (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held, which include, but are not limited to, trade and other receivables. The new standard is effective for fiscal years beginning after December, 15, 2022. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

        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.

2020 Plan

        The Company believes that its existing plan will generate sufficient cash which, along with its existing cash and availability under its facilities, will enable it to fund operations through at least the next 12 months. However, should the Company require additional cash, the Company would identify other cost reductions or seek additional resources.

F-14


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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
fiscal year ended
 
 
  December 28,
2019
  December 29,
2018
 

United States

  $ 148,326   $ 145,534  

All Other

    24,855     28,085  

  $ 173,181   $ 173,619  

        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 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 2019 fall under the provisions of the practical expedient and have therefore been expensed.

3. PROPERTY AND EQUIPMENT

        Property and equipment, at cost, consisted of the following:

 
  For the
fiscal year ended
   
 
  December 28, 2019   December 29, 2018   Depreciation/
Amortization Period

Computer-related

  $ 4,511   $ 4,556   5 years

Tools, dies, prototypes, and molds

    27,457     28,361   1 - 5 years

Building

    4,156     4,156   30 years

Other

    7,474     7,148   1 - 15 years

    43,598     44,221    

Less: accumulated depreciation

    34,810     34,536    

Property and equipment, net

  $ 8,788   $ 9,685    

        Property and equipment included amounts acquired under capital leases of approximately $589 and $589 at December 28, 2019 and December 29, 2018, respectively, with related accumulated depreciation of approximately $115 and $31, respectively. Total depreciation expense was $2,982 and $3,436 for the fiscal years ended December 28, 2019 and December 29, 2018, respectively.

F-15


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. INTANGIBLE ASSETS

        Intangible assets consisted of the following:

 
  For the
fiscal year ended
 
 
  December 28,
2019
  December 29,
2018
 

Brand names

  $ 11,819   $ 11,819  

Patents and licenses

    4,101     3,766  

Customer relationships

    6,946     6,946  

Other intangibles

    1,882     1,882  

    24,748     24,413  

Less: accumulated amortization

    (11,852 )   (11,113 )

Intangible assets, net

  $ 12,896   $ 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 assets have indefinite lives (a brand name). Total of intangibles not subject to amortization amounted to $8,400 for the fiscal years ended December 28, 2019 and December 29, 2018.

        Amortization expense amounted to $738 and $746 for the fiscal years ended December 28, 2019 and December 29, 2018, respectively.

        The Company performed its annual indefinite-lived intangible asset impairment analysis in the fourth fiscal quarter. No asset impairment was recorded for the fiscal years ended December 28, 2019 and December 29, 2018.

        Estimated amortization expense for the remaining definite-lived assets for the next five years is as follows:

Fiscal Year ending
   
 

2020

    488  

2021

    488  

2022

    488  

2023

    488  

2024

    488  

5. DEBT

        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 provided for an asset-based revolving credit facility, with a $5,000 letter of credit sub-line facility. Total revolver commitments under the credit facility were $60,000 as of December 28, 2019, and were reduced to $48,000 as of March 10, 2020. 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

F-16


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. DEBT (Continued)

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). The Restated BofA Agreement was amended on March 25, 2019 and November 1, 2019 to, among other things, (i) modify certain definitions, (ii) increase the applicable margins on base rate and LIBOR revolver loans by 50 basis points, (iii) modify the definition of Financial Covenant Trigger Amount; and (iv) require that the Company engage a financial advisor to assist with providing a weekly, 13-week cash flow forecast. Subsequent to fiscal year end, on January 17, 2020 and March 10, 2020, the Company entered into further amendments to the Restated BofA Agreement. See Note 12 for information regarding these amendments.

        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 and financial 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. Through the end of fiscal 2020, the Company is required to achieve (i) a minimum net sales amount for each three consecutive months, measured at the end of each month, and (ii) a trailing 12-month minimum adjusted EBITDA amount, measured at the end of each month. 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 and 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 December 28, 2019, under the Restated BofA Agreement, the rate on base-rate loans was 6.50% and the rate on LIBOR-rate loans was 4.625%. The amount outstanding on the Restated BofA Agreement at December 28, 2019 was $32,226. Total borrowing capacity at December 28, 2019 was $39,109 and borrowing availability was $6,883.

        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").

F-17


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. DEBT (Continued)

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 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. The Term Loan Agreement was amended on March 25, 2019 and November 1, 2019 to, among other things, (i) amend certain definitions to be consistent with the Restated BofA Agreement, (ii) amend the definition of IP Advance Rate Reduction; and (iii) consistent with the Restated BofA Agreement, require that the Company engage a financial advisor to assist with providing a weekly, 13-week cash flow forecast. Subsequent to fiscal year end, on January 17, 2020 and March 10, 2020, the Company entered into further amendments to the Term Loan Agreement was further amended. See Note 12 for information regarding these amendments.

        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, provided that, in connection with the recent amendments to the Term Loan Agreement, principal payments for March, June and September 2020 have been suspended, and such payments will resume effective March 2021. The Term Loan bears interest at an annual rate equal to LIBOR, plus 9.0%. Interest payments are due monthly, in arrears. In addition, in connection with the recent amendments to the Term Loan Agreement, the term loan began to accrue PIK (payment in kind) interest at an annual rate of 4.0% in March 2020, which interest will become payable upon the earlier to occur of (i) the repayment of the term loan in full, (ii) a sale or merger of the Company, (iii) the occurrence of default or event of default under the Term Loan Agreement, or (iv) the Company achieving adjusted EBITDA of $12 million (calculated on a trailing, 12-month basis). If, and only if, the PIK interest becomes due and payable as a result of the Company achieving the adjusted EBITDA event noted in clause (iv),

F-18


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. DEBT (Continued)

then the Company will pay all PIK interest then due and thereafter, PIK interest will continue to accrue and be paid on each subsequent anniversary of such event. 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 and financial covenants that are substantially the same as the Restated BofA Agreement. Through the end of fiscal 2020, the Company is required to achieve (i) a minimum net sales amount for each three consecutive months, measured at the end of each month, and (ii) a trailing 12-month minimum adjusted EBITDA amount, measured at the end of each month. 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 December 28, 2019, the interest rate on the Term Loan was 10.91%. The amount outstanding on the Term Loan at December 28, 2019 was $16,406.

        The Restated BofA Agreement and the Term Loan Agreement were evaluated to determine the proper accounting treatment for the refinancing transaction as of June 28, 2018. Accordingly, debt extinguishment accounting was used to account for the prepayment of the prior term loan facility and to prepay two members of the lender group for the prior credit facility with Bank of America that did not continue in the second amended and restated credit facility, resulting in the write off of $518 in remaining unamortized deferred financing costs for the twelve months ended December 29, 2018. Debt modification accounting was used for the remaining member of the lender group for the prior credit facility, resulting in remaining unamortized deferred financing costs of $675 and the new financing costs of $1,958 to be capitalized and amortized over the life of the new credit facility.

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

Fiscal Year ending:
   
 

2020

    875  

2021

    875  

2022

    875  

2023

    46,007  

Total

  $ 48,632  

        Unamortized debt issuance costs were $2,398 at December 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.

F-19


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. DEBT (Continued)

Sale-Leaseback

        On March 24, 2009, Summer Infant (USA), Inc., ("Summer USA") the Company's wholly owned subsidiary, entered into a definitive agreement with Faith Realty II, LLC, a Rhode Island limited liability company ("Faith Realty") (the owner of which is Jason Macari, the former Chief Executive Officer, former director of the Company, and current investor), pursuant to which Faith Realty purchased the corporate headquarters of the Company located at 1275 Park East Drive, Woonsocket, Rhode Island (the "Headquarters"), for $4,052 and subsequently leased the Headquarters back to Summer USA for an annual rent of $390 during the initial seven year term of the lease, payable monthly and in advance. The original lease was to expire on the seventh anniversary of its commencement. Mr. Macari had given a personal guarantee to secure the Faith Realty debt on its mortgage; therefore, due to his continuing involvement in the building transaction, the transaction had been recorded as a financing lease, with no gain recognition.

