Robin Marino, 65, a director since August 2015, is currently an independent brand consultant.  From June 2011 to November 2014, Ms. Marino served as Group President, Accessories and Home, of LFUSA/Global Brands Group (GBG), a branded apparel, footwear, fashion accessories and related lifestyle product company, where she oversaw five divisions.  Prior to joining GBG, Ms. Marino was President and CEO of Merchandising at Martha Stewart Living Omnimedia, which she originally joined in 2005.  Ms. Marino was also President and COO of Kate Spade from 1999 to 2005.  Prior to that, she served in a variety of management positions for fashion and retail companies such as Burberry Limited, Wathne LTD and Federated Department Stores, Inc.  Ms. Marino served as a director of Hampshire Group, Limited from February 2016 until September 2016.  Ms. Marino holds a B.B.A. from Stetson University.

Alan Mustacchi, 59, a director since May 2015, served most recently as Executive Vice President, Capital Markets of GreenSky, Inc., a technology-focused consumer finance platform, from November 2014 until April 2020. Prior to joining GreenSky, Mr. Mustacchi was Managing Director and Head of Consumer Products & Specialty Retail Investment Banking of Dresner Partners, a middle market investment bank specializing in merger & acquisition advisory, institutional private placements of debt and equity, financial restructuring and corporate turnaround, valuation and strategic consulting, from 2013 until 2014.  From 2005 until 2013, Mr. Mustacchi was at Navigant Capital Advisors, LLC, where he was Managing Director, Investment Banking.  He was also Managing Director, Merchant Banking Group, at BNP Paribas, where he spent 11 years, and Vice President of The Bank of New York in its commercial finance group.  Early in his career, Mr. Mustacchi spent six years as a Certified Public Accountant.  He holds a B.S. in Accounting and Economics from New York University’s College of Business and Public Administration and a M.B.A. in Finance and International Business from New York University’s Graduate School of Business Administration.

Andrew Train, 38, has been a director since August 2017.  Since May 2014, Mr. Train has been President of OBERLAND, a purpose driven branding agency based in New York City which he co-founded.  Prior to founding OBERLAND, Mr. Train was the Advertising Business Director at J. Walter Thompson New York, a branding, marketing and advertising agency, from May 2009 until May 2014.  Earlier in his career, he worked on well-known global brands such as HSBC, Verizon, UPS, Puma, and Lufthansa in North America and China while at J. Walter Thompson and other advertising agencies.  Mr. Train has been recognized by several national and global organizations for cause marketing and driving social change through traditional, digital, social and mobile campaigns.  Mr. Train holds a B.A. in Economics from the University of Richmond.

Stephen J. Zelkowicz, 47, has been a director since August 2014.  Since 1999, he has served as an equity research analyst at Wynnefield Capital, Inc., an investment firm specializing in small, publicly-traded companies.  Mr. Zelkowicz holds a B.A. from the University of Pennsylvania.

Corporate Governance

Audit Committee and Audit Committee Financial Expert

Our Board has established a separately-designated standing Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The Audit Committee currently consists of three members: Alan Mustacchi (Chairman), Evelyn D’An and Robin Marino.  Each member of the Audit Committee is an “independent” director under applicable SEC and Nasdaq Stock Market rules.  Our Board has determined that each of Mr. Mustacchi and Ms. D’An qualifies as an “audit committee financial expert” within the meaning of SEC rules.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports with the SEC relating to their ownership and changes in ownership of our common stock and other equity securities. Based solely on our review of our records, SEC filings and on written representations from our executive officers and directors, we believe that each person who, at any time during the fiscal year, was a director, officer or beneficial owner of more than 10% of our common stock, complied with all Section 16(a) requirements during the fiscal year, except for Jason Macari, who filed two late Form 4 filings reporting five purchase transactions.

Process for Stockholder Nominations

There have been no material changes to the procedures by which security holders may recommend nominees to our Board.

Item 11.  Executive Compensation

Overview

We are an infant and juvenile products company originally founded in 1985 and have publicly traded on the Nasdaq Stock Market since 2007doing business under the symbol “SUMR.”name SUMR Brands. 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 website. 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 Smyths Toys 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. Our company was originally founded in 1985 and has publicly traded on the Nasdaq Stock Market since 2007 under the symbol “SUMR”.

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. To support our roadmap for sustainable growth in 2021 and beyond, we will continue to seek to develop and launch 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. In addition to organic growth, we will consider acquisitions of products or businesses, consistent with our roadmap. We believe the following key strategic priorities position us to capitalize on market trends and fuel our future growth:

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™ and SwaddleMe^® brand names.

Within gates, we offer a product range of more than 30 products. Our line of gates offers versatility that covers use in home, ease of installation, and aesthetically pleasing designs. We continue to receive positive feedback from retailers as we expand our portfolio with consumer preferred features and styling.

