2PART I

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Stanley Furniture Company, Inc.  

PART I

Item 1.BusinessBusiness

General

EstablishedWe were incorporated in 1924,Delaware in 1984. Until March 2, 2018, we arewere a leading design, marketing and overseas sourcingdistribution resource in the middle-to-upscaleupscale segment of the wood residential furniture market. We offeroffered a diversified product line supported by an overseas sourcing model. We marketmarketed our brands through a network of brick-and-mortar furniture retailers, online retailers and interior designers worldwide. We also marketOn March 2, 2018, we sold substantially all our assets and sell directlychanged our name to the consumer through a localized approach to e-commerce order fulfillment through our brick-and-mortar customers.  We were incorporated in Delaware in 1984.HG Holdings, Inc.

AProductssset Sale

On March 2, 2018, we sold substantially all of our assets (the “Asset Sale”) to Churchill Downs LLC (“Buyer”), 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, 2018 (the “Asset Purchase Agreement”). We retained certain assets, which we refer to as excluded assets, including:

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 our liabilities; however, we retained certain liabilities, which we refer to as excluded liabilities, including:

We anticipate that our expenses relating to the Asset Sale following the closing of the Asset Sale will be approximately $2.8 million, which includes financial advisory fees, legal fees, amounts owed under our Change in Control Protection Agreement with our principal financial officer, amounts owed to our former chief executive officer under the terms of his separation agreement, and other fees and expenses.

As previously announced, we do not intend to liquidate following the closing of the Asset Sale.   We also previously indicated our board of directors would evaluate alternatives for use of the cash consideration, 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 its 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.      

Former Business

Products. Until March 2, 2018, our products arewere marketed as fashionable wood residential home furnishings which differentiatedifferentiated from other products in the market through styling execution as well as wide selections for the entire home including dining, bedroom, living room, home office, home entertainment, accent items and nursery and youth furniture. Our target consumer rangesranged from an affluent, discerning consumer utilizing the talents of an interior designer, to a more practical consumer driven to purchase by convenience, immediate gratification from stock availability or a particular retail event.  Regardless, we target a consumer who values the interior aesthetics of the home.

We believe that our products represent good value and that the quality and design of our furniture combined with our broad selection and dependable service differentiates our products in the marketplace.

We provided products in a variety of wood species and finishes. Our products arewere designed to appeal to a broad range of consumer tastes in the middle-to-upscaleupscale segment and cover all major style categories.

We continually designed and developdeveloped new styles to replace those we discontinuediscontinued and to expand our product lines into markets where opportunity for growth exists.lines. Our in-house product development process which normally takes approximately one year but can be shorter or longer based upon the complexity of the concept, beginsbegan with identifying customer preferences and marketplace trends and conceptualizing product ideas. Company designers produceproduced a variety of sketches from which prototype furniture pieces arewere built for review prior to full-scale engineering and production. We consultconsulted with our marketing and operations personnel, core suppliers, independent sales representatives and selected customers throughout this process and introduceintroduced our new product designs primarily at the international furniture marketsmarket in High Point, North Carolina, and Las Vegas, Nevada, which are eachis held two times per year for a total of four markets. 

During the second quarter of 2014, we announced the end of domestic production of our Young America nursery and youth furniture brand since revenues remained below levels needed to reach profitability as a domestic manufacturer within a reasonable amount of time. Marketed as a product offering with salient features such as a wide variety of semi-custom color choices, broad item selection and the cache of a product Made in USA, the Young America brand could not be duplicated through an overseas sourcing model.  The sale and closure of the supporting manufacturing facility in the second half of 2014 represented the end of our domestic manufacturing of nursery and youth furniture.    

In January 2015, we announced our plans to re-enter the nursery and youth furniture market with a mid-year product launch sourced overseas.  Our Stone & Leigh brand of nursery and youth was introduced at the High Point Market in April 2015. year.

Marketing/BrandMarketing/Brandss

We believe that the diversity of our product offerings enables us to anticipate and address changing consumer preferences and provide retailers a complete wood furniture resource in the middle-to-upscale segment.  . Our products arewere marketed under the Stanley Furniture brand, but also under sub-brands including Coastal Living® and Stone & Leigh.Leigh brands, and also under a licensing agreement with Coastal Living® magazine. We marketmarketed our brand through a series of efforts targeted both to the wholesale trade and directly to the consumer. Coastal Living® is a registered trademark of Time Inc. Lifestyle Group and iswas used under license.

