What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-17 compared with 2020-03-30 · 238 added, 271 removed, 567 unchanged (47% of the section changed)

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AUDITED FINANCIAL STATEMENTS OF LEGACY HOUSING CORPORATION

Reports of Independent Registered Public Accounting Firms

Report of Independent Registered Public Accounting Firms

Balance Sheets as of December 31, 2020 and 2019

Statements of Operations for the Years Ended December 31, 2020 and 2019

Statements of Changes in Stockholders’

Equity for the Years Ended December 31, 2019 and 2018

Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020 and 2019

Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

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Opinion on the financial statements

We have audited the accompanying balance sheet of Legacy Housing Corporation (the Company) as of December 31, 2019, and the related statements of operations, changes in stockholders’

equity and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying balance sheets of Legacy Housing Corporation (the Company) as of December 31, 2020 and 2019, the related statements of operations, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We have served as the Company’s auditor since 2019.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion .

We have served as the Company’s auditor since 2019.

Dallas, Texas

March 17, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

LEGACY HOUSING CORPORATION

Opinion on the financial statements

We have audited the accompanying balance sheet of Legacy Housing Corporation (a Delaware corporation) (the “Company”) as of December 31, 2018, and the related statements of operations, changes in stockholders’

equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We served as the Company’s auditor from 2018 to 2019.

Dallas, Texas

April 9, 2019

LEGACY HOUSING CORPORATION

BALANCE SHEETS (in thousands, except share data)

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Current portion of consumer loans

Current portion of notes receivable from mobile home parks (“MHP”)

Current portion of other notes receivable

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Consumer loans, net of deferred financing fees and allowance for loan losses

Notes receivable from mobile home parks (“MHP”)

Other notes receivable, net of allowance for loan losses

Inventory non‑current

Inventory non ‑ current

Liabilities and Stockholders' Equity

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Line of credit

Current portion of notes payable

Total current liabilities

Long‑term liabilities:

Long ‑ term liabilities:

Lines of credit

Deferred income taxes

Note payable, net of current portion

Accrued liabilities, net of current portion

Dealer incentive liability

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Common stock, $.001 par value, 90,000,000 shares authorized;

24,620,079 and 24,000,000 issued and 24,320,079 and 24,000,000 outstanding at December 31, 2019 and 2018, respectively

Treasury stock at cost, 300,000 and -0- shares at December 31, 2019 and 2018, respectively

24,639,125 and 24,620,079 issued and 24,194,060 and 24,320,079 outstanding at December 31, 2020 and December 31, 2019, respectively

Treasury stock at cost, 445,065 and 300,000 shares at December 31, 2020 and December 31, 2019, respectively

Additional paid-in-capital

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Other income (expense):

Non‑operating interest income

Miscellaneous, net

Gain on settlement, net

Interest expense

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LEGACY HOUSING CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS’

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Total Partners’

paid-in-capital

Balances, December 31, 2018

Shares issued upon incorporation

Sale of common stock in initial public offering, net of offering costs of $4,504

Balances, December 31, 2018

Sale of over-allotment common stock in initial public offering, net of offering costs of $505

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Balances, December 31, 2019

Share based compensation expense and stock units vested

Purchase of treasury stock

Balances, December 31, 2020

See accompanying notes to financial statements

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Depreciation expense

Provision for loan loss—consumer loans

Deferred income taxes

Share based payment expense

Gain on sale of land

Changes in operating assets and liabilities:

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Dealer incentive liability

Net cash provided by (used in) operating activities

Net cash used in operating activities

Investing activities:

Purchases of property, plant and equipment

Proceeds from sale of land

Issuance of notes receivable

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Financing activities:

Proceeds from sale of common stock in initial public offering

Offering cost for initial public offering

Proceeds from sale of over-allotment common stock in initial public offering

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Treasury stock purchase

Escrow liability, net

Principal payments on affiliate note payable

Proceeds from issuance of note payable

Principal payments on note payable

Proceeds from lines of credit

Escrow liability, net

Proceeds from lines of credit, net

Payments on lines of credit

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Cash paid for taxes

Supplemental disclosure of non‑cash transactions:

Supplemental disclosure of non ‑ cash transactions:

Note receivable received in exchange of asset

Asset received in exchange of accounts receivable

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NATURE OF OPERATIONS

Legacy Housing Corporation (the “Company”) was formed on January 1, 2018 as a Delaware corporation through a corporate conversion of Legacy Housing, Ltd., (the “Partnership”) a Texas limited partnership formed in May 2005.

Effective December 31, 2019, the Company converted from a Delaware corporation to a Texas corporation.

Effective December 31, 2019, the Company reincorporated from a Delaware corporation to a Texas corporation.

The Company is headquartered in Bedford, Texas.

The Company (1) manufactures and provides for the transport of mobile homes, (2) provides wholesale financing to dealers and mobile home parks and (3) provides retail financing to consumers.

The Company (1) manufactures and provides for the transport of mobile homes, (2) provides wholesale financing to dealers and mobile home parks and (3) provides retail financing to consumers and (4) is involved in financing and developing new manufactured home communities.

The Company manufactures its mobile homes at plants located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia.

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The Company also sells homes directly to dealers and mobile home parks.

In December 2018, the Company sold 4,000,000 shares of its common stock through an initial public offering (“IPO”) at $12.00 per share.

Proceeds from the IPO, net of $4,504 of underwriting discounts and offering expenses paid by the Company, were $43,492.

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Proceeds from the January 2019 issuance, net of $505 of underwriting discounts and offering expenses paid by the Company, were $6,695.