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.

Our My Size™ Potty and the My Size™ Potty Train & Transition have been well-received by retailers and consumers alike. In late 2020 and early 2021, we launched an expanded range of potty training products. 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 range of convenience stroller platforms to appeal to the experienced parent. In addition, in 2020, we launched the Myria modular travel system and the Affirm 335 infant car seat that attract first time expectant parents to our products.

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.

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 and an expanded range of products were launched in 2020, and we expect to continue to add new stages of sleep products to our available assortment.

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 analyses 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

We source our products globally from a variety of suppliers and manufacturers, including from China, Vietnam, the United States and Mexico. 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 highly competitivethe 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.

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.

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 U.S. patents expire at various times depending on the date of issuance during the next 18 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 87% of our sales in fiscal 2020 and 81% of our sales in fiscal 2019. Of these customers, three generated more than 10% of sales for fiscal 2020: Amazon.com (33%), Walmart (28%), and Target (17%). In fiscal 2019, three customers generated more than 10% of sales: Amazon.com (26%), Walmart (25%), and Target (17%).

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.

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 $15,000 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

We believe that the development, attraction and retention of employees is an important factor to our Company’s success. We offer our employees a wide range of benefits, and to support the advancement of our employees, we offer training and development programs encouraging advancement from within. As of January 2, 2021, we had 119 employees, 115 of whom were full time employees and 55 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.

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.

Risks Relating to COVID-19

We face risks related to the widespread COVID-19 pandemic that impacted our business in 2020, and may continue to impact our business and financial performance.

In 2020, we saw the COVID-19 pandemic negatively impact the global economy, disrupt global supply chains and create significant volatility and disruption of financial markets. The pandemic exposes us to a number of risks, including the following:

In the U.S., we have continued to operate our distribution center in California, as products are considered “essential.” While we have implemented additional safety measures for our workers in the distribution center, we may be required to temporarily close the facility if there are any confirmed cases of COVID-19 at the facility, which would impact our ability to timely ship product to our customers.

In addition to the specific risks to our business noted above, we will also be subject to the long-term effects the COVID-19 pandemic may have on the U.S. economy as a whole. While economic stimulus efforts in the U.S. may alleviate the impact of the pandemic on the U.S. economy, to the extent the COVID-19 pandemic is prolonged, or if it worsens, it will likely continue to impact consumer discretionary spending, and therefore demand for our products. In addition to the risks specifically described above, the impact of COVID-19 is likely to implicate and exacerbate other risks disclosed in this Item 1A.

Risks Relating to Our Business and Financial Condition

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 2020, sales to our top seven customers, including Amazon.com, Wal-Mart, and Target, accounted for approximately 87% 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 products, the demand for our products and 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 2019 impacted our 2019 and 2020 results, and caused market disruption amongst our major customers in 2019. In addition, while exclusions from tariffs were granted for certain of our products in 2019 and 2020, these exclusions have now expired and we do not expect that any further exclusions will be granted.

While we have taken 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 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.

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.

If we do not appropriately manage our supply chain, 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. In addition, the COVID-19 pandemic can impact timely delivery of our products. 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. Logistical challenges related to the lack of availability of truckers, containers and shippers is a risk which could cause delays in procuring product for vendors as well as shipping to customers, and could ultimately result in significant increases in transportation costs.

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. In addition, with the acceleration in consumers purchasing online, there is a low barrier to entry into our market for newer, smaller companies that solely operate an e-commerce business. 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 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.

Covenants in our 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 the credit facility under our loan agreement and cash generated from our operations to meet our working capital needs. Our loan agreement includes 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.

These restrictive covenants may limit our ability to engage in acts that may be in our best long-term interests. 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 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.

We may not be entitled to forgiveness of our PPP loan, and our application for the Paycheck Protection Program Loan could in the future be determined to have been impermissible.

In August 2020, we received loan proceeds of approximately $1,956 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). We used the PPP Loan to retain current employees, maintain payroll and make lease and utility payments. Under the CARES Act, loan forgiveness is generally available if proceeds were used for qualifying expenses in accordance with the CARES Act. The amount of the PPP Loan eligible to be forgiven may be reduced in certain circumstances, including as a result of certain headcount or salary reductions. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan will ultimately be forgiven by the SBA. On February 18, 2021, the Company applied for full forgiveness of the PPP loan through Bank of America and the application is currently under review by Bank of America.

In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any applicable laws or regulations that may apply to us in connection with the PPP Loan or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties, which could also result in adverse publicity and damage to our reputation. Any of these events could have an adverse effect on our business, results of operations and financial condition.

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:

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.

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.

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.

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.

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.

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.

We could suffer adverse tax and other financial consequences if taxing authorities do not agree with our tax positions, or we are unable to utilize our net operating losses.

