10-Q

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, 2017

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

STANLEY FURNITURE COMPANY, 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.)

200 North Hamilton Street, No. 200, High Point, North Carolina, 27260
(Address of principal executive offices, Zip Code)

(336-884-7700)

(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 ( ) No (x)

As of November 4, 2017, 15,083,331 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)

	September 30,			December 31,
	2017			2016
	(unaudited)
ASSETS
Current assets:
Cash	$	1,236		$	4,212
Restricted cash		631			663
Accounts receivable, less allowances of $199 and $272, on each respective date		3,865			3,492
Finished goods inventory, net		25,381			22,951
Prepaid expenses and other current assets		806			729
Total current assets		31,919			32,047
Property, plant and equipment, net		1,479			1,606
Other assets		2,665			2,868
Total assets	$	36,063		$	36,521
LIABILITIES
Current liabilities:
Accounts payable	$	6,609		$	5,674
Accrued salaries, wages and benefits		1,102			1,371
Deferred revenue		623			759
Other accrued expenses		678			593
Total current liabilities		9,012			8,397
Deferred compensation		3,928			4,219
Supplemental retirement plan		1,655			1,724
Other long-term liabilities		2,001			2,199
Total liabilities		16,596			16,539
STOCKHOLDERS’ EQUITY
Common stock, $0.02 par value, 25,000,000 shares authorized, 15,083,331 and 14,730,805 shares issued and outstanding on each respective date		275			275
Capital in excess of par value		16,817			16,840
Retained earnings		4,556			5,129
Accumulated other comprehensive loss		(2,181	)		(2,262	)
Total stockholders’ equity		19,467			19,982
Total liabilities and stockholders’ equity	$	36,063		$	36,521

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

2

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 (in thousands, except per share data)

(unaudited)

	Three Months						Nine Months
	Ended						Ended
	Sept. 30,			Oct. 1,			Sept. 30,			Oct. 1,
	2017			2016			2017			2016
Net sales	$	10,427		$	11,036		$	33,231		$	34,772
Cost of sales		8,094			9,201			25,929			28,334
Gross profit		2,333			1,835			7,302			6,438
Selling, general, and administrative expenses		2,673			3,807			8,069			10,626
Operating loss		(340	)		(1,972	)		(767	)		(4,188	)
Other income, net		3			5			25			16
Interest (income) expense, net		-			(6	)		-			103
Loss from operations before taxes		(337	)		(1,961	)		(742	)		(4,275	)
Income tax (benefit) expense		(32	)		119			(35	)		682
Net loss	$	(305	)	$	(2,080	)	$	(707	)	$	(4,957	)
Net loss per share:
Basic	$	(.02	)	$	(.15	)	$	(.05	)	$	(.35	)
Diluted	$	(.02	)	$	(.15	)	$	(.05	)	$	(.35	)
Weighted average shares outstanding:
Basic		14,220			14,094			14,203			14,143
Diluted		14,220			14,094			14,203			14,143

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

3

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three Months						Nine Months
	Ended						Ended
	Sept. 30,			Oct. 1,			Sept. 30,			Oct. 1,
	2017			2016			2017			2016
Net loss	$	(305	)	$	(2,080	)	$	(707	)	$	(4,957	)
Other comprehensive loss:
Amortization of actuarial loss		30			24			81			71
Adjustments to net periodic benefit cost		30			24			81			71
Comprehensive loss	$	(275	)	$	(2,056	)	$	(626	)	$	(4,886	)

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

4

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	Sept. 30,			Oct. 1,
	2017			2016
Cash flows from operating activities:
Cash received from customers	$	32,711		$	36,818
Cash paid to suppliers and employees		(35,659	)		(39,389	)
Interest paid, net		-			(193	)
Income taxes paid		(26	)		(415	)
Net cash used by operating activities		(2,974	)		(3,179	)
Cash flows from investing activities:
Proceeds from surrender of corporate-owned life insurance policies		-			28,139
Purchase of other assets		-			(14	)
Decrease in restricted cash		32			-
Proceeds from sale of property, plant and equipment		25			-
Purchase of property, plant and equipment		(10	)		-
Net cash provided by investing activities		47			28,125
Cash flows from financing activities:
Payment of dividends		(49	)		(17,618	)
Payments on insurance policy loans		-			(5,495	)
Repurchase and retirement of common stock		-			(1,012	)
Stock purchase and retirement for tax withholdings on vesting of restricted awards		-			(14	)
Net cash used by financing activities		(49	)		(24,139	)
Cash flows from discontinued operations:
Cash used by operating activities		-			(11	)
Net cash used by discontinued operations		-			(11	)
Net (decrease) increase in cash		(2,976	)		796
Cash at beginning of period		4,212			6,497
Cash at end of period	$	1,236		$	7,293
Reconciliation of net loss to net cash used by operating activities:
Net loss	$	(707	)	$	(4,957	)
Depreciation and amortization		346			350
Stock-based compensation		(23	)		218
Gain on sale of property, plant and equipment		(16	)		-
Changes in assets and liabilities:
Accounts receivable		(373	)		1,783
Inventories		(2,430	)		(415	)
Prepaid expenses and other assets		(92	)		50
Accounts payable		935			(564	)
Accrued salaries, wages and benefits		(176	)		157
Other accrued expenses		132			68
Other long-term liabilities		(570	)		131
Net cash used by operating activities	$	(2,974	)	$	(3,179	)

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

5

STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 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. 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.

Recent Accounting Pronouncements

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Currently, net benefit cost is reported as an employee cost within operating income (or capitalized into assets where appropriate). The amendment requires the bifurcation of net benefit cost. The service cost component will be presented with the other employee compensation costs in operating income (or capitalized in assets). The other components will be reported separately outside of operations, and will not be eligible for capitalization. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2017. Early adoption will be permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. The guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost (including gains and losses on curtailments and settlements, and termination benefits paid through plans), and on a prospective basis for the capitalization of only the service cost component of net benefit cost. Amounts capitalized into assets prior to the date of adoption should not be adjusted through a cumulative effect adjustment, but should continue to be recognized in the normal course, as for example, inventory is sold or fixed assets are depreciated. The Company has no service cost component in its net benefit cost. The impact of adopting this amendment will be the movement of approximately $330,000 of annual net benefit cost from within operating income to a separate expense outside of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2019, however early application is permitted for reporting periods beginning after December 15, 2018. The Company does not anticipate 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 September 30, 2017, principally relate to real estate for corporate office, showrooms and warehousing. The new standard will be effective for the first quarter of our fiscal year ending December 31, 2019. Early adoption is permitted. We are evaluating the effect that ASU 2016-02 will have on the consolidated financial statements and related disclosures by reviewing all long-term leases and determining the potential impact. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.

