HG Holdings, Inc. - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

Form 10-Q

For the quarterly period ended September 27, 2014

or

For the transition period from  to  .

Commission file number: 0-14938

STANLEY FURNITURE COMPANY, INC.

(Exact name of registrant as specified in its charter)

200 North Hamilton Street, High Point, North Carolina, 27260
(Address of principal executive offices, Zip Code)

(336-884-7701)

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes (x) No ( )

            Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (X) No ( )

                Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act, (check one):

As of October 10, 2014, 14,780,322 shares of common stock of Stanley Furniture Company, Inc., par value $.02 per share, were outstanding.

PART I.  FINANCIAL INFORMATION

ITEM 1. Financial Statements

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

The accompanying notes are an integral part of the consolidated financial statements.

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 (in thousands, except per share data)
(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)
(unaudited)

1.         Preparation of Interim Unaudited Consolidated Financial Statements

The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).  In our opinion, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein.  All such adjustments are of a normal recurring nature.  Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to SEC rules and regulations.  However, we believe that the disclosures made are adequate for a fair presentation of results of operations and financial position.  Operating results for the interim periods reported herein may not be indicative of the results expected for the year.  We suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in our latest Annual Report on Form 10-K.

Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted.

2.         Property, Plant and Equipment

3.         Income taxes

During the nine months of 2014, we recorded a non-cash charge to our valuation allowance of $10.5 million, increasing our valuation allowance against deferred tax assets to $19.5 million at September 27, 2014. The primary assets covered by this valuation allowance are net operating losses. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance.  Our results over the most recent three-year period were heavily affected by our business restructuring activities. Our cumulative operating loss in the most recent three-year period, in our view, represented sufficient negative evidence to require a valuation allowance under the provisions of ASC 740, Income Taxes. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. Although realization is not assured, we have concluded that the remaining net deferred tax asset in the amount of $129 will be realized based on the reversal of existing deferred tax liabilities. The amount of the deferred tax assets actually realized, however, could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities. Should we determine that we will not be able to realize all or part of our deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.

The major reconciling items between our effective income tax rate and the federal statutory rate are the changes in our valuation allowance and the cash surrender value on life insurance policies.

STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except per share data)

(unaudited)

4.         Employee Benefit Plans

Components of other postretirement benefit cost:

5.         Stockholders’ Equity

Basic earnings per common share are based upon the weighted average shares outstanding.  Outstanding stock options and restricted stock are treated as potential common stock for purposes of computing diluted earnings per share.  Basic and diluted earnings per share are calculated using the following share data:

During the three and nine month periods ended September 27, 2014 and September 28, 2013, the dilutive effect of outstanding stock options is not recognized since we have a net loss for those periods.  Approximately 1.6 million shares in the three and nine month periods of 2014 were issuable upon the exercise of stock options compared to 2.0 million shares in the three and nine month periods of 2013.  Also, 544,000 shares in 2014 and 373,000 shares in 2013 of restricted stock were not included because they were anti-dilutive.

A reconciliation of the activity in Stockholders’ Equity accounts for the first nine months of 2014 is as follows:

STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except per share data)

(unaudited)

6.         Restructuring and Related Charges

            In 2011, we evaluated our overall warehousing and distribution requirements for our Stanley Furniture product line and concluded only a portion of the leased warehouse space in Stanleytown, Virginia would be required.  As a result, we took charges for future lease obligations in 2011 and in 2012 for the portions of the Stanleytown warehouse facility no longer used.  During the second quarter of 2014, we completely exited the facility and took a charge of $354 for the remaining lease obligation.

            In 2012, we made the strategic decision to consolidate our corporate office and High Point showroom into a single multi-purpose facility in High Point, North Carolina.  During 2013, we recorded $770 in restructuring charges in selling, general and administrative expenses for severance and relocation costs associated with this move and consolidation, with $532 of that total recorded in the first nine months of the year.