We are periodically subject to a number of tax examinations by taxing authorities in the states and countries where we do business. We also have significant deferred tax assets related to our net operating losses (NOLs) in U.S. federal and state taxing jurisdictions. Generally, for U.S. federal and state tax purposes, NOLs can be carried forward and used for up to twenty years, and all of our tax years will remain subject to examination until three years after our NOLs are used or expire.

In addition, U.S. federal, state and local, are extremely complex and subject to varying interpretations. We recognize tax benefits of uncertain tax positions when we believe the positions are more likely than not of being sustained upon a challenge by the relevant tax authority. In fiscal 2020, we will take a tax deduction related to a worthless stock loss in connection with the dissolution of one of our subsidiaries, Born Free Holdings Limited, however, because of the uncertainty as to whether this position may be challenged by the U.S. tax authorities, we have determined this tax benefit to be an uncertain tax position and have fully reserved for the tax benefit associated with the deduction. If there are tax benefits, including, but not limited to, the worthless stock loss deduction or our use of NOLs, or other tax attributes, that are challenged successfully by a taxing authority, we may be required to pay additional taxes or we may seek to enter into settlements with the taxing authorities, which could require significant payments or otherwise have an adverse effect on our business, results of operations and financial condition.

In addition, we may be limited in our ability to utilize our NOLs to offset future taxable income and thereby reduce our otherwise payable income taxes. Our ability to utilize our NOLs is also dependent, in part, upon us having sufficient future earnings to utilize our NOLs before they expire. If market conditions change materially and we determine that we will be unable to generate sufficient taxable income in the future to utilize our NOLs, we could be required to record an additional valuation allowance. Our NOLs are also subject to review and potential disallowance upon audit by the taxing authorities of the jurisdictions where the NOLs were incurred, and future changes in tax laws or interpretations of such tax laws could limit materially our ability to utilize our NOLs. If we are unable to use our NOLs or use of our NOLs is limited, we may have to make significant payments or otherwise record charges or reduce our deferred tax assets, which could have an adverse effect on our business, results of operations and financial condition.

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 an 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 an adverse impact to our reputation and potentially disrupt our business.

Risks Related to an Investment in Our Securities

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.

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 20,200 square foot facility in Woonsocket, Rhode Island. We have a lease on this facility, which will expire in 2025. 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 2026.

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.

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 12, 2021 there were approximately 34 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 doing business under the name SUMR Brands. 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 website. 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 Smyths Toys 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 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. Accordingly, information in the financial statements and accompanying notes included in this Annual Report on Form 10-K related to fiscal 2019 give effect to the reverse stock split as if it occurred at the first period presented.

Net sales in the fourth quarter of 2020 decreased 15.6% from the previous year quarter, and net sales for the full year decreased 10.3% from the prior year. Net sales for the fourth quarter and the full year in 2020 declined primarily as a result of the following: (a) a sales decline at mid-tier customers resulting from brick and mortar store closures and significant close-out sales that occurred in the fourth quarter of 2019 that were not repeated in the fourth quarter of 2020, (b) a reduction in international business resulting from COVID-19 retail store closures and as a consequence of the restructuring of the international business whereby certain customers that were serviced out of our warehouse were no longer able to be distributed to in the transition to a third party service provider, and (c) the transition of more of our business to direct import whereby certain logistical costs were eliminated but there was also a consequent reduction in sales.

In the fourth quarter, net loss increased to $3,389 in 2020 from a net loss of $882 in 2019 primarily as a result of a $1,800 loss on the early extinguishment of debt and a $676 write-off of intangible assets related to the Company’s decision to dissolve its Born Free Holdings entity. For the full year 2020, net loss was $1,102 compared to a net loss of $4,164 in 2019. General and administrative expenses declined by $5,463 as a result of restructuring initiatives implemented in 2020 which streamlined our operations and improved our financial performance. Additionally, although there was a $1,800 loss from the extinguishment of debt and a $676 write-off of intangible assets, we ended fiscal 2020 with net loss of $0.52 per share as compared to a net loss of $1.98 per share in fiscal 2019.

In the fourth quarter, we announced the completion of a debt refinancing with Bank of America, which we expect to reduce prospective interest expense and allows us to continue to focus on achieving sustainable growth for the Company. During the end of fiscal 2020, we announced the appointment of Stuart Noyes as Chief Executive Officer and as a member of our Board of Directors, effective November 30, 2020. Mr. Noyes has served as the Company’s interim CEO since December 16, 2019. We also announced a transition in the role of Chief Financial Officer. Our current Chief Financial Officer, Edmund J. Schwartz, will retire from the Company effective March 31, 2021 and will step down as Chief Financial Officer effective March 19, 2021, when he will be succeeded by Bruce Meier as Interim Chief Financial Officer. Mr. Meier has been working with Mr. Noyes overseeing the operational and financial side of the Company’s business since December 2019.