6

STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

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

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). The amendments in ASU 2015-11 require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments do not apply to LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost.  The adoption of these amendments in the first quarter of this year had no material impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This standard is intended to improve, and converge with international standards, the financial reporting requirements for revenue from contracts with customers. The new standard will be effective for the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted but we do not expect to early adopt this new accounting pronouncement. In preparation for this new standard, we are identifying all forms of agreements with our customers and will begin to evaluate the provisions in such agreements in light of the five-step model specified by the new guidance. The five-step model includes: 1) determination of whether a contract – an agreement between two or more parties that creates legally enforceable rights and obligations exists; 2) identification of the performance obligations in the contract; 3) determination of the transaction price; 4) allocation of the transaction price to the performance obligations in the contract; and 5) recognition of revenue when (or as) the performance obligation is satisfied. We are also evaluating the impact of the new standard on certain common practices currently employed by us and others in our industry, such as co-operative advertising, pricing allowances and consumer coupons. The Company anticipates adopting the standard using the modified retrospective transition approach.  Under this approach, the new standard would apply to all new contracts initiated on or after January 1, 2018.  For existing contracts that have remaining obligations as of January 1, 2018, any difference between the recognition criteria in the new standard and the Company’s current revenue recognition practices would be recognized using a cumulative effect adjustment to the opening balance of retained earnings.  Any potential effect of adoption of the new standard has not yet been quantified; however, based on the Company’s initial review of contracts to date, the adoption of the new standard is not expected to have a material effect on the timing or amount of revenue recognized as compared to current practices.  The Company continues to evaluate the expanded disclosure requirements associated with Topic 606 and anticipates completing its assessment in the fourth quarter of 2017.

7

STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Liquidity

As of September 30, 2017, and for the nine months ended September 30, 2017, we had approximately $1.2 million in available cash, a net loss of $707,000 and negative cash flow from operations of $3.0 million. The negative cash flow was the result of abnormally high shipments over the last few months from overseas suppliers, which improved stock availability for customers, but which followed prolonged periods of production delays that led to depressed order rates.  As a result, subsequent to the quarter ended September 30, 2017, we have utilized our revolving credit facility from time to time, and through the period ending November 4, 2017 there were additional net cash outflows of approximately $700,000. In November 2017, we obtained a waiver from our lender to eliminate the fixed charge coverage ratio requirement which removes any financial covenant requirements and allows us to borrow on the revolver through October 2018. As of September 30, 2017, our availability was approximately $3.4 million on the line of credit with a maximum availability of $4.0 million, subject to certain reserve adjustments by the bank.  Management has plans to reduce and/or delay operating expenses and utilize our line of credit availability as necessary in order to meet obligations as they become due.

2. Property, Plant and Equipment

	(in thousands)
	Sept. 30,		December 31,
	2017		2016
Machinery and equipment	$	2,620	$	2,675
Leasehold improvements		1,842		1,833
Property, plant and equipment, at cost		4,462		4,508
Less accumulated depreciation		2,983		2,902
Property, plant and equipment, net	$	1,479	$	1,606

3.            Debt

We have a secured $6.0 million revolving credit facility with Wells Fargo Bank, National Association with an excess availability requirement of $2.0 million resulting in maximum borrowings of $4.0 million under the facility, subject to borrowing base eligibility requirements.  The credit facility matures in October 2018 and is secured by our accounts receivable, inventory and certain other assets. Borrowings under the credit facility bear interest at a variable per annum rate equal to the daily three-month London Bank Interbank Offered Rate plus 3.5%.

The credit facility contains covenants that, among other things, limit our ability to incur certain types of debt or liens, pay dividends, enter into mergers and consolidations or use proceeds of borrowing for other than permitted uses.  The credit facility also includes a covenant requiring us to maintain a minimum fixed charge ratio of not less than 1.1 to 1.0 measured annually on a trailing twelve months with an initial compliance date at December 31, 2017.  We obtained a waiver on November 9, 2017 for compliance with this covenant as of December 31, 2017, as long as the aggregate principal outstanding under the credit facility is not greater than $250,000 on December 31, 2017..

At September 30, 2017, and December 31, 2016, no borrowings were outstanding under this revolving credit facility. 

4.            Income taxes

During the first nine months of 2017, we recorded a non-cash charge to our valuation allowance of $141,000 increasing our valuation allowance against deferred tax assets to $12.7 million at September 30, 2017. The primary assets covered by this valuation allowance are net operating losses, which are approximately $21.8 million at September 30, 2017. In the prior year nine months, we utilized $19.7 million of our net operating loss carry-forward against taxable income resulting primarily from our surrender of corporate-owned life insurance policies. The premiums paid and the growth in surrender value of these policies were excludable from taxable income over the life of these policies when held until death of the covered lives, but this growth, net of premiums paid, became taxable when we surrendered the policies. The aggregate impact of the surrender of these policies in the first quarter of last year was the creation of $24.0 million in taxable income. The income tax benefit in the current three and nine month periods was due to state income tax adjustments. In the prior year, the income tax expense associated with the surrender of the corporate-owned life insurance policies was recognized in full during the prior year first quarter and was largely the result of federal alternative minimum tax which limits our ability to offset income generated during the period with net operating carry-forwards, and, to a lesser extent, the impact of surrendering these policies have on state income taxes.

8

STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

4.            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, resulting in no deferred tax asset balance being recognized, 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.

Our effective tax rates for the current three and nine month periods were 9.5% and 4.7% due to state income tax adjustments. The effective tax rate in the prior year three and nine month periods were negative 6.1% and negative 16.0%, respectively, driven by the impact of the alternative minimum tax and state related taxes on the surrender of corporate owned life insurance policies. The major reconciling items between our effective income tax rate and the federal statutory rate are the change in our valuation allowance and, in the prior year period, the cash surrender value on life insurance policies.

 5.           Employee Benefit Plans

Components of other postretirement benefit cost (in thousands):

	ThreeMonths				Nine Months
	Ended				Ended
	Sept. 30,		Oct. 1,		Sept. 30,		Oct. 1,
	2017		2016		2017		2016
Interest cost	$	59	$	64	$	176	$	191
Amortization of actuarial loss		30		24		81		71
Net periodic postretirement benefit cost	$	89	$	88	$	257	$	262

6.            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):

	Three Months				Nine Months
	Ended				Ended
	Sept. 30,		Oct. 1,		Sept. 30,		Oct. 1,
	2017		2016		2017		2016
Weighted average shares outstanding for basic calculation		14,220		14,094		14,203		14,143
Add: Effect of dilutive stock awards		-		-		-		-
Weighted average shares outstanding, adjusted for diluted calculation		14,220		14,094		14,203		14,143

9

STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(unaudited)

6.            Stockholders’ Equity (continued)

In the three and nine month periods ending September 30, 2017 and the three and nine month periods ending October 1, 2016, the dilutive effect of equity awards was not recognized since we had a net loss. Approximately 944,000 shares in the three and nine month periods of 2017 were issuable upon the exercise of stock options. These were not included in the diluted per share calculation because they were anti-dilutive. Also, 864,000 shares of restricted stock were not included in 2017 because they were anti-dilutive. In the three and nine month periods ended October 1, 2016, approximately 1.2 million of stock options and 638,000 shares of restricted stock were excluded from the diluted per share calculation as they would be anti-dilutive.

