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:
Level 1Quoted
prices for identical instruments in active markets.
Level 2Quoted
prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived
valuations whose inputs are observable or whose significant value drivers are observable.
Level 3Significant
inputs to the valuation model are unobservable.
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:
-
-
Expected lease termThe expected lease term includes both contractual lease periods
and, when applicable, cancelable option periods when it is reasonably certain that the Company would exercise such options. These leases have remaining lease terms between 1.75 and 3.5 years.
The Canada lease has one 5-year extension option that has also not been included in the lease term.
-
-
Incremental borrowing rateThe Company's lease agreements do not provide an
implicit rate. As the Company does not have any external borrowings for comparable terms of its leases, the Company estimated the incremental borrowing rate based on secured borrowings available to
the Company for the next 5 years. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term in an amount equal to the lease payments in a similar
economic environment.
-
-
Lease and non-lease componentsIn
certain cases the Company is required to pay for certain additional charges for operating costs, including insurance, maintenance, taxes, and other costs incurred, which are billed based on both usage
and as a percentage of the Company's share of total square footage. The Company determined that these costs are non-lease components and they are not included in the calculation of the lease
liabilities because they are variable. Payments for these variable, non-lease components are considered variable lease costs and are recognized in the period in which the costs are incurred.
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
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