HG Holdings, Inc. - Quarter Report: 2018 September (Form 10-Q)

 

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

or

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____.

 

Commission file number: 0-14938

 

HG HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

	Delaware			54-1272589
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

 

2115 E. 7^th Street, Suite 101, Charlotte, NC 28204
(Address of principal executive offices, Zip Code)

 

252-355-4610

(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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act,:

Large accelerated filer ( ) Accelerated filer ( ) Non-accelerated filer ( ) (Do not check if a smaller reporting company)

Smaller reporting company (X) Emerging growth company ( )

 

If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ( )

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes (X) No ( )

 

As of November 13, 2018, 14,712,377 shares of common stock of HG Holdings, Inc., par value $.02 per share, were outstanding.

 

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		September 30,				December 31,
		2018				2017
ASSETS
Current assets:
Cash		$	6,037			$	-
Restricted cash			402				631
Prepaid expenses and other current assets			236				4
Income tax receivable			488				-
Current assets from discontinued operations			-				27,893
Total current assets			7,163				28,528
Property, plant and equipment, net			9				-
Subordinated notes receivable			5,766				-
Other assets			480				465
Deferred tax assets			494				-
Noncurrent assets from discontinued operations			-				3,577
Total assets		$	13,912			$	32,570
LIABILITIES
Current liabilities:
Accounts payable		$	26			$	-
Accrued salaries, wages and benefits			19				65
Other accrued expenses			76				28
Current liabilities from discontinued operations			-				12,647
Total current liabilities			121				12,740
Other long-term liabilities			291				567
Long-term liabilities from discontinued operations			-				6,778
Total liabilities			412				20,085
STOCKHOLDERS’ EQUITY
Common stock, $0.02 par value, 25,000,000 shares authorized, 14,712,377 and 14,920,117 shares issued and outstanding on each respective date			294				298
Capital in excess of par value			17,263				17,104
Retained deficit			(4,057	)			(2,495	)
Accumulated other comprehensive loss			-				(2,422	)
Total stockholders’ equity			13,500				12,485
Total liabilities and stockholders’ equity		$	13,912			$	32,570

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		Three Months								Nine Months
		Ended								Ended
		Sept. 30,				Sept. 30,				Sept. 30,				Sept. 30,
		2018				2017				2018				2017
Operating Expenses
General and administrative expenses		$	(204	)		$	(158	)		$	(776	)		$	(665	)
Total operating expenses			(204	)			(158	)			(776	)			(665	)
Interest income			302				-				618				-
Product financing interest income			125				-				125				-
Gain on extinguishment of subordinated note receivable			448								448
Impairment loss			(168	)			-				(168	)			-
Income (loss) from continuing operations before income taxes			503				(158	)			247				(665	)
Income tax benefit			990				-				1,202				-
Income (loss) from continuing operations			1,493				(158	)			1,449				(665	)
Discontinued operations
Gain (loss) from discontinued operations (including loss on sale of assets of $865)		$	-			$	(179	)		$	(3,011	)		$	(77	)
Income tax benefit			-				32				-				35
Loss from discontinued operations			-				(147	)			(3,011	)			(42	)
Net income (loss)		$	1,493			$	(305	)		$	(1,562	)		$	(707	)
Basic and diluted income (loss) per share:
Income (loss) from continuing operations		$	.10			$	(.01	)		$	.10			$	(.05	)
Income (loss) from discontinued operations			-				(.01	)			(.21	)			-
Net income (loss)		$	.10			$	(.02	)		$	(.11	)		$	(.05	)
Weighted average shares outstanding:
Basic			14,508				14,220				14,538				14,203
Diluted			14,551				14,220				14,581				14,203

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		Three Months								Nine Months
		Ended								Ended
		Sept. 30,				Sept. 30,				Sept. 30,				Sept. 30,
		2018				2017				2018				2017
Net income (loss)		$	1,493			$	(305	)		$	(1,562	)		$	(707	)
Other comprehensive income:
Amortization of actuarial loss			-				30				-				81
Adjustments to net periodic benefit cost			-				30				-				81
Settlement of employee benefit obligations directly related to the disposal transaction			-				-				2,422				-
Comprehensive income (loss)		$	1,493			$	(275	)		$	860			$	(626	)