A reconciliation of the activity in stockholders’ equity accounts for the first nine months ended September 30, 2017 is as follows (in thousands):

									Accumulated
			Capital in						Other
	Common		Excess of			Retained			Comprehensive
	Stock		Par Value			Earnings			Loss
Balance at December 31, 2016	$	275	$	16,840		$	5,129		$	(2,262	)
Net loss		-		-			(707	)		-
Dividend payable adjustment due to restricted share forfeitures		-		-			134			-
Stock-based compensation		-		(23	)		-			-
Adjustment to net periodic benefit cost		-		-			-			81
Balance at September 30, 2017	$	275	$	16,817		$	4,556		$	(2,181	)

10

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three Months Ended September 31, 2017 compared to Three Months Ended July 1, 2017, April 1, 2017 and December 31, 2016

The following table sets forth the percentage relationship to net sales of certain items included in the consolidated statements of operations and results for the sequential three month periods. We have disclosed a quarterly comparison of our operating results on a sequential basis and plan to continue throughout the current year because we believe that this information is meaningful as we begin to recover from sourcing issues inhibiting sales growth:

	Three Months Ended
	Sept 30,			July 1,			April 1,			Dec 31,
	2017			2017			2017			2016
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		77.6			76.5			80.0			79.9
Gross profit		22.4			23.5			20.0			20.1
Selling, general and administrative expenses		25.7			23.6			23.7			34.2
Operating loss		(3.3	)		(.1	)		(3.7	)		(14.1	)
CDSOA income		-			-			-			11.3
Other income, net		.1			.2			-			.1
(Loss) Income from operations before income taxes		(3.2	)		.1			(3.7	)		(2.7	)
Income tax (benefit) expense		(.3	)		-			-			.4
Net (loss) income		(2.9	)%		.1	%		(3.7	)%		(3.1	)%

Net sales of $10.4 million for the three month period ended September 30, 2017, decreased 10.2% from $11.6 million in the second quarter of 2017 and declined 6.8% from $11.2 million in the first quarter of 2017. Net sales for the three month period ended September 30, 2017 increased 6.4% from $9.8 million in the fourth quarter of 2016. Net sales declined compared to the sequential second and first quarters of 2017 due to lower unit volume. During the current quarter, customer orders were impacted by the lack of confidence in our product availability due to prolonged delays and the uncertainty surrounding major hurricanes. With the current stock availability positions significantly improved as the third quarter ended, we expect our customers to begin to regain confidence in our brand. Over 90% of the company’s product lines are in stock or in transit from overseas suppliers and over 80% of orders entered within the last 30 days have been ready for shipment to customers in less than two days. Compared to the sequential quarter ending December 31, 2016, net sales increased primarily due to higher unit volume resulting from servicing backlog on product introductions which were delayed by sourcing issues in the prior year.

Gross profit as a percentage of net sales for the third quarter of 2017 declined to 22.4% from 23.5% in the second quarter of 2017, but increased from 20.0% and 20.1% in the first quarter of 2017 and the fourth quarter of 2016, respectively. Gross profit percentage declined slightly from the sequential second quarter of 2017 due to higher discounting. Gross profit percentage improved over the sequential first quarter of 2017 and fourth quarter of 2016 primarily due to lower discounting. Margins may decline in the fourth quarter of 2017 as efforts are made to lower excess inventory levels through increased discounting.

Selling, general and administrative expense for the third quarter was $2.7 million, essentially flat with the second and first quarters of 2017 and down 20% compared to $3.4 million in the fourth quarter of 2016. Compared to the sequential fourth quarter of 2016, selling, general and administrative expenses in the third quarter of 2017 declined mostly due to cost reductions implemented early in 2017 and lower equity compensation expense.

As a result, the third quarter of 2017 had an operating loss as a percentage of sales of 3.3%. This compared with breakeven results in the second quarter of 2017, and operating losses as a percentage of net sales of 3.7% for the sequential period ending April 1, 2017 and 14.1% for the sequential period ending December 31, 2016, respectively.

11

During the fourth quarter of 2016, we received $1.1 million in funds under the CDSOA. No CDSOA proceeds have been received in the 2017 periods, but we do expect to receive approximately $369,000 in the fourth quarter of 2017.

Three and Nine Months Ended September 30, 2017 compared to Three Months and Nine Months Ended October 1, 2016

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

	Three Months Ended						Nine Months Ended
	Sept. 30,			Oct. 1,			Sept. 30,			Oct. 1,
	2017			2016			2017			2016
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		77.6			83.4			78.0			81.5
Gross profit		22.4			16.6			22.0			18.5
Selling, general and administrative expenses		25.7			34.5			24.3			30.5
Operating loss		(3.3	)		(17.9	)		(2.3	)		(12.0	)
Other income, net		.1			-			.1			-
Interest (income) expense, net		-			(.1	)		-			.3
Loss from operations before income taxes		(3.2	)		(17.8	)		(2.2	)		(12.3	)
Income tax (benefit) expense		(.3	)		1.1			(.1	)		2.0
Net loss		(2.9	)%		(18.9	)%		(2.1	)%		(14.3	)%

Net sales of $10.4 million for the three month period ended September 30, 2017 decreased 5.5%, compared to the 2016 three month period. For the nine month period ended September 30, 2017, net sales decreased 4.4%, from the comparable 2016 period. The decrease in both periods was due to lower unit volume, partially offset by higher average selling prices. Higher average selling prices are the result of aggressive discounting in the prior year periods to move older discontinued product and to generate inline product orders until newer more marketable product was received.

Gross profit for the current three month period improved to $2.3 million, or 22.4% of net sales, from $1.8 million, or 16.6% of net sales, for the comparable three months of 2016. Gross profit for the current nine month period improved to $7.3 million, or 22.0% of net sales, from $6.4 million, or 18.5% of net sales, for the comparable nine months of 2016. The increase in gross profit margins in both the current three and nine month periods was driven by lower discounting.

Selling, general and administrative expenses for the three and nine month periods of 2017 were $2.7 million and $8.1 million, or 25.7% and 24.3% of net sales, respectively, compared to $3.8 million and $10.6 million, or 34.5% and 30.5% of net sales, in the comparable 2016 periods. Expenditures for the current three and nine month periods declined due primarily to cost reduction actions taken at the beginning of the year to reduce our break-even level, lower marketing and advertising costs and, to a lesser extent, lower equity compensation expenses for performance awards and separated associates.

As a result, operating loss as a percentage of net sales was 3.3% for the current three month period compared to 17.9% of net sales in the prior three month period. An operating loss of 2.3% of net sales for the current nine month period compared to a loss of 12.0% of net sales in the prior year nine month period.

Interest expense for the nine month period of 2016 included $109,000 of interest on loans against cash surrender value of insurance policies used to fund our legacy deferred compensation plan. The elimination of this expense was due to surrendering these policies and paying off loans against the cash surrender value in the first quarter of 2016.