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Table This licensing arrangement was not renewed at the end of Contents2017, but the terms of the license agreement permitted us to sell current designs under the licensed brand name until the beginning of the fourth quarter of 2018.

DistributionDistribution.

We havehad developed a broad domestic and international customer base. We sellsold our furniture mainly through independent sales representatives to a variety of wholesale customers such as owner-operated furniture stores, interior design & architecture professionals, decorators, smaller specialty retailers, regional furniture chains, buying clubs and e-commerce retailers. We also market and sell directly to the consumer through a localized approach to e-commerce order fulfillment through our brick-and-mortar customer.  We believe this broad network reduces exposure to fluctuations in regional economic conditions, places our brand in as many venues as possible where the consumer may shop and allows us to capitalize on emerging channels of distribution.  We offeroffered tailored marketing programs to address each specific distribution channel. Our independent sales representatives along with our customer care managers sellsold and supportsupported our products.

In 2015,2017, we sold product to approximately 1,4002,800 customers and recorded approximately 10%9% of our sales from international customers. No single customer accounted for more than 10% of our sales in 20152017 and no part of the business iswas dependent upon a single customer, the loss of which would have had a material effect on our business.  The loss of several major customers could have a material impact on our business.

Overseas Sourcing

. Our product is currentlywas sourced from independently owned factories in Southeast Asia, primarily in Vietnam.Vietnam and Indonesia. We operateoperated a support organization in each country to manage partner-vendor relationships.  In early 2016, we established a strategic manufacturing alliance with one such source in Vietnam outside of Ho Chi Minh City: Starwood Manufacturing VN Corporation.  This strategic alliance allows for the utilization of a stand-alone, dedicated manufacturing facility in which we have the ability to engineer our designs specifically for the efficiency of this factory, schedule and supervise production to satisfy our specific customers’ demands and provide quality assurance.  We maintain exclusive rights to utilize the stand-alone facility for as long as we meet certain volume goals for the facility’s capacity utilization.  While we are not obligated to utilize the capacity of the facility should certain market-driven and/or competitive factors notrelationships, make this factory our best choice, our intentions are to transition substantially all of our products to this facility.

We are subject to the usual risks inherent in importing products manufactured abroad, including, but not limited to, supply disruptions and delays, port related issues that lead to delays, currency exchange rate fluctuations, economic and political developments and instability,sourcing decisions, as well as the laws, policiesto provide engineering and actions of foreign governments and the United States affecting trade, including tariffs.quality control functions.

A sudden disruption in our supply chain from Starwood or any of our key vendors could significantly compromise our ability to fill customers’ orders and service gaps and short-term increases in cost would likely result.  However,Generally, we believe that we could source most impacted products from other overseas suppliers.  We believe maintaining more control over the various aspects of the manufacturing and sourcing process mitigates risk, and therefore believe that our strategic manufacturing alliance give our company a potential competitive operational advantage versus certain competitors.

We enterentered into standard purchase arrangements with certain overseas suppliers, including Starwood, for finished goods inventory.inventory with our overseas vendors. The terms of these arrangements arewere customary for our industry and dodid not contain any long-term purchase obligations. We generally negotiatenegotiated firm pricing with our foreign suppliers in U.S. Dollars for a term of one year. We acceptaccepted exposure to exchange rate movement after thisthat period and dodid not use any derivative instruments to manage or hedge currency risk. We generally expectexpected to recover any substantial price increases from these suppliers in the price we charge our own customers for these goods.

LogisticsLogistics.

We warehousewarehoused our products primarily in domestic warehouses with some warehousing abroad. We considerconsidered our facilities to be generally modern, well equipped and well maintained. We useused a small group of furniture specific transportation providers for delivery. While most of our products arewere delivered to retailers from our warehouses, we also shipshipped directly to wholesale customers from Asia and provideAsia. Our transportation vendor base included white-glove delivery services which deliver directly to the end consumer from our domestic warehouses.warehouses to the retail consumer.

Products areProducts were ordered from overseas suppliers based upon both actual and forecasted demand. Because long lead times are generally associated with overseas operations, we strivestrived to maintain inventory levels that willwould service most of our wholesale customers’ orders within a maximum of 30 days from receipt of their order. Our backlog of unshipped orders was $6.2$4.2 million at December 31, 20152017 and $6.6$6.3 million at December 31, 2014.2016.    

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CCompetitionompetition

. The furniture industry is highly competitive, fragmented, and includes a large number of competitors. The barriers to entry are very low, and there is little feasible intellectual property protection in ourthis industry to prevent competitors from imitating furniture designs of another manufacturer. Very few of our competitors manufacture residential wood residential furniture in the United States.