On April 17, 2019, the Company purchased 300,000 shares of its common stock at the price of $10.20 per share, pursuant to the Company’s repurchase program.

During the year ended December 31, 2020, the Company purchased 145,065 shares of its common stock at an average price of $9.77 per share, pursuant to the Company’s repurchase program.

Under the repurchase program, the Company may purchase up to $10,000 of its common stock.

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The financial statements of the Company have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Use of Estimates

The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions.

These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period.

Material estimates that are susceptible to significant change in the near term primarily relate to the determination of accounts receivable, consumer loans and notes receivable, inventory

LEGACY HOUSING CORPORATION

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(Dollars in thousands, except per share amounts)

obsolescence, income taxes, fair value of financial instruments and contingent liabilities.

expenses during the reporting period.

Material estimates that are susceptible to significant change in the near term primarily relate to the determination of accounts receivable, loans to mobile home parks, consumer loans and notes receivable, inventory obsolescence, income taxes, fair value of financial instruments and contingent liabilities.

Actual results could differ from these estimates.

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The Company has one reportable segment.

All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others.

For example, the sale of manufactured homes is done through wholesale and retail operations that include providing transportation and consignment arrangements with dealers.

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Accounts outstanding longer than the contractual payment terms are considered past due.

The Company determines the allowance by considering several factors, including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history.

The Company establishes an allowance for doubtful accounts for amounts that are deemed to be uncollectible.

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Consumer loans receivable result from financing transactions entered into with retail consumers of mobile homes sold through independent retailers and company-owned retail locations.

Consumer loans receivable generally consist of the sales price and any additional financing fees, less the buyer’s down payment.

Interest income is recognized monthly per the terms of the financing agreements.

The average contractual interest rate per loan was approximately 14.0% as of December 31, 2019 and 2018.

The average contractual interest rate per loan was approximately 13.8% as of December 31, 2020 and 14.0% as of December 31, 2019.

Consumer loans receivable have maturities that range from 2 to 30 years.

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Interest rates on approved loans are determined based on consumer credit score, payment ability and down payment amount.

The Company uses payment history to monitor the credit quality of the consumer loans on an ongoing basis.

LEGACY HOUSING CORPORATION

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(Dollars in thousands, except per share amounts)

The Company uses payment history to monitor the credit quality of the consumer loans on an ongoing basis.

The Company may also receive escrow payments for property taxes and insurance included in its consumer loan collections.

The liabilities associated with these escrow collections totaled $7,729 and $7,530 as of December 31, 2020 and 2019, respectively, and are included in escrow liability in the balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

The allowance for loan losses reflects management’s estimate of losses inherent in the consumer loans that may be uncollectible based upon review and evaluation of the consumer loan portfolio as of the date of the balance sheet.

Allowance for Loan Losses—Consumer Loans Receivable

An allowance for loan losses is determined after giving consideration to, among other things, the loan characteristics, including the financial condition of borrowers, the value and liquidity of collateral, delinquency and historical loss experience.

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the general reserve and specific reserves.

The Company’s calculation of the general reserve considers the historical loss rate for the last three years, adjusted for the estimated loss discovery period and any qualitative factors both internal and external to the Company.

Specific reserves are determined based on probable losses on specific classified impaired loans.

The Company’s policy is to place a loan on nonaccrual status when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is normally when either principal or interest is past due and remains unpaid for more than 90 days.

Management implemented this policy based on an analysis of historical data, current performance of loans and the likelihood of recovery once principal or interest payments became delinquent and were aged more than 90 days.

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Notes Receivable from Mobile Home Parks

The notes receivable from mobile home parks (“MHP Notes”

or “Notes”) relate to mobile homes sold to mobile home parks and financed through notes receivable.

The notes receivable from mobile home parks (“MHP Notes” or “Notes”) relate to mobile homes sold to mobile home parks and financed through notes receivable.

The Notes have varying maturity dates and call for monthly principal and interest payments.

The interest rate on the MHP Notes are typically set at 4.0% above prime with a minimum of 8.0%.

The interest rate on the MHP Notes can be fixed or variable.

Approximately $109 million of the Notes have a fixed interest rate ranging from 5.0% to 9.5%.

The remaining Notes have a variable rate typically set at 4.0% above prime with a minimum of 8.0%.

The average interest rate per loan was approximately 7.7% and 8.7% as of December 31, 2020 and 2019, respectively with maturities that range from 1 to 20 years.

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The MHP Notes are generally personally guaranteed by the borrowers with substantial financial resources.

The Company had concentrations of MHP Notes with an independent third-party and its affiliates that equaled 38.3% and 8.1% of the principal balance outstanding, all of which was secured, as of December 31, 2019 and 2018, respectively.

Allowance for Loan Losses—MHP Notes

The Company had concentrations of MHP Notes with an independent third-party and its affiliates that equaled 52.9% and 38.3% of the principal balance outstanding, all of which was secured by the mobile homes, as of December 31, 2020 and 2019, respectively.

Allowance for Loan Losses—MHP Notes

MHP Notes are stated at amounts due from customers, net of allowance for loan losses.

The Company determines the allowance by considering several factors including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history.

The Company establishes an allowance reserve composed of specific and general reserve amounts.

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Other Notes Receivable

Other notes receivable relate to various notes issued to mobile park owners and dealers, which are not directly tied to sale of mobile homes.

Other notes receivable relate to various notes issued to mobile home park owners and dealers, which are not directly tied to sale of mobile homes.

The other notes have varying maturity dates and call for monthly principal and interest payments.

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The interest rate on the other notes are fixed and range from 6.25% to 12.00%.