Our effective tax rate for the current three and nine month periods resulted from state income tax adjustments. The effective tax rate for the three and nine month periods in the prior year were negative 6.1% and negative 16.0%, respectively. As indicated above, we surrendered our corporate-owned life insurance policies during the first quarter of 2016, which resulted in taxable income for the period. The premiums paid and the growth in surrender value of these policies were excludable from taxable income over the life of these polices when held until death of the covered lives, but this growth, net of premiums paid, became taxable when we surrendered the policies. The aggregate impact of the surrender of these policies in the first quarter of last year was the creation of $24.0 million in taxable income which was recognized in the prior year first quarter. The income tax expense recognized during the third quarter of 2016 was the result of additional alternative minimum tax liability associated with surrendering these policies and state income taxes. The major reconciling items between our effective income tax rate and the federal statutory rate are the change in our valuation allowance and, in the prior year periods, the cash surrender value on life insurance policies.

12

The license agreement with Coastal Living® magazine will not be renewed. Initially launched in 2009, successive collections throughout each of the license's multiple terms have remained a popular portion of the company's product offering.  Under the terms of this license agreement, we can continue to sell designs currently sold under the licensed brand name until the beginning of the fourth quarter of 2018, after which these designs remain the intellectual property of the company. We expect to utilize our design leadership and reputation to introduce new product within this lifestyle-driven category to mitigate potential lost volume associated with the ending of this license agreement.

Financial Condition, Liquidity and Capital Resources

Sources of liquidity include cash on hand, cash generated from operations and the revolving credit facility. While we believe that our business strategy 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 and borrowings under the revolving credit facility to be adequate for ongoing operational and capital expenditures for the next twelve months.  As of September 30, 2017, and for the nine months ended September 30, 2017, we had approximately $1.2 million in available cash, a net loss of $707,000 and negative cash flow from operations of $3.0 million. The negative cash flow was the result of abnormally high shipments over the last few months from overseas suppliers, which improved stock availability for customers, but which followed prolonged periods of production delays that led to depressed order rates.    As a result, subsequent to the quarter ended September 30, 2017, we have utilized our revolving credit facility from time to time and through the period ending November 4, 2017 there were additional net cash outflows of approximately $700,000. Management believes this is a short-term strain on cash levels.   However, in November 2017, we obtained a waiver from our lender to eliminate the fixed charge coverage ratio requirement which removes any financial covenant requirements and allows us to borrow on the revolver through October 2018. As of September 30, 2017, our availability was approximately $3.4 million on the line of credit with a maximum availability of $4.0 million, subject to certain reserve adjustments by the bank.  Management has plans to reduce and/or delay operating expenses and utilize our line of credit availability as necessary in order to meet obligations as they become due.

Working capital, excluding cash and restricted cash, increased to $21.0 million at September 30, 2017 from $18.8 million on December 31, 2016. The increase was primarily the result of a $2.4 million increase in inventories due to abnormally high shipments from overseas vendors, including newer introductions that were previously delayed.

Cash used by operations was $3.0 million in the current nine months of 2017 compared to cash used by operations of $3.2 million in the comparable prior year period. The use of cash in the current period was driven by increasing shipments from overseas vendors and current year operating losses. We expect inventory levels to decline as we service customers who have been waiting for confirmation of an in-stock position on newer introductions and as we continue to move excess inventory through discounting. Use of cash from operations in the 2016 period also resulted from operating losses and, interest and tax payments related to the corporate-owned life insurance policies surrendered in the first quarter of 2016. Partially offsetting the use of cash during the 2016 period was a decline in accounts receivable balances. The current period and the prior year period included approximately $450,000 in annual payments to participants in our legacy deferred compensation plan.

Cash generated from investing activities in the first nine months of 2017 included proceeds from sale of property, plant and equipment and the reduction in restricted cash, partially offset by a miscellaneous purchase of property, plant and equipment. In the prior year period, cash generated from investing activities consisted of $28.1 million in proceeds from the surrender of corporate-owned life insurance policies.

In the first nine months of 2017, $49,000 of cash was used by financing activities to pay dividends on restricted stock that vested during the period. Net cash used by financing activities in the prior year nine months was $24.1 million and consisted of $17.6 million for a special dividend, $5.5 million to pay off the remaining outstanding life insurance policy loans in conjunction with our decision to surrender these corporate-owned life insurance policies and $1.0 million for the repurchase and retirement of 400,000 shares of our common stock.

Continued Dumping and Subsidy Offset Act (“CDSOA”)

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

13

In November 2016, Customs distributed $3.3 million in collected duties that were available for distribution in 2016. Our portion of this distribution was $1.1 million, representing 33.5% of the balance available for distribution in 2016. As of April 30, 2017, Customs preliminarily reported that approximately $1.1 million is potentially available for distribution under the CDSOA during the fourth quarter of calendar year 2017 to eligible domestic manufacturers regarding the case involving bedroom furniture imported from China. The final amounts available for distribution may be higher or lower than the preliminary amounts reported due to liquidations, reliquidations, protests, and other events affecting entries that may take place before the end of the government’s fiscal year. Assuming that our percentage allocation in 2017 is the same as it was for the 2016 distribution (approximately 33.5% of the funds distributed) and that the $1.1 million collected by the government as of April 30, 2017 does not change, we could receive approximately $369,000 in CDSOA funds in the fourth quarter of 2017.

Due to the uncertainty of the administrative processes, we cannot provide assurances as to future amounts 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 March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Currently, net benefit cost is reported as an employee cost within operating income (or capitalized into assets where appropriate). The amendment requires the bifurcation of net benefit cost. The service cost component will be presented with the other employee compensation costs in operating income (or capitalized in assets). The other components will be reported separately outside of operations, and will not be eligible for capitalization. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2017. Early adoption will be permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. The guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost (including gains and losses on curtailments and settlements, and termination benefits paid through plans), and on a prospective basis for the capitalization of only the service cost component of net benefit cost. Amounts capitalized into assets prior to the date of adoption should not be adjusted through a cumulative effect adjustment, but should continue to be recognized in the normal course, as for example, inventory is sold or fixed assets are depreciated. The Company has no service cost component in its net benefit cost. The impact of adopting this amendment will be the movement of approximately $330,000 of annual net benefit cost from within operating income to a separate expense outside of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2019, however early application is permitted for reporting periods beginning after December 15, 2018. The Company does not anticipate 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 September 30, 2017, principally relate to real estate for corporate office, showrooms and warehousing.  The new standard will be effective for the first quarter of our fiscal year ending December 31, 2019. Early adoption is permitted. We are evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and disclosures by reviewing all long-term leases and determining the potential impact. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.

