As of February 5, 2018,1, 2021, we havehad approximately 1,799825 beneficial stockholders. In August 2016, our Board authorized the payment of two special dividends totaling up to $1.50 per share. The initial special dividend of $1.25 per share was paid on August 19, 2016. The second special dividend of $0.25 per share was paid on November 18, 2016. Until we terminated our revolving credit facility in connection with the Asset Sale, it prohibited the declaration or payment of additional dividends, other than those payable on restricted stock awards.

Issuer Purchases of Equity Securities

The following table summarizes the repurchases of our equity securities during the 12-month period ended December 31, 2017:None.

Equity Compensation Plan Information

The following table summarizes our equity compensation plans as of December 31, 2017:2020:

Item 6. Selected Financial Data

Not required to be provided by a smaller reporting company.

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

Overview

At the end of the first quarter of 2016, we had cash of $25.9 million on our balance sheet as a result of the surrender of corporate-owned life insurance policies and previously received distributions under the Continued Dumping and Subsidy Offset Act.  In January 2016, our Board established a special committee to consider potential strategic and capital allocation opportunities. In May 2016, our Board, in connection with the committee’s consideration of potential strategic and capital allocation opportunities, met with prospective financial advisors and in June 2016 engaged Stephens Inc. (Stephens) as its financial advisor in connection with the consideration of potential strategic and capital allocation opportunities. On July 26, 2016, our Board met with representatives of Stephens to discuss Stephens’ views on potential strategic and capital allocation opportunities and their recommendation that our Board consider a special dividend of surplus cash to our stockholders and pursue a potential sale of our company while leaving open a standalone strategy if our future results of operations indicated a superior return to stockholders than selling the business. In August 2016, we announced our Board’s intention to issue to stockholders two special dividends totaling $1.50 per share ($22.1 million in the aggregate) and representing cash in excess of the cash needed to execute our business plan.  The first dividend payment was made in August 2016 and the second payment was made in October 2016 after we obtained a credit facility to fund fluctuations in working capital.

During 2017, sales remained relatively stable, increasing approximately 1% as compared to prior year. During the first three quarters, we continued to sustain a period of poor service caused by past sourcing issues. However, in the third quarter 2017, our inventory availability position which previously hindered demand for our products were drastically improved, which resulted in increased sales during both the third and fourth quarters of 2017. As of September 30, 2017, we had negative cash flow from operations of $3.0 million, which was a direct result of abnormally high shipments over the last few months from our overseas suppliers to improve our inventory stock availability position. As a result, we utilized our revolving credit facility from time to time and, in November 2017, we obtained a waiver from our lender to eliminate the fixed charge coverage ratio requirement which removed any financial covenant requirements and allowed us to borrow on the revolver through October 2018. During the fourth quarter 2017, management has continued to reduce and/or delay operating expenses and utilize our line of credit availability as necessary in order to meet obligations as they become due.

On March 2, 2018, we sold substantially all of our assets to Churchill Downs LLC, pursuant to the terms of the Asset Purchase Agreement, dated as of November 20, 2017, as amended by the First Amendment thereto dated January 22, 2017.2018. As consideration for the Asset Sale, Buyer paid a purchase price consisting of cash in the amount of approximately $10.8 million (of which approximately $1.3 million was used to pay the outstanding amount under our credit agreement), a subordinated promissory note in the principal amount of approximately $7.4 million, and a 5% equity interest in Buyer’s post-closing ultimate parent company, Churchill Downs Holdings Ltd., a British Virgin Islands business company. Buyer also assumed substantially all of our liabilities.

We anticipate that our expenses relatingOn September 6, 2018, the Buyer sold certain of its assets, including certain inventory and the Stone & Leigh tradename (the “S&L Asset Sale”) to Stone & Leigh, LLC (“S&L”), which is owned by a group which included Matthew W. Smith, the Company’s former interim Chief Executive Officer. As a part of the S&L Asset Sale, the Buyer assigned to S&L certain of its rights and obligations under the original $7.4 million subordinated secured promissory note issued (the “Original Note”) to the Company in March 2018 as partial consideration for the Asset SaleSale. In connection with the assignment, the Company entered into an Amended and Restated Subordinated Secured promissory note with the Buyer (the “A&R Note”) with a principal amount as of the assignment date of $3.3 million and a new Subordinated Secured Promissory Note with S&L (the “S&L Note”) a principal amount of $4.4 million as of the assignment date.

On February 7, 2019, the Company, Buyer and related parties entered into a Consent, Reaffirmation, and Joinder (the “Consent”) in connection with a new senior credit facility that Buyer expected to enter into with Alterna Capital Solutions, LLC (“Alterna”).  Pursuant to the Consent, Buyer paid $180,000 of principal and accrued interest under the A&R Note as provided in the Consent and Buyer delivered a Seconded Amended and Restated Subordinated Secured Promissory Note (the “Second A&R Note”) in favor of the Company. The Second A&R Note has a principal amount of $3,201,536 and remains payable no later than March 2, 2023, at which time the total principal amount is due. Interest on the principal balance of the note continues to accrue daily at an annual fixed rate of 6%. The other terms of the Second A&R Note are substantially the same as those of the A&R Note. The Second A&R Note also remains guaranteed by Stanley Intermediate Holdings LLC, formerly Churchill Downs Intermediate Holdings LLC. Pursuant to the Consent, Buyer’s British Virgin Island parent company has also guaranteed the Second A&R Note.