The Company reserves for estimated losses on the other notes based on current economic conditions that may affect the borrower’s ability to pay, the borrower’s financial strength, and historical loss experience.

As of December 31, 2020 and 2019, the allowance for loan losses on other notes was $75 and $74, respectively.

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For the periods ending, December 31, 2020 and 2019, the Company recorded an insignificant amount of inventory write-down.

The Company evaluates inventory based on historical experience to estimate its inventory not expected to be sold in less than a year.

The Company classifies its inventory not expected to be sold in one year as non‑current.

As of December 31, 2019 and 2018, non‑current inventory was $11,930 and $7,399, respectively.

LEGACY HOUSING CORPORATION

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(Dollars in thousands, except per share amounts)

The Company evaluates inventory based on historical experience to estimate its inventory not expected to be sold in less than a year.

The Company classifies its inventory not expected to be sold in one year as non-current.

As of December 31, 2020 and 2019, non-current inventory was $8,656 and $11,930, respectively.

Property, Plant, and Equipment

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In such cases, if the future undiscounted cash flows of the underlying assets are less than the carrying amount, then the carrying amount of the long-lived asset will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying asset or its determinable fair value.

No impairment for long‑lived assets was recorded for the years ended December 31, 2019 or 2018.

No impairment for long-lived assets was recorded for the years ended December 31, 2020 and 2019.

Dealer Incentive Liability

Under a dealer agreement with qualifying independent retailers, a portfolio is created for houses sold by the independent retailer with consumer loan arrangements financed by the Company.

The independent retailer is eligible to a receive dealer incentive, which is a portion of total collections expected on a consumer loan portfolio after the Company’s contribution (collection thresholds set per the terms of dealer agreement which includes Legacy’s initial contribution, plus an allocation of interest and other agreed upon periodic fees) is met.

A dealer incentive liability is recorded in the Company’s balance sheet based on total outstanding balance of individual dealer loan portfolios at period end, less the remaining portion of the Company’s contribution in respective portfolios.

As of December 31, 2020 and 2019, the dealer incentive liability was $4,242 and $5,531, respectively.

Dealer incentive expense for the years ended December 31, 2019 and 2018 totaled $731 and $829, respectively, and is included in the Company’s statements of operations.

Dealer incentive expense for the years ended December 31, 2020 and 2019 totaled $336 and $731, respectively, and is included in the Company’s statements of operations.

Product Warranties

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Factors used to determine the warranty liability include the number of homes under warranty and the historical costs incurred in servicing the warranties.

The accrued warranty liability is reduced as costs are incurred and warranty liability balance is included as part of accrued liabilities in the Company’s balance sheet.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

A tabular presentation of the activity within the warranty liability account for the years ended December 31, 2020 and 2019 is presented below:

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Warranty liability, end of period

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

Advertising Costs

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If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability.

Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

The asset or liability fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company uses derivatives to manage risks related to interest rate movements.

The Company has used derivatives to manage risks related to interest rate movements.

The Company does not enter into derivative contracts for speculative purposes.

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Management reviewed the fair values for the instruments as provided by the lender and determined the related asset and liability to be an accurate estimate of future gains and losses to the Company.

The fair values of the interest rate swap were valued at an $3 asset as of December 31, 2019 and an $80 asset as of December 31, 2018.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, consumer loans, MHP Notes, other notes, accounts payable, lines of credit, notes payable, and dealer portion of consumer loans.

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values because of the short‑term maturities or expected settlement dates of these instruments.

This is considered a Level I valuation technique.

The MHP Notes, other notes, lines of credit, and notes payable have variable interest rates that reflect market rates and their fair value approximates their carrying value.

This is considered a Level II valuation technique.

The Company also assessed the fair value of the consumer loans receivable based on the discounted value of the remaining principal and interest cash flows.

The Company determined that the fair value of the consumer loan portfolio was approximately $119,000 compared to the book value of $105,042 as of December 31, 2019, and a fair

The fair value of the interest rate swap was valued as an $3 asset as of December 31, 2019.

This interest rate swap agreement matured on May 11, 2020.

LEGACY HOUSING CORPORATION

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(Dollars in thousands, except per share amounts)

value of approximately $109,000 compared to the book value of $97,175 as of December 31, 2018.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values because of the short-term maturities or expected settlement dates of these instruments.

This is considered a Level I valuation technique.

The lines of credit, notes payable and part of the MHP Notes have variable interest rates that reflect market rates and their fair value approximates their carrying value.

This is considered a Level II valuation technique.

The Company also assessed the fair value of the consumer loans receivable, the fixed rate MHP Notes and the other notes based on the discounted value of the remaining principal and interest cash flows.

The Company determined that the fair value of the consumer loan portfolio was approximately $115,000 compared to the book value of $111,742 as of December 31, 2020, and a fair value of approximately $101,000 compared to the book value of $105,042 as of December 31, 2019.

The Company determined that the fair value of the fixed rate MHP Notes was approximately $108,000 compared to the book value of $109,806 as of December 31, 2020, and a fair value of approximately $85,000 compared to the book value of $86,881 as of December 31, 2019.

The Company determined that the fair value of the other notes was approximately $15,000 compared to the book value of $15,104 as of December 31, 2020, and a fair value of approximately $14,000 compared to the book value of $13,478 as of December 31, 2019.

This is a Level III valuation technique.

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The adoption did not have a significant impact on the consolidated operating results, financial position or cash flows of the Company.

The Company’s evaluation of ASU 2014-09 impact on primary revenue streams are as follows:

Product sales, primarily consist of sales of mobile homes to consumers and mobile home parks through various sales channels, which include Direct Sales, Commercial Sales, Consignment Sales, and Retail Store Sales.

