4.	Subordinated Note s Receivable

The Company received a

$7.4

million subordinated secured promissory note (the “Original Note”) from the Buyer as partial consideration for the sale of substantially all of our assets during the

first

quarter of

2018.

September 6, 2018,

the Buyer sold certain of its assets, including certain inventory and the Stone & Leigh tradename (the “S&L Asset Sale”) to Stone & Leigh, LLC (“S&L”), which is owned by a group which includes Matthew W. Smith, the Company’s former interim Chief Executive Officer. As a part of the S&L Asset Sale, the Buyer assigned to S&L certain of its rights and obligations under the original

$7.4

million subordinated secured promissory note. In connection with the assignment, the Company entered into an Amended and Restated Subordinated Secured promissory note with the Buyer (the “A&R Note”) and a new Subordinated Secured Promissory Note with S&L (the “New Note”).

The A&R Note has a principal amount as of the assignment date of

$3.3

million.

February 7, 2019,

the Company, Buyer and related parties entered into a Consent, Reaffirmation, and Joinder (the “Consent”) in connection with a new senior credit facility that Buyer expected to enter into with Alterna Capital Solutions, LLC (“Alterna”). Pursuant to the Consent, Buyer paid

$180,000

of principal and accrued interest under the A&R Note as provided in the Consent and Buyer delivered a Seconded Amended and Restated Subordinated Secured Promissory Note (the “Second A&R Note”) in favor of the Company. The Second A&R Note has a principal amount of

$3,201,536

and remains payable

later than

March 2, 2023,

at which time the total principal amount is due. Interest on the principal balance of the note continues to accrue daily at an annual fixed rate of

6%.

The other terms of the Second A&R Note are substantially the same as those of the A&R Note. The Second A&R Note also remains guaranteed by Stanley Intermediate Holdings LLC, formerly Churchill Downs Intermediate Holdings LLC. Pursuant to the Consent, Buyer’s British Virgin Island parent company has also guaranteed the Second A&R Note.

February 25, 2019,

Buyer closed and funded its new senior credit facility with Alterna. Pursuant to the Consent, the Company entered into an Intercreditor and Debt Subordination Agreement, dated

February 25, 2019 (

the “Subordination Agreement”), with Alterna. The Subordination Agreement with Alterna is generally on the same terms as the subordination agreement the Company previously entered into with North Mill Capital, LLC in connection with the original subordinated secured promissory note dated

March 2, 2018

from Buyer in favor of the Company, except that principal payments on the Second A&R Note, before satisfaction of the of indebtedness to Alterna and termination of the Subordination Agreement, are conditioned upon (l)

event of default under the new senior credit facility existing or resulting from the payment, (

) availability under the new senior credit facility to make the payment, (

) all tax and debt obligations of Stanley Furniture Company, LLC (“SFC”) being current and within their terms, and (

) there being

delinquency in payables or other obligations of SFC to specified critical vendors. Cash interest payments of

$49,000

were received during the

three

months ending

March 31, 2019.

Also, during the

first

quarter of

2019,

the Company received principal payments on the Second A&R Note of

$197,000.

We evaluated the fair value of the A&R Note at the assignment date. During the

first

quarter

2019,

we recorded accreted interest income on the fair value adjustment of the A&R Note of

$54,000.

Resulting from the accretion of the fair value discount and the principal payments, the carrying value of the A&R Note decreased to

$2.2

million as of

March 31, 2019.

The New Note had a principal amount of

$4.4

million as of the assignment date. The New Note also matures on

March 2, 2023,

at which time the total principal amount is due. Interest on the New Note accrues at a fixed rate of

10%

per annum. Cash interest payments of

$97,000

were received during the

three

months ended

March 31, 2019.

During the

three

months ending

March 31, 2019,

the Company received

$643,000

of principal payments on the New Note.

At the assignment date, we evaluated the fair value of the New Note. We recorded accreted interest income on the fair value adjustment of the New Note of

$49,000.

Resulting from the accretion of the fair value discount and the principal payments, the carrying amount of the New Note was

$2.9

million as of

March 31, 2019.