Pursuant to a stock purchase agreement dated February 7, 2019, Buyer’s British Virgin Island parent company repurchased 2,500 shares of its stock held by the Company. The Company no longer maintains an equity interest in Buyer’s British Virgin Island parent company. The Company recorded a gain on the sale of the stock of $120,000 during the three months ended March 31, 2019.

The Company acquired an equity interest in HC Government Realty Trust, Inc., a Maryland corporation (“HC Realty”).  HC Realty currently owns and operates a portfolio of 20 single-tenant properties leased entirely to the United States of America for occupancy by federal agencies including the Federal Bureau of Investigation, the Department of Veterans affairs, the Drug Enforcement Administration, Immigration & Customs Enforcement, the Social Security Administration and the Department of Transportation. On March 19, 2019, we purchased 300,000 shares of HC Realty’s Common Stock (the “HC Common Stock”) for an aggregate purchase price of $3,000,000 and 200,000 shares of HC Realty’s 10.00% Series B Cumulative Convertible Preferred Stock (the “HC Series B Stock”) for an aggregate purchase price of $2,000,000.  On April 3, April 9, and June 29, 2020, the Company entered into subscription agreements with HC Realty, pursuant to which we purchased 100,000, 250,000, and 475,000 shares of Series B Stock, respectively, for an aggregate purchase price of $8,250,000. As a result of these purchases, we currently own approximately 36.4% of the as-converted equity interest of HC Realty.

On March 19, 2019, the Company, together with certain other Lenders, entered into a loan agreement (the “Loan Agreement”) with HC Realty’s operating partnership, and HCM Agency, LLC, as collateral agent (the “Agent”), pursuant to which the Lenders provided HC Realty’s operating partnership with a $10,500,000 senior secured term loan (the “Initial Term Loan”), of which $2,000,000 was provided by the Company. On August 14, 2020, pursuant to the terms of the Loan Agreement, HC Realty’s operating partnership repaid the loan in full, including all accrued interest and make whole interest.

On October 31, 2019, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with the Buyer pursuant to which the Company has agreed to forbear from exercising its rights and remedies under Second A&R Note until February 24, 2020 or earlier in the event of (i) a default or (ii) breach of the Forbearance Agreement by the Buyer. Under the Forbearance Agreement, the Buyer agreed to pay the Company $220,000 on November 1, 2019 (the “Effective Date”), $200,000 on or before the 30th day following the closingEffective Date, $150,000 on or before the 60th day following the Effective Date, and $130,000 on or before the 90th day following the Effective Date. As of December 31, 2019, the Buyer had made all scheduled payments under the Forbearance Agreement. The Company collected $750,000 of principal repayments on the Second A&R Note during the twelve months ended December 31, 2019.

On February 24, 2020, the Company and the Loan Parties entered into a letter agreement (the “Forbearance Extension Letter Agreement”) extending the outside termination date for the forbearance period under the Forbearance Agreement from February 24, 2020 to February 26, 2020. The other terms and conditions of the Asset Sale will be approximately $2.8 million, which includes financial advisory fees, legal fees, amounts owed under our Change in Control ProtectionForbearance Agreement with our principal financial officer, amounts owed to our former chief executive officerremained the same.  The forbearance period terminated on February 26, 2020 under the terms of his separationthe Forbearance Extension Letter Agreement and Forbearance Agreement.

The Company received prepayments on February 28, 2020 and March 4, 2020 of $200,000 and $350,000, respectively, of the principal amount on the Second A&R Note from the Buyer.

On March 6, 2020, the Company and the Loan Parties entered into a letter agreement (the “Second Forbearance Extension Letter Agreement”) extending, subject to certain conditions, the outside termination date from February 26, 2020 to March 17, 2020. The extension of the outside termination and the effectiveness of the Second Forbearance Extension Letter Agreement is conditioned on Buyer making payments to be applied to the outstanding principal balance of the Second A&R Note of $250,000 on or before March 12, 2020 and $750,000 on or before March 13, 2020.  The Second Forbearance Extension Letter Agreement also required Buyer to make an additional $391,970 payment on or before March 17, 2020 which would be applied to the outstanding principal balance of the Second A&R Note. The other feesterms and expenses.conditions of the Forbearance Agreement remained the same. 

On March 12 and 13, 2020, the Company received payments from Buyer of $250,000 and $750,000, respectively, pursuant to the Second Forbearance Extension Letter Agreement which payments were applied to the outstanding principal amount of the Second A&R Note. 

On March 16, 2020, the Company received payment of $392,000 from the Buyer resulting in satisfaction in full of the Second A&R Note pursuant to the terms of the Forbearance Agreement as amended.  As a result of the payments received from Buyer in January, February, and March of 2020 on the Second A&R Note, the Company recognized a gain of $1.3 million on the payoff of the Second A&R Note during the first quarter of 2020.

As previously announced, we do not intenda result of these actions taken on the subordinated secured promissory notes, during the year ended December 31, 2020 and 2019 the Company received approximately $2.1 million and $750,000, respectively, of principal repayments on the Second A&R Note.   The Company received principal repayments on the S&L note during the year ended December 31, 2020 and 2019 of approximately $58,000 and $1 million, respectively. 