14

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

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

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). The amendments in ASU 2015-11 require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments do not apply to LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost.  The adoption of these amendments in the first quarter of this year had no material impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This standard is intended to improve, and converge with international standards, the financial reporting requirements for revenue from contracts with customers. The new standard will be effective for the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted but we do not expect to early adopt this new accounting pronouncement. In preparation for this new standard, we are identifying all forms of agreements with our customers and will begin to evaluate the provisions in such agreements in light of the five-step model specified by the new guidance. The five-step model includes: 1) determination of whether a contract – an agreement between two or more parties that creates legally enforceable rights and obligations exists; 2) identification of the performance obligations in the contract; 3) determination of the transaction price; 4) allocation of the transaction price to the performance obligations in the contract; and 5) recognition of revenue when (or as) the performance obligation is satisfied. We are also evaluating the impact of the new standard on certain common practices currently employed by us and others in our industry, such as co-operative advertising, pricing allowances and consumer coupons. The Company anticipates adopting the standard using the modified retrospective transition approach.  Under this approach, the new standard would apply to all new contracts initiated on or after January 1, 2018.  For existing contracts that have remaining obligations as of January 1, 2018, any difference between the recognition criteria in the new standard and the Company’s current revenue recognition practices would be recognized using a cumulative effect adjustment to the opening balance of retained earnings.  Any potential effect of adoption of the new standard has not yet been quantified; however, based on the Company’s initial review of contracts to date, the adoption of the new standard is not expected to have a material effect on the timing or amount of revenue recognized as compared to current practices.  The Company continues to evaluate the expanded disclosure requirements associated with Topic 606 and anticipates completing its assessment in the fourth quarter of 2017.

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 2016 Annual Report on Form 10-K.

15

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, the inability to raise prices in response to inflation and increasing costs, lower sales due to worsening of current economic conditions, lost sales due to the non-renewal of the Coastal Living® license, 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, and failure or interruption of our information technology infrastructure. 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.

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 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.

16

Part II. OTHER INFORMATION

ITEM 6. Exhibits

3.1	Restated Certificate of Incorporation of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q (Commission File No. 0-14938) for the quarter ended July 2, 2005).
3.2	By-laws of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed December 17, 2015).
31.1	Certification by Glenn Prillaman, our Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
31.2	Certification by Anita W. Wimmer, our Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
32.1	Certification of Glenn Prillaman, our Chief Executive Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
32.2	Certification of Anita W. Wimmer, our Principal Financial Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
101	The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in Extensible Business Reporting Language (“XBRL”): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) condensed consolidated statements of comprehensive (loss) income, (iv) condensed consolidated statements of cash flows, (v) the notes to the consolidated financial statements, and (vi) document and entity information. (1)

(1)     Filed herewith

17

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.

Date: November 13, 2017	STANLEY FURNITURE COMPANY, INC.
	By: /s/ Anita W. Wimmer
	Anita W. Wimmer
	Principal Financial and Accounting Officer

18

EX-31.1

Exhibit 31.1

I, Glenn Prillaman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Stanley Furniture Company, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2017	By: /s/ Glenn Prillaman
	Glenn Prillaman
	Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Anita W. Wimmer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Stanley Furniture Company, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2017	By: /s/ Anita W. Wimmer
	Anita W. Wimmer
	Principal Financial and Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Stanley Furniture Company, Inc. (the “Company”) Quarterly Report on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Glenn Prillaman, Chief Executive Officer of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2017	By: /s/ Glenn Prillaman
	Glenn Prillaman
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Stanley Furniture Company, Inc. (the “Company”) Quarterly Report on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anita W. Wimmer, Principal Financial Officer of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2017	By: /s/ Anita W. Wimmer
	Anita W. Wimmer
	Principal Financial and Accounting Officer

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 04, 2017
Document Information [Line Items]
Entity Registrant Name	STANLEY FURNITURE CO INC.
Entity Central Index Key	0000797465
Trading Symbol	stly
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		15,083,331
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
ASSETS
Cash	$ 1,236	$ 4,212
Restricted cash	631	663
Accounts receivable, less allowances of $199 and $272, on each respective date	3,865	3,492
Finished goods inventory, net	25,381	22,951
Prepaid expenses and other current assets	806	729
Total current assets	31,919	32,047
Property, plant and equipment, net	1,479	1,606
Other assets	2,665	2,868
Total assets	36,063	36,521
LIABILITIES
Accounts payable	6,609	5,674
Accrued salaries, wages and benefits	1,102	1,371
Deferred revenue	623	759
Other accrued expenses	678	593
Total current liabilities	9,012	8,397
Deferred compensation	3,928	4,219
Supplemental retirement plan	1,655	1,724
Other long-term liabilities	2,001	2,199
Total liabilities	16,596	16,539
STOCKHOLDERS’ EQUITY
Common stock, $0.02 par value, 25,000,000 shares authorized, 15,083,331 and 14,730,805 shares issued and outstanding on each respective date	275	275
Capital in excess of par value	16,817	16,840
Retained earnings	4,556	5,129
Accumulated other comprehensive loss	(2,181)	(2,262)
Total stockholders’ equity	19,467	19,982
Total liabilities and stockholders’ equity	$ 36,063	$ 36,521

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Account receivable, allowances	$ 199	$ 272
Common stock, par value (in dollars per share)	$ 0.02	$ 0.02
Common stock, shares authorized (in shares)	25,000,000	25,000,000
Common stock, shares issued (in shares)	15,083,331	14,730,805
Common stock, shares outstanding (in shares)	15,083,331	14,730,805

XML

Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Net sales	$ 10,427,000	$ 11,036,000	$ 33,231,000	$ 34,772,000
Cost of sales	8,094,000	9,201,000	25,929,000	28,334,000
Gross profit	2,333,000	1,835,000	7,302,000	6,438,000
Selling, general, and administrative expenses	2,673,000	3,807,000	8,069,000	10,626,000
Operating loss	(340,000)	(1,972,000)	(767,000)	(4,188,000)
Other income, net	3,000	5,000	25,000	16,000
Interest (income) expense, net		(6,000)		103,000
Loss from operations before taxes	(337,000)	(1,961,000)	(742,000)	(4,275,000)
Income tax (benefit) expense	(32,000)	119,000	(35,000)	682,000
Net loss	$ (305,000)	$ (2,080,000)	$ (707,000)	$ (4,957,000)
Net loss per share:
Basic (in dollars per share)	$ (0.02)	$ (0.15)	$ (0.05)	$ (0.35)
Diluted (in dollars per share)	$ (0.02)	$ (0.15)	$ (0.05)	$ (0.35)
Weighted average shares outstanding:
Basic (in shares)	14,220	14,094	14,203	14,143
Diluted (in shares)	14,220	14,094	14,203	14,143

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Net loss	$ (305,000)	$ (2,080,000)	$ (707,000)	$ (4,957,000)
Other comprehensive loss:
Amortization of actuarial loss	30,000	24,000	81,000	71,000
Adjustments to net periodic benefit cost	30,000	24,000	81,000	71,000
Comprehensive loss	$ (275,000)	$ (2,056,000)	$ (626,000)	$ (4,886,000)