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Consignment Sales are considered sales of consigned homes from independent dealers to individual customers.

Retail Store Sales are homes sold through Company-owned retail locations.

Retail Store Sales are homes

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

sold through Company-owned retail locations.

Consignment Sales and Retail Sales of homes may be financed by the Company, by a third party, or in paid in cash.

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The Company made an accounting policy election to account for any shipping and handling costs that occur after the transfer of control as a fulfillment cost that is accrued when control is transferred.

Warranty obligations associated with the sale of a unit are assurance-type warranties for a period of twelve months that are a guarantee of the home’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

The Company has elected to use the practical expedient to expense the incremental costs of obtaining a contract if the amortization period of the asset that the Company would have otherwise recognized is one year or less.

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Consignment fees are charged to independent retailers on a monthly basis for homes held by the independent retailers pursuant to a consignment arrangement until the home is sold to an individual customer.

Consignment fees are determined as a percentage of the home’s wholesale price to the independent dealer.

Revenue recognition for consignment fees are recognized over time using the output method as it provides a faithful depiction of the Company’s performance toward completion of the performance obligation under the contract and the value transferred to the independent retailer for the time the home is held under consignment.

Consignment fees are determined as a percentage of the home’s wholesale price to the independent dealer.

Revenue for service fees and miscellaneous income is recognized at a point in time when the performance obligation is satisfied.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

Disaggregation of Revenue .

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In accordance with customary business practice in the manufactured housing industry, the Company has entered into certain repurchase agreements with certain financial institutions and other credit sources who provide floor plan financing to industry retailers, which provided that the Company will be obligated, under certain circumstances, to repurchase homes sold to retailers in the event of a default by a retailer in its obligation to such credit sources.

The Company’s obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer.

The Company applies ASC 460, Guarantees and ASC 450‑20, Loss Contingencies , to account for its liability for

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

repurchase commitments.

The Company’s obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer.

The Company applies ASC 460, Guarantees and ASC 450-20, Loss Contingencies , to account for its liability for repurchase commitments.

The Company considers its current obligations on current contracts to be immaterial and accordingly have not recorded any reserve for repurchase commitments as of December 31, 2020 and 2019.

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Share-Based Compensation

The Company accounts for share-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation .

Share-based compensation expense is recognized based on the award’s estimated grant date fair value in order to recognize compensation cost for those shares expected to vest.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

The Company accounts for share-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation .

Share-based compensation expense is recognized based on the award’s estimated grant date fair value in order to recognize compensation cost for those shares expected to vest.

The Company has elected to record forfeitures as they occur.

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The fair value of each option grant with only service-based conditions is estimated using the Black-Scholes pricing model.

The fair value of each restricted stock unit (the ”RSU”) is calculated based on the closing price of the Company’s common stock on the grant date.

The fair value of stock option awards on the date of grant is estimated using the Black-Scholes option pricing model, which requires the Company to make certain predictive assumptions.

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therefore, management estimated volatility based on the historical volatilities of a small group of companies considered as close to comparable to the Company as available, all equally weighted, over the expected life of the option.

Management concluded that this group is more characteristic of the Company’s business than a broad industry index.

The expected life of awards granted represents the period of time that the awards are expected to be outstanding based on the “simplified”

method, which is allowed for companies that cannot reasonably estimate the expected life of options based on its historical award exercise experience.

Management concluded that this group is more characteristic of the Company’s business than a broad industry index.

The expected life of awards granted represents the period of time that the awards are expected to be outstanding based on the “simplified” method, which is allowed for companies that cannot reasonably estimate the expected life of options based on its historical award exercise experience.

The Company does not expect to pay dividends on its common stock.

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Rather, the tax liability with respect to its taxable income was passed through to its partners.

Accordingly, prior to the corporate conversion, the Partnership only recorded

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

a provision for Texas franchise tax as the Partnership’s taxable income was included in the income tax returns of the individual partners.

Accordingly, prior to the corporate conversion, the Partnership only recorded a provision for Texas franchise tax as the Partnership’s taxable income was included in the income tax returns of the individual partners.

Income tax expense for the Company is recognized for the tax effects of the transactions reported in the financial statements and consist of taxes currently due, plus deferred taxes.

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In addition, management does not believe there are any unrecorded deferred tax liabilities that are material to the financial statements.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

In December 2017, a comprehensive U.S.

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Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions.

The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more‑likely‑than‑not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities.

The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities.

When facts and circumstances change, the Company reassesses these probabilities and records any changes through the provision for income taxes.

The Company recognizes interest and penalties relating to uncertain tax provisions as a component of tax expense.

For the periods presented, management has determined there are no material uncertain tax positions.

There are no open tax years for the Company and 2018 was the first filing year as a corporation.

For the periods presented, management has determined there are no material uncertain tax positions which was performed for the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2020, which includes the tax years 2018 and 2019.

Concentrations

4 unchanged sentences

The MHP Notes personal guarantor may cover multiple parks and each park is treated as a customer.

A s of December 31, 2019 and 2018, the Company had concentrations of MHP Notes with an independent third-party and its affiliates that equaled 38.3% and 8.1%, respectively of the principal balance outstanding, all of which was secured.

As of December 31, 2020 and 2019, the Company had concentrations of MHP Notes with an independent third-party and its affiliates that equaled 52.9% and 38.3%, respectively of the principal balance outstanding, all of which was secured.

Recent Accounting Pronouncements

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A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and an asset representing its right to use the underlying asset for the lease term.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous requirements.

The Company plans to use longer phase‑in period for adoption and accordingly this ASU is effective for the Company’s fiscal year beginning January 1, 2021.