On June 19, 2020, the Company raised $12,675,000, the maximum gross proceeds possible, through its rights offering (the “Rights Offering”) which concluded on June 19, 2020. Pursuant to liquidate following the closingRights Offering, the Company distributed non-transferable rights to purchase 19,500,000 shares of its common stock at a purchase price of $0.65 per share to stockholders of record as of May 18, 2020. As a result of the Asset Sale.   We also previously indicated our boardrights offering, the Company issued 19,500,000 new shares of directors would evaluate alternatives for use of the cash consideration,common stock.

The Company continues to pursue acquisition opportunities which were expected to include using a portion of the cash to either repurchase our common stock or pay a special dividend to stockholders and also using a portion of the cash to acquire non-furniture related assets that will allow us to potentially derive a benefit from itsthe Company’s net operating loss carryforwards. Our board of directors has determined not to pay a special dividend, but to use our existing authorization for stock repurchases to repurchase our common stock from time to time in the open market, in privately negotiated transactions, or otherwise, at prices we deem appropriate. Our board anticipates retaining the remaining cash for use in acquiring non-furniture related assets and to fund operating expenses until an acquisition.  Our board is also considering a rights offering of our common stock to existing stockholders to raise additional cash for acquisition purposes which could provide us greater resources and flexibility in acquiring non-furniture assets.

Results of Operations

The following table sets forth the percentage relationship to net sales of certain items included in the Consolidated Statements of Operations:

20120720 Compared to 201620

Net sales increased $0.6 million, or 1.4%, in 2017 compared to 2016. An 8.2% increase in unit volume was mostly offset by a decrease in average selling prices.  Increase in unit volume and decrease in average selling prices was primarily the result of a large order on obsolete goods shipped to a buyer during the fourth quarter.  The Board, along with the Buyer in the Asset Sale, decided that they would like to sell as much obsolete inventory as possible before the closing of the Asset Sale, which had been previously written down to net realizable value.  The orders consisted of approximately 12,000 units with a net sales value of $1.2 million.  Excluding this order, net sales would have decreased 1.3% for the year.

Gross profit decreased to $4.8 million, or 10.7% of net sales, from $8.4 million, or 18.9% of net sales, in 2016. The decline in gross margin also resulted primarily from the large sale of obsolete goods mentioned above and additional inventory write-downs for newer product not retailing. Excluding these items, our gross margin would have been 17.8%. Margins were also negatively impacted by increased warehouse and shipping cost related to the increased volume of product received into our warehouses and quality issues related to finishing.

Selling, general and administrative expenses for 2017 were $13.0 million, or 28.9% of net sales, compared to $14.0 million, or 31.4% of net sales, in 2016.  Cost-cutting measures to lower salaries and benefits and reduced advertising and marketing costs were partially offset by an increase in one-time charges in legal and professional expenses related to the Asset Purchase Agreement and compensation costs related to a separation agreement with our former chief executive officer.19

As a result of December 31, 2020, our sources of income include dividends on HC Common Stock and HC Series B Stock, and interest paid on cash and the above, oursubordinated secured promissory note to S&L. The Company believes that the revenue generating from these sources in addition to the cash on hand is sufficient to fund operating loss was $8.2 million, or (18.2%)expenses for at least 12 months from the date of net sales, in 2017, compared to an operating loss of $5.6 million, or (12.5%) of net sales, in 2016. these financial statements.

During the current year we received $0.4The Company generated interest income of $0.6 million in funds under the CDSOA compared to $1.1 million in 2016.

Interest expense for 2017 decreased $98,000 from the comparable 2016 period. Interest expense in the prior year was composed of interest on loans against cash surrender value of insurance policies used to fund our legacy deferred compensation plan. The decrease in expense was due to paying off these outstanding loans with excess cash when we liquidated our corporate-owned life insurance policies in the first quarter of 2016.

Our 2017 effective tax rate was 0.5%, compared with negative 15.8% in 2016. As indicated above, we surrendered our corporate-owned life insurance policies during the first quarter of 2016, which resulted in taxable income. The premiums paid and the growth in surrender value of these policies were excludable from taxable income over the life of these polices when held until death of the covered lives, but this growth, net of premiums paid, became taxable when we surrendered the policies. The aggregate impact of the surrender of these policies in the first quarter of 2016 was $24.0 million in taxable income. Most of this income was offset by net operating loss carryforwards. The income tax expense associated with the surrender of the corporate-owned life insurance policies was largely recognized during the first quarter of 2016. The income tax expense recognized was the result of alternative minimum tax liability associated with the surrender of the corporate-owned life insurance policies and state income taxes. The alternative minimum tax limits our ability to offset all of our income with net operating loss carryforwards.