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016
Cash flows from operating activities:
Cash received from customers	$ 32,711,000	$ 36,818,000
Cash paid to suppliers and employees	(35,659,000)	(39,389,000)
Interest paid, net		(193,000)
Income taxes paid	(26,000)	(415,000)
Net cash used by operating activities	(2,974,000)	(3,179,000)
Cash flows from investing activities:
Proceeds from surrender of corporate-owned life insurance policies		28,139,000
Purchase of other assets		(14,000)
Decrease in restricted cash	32,000
Proceeds from sale of property, plant and equipment	25,000
Purchase of property, plant and equipment	(10,000)
Net cash provided by investing activities	47,000	28,125,000
Cash flows from financing activities:
Payment of dividends	(49,000)	(17,618,000)
Payments on insurance policy loans		(5,495,000)
Repurchase and retirement of common stock		(1,012,000)
Stock purchase and retirement for tax withholdings on vesting of restricted awards		(14,000)
Net cash used by financing activities	(49,000)	(24,139,000)
Cash flows from discontinued operations:
Cash used by operating activities		(11,000)
Net cash used by discontinued operations		(11,000)
Net (decrease) increase in cash	(2,976,000)	796,000
Cash at beginning of period	4,212,000	6,497,000
Cash at end of period	1,236,000	7,293,000
Reconciliation of net loss to net cash used by operating activities:
Net loss	(707,000)	(4,957,000)
Depreciation and amortization	346,000	350,000
Stock-based compensation	(23,000)	218,000
Gain on sale of property, plant and equipment	(16,000)
Changes in assets and liabilities:
Accounts receivable	(373,000)	1,783,000
Inventories	(2,430,000)	(415,000)
Prepaid expenses and other assets	(92,000)	50,000
Accounts payable	935,000	(564,000)
Accrued salaries, wages and benefits	(176,000)	157,000
Other accrued expenses	132,000	68,000
Other long-term liabilities	(570,000)	131,000
Net cash used by operating activities	$ (2,974,000)	$ (3,179,000)

XML

Note 1 - Preparation of Interim Unaudited Consolidated Financial Statements

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

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. 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.

Recent Accounting Pronouncements

In

March 2017,

the FASB issued ASU

2017

-

07,

Compensation – Retirement Benefits (Topic

715

): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

. Currently, net benefit cost is reported as an employee cost within operating income (or capitalized into assets where appropriate). The amendment requires the bifurcation of net benefit cost. The service cost component will be presented with the other employee compensation costs in operating income (or capitalized in assets). The other components will be reported separately outside of operations, and will

not

be eligible for capitalization. The amendment is effective for public entities for annual reporting periods beginning after

December 15, 2017.

Early adoption will be permitted as of the beginning of an annual reporting period for which financial statements have

not

been issued or made available for issuance. The guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost (including gains and losses on curtailments and settlements, and termination benefits paid through plans), and on a prospective basis for the capitalization of only the service cost component of net benefit cost. Amounts capitalized into assets prior to the date of adoption should

not

be adjusted through a cumulative effect adjustment, but should continue to be recognized in the normal course, as for example, inventory is sold or fixed assets are depreciated. The Company has

no

service cost component in its net benefit cost. The impact of adopting this amendment will be the movement of approximately

$330,000

of annual net benefit cost from within operating income to a separate expense outside of operations.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments – Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

(“ASU

2016

-

13”

). The amendments in ASU

2016

-

13

require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU

2016

-

13

amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after

December 15, 2019,

however early application is permitted for reporting periods beginning after

December 15, 2018.

The Company does

not

anticipate 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

September 30, 2017,

principally relate to real estate for corporate office, showrooms and warehousing.

The new standard will be effective for the

first

quarter of our fiscal year ending

December 31, 2019.

Early adoption is permitted. We are evaluating the effect that ASU

2016

-

02

will have on the consolidated financial statements and related disclosures by reviewing all long-term leases and determining the potential impact. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.

In

March 2016,

the FASB issued ASU

2016

-

09,

Improvements to Employee Share-Based Payment Accounting

(“ASU

2016

-

09”

). The amendments in ASU

2016

-

09

simplify several aspects of the accounting for share-based payment transactions. The new guidance requires that excess tax benefits (which represent the excess of actual tax benefits receive at the date of vesting or settlement over the benefits recognized over the vesting period or upon issuance of share-based payments) be recorded in the income statement as a reduction of income or income taxes when the awards vest or are settled. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. The adoption of these amendments in the

first

quarter of this year had

no

material impact on the Company’s financial statements. The Company has elected to maintain its practice of estimating forfeitures when recognizing expense for share-based payment awards.

In

August 2016,

FASB issued ASU

2016

-

15,

Statement of Cash Flows

(Topic

230

). The guidance is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard will be effective for the

first

quarter of our fiscal year ending

December 31, 2018.

Early adoption is permitted, provided all amendments are adopted in the same period. In

November 2016,

FASB issued ASU

2016

-

18,

Statement of Cash Flows

(Topic

230

)

: Restricted

Cash

. We have reviewed the standard and determined that our statement of cash flows will include changes in restricted cash with related disclosures. The guidance requires application using a retrospective transition method. We do

not

anticipate ASU

2016

-

15

or ASU

2016

-

18

to have a material impact to our consolidated financial statements.

In

July 2015,

the FASB issued ASU

2015

-

11,

Inventory (Topic

330

): Simplifying the Measurement of Inventory

(“ASU

2015

-

11”

). The amendments in ASU

2015

-

11

require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in,

first

-out (“LIFO”) or the retail inventory method. The amendments do

not

apply to LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using

first

-in,

first

-out (“FIFO”) or average cost.  The adoption of these amendments in the

first

quarter of this year had

no

material impact on the Company’s financial statements.

In

May 2014,

the FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers (Topic

606

).

This standard is intended to improve, and converge with international standards, the financial reporting requirements for revenue from contracts with customers. The new standard will be effective for the

first

quarter of our fiscal year ending

December 31, 2018.

Early adoption is permitted but we do

not

expect to early adopt this new accounting pronouncement. In preparation for this new standard, we are identifying all forms of agreements with our customers and will begin to evaluate the provisions in such agreements in light of the

five

-step model specified by the new guidance. The

five

-step model includes:

1

) determination of whether a contract – an agreement between

two

or more parties that creates legally enforceable rights and obligations exists;

2

) identification of the performance obligations in the contract;

3

) determination of the transaction price;

4

) allocation of the transaction price to the performance obligations in the contract; and

5

) recognition of revenue when (or as) the performance obligation is satisfied. We are also evaluating the impact of the new standard on certain common practices currently employed by us and others in our industry, such as co-operative advertising, pricing allowances and consumer coupons. 

The Company anticipates adopting the standard using the modified retrospective transition approach.

  Under this approach, the new standard would apply to all new contracts initiated on or after

January 1, 2018. 

For existing contracts that have remaining obligations as of

January 1, 2018,

any difference between the recognition criteria in the new standard and the Company

’

s current revenue recognition practices would be recognized using a cumulative effect adjustment to the opening balance of retained earnings.  Any potential effect of adoption of the new standard has

not

yet been quantified; however, based on the Company

’s initial review of contracts to date, the adoption of the new standard is

not

expected to have a material effect on the timing or amount of revenue recognized as compared to current practices.  The Company continues to evaluate the expanded disclosure requirements associated with Topic

606

and anticipates completing its assessment in the

fourth

quarter of

2017.