        On February 25, 2009, the Company's Board of Directors (with Mr. Macari abstaining from such action) approved the sale leaseback transaction. In connection therewith, the Board of Directors granted a potential waiver, to the extent necessary, if at all, of the conflict of interest provisions of the Company's Code of Ethics, effective upon execution of definitive agreements within the parameters approved by the Board. In connection with granting such potential waiver, the Board of Directors engaged independent counsel to review the sale leaseback transaction and an independent appraiser to ascertain (i) the value of the Headquarters and (ii) the market rent for the Headquarters. In reaching its conclusion that the sale leaseback transaction is fair to the Company, the Board of Directors considered a number of factors, including Summer USA's ability to repurchase the headquarters at 110% of the initial sale price at the end of the initial term. The Company's Audit Committee approved the sale leaseback transaction (as a related party transaction) and the potential waiver and recommended the matter to a vote of the entire Board of Directors (which approved the transaction).

        On May 13, 2015, Summer USA entered into an amendment (the "Amendment") to its lease dated March 24, 2009 (the "Lease") with Faith Realty (the "Landlord"). Pursuant to the Amendment, (i) the initial term of the Lease was extended for two additional years, such that the initial term would end on March 31, 2018, and the term of the Lease could be extended at Summer USA's election for one additional term of three years (rather than five years) upon twelve months' prior notice, (ii) the annual rent for the last two years of the newly amended initial term was set at $429 and the annual rent for the extension period, if elected, was set at $468 and (iii) the Landlord agreed to provide an aggregate improvement allowance of not more than $78 for the newly amended initial term, to be applied against Summer USA's monthly rent, and an additional improvement allowance of $234 for the extension term, if elected, to be applied against Summer USA's monthly rent during such extension term. The Amendment was reviewed and approved by the audit committee because it was a related party transaction.

        On January 22, 2018, Summer USA entered into a second amendment (the "Second Amendment") to the Lease. Pursuant to the Second Amendment, (i) the term of the Lease was extended to March 31, 2021, with no further rights of extension, (ii) the annual rent for the last three years of the newly amended term was set at $468, (iii) Summer USA no longer has the option to purchase the property subject to the Lease and (iv) the Landlord and Summer USA agreed to certain expenses, repairs and modifications to the property that is subject to the Lease. The Second

F-20


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. DEBT (Continued)

Amendment was reviewed and approved by the audit committee because it was a related party transaction.

        At December 28, 2019, approximately $441 of the lease obligation was included in accrued expenses, with the balance of approximately $2,000 included in other liabilities, in the accompanying consolidated balance sheet. This obligation is reduced each month (along with a charge to interest expense) as the rent payment is made to Faith Realty.

        Approximate future minimum sale-leaseback payments due under the lease is as follows:

Fiscal Year Ending:
   
 

2020

    468  

2021

    117  

Total

  $ 585  

6. INCOME TAXES

        In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") that significantly revised the U.S. tax code effective January 1, 2018 by, among other things, lowering the corporate income tax rate from a top marginal rate of 35% to a flat 21%, limiting deductibility of interest expense and performance based incentive compensation and implementing a territorial tax system. As a result of the Tax Act in the fiscal year ending December 28, 2019 and December 29, 2018 the Company had non-deductible interest for tax purposes resulting in a deferred tax asset in the amount of $1,880 and $933 respectively. The Company recorded a valuation allowance on the value of this deferred tax asset until such time as it becomes more likely than not that this asset will be recognized.

        The provision (benefit) for income taxes is summarized as follows:

 
  Fiscal 2019   Fiscal 2018  

Current:

             

Federal

  $   $  

Foreign

        (382 )

State and local

    11     11  

Total current

    11     (371 )

Deferred:

             

Federal

  $ 683   $ 114  

Foreign

    222     (109 )

State and local

    179     (198 )

Total deferred

    1,084     (193 )

Total provision (benefit)

  $ 1,095   $ (564 )

F-21


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. INCOME TAXES (Continued)

        The tax effects of temporary differences that comprise the deferred tax liabilities and assets are as follows:

 
  December 28,
2019
  December 29,
2018
 

Deferred tax assets:

             

Accounts receivable

  $ 53   $ 43  

Inventory and Unicap reserve

    506     492  

Interest deduction limitation

    1,880     933  

Lease Liability and accrued expenses

    1,093      

Research and development credit

    2,547     3,059  

Foreign tax credit

    795     795  

Net operating loss carry-forward

    2,256     2,699  

Total deferred tax assets

    9,130     8,021  

Deferred tax liabilities:

             

Intangible assets and other

    (2,099 )   (1,834 )

ROU Assets and deferred rent

    (1,036 )    

Property, plant and equipment

    (54 )   (42 )

Total deferred tax liabilities

    (3,189 )   (1,876 )

Valuation allowance

    (4,945 )   (4,018 )

Deferred tax liabilities and valuation allowance

    (8,134 )   (5,894 )

Net deferred income tax asset

  $ 996   $ 2,127  

        The following reconciles the benefit for income taxes at the U.S. federal income tax statutory rate to the benefit in the consolidated financial statements:

 
  Fiscal 2019   Fiscal 2018  

Tax benefit at statutory rate

  $ (644 ) $ (1,014 )

State income taxes, net of U.S. federal income tax benefit

    150     (147 )

Adjustment to uncertain tax position

        (325 )

Stock options

    17     46  

Foreign tax rate differential

    (5 )   108  

Tax credits

    312     (515 )

Non-deductible expenses

    117     158  

Expiration of unexercised stock options

    191      

Increase in valuation allowance

    927     1,229  

Other

    30     (104 )

Total benefit

  $ 1,095   $ (564 )

        As of December 28, 2019, the Company had approximately $2,955 of US federal and state net operating loss carry forwards (or "NOLs") to offset future federal taxable income. The federal NOL will begin to expire in 2031 and the state NOL began to expire in 2019. As of December 28, 2019, the Company had approximately $874, $322, $2,871, $489, and $1,753 of NOLs in Canada, Australia, Israel, Asia, and the United Kingdom, respectively, which can be carried forward indefinitely.

F-22


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. INCOME TAXES (Continued)

        Authoritative guidance requires a valuation allowance to reduce the deferred tax assets reported, if based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all evidence, including the Company's past earnings history and future earnings forecast, management determined that a valuation allowance in the amount of $2,270 at December 28, 2019 and $2,290 at December 29, 2018 relating to certain state tax credits and foreign NOLs was necessary. Due to the Tax Act, the Company determined a valuation allowance in the amount of $2,675 at December 28, 2019 and $1,728 at December 29, 2018 relating to interest deduction limitations and foreign tax credits was necessary.

        A summary of the Company's adjustment to its uncertain tax positions in fiscal years ended December 28, 2019 and December 29, 2018 is set forth below:

 
  December 28,
2019
  December 29,
2018
 

Balance, at beginning of the year

  $   $ 325  

Decrease for lapses of statute of limitations

        (325 )

Balance, at end of year

  $   $  

        The unrecognized tax benefits mentioned above included an aggregate of $65 of accrued interest and penalty balances related to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The entire balance of $325 was reversed as of the year-ended December 29, 2018 due to lapse of statute of limitations.

        The Company is subject to U.S. federal income tax, as well as to income tax of multiple state and foreign tax jurisdictions. On a global basis, the open tax years subject to examination by major taxing jurisdictions in which the Company operates is between two to six years.

7. SHARE BASED COMPENSATION

        The Company is currently authorized to issue up to 188,889 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. The Company was authorized to issue up to 333,334 shares for equity awards under its 2006 Performance Equity Plan ("2006 Plan"). In March 2017, the 2006 Plan expired and no additional equity awards can be granted under the 2006 Plan.

        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. The application of this standard resulted in share-based compensation expense for the twelve months ended December 28, 2019 and December 29, 2018 of $319 and $523, respectively. Share based compensation expense is included in selling, general and administrative expenses.

F-23


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. SHARE BASED COMPENSATION (Continued)

        As of December 28, 2019, there are 71,468 shares available to grant under the 2012 Plan.

        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 for grants of "plain vanilla" stock options as 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 in fiscal 2019 and 2018 is based on awards that are ultimately expected to vest.

        The following table summarizes the weighted average assumptions used for options granted during the fiscal years ended December 28, 2019 and December 29, 2018.