We competecompeted with a host of varying business models within the industry including, but not limited to, former manufacturers who have adopted a strictly pass-through model from overseas vendor to wholesale customers; national lifestyle retailers who sell directly to the retail consumer through an omni-channel distribution and marketing model (use of physical channels and digital channels to offer a seamless and unified customer experience);vertical model; and overseas vendors who sell directly to wholesale customers. Some competitors have greater financial resources and often offer extensively advertised, highly promoted product. 

Competitive factors in the middle-to-upscaleupscale segment of the industry include design, quality, service, selection and price. We believe the flexibility and controlrelative influence we maintain over our operations model,maintained with overseas vendors, the continued diversification of our distribution strategy, our long-standing customer relationships, our customer responsiveness to customers, our consistent support of high-quality and diverse product lines, the heritage of our brand and our experienced management team arewere all competitive advantages.

TrademarksAssociates.

At December 31, 2015, we employed approximately 71 associates domestically and 29 associates overseas, all of which are full-time employees.  We consider our relationship with our associates to be good.  None of our associates are represented by a labor union. 

Trademarks

Our former trade names representrepresented many years of continued business, and we believe these names arewere well recognized and associated with excellent quality and styling in the furniture industry. We ownowned a number of trademarks and design patents, none of which arewere considered to be material.

Governmental Regulations

. We arewere subject to federal, state and local laws and regulations in the areas of safety, health and environmental protection. Compliance with these laws and regulations has not in the past had any material effect on our earnings, capital expenditures or competitive position.  However, the impact of such compliance in the future cannot be predicted.  We believe that we arewere in material compliance with applicable federal, state and local safety, health and environmental regulations.

Associates. At December 31, 2017, we employed 64 associates domestically and 45 associates overseas, all of which are full-time employees. None of our associates were or are represented by a labor union. Following the Asset Sale and the departure of our current principal financial and accounting officer on March 31, 2018, we will have two part-time employees.

Forward-Looking Statements

Certain statements made in this report are not based on historical facts, but are forward-looking statements. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “could”,“could,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect our reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include disruptionsthe occurrence of events that negatively impact the Company’s liquidity in foreign sourcing including those arisingsuch a way as to limit or eliminate the Company’s ability to use proceeds from supplythe Asset Sale to fund stock repurchases or distribution disruptionsasset acquisitions, or those arising from changes in political, economic and social conditions, as well as laws and regulations, in countries from which we source products, international trade policiesan inability on the part of the United States and countries from which we source products,Company to identify a suitable business to acquire or develop with the inability to raise prices in response to inflation and increasing costs, lower sales due to worsening of current economic conditions, the cyclical natureproceeds of the furniture industry, business failures or loss of large customers, failure to anticipate or respond to changes in consumer tastes, fashions and perceived values in a timely manner, competition in the furniture industry,  insolvency of the insurance company that holds our corporate-owned life insurance policies, environmental, health, and safety  compliance costs, and failure or interruption of our information technology infrastructure.Asset Sale, Any forward-looking statement speaks only as of the date of this filing and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

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Available Information

Our principal Internet address is www.stanleyfurniture.com.www.hgholdingsinc.net. We make available free of charge on this web site our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

In addition, you may request a copy of these filings (excluding exhibits) at no cost by writing, telephoning faxing or e-mailing us at the following address, telephone number fax number or e-mail address:address:

Stanley Furniture Company,HG Holdings, Inc.

200 North Hamilton2115 E. 7^th Street, No. 200Suite 101

High Point,Charlotte, North Carolina 2726028211

Attention: Ms. Anita MW. Wimmerr. Brad Garner

Telephone: 336-884-7698, Fax: 336-884-7760252-355-4610

Or e-mail your request to:Investor@Stanleyfurniture.com investor@hgholdingsinc.net

Item 1A.Risk Factors

Item 1A.    Risk Factors

AnOur results investment in our common stock involves a high degree of operations and financial condition can be adversely affected by numerous risks.risk. You should consider carefully consider the specific risk factors detaileddescribed below in conjunction withaddition to the other information contained in this document.  ShouldAnnual Report on Form 10-K, including our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, before making a decision to invest in our common stock. If any of these risks actually materialize,occurs, our business, financial condition, and futureresults of operations or prospects could be materially and adversely affected. This could cause the trading price of our common stock to decline and a loss of all or part of your investment.

We have no material operations and have limited sources of revenue following the Asset Sale, which may negatively impacted.impact the value and liquidity of our common stock.