Liquidity

As of

September 30, 2017,

and for the

nine

months ended

September 30, 2017,

we had approximately

$1.2

million in available cash, a net loss of

$707,000

and negative cash flow from operations of

$3.0

million. The negative cash flow was the result of abnorma

lly high shipments over the last few months from overseas suppliers, which improved stock availability for customers, but which followed prolonged periods of production delays that led to depressed order rates.  As a result, subsequent to the quarter ended

September 30, 2017,

we have utilized our revolving credit facility from time to time, and through the period ending

November 4, 2017

there were additional net cash outflows of approximately

$700,000.

In

November 2017,

we obtained a waiver from our lender to eliminate the fixed charge coverage ratio requirement which removes any financial covenant requirements and allows us to borrow on the revolver through

October 2018.

As of

September 30, 2017,

our availability was approximately

$3.4

million on the line of credit with a maximum availability of

$4.0

million, subject to certain reserve adjustments by the bank.  Management has plans to reduce and/or delay operating expenses and utilize our line of credit availability as necessary in order to meet obligations as they become due.

XML

Note 2 - Property, Plant and Equipment

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

2. Property, Plant and Equipment

	(in thousands)
	Sept. 30 ,		December 31,
	201 7		201 6
Machinery and equipment	$	2,620	$	2,675
Leasehold improvements		1,842		1,833
Property, plant and equipment, at cost		4,462		4,508
Less accumulated depreciation		2,983		2,902
Property, plant and equipment, net	$	1,479	$	1,606

XML

Note 3 - Debt

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

3.

            Debt

We have

a secured

$6.0

million revolving credit facility with Wells Fargo Bank, National Association with an excess availability requirement of

$2.0

million resulting in maximum borrowings of

$4.0

million under the facility, subject to borrowing base eligibility requirements.  The credit facility matures in

October 2018

and is secured by our accounts receivable, inventory and certain other assets. Borrowings under the credit facility bear interest at a variable per annum rate equal to the daily

three

-month London Bank Interbank Offered Rate plus

3.5%.

The credit facility contains covenants that, among other things, limit our ability to incur certain types of debt or liens, pay dividends, enter into mergers and consolidations or use proceeds of borrowing for other than permitted uses.

  The credit facility also includes a covenant requiring us to maintain a minimum fixed charge ratio of

not

less than

1.1

to

1.0

measured annually on a trailing

twelve

months with an initial compliance date at

December 31, 2017.  

We obtained a waiver on

November 9, 2017

for compliance with this covenant as of

December 31, 2017

,

as long as the aggregate principal outstanding under the credit facility is

not

greater than

$250,000

on

December 31, 2017.

.

At

September 30, 2017,

and

December 31, 2016,

no

borrowings were outstanding under this revolving credit facility. 

XML

Note 4 - Income Taxes

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

4.

            Income taxes

During the

first

nine

months of

2017,

we recorded a non-cash charge to our valuation allowance of

$141,000

increasing our valuation allowance against deferred tax assets to

$12.7

million at

September 30, 2017.

The primary assets covered by this valuation allowance are net operating losses, which are approximately

$21.8

million at

September 30, 2017.

In the prior year

nine

months, we utilized

$19.7

million of our net operating loss carry-forward against taxable income resulting primarily from our surrender of corporate-owned life insurance policies. The premiums paid and the growth in surrender value of these policies were excludable from taxable income over the life of these policies when held until death of the covered lives, but this growth, net of premiums paid, became taxable when we surrendered the policies. The aggregate impact of the surrender of these policies in the

first

quarter of last year was the creation of

$24.0

million in taxable income. The income tax benefit in the current

three

and

nine

month periods was due to state income tax adjustments. In the prior year, the income tax expense associated with the surrender of the corporate-owned life insurance policies was recognized in full during the prior year

first

quarter and was largely the result of federal alternative minimum tax which limits our ability to offset income generated during the period with net operating carry-forwards, and, to a lesser extent, the impact of surrendering these policies have on state income taxes.

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, resulting in

no

deferred tax asset balance being recognized, 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.

Our effective tax rate

s for the current

three

and

nine

month periods were

9.5%

and

4.7%

due to state income tax adjustments. The effective tax rate in the prior year

three

and

nine

month periods were negative

6.1%

and negative

16.0%,

respectively, driven by the impact of the alternative minimum tax and state related taxes on the surrender of corporate owned life insurance policies. The major reconciling items between our effective income tax rate and the federal statutory rate are the change in our valuation allowance and, in the prior year period, the cash surrender value on life insurance policies.

XML

Note 5 - Employee Benefit Plans

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

 

5.

           Employee Benefit Plans

Components of other postretirement benefit cost

(in thousands):

	Three Months				Nine Months
	Ended				Ended
	Sept. 30 ,		Oct. 1 ,		Sept. 30 ,		Oct. 1 ,
	201 7		201 6		201 7		201 6
Interest cost	$	59	$	64	$	176	$	191
Amortization of actuarial loss		30		24		81		71
Net p eriodic postretirement benefit cost	$	89	$	88	$	257	$	262

XML

Note 6 - Stockholders' Equity

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

6

.

            

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):

	Three Months				Nine Months
	Ended				Ended
	Sept. 30 ,		Oct. 1 ,		Sept. 30 ,		Oct. 1 ,
	201 7		201 6		201 7		201 6
Weighted average shares outstanding for basic calculation		14,220		14,094		14,203		14,143
Add: Effect of dilutive stock awards		-		-		-		-
Weighted average shares outstanding, adjusted for diluted calculation		14,220		14,094		14,203		14,143

In the

three

and

nine

month periods ending

September 30, 2017

and the

three

and

nine

month periods ending

October 1, 2016,

the dilutive effect of equity awards was

not

recognized since we had a net loss. Approximately

944,000

shares in the

three

and

nine

month periods of

2017

were issuable upon the exercise of stock options. These were

not

included in the diluted per share calculation because they were anti-dilutive. Also,

864,000

shares of restricted stock were

not

included in

2017

because they were anti-dilutive. In the

three

and

nine

month periods ended

October 1, 2016,

approximately

1.2

million of stock options and

638,000

shares of restricted stock were excluded from the diluted per share calculation as they would be anti-dilutive.