 
  Fiscal
2019
  Fiscal
2018
 

Expected life (in years)

    5.0     4.9  

Risk-free interest rate

    2.3 %   2.7 %

Volatility

    64.2 %   64.1 %

Dividend yield

    0.0 %   0.0 %

Forfeiture rate

    24.2 %   23.2 %

        The weighted-average grant date fair value of options granted during the year ended December 28, 2019 was $3.42 per share. The weighted-average grant date fair value of options granted during the year ended December 29, 2018 was $4.95 per share.

        A summary of the status of the Company's options as of December 28, 2019 and changes during the year then ended is presented below:

 
  Number Of
Shares
  Weighted-Average
Exercise Price
 

Outstanding at beginning of year

    123,114   $ 18.00  

Granted

    27,112   $ 6.30  

Canceled or expired

    48,906   $ 19.08  

Outstanding at end of year

    101,320   $ 14.31  

Options exercisable at December 28, 2019

    56,266   $ 18.36  

        Outstanding stock options vested and expected to vest as of December 28, 2019 is 87,771. The intrinsic value of options exercised totaled was $0 and $18 for the fiscal years ended December 28, 2019 and December 29, 2018, respectively.

F-24


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. SHARE BASED COMPENSATION (Continued)

        The following table summarizes information about stock options at December 28, 2019:

   
  Options Outstanding   Options Exercisable  
 
Range of
Exercise Prices
  Number
Outstanding
  Remaining
Contractual
Life (years)
  Weighted
Average
Exercise
Price
  Number
Exercisable
  Remaining
Contractual
Life
  Weighted
Average
Exercise
Price
 
  $3.52 - $9.00     37,223     9.0   $ 6.75     5,556     8.5   $ 7.47  
  $9.01 - $13.50     16,128     7.8   $ 11.25     11,074     7.7   $ 11.07  
  $13.51 - $18.00     31,139     6.7   $ 16.83     24,195     6.6   $ 16.56  
  $18.01 - $32.00     14,667     5.4   $ 24.30     13,278     5.2   $ 24.66  
  $32.01 - $64.00     2,163     1.4   $ 64.53     2,163     1.4   $ 64.53  
        101,320     7.4   $ 14.31     56,266     6.5   $ 18.36  

        The aggregate intrinsic value of options outstanding and exercisable at December 28, 2019 and December 29, 2018 are $0, respectively. As of December 28, 2019, there was approximately $117 of unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.2 years.

        Restricted stock awards require no payment from the grantee. The related compensation cost of each award is calculated using the market price on the grant date and is expensed equally over the vesting period. A summary of restricted stock awards made in the year ended December 28, 2019, is as follows:

 
  Number of
Shares
  Grant Date
Fair Value
 

Non-vested restricted stock awards as of December 29, 2018

    30,220   $ 15.75  

Granted

    19,167   $ 6.21  

Vested and released

    18,545   $ 12.87  

Forfeited

    8,450   $ 13.86  

Non-vested restricted stock awards as of December 28, 2019

    22,392   $ 10.80  

        As of December 28, 2019, there was approximately $121 of unrecognized compensation cost related to non-vested stock compensation arrangements granted under the Company's stock incentive plan for restricted stock awards. That cost is expected to be recognized over the next 2.2 years.

        As a subsequent event, on March 13, 2020, the Company completed a 1-for-9 reverse stock split reducing the outstanding common shares to 2,108,743. All of the above transactions occurred prior to the completion of the reverse stock split and, the issuances noted above had the effect of being divided by nine.

8. PROFIT SHARING PLAN

        Summer Infant (USA), Inc. maintains a defined contribution salary deferral plan under Section 401(k) of the Internal Revenue Code. All employees who meet the plan's eligibility requirements can participate. Employees may elect to make contributions up to federal limitations. In

F-25


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. PROFIT SHARING PLAN (Continued)

2007, the Company adopted a matching plan which was further amended in 2013, and which was funded throughout the year. For the years ended December 28, 2019 and December 29, 2018, the Company recorded 401(k) matching expense of $311 and $380, respectively.

9. MAJOR CUSTOMERS

        Sales to the Company's top seven customers together comprised approximately 81% of our sales in fiscal 2019 and 77% of our sales in fiscal 2018. Of these customers, three generated more than 10% of sales for fiscal 2019: Amazon.com (26%), Walmart (25%), and Target (17%). In fiscal 2018, three customers generated more than 10% of sales: Amazon.com (23%), Walmart (23%), and Target (16%).

10. 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 November 2019, the Company signed a new two-year lease agreement to continue occupying the same office space in Hong Kong. The agreement did not include any termination or extension options. 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:

F-26


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. COMMITMENTS AND CONTINGENCIES (Continued)

        The components of the Company's lease expense for the year ended December 28, 2019 were as follows:

 
  Year Ended
December 28, 2019
 

Operating lease cost

  $ 2,499  

Variable lease cost

    1,152  

Total lease expense

  $ 3,651  

Weighted-average remaining lease term

    2.1 years  

Weighted-average discount rate:

    5.00 %

        Cash paid for amounts included in the measurement of the Company's lease liabilities were $2,613 for the year ended December 28, 2019.

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

Fiscal Year Ending:
   
 

2020

  $ 2,690  

2021

    2,159  

2022

    321  

2023

    153  

2024

    0  

Less imputed interest

    (282 )

Total

  $ 5,041  

        Prior to the adoption of ASU 2016-02 and for the year ended December 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 year ended December 29, 2018, the Company recognized rent expense of $2,736.

F-27


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. COMMITMENTS AND CONTINGENCIES (Continued)

        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.

Employment Contracts

        In accordance with applicable local law, Summer Infant Europe Limited is required to have employment contracts with all of its employees. In connection with these contracts, Summer Infant Europe Limited makes individual pension contributions to certain employees at varying rates from 1-7% of the employee's annual salary, as part of their total compensation package. These pension contributions are expensed as incurred. There are no termination benefit provisions in these contracts.

Litigation

        The Company is a party to routine litigation and administrative complaints incidental to its business. The Company does not believe that the resolution of any or all of such current routine litigation and administrative complaints is likely to have a material adverse effect on the Company's financial condition or results of operations.

11. GEOGRAPHICAL INFORMATION

        The Company sells products throughout the United States, Canada, and the United Kingdom, and various other parts of the world. The Company does not disclose product line revenues as it is not practicable for the Company to do so.

        The following is a table that presents net revenue by geographic area:

 
  For the fiscal year
ended
 
 
  December 28,
2019
  December 29,
2018
 

United States

  $ 148,326   $ 145,534  

All Other

    24,855     28,085  

  $ 173,181   $ 173,619  

F-28


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. GEOGRAPHICAL INFORMATION (Continued)

        The following is a table that presents total assets by geographic area:

 
  December 28,
2019
  December 29,
2018
 

United States

  $ 80,693   $ 82,631  

All Other

    10,850     11,585  

  $ 91,543   $ 94,216  

        The following is a table that presents total long-lived assets by geographic area:

 
  December 28,
2019
  December 29,
2018
 

United States

  $ 24,804   $ 23,165  

All Other

    2,555     2,044  

  $ 27,359   $ 25,209  

12. SUBSEQUENT EVENTS

        The Company has evaluated all events or transactions that occurred after December 28, 2019 through the date of this Annual Report on Form 10-K except as set forth herein

Loan Amendments

        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 5 for additional information regarding the Restated BofA Agreement and the Term Loan Agreement.

        On January 17, 2020, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 3 to the Restated BofA Agreement (the "BofA Amendment No. 3"). BofA Amendment No. 3 amended the terms of the Restated BofA Agreement to, among other things, (a) modify the definition of Financial Covenant Trigger Amount so that the amount is $4,000 through February 29, 2020, and at any time thereafter, $5,000; and (ii) reduce the lenders' aggregate revolver commitments to $50,000.