COVID-19 Impact

As previously disclosed, the COVID-19 pandemic impacted our business in fiscal 2020. In March 2020, we began to see customers that have retail stores reduce orders as they experienced or anticipated closures of those stores. While we did see an uptick in sales to those customers with significant e-commerce capabilities, it did not offset the reduced orders from our mid-size and smaller customers. We believe that customers with e-commerce capabilities will continue to have increased demand. However, given the unpredictability of the COVID-19 pandemic, it is possible that some stores will remain closed should there be a resurgence of COVID-19 outbreaks or that these customers will close or reduce the number of stores that they operate in response to the COVID-19 pandemic.

The COVID-19 pandemic continued to impact our business in the fourth quarter, as we experienced challenges in our shipping and distribution channels throughout our global supply chain and continued to see lower demand from our mid-sized and smaller customers.

As we enter 2021, we continue to see disruption in our shipping and distribution channels throughout our global supply chain including congestion in ports and distribution centers, container shortages and lack of truck drivers. The potential exists that we might not be able to meet demand due to these challenges and for certain products that are manufactured by suppliers in China or elsewhere that may be subject to closure should there be a resurgence of COVID-19 outbreaks. We also expect our costs associated with these matters will increase, as well as costs associated with our distribution center, with new lease terms to be effective in the fourth quarter of 2021 that will increase our lease costs. To the extent we do not meet our financial projections, are unable to mitigate the impact of ongoing tariffs, are impacted by a resurgent coronavirus outbreak, or are not successful in realizing the savings anticipated from our restructuring initiatives, our business, financial position, results of operations and cash flows would be adversely affected.

We will continue to assess the impact of the COVID-19 pandemic on the supply chain, consumer demand and overall business operations into 2021. We believe COVID-19 in the United States and in other countries has added greater uncertainty and unpredictable economic consequences in the coming months, and therefore we cannot currently predict how it will impact our business in the long term.

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 a transfer of its 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.

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.

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 2014 and 2020.

Results of Operations

The following table presents selected consolidated financial information for our Company for the fiscal years ended January 2, 2021 (“fiscal 2020”) and December 28, 2019 (“fiscal 2019”).

Fiscal 2020 Compared with Fiscal 2019

Net sales decreased 10.3% to $155,299 for fiscal 2020 from $173,181 for fiscal 2019 due primarily to the decline in sales to international and mid-tier customers. For fiscal 2020, sales to our top three customers increased by approximately 5.3% over the prior fiscal year and sales increased across several of our product categories including specialty blankets, entertainers and playards. 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, (b) a planned decline due to the restructuring of our international business, (c) a decline in our mid-tier and international sales that were affected by fewer distribution channels as many of these customers were closed for as much as three months as a result of the COVID-19 pandemic, and (d) a continued shift to direct import business.

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 2020 as compared to fiscal 2019.

Gross profit decreased 7.3% to $50,851 for fiscal 2020 from $54,885 for fiscal 2019, but gross margin increased in fiscal 2020 to 32.7% from fiscal 2019 at 31.7%. Gross profit dollars decreased primarily due to lower sales. Gross profit as a percent of net sales improved primarily due to tariff exclusions on certain gate, bath, and bedrail products that became effective between December 2019 and May 2020 and were retroactive to September 2018 resulting in $2,483 of the tariff refunds as a benefit to cost of sales in the twelve months ending January 2, 2021 compared to a $1,470 benefit to cost of sales in the fourth quarter of 2019. Tariff exclusions received since December 2019 expired in August 2020, however, we have been taking actions that we expect to mitigate the resumption of these tariffs with customer price increases, supplier concessions, and product cost reductions. General and administrative expenses declined 15.7% to $29,360 for fiscal 2020 compared to $34,823 for fiscal 2019 and decreased as a percent of sales to 18.9% for fiscal 2020 from 20.1% for fiscal 2019. The decrease in dollars and as a percent of sales was primarily attributable to restructuring initiatives implemented in the first quarter of 2020 that included a reduction in work force and other cost reductions partially offset by severance and other restructuring costs.

Selling expenses decreased by 13.5% to $12,574 for fiscal 2020 from $14,540 for fiscal 2019 and as a percent of sales to 8.1% for fiscal 2020 from 8.4% for fiscal 2019. The decrease in selling expense dollars was primarily due to lower net sales, lower cooperative advertising and freight out costs, an increase in direct import sales and the strategic restructuring of our international business. The decrease as a percentage of net sales is primarily attributable to a decrease in freight expense which is the result of a shift in our distribution model and a change in customer mix. The distribution model change included transitioning more sales to direct import and the restructuring of our international business. The customer mix change is the result of a lower level of business with international customers, mid-tier customers and our direct to consumer business.