The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous requirements.

The Company plans to use longer phase-in period for adoption and accordingly this ASU is effective for the Company’s fiscal year beginning January 1, 2022.

Modified retrospective application and early adoption is permitted.

1 unchanged sentence

While the Company is continuing to assess all the effects of adoption, it currently believes the most significant effects relate to (i) the recognition of new right-of-use assets and lease liabilities on its balance sheet for its property and equipment operating leases and (ii) providing significant new disclosures about its leasing activities.

In June 2016, the FASB issued an accounting standards update ASU 2016‑13 Financial Instruments—Credit Losses (Topic 326):

In June 2016, the FASB issued an accounting standards update ASU 2016-13 Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.

1 unchanged sentence

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.

For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write‑down and affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down and affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.

The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The Company plans to use longer phase‑in period for adoption and accordingly this ASU is effective for the Company’s fiscal year beginning January 1, 2023.

The Company plans to use longer phase-in period for adoption and accordingly this ASU is effective for the Company’s fiscal year beginning January 1, 2023.

The Company is continuing to evaluate the impact of the adoption of this ASU and is uncertain of the impact on the financial statements and disclosures at this point in time.

In March 2017, the FASB issued ASU 2017‑08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310‑20), Premium Amortization on Purchased Callable Debt Securities (“ASU 2017‑08”), which requires the premium on callable debt securities to be amortized to the earliest call date as opposed to the contractual life of the security.

ASU 2017‑08 will be effective beginning with the first quarter of the Company’s fiscal year 2020.

Adoption of this guidance will not have a material impact on the financial statements and disclosures.

From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted by the Company as of the specified effective dates.

Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s Financial Statements upon adoption.

CONSUMER LOANS RECEIVABLE

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Consumer loans receivable, net

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

The following table presents a detail of the activity in the allowance for loan losses for the years ended December 31, 2020 and 2019:

9 unchanged sentences

General allowance for loan losses

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

A detailed aging of consumer loans receivable that are past due as of December 31, 2020 were as follows:

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Total past due

NOTES RECEIVABLE FROM MOBILE HOME PARKS (“MHP Notes”)

MHP Notes are stated at amounts due from customers, net of allowance for loan losses.

The Company determines the allowance by considering several factors including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history.

The Company establishes an allowance reserve composed of specific and general reserve amounts.

As of December 31, 2020 and 2019, the MHP Note balance is presented net of unamortized finance fees of $0.2 million and $0, respectively.

The finance fees are amortized over the life of the Notes.

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Allowance for loan loss is considered immaterial and accordingly no loss is recorded against the MHP Notes as of December 31, 2020 and 2019.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

Other Notes Receivable

6 unchanged sentences

Finished goods

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

PROPERTY, PLANT AND EQUIPMENT

8 unchanged sentences

Leased property

Repossessed loans

Depreciation expense for leased property was $85 for the year ended December 31, 2019.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

Repossessed homes

Depreciation expense for leased property was $199 and $85 for the years ended December 31, 2020 and 2019, respectively.

ACCRUED LIABILITIES

4 unchanged sentences

Accrued expenses & other accrued liabilities

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

Lines of Credit

The Company has a revolving line of credit (“Revolver 1”) with Capital One, N.A.

with a maximum credit limit of $45,000 as of December 31, 2019.

On May 12, 2017, Revolver 1 was amended to extend the maturity date to May 11, 2020 and increase the maximum borrowing availability to $45,000.

For the years ended December 31, 2019 and 2018, Revolver 1 accrued interest at one-month LIBOR plus 2.40%.

The interest rates in effect as of December 31, 2019 and 2018 were 4.09% and 4.78%, respectively.

Amounts available under Revolver 1 are subject to a formula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable and a percentage of the consumer loans receivable and MHP Notes.

The amount of available credit under Revolver 1 was $16,140 and $41,321 at December 31, 2019 and 2018, respectively.

The Company was in compliance with all required covenants as of December 31, 2019.

For the years ended December 31, 2019 and 2018, interest expense was $396 and $1,701, respectively.

At December 31, 2019, the Company had a revolving line of credit (“Revolver 1”) with Capital One, N.A.

with a maximum credit limit of $45,000 and a maturity date of May 11, 2020.

On March 30, 2020, the Company entered into an agreement with Capital One, N.A.

to replace Revolver 1 with a new revolving line of credit (“New Revolver”).

The New Revolver has a maximum credit limit of $70,000 and a maturity date of March 30, 2024.

For the period January 1, 2020 through March 30, 2020 and for the year ended December 31, 2019, Revolver 1 accrued interest at one-month LIBOR plus 2.40%.

The interest rate in effect as of December 31, 2019 was 4.09%.

Amounts available under Revolver 1 were subject to a formula based on eligible consumer loans and MHP Notes and were secured by all accounts receivable and the consumer loans receivable and MHP Notes.

The amount of available credit under Revolver 1 was $16,140 as of December 31, 2019.

The New Revolver accrues interest at one-month LIBOR plus 2.00%.

The interest rate in effect as of December 31, 2020 was 2.15%.

As with Revolver 1, amounts available under the New Revolver are subject to a formula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable and the consumer loans receivable and MHP Notes.

The amount of available credit under the New Revolver was $33,826 as of December 31, 2020.

In connection with the New Revolver, we paid certain arrangement fees and other fees of approximately $0.3 million, which were capitalized as unamortized debt issuance costs and will be amortized to interest expense over the life of the New Revolver.

For the years ended December 31, 2020 and 2019, interest expense under the Capital One Revolvers was $1,020 and $396, respectively.