        On March 10, 2020, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 4 to the Restated BofA Agreement (the "BofA Amendment No. 4"). BofA Amendment No. 4 amended the terms of the Restated BofA Agreement to, among other things: (a) amend the definition of EBITDA to exclude fees and expenses paid to Winter Harbor and any investment bank retained by the Company; (b) modify the definition of Financial Covenant Trigger Amount so that the amount is (i) $3,000 through May 31, 2020, (ii) $3,500 from June 1 through June 30, 2020, (iii) $3,750 from July 1 through August 31, 2020, (iv) $4,000 from September 1 through September 30, 2020, (v) $4,250 from October 1 through October 31, 2020, (vi) $4,500 from November 1 through November 30, 2020, and (vii) $5,000 at any time from and after December 1, 2020; (c) reduce

F-29


Table of Contents


SUMMER INFANT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. SUBSEQUENT EVENTS (Continued)

the lenders' aggregate revolver commitments to $48,000; (d) require that the Company meet certain minimum net sales amounts for each period of three consecutive fiscal months through the three-month period ending December 31, 2020; (e) require that the Company meet a certain minimum EBITDA (as defined in the Restated BofA Agreement) as of the end of each fiscal month, calculated on a trailing 12-month period; (f) increase the applicable margin and applicable unused line fee rate; and (g) modify certain reporting requirements.

        On January 17, 2020, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 3 to the Term Loan Agreement (the "Term Loan Amendment No. 3"). Term Loan Amendment No. 3 amended the terms of the Term Loan Agreement to, among other things, (a) modify the definition of Financial Covenant Trigger Amount to be consistent with the BofA Amendment and (ii) modify the definition of IP Advance Rate Reduction to provide that the amount of reduction will be 5.0 percentage points through February 29, 2020, and at any time thereafter, 10.0 percentage points

        On March 10, 2020, the Company and Summer Infant (USA), Inc., as borrowers, entered into Amendment No. 4 to the Term Loan Agreement (the "Term Loan Amendment No. 4"). Term Loan Amendment No. 4 amended the terms of the Term Loan Agreement to, among other things, (a) amend the definition of Term Loan Borrowing Base to deduct a specified equipment reserve amount from the calculation of the borrowing base; (b) amend the definitions of EBITDA and Financial Covenant Trigger Amount consistent with BofA Amendment No. 4; (c) modify the definition of IP Advance Rate to be 55%, provided that such rate shall be reduced by 1.0% per month on and after the earlier of (i) the due date of the Company's borrowing base certificate for September 2020 and (ii) the date such borrowing base certificate is delivered; (d) suspend principal payments on the term loan for 2020, such payments to resume in March 2021; (e) require that the Company meet certain financial covenants, consistent with BofA Amendment No. 4; and (f) modify certain reporting requirements, consistent with BofA Amendment No. 4.

        In addition, pursuant to Term Loan Amendment No. 4, beginning on March 10, 2020, the term loan will begin to bear additional interest, to be paid in kind ("PIK interest") at annual rate of 4.0%, such PIK interest to be payable upon the earliest to occur of (i) the sale or merger of the Company, (ii) the repayment in full of the term loan and termination of commitments, (iii) the occurrence of a default or event of default under the Term Loan Agreement, (iv) the Company achieving adjusted EBITDA of $12.0 million (calculated on a trailing 12-month basis). If PIK interest becomes due and payable as a result of the Company achieving adjusted EBITDA event described in clause (iv), then the Company shall pay all outstanding PIK interest accrued as of such date and PIK interest shall continue to accrue thereafter and be paid on each subsequent anniversary of such event.

Reverse Stock Split

        The Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-9 reverse stock split of the Company's issued and outstanding shares of common stock, effective following the close of business on March 13, 2020. Unless otherwise indicated, the financial statements and accompanying notes give effect to the 1-for-9 reverse stock split as if it occurred at the first period presented.

F-30




Exhibit 3.1

 

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

SUMMER INFANT, INC.

(Conformed copy incorporating all amendments through March 12, 2020)

 


 

Pursuant to Section 245 of the

Delaware General Corporation Law

 


 

FIRST:  The name of the corporation is “Summer Infant, Inc.” (hereinafter sometimes referred to as the “Corporation”).

 

SECOND:  The registered office of the Corporation is to be located at 615 South DuPont Highway, Kent County, Dover, Delaware. The name of its registered agent at that address is National Corporate Research, Ltd.

 

THIRD:  The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the GCL.

 

FOURTH:  The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 50,000,000 of which 49,000,000 shares shall be Common Stock, having a par value of $0.0001 per share, and 1,000,000 shares shall be Preferred Stock, having a par value of $0.0001 per share.

 

A.   Preferred Stock. The Board of Directors is expressly granted authority to issue shares of the Preferred Stock, in one or more series, and to fix for each such series such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series (a “Preferred Stock Designation”) and as may be permitted by the GCL. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation.

 

B.  Common Stock. Except as otherwise required by law or as otherwise provided in any Preferred Stock Designation, the holders of the Common Stock shall exclusively possess all voting power and each share of Common Stock shall have one vote.

 

Effective as of 11:59 p.m. (EDT) on March 13, 2020 (the “Effective Time”), each nine (9) shares of Common Stock issued and outstanding immediately prior to the Effective Time shall be combined and changed into one (1) validly issued, fully paid and non-assessable share of Common Stock without any further action by the Corporation or any holder thereof, subject to the treatment of fractional share interests as described below (the “Reverse Stock Split”).  The Reverse Stock Split shall occur without any further action on the part of the Company or the holder thereof and whether or not certificates representing such holder’s shares prior to the Reverse Stock Split are surrendered for cancellation.  No fractional interest in a share of Common Stock shall be deliverable upon the Reverse Stock Split.  Stockholders who otherwise would be entitled to receive fractional shares of Common Stock because they hold a number of shares not evenly divisible by the Reverse Stock Split ratio will automatically be entitled to receive an additional fraction of a share of Common Stock to round up to the next whole share.  Each certificate that immediately prior to the Effective Time represented shares of Common Stock (“Old Certificate”), shall thereafter represent that number of shares of Common Stock into which the shares of Common Stock represented by the Old Certificate shall have been combined, plus any additional fraction of a share of Common Stock to round up to the next whole share.”

 


 

FIFTH:  The name and mailing address of the sole incorporator of the Corporation are as follows:

 

Name

Address

 

 

Jeffrey M. Gallant

Graubard Miller

 

The Chrysler Building

 

405 Lexington Avenue

 

New York, New York 10174

 

SIXTH:  The Board of Directors shall be divided into three classes: Class A, Class B and Class C. The number of directors in each class shall be as nearly equal as possible. The directors in Class A shall be elected for a term expiring at the first Annual Meeting of Stockholders, the directors in Class B shall be elected for a term expiring at the second Annual Meeting of Stockholders and the directors in Class C shall be elected for a term expiring at the third Annual Meeting of Stockholders. Commencing at the first Annual Meeting of Stockholders, and at each annual meeting thereafter, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Notwithstanding and irrespective of the provisions set forth in the first four sentences of this Article Sixth, at each annual election of the Corporation’s directors commencing with and at the 2014 Annual Meeting of Stockholders, the successors to the class of the Corporation’s directors whose term of office expires at such time shall be elected to hold office for a term of one year (and not three years), and commencing with and at the 2016 Annual Meeting of Stockholders, the division of the Board of Directors into three classes as nearly equal in size as possible shall terminate, and thereupon and continuing indefinitely thereafter, at each annual election of directors, all directors of the Corporation shall be constituted of one class and all such directors shall be elected on an annual basis. Except as the GCL may otherwise require, in the interim between annual meetings of stockholders or special meetings of stockholders called for the election of directors and/or the removal of one or more directors and the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including unfilled vacancies resulting from the removal of directors for cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum (as defined in the Corporation’s Bylaws), or by the sole remaining director. All directors shall hold office until the expiration of their respective terms of office and until their successors shall have been elected and qualified. A director elected to fill a vacancy resulting from the death, resignation or removal of a director shall serve for the remainder of the full term of the director whose death, resignation or removal shall have created such vacancy and until his successor shall have been elected and qualified.

 

SEVENTH:  The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

 

A.   Election of directors need not be by ballot unless the by-laws of the Corporation so provide.

 

B.   The Board of Directors shall have the power, without the assent or vote of the stockholders, to make, alter, amend, change, add to or repeal the by-laws of the Corporation as provided in the by-laws of the Corporation.