Restructuring accrual activity for the nine months ending September 27, 2014 was as follows:

Restructuring accrual activity for the nine months ending September 28, 2013 was as follows:

The restructuring accrual is classified as “Other accrued expenses”.

STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except per share data)

(unaudited)

7.         Discontinued Operations

During the second quarter of 2014, we concluded that revenue on our Young America product line remained below the level needed to reach profitability and that the time frame needed to assure sustainable profitability was longer than we felt was economically justified.  Therefore, we made the decision to cease manufacturing operations at our Robbinsville, North Carolina facility and sell the related assets of this facility.  Manufacturing operations were ceased in the third quarter of 2014 and as a result this product line was reflected as a discontinued operation pursuant to the provisions of Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08) for all periods presented.    

Loss from discontinued operations, net of taxes, comprised the following:

Loss from discontinued operations includes accelerated depreciation and amortization, write-down of inventories and other assets, severance and other termination costs and operating losses related to final manufacturing production.

Net assets for discontinued operations are as follows:

Results of Operations – Quarterly Trends from Continuing Operations

In this section we will make comparisons between the three months ended September 27, 2014 with three months ended June 28, 2014, March 29, 2014 and December 31, 2013 for our continuing operations.  These comparisons highlight trends we believe are relevant to understanding the transition of our business.

            Net sales for the current quarter were lower than the two previous quarters and higher than the December 31, 2013 quarter.  We believe the lower sales resulted from continued sluggish retail environment for our segment of the market place and retail disruptions associated with the discontinuance of our Young America brand.  Gross profit has remained consistent over the last four quarters, excluding the second quarter of 2014 which included a restructuring charge for $354,000 for future lease commitments on a warehouse facility that is no longer utilized.  Included in selling, general and administrative expenses for the fourth quarter of 2013 was a restructuring charge of $238,000 associated with consolidating the corporate offices.    The lower selling, general and administrative expenses in the current quarter is the result of our efforts to remove costs from our corporate overhead as we believe we have properly aligned our corporate structure with our current sales volume without inhibiting our ability to support future growth.  Consequently, our operating loss has improved for three consecutive quarters.

Results of Operations for the three and nine month periods ended September 27, 2014, compared to the three and nine month periods ended September 28, 2013.

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

Net sales for the three month period ended September 27, 2014 decreased $733,000, or 5.0%, from the comparable 2013 period.  For the nine month period ended September 27, 2014, net sales decreased $691,000, or 1.5% from the comparable 2013 nine month period. The decrease in both comparable periods was driven by lower unit volume.

Gross profit for the current three month period was $2.9 million, or 20.9% of net sales compared to a gross profit of $3.5 million, or 23.6% of net sales, in the prior year three month period.  Gross profit for the first nine months of 2014 was $9.2 million, or 20.7% of net sales compared to a gross profit of $10.0 million, or 22.2% of net sales, for the prior year nine month period.  The current year nine month period includes a restructuring charge of $354,000 taken in the second quarter for future lease commitments on a warehouse facility that is no longer utilized.  In both the current three and nine month periods, gross profit was negatively impacted by the lower sales volumes and a charge for slow moving and discontinued finished goods inventory. 

Selling, general and administrative expenses for the three and nine month periods of 2014 was $3.3 million and $11.8 million, or 23.6% and 26.4% of net sales, respectively, compared to $3.7 million and $11.8 million, or 25.2% and 26.1% of net sales, for the comparable 2013 periods.  The prior year expenses include restructuring charges associated with consolidating the corporate offices of $10,000 for the three month period and $532,000 for the nine month period. Lower expenditures in the current year three month period were driven by our efforts to right size our organization after the elimination of the sales volume associated with the discontinued Young America brand. Excluding one-time costs, the current nine month period expenditures were higher compared to the prior year due to increased amortization for new enterprise operating systems implemented in the second half of 2013 and higher marketing costs supporting new product introductions.  These higher costs were partially offset by cost reduction initiatives taken during the current quarter to right size our corporate structure.    