The outstanding balance as of December 31, 2020 and 2019 was $36,174 and $28,860, respectively.

The Company was in compliance with the other financial covenants that it maintain a tangible net worth of at least $90,000 and that it maintain a ratio of debt to EBITDA of 4 to 1 or less.

The Company has negotiated a new credit agreement with Capital One, N.A.

that will replace, expand, and extend our credit availability.

Management expects to close and execute the new agreement in the near future.

In April 2016, the Company entered into an agreement with Veritex Community Bank to secure an additional revolving line of credit of $15,000 (“Revolver 2”).

The Company was in compliance with all financial covenants as of December 31, 2020, including that it maintain a tangible net worth of at least $120,000 and that it maintain a ratio of debt to EBITDA of 4 to 1, or less.

In April 2016, the Company entered into an agreement with Veritex Community Bank to secure an additional revolving line of credit of $15,000 (“Revolver 2”).

Revolver 2 accrues interest at one-month LIBOR plus 2.50% and all unpaid principal and interest is due at maturity on April 4, 2021.

1 unchanged sentence

Amounts available under Revolver 2 are subject to a formula based on eligible inventory.

The interest rates in effect as of December 31, 2019 and 2018 were 4.19% and 4.85%, respectively.

The interest rates in effect as of March 31, 2020 and December 31, 2019 were 4.17% and 4.19%, respectively.

On May 12, 2017, the Company entered into an agreement to increase the line of credit to $20,000.

On October 15, 2018, Revolver 2 was amended to extend the maturity date from April 4, 2019 to April 4, 2021.

The amount of available credit under Revolver 2 was $11,262 and $9,906 at December 31, 2019 and 2018, respectively.

The Company was in compliance with all required covenants as of December 31, 2019.

The amount of available credit under Revolver 2 was $12,028 and $11,262 at March 31, 2020 and December 31, 2019, respectively.

The Company was in compliance with all required covenants as of March 31, 2020.

For the years ended December 31, 2020 and 2019, interest expense was $17 and $131, respectively.

The outstanding balance as of December 31, 2019 and 2018 was $2,001 and $10,000.

The outstanding balance as of March 31, 2020 and December 31, 2019 was $2,001.

The Company was in compliance with the other financial covenants that it maintain a tangible net worth of at least $80,000.

In April 2020, this note was paid in full and the facility was terminated.

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

On April 10, 2020, the Company entered into a loan with Peoples Bank as the lender in an aggregate principal amount of $6,545,700 (the “Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act.

The Loan was evidenced by a promissory note (the “Note”) dated April 10, 2020 and had a maturity date of April 10, 2022.

The Note had an interest rate of 1.00% per annum, with the first six months of interest deferred.

Principal and interest were payable monthly commencing on November 10, 2020 and could be prepaid by the Company at any time prior to maturity with no prepayment penalties.

On May 1, 2020, this loan was paid in full.

Notes Payable

2 unchanged sentences

On April 7, 2018, the promissory note with Woodhaven Bank was renewed with varying amounts of principal and interest due through the maturity date, April 7, 2033.

The promissory note calls for monthly payments of $30 with a final payment due at maturity.

The interest rates in effect at December 31, 2019 and 2018 were 4.25% and 4.25%, respectively.

The promissory note calls for an interest rate of 4.25% and monthly payments of $30 with a final payment due at maturity.

The note is secured by certain real property of the Company.

Interest expense was $135 and $159 for the years ended December 31, 2019 and 2018, respectively.

The balance outstanding on the note payable at December 31, 2018 was $3,552.

Interest expense was $135 and for the year ended December 31, 2019.

In October 2019, this note was paid in full.

2 unchanged sentences

The promissory note calls for monthly principal and interest payments of $6 until June 1, 2026.

Interest expense was $1 and $26 for the years ended December 31, 2019 and 2018, respectively.

The balance outstanding on the note payable at December 31, 2018 was $414.

Interest expense was $1 for the year ended December 31, 2019.

In January 2019, this note was paid in full.

Note Payable to an Affiliate

On February 2, 2016, the Company entered into a $1,500 note payable agreement with stated annual interest rates of 3.75% with a related party through common ownership.

The note was due on demand.

Interest paid on the note payable was $47 for the year ended December 31, 2018.

In October 2018, this note payable was paid in full.

PILOT Agreement

In December 2016, the Company entered into a Payment in Lieu of Taxes (“PILOT”) agreement commonly offered in Georgia by local community development programs to encourage industry development.

The net effect of the PILOT agreement is to provide the Company with incentives through the abatement of local, city and county property taxes and to provide financing for improvements to the Company’s Georgia plant (the “Project”).

In December 2016, the Company entered into a Payment in Lieu of Taxes (“PILOT”) agreement commonly offered in Georgia by local community development programs to encourage industry development.

In connection with the PILOT agreement, the Putman County Development Authority provides a credit facility for up to $10,000 which can be drawn upon to fund Project improvements and capital expenditures as defined in the agreement.

14 unchanged sentences

Provision for income taxes

A reconciliation of the Company’s effective tax rate from operations to the U.S.

federal income tax rate is as follows:

1 unchanged sentence

State income taxes, net of federal tax benefit

Tax adjustment related to corporate conversion

Energy efficiency credit

Effective tax rate

3 unchanged sentences

Reserve accounts

Payroll taxes

Uniform capitalization

10 unchanged sentences

SHARE BASED COMPENSATION

Pursuant to the Legacy Housing Corporation 2018 Incentive Compensation Plan (the “Compensation Plan”), the Company may issue up to 10.0 million equity awards to employees, directors, consultants and nonemployee service providers in the form of stock options, stock and stock appreciation rights.