Depreciation and amortization decreased to $3,348 for fiscal 2020 from $3,720 in fiscal 2019. In the fourth quarter, the Company also recorded an asset impairment charge of $676, representing the remaining unamortized balance of the definite-lived asset related to the Company’s Born Free Holding Limited (BFH) trademarks. This intangible asset was determined to have a carrying value that was non-recoverable. The determination resulted from the Company’s decision to dissolve the BFH entity which was completed in December 2020. The Company also considered whether other long-lived assets in other asset groups were impaired and concluded that they were not. No other impairment was recorded. Capital expenditures decreased in fiscal 2020 to $1,258 from $1,991 in fiscal 2019.

Net interest expense decreased 16.3% to $4,078 for fiscal 2020 from $4,871 in fiscal 2019. Interest expense decreased primarily as a result of lower debt levels during fiscal 2020 compared to fiscal 2019, but also as a result of lower interest rates in the fourth quarter of 2020 from the Loan Agreement described below, which we entered into in the fourth quarter of 2020, partly offset by the write-off of $266 of previously unamortized financing fees associated with the reduction in the total revolver commitments under the Company’s Bank of America credit facility in March 2020 and a $1,800 loss from the extinguishment of debt.

For fiscal 2020, we recorded a $117 tax provision on $985 of pretax loss for the period. The tax provision for fiscal 2020 included a $7,435 federal benefit for the worthless stock loss of BFH, as well as a net $236 decrease in valuation allowance for nondeductible interest expense, a $273 decrease in valuation allowance against our state research and development tax credit deferred tax asset, and a $253 valuation allowance against foreign subsidiary net operating loss deferred tax assets, offset by a $7,543 provision for uncertain tax positions. The uncertain tax position provision relates to the worthless stock loss benefit noted above. Due to the uncertain nature of worthless stock deductions, we determined the associated tax benefit to be an uncertain tax position and accordingly, we have fully reserved for the tax benefit. This tax position may be subject to audit and future adjustment by the IRS, which could result in a reversal of none, part, or all of the income tax benefit or could result in a benefit higher than the net amount recorded. If the IRS rejects or reduces the amount of the income tax benefit related to the worthless stock loss, we may have to pay additional cash income taxes, which could adversely affect our results of operations, financial condition, and cash flows. We cannot guarantee what the ultimate outcome or amount of the benefit we receive, if any, will be.

The tax provision for fiscal 2019 included a $191 adjustment for the forfeiture of unexercised stock options as well as a $911 valuation allowance for nondeductible interest expense and a $333 valuation allowance against our United Kingdom subsidiary’s net operating loss deferred tax asset that were instituted until such time as we were able to demonstrate it is more likely than not that those assets would be used in the near future.

Liquidity and Capital Resources

Cash Flows

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

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

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

For fiscal 2020, net cash provided by operating activities was approximately $17,607 generated primarily from operating performance and improved working capital efficiency. For fiscal 2019, net cash provided by operating activities was approximately $2,197 generated primarily from operating performance, including a reduction in inventory.

For fiscal 2020, net cash used in investing activities was approximately $1,278. For fiscal 2019, net cash used in investing activities was approximately $2,326. The decline in the use of cash in investing activities was primarily attributable to a reduction in capital expenditures in fiscal 2020.

For fiscal 2020, net cash used in financing activities was approximately $16,644, representing a significant net paydown of funded debt. For fiscal 2019, net cash provided by financing activities was approximately $57 which represented a net draw on our revolving credit facility.

Based primarily on the above factors, net cash increased for fiscal 2020 by $115, resulting in a cash balance of approximately $510 at fiscal year end.

The following table summarizes our significant contractual commitments at fiscal 2020 year end:

Estimated future interest payments on our Revolving Facility and Term Loan Facility are based upon the interest rates in effect at January 2, 2021.

Capital Resources

In addition to operating cash flow, we also rely on our asset-based revolving credit facility and FILO loan with Bank of America, N.A. to meet our financing requirements, which are subject to changes in our inventory and account receivable levels. We regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure.

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 revolving credit facility and FILO loan agreement, which could impact our availability. There is no assurance that we will meet all of our financial or other covenants in the future, or that our lender will grant waivers or agree to amend the terms of our agreement 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 revolving credit facility and FILO loan agreement.

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

Loan Agreement with BofA

We and our wholly owned subsidiary, Summer Infant (USA), Inc., are parties to a Third Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with Bank of America, N.A., as agent, that provides for (i) a $40,000 asset-based revolving credit facility, with a $5,000 unused letter of credit sub-line facility as of January 2, 2021, (ii) a $7,500 term loan and (iii) a $2,500 FILO (first-in, last-out) loan. The Loan Agreement replaced our prior credit facility with BofA and term loan with Pathlight Capital. As of January 2, 2021 the outstanding revolving credit facility, FILO and term loan balances were $21,467, $2,344 and $7,125, respectively.