As a result of the Asset Sale, we have no material operations and no sources of revenue other than payments, if any, of interest and principal under the subordinated secured promissory note we received from Buyer as part of the consideration for the Asset Sale, any remaining payments to be made to us under the Continued Dumping and Subsidy Offset Act, and repayment at death of premiums we have paid for a split dollar life insurance policy for a former executive officer. Although the alternatives under evaluation by our relianceboard for the use of the proceeds from the Asset Sale includes funding, at least in part, the acquisition of non-furniture related assets, there can be no guarantee that suitable assets will be available for us to purchase or that any assets acquired will generate the revenues anticipated or any revenue at all. A failure by us to secure additional sources of revenue following the closing of the Asset Sale could negatively impact the value and liquidity of our common stock.

We may not receive the amount owed us under the subordinated secured promissory note we received from Buyer as part of the consideration for the Asset Sale.

The subordinated secured promissory note we received from Buyer as part of the consideration for the Asset Sale will mature, and the entire principal amount will be payable on, foreign sourcing forthe date that is five years after the closing of the Asset Sale. Buyer’s obligations under this note, including its payment obligations, and our productsrights and remedies with respect to the collateral pledged by Buyer under this note is subordinate to Buyer’s obligations under, and the lender’s rights with respect to, Buyer’s senior secured loan facility, including the lender’s rights to the collateral pledged by Buyer in connection with its senior secured loan facility. As a result, there can be no guarantee that Buyer will pay us any portion of the interest or principal due under this note or that upon any default by Buyer we will have access to any of the collateral pledged by Buyer under this note.

An “ownership change” could limit the use of our net operating loss carryforwards and our potential to derive a benefit from our net operating loss carryforwards.:

·       OurIf an “ownership change” occurs pursuant to applicable statutory regulations, we are potentially subject to limitations on the use of our net operating loss carryforwards which in turn could adversely impact our potential to derive a benefit from our net operating loss carryforwards. While we have entered into a rights agreement designed to preserve and protect our net operating loss carryforwards, there is no guarantee that the rights agreement will prevent us from experiencing an ownership change and, therefore, having a limitation on our ability to service customers could be adversely affected and resultuse our net operating loss carryforwards. In general, an “ownership change” would occur if there is a cumulative change in lower sales, earnings and liquidity.the ownership of our common stock of more than 50% by one or more “5% shareholders” during a three-year test period

We will continue to incur the expense of complying with public company reporting requirements following the closing of the Asset Sale.

After the Asset Sale, we continue to be required to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), even though compliance with such reporting requirements is economically burdensome.

Our supply of goods could be interrupted for a variety of reasons. Physical damagecommon stock was delisted from a natural disaster, fire or other cause to any one of our sourcing partners’ factories could interrupt production for an extended period of time.We may reject goods that do not meet our specifications causing delays to the receipt of goods and/or requiring us to identifyNASDAQ Stock Market (“Nasdaq”) following the Asset Sale, and utilize alternative sourcing arrangements at a higher cost, or possibly forcing us to discontinue the product.  Also, delivery of goods from our foreign sourcing partnersthere may be delayed for reasons not typically encountered with domestic manufacturing or sourcing, such as shipment delays caused by customs or labor issues.reduced ability to trade our common stock.

Because we will no longer have an operating business as a result of the Asset Sale, we were notified that, in ·       Our abilityNasdaq’s view, we no longer satisfied the continued listing standards of the Nasdaq Stock Market, and our common stock was delisted from the Nasdaq Stock Market pursuant to properly forecast customer demand while operating within the inherent extended lead timesNasdaq’s authority under Nasdaq Listing Rule 5101. While trading of an overseas sourcing model could result in lower sales, earnings and liquidity.

Extended lead times may adversely affect our ability to respond to sudden changes in demand, resultingcommon stock is currently conducted in the purchaseover-the-counter market on the OTCQB, such trading could substantially reduce the market liquidity of excess inventory in the face of declining demand, or lost sales due to insufficient inventory in the face of increasing demand, either of which could haveour common stock. As a result, an adverse effect on our sales, earnings and liquidity.

·       Changes in political, economic and social conditions, as well as laws and regulations, in the countries from which we source products could adversely affect us.

Foreign sourcing is subject to political and social instability in countries where our sourcing partners are located.  This could makeinvestor may find it more difficult to dispose of, or obtain accurate quotations for us to service our customers.  Also, significant fluctuations of foreign exchange rates against the value of the U.S. dollar could increase our costs, decrease earnings and/or negatively affect the businessprice of, our suppliers overseas.  