We have substantially completed our provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate of such effects. However, the SEC staff issued guidance regarding application of Financial Accounting Standards Board income tax guidance in the reporting period that includes December 22, 2017 – the date on which the Tax Act was signed into law – to address situations when a company does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. We have estimated the tax impacts related to the impact to deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended December 31, 2017, on2020 as compared to $1.0 million for the year ended December 31, 2019.  The decrease was primarily a provisional basis. In this regard,result of decreased interest income from the Tax Act repeals the corporate alternative minimum tax, or AMT, regime, including claiming a refund and full realization of remaining AMT credits. We have not been able to make a reasonable estimate with respectSecond A&R Note pursuant to the realizationForbearance Agreement and payoff of existing AMT credit carryforwards, and accordingly, continue to applythat note in March 2020, decreased interest income from the income tax-related accounting guidance that was in effect immediately prior to the enactment of the Tax Act. In order for us to complete the income tax effects of the Tax Act on the existing AMT deferred tax asset, we need to further analyze the nature, validity, and recoverability of the AMT-related deferred tax credit carryforwards prior to recording the underlying appropriate tax benefit. Accordingly, the ultimate impact related to the Tax Act may differ, possibly materially, due to, among other things, completing our analysis of the realization of available AMT credit refunds, further refinement of our calculations, changes in interpretations and assumptions that we made, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions that we may takeHC Realty Loan Agreement as a result of the Tax Act. We expect this analysispayoff of that note in August 2020, ceasing to be complete whenaccrete interest income on the S&L Note in September 2020, and lower interest rates on our 2017 U.S. corporatecash deposits.  Interest income for the year ended December 31, 2020 consisted of $26,000 of cash interest income on our cash deposits and income tax returnreceivable, $249,000 of interest on the S&L Note from S&L, $204,000 of cash interest on the Loan to Affiliate, $25,000 of paid in kind interest income on the Second A&R Note from Buyer and $104,000 of accreted interest income on the fair value adjustment to the S&L Note.  The Company generated dividend income of $684,000 for the year ended December 31, 2020 as compared to $157,000 for the prior year.  The increase resulted primarily from the April 3, April 29, and June 29, 2020 acquisitions of additional HC Realty Series B Stock.  During the three month period ended March 31, 2020, the Company received payments from Buyer of $2 million, in aggregate, pursuant to the Forbearance Agreement, the First Forbearance Extension Letter Agreement, and the Second Forbearance Extension Letter Agreement.  The payments were applied to the outstanding principal amount of the Second A&R Note resulting in satisfaction in full of the Second A&R Note pursuant to the terms of the Forbearance Agreement as amended.  As a result of the payments received on the Second A&R Note, the Company recognized a gain of $1.3 million on the payoff of the Second A&R Note during the year ended December 31, 2020. The Company recorded an impairment loss of $833,000 during the year ended December 31, 2020 on the S&L Note as a result of concluding, based on current information and events, including the impact of COVID-19 on S&L’s business and its customers, the Company did not believe it would be able to collect the amount due under the S&L Note and the note was other than temporarily impaired. The Company also recognized a Loss from Affiliate of $0.4 million during both 2020 and 2019 related to the Company’s investment in HC Realty’s common stock that is filedaccounted for under the equity method.

General and administrative expenses of $1.3 million for the year ended December 31, 2020 as compared to $1.1 million for the year ended December 31, 2019.  The increase was primarily due to an increase in 2018.legal and professional fees incurred in connection with the Company’s registration statement and amendments with respect to the Rights Offering.  General and administrative expenses for the year ended December 31, 2020 consisted of $570,000 of professional fees, $265,000 of wages, $82,000 of other fees and expenses primarily related to proxy and annual meeting voting and the Company’s registration statement, $78,000 of insurance expense, $83,000 of stock based compensation expense, $40,000 of franchise tax expense, and $184,000 of other operating expenses.  Included in these expenses were one-time legal and professional, printing, and other administrative fees during the year ended December 31, 2020 of $372,000 specifically related to the Company’s registration statement and amendments with respect to the completed Rights Offering.

Our effective tax rate for the year ended December 31, 2020 was effectively 0% due to our net operating loss carryforwards.  Our 2019 effective tax rate was (97.6)% resulting from a tax benefit from unrecognized tax benefits position under FIN 48.

Financial Condition, Liquidity and Capital Resources

Sources of liquidity include cash on hand, and cash generated from operations. While we believe that our business strategy will be successful, we cannot predict with certainty the ultimate impactinterest earned on our revenues, operating costscash on hand and cash flowthe S&L Note and dividends from operations.our HC Realty common and Series B Stock. We expect cash on hand to be adequate for ongoing operational expenditures overfor at least 12 months from the next twelve months,date of these financial statements.  At December 31, 2020, we had $11.4 million in cash and $234,000 in restricted cash.  A portion of our unrestricted and restricted cash is currently held in savings accounts earning approximately 0.05%.  We also received quarterly dividends on our HC Realty common and Series B Stock at annual rates of 5.5% and 10%, respectively. See Note 11 of the Notes to the Financial Statements for a discussion of uncertainties related to COVID-19.

Cash provided by operations was $290,000 in 2020 as compared to $1.4 million in 2019. The decrease was primarily a directresult of decreased interest income from the Second A&R Note pursuant to the Forbearance Agreement and payoff of that note in March 2020, decreased interest income from the HC Realty Loan Agreement as a result of the cash proceedspayoff of that note in August 2020, and $1.2 million of one-time CDSOA escrow distributions received from the asset sale.   As of December 31, 2017, andin 2019. Cash provided by operations for the year ended December 31, 2017, we had approximately $1.02020 consisted of $479,000 of cash interest income received, $165,000 of dividends on our HC Realty common stock, $477,000 of dividends on our HC Realty Series B Stock, and $494,000 of income tax refund offset by $1.6 million in available cash, a net loss of $7.7 millionpayments to employees and negative cash flow from operationssuppliers. The payments to employees and suppliers primarily consisted of $2.7 million. As a result, during the fourth quarter we utilized our revolving credit facility from time$288,000 of wages and payroll expenses to time. In November 2017, we obtained a waiver from our lender to eliminate the fixed charge coverage ratio requirement which removed any financial covenant requirements through October 2018.