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		Nine Months Ended
		Sept. 30,				Sept. 30,
		2018				2017
Net income (loss) from continuing operations		$	1,449			$	(665	)
Adjustments to reconcile net income from operations to net cash flows from operating activities:
Accretion income on notes receivable			(223	)			-
Stock compensation expense			36				-
Paid in kind interest on subordinated note receivable			(293	)			-
Gain on extinguishment of subordinated note receivable			(448	)
Changes in assets and liabilities:
Prepaid expenses, income tax receivables, and other current assets			(720	)			-
Deferred tax assets and other assets			(509	)			-
Accounts payable			26				-
Other accrued expenses			2				-
Other long-term liabilities			(276	)			-
Net cash used by continuing operations			(956	)			(665	)
Cash flows from investing activities:
Purchase of property, plant and equipment			(9	)			-
Net cash used by investing activities			(9	)			-
Cash flows from financing activities:
Repurchase and retirement of common stock			(133	)			-
Stock purchase and retirement for tax withholdings on vesting of restricted award			(30	)			-
Net cash used by financing activities			(163	)			-
Cash flows from discontinued operations:
Cash used by discontinued operations			(3,501	)			(2,309	)
Cash provided by investing activities			9,228				47
Cash provided by financing activities			1,209				(49	)
Net cash provided by discontinued operations			6,936				(2,311	)
Net increase in cash and restricted cash			5,808				(2,976	)
Cash and restricted cash at beginning of period			631				4,212
Cash and restricted cash at end of period		$	6,439			$	1,236
Supplemental Non-Cash Disclosures:
Payments made on line of credit from proceeds of the sale		$	(1,348	)		$	-

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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 in the United States 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. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our latest Annual Report on Form 10-K.

 

On March 2, 2018, we sold substantially all of our assets (the “Asset Sale”) to Stanley Furniture Company LLC, formerly 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, 2017 (the “Asset Purchase Agreement”). Operations of the furniture business from January 1, 2018 through March 2, 2018 are reflected as discontinued operations pursuant to the provisions of Accounting Standards Codification 2015-20, Presentation of Financial Statements – Discontinued Operations for all periods presented. As a result of the sale, the Company no longer has a wholly owned subsidiary.

 

On September 6, 2018, as previously reported on Form 8-K filed by the Company with the Securities and Exchange Commission on September 12, 2018, Buyer sold certain of its assets, including certain inventory of the Stone & Leigh tradename (the “S&L Asset Sale”), to Stone & Leigh, LLC (“S&L”), a newly formed limited liability company owned by a group which includes Matthew W. Smith, the Company’s former interim Chief Executive Officer. As a part of the S&L Asset Sale, Buyer assigned to S&L certain of its rights and obligations under the subordinated secured promissory note payable to the Company (“Original Note”).

 

As a result of both the Asset Sale and the S&L Asset Sale, we have a variable interest in three entities that have been determined to be variable interest entities ("VIE"). If we conclude that we are the primary beneficiary of a VIE, we are required to consolidate 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 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 three 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.

 

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

 

Certain amounts in the 2017 consolidated financial statements have been reclassified to conform to 2018 presentation. These reclassifications do not have an impact on the consolidated statements of operations or the consolidated statement of comprehensive income (loss). During the second quarter of 2018, the Company identified errors within the accrued franchise taxes and workers compensation liabilities that originated in prior periods under the former management team. As the errors were not material to the prior period, the Company has revised the consolidated balance sheets as of December 31, 2017 to reduce the accrual for other long-term liabilities by approximately $250,000 to correct these errors.

 

 

1.	Preparation of Interim Unaudited Consolidated Financial Statements (continued)

 

Recent Accounting Pronouncements

 

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, 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, 2016, 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. As of September 30, 2018, we do not have any long-term leases. We will evaluate the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures at such time a long-term lease is executed. 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 January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Subsequently, the FASB issued ASU 2018-03, "Technical Corrections and Improvements to Financial Instruments-Overall." ASU 2016-01 requires equity investments except those under the equity method of accounting to be measured at fair value with the changes in fair value recognized in net income. The amendment simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. For equity investments that do not have readily determinable fair values and do not qualify for the existing practical expedient in ASC 820 to estimate fair value using the net asset value per share of the investment, the guidance provides a new measurement alternative. Entities may choose to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company adopted ASU 2016-01 on January 1, 2018 and elected an accounting policy to measure its 5% equity interest in Churchill Downs Holdings, Ltd, as described in Note 5, under the cost method, less any impairment, plus or minus changes resulting from observable price changes. The adoption of ASU 2016-01 did not have a material impact to the Company’s consolidated financial statements. 

 

 

2.      Discontinued Operations

 

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, 2017 (the “Asset Purchase Agreement”). Operations of the furniture business from January 1, 2018 through March 2, 2018 are reflected as discontinued operation pursuant to the provisions of Accounting Standards Codification 2015-20, Presentation of Financial Statements – Discontinued Operations for all periods presented.

 

Loss from discontinued operations, net of taxes, comprised the following for the three and nine months ended September 30, 2018 and September 30, 2017 (in thousands):

 

 

 

2.	Discontinued Operations (continued)

 

Included in selling, general and administrative expenses incurred for the nine months ended September 30, 2018 were certain transaction costs including investment banking fees, legal fees, and other transaction costs directly attributable to the Asset Sale.