Stock options may be granted with a contractual life of up to ten years.

At December 31, 2020, the Company had 9.7 million shares available for grant under the Compensation Plan.

The Company granted 120,000 restricted shares of its common stock to members of senior management.

In February 2019, the Company granted 120,000 restricted shares of its common stock to members of senior management.

The shares were granted on February 7, 2019 and had a grant date fair value of $1,636.

The shares vest at a rate of 14.3% annually, beginning on February 7, 2019, and becoming fully vested on February 7, 2025.

The Company granted 2,936 restricted shares of its common stock to the independent directors on the Company’s Board of Directors.

During the second quarter of 2020, 42,857 of these restricted shares were forfeited due to the departure of a member of senior management.

The Company granted 2,936 restricted shares of its common stock to the independent directors on the Company’s Board of Directors.

The shares were granted on February 7, 2019 and became fully vested on December 13, 2019.

The Company granted 39,526 restricted shares of its common stock to a member of senior management.

In August 2019, the Company granted 39,526 restricted shares of its common stock to a member of senior management.

The shares were granted on August 2, 2019 and had a grant date fair value of $496.

The shares vest at a rate of 20.0% annually, beginning on August 2, 2020, and becoming fully vested on August 2, 2024.

The following is a summary of restricted stock units (the “RSU”) activity (in thousands, except per unit data):

The shares vest at a rate of 20.0% annually, beginning on August 2, 2020, becoming fully vested on August 2, 2024.

This grant was canceled during the second quarter of 2020 due to the departure of the member of senior management.

The Company granted 1,903 restricted shares of its common stock to the independent directors on the Company’s Board of Directors.

The shares were granted on March 27, 2020 and become fully vested on December 13, 2020.

The following is a summary of restricted stock units (the “RSU”) activity (in thousands, except per unit data):

Number of Units

2 unchanged sentences

Nonvested, December 31, 2020

As of Dec ember 31, 2019, approximately 142,000 RSUs remained unvested.

Unrecognized compensation expense related to these RSUs at Dec ember 31, 2019 was $1,648 and is expected to be recognized over 4.97 years.

The Company granted 58,694 incentive stock options to a member of senior management.

The options were granted on February 7, 2019 at an exercise price of $13.63 per share.

As of December 31, 2020, approximately 43,000 RSUs remained unvested.

Unrecognized compensation expense related to these RSUs at December 31, 2020 was $479 and is expected to be recognized over 4.11 years.

In February 2019, the Company granted 58,694 incentive stock options to a member of senior management at an exercise price of $13.63 per share.

The options vest at a rate of 12.5% annually, beginning on February 7, 2019, and becoming fully vested on February 7, 2026.

4 unchanged sentences

expected volatility of common stock of 65.0% and expected life of options of 7.9 years.

During the second quarter of 2020, these options were forfeited due to the departure of a senior manager.

In August 2020, the Company granted 34,626 incentive stock options to a member of senior management at an exercise price of $14.44 per share.

The options vest at a rate of 20.0% annually, beginning on August 10, 2021, and becoming fully vested on August 10, 2025.

All options expire ten years after the date of grant.

Weighted-average

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

assumptions used in the Black-Scholes option pricing model for stock options granted were as follows:

risk free interest rate of 0.24%;

dividend yield of 0.00%;

expected volatility of common stock of 75.0% and expected life of options of 6.5 years.

The following is a summary of option activity (in thousands, except per unit data):

5 unchanged sentences

Exercisable, December 31, 2020

As of Dec ember 31, 2019, approximately 51,000 options remained unvested.

Unrecognized compensation expense related to these options at Dec ember 31, 2019 was $344 and is expected to be recognized over 6.11 years.

As of December 31, 2020, approximately 35,000 options remained unvested.

Unrecognized compensation expense related to these options at December 31, 2020 was $277 and is expected to be recognized over 4.61 years.

On March 31, 2020, the Company filed a registration statement on Form S-8 to register with the SEC approximately 2.3 million shares of Legacy common stock available for issuance under the 2018 Incentive Compensation Plan.

The registration statement became effective upon filing.

COMMITMENTS AND CONTINGENCIES

As of January 1, 2020, the Company instituted a self-insured health benefits plan with a stop-loss policy, which provides medical benefits to employees electing coverage under the plan.

The Company estimates and records costs for incurred but not reported medical claims and claim development.

This reserve is based on historical experience and other assumptions, some of which are subjective.

The Company will adjust its self-insured medical benefits reserve based on actual experience, estimated costs and changes to assumptions.

At December 31, 2020, the Company accrued a $110 liability for incurred but not reported claims.

The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent retailers of its products.

These arrangements, which are customary in the industry, provide for the repurchase of products sold to retailers in the event of default by the retailer.

The Company’s obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer.

The maximum amount for which the Company was liable under such agreements approximated $140 and $260 at December 31, 2020 and 2019, respectively, without reduction for the resale value of the homes.

4 unchanged sentences

The Company also subleases properties to third parties, ranging from 3-year to 11-year terms with various renewal options.

Rental income from the subleased property is included in other revenue in the Company’s statements of operations and was approximately $710 and $540 for the years ended December 31, 2019 and 2018, respectively.

Future minimum lease commitments under all non‑cancelable operating leases for each of the next five years at December 31, 2019, are as follows:

Legal Matters

The Company is party to certain legal proceedings that arise in the ordinary course and are incidental to its business.

Certain of the claims pending against the Company in these proceedings allege, among other things, breach of

Rental income from the subleased property is included in other revenue in the Company’s statements of operations and was approximately $343 and $710 for the years ended December 31, 2020 and 2019, respectively.