·       International trade policies of the United States and countries from which we source products could adversely affect us.common stock.

ImpositionFailure to successfully identify, acquire and operate non-furniture related assets could cause our stock price to decline.

Following the closing of trade sanctions relating to imports, taxes, import duties and other charges on imports could limit our ability to source productthe Asset Sale, we are evaluating alternatives for using cash proceeds from the impacted countriesAsset Sale to acquire non-furniture related assets. We have not identified any assets for acquisition and increase our costs, thus decreasing our earnings.

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·         Changes in the value of the U.S. Dollar compared to the currencies for the countries from which we obtain our products or other influential foreign currencies, could adversely affect our sales, earnings and liquidity.

For imported products, we generally negotiate firm pricing with our foreign suppliers in U.S. Dollars, typically for periods of at least one year. We accept the exposure to exchange rate movements beyond these negotiated periods. We do not use derivative financial instruments to manage this risk but could choose to do so in the future. Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S Dollar could increase the price we must pay for imported products beyond the negotiated periods. In addition, valuation changes in other leading foreign countries could adversely affect the business of our sourcing partners and therefore, adversely affect us.  These price changes could decrease our sales, earnings and liquidity during affected periods.

We are currently transitioning the manufacturing of substantially all our products to a single contract manufacturer and the loss of this contract manufacturer, or its inability to satisfy our quality or other requirements, could severely disrupt the production and supply of our products resulting in lower sales, earnings and liquidity. 

We are in the process of transitioning the manufacturing of substantially all our products to a single contract manufacturer located outside Ho Chi Minh City in Vietnam in connection with our strategic manufacturing alliance with Starwood Manufacturing VN Corporation.  Any financial, operational or other difficulties involving this manufacturer could adversely affect us.  The loss of our relationship with our manufacturer, or its inability to conduct its manufacturing services for us as anticipated in terms of cost, quality, and timeliness, could adversely affect our ability to fill customer orders.  In addition, it could be costly and require a long period of time to move products to another manufacturer.  If any of these were to occur, the supply of our products could be severely disrupted resulting in lower sales, earnings and liquidity. 

We may not be able to maintainidentify profitable assets or to raise pricesoperate acquired assets profitability. If we are not successful in response to inflation and/or increasing costs.identifying, acquiring and operating non-furniture related assets, our stock price may decline.

Future marketWe will likely have no operating history in the business of non- furniture related assets to be acquired, and competitive pressurestherefore we will be subject to the risks inherent in establishing a new line of business.

We have not identified assets to be acquired or their line or lines of business and, therefore, we cannot fully describe the specific risks presented by such business. It is likely that we will have had no operating history in the line of business of assets to be acquired, and it is possible that any assets that we may prohibit us from successfully raising pricesacquire will have a limited operating history in its business. Accordingly, there can be no assurance that our future operations will generate operating or net income, and as such our success will be subject to offset increased coststhe risks, expenses, problems and delays inherent in establishing a new line of finished goods, freightbusiness for us. The ultimate success of such new business cannot be assured.

Resources will be expended in researching potential acquisitions that might not be consummated.

The investigation of non-furniture company assets for acquisition and the negotiation, drafting and execution of relevant agreements and other inflationary items.  This could lowerdocuments will require substantial management time and attention in addition to costs for accountants, attorneys and others. If a decision is made not to complete a specific acquisition, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition, we may fail to consummate the acquisition for any number of reasons including those beyond our earnings.control.

Ownership may become diluted if we conduct a rights offering.

Our board is considering a rights offering to raise additional cash for acquisition purposes. If we conduct a rights offering and you do not participate, you will experience dilution in your ownership.

If we do not acquire sufficient assets by March 2019, we may be required to register under the Investment Company Act of 1940.

Under Section 3(a)(l)(C) of the Investment Company Act of 1940 (the "1940 Act"), an issuer is deemed to be an investment company if it is engaged in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of the issuer's total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. The 1940 Act defines “investment securities” broadly to include virtually all securities except U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves regulated or exempt investment companies. Consequently, the subordinated promissory note we received from Buyer as part of the consideration for the Asset Sale may be considered an investment security and we may fall within the scope of Section 3(a)(1)(C) of the 1940 Act.