 

Net (liabilities) assets for discontinued operations are as follows (in thousands):

 

 

As a result of the Asset Sale, the Company has no revenue-generating operations. While the cash and subordinated secured promissory note received as partial consideration for the Asset Sale generate interest income, the Company believes that the cash on hand is sufficient to fund operating expenses for at least 12 months from the date of these financial statements. As previously announced, the Company may consider a rights offering of the Company’s common stock to existing shareholders to raise additional cash for acquisition purposes which could provide the Company greater resources and flexibility in acquiring non-furniture assets.

 

 

3.	Property, Plant and Equipment

 

 

 

4.	Subordinated Notes Receivable

 

The Company received a $7.4 million subordinated secured promissory note (the “Original Note”) from the Buyer as partial consideration for the sale of substantially all of our assets during the first quarter of 2018. On 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 includes 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. In connection with the assignment, the Company entered into an Amended and Restated Subordinated Secured promissory note with the Buyer (the “A&R Note”) and a new Subordinated Secured Promissory Note with S&L (the “New Note”).

 

 

4.	Subordinated Notes Receivable (continued)

 

We determined that the assignment a portion of the Original Note to S&L resulted in an extinguishment of the note receivable under ASC 310, Receivables, requiring that the Original Note be derecognized and both the A&R Note and the New Note separately be evaluated for fair value. As a result of this analysis, we recognized a $448,000 gain on the extinguishment of the Original Note.

 

The A&R Note has a principal amount as of the assignment date of $3.3 million. The note maturity remains 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 6.00%. Cash interest payments begin upon certain availability thresholds defined in the Buyer’s senior secured loan facility. These thresholds were not met for the three month period ended September 30, 2018 resulting in the Company accruing a total of approximately $134,000 of interest income on the note. Given that the availability thresholds were not met, the accrued interest was considered paid in kind and capitalized to the principal balance of the note. During portions of the three months ended September 30, 2018, there was an event of default on the Buyer’s senior secured loan. An event of default on the Buyer’s senior secured loan triggers an event of default under the A&R Note. The default interest accrues at a fixed rate of 10% per annum. The event of default was cured on November 5, 2018.

 

During the first quarter 2018, we evaluated the fair value of the Original Note, which resulted in a fair value adjustment of $2.6 million. Prior to the assignment date, we recorded accreted interest income on the fair value adjustment of the Original Note of $89,000 during the three months ended September 30, 2018. We re-evaluated the fair value adjustment of the A&R Note at the assignment date, which resulted in a fair value adjustment of $1.1 million on the $3.3 million principal amount. Subsequent to the assignment date, we recorded accreted interest income on the fair value adjustment of the A&R Note of $12,000 during the three months ended September 30, 2018.

 

Resulting from the interest being paid in kind, the accretion of the fair value adjustment, and the assignment of the $4.4 million of the Original Note to S&L, the carrying value of the A&R Note decreased to $2.2 million as of September 30, 2018.

 

The New Note has a principal amount of $4.4 million as of the assignment date. The New Note also matures on March 2, 2023, at which time the total principal amount is due. Interest on the New Note accrues at a fixed rate of 10% per annum. In connection with the issuance of the New Note, the Company entered into an Intercreditor and Debt Subordination Agreement (the “New Subordination Agreement”) with Hale Partnership Fund, L.P. as agent for a number of affiliated funds (collectively, the “Senior Lenders”). The New Subordination Agreement allows the Company to receive payments, including monthly cash interest payments, from S&L unless such payment would result in an event of default under the Senior Note. Cash interest payments of $30,000 were paid current during the three months ended September 30, 2018.

 

At the assignment date, we evaluated the fair value of the New Note, which resulted in a fair value adjustment of $945,000. We recorded accreted interest income on the fair value adjustment of the New Note of $11,000 for the month ended September 30, 2018. Resulting from the accretion of the fair value discount, the carrying amount of the New Note was $3.5 million as of September 30, 2018.

 

 

5.	Investment in Closely Held Company

 

The Company holds a 5% equity interest in Churchill Downs Holdings Ltd (“Churchill”), a British Virgin Island business company which it received as partial consideration for the sale of substantially all of our assets during first quarter 2018. The equity interest is considered a variable interest in Churchill, which the Company determined to be a variable interest entity (VIE). We concluded that we do not have the power to direct the activities that most significantly impact the economic performance of Churchill, and, therefore, we concluded we are not the primary beneficiary and accordingly have not consolidated Churchill.  The investment in Churchhill is accounted for as investments in equity securities of nonpublic entities without readily determinable fair values, which are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer and totaled $168,000 at September 30, 2018. The Company reviews its equity securities without readily determinable fair values on a regular basis to determine if the investment is impaired. For purposes of this assessment, the Company considers the investee’s cash position, liquidity, earnings and revenue outlook, equity position, and ownership, among other factors, in its review. If management’s assessment indicates that an impairment exists, the Company estimates the fair value of the equity investment and recognizes in current earnings an impairment loss that is equal to the difference between the fair value of the equity investment and its carrying amount.