As a result, operating loss as a percentage of net sales was 2.7% and 5.7% for the three and nine month periods of 2014 compared to 1.6% and 3.9% for the comparable 2013 periods.

Net interest expense for the three month period of 2014 increased $104,000 from the comparable 2013 period and $304,000 for the nine month period.  Interest expense is primarily composed of interest on insurance policy loans from a legacy deferred compensation plan, which increases annually based on growth in cash surrender value.

Our effective tax rate for the current three and nine months is essentially zero since we have established a valuation allowance for our deferred tax assets in excess of our deferred tax liabilities. The benefit in both years was primarily the release of reserves due to lapse of statute of limitations.

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 and restructuring efforts will be successful, we cannot predict with certainty the ultimate impact on our revenues, operating costs and cash flow from operations.  We expect cash on hand to be adequate for ongoing operational and capital expenditures for the foreseeable future.  At September 27, 2014 we had $18.6 million in cash and $1.2 million in restricted cash.

Working capital, excluding cash, restricted cash, short-term investments and net assets of discontinued operations increased to $25.5 million at September 27, 2014 from $23.3 million on December 31, 2013.  The increase was largely the result of a decrease in accounts payable for finished goods.

Cash used by operations was $9.7 million in the nine month period of 2014 compared to cash used by operations of $3.9 million in the comparable prior year period.  The increase in cash used by operations during the first nine months of 2014 was due to an increase in spending for finished goods.  The increase in spending was partially offset by an increase in cash receipts from customers in the current nine month period. 

Net cash provided by investing activities was $10.5 million in the current nine month period of 2014 compared to $12.4 million in the comparable prior year period.  During the nine month period of 2014, the net cash provided was the result of $10.0 million of short term investments maturing and the release of $547,000 of restricted cash.  During the nine month period of 2013, we invested $2.2 million in capital expenditures for the consolidation of our corporate offices and High Point showroom and $377,000 as part of our continued investment in our enterprise operating system.  Offsetting these uses of cash in 2013 was the maturity of a short term investment of $15.0 million.  With the announcement of our ceasing manufacturing in our Robbinsville, NC facility, our capital expenditure requirements will be minimal for the remainder of 2014.

Net cash provided by financing activities was $2.7 million in the current nine months of 2014 compared to $2.1 million in the prior year period.  In both years, cash was provided from loans against the cash surrender value of insurance policies under a legacy deferred compensation plan.  These proceeds were used to pay interest due on outstanding policy loans which is shown as a use of cash in operating activities. Approximately $358,000 was used in the first nine months of 2013 to purchase and retire 80,077 shares of our common stock. 

Net cash provided by discontinued operations was $7.9 million in the current nine months of 2014 compared to cash used of $10.9 million in the prior year period.  In the current nine months cash was generated from the sale of property, plant and equipment along with the collection of receivables and selling of inventory, offset by production costs to complete manufacturing of this product line's backlog.   The use of cash in the prior year was driven by operating losses and the continued investment in capital equipment and ERP investments. We expect to collect an additional $3.5 million from the sale of property, plant and equipment, collection of remaining receivables and sale of remaining inventory, net of payables and further expenses to support warehousing operations.

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.

Certain manufacturers who did not support the antidumping petition (“Non-Supporting Producers”) filed actions in the United States Court of International Trade, challenging the CDSOA’s “support requirement” and seeking to share in the distributions.  As a result, Customs held back a portion of those distributions (the “Holdback”) pending resolution of the Non-Supporting Producers’ claims.  The Court of International Trade dismissed all of the actions of the Non-Supporting Producers, who appealed to the United States Court of Appeals for the Federal Circuit.  Customs advised that it expected to distribute the Holdback to the Supporting Producers after March 9, 2012.  The Non-Supporting Producers sought injunctions first from the Court of International Trade and, when those efforts were unsuccessful, from the Federal Circuit directing Customs to retain the Holdback until the Non-Supporting Producers’ appeals were resolved.