A company that falls within the scope of Section 3(a)(1)(C) of the 1940 Act can avoid being regulated as an investment company if it can rely on certain of the exclusions under the 1940 Act. One such exclusion that we believe applies is Rule 3a-2 under the 1940 Act, which allows a 3(a)(1)(C) investment company (as a "transient investment company") a grace period of one year from the date of classification (in our case, the date of the Asset Sale, which was March 2, 2018) to avoid registration under the 1940 Act, so long as it does not intend to engage primarily in the business of investing, reinvesting, owning, holding or trading in securities. We do not intend to engage primarily in the business of investing, reinvesting, owning, holding or trading in securities within the meaning of the 1940 Act.

We are evaluating alternatives for using cash proceeds from the Asset Sale for the acquisition of non-furniture related assets. If we do not acquire sufficient assets within one year from closing the Asset Sale to cause us to no longer be an investment company, we could become subject to the 1940 Act and be required to register under the 1940 Act. Registered investment companies are subject to extensive, restrictive and potentially adverse regulation relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates.

If we are required to register under the 1940 Act, compliance with these additional regulatory burdens would increase our operating expenses.

Our common stock may be deemed a “penny stock.”

Our common stock may be considered a "penny stock" as defined in the Exchange Act and the rules thereunder, unless the price of our shares of common stock is at least $5.00. We expect that our share price will remain less than $5.00. Unless our common stock is otherwise excluded from the definition of “penny stock”, the penny stock rules apply. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker dealer and its sales person in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that the broker dealer, not otherwise exempt from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as our common stock is subject to the penny stock rules, the level of trading activity could be limited and it may be difficult for investors to sell our common stock.

Following the closing of the Asset Sale, we became a “shell company” under the federal securities laws.

As a result of the Asset Sale, we no longer have an operating business, and accordingly, alter the closing of the Asset Sale, we became a shell company as defined by Rule 405 of the Securities Act and Exchange Act Rule 12b-2. Applicable securities rules prohibit shell companies from using a Form S-8 registration statement to register securities pursuant to employee compensation plans and from utilizing Form S-3 for the registration of securities for so long as we are a shell company and for 12 months thereafter.

Additionally, Form 8-K requires shell companies to provide more detailed disclosure upon completion of a transaction that causes it to cease being a shell company. To the extent that we acquire non-furniture related assets in the future, we would be required to file a current report on Form 8-K containing the financial and other information required in a registration statement on Form 10 within four business days following completion of such a transaction.

To assist the Securities and Exchange Commission in the identification of shell companies, we are required to check a box on our quarterly reports on Form 10-Q and our annual reports on Form 10-K indicating that we are a shell company.

To the extent that we would be required to comply with additional disclosure because we are a shell company, we might be delayed in acquiring non-furniture assets that would cause us to cease being a shell company. In addition, under Rule 144 of the Securities Act, a holder of restricted securities of a “shell company” is not allowed to resell their securities in reliance upon Rule 144. The inability to utilize registration statements on Forms S-8 and S-3 would likely increase our costs to register securities in the future. Additionally, the loss of the use of Rule 144 and Form S-8 might make the offering and sale of our securities to employees, directors and others under compensatory arrangements more expensive and less attractive to recipients.

We have identified material weaknesses in our internal control over financial reporting, and we cannot assure you that additional material weaknesses or significant deficiencies will not occur in the future. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to sustain sales, earningsaccurately report our financial results, which may cause investors to lose confidence in our reported financial information and liquidity levels duemay lead to economic downturns.a decline in our stock price.

The furniture industry historically has been cyclicalManagement is responsible for establishing and maintaining adequate internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in natureinternal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. A material weakness in internal controls over stock-based compensation expense was identified by management during the fourth quarter of 2017 relating to the design and has fluctuatedeffectiveness of internal controls related to the accounting with economic cycles.  During economic downturns,respect to modifications of share-based payment awards. If our remediation efforts for this material weakness is not successful, or if other material weaknesses arise in the furniture industry tendsfuture, our ability to experience longer periods of recessionproperly manage the business may be impaired and greater declines than the general economy. We believe that the industry is significantly influenced by economic conditions generally and particularly by housing activity, consumer confidence, the level of personal discretionary spending, demographics and credit availability.  As awe may be unable to accurately report our financial results. This could result a worsening of current conditions could lower our sales and earnings and impact our liquidity.

Business failures, or the loss, of large customersin previously reported financial results being restated, which could result in a decreaseloss of investor confidence and may lead to a decline in our future sales and earnings.stock price.

Although weOur executive officers, directors and 10% stockholders have no single customer representingsignificant voting power and may vote their shares in a manner that is not in the best interest of other stockholders.