 

During the three months ended September 30, 2018, the Company determined that the equity investment was impaired and determined the fair value to be zero. The write down amounted to $168,000 and is included in impairment loss in the accompanying consolidated statement of operations. The cumulative amount of the impairment at September 30, 2018 totaled $168,000. In determining the amount of the impairment for 2018, management considered relevant known transactions that occurred on or before the balance sheet date and the different rights and obligations of the securities subject to the impairment assessment. Factors that significantly influenced the determination of the impairment loss included the equity security’s voting rights, priority claims to the equity security, distributions rights and preferences, and the investee’s cash position, liquidity, earnings and revenue outlook.

 

 

6.	Income taxes

 

During the first nine months of 2018, we recorded a non-cash reversal to our valuation allowance of $888,000 decreasing our valuation allowance against deferred tax assets to $8.7 million at September 30, 2018. The primary assets covered by this valuation allowance are net operating losses, which are approximately $33.8 million at September 30, 2018.  The Company did not make any cash payments for income tax in the current three and nine month period ended September 30, 2018 and prior year three and nine month period ended September 30, 2017 due to our net loss. During the current three month period, we recorded a $990,000 income tax benefit resulting from the release of the valuation allowance associated with the Alternative Minimum Tax (“AMT”) credit deferred tax asset. The portion of the AMT credit that is refundable within the next twelve months is $488,000 and is reflected as an “Income tax receivable” on the consolidated balance sheet.  The portion of the credit that is refundable on the 2019, 2020, and 2021 tax returns is $494,000 and is recorded as a deferred tax asset.

 

 

6.	Income taxes (continued)

 

We maintain a valuation allowance against deferred tax assets that currently exceed our deferred tax liabilities. The primary assets covered by this valuation allowance are net operating loss carry-forwards. 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 loss, excluding income from the Continued Dumping and Subsidy Offset Act, 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. 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.

 

As of September 30, 2018, a portion of the AMT credit deferred tax asset is still being analyzed. We have maintained a full valuation allowance on this portion until we conclude the analysis. As of September 30, 2018, the deferred tax asset balance being recognized is $494,000. 

 

Our effective tax rate for the current and prior year three and nine month periods were effectively 0% due to our net loss.

 

 

7.	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 (in thousands):

 

 

In the three month period ended September 30, 2018, approximately 225,000 stock awards were excluded from the diluted per share calculation as they would be anti-dilutive. In the three month period ended September 30, 2017 and both the nine month periods ending September 30, 2018 and September 30, 2017, the dilutive effect of stock options was not recognized due to a net loss in the quarter. Approximately 63,000 shares and 944,000 shares in 2018 and 2017, respectively, were issuable upon the exercise of stock options, which were not included in the diluted per share calculation because they were anti-dilutive. Also, 205,000 shares and 864,000 shares in 2018 and 2017, respectively, of restricted stock were not included because they were anti-dilutive.

 

From time to time, we will repurchase common shares that are tendered by recipients of restricted stock awards to satisfy tax withholding obligations on vested restricted stock. There were no such repurchases during the current three month period.

 

In July 2012, the Board authorized the purchase of up to $5.0 million of our common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, at prices the Company deems appropriate. While in the three month period ended September 30, 2018, we did not repurchase any of our commonshares, total repurchases for the nine month period ended September 30, 2018 were 221,121 shares for $133,000.  No shares were repurchased in the prior year three or nine month period ended September 30, 2017. As of September 30, 2018, we have approximately $2.8 million remaining on this authorization to repurchase our common stock.

 

 

7.	Stockholders’ Equity (continued)

 

A reconciliation of the activity in Stockholders’ Equity accounts for the nine months ended September 30, 2018 is as follows (in thousands):

 

 

Stock compensation expense of $391,000 for the nine months ended September 30, 2018 was related to discontinued operations while $36,000 was related to continuing operations. Dividends of $139,000 for the nine months ended September 30, 2018 were related to discontinued operations.

 

8.	Subsequent Events

 

On November 5, 2018, the Buyer paid off its senior secured lender. With the payoff, Buyer’s senior secured lender released all liens on the Buyer’s assets. Resulting from the payoff, the subordination agreement between Buyer’s senior secured lender and the Company allowed for the Buyer to begin paying the Company interest, which it received for the interest accrued on the A&R Note for month of October 2018.

 

S&L has advised that, since September 6, 2018, it has made principal repayments on its senior secured note of approximately $1 million, and as of November 13, 2018, its senior secured note had a balance of approximately $684,000. S&L has advised that it expects its senior secured note to be fully repaid during the fourth quarter 2018.

 

 

 

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