On December 7, 2017, we entered into a lettercurrent management, $715,000 of consent with our lender to waive any eventslegal and professional fees, $51,000 of default relating to our entry into the Asset Purchase Agreement. The lender also agreed to consent to Matthew Smith’s replacementproxy and Rights Offering printing and other fees, and $60,000 of Glenn Prillaman as the Company’s Chief Executive Officer on an interim basis. Pursuant to the terms of the consent above and an additional consent received on February 28, 2018, our borrowing capacity under our revolving credit facility was limited to $2 million (including the amount of any letters of credit) until March 15, 2018. On March 2, 2018, in connection with the Asset Sale discussed in Note 11 to the Consolidated Financial Statements, we terminated this credit agreement and the related security agreement.

Working capital, excluding cash on hand and restricted cash, decreased during 2017 to $14.2 million from $18.8 million at December 31, 2016.insurance premiums.

Cash used by operatinginvesting activities was $2.7in 2020 consisted of the Company’s investment in HC Series B Stock of approximately $8.3 million in 2017offset by cash principal payments received on the subordinated secured promissory notes of approximately $2.1 million and $2.6 million in 2016. The net amountprincipal payments on the Loan Agreement of cash received from customers and cash paid to suppliers and employees in 2017 was consistent with 2016.$2.0 million.

Cash provided by investingfinancing activities in 2017 included proceeds from salefor year ended December 31, 2020 consisted of property, plant and equipment and the reduction in restricted cash, partially offset by purchases of property, plant and equipment. Cash generated from investing activities in 2016 was due to $28.1 million in proceeds from the surrenderissuance of corporate-owned life insurance policies.the Company’s common stock in the Rights Offering of approximately $12.7 million.

Net cash used by financing activities in 2017 was $619,000 compared to $27.8 million in 2016. We paid $483,000 in dividends on restricted stock that vested during 2017. During the prior year we used $21.3 million for a special dividend, $5.5 million to pay off the remaining outstanding life insurance policy loans in conjunction with our decision to surrender these corporate-owned life insurance policies and $1.0 million for the repurchase and retirement of 400,000 shares of our common stock.

Continued Dumping and Subsidy Offset Act (“CDSOA”)

The CDSOA provides for distribution of monies collected by U.S. Customs and Border Protection (“Customs”) for imports covered by antidumping duty orders entering the United States through September 30, 2007 to eligible domestic producers that supported a successful antidumping petition (“Supporting Producers”) for wooden bedroom furniture imported from China. Antidumping duties for merchandise entering the U.S. after September 30, 2007 have remained with the U.S. Treasury.

In November 2016 and 2017, Customs distributed $3.3 million and $1.2 million inThere were no distributions of collected duties that were available for distributionto the Company in 2016 and 2017, respectively. Our portion of these distributions were $1.1 million and 433,000, respectively, representing 33.5% of2020 or 2019.

As the balance available for distribution in 2016 and 37.1% of the balance available for distribution in 2017. As of October 1, 2017,CDSOA distributed monies collected by Customs reported that approximately $233,000 in cash deposits or other security paid at the time of import on subject entries remains in a clearing account balance, which potentially may become available for distribution under the CDSOA to eligible domestic manufacturers in connection with the case involving bedroom furniture imported from China. The final amounts available for distribution may be higher or lower than the preliminary amounts reported in the clearing account due to liquidations, reliquidations, protests, and other events affecting entries. Assumingproducers that our percentage allocation in the future is the same as it was for the 2017 distribution (approximately 37.1%supported a successful antidumping petition (“Supporting Producers”), a portion of the funds distributed), we could receive approximately $87,000proceeds were retained and held in CDSOA funds at some pointan escrow account in the future.

Dueorder to fund future expenses (such as professional fees) related to the uncertaintypetition. During the first quarter of 2019, the Supporting Producers group decided, based on the current facts and circumstances of the administrative processes,petition, to disburse the portion of those funds related to the 2013, 2014, and first half of 2015 distributions. The Company’s share of the escrow release was approximately $1.2 million, which we cannot provide assurances as to future amountsreceived on March 15, 2019. The group of additional CDSOASupporting Producers expect that any remaining funds that ultimatelyheld in escrow will be received, ifused for future expenses related to the petition. The Company does not expect any and we cannot predict when we may receive any additional CDSOAfuture disbursements related to these escrow funds.

New Accounting Pronouncements

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Currently, net benefit cost is reported as an employee cost within operating income (or capitalized into assets where appropriate). The amendment requires the bifurcation of net benefit cost. The service cost component will be presented with the other employee compensation costs in operating income (or capitalized in assets). The other components will be reported separately outside of operations and will not be eligible for capitalization. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2017. Early adoption will be permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. The guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost (including gains and losses on curtailments and settlements, and termination benefits paid through plans), and on a prospective basis for the capitalization of only the service cost component of net benefit cost. Amounts capitalized into assets prior to the date of adoption should not be adjusted through a cumulative effect adjustment, but should continue to be recognized in the normal course, as for example, inventory is sold or fixed assets are depreciated. The Company has no service cost component in its net benefit cost. The impact of adopting this amendment will be the movement of approximately $340,000 of annual net benefit cost from within operating income to a separate expense outside of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).  The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.  In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.  The amendment is effective for public entities for annual reporting periods beginning after December 15, 2019,2022, however early application is permitted for reporting periods beginning after December 15, 2018.  The Company does not anticipate the adoption of ASU 2016-13 to have a material impact to the consolidated financial statements.