On March 5, 2012, the Federal Circuit denied the motions for injunction, “without prejudicing the ultimate disposition of these cases.”  As a result, we received a CDSOA distribution of $39.9 million in April 2012. On August 19, 2013, the Federal Circuit issued a decision affirming the dismissal of the claims of two of the four Non-Supporting Producers. On January 3, 2014, the Federal Circuit denied those Non-Supporting Producers’ petitions for rehearing en banc.  On May 2, 2014, these Non-Supporting Producers filed a petition for writ of certiorari, seeking review by the United States Supreme Court.  On October 6, 2014, the Supreme Court denied two of three of the Non-Supporting Producers’ petitions for certiorari review, and we believe it is likely the Supreme Court will deny the third petition shortly, because the third petition raises the same claims as the petitions that already have been dismissed. Accordingly, we believe that the chance Customs will seek and be entitled to obtain a return of our CDSOA distribution continues to be remote.  

In November 2012 and December 2013, Customs disclosed that it withheld $3.0 million and $6.4 million, respectively, in funds related to the antidumping duty order on wooden bedroom furniture from China that was otherwise available for distribution until the amounts at issue in the pending litigation have been resolved. Assuming our historic allocation of approximately 30%, the portion of these undistributed funds that may be allocated to us is approximately $2.8 million. Customs has not yet announced when these funds will be distributed. 

Customs also preliminarily disclosed that as of April 30, 2014, an additional $4.3 million of total collected duties was potentially available for distribution in 2014 to eligible domestic manufacturers of wooden bedroom furniture.  Customs noted that the final amounts available for distribution in 2014 could be higher or lower than the preliminary amounts due to liquidations, re-liquidations, protests, or other events affecting entries.  Based on the Supreme Court’s denial of the Non-Supporting Producers’ petitions for writ of certiorari, we believe it is possible that Customs will distribute these funds before the end of the fourth quarter of 2014, although the exact timing of the distribution is unknown.  Assuming our historic allocation of approximately 30%, the portion of these undistributed funds that may be allocated to us is approximately $1.3 million.

Due to the uncertainty of the various legal and administrative processes, we cannot provide assurances as to the amount of additional CDSOA funds that ultimately will be received, if any, and we cannot predict when we may receive any additional CDSOA funds.

New Accounting Pronouncements

In April 2014, the FASB issued Accounting Standards Update No. 2014-08 (ASU 2014-08), which updated the guidance in ASC Topic 205,  Presentation of Financial Statements,  and ASC Topic 360,  Property, Plant and Equipment.  The amendments in ASU 2014-08 change the criteria for reporting discontinued operations for all public and nonpublic entities. The amendments also require new disclosures about discontinued operations and disposals of components of an entity that do not qualify for discontinued operations reporting. This guidance will become effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years.  We early adopted that guidance and followed such guidance for reporting of the discontinued Young America product line in the third quarter of 2014.

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2013 Annual Report on Form 10-K.

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”, 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 disruptions in foreign sourcing including those arising from supply or distribution disruptions 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 policies of the United States and countries from which we source products,  our ability to collect receivables from Young America customers whose businesses are negatively impacted by the cease of Young America production, our ability to manage relations with Stanley Furniture customers who have also been Young America customers,  the inability to raise prices in response to inflation and increasing costs, lower sales due to worsening of current economic conditions, the cyclical nature 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,  environmental, health, and safety  compliance costs, failure or interruption of our information technology infrastructure, and the possibility that U.S. Customs Border Protection may seek to reclaim all or a portion of the $39.9 million of Continued Dumping and Subsidy Offset Act (CDSOA) proceeds received in the second quarter of 2012.  Any forward looking statement speaks only as of the date of this news release and we undertake no obligation to update or revise any forward looking statements, whether as a result of new developments or otherwise.