 

C.   The directors in their discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the stock of the Corporation which is represented in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and binding upon the Corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the Corporation, whether or not the contract or act would otherwise be open to legal attack because of directors’ interests, or for any other reason.

 

D.   In addition to the powers and authorities hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation; subject, nevertheless, to the provisions of the statutes of Delaware, of this Certificate of Incorporation, and to any by-laws from time to time made by the stockholders; provided, however,

 

2


 

that no by-law so made shall invalidate any prior act of the directors which would have been valid if such by-law had not been made.

 

EIGHTH:  A.   A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any transaction from which the director derived an improper personal benefit. If the GCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL, as so amended. Any repeal or modification of this paragraph A by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation with respect to events occurring prior to the time of such repeal or modification.

 

B.  The Corporation, to the full extent permitted by Section 145 of the GCL, as amended from time to time, shall indemnify all persons whom it may indemnify pursuant thereto. Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative, or investigative action, suit or proceeding for which such officer or director may be entitled to indemnification hereunder shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized hereby.

 

NINTH:  Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

 

3




Exhibit 4.2

 

DESCRIPTION OF THE COMPANY’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

 

Summer Infant, Inc. (the “Company,” “we,” “our,” or “us”) has one class of securities, its common stock, par value $0.0001 per share, registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

 

Description of Common Stock

 

The following summary description sets forth the general terms and provisions of the common stock. This summary description is based upon our amended and restated certificate of incorporation (the “Certificate of Incorporation”), and amended and restated bylaws, as amended (the “Bylaws”), each of which are filed as Exhibits 3.1 and 3.2 to our Annual Report on Form 10-K of which this Exhibit 4.2 is a part, and the applicable provisions of Delaware General Corporation Law.

 

General

 

Under our Certificate of Incorporation, we are authorized to issue 49,000,000 shares of common stock, par value $0.0001 per share, and up to 1,000,000 shares of preferred stock, par value $0.0001 per share. There are currently no outstanding shares of preferred stock. The common stock is traded on The NASDAQ Capital Market under the symbol “SUMR.”

 

Dividends

 

Subject to the provisions of the Delaware General Corporation Law, and any future rights which may be granted to the holders of any series of preferred stock, dividends may be paid on our common stock when and as declared by our board of directors out of funds legally available for dividend payments.

 

Voting Rights

 

Holders of common stock are entitled to voting rights for the election of directors and for other purposes, subject to any voting rights which may in the future be granted to subsequently created series of preference stock. Each holder of common stock is entitled to one vote per share on all matters submitted to the vote of our common stockholders. Holders of our common stock are not entitled to cumulative voting rights.

 

Our Bylaws provide that, except as otherwise provided in the Certificate of Incorporation or the Bylaws, each director shall be elected to the board of directors by the vote of a majority of the votes cast with respect to that director’s election at any meeting of stockholders for the election of directors at which a quorum is present; provided that if, as of the tenth (10th) day preceding the date the Company first mails its notice of meeting for such meeting to the stockholders, or, at any time thereafter, the number of nominees for director exceeds the number of directors to be elected, the directors shall be elected by the vote of a plurality of the votes cast at any meeting of stockholders.

 

Liquidation, Dissolution or Similar Rights

 

If we are liquidated, dissolved or our affairs are wound up, holders of common stock are entitled to receive all remaining assets available for distribution after the Company has satisfied its liabilities and the preferential rights of any of its preferred stock that may be outstanding at that time.

 


 

No Preemptive, Conversion or Redemption Rights

 

Holders of our common stock do not have any preemptive or conversion rights by virtue of their ownership of our common stock. There are no redemption or sinking fund provisions applicable to the common stock.

 

Certain Anti-Takeover Matters

 

We are governed by the provisions of Section 203 of the Delaware General Corporation Law, which regulates acquisitions of some Delaware corporations. In addition, our Certificate of Incorporation and Bylaws include a number of provisions that could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests. These provisions include the following:

 

Certificate of Incorporation

 

Our Certificate of Incorporation authorizes shares of preferred stock for future issuance without stockholder approval. The existence of authorized but unissued shares of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of the Company or its stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our Certificate of Incorporation grants to our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of our common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of the Company.

 

Bylaws

 

Our board of directors is expressly authorized in our Certificate of Incorporation to alter or repeal our Bylaws, subject to the provisions of the Bylaws. Our Bylaws may be amended by our board of directors, or by the affirmative vote of a majority of the outstanding shares of our common stock entitled to vote on the amendment.

 

The Bylaws provide advance notice procedures for stockholders seeking to bring business before the Company’s annual meeting of stockholders or to nominate candidates for election as directors at any meeting of stockholders. The Bylaws also specify certain requirements regarding the form and content of a stockholder’s notice.

 

Transfer Agent

 

The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company.

 

2




Exhibit 10.16

 

 

PROPRIETARY AND CONFIDENTIAL

 

December 6, 2019

 

Robin Marino

Chairwoman of the Board

Summer Infant, Inc.

1275 Park East Drive

Woonsocket, RI 02895

 

Re:          Interim Chief Executive Officer

 

Dear Ms. Marino:

 

This letter, together with the attached General Business Terms (collectively, the “Agreement”), confirms and sets forth the terms and conditions of the engagement of Winter Harbor LLC (“we,” “us,” “our,” or “Winter Harbor”) to provide advisory and management services, through Stuart Noyes, who will act as Interim Chief Executive Officer (“Interim CEO”) of Summer Infant, Inc. and its various affiliates and subsidiaries if any (collectively, “you,” “your,” “Client” or “Company”).  Upon execution of this letter by each of the parties below, this letter will constitute an agreement between the Company and Winter Harbor (the “Agreement”), and the engagement shall be effective beginning on December 16, 2019.

 

SERVICES TO BE PROVIDED

 

1.              Stuart Noyes to act as principal executive officer of the Company and provide leadership to the executive management team and Company on a day-to-day basis, reporting to the Company’s Board of Directors (the “Board”);

 

2.              Conduct an in-depth assessment of the business, including strengths and weaknesses of the organization and management and present findings to the Board;

 

3.              In conjunction with management, identify and analyze options to restructure cost and stabilize cash flow/growth and develop a restructuring/business plan (the “Plan”) that considers among other options the potential sale of specific assets or business units and/or other restructuring of the Company capital structure that will be presented to the Board;

 

4.              Oversee the Company’s implementation of the Plan and provide regular updates to the Board in intervals to be determined;

 


 

5.              Provide oversight and assistance to management with the on-going forecasting of the Company’s cash flows and its operations, its daily cash management activities and monitor and analyze operational and financial condition;

 

6.              Provide oversight and assistance to management with the compiling of data and analyses necessary to meet the reporting requirements requested by the Company’s lenders;

 

7.              Lead management with respect to communications with the Board, lenders and investors;

 

8.              Assist Company in reacting to unforeseen occurrences that may have an impact on operational performance and liquidity;

 

9.              Act as principal executive officer with respect to the Company’s compliance with securities laws, including providing certifications required in connection with the Company’s periodic reports;

 

10.       Perform such other tasks as are appropriate and requested by the Board.

 

Our Services

 

The Company engages Winter Harbor for the purpose of providing the advisory and management services described above. The Interim CEO shall be responsible for the delivery of the tasks and duties as set forth above, in accordance with the Company’s by-laws and in compliance with applicable provisions of state, federal and other laws.  The Interim CEO will report to the Board during the term of this engagement. The Interim CEO shall be responsible for leading the verification and implementation of the initiatives described above. Winter Harbor may provide additional services beyond those described herein on mutually agreed upon rates, if agreed upon in writing by Winter Harbor and the Board or its designated committee.

 

Winter Harbor is a management consulting firm and not a CPA firm. Winter Harbor does not provide attest services, audits, or other engagements in accordance with standards established by the American Institute of CPAs or auditing standards promulgated by the Public Company Accounting Oversight Board.  We will not audit any financial statements or perform attest procedures with respect to information in conjunction with this engagement.  Our services are not designed, nor should they be relied upon, to identify weaknesses in internal controls, financial statement errors, irregularities, illegal acts or disclosure deficiencies

 

Your Responsibilities

 

In connection with our provision of services, you will perform the tasks, furnish the personnel, provide the resources, and undertake the responsibilities specified below.