Pursuant to the Loan Agreement, total borrowing capacity under the revolving credit facility is based on a borrowing base, which is generally defined as 85% of eligible receivables plus the lesser of (i) 70% of the value of eligible inventory (subject to certain limitations) or (ii) 85% of the net orderly liquidation value of eligible inventory, less applicable reserves. The scheduled maturity date of the loans under the revolving credit facility is October 15, 2025 (subject to customary early termination provisions). Loans under the revolving credit facility bear interest, at our option, at a base rate or at LIBOR, plus applicable margins based on average quarterly availability. Interest payments are due monthly, payable in arrears. We are also required to pay an annual non-use fee on unused amounts under the revolving credit facility, as well as other customary fees as are set forth in the Loan Agreement. As of January 2, 2021, the interest rate on LIBOR based revolver loans and on base rate revolver loans was 2.625% and 4.500%, respectively.

The principal of the term loan is to be repaid, on a quarterly basis, in installments of $375, until paid in full on termination and subject to mandatory repayment in certain circumstances. The scheduled maturity date of the term loan is October 15, 2025 or earlier, if the revolving credit facility is terminated. The term loan bears interest, at our option, at a base rate or at LIBOR, plus applicable margins, and interest payments are due monthly, in arrears. As of January 2, 2021, the interest rate on LIBOR based term loans and on base rate term loans was 3.875% and 5.75%%, respectively.

The total borrowing capacity under the FILO loan is the lesser of (i) the then applicable aggregate FILO commitment amount and (ii) a borrowing base, generally defined as a specific percentage of the value of eligible accounts, plus a specified percentage of the value of eligible inventory. The aggregate FILO commitment amount will be proportionately reduced each quarter until the FILO loan is terminated at maturity on October 15, 2024. There can be no voluntary repayment on the FILO loan as long as there are loans outstanding under the revolving credit facility, unless (i) there is an overadvance under the FILO loan, or (ii) such prepayment is accompanied by a permanent dollar for dollar reduction in the aggregate FILO commitment amount such that, after giving effect to such prepayment and reduction, the outstanding principal amount of the FILO loan is equal to but does not exceed the lesser of (A) the aggregate FILO commitment amount and (B) the FILO borrowing base. The FILO loan bears interest, at our option, at a base rate or at LIBOR, plus applicable margins, and interest payments are due monthly, in arrears. As of January 2, 2021, the interest rate on LIBOR based FILO loans and on base rate FILO loans was 3.625%% and 5.50%%, respectively.

All obligations under the Loan Agreement are secured by substantially all the assets of the Company, and our subsidiaries, Summer Infant Canada Limited and Summer Infant Europe Limited, are guarantors under the Loan Agreement. The Loan Agreement contains customary affirmative and negative covenants. Among other restrictions, we are restricted in our ability to incur additional debt, make acquisitions or investments, dispose of assets, or make distributions unless in each case certain conditions are satisfied. Until the term loan and FILO loan have been repaid in full, we must maintain a fixed charge coverage ratio at the end of each fiscal month of at least 1.00 to 1.00 for the twelve-month period then ended. After the term loan and FILO loan have been repaid in full, we will be required to maintain the fixed charge coverage ratio if availability falls below $5,000.

The Loan Agreement also contains customary events of default, including if we fail to comply with any required financial covenants, if there is an event of default under the PPP Loan (described below) and the occurrence of a change of control. In the event of a default, all of the obligations under the Loan Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.

For additional information on the Loan Agreement, please see Note 5 to our consolidated financial statements included in this Annual Report on Form 10-K.

PPP Loan

In 2020, we applied for and received loan proceeds of $1,956 (the “PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) administered by the U.S. Small Business Administration under the U.S. CARES Act. The PPP Loan, which was in the form of a promissory note (the “PPP Note”), between the Company and BofA, as the lender, matures on July 27, 2025 and bears interest at a fixed rate of 1% per annum.  Monthly principal and interest payments are deferred until (i) the date on which the amount of forgiveness is remitted to the Company’s lender, (ii) the date on which the Company’s lender provides notice that the Company is not entitled to loan forgiveness, and (iii) if a borrower does not apply for loan forgiveness, 10 months after the date of the loan forgiveness covered period.  The Company may voluntarily prepay the borrowings in full with no associated penalty or premium. Under the terms of the PPP, the principal and interest may be forgiven if the PPP Loan proceeds are used for qualifying expenses, including payroll costs, rent and utility costs. The PPP Note contains customary representations, warranties, and covenants for this type of transaction, including customary events of default relating to, among other things, payment defaults and breaches of representations and warranties or other provisions of the PPP Note. The occurrence of an event of default may result in, among other things, the Company becoming obligated to repay all amounts outstanding under the PPP Note. On February 18, 2021, the Company applied for full forgiveness of the PPP loan through Bank of America and the application is currently under review by Bank of America.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements during the year ended January 2, 2021 or the year ended December 28, 2019.