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

None of our foreign sales or purchases are denominated in foreign currency and we do not have any foreign currency hedging transactions.  While our foreign purchases are denominated in U.S. dollars, a relative decline in the value of the U.S. dollar could result in an increase in the cost of our products obtained from offshore sourcing and reduce our earnings or increase our losses, unless we are able to increase our prices for these items to reflect any such increased cost.

ITEM 4.  Controls and Procedures

(a)        Evaluation 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 our disclosure controls and procedures were effective as of September 27, 2014, the end of the period covered by this quarterly report.

(b)        Changes in internal controls over financial reporting.  There were no changes in our internal control over financial reporting that occurred during the third quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

Part II. OTHER INFORMATION

Item 1A.           Risk Factors

The following description of risk factors includes material changes to, and supersedes, the description of risk factors previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ending December 31, 2013. 

Our results of operations and financial condition can be adversely affected by numerous risks.  You should carefully consider the risk factors detailed below in conjunction with the other information contained in this document.  Should any of these risks actually materialize, our business, financial condition and future prospects could be negatively impacted.

 As a result of our reliance on foreign sourcing for our Stanley Furniture product line: 

·         Our ability to service customers could be adversely affected and result in lower sales, earnings and liquidity.

Our supply of goods could be interrupted for a variety of reasons. Physical damage 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.  Our sourcing partners may not supply goods that meet our manufacturing, quality or safety specifications, in a timely manner and at an acceptable price.  We may reject goods that do not meet our specifications, requiring us to find alternative sourcing arrangements at a higher cost, or possibly forcing us to discontinue the product.  Also, delivery of goods from our foreign sourcing partners may be delayed for reasons not typically encountered with domestic manufacturing or sourcing, such as shipment delays caused by customs or labor issues.

·         Our ability to properly forecast consumer demand on product with extended lead times could result in lower sales, earnings and liquidity.

Our use of foreign sources exposes us to risks associated with forecasting future demand on product with extended order lead times.  Extended order lead times may adversely affect our ability to respond to sudden changes in demand, resulting in the purchase 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 have 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 make it more difficult for us to service our customers.  Also, significant fluctuations of foreign exchange rates against the value of the U.S. dollar could increase costs and decrease earnings.  

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

As a result of our decision to cease production of our Young America product line:

·         We may not be able to collect receivables from customers whose businesses are negatively impacted by the cease of Young America production.

·         The Stanley product line market share could be negatively impacted by this decision due to shared resources and shared customer base.

We may not be able to maintain or to raise prices in response to inflation and increasing costs.

Future market and competitive pressures may prohibit us from successfully raising prices to offset increased costs of finished goods, freight and other inflationary items.  This could lower our earnings.

We may not be able to sustain sales, earnings and liquidity levels due to economic downturns.

The furniture industry historically has been cyclical in nature and has fluctuated with economic cycles.  During economic downturns, the furniture industry tends to experience longer periods of recession 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.  These factors not only affect the ultimate consumer, but also impact smaller independent brick-&-mortar furniture retailers, which are our primary customers.  As a result, a worsening of current conditions could lower our sales and earnings and impact our liquidity.

Business failures, or the loss, of large customers could result in a decrease in our future sales and earnings.

Although we have no single customer representing 10% or more of our total annual sales, the possibility of business failures, or the loss of large 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 consumer 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.

We may not be able to sustain current sales and earnings due to the actions and strength of our competitors.

The furniture industry is very competitive and fragmented.  We compete with mostly overseas manufacturers and/or retailers who source products from overseas and/or are vertically integrated.   In addition, some competitors have greater financial resources than we have 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.

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. 

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 of our business and our results of operations.

We depend on key personnel and could be affected by the loss of their  services.

The success of our business depends upon the services of certain senior executives. The loss of any such person or other key personnel could have a material adverse effect on our business and results of operations.

Item 6. Exhibits 

(1)           Filed herewith

SIGNATURE

            Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.