 

The Company shall indemnify the Interim CEO and Winter Harbor as set forth in the attached General Business Terms.  The Interim CEO shall be covered as an officer under the Company’s existing director and officer liability insurance policy (the “D&O policy). As a condition of Winter Harbor accepting this engagement, a Certificate of Insurance evidencing such coverage of the Interim CEO shall be furnished to Winter Harbor prior to the effective date of this Agreement. The Company shall give thirty (30) days’ prior written notice to Winter Harbor of cancellation,

 

2


 

nonrenewal, or material change in coverage, scope, or amount of D&O policy. The Company shall also maintain such insurance coverage for the Interim CEO for a period of not less than two (2) years following the date of the termination of the Indemnified Professionals’ services hereunder. Except as stated in this engagement, the risk of loss with respect to the Company’s operations and assets shall be borne by the Company.  Winter Harbor shall not be deemed to have assumed or be liable for any claim, liability, or obligation of the Company whether known or unknown, fixed or contingent accrued or un-accrued.  Except as otherwise required by applicable law, any reference to the nature or results of Winter Harbor’s work may not be communicated to the public through public relations media, news media, sales media, or any other means without the prior written consent of both parties.

 

The Company understands that the services to be rendered hereunder may include the preparation of projections and other forward-looking statements, and numerous factors can affect the actual results of the Company’s operations, which may materially and adversely differ from those projections, and Winter Harbor personnel will be relying on information provided by the Company in the preparation of those projections and other forward-looking statements.

 

To help maximize the value of our work to you and to keep the project moving on schedule, you agree to comply with all of our reasonable requests and to provide us timely access to all information reasonably necessary to our performance of the services.

 

In the event the Company files for relief under Chapter 11 of the Bankruptcy Code, the Company agrees to promptly file an appropriate motion prepared in consultation with Winter Harbor as to matters relating to our retention by the Company and provision of services as contemplated hereunder nun pro tunc to the date of the filing.

 

Fees and Expenses

 

We will bill weekly based on the actual hours worked at the following billing rates, subject to the terms set forth below.

 

Winter Harbor Hourly Rates

(In effect on the date of this Agreement)

 

Title 

 

Hourly Rate

 

Stuart Noyes

 

$

495

 

Bruce Meier

 

$

395

 

Director

 

$

395

 

Senior Manager

 

$

350

 

Manager

 

$

325

 

Associate

 

$

250

 

 

The engagement will be led by Managing Partner, Stuart Noyes, who will act as Interim CEO, and Managing Director, Bruce Meier.

 

3


 

The total weekly fees for the first ten weeks of the engagement shall not exceed $35,000 per week, with the exception of Christmas and New Year’s week, for which fees will be capped at $15,000 per week. For services provided following such ten-week period, Winter Harbor shall be paid according to the billing rates set forth herein for actual hours worked, or such other fees as mutually agreed upon with the Company.

 

All invoices are due immediately upon receipt.  Out-of-pocket expenses (including transportation, lodging, meals, communications, supplies, etc.) will be billed at the actual amounts incurred.

 

Payments for our services shall be by:

 

Wire transfer to:

 

Bank of America, N.A.

100 West 33rd Street

New York, NY 10001

Account Name: Winter Harbor LLC

Account #:  ***

Wire Routing/ABA #:  ***

ACH Routing #:  ***

 

Amounts remaining outstanding for more than 20 days (past due) will be subject to an interest charge of 1.5% per month from the date of invoice.  We reserve the right to suspend further services after such 20-day period until payment is received on past due invoices, in which event we will not be liable for any resulting loss, damage or expense connected with such suspension, provided that such suspension notice is provided at least 10 business days’ in advance to the Company, and this sentence supersedes section 3(c) of the attached General Business Terms.  We understand that our bills should be sent to:

 

Summer Infant, Inc.

Attn:  Paul Francese and Mary Beth Schneider

1275 Park East Drive

Woonsocket, RI 02895

pfrancese@sumrbrands.com and mschneider@sumrbrands.com

 

Retainer

 

The Company previously paid Winter Harbor a $25,000 retainer pursuant to that engagement letter dated November 5, 2019.  We will require an additional retainer in the amount of $25,000 before we commence work under this engagement. The total retainer of $50,000 shall be credited against any amounts due at the termination of this engagement or applied to any open invoices at our discretion. Any retainer amounts remaining upon the satisfaction of all obligations hereunder shall be returned to the Company.

 

4


 

Other

 

This Agreement, together with the attached General Business Terms, is intended to (i) supersede any prior agreement between the parties and (ii) serve as the entire agreement between the parties with respect to the subject matter hereof, regardless of any billing guidelines or any other policies that the Company may maintain.

 

Business Terms

 

The attached General Business Terms apply to this engagement.

 

Please indicate your agreement with these terms by signing and returning to me the enclosed copy of this letter.  This engagement and the enclosed terms will become effective upon our receipt of your signed copy.  We appreciate the opportunity to be of service to you and look forward to working with you on this engagement.

 

Sincerely,

 

 

 

WINTER HARBOR LLC

 

 

 

/s/ Stuart W. Noyes

 

 

 

By:

 

 

STUART W. NOYES

 

 

MEMBER AND MANAGING PARTNER

 

 

 

Attachments: General Business Terms

 

 

 

Acknowledged and Accepted:

 

 

 

SUMMER INFANT, INC.

 

 

 

By:

/s/ Paul Francese

 

 

 

 

Title:

SVP & CFO

 

 

 

 

Date:

Dec. 9, 2019

 

 

5


 

Attachment to Engagement Letter dated December 6, 2019 between Winter Harbor LLC and Summer Infant, Inc.

 

GENERAL BUSINESS TERMS

 

These General Business Terms, together with the Engagement Letter (including any and all attachments, exhibits and schedules), constitute the entire understanding and agreement (the “Agreement”) between us with respect to the services and deliverables described in the Engagement Letter.  If there is a conflict between these General Business Terms and the terms of the Engagement Letter, these General Business Terms will govern, except to the extent the Engagement Letter explicitly refers to the conflicting term herein.

 

1. Our Services and Deliverables. We will provide the services and furnish the deliverables (the “Services”) as described in our Engagement Letter and any attachments thereto, as may be modified from time to time by mutual consent.

 

2. Independent Contractor. We are an independent contractor and not your employee, agent, joint venturer or partner, and will determine the method, details and means of performing our Services. We assume full and sole responsibility for, and indemnify you against, the payment of all compensation and expenses of our employees and for all of their state and federal income tax, unemployment insurance, Social Security, payroll and other applicable employee withholdings.

 

3. Fees and Expenses. (a) Our fees and payment terms are set out in our Engagement Letter. Those fees do not include taxes and other governmental charges (which will be separately identified in our invoices.)

 

(b) You acknowledge that where out-of-town personnel are assigned to any project on a long-term basis (as defined from time to time in the applicable provisions of the Internal Revenue Code and related IRS regulations, and currently defined, under IRC Section 162, as a period of time reasonably expected to be greater than one year), the associated compensatory tax costs applied to out-of-town travel and living expenses also shall be calculated on an individual basis, summarized, and assessed to such personnel. In such cases, the expenses for which you shall reimburse us hereunder shall be deemed to include the estimated incremental compensatory tax costs associated with the out-of-town travel and living expenses of our personnel, including tax gross-ups. We shall use reasonable efforts to limit such expenses, and shall follow the Company’s expense and reimbursement policy with respect to such expenses.

 

(c) We reserve the right to suspend Services if invoices are not paid within twenty (20) days of receipt, in which event we will not be liable for any resulting loss, damage or expense connected with such suspension.

 

4. Taxes. (a) You will be responsible for and pay all applicable sales, use, excise, value added, services, consumption and other taxes and duties associated with our performance or your receipt of our Services, excluding taxes on our income generally.

 

(b) If you are required by the laws of any foreign tax jurisdiction to withhold income or profits taxes from our payment, then the amount payable by you upon which the withholding is based shall be paid to us net of such withholding.  You shall pay any such withholding to the applicable tax authority.  However, if after 120 days of the withholding, you do not provide us with official

 

6


 

tax certificates documenting remittance of the taxes, you shall pay to us an amount equal to such withholding.  The tax certificates shall be in a form sufficient to document qualification of the taxes for the foreign tax credit allowable against our corporation income tax.