In February 2016, the FASB issued its final lease accounting standard, FASB Accounting Standard Codification ("ASC"),Leases(Topic 842) (“ASU 2016-02”), which requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of -use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). Our leases as of December 31, 2017 principally relate to real estate leases for corporate office, showrooms and warehousing. The new standard will be effective for the first quarter of our fiscal year ending December 31, 2019. Early adoption is permitted. We are evaluating the effect that ASU 2016-02 will have on the consolidated financial statements and related disclosures by reviewing all long-term leases and determining the potential impact. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The amendments in ASU 2016-09 simplify several aspects of the accounting for share-based payment transactions. The new guidance requires that excess tax benefits (which represent the excess of actual tax benefits receive at the date of vesting or settlement over the benefits recognized over the vesting period or upon issuance of share-based payments) be recorded in the income statement as a reduction of income or income taxes when the awards vest or are settled. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. The adoption of these amendments in the first quarter of this year had no material impact on the Company’s financial statements. The Company has elected to maintain its practice of estimating forfeitures when recognizing expense for share-based payment awards.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The guidance is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard will be effective for the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted, provided all amendments are adopted in the same period. In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows(Topic 230): Restricted Cash. We have reviewed the standard and determined that our statement of cash flows will include changes in restricted cash with related disclosures. The guidance requires application using a retrospective transition method. We do not anticipate ASU 2016-15 or ASU 2016-18 to have a material impact to our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes existing revenue recognition requirements in U.S. GAAP.  The updated guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  To achieve that core principle, the guidance establishes a five-step approach for the recognition of revenue. In March, April, May and December 2016, the FASB issued further guidance to provide clarity regarding principal versus agent considerations, the identification of performance obligations and certain other matters.  The updates are currently effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.  Financial statement disclosures required under the guidance will enable users to understand the nature, amount, timing, judgments and uncertainty of revenue and cash flows relating to contracts with customers.  We are substantially complete with the analysis of our contracts to support revenue recognition and corresponding disclosures on our consolidated financial statements from the adoption of the new standard.  Based on the analysis of our contracts with customers, the timing, measurement, and presentation of revenues based on Topic 606 is consistent with our revenues under Topic 605. We adopted the above standard utilizing the modified retrospective method beginning January 1, 2018, with no adjustment to the opening balance of retained earnings.

Critical Accounting Policies

We have chosen accounting policies that are necessary to accurately and fairly report our operational and financial position.  Below are the critical accounting policies that involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue RecognitionEquity Investments - SalesLong-term investments consist of investments in equity securities where our ownership is less than 50% and the Company has the ability to exercise significant influence, but not control, over the investee.  These investments are recognized when titleclassified in “Investment in affiliate” on the balance sheets.  Investments accounted for under the equity method of accounting are initially recorded at cost and risksubsequently increases or decreases the investment by its proportionate share of the net income or loss passand other comprehensive income or loss of the investee. For investments that do not have readily determinable fair values, the Company made an accounting policy election for a measurement alternative.  Upon adoption of ASU 2016-01, the Company carries these investments at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. 

If the Company believes a decline in market value below cost is other than temporary, a loss is charged to earnings, which establishes a new cost basis for the security.  The Company determination of whether an equity investment is other than temporarily impaired incorporates both quantitative and qualitative information.  The Company considers a number of factors including, but not limited to, the customer,length of time and the extent to which typically occurs at the fair value has been less than cost, the length of time of shipment. In some cases, however, title does not pass until the shipment is delivered to the customer. Revenue includes amounts billed to customersexpected for shipping. Provisions are made at the time revenue is recognized for estimated product returns and for incentives that may be offered to customers. Amounts collected in advance of shipment are reflected as deferred revenue on the consolidated balance sheet and then recognized as revenue as the risk of loss passes to the customer.

Allowance for doubtful accounts – We maintain an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. We perform ongoing credit evaluations of our customers and monitor their payment patterns. Shouldrecovery, the financial condition of our customers deteriorate, resultingthe investee, the reason for decline in an impairment of theirfair value, the ability and intent to make payments, additional allowances may be required which would reduce our earnings.hold the investment to maturity, and other factors specific to the individual investment.

Inventory valuationNote Receivable – Inventory is valued - In accordance with ASC 810-40-5, upon the sale of substantially all of the assets the Company recorded a gain on the deconsolidation of a group of assets based on the difference between the fair value of the consideration received and the carrying amount of the group of assets. As the Original Note was part of the consideration received, the Company recorded the Original Note at its fair value on March 2, 2018. The fair value of the Original Note was estimated using discounted cash flow analyses, using market rates at the loweracquisition date that reflect the credit and inherent rate-risk inherent in the Original Note. The discount resulting from the fair value adjustment was recorded as a direct reduction to the original principal balance and amortized to interest income using the effective interest method. As of costthe date of the assignment and transfer from the Buyer to S&L, it was determined that the Original Note was extinguished and therefore both the A&R Note and the S&L Note were measured based on their fair value in accordance with Emerging Issues Task Force (EITF) – Creditors Accounting for Modification or net realizable value. CostExchange of Debt Instruments.  The discounts resulting from the fair value adjustments for all inventoriesthe A&R Note and the S&L Note were recorded as a direct reduction to the original principal balance and amortized to interest income using the effective interest method.  When impairment is determined usingto be probable, the first-in, first-out (FIFO) method. We evaluate our inventory to determine excess or slow-moving itemsmeasurement will be based on the fair value of the collateral securing the notes.  The determination of impairment involves management’s judgment and the use of market and third-party estimates regarding collateral values.