Our executive officers, directors and 10% stockholders control approximately 36% of the voting power represented by our outstanding common stock. If these stockholders act together, they may be able to exert significant control over our management and affairs requiring stockholder approval, such as the election of directors or morethe dissolution of the company. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our total annual sales, the possibilitycommon stock. This concentration of business failures, or the loss oflarge customers could result in a decrease of our future sales and earnings.  Lost sales may be difficult to replace and any amounts owed to us may become uncollectible.

Failure to anticipate or respond to changes in customer tastes, fashions and perceived values in a timely manner could result in a decrease in our sales and earnings.

Residential furniture is a fashion business based upon products styled for a changing marketplace and is sometimes subject to changing consumer trends and tastes.  If we are unable to predict or respond to changes in these trends and tastes in a timely manner, we may lose sales and have to sell excess inventory at reduced prices.  This could lower our sales and earnings.

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Weownership may not be able to sustain current sales and earnings due toin the actions and strengthbest interests of all our competitors.stockholders.

The furniture industryOur management is very competitivecurrently and fragmented.  We competewill be employed on a part-time basis for the foreseeable future and will have outside business interests that will require their time and attention and may interfere with a hosttheir ability to devote all of varyingtheir time to our business, models within the industry including but not limited to former manufacturers who have adopted a strictly pass-through model from overseas vendor to wholesale customers: national lifestyle retailers who sell directly to the retail consumer through an omni-channel distribution and marketing model; overseas vendors who sell directly to wholesale customers. Some competitors have greater financial resources and often offer extensively advertised, highly promoted products.  As a result, we are continually subject to the risk of losing market share, which may lower our sales and earnings.

Our liquidity could be negatively impacted by the potential instability of Genworth Life Insurance Company.

We currently have available $22.3 million of net cash surrender value in corporate-owned life insurance policies with Genworth Life Insurance Company.  If the financial stability of Genworth Life Insurance Company was to deteriorate to a point that insolvency was likely, our access to these funds may be limited or eliminated.  Although management monitors the financial stability of Genworth Life Insurance Company on a regular basis, insolvency could occur and, as a result, impact our liquidity.  Genworth Life Insurance Company is a subsidiary of Genworth Financial, Inc., which recently reported a Fourth Quarter and Full Year 2015 operating loss in its U.S. Life Insurance segment.  The company also announced that it was suspending traditional life and fixed annuity sales.  After this announcement, Genworth Life Insurance Company’s ratings from the following rating agencies were downgraded to those set forth below:

·   A.M. Best: B++ (Good)

·   Standard & Poor’s: BB (Marginal)

·   Moody’s: Ba1 (Questionable)

Our business and operations would be adversely impacted in the event of a failure or interruption of our information technology infrastructure. 

The proper functioning of our information technology infrastructure is critical to the efficient operation and management of our business. If our information technology systems fail or are interrupted, our operations may be adversely affected and operating results could be harmed. Our information technology systems, and those of third parties providing service to us, may also be vulnerable to damage or disruption caused by circumstances beyond our control. These include catastrophic events, power anomalies or outages, natural disasters, computer system or network failures, viruses or malware, physical or electronic break-ins, unauthorized access and cyber-attacks. Any material disruption, malfunction or similar challenges with our information technology infrastructure, or disruptions or challenges relating to the transition to new processes, systems or providers, could have a material adverse effect on the operation ofaffect our business and our results of operations.

We depend on key personnel and couldSince our business will be affected by the loss of their services.

The successlimited until we find a suitable non-furniture assets for acquisition, our only employees consist of our two executive officers, who will be employed for the foreseeable future on a part-time basis and will have outside business depends uponinterests that could require substantial time and attention. Our executive officers are associated with Hale Partnership Capital Management LLC and devote significant time to its affairs. We cannot accurately predict the servicesamount of certain senior executives.time and attention that will be required of our officers to perform their ongoing duties related to outside business interests. The lossinability of any such person or other key personnelour officers to devote sufficient time to managing our business could have a material adverse effect on our business and results of operations.

Future cost of compliance with environmental, safety and health regulations could reduce our earnings. 

We are subject to federal, state and local laws and regulations in the areas of safety, health and environmental protection.  The timing and ultimate magnitude of costs for compliance with environmental, health and safety regulations are difficult to predict and could reduce our earnings. 

Item 1B.Unresolved Staff Comments

None.

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Item 2.       Properties

Set forth below is certain information with respect to our principal properties.properties until March 2, 2018. We believe that all these properties arewere well maintained and in good condition. A majority of our distribution facilities arewere equipped with automatic sprinkler systems and modern fire protection equipment, which we believe arewere adequate. All facilities set forth below arewere active and operational.