 

5. Confidentiality and Privacy. (a) With respect to any information supplied in connection with this engagement and designated by either of us as confidential, or which the other should reasonably believe is confidential based on its subject matter or the circumstances of its disclosure (“Confidential Information”), the other agrees to protect the confidential information in a reasonable and appropriate manner, but in no less than the manner in which such party protects its own confidential information, and use confidential information only to perform its obligations under this engagement and for no other purpose. This will not apply to information which is: (i) publicly known, (ii) already known to the recipient, (iii) lawfully disclosed by a third party, (iv) independently developed, (v) disclosed pursuant to legal requirement or order, or (vi) disclosed to taxing authorities or to representatives and advisors in connection with tax filings, reports, claims, audits and litigation.

 

(b) Confidential Information made available hereunder, including copies thereof, shall be returned or destroyed upon request by the disclosing party; provided that the receiving party may retain other archival copies for recordkeeping or quality assurance purposes and receiving party shall make no unauthorized use of such copies.

 

(c) We agree to use any personally identifiable information and data you provide us only for the purposes of this engagement and as you direct, and we will not be liable for any third-party claims related to such use.  We will each take necessary actions to ensure that we comply with applicable laws relating to privacy and/or data protection.

 

(d)  You agree that, upon completion of our engagement, we may use your name, logo and description of services provided to you in our marketing materials, subject to your approval which will not be unreasonably withheld.

 

6. Our Deliverables and Your License. Upon full and final payment of all amounts due us in connection with this engagement, all right, title and interest in the deliverables set out in our Engagement Letter will become your sole and exclusive property, except as set forth below.  We will retain sole and exclusive ownership of all right, title and interest in our proprietary information, processes, methodologies, know-how and software (“Winter Harbor Property”), including such information as existed prior to the delivery of our Services and, to the extent such information is of general application, anything which we may discover, create or develop during our provision of Services for you. To the extent our deliverables to you contain Winter Harbor Property, we grant you a non-exclusive, non-assignable, royalty-free, perpetual license to use it in connection with the deliverables and the subject of the engagement and for no other or further use without our express, prior written consent or to the extent necessary to comply with applicable law.  If our deliverables are subject to any third-party rights in software or intellectual property, we will notify you of such rights. Our deliverables are to be used solely for the purposes intended by this engagement and may not be disclosed, published or used in whole or in part for any other purpose without our express, prior written consent or to the extent necessary to comply with applicable law.

 

7. Your Responsibilities. To the extent applicable, you will cooperate in providing us with office space, equipment, data and access to your personnel as necessary to perform the Services. You

 

7


 

shall provide reliable, accurate and complete information necessary for us to adequately perform the Services and will promptly notify us of any material changes in any information previously provided.  You acknowledge that we are not responsible for independently verifying the truth or accuracy of any information supplied to us by or on behalf of you.

 

8. Our Warranty. We warrant that our Services will be performed with reasonable care in a diligent, professional and competent manner. Our sole obligation will be to correct any non-conformance with this warranty, provided that you give us written notice within ten business days after discovery of any non-conformity associated with the Services performed. The notice will specify and detail the non-conformance and we will have a reasonable amount of time, based on its severity and complexity, to correct the non-conformance.

 

We do not warrant and are not responsible for any third party products or services. Your sole and exclusive rights and remedies with respect to any third party products or services are against the third party vendor and not against us.

 

THIS WARRANTY IS OUR ONLY WARRANTY CONCERNING THE SERVICES AND ANY DELIVERABLE, AND IS MADE EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OR OTHERWISE, ALL OF WHICH ARE HEREBY DISCLAIMED.

 

9. Liability and Indemnification.  This engagement is not intended to shift risk normally borne by you to us.

 

(a) To the fullest extent permitted under applicable law, the Company agrees to indemnify and hold harmless each of Winter Harbor, its affiliates and their respective shareholders, members, managers, employees, agents, representatives and subcontractors (each, an “Indemnified Party” and collectively, the “Indemnified Parties”) against any and all losses, claims, damages, liabilities, penalties, obligations and expenses, including the reasonable costs for counsel (“Losses”) actually and reasonably incurred as a result of and in the course of investigating, preparing or defending any action or claim in connection with litigation in which any Indemnified Party is a party, or as to which a claim against an Indemnified Party has been asserted in writing, as and when incurred, caused by, relating to, based upon or arising out of (directly or indirectly) the Indemnified Parties’ acceptance of or the performance or nonperformance of the Services and their obligations under the Agreement; provided, however, (i) such indemnity shall not apply to any such Loss to the extent it is found in a formal judgment by a court of competent jurisdiction to have resulted primarily from such Indemnified Party’s breach of the confidentiality obligations contained in the Agreement, intentional misconduct, bad faith, self-dealing, fraud, gross negligence or willful misconduct, (ii) this indemnity shall not apply to any claim by the Company against Winter Harbor as to Winter Harbor’s breach of Winter Harbor’s express obligations under the Agreement, and (iii) with respect to the Interim CEO, the Interim CEO shall be entitled indemnification to the same extent as extended to the Company’s other executive officers.  The Company further agrees that it will not, without the prior consent of an Indemnified Party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which such Indemnified Party seeks indemnification hereunder (whether or not such Indemnified Party is an actual party to such claim, action, suit or proceedings) in a manner that has a material adverse effect on Winter Harbor unless such settlement, compromise or consent includes an

 

8


 

unconditional release of such Indemnified Party from all liabilities arising out of such claim, action, suit or proceeding.

 

(b) We will not be liable for any special, consequential, incidental, indirect or exemplary damages or loss (nor any lost profits, savings or business opportunity).

 

(c) Neither of us will be liable for any delays or failures in performance due to circumstances beyond our reasonable control.

 

(d) These indemnification provisions shall be in addition to any contractual liability which the Company may otherwise have to the Indemnified Parties.  In the event that, at any time whether before or after termination of the engagement or the Agreement, as a result of or in connection with the Agreement or Winter Harbor’s and its personnel’s role under the Agreement, Winter Harbor or any Indemnified Party is required to produce any of its personnel (including former employees) for examination, deposition or other written, recorded or oral presentation, or Winter Harbor or any of its personnel (including former employees) or any other Indemnified Party is required to produce or otherwise review, compile, submit, duplicate, search for, organize or report on any material within such Indemnified Party’s possession or control pursuant to a subpoena or other legal (including administrative) process, the Company will reimburse the Indemnified Party for its out of pocket expenses, including the reasonable fees and expenses of its counsel, and will compensate the Indemnified Party for the time expended by its personnel based on such personnel’s then current hourly rate or, if applicable, the former employees’ former hourly rate, provided that the Company shall not be required to reimburse the Interim CEO for any such expenses that are covered by the D&O policy.

 

(e) If any action, proceeding or investigation is commenced to which any Indemnified Party proposes to demand indemnification hereunder, such Indemnified Party will notify the Company promptly and before incurring any indemnified cost; provided, however, that any failure by such Indemnified Party to notify the Company will not relieve the Company from its obligations hereunder as to cost incurred after the date of notice, except to the extent that such failure shall have actually prejudiced the defense of such action.  The Company shall promptly pay expenses reasonably incurred by any Indemnified Party in defending, participating in, or settling any action, proceeding or investigation in which such Indemnified Party is a party or is threatened in writing to be made a party or otherwise is participating in by reason of the engagement under the Agreement, upon submission of invoices therefor, whether in advance of the final disposition of such action, proceeding, or investigation or otherwise, provided that the Company shall not be required to reimburse the Interim CEO for any such expenses that are covered by the D&O policy.  Each Indemnified Party hereby undertakes, and the Company hereby accepts its undertaking, to repay any and all such amounts so advanced if it shall ultimately be determined that such Indemnified Party is not entitled to be indemnified therefor.  If any such action, proceeding or investigation in which an Indemnified Party is a party is also against the Company, the Company may, in lieu of advancing the expenses of separate counsel for such Indemnified Party, provide such Indemnified Party with legal representation by the same counsel who represents the Company, provided such counsel is reasonably satisfactory to such Indemnified Party, at no cost to such Indemnified Party; provided, however, that if the existence of actual conflicts of interest between such Indemnified Party and the Company such counsel is unable to represent both the Indemnified Party and the Company, then the Indemnified Party shall be entitled to use separate counsel of its own choice, and the Company shall promptly advance its reasonable expenses of

 

9


 

such separate counsel upon submission of invoices therefor.  Nothing herein shall prevent an Indemnified Party from using separate counsel of its own choice at its own expense.  The Company will be liable for any settlement of any claim against an Indemnified Party made with the Company’s prior written consent.