A reconciliation of the activity in

stockholders’ equity accounts for the

first

nine

months ended

September 30, 2017

is as follows (in thousands):

									Accumulated
			Capital in						Other
	Common		Excess of			Retained			Comprehensive
	Stock		Par Value			Earnings			Loss
Balance at December 31, 2016	$	275	$	16,840		$	5,129		$	(2,262	)
Net loss		-		-			(707	)		-
Dividend payable adjustment due to restricted share forfeitures		-		-			134			-
Stock-based compensation		-		(23	)		-			-
Adjustment to net periodic benefit cost		-		-			-			81
Balance at September 30, 2017	$	275	$	16,817		$	4,556		$	(2,181	)

XML

Note 2 - Property, Plant and Equipment (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Property, Plant and Equipment [Table Text Block]

	(in thousands)
	Sept. 30 ,		December 31,
	201 7		201 6
Machinery and equipment	$	2,620	$	2,675
Leasehold improvements		1,842		1,833
Property, plant and equipment, at cost		4,462		4,508
Less accumulated depreciation		2,983		2,902
Property, plant and equipment, net	$	1,479	$	1,606

XML

Note 5 - Employee Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Three Months				Nine Months
	Ended				Ended
	Sept. 30 ,		Oct. 1 ,		Sept. 30 ,		Oct. 1 ,
	201 7		201 6		201 7		201 6
Interest cost	$	59	$	64	$	176	$	191
Amortization of actuarial loss		30		24		81		71
Net p eriodic postretirement benefit cost	$	89	$	88	$	257	$	262

XML

Note 6 - Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months				Nine Months
	Ended				Ended
	Sept. 30 ,		Oct. 1 ,		Sept. 30 ,		Oct. 1 ,
	201 7		201 6		201 7		201 6
Weighted average shares outstanding for basic calculation		14,220		14,094		14,203		14,143
Add: Effect of dilutive stock awards		-		-		-		-
Weighted average shares outstanding, adjusted for diluted calculation		14,220		14,094		14,203		14,143

Schedule of Stockholders Equity [Table Text Block]

									Accumulated
			Capital in						Other
	Common		Excess of			Retained			Comprehensive
	Stock		Par Value			Earnings			Loss
Balance at December 31, 2016	$	275	$	16,840		$	5,129		$	(2,262	)
Net loss		-		-			(707	)		-
Dividend payable adjustment due to restricted share forfeitures		-		-			134			-
Stock-based compensation		-		(23	)		-			-
Adjustment to net periodic benefit cost		-		-			-			81
Balance at September 30, 2017	$	275	$	16,817		$	4,556		$	(2,181	)

XML

Note 1 - Preparation of Interim Unaudited Consolidated Financial Statements (Details Textual) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
	Nov. 04, 2017	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan, Service Cost				$ 0
Defined Benefit Plan, Net Periodic Benefit Cost (Credit)		$ 89,000	$ 88,000	257,000	$ 262,000
Cash		1,236,000	7,293,000	1,236,000	7,293,000	$ 4,212,000	$ 6,497,000
Net Income (Loss) Attributable to Parent		(305,000)	$ (2,080,000)	(707,000)	(4,957,000)
Net Cash Provided by (Used in) Operating Activities, Continuing Operations				(2,974,000)	$ (3,179,000)
Revolving Credit Facility [Member] | Wells Fargo [Member]
Line of Credit Facility, Remaining Borrowing Capacity		3,400,000		3,400,000
Line of Credit Facility, Current Borrowing Capacity		$ 4,000,000		4,000,000
Subsequent Event [Member]
Net Cash Provided by (Used in) Operating Activities	$ (700,000)
Accounting Standards Update 2017-07 [Member] | New Accounting Pronouncement, Early Adoption, Effect [Member]
Defined Benefit Plan, Net Periodic Benefit Cost (Credit)				$ 330,000

XML

Note 2 - Property, Plant and Equipment - Summary of Property, Plant and Equipment (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Property, plant and equipment, gross	$ 4,462	$ 4,508
Less accumulated depreciation	2,983	2,902
Property, plant and equipment, net	1,479	1,606
Machinery and Equipment [Member]
Property, plant and equipment, gross	2,620	2,675
Leasehold Improvements [Member]
Property, plant and equipment, gross	$ 1,842	$ 1,833

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Note 3 - Debt (Details Textual) - Revolving Credit Facility [Member] - Wells Fargo [Member]	9 Months Ended
	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Line of Credit Facility, Maximum Borrowing Capacity	$ 6,000,000
Line of Credit Facility, Excess Availability Requirement	2,000,000
Line of Credit Facility, Current Borrowing Capacity	$ 4,000,000
Line of Credit Facility, Covenant, Minimum Fixed Charge Ratio	1.1
Line of Credit Facility, Covenant Term	1 year
Long-term Line of Credit	$ 0		$ 0
Scenario, Forecast [Member]
Line of Credit Facility, Covenant Compliance, Maximum Outstanding Amount		$ 250,000
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	3.50%

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Note 4 - Income Taxes (Details Textual) - USD ($)	3 Months Ended			9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Apr. 02, 2016	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2016
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount				$ 141,000
Deferred Tax Assets, Valuation Allowance	$ 12,700,000			12,700,000
Operating Loss Carryforwards	$ 21,800,000			$ 21,800,000		$ 19,700,000
Taxable Income from Surrender of Policies			$ 24,000,000
Effective Income Tax Rate Reconciliation, Percent	9.50%	(6.10%)		4.70%	(16.00%)

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Note 5 - Employee Benefit Plans - Components of Other Post-retirement Benefit Cost (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Interest cost	$ 59	$ 64	$ 176	$ 191
Amortization of actuarial loss	30	24	81	71
Net periodic postretirement benefit cost	$ 89	$ 88	$ 257	$ 262

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Note 6 - Stockholders' Equity (Details Textual) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	944,000	1,200,000	944,000
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount			864,000	638,000

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Note 6 - Stockholders' Equity - Basic and Diluted Earnings Per Share Calculation (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Weighted average shares outstanding for basic calculation (in shares)	14,220	14,094	14,203	14,143
Add: Effect of dilutive stock awards (in shares)
Weighted average shares outstanding, adjusted for diluted calculation (in shares)	14,220	14,094	14,203	14,143

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Note 6 - Stockholders' Equity - Reconciliation of Activity in Stockholders' Equity Accounts (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Balance			$ 19,982,000
Net loss	$ (305,000)	$ (2,080,000)	(707,000)	$ (4,957,000)
Adjustment to net periodic benefit cost	30,000	$ 24,000	81,000	$ 71,000
Balance	19,467,000		19,467,000
Common Stock [Member]
Balance			275,000
Net loss
Dividend payable adjustment due to restricted share forfeitures
Stock-based compensation
Adjustment to net periodic benefit cost
Balance	275,000		275,000
Additional Paid-in Capital [Member]
Balance			16,840,000
Net loss
Dividend payable adjustment due to restricted share forfeitures
Stock-based compensation			(23,000)
Adjustment to net periodic benefit cost
Balance	16,817,000		16,817,000
Retained Earnings [Member]
Balance			5,129,000
Net loss			(707,000)
Dividend payable adjustment due to restricted share forfeitures			134,000
Stock-based compensation
Adjustment to net periodic benefit cost
Balance	4,556,000		4,556,000
AOCI Attributable to Parent [Member]
Balance			(2,262,000)
Net loss
Dividend payable adjustment due to restricted share forfeitures
Stock-based compensation
Adjustment to net periodic benefit cost			81,000
Balance	$ (2,181,000)		$ (2,181,000)