The Company concluded, based on current order activityinformation and projectionsevents, including the impact of future demand. For those items identified, we estimate our market valueCOVID-19 on S&L’s business and its customers, that the Company did not believe it would be able to collect the amount due under the S&L Note and determined that the note was other than temporarily impaired. The evaluation was generally based on current trends. Those items havingan assessment of the borrower’s financial condition and the adequacy of the collateral securing the S&L Note. Given the facts and circumstances, the Company recorded an impairment loss of $833,000 during the year ended December 31, 2020. The Company further ceased accruing interest and accreting interest income on the fair value discount of the S&L Note on the date in the third quarter of 2020 it determined the note was other than temporarily impaired

Variable Interest Entities (“VIE”) - As a market value less than cost are written downresult of both the Asset Sale and the S&L Asset Sale, we have a variable interest in two entities that have been determined to their market value.be variable interest entities ("VIE"). If we fail to forecast demand accurately,conclude that we could beare the primary beneficiary of a VIE, we are required to write off additional non-saleable inventory, which would also reduceconsolidate it. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our earnings.ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of our VIE requires significant assumptions and judgments. We have concluded that we are not the primary beneficiary of the two VIEs as we do not have the power to direct the activities that most significantly impact the VIEs’ economic performance and therefore are not required to consolidate these entities.

Interest Income – Interest income is recorded on an accrual basis based on the effective interest rate method to the extent that we expect to collect such amounts.

Deferred taxes - On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted into law. The income tax effects of changes in tax laws are recognized in the period when enacted.  Among its numerous changes to the Internal Revenue Code, the Act reduces U.S. corporate rates from 35% to 21% for periods beginning on or after January 1, 2018.  We have remeasured our deferred tax assets at the lower corporate tax rate, however, this was offset by a corresponding adjustment to the Company’s full valuation allowance. Additional federal and state interpretive guidance is still forthcoming that could potentially affect the measurement of these balances or give rise to new deferred tax amounts.   As such, the remeasurement of our deferred tax balance is provisional pending future guidance.  We reasonably anticipate that any such guidance will be available prior to December 31, 2018.      

We recognize deferred tax assets and liabilities based on the estimated future tax effects of differences between the financial statements and the tax basis of assets and liabilities given the enacted tax laws.  We evaluate the need for a deferred tax asset valuation allowance by assessing whether it is more likely than not that the company will realize its deferred tax assets in the future.  The assessment of whether or not a valuation allowance is required often requires significant judgment, including the forecast of future taxable income. Adjustments to the deferred tax valuation allowance are made to earnings in the period when such assessment is made.

In preparation of our consolidated financial statements, we exercise judgment in estimating the potential exposure to unresolved tax matters and apply a more likely than not criteria approach for recording tax benefits related to uncertain tax positions. While actual results could vary, we believe we have adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters.

Long-lived assets – - Property, plant and equipment is reviewed for possible impairment when events indicate that the carrying amount of an asset may not be recoverable. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods that would lower our earnings. Our depreciation policy reflects judgments on the estimated remaining useful lives of assets.

Accruals for self-insurance reserves – -Accruals for self-insurance reserves (including workers’ compensation and employee medical) are determined based on a number of assumptions and factors, including historical payment trends and claims history, actuarial assumptions and current and estimated future economic conditions. These estimated liabilities are not discounted. If actual trends differ from these estimates, the financial results could be impacted. Historical trends have not differed materially from these estimates.

Actuarially valued benefit accruals and expenses – We maintain three actuarially valued benefit plans. These are our deferred compensation plan, our supplemental employee retirement plan and our postretirement health care benefits program. The liability for these programs and the majority of their annual expense are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and mortality projections, which are usually updated on an annual basis near the beginning of each year. We are required to consider current market conditions, including changes in interest rates in making these assumptions. Changes in projected liability and expense may occur in the future due to changes in these assumptions. The key assumptions used in developing the projected liabilities and expenses associated with the plans are outlined in Note 7 of the consolidated financial statements.

Stock-Based Compensation - We record share-based payment awards at fair value on the grant date of the awards, based on the estimated number of awards that are expected to vest, over the vesting period. The fair value of stock options was determined using the Black-Scholes option-pricing model. The fair value of the restricted stock awards was based on the closing price of the Company’s common stock on the date of the grant. For awards with performance conditions, we recognize compensation cost over the expected period to achieve the performance conditions, provided achievement of the performance conditions are deemed probable.

Off-Balance Sheet Arrangements

We do not have transactions or relationships with “special purpose” entities, and we do not have any off-balance sheet financing other than normal operating leases primarily for warehousing, showroom and office space, and certain technology equipment.space.

Item 7A.     Quantitative and Qualitative Disclosures about Market Risk

Not required to be provided by a smaller reporting company.

Item 8.     Financial Statements and Supplementary Data

The consolidated financial statements and schedule listed in itemsitem 15(a) (1) and (a) (2) hereof are incorporated herein by reference and are filed as part of this report.

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

None.

Item 9A.     Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).  Based on this evaluation, our principal executive officer and our principal financial officer concluded that due to the material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2017,2020, the end of the period covered by this Annual Report. 

Management’s

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation, we identified one material weakness as of December 31, 2017.