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 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 our roadmap for sustainable growth in 2021 and beyond, our strategic priorities, our efforts to mitigate the impact of tariffs, the benefits of and savings from our restructuring initiatives, the ongoing impact of the coronavirus pandemic on our business as well as the US and global economies, our liquidity for the next 12 months, and expected trends and product offerings in 2021. 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:

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 retirement.  We may provide for fringe benefits, such as auto allowances, commuting benefits, housing or relocation benefits in individually negotiated executive employment agreements.additional information regarding factors that could affect our results of operations, financial condition and liquidity.

RoleWe intend our forward-looking statements to speak only as of the Compensation Committeetime of such statements and Managementdo 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 Compensation Committee currently determinesfinancial 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.

Item 9A. 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 Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of January 2, 2021. Our principal executive officer and principal financial officer have concluded, based on their evaluation, that our disclosure controls and procedures were effective as of January 2, 2021.

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 recommendsunder 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:

1)       Pertain to the Boardmaintenance of records that in reasonable detail accurately and fairly reflect the compensation of our chief executive officer, chief financial officertransactions and our other executive officers.  Annually, our Compensation Committee, together with our Board, evaluates the performance of and determines the compensation of our chief executive officer in lightdispositions of the goals and objectivesassets of our compensation program for that year.  Our Compensation Committee annually assesses the performance of our other executive officers and considers recommendations from our chief executive officer when determining the compensation of our other executive officers.  As discussed below, the Compensation Committee may also consider input from other independent directors, our compensation consultant and benchmarking studies and surveys, but retains absolute discretion as to whether to adopt any recommendations as it deems appropriate.a company;

At2)       Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of a company are being made only in accordance with authorizations of management and the requestboard of our Compensation Committee, our chief executive officer, chiefdirectors of the company; and

3)       Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on its financial officer and other executive officersstatements.

Because of the inherent limitations, internal control over financial reporting may attend our Compensation Committee meetings, including meetings at which our compensation consultant is present.  This enables our Compensation Committeenot prevent or detect misstatements. Also, projections of any evaluation of effectiveness to reviewfuture periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with senior management the strategic and individual goals.  Our Compensation Committee ultimately makes all determinations regarding financial and individual goals and targets.  Our chief executive officer does not attend any portion of meetings at which his compensation is discussed.policies or procedures may deteriorate.

The CompensationCompany’s management has used the criteria established in the 2013 “Internal Control—Integrated Framework” issued by the Committee also, in consultation with its independent compensation consultant, considers changes to our compensation programs as appropriate in response to input from stockholders through our annual Say on Pay vote and evolving factors such as the business environment and competition for talent.  As part of its 2019 compensation setting process, the Compensation Committee reviewed the resultsSponsoring Organizations of the Say on Pay vote regarding executive compensation paid in 2018, in which approximately 99%Treadway Commission (“COSO Framework”) to evaluate the effectiveness of the votes cast were voted in favor of our executive compensation program.Company’s internal control over financial reporting.

The Compensation Committee has authority to retain (at our Company’s expense) outside counsel, compensation consultants and other advisors to assist as needed.  The Compensation Committee considers input and recommendations from our outside compensation consultants in connection with its review of our Company’s compensation programs and its annual reviewManagement of the performanceCompany conducted an evaluation of the other executive officers.  In 2019,effectiveness, as of January 2, 2021, of the Compensation Committee engaged the services of an independent compensation consultant, Pearl Meyer.  The Compensation Committee retains Pearl Meyer directly, although in carrying out assignments Pearl Meyer also interacts with management when necessaryCompany’s internal control over financial reporting and appropriate to obtain compensation and performance data. As required under SEC rules, the Compensation Committee reviews the services of its compensation consultant to evaluate whether any conflicts of interest are raised, taking into consideration certain factors, including whether the consultant provides any other services to our Company, the amount of fees our Company pays to the consultant, whether there are any business or personal relationships with an executive officer of our Company or with any committee member, and whether the consultant owns any stock of our Company.  On an annual basis, the Compensation Committee will continue to monitor the independence of its compensation consultants. The Compensation Committee determined, based on its evaluation under the COSO Framework, management has concluded that the workCompany’s internal control over financial reporting was effective as of Pearl MeyerJanuary 2, 2021.

There was no change in our internal control over financial reporting that occurred during the quarter ended January 2, 2021 that has not created any conflictmaterially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

The Company currently anticipates that its 2021 annual meeting of interest.  In 2019, Pearl Meyer assistedstockholders (the “2021 Annual Meeting”) will be held on May 19, 2021. Because the Compensation Committee with the following: (i) attended Compensation Committee meetings as requested; (ii) provided advice and analysisdate of the design2021 Annual Meeting represents a change of more than 30 days from the anniversary of the Company’s short-term2020 annual meeting of stockholders, in accordance with Rule 14a-5(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is informing stockholders of this change.