 

(f) In order to provide for just and equitable contribution among the parties if a claim for indemnification pursuant to these indemnification provisions is made but it is found in a final judgment by a court of competent jurisdiction that such indemnification may not be enforced in such case, even though the express provisions hereof provide for indemnification, then the relative fault of the Company, on the one hand, and the Indemnified Parties, on the other hand, in connection with the statements, acts or omissions which resulted in the losses, claims, damages, liabilities and costs giving rise to the indemnification claim and other relevant equitable considerations shall be considered; and further provided that in no event will the Indemnified Parties’ aggregate contribution for all losses, claims, damages, liabilities and expenses with respect to which contribution is available hereunder exceed the amount of fees actually received by the Indemnified Parties pursuant to the Agreement.  No person found liable for a breach of the confidentiality obligations contained in the Agreement, intentional misconduct, bad faith, self-dealing, fraud, gross negligence or willful misconduct shall be entitled to contribution hereunder from any person.

 

(g) Neither termination of the Agreement nor termination of Winter Harbor’s engagement nor the filing of a petition under Chapter 7 or 11 of the United States Bankruptcy Code (nor the conversion of an existing case to one under a different chapter) shall affect these indemnification provisions, which shall hereafter remain operative and in full force and effect; provided, however, that Winter Harbor acknowledges that during the pendency of any Bankruptcy Court approved retention, this Agreement is subject to modification as may be stated within the Bankruptcy Court’s order.

 

(h) The rights provided herein shall not be deemed exclusive of any other rights to which the indemnified parties may be entitled under any other agreements, any applicable law or otherwise.

 

10. Non-Solicitation. During the term of this engagement, and for a period of one year following its expiration or termination, (i) you will not directly or indirectly solicit, employ or otherwise engage any of our employees (including former employees) or contractors who were involved in the engagement and (ii) Winter Harbor will not directly or indirectly solicit, employ or otherwise engage any of the Company’s employees (including former employees) or contractors.

 

11. Termination.

 

(a) Termination for Convenience. Winter Harbor may terminate this Agreement for convenience at any time on 30 days’ prior written notice to the Company. The Company may terminate this Agreement for convenience at any time on 30 days’ prior written notice to Winter Harbor.

 

(b) Termination for Breach. Either party may terminate this Agreement for breach if, within ten days’ notice, the breaching party fails to cure a material breach of this Agreement.

 

(c) To the extent you terminate this Agreement, you will pay us for all Services rendered and expenses incurred up to the effective date of termination.

 

10


 

(d) The terms of this Agreement which relate to confidentiality, ownership and use, limitations of liability and indemnification, non-solicitation and payment obligations shall survive its expiration or termination.

 

12. General. (a) This Agreement supersedes all prior oral and written communications between us, and may be amended, modified or changed only in a writing when signed by both parties.

 

(b) No term of this Agreement will be deemed waived, and no breach of this agreement excused, unless the waiver or consent is in writing signed by the party granting such waiver or consent.  Winter Harbor may not assign this Agreement, by operation of law or otherwise, without obtaining the Company’s prior written consent.

 

(c) We each acknowledge that we may correspond or convey documentation via Internet e-mail and that neither party has control over the performance, reliability, availability, or security of Internet e-mail. Therefore, neither party will be liable for any loss, damage, expense, harm or inconvenience resulting from the loss, delay, interception, corruption, or alteration of any Internet e-mail due to any reason beyond our reasonable control.

 

(d) This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut without giving effect to conflict of law rules.  The parties hereto agree that any and all disputes or claims arising hereunder shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association.  Any arbitration will be conducted in Westport, Connecticut.  Any arbitration award may be entered in and enforced by any court having jurisdiction thereof, and the parties consent and commit themselves to the jurisdiction of the courts of the State of Connecticut for purposes of any enforcement of any arbitration award.  Except as may be required by law, neither a party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties.

 

(e) If any portion of this Agreement is found invalid, such finding shall not affect the enforceability of the remainder hereof, and such portion shall be revised to reflect our mutual intention.

 

(f) This Agreement shall not provide third parties with any remedy, cause, liability, reimbursement, claim of action or other right in law or in equity for any matter governed by or subject to the provisions of this Agreement.

 

(g)  In the event the Company files for Chapter 11, the Company and Winter Harbor agree that the Bankruptcy Court shall have exclusive jurisdiction over any and all matters arising under or in connection with this Agreement.

 

*  *  *

 

11




QuickLinks -- Click here to rapidly navigate through this document


Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

        We consent to the incorporation by reference in the Registration Statements (Nos. 333-156725, 333-191405, 333-206682, 333-206683, and 333-212947) on Form S-8 and Registration Statement (No. 333-218891) on Form S-3 of Summer Infant, Inc. of our report dated March 18, 2020, relating to the consolidated financial statements of Summer Infant, Inc. and Subsidiaries appearing in this Annual Report on Form 10-K of Summer Infant, Inc. for the year ended December 28, 2019.

/s/ RSM US LLP
RSM US LLP
Boston, MA
March 18, 2020




QuickLinks

Consent of Independent Registered Public Accounting Firm

QuickLinks -- Click here to rapidly navigate through this document


Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Stuart Noyes, certify that:

        1.     I have reviewed this Annual Report on Form 10-K 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:

        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):

Date: March 18, 2020

  /s/ STUART NOYES

Stuart Noyes
Interim Chief Executive Officer



QuickLinks

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

QuickLinks -- Click here to rapidly navigate through this document


Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Paul Francese certify that:

        1.     I have reviewed this Annual Report on Form 10-K 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:

        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):

Date: March 18, 2020

  /s/ PAUL FRANCESE

Paul Francese
Chief Financial Officer



QuickLinks

CERTIFICATION OF CHIEF FINANCIAL OFFICER

QuickLinks -- Click here to rapidly navigate through this document


Exhibit 32.1

SECTION 1350 CERTIFICATION

        In connection with the Annual Report on Form 10-K of Summer Infant, Inc. (the "Company") for the year ended December 28, 2019 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, I, Stuart Noyes, 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:

Date: March 18, 2020   /s/ STUART NOYES

Stuart Noyes
Interim Chief Executive Officer



QuickLinks

SECTION 1350 CERTIFICATION

QuickLinks -- Click here to rapidly navigate through this document


Exhibit 32.2

SECTION 1350 CERTIFICATION

        In connection with the Annual Report on Form 10-K of Summer Infant, Inc. (the "Company") for the year ended December 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:

Date: March 18, 2020   /s/ PAUL FRANCESE

Paul Francese
Chief Financial Officer



QuickLinks

SECTION 1350 CERTIFICATION
v3.20.1
INCOME TAXES - Income Tax Expense (Details) - USD ($)
$ in Thousands
12 Months Ended
Dec. 28, 2019
Dec. 29, 2018
Current:    
Foreign   $ (382)
State and local $ 11 11
Total current 11 (371)
Deferred:    
Federal 683 114
Foreign 222 (109)
State and local 179 (198)
Total deferred 1,084 (193)
Total benefit $ 1,095 $ (564)
v3.20.1
SHARE BASED COMPENSATION - Summary of Plans (Details) - USD ($)
$ in Thousands
12 Months Ended
Dec. 28, 2019
Dec. 29, 2018
Mar. 31, 2017
Selling, general and administrative expenses      
SHARE BASED COMPENSATION      
Share-based compensation expense $ 319 $ 523  
2006 Plan      
SHARE BASED COMPENSATION      
Number of shares authorized under the plan     333,334
Shares available to grant 0    
2012 Plan      
SHARE BASED COMPENSATION      
Number of shares authorized under the plan 188,889    
Shares available to grant 71,468