During the fourth quarter of 2017, we identified a material weakness in our internal controls over stock-based compensation expense. Specifically, we did not design and maintain effective controls related to the accounting with respect to modifications of share-based payment awards.  A material weakness is a deficiency, or combination of deficiencies, inmanagement concluded that our internal control over financial reporting such that there is a reasonable possibility that a material misstatementwas effective as of our annual or interim financial statements could occur but will not be prevented or detected on a timely basis.December 31, 2020.

Changes in Internal Control over Financial Reporting

Other than the identification of the material weakness related to stock-based compensation expense, thereThere were no changes in the Company’sour internal controlscontrol over financial reporting that occurred during the fourth quarter that have materially affected, or are reasonably likely to materially affect, the Company’sour internal controlscontrol over financial reporting during the year ended December 31, 2017. reporting.

Item 9B.     Other Information

None.

PART III

Item 10.     Directors, Executive Officers and Corporate Governance

Information related to our directors is set forth under the caption “Election of Directors” of our proxy statement (the “2018“2021 Proxy Statement”) for our 20182021 annual meeting of shareholders. Such information is incorporated herein by reference.

Information relating to compliance with section 16(a) of the Exchange Act is set forth under the caption “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” of our 20182021 Proxy Statement and is incorporated herein by reference.

Information relating to the Audit Committee and Board of Directors’Directors’ determinations concerning whether a member of the Audit Committee of the Board is a “financial expert” as that term is defined under Item 407(d) (5) of Regulation S-K is set forth under the caption “Board and Board Committee Information” of our 20182021 Proxy Statement and is incorporated herein by reference.

Information concerning our executive officers is included in Part I of this report under the caption “Executive Officers of the Registrant.“Information about our Executive Officers.”

We have adopted a code of ethics that applies to our associates, including the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of ethics is posted on our website at www.hgholdingsinc.net .www.hgholdingsinc.net. Amendments to and waivers from our code of ethics will be posted to our website when permitted by applicable SEC rules and regulations.

Item 11.    Executive Compensation

Information relating to our executive compensation is set forth under the caption “Executive Compensation” of our 20182021 Proxy Statement. Such information is incorporated herein by reference.

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

Our information relating to this item is set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” of our 20182021 Proxy Statement. Such information is incorporated herein by reference.

Information concerning our equity compensation plan is included in Part II of this report under the caption “Equity Compensation Plan Information.”

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

Our information relating to this item is set forth under the captions “Corporate Governance – Review of Transactions with Related Persons” and “Corporate Governance - Board and Board Committee Information” of our 20182021 Proxy Statement. Such information is incorporated herein by reference.

Item 14.     Principal Accounting Fees and Services

Our information relating to this item is set forth under the caption “Independent Public Auditors” of our 20182021 Proxy Statement. Such information is incorporated herein by reference.

PART IV

Item 15.     Exhibits, Financial Statement Schedules

(a)        Documents filed as a part of this Report:

Item 16.     10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

HG HOLDINGS, INC. (FORMERLY STANLEY FURNITURE COMPANY, INC.)

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 20172020

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

To the Board of Directors and StockholdersShareholders

HG Holdings, Inc.

High Point,Charlotte, North Carolina

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of HG Holdings, Inc. (the “Company”) and subsidiaries as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, and comprehensive loss, stockholders’changes in stockholders’ equity, and cash flows for each of the years thenin the two-year period ended December 31, 2020, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial“financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company atas of December 31, 20172020 and 2016,2019, and the results of theirits operations and theirits cash flows for the years thenin the two-year period ended, December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

Emphasis ofCritical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of S&L Note

Description of Matter

As describeddisclosed in Note 11,3 to the financial statements, the Company sold substantially allhas a reserve on its S&L Note of their assets$1.39 million against a gross balance of $3.27 million at December 31, 2020, which includes a $833,000 impairment recorded in 2020.  The reserve is recorded to Churchill Downs LLCreduce the outstanding note receivable to its net realizable value based on March 2, 2018.a review of the debtor’s economic performance and market conditions, after consideration of the fair value of the Company’s collateral rights (e.g., accounts receivable inventory, property and equipment) and any guarantees.   

Auditing the valuation of the reserve is challenging due to the judgment inherent in estimating the fair value of the Company’s collateral rights, which has a significant effect on the measurement of the reserve on the subordinated receivable. 

How We Addressed the Matter in Our opinion is not modified with respect to this matter.Audit

Our audit procedures included the following:

We have served as the Company’sCompany’s auditor since 2014.2019.

/s/ BDO USA,Cherry Bekaert, LLP

Raleigh, North CarolinaRichmond, Virginia

March 23, 20181, 2021                           

HG HOLDINGS, INC. (FORMERLY STANLEY FURNITURE COMPANY, INC.)

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

The accompanying notes are an integral part

 of the consolidated financial statements.

HG HOLDINGS, INC. (FORMERLY STANLEY FURNITURE COMPANY, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

The accompanying notes are an integral part

of the consolidated financial statements.

HG HOLDINGS, INC. (FORMERLY STANLEY FURNITURE COMPANY, INC.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 (in thousands)

The accompanying notes are an integral part

of the consolidated financial statements.

HG HOLDINGS, INC. (FORMERLY STANLEY FURNITURE COMPANY, INC.)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For each of the two years in the period ended December 31, 2017

(in thousands)

The accompanying notes are an integral part

of the consolidated financial statements.

HG HOLDINGS, INC. (FORMERLY STANLEY FURNITURE COMPANY, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)