The time and long-term incentive programs; and (iii) reviewed and provided comments on named executive officers’ compensation andlocation of the disclosure regarding executive compensation2021 Annual Meeting will be specified in the Company’s proxy statement for the 2021 Annual Meeting. Pursuant to Rule 14a-8 under the Exchange Act, a stockholder intending to present a proposal to be included in the proxy statement for the 20192021 Annual Meeting must deliver a proposal in writing to our principal executive offices no later than a reasonable time before we begin to print and mail the proxy materials for the 2021 Annual Meeting. Such proposal must also comply with the applicable requirements as to form and substance established by the Securities and Exchange Commission if those proposals are to be included in the proxy statement and form of proxy. Accordingly, the deadline for submission of proposals to be included in the proxy statement for the 2021 Annual Meeting is March 31, 2021.

The Company’s Bylaws set forth advance notice procedures with regard to other stockholder proposals, including nominations for the election of directors and business proposals to be brought before an annual meeting of stockholders.stockholders by any stockholder (other than matters included in our proxy materials in accordance with Rule 14a-8 under the Exchange Act). With respect to the 2021 Annual Meeting, such notice will be considered timely if we receive notice of such proposed director nomination or the proposal of other business at our corporate offices in Woonsocket, Rhode Island, not later than the close of business on March 31, 2021.

PART III

Compensation BenchmarkingItem 10. Directors, Executive Officers and Corporate Governance

In determining compensation levels,The information relating to directors, director nominees and executive officers of the Compensation Committee believes that itCompany is important when making compensation-related decisionsset forth in our definitive Proxy Statement to be informed as tofiled with the practices of publicly-held companies of similar size, revenue and market focus.  As a result, the Compensation Committee relies on its independent compensation consultant to help define the appropriate competitive market using a combination of peer group companies and industry-specific compensation surveys.  The Company’s peer group currently consists of the companies noted below.

Named Executive Officer Compensation in 2019

Our named executive officers for 2019 were Stuart Noyes, Interim Chief Executive Officer, Paul Francese, Senior Vice President and Chief Financial Officer, and Mark Messner, former President and Chief Executive Officer.  Mr. Noyes joined our Company in December 2019, replacing Mr. Messner.

Interim CEO

Winter Harbor Engagement. Mr. Noyes does not receive any compensation directly from the Company, but was engaged pursuant to the terms of an engagement letter between the Company and Winter Harbor, LLC dated December 9, 2019 (the “Letter Agreement”), to act as the Company’s Interim CEO, effective December 16, 2019.  Mr. Noyes reports to the Board, and, together with other Winter Harbor advisors, provides restructuring and advisory services to the Company. Compensation for the services provided under the Agreement for the first ten weeks of the engagement were determined based on agreed-upon hourly rates, subject to a cap of $35,000 per week (other than holiday weeks, which were capped at $15,000 each week) and thereafter upon actual hours worked or such other mutually agreed upon fee structure, plus any out-of-pocket expenses. In February 2020, the Compensation Committee approved, and the Company entered into, an amendment to the Letter Agreement that provides for compensation at a weekly rate of $40,000, effective beginning the week of February 24, 2020 through the termination of the engagement letter. The Letter Agreement, as amended, also includes a bonus (within a range of $50,000 to $550,000) payable to Winter Harbor if the Company engages in a transaction that constitutes a “change in control” (as defined in the Company’s existing Change in Control Plan) and the Company’s stockholders receive a specified amount of per share consideration, the amount of such bonus to vary depending on such per share consideration. The Company has also agreed to indemnify Winter Harbor, Mr. Noyes and other Winter Harbor personnelSEC in connection with the engagement, subject to customary termsour 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”) and conditions. Either party may terminate the Letter Agreement upon 30 days’ prior written notice.is incorporated herein by reference.

PriorThe information relating to entering into the Letter Agreement, in November 2019 in connection with the Company’s amendment to its credit facilities, the Company engaged Winter Harbor to provide financial advisory services (the “Advisor Agreement”) and paid a retainer of $25,000. Compensation under the Advisor AgreementSection 16(a) beneficial ownership reporting compliance is determined based on agreed-upon hourly rates for actual hours worked, plus any out-of-pocket expenses and a 1% administrative fee on the total amount of each invoice to cover administrative costs. As of December 28, 2019, the Company had paid or accrued approximately $35,774 related to services provided under the Advisory Agreement, including expenses and administrative fees. Fees for services under the Advisor Agreement engagement are separate from, and in addition to, fees paid under the Letter Agreement.  Fees paid to Winter Harbor under the Letter Agreement are included in the Summary Compensation Table set forth in the Executive Compensation section below.