(1)    Estimated space as of December 31, 2015.

(1)

Estimated space as of December 31, 2017. Leased footage is a function of amount of product held with no minimum space commitments.

Effective March 2, 2018, we moved our corporate headquarters to Charlotte, North Carolina where we lease approximately 1,000 square feet of office space.

Item 3.Legal Proceedings

In the normal course of business, we are involved in claims and lawsuits none of which currently, in our opinion, will have a material adverse effect on our consolidated financial statements.

On February 5, 2018, a putative class action was filed in the United States District Court for the Middle District of North Carolina against us, our directors and certain former directors in connection with the Asset Sale. The lawsuit alleged, among other things, that we violated the Securities Exchange Act of 1934, as amended, by omitting certain material information from the proxy statement relating to the Asset Sale. The complaint sought, among other things, injunctive relief preventing the consummation of the Asset Sale until disclosure of the material information allegedly omitted from the proxy statement, rescission of the Asset Purchase Agreement to the extent already implemented, and the award of attorneys’ and experts’ fees and certain other damages. While we believed the claims were without merit, we determined to provide additional disclosure in a supplement to the proxy statement in order to alleviate the costs, risks and uncertainties inherent with litigation.  We reached an agreement with the plaintiff regarding our additional disclosures and the lawsuit was dismissed on March 12, 2018. 

Item 4.Mine Safety Disclosures

Not Applicable.

Executive Officers of the Registrant

Our executive officers who are elected annually and their ages as of January 1, 20162018 are as follows:

Effective December 7, 2017, Glenn Prillaman has beenresigned as President and Chief Executive Officer since February 2010.  Mr. Prillaman was Presidentof the Company and Chief Operating Officer from August 2009 until February 2010.  He was our Executive Vice President – Marketing and Sales from September 2008 until August 2009.  He held the position of Senior Vice President – Marketing and Sales from September 2006 until September 2008 and was our Senior Vice President – Marketing/Sales – Young America® from August 2003 to September 2006.  Mr. Prillaman held various management positions in product development from June 1999 to August 2003.  Prior to this Mr. Prillaman represented the company as a sales agent from 1993member of the Board pursuant to 1996.a separation agreement entered into by Mr. Prillaman with the Company. The Board appointed Matthew W. Smith to serve as interim Chief Executive Officer of the Company until his successor was appointed and qualified or until his earlier removal or resignation. Mr. Smith serves as a managing director of The Finley Group, Inc., which provides advisory services to corporate executives, boards of directors, financial institutions, lawyers and private equity sponsors. In connection with the Asset Sale, Mr. Smith resigned as Interim Chief Executive Officer effective March 2, 2018. Effective as of March 2, 2018, Steven A. Hale II, Chairman of the Company’s Board of Directors, was elected Chief Executive Officer of the Company.

Steven A. Hale II is the founder of Hale Partnership Capital Management, LLC, an asset management firm that serves as the investment manager to certain privately held investment partnerships. Mr. Hale has held his position since 2010. From 2007 to 2010, prior to founding Hale Partnership Capital Management, LLC, Mr. Hale was an associate director with Babson Capital Management, LLC, an asset management firm, where he had responsibility for coverage of distressed debt investments across a variety of industries. From 2005 to 2007, Mr. Hale was a leveraged finance analyst with Banc of America Securities. Mr. Hale has served as a director of the Company since February 2017 and as Chairman of the Company’s Board of Directors since November 2017.

Anita W. WimmerWimmerhas been principal financial and accounting officer and Secretary since August 2014 and has also served as Vice President – Finance/Corporate Controller since April 2014 and Assistant Secretary from April 1999 until August 2014. She served as Vice President – Corporate Controller from April 2012 until April 2014 and as Vice President – Controller and Treasurer from April 2005 until April 2012. Prior to this, Mrs. Wimmer held various financial positions since her employment with Stanley began in March 1993.

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PART II

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Market Prices

PART II

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

Market Prices

OurBefore March 15, 2018, our common stock is quotedwas traded on the Nasdaq Stock Market (“Nasdaq”) under the symbol “STLY”.STLY  As of March 15, 2018, our common stock was delisted from Nasdaq following the Asset Sale. On March 20, 2018, our common stock began trading in the over-the-counter market on the OTCQB under the symbol “STLY”.  The table below sets forth the high and low sales prices per share, for the periods indicated, as reported by Nasdaq.
Nasdaq.