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

contract and warranty, product liability and personal injury.

Although litigation is inherently uncertain, based on past experience and the information currently available, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company’s financial position, liquidity or results of operations.

However, future events or circumstances currently unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company’s financial position, liquidity or results of operations in any future reporting periods.

Future minimum lease commitments under all non-cancelable operating leases for each of the next five years at December 31, 2020, are as follows:

Legal Matters

The Company is party to certain legal proceedings that arise in the ordinary course and are incidental to its business.

Certain of the claims pending against the Company in these proceedings allege, among other things, breach of contract and warranty, product liability and personal injury.

On February 2, 2012, the Company entered into a master interest rate swap agreement.

2 unchanged sentences

The Company entered into interest rate swap agreement with Capital One Bank on June 12, 2017 to fix the variable rate portion for $8,000 of the line of credit.

This interest rate swap agreement is the only one outstanding at December 31, 2019 and has a maturity of May 11, 2020.

The fair value of the interest rate swap agreement at December 31, 2019 and 2018 is an asset of $3 and $80, respectively, and is included in prepaid expenses and other current assets.

Included in the statements of operations for the years ended December 31, 2019 and 2018 were gains of $85 and $87, respectively, which are the result of the changes in the fair values of the interest rate swap agreement.

This interest rate swap agreement matured on May 11, 2020 and is the only one outstanding during 2020.

The fair value of the interest rate swap agreement at December 31, 2019 is an asset of $3 and is included in prepaid expenses and other current assets.

Included in the statements of operations for the years ended December 31, 2020 and 2019 were losses of $15 and gains of $85, respectively, which are the result of the changes in the fair values of the interest rate swap agreement.

EARNINGS PER SHARE

Basic earnings per common share (“EPS”) is computed based on the weighted-average number of common shares outstanding during the reporting period.

Diluted EPS is based on the weighted-average number of common shares outstanding plus the number of additional shares that would have been outstanding had the dilutive common shares been issued.

Basic earnings per common share (“EPS”) is computed based on the weighted-average number of common shares outstanding during the reporting period.

Diluted EPS is based on the weighted-average number of common shares outstanding plus the number of additional shares that would have been outstanding had the dilutive common shares been

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS.

6 unchanged sentences

Earnings per share attributable to Legacy Housing Corporation

The diluted earnings per share calculation excludes 143,027 potential shares for the year ended December 31, 2019, because the effect of including these potential shares would be antidilutive.

There were no potential shares excluded from the December 31, 2018 diluted earnings per share calculation.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

The diluted earnings per share calculation excludes 35,935 and 143,027 potential shares for the years ended December 31, 2020 and 2019, respectively, because the effect of including these potential shares would be antidilutive.

RELATED PARTY TRANSACTIONS

Bell Mobile Homes, a retailer owned by one of the Company’s significant shareholders, purchases manufactured homes from the Company.

Accounts receivable balances due from Bell Mobile Homes were $1 and $549 as of December 31, 2020 and 2019, respectively.

1 unchanged sentence

Home sales to Bell Mobile Homes were $2,631 and $4,533 for the years ended December 31, 2020 and 2019, respectively.

On February 2, 2016, the Company entered into a $1,500 note payable agreement with stated annual interest rates of 3.75% with a related party through common ownership.

The note was due on demand.

Interest paid on the note payable to an affiliate was $47 for the year ended December 31, 2018.

On October 18, 2018, this note payable was paid in full.

At December 31, 2018, the Company had a receivable of $375 from a principal shareholder for certain business expenses related to a potential business venture.

This amount is included in the Company’s accounts receivable balance as of December 31, 2018.

In September, 2019, this receivable was paid in full by the principal shareholder through a non-cash exchange of property.

SUBSEQUENT EVENTS

Between March 11, 2020 and March 19, 2020, the Company purchased 62,943 shares of its common stock at an average price of $10.83 per share, pursuant to the Company’s repurchase program.

Under the repurchase program, the Company may purchase up to $10,000 of its common stock.

The purchases were made in the open market and in accordance with applicable insider trading and other securities laws and regulations.

These repurchases may be commenced or suspended at any time or from time to time without prior notice.

The coronavirus pandemic is an evolving threat to the economy and all businesses.

At this time both the duration of the pandemic and the magnitude of the economic consequences are unknown.

Risks to the Company include but are not limited to:

increased loan losses or deferred loan payments as loan obligors suffer cash flow issues resulting from reduced employment, reduced rental income or unit sales, or other factors;

reduced sales volume as potential customers are unable to shop for new homes or cannot qualify for a home purchase, retail dealers or company stores reduce or stop operations, or MHP owners reduce their future home purchases;

reduced production resulting from factors such as the spread of the illness through the Company’s workforce, reduced product demand, or government-mandated closures of our factories, company-owned stores, or retail lots of independent dealers who carry our products;

delays in development projects as zoning, regulatory, and permitting decisions are likely to be postponed and the expected negative impact of the pandemic on the construction industry;

reduced raw material availability related to global supply chain disruption from the pandemic, including possible border closures;

decreased cash flow from operations which could negatively affect our liquidity;

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2019 and 2018

(Dollars in thousands, except per share amounts)

an outbreak of illness among our management and accounting staff could negatively affect our ability to maintain operations, operate our financial systems, delay our statutory reporting, and reduce our internal control of financial reporting.

We continue to monitor government responses to support the economy and evaluate how those actions might mitigate the risks noted above.

At this time, we believe that the pandemic will have a negative effect on our financial results that could range from minor to material.

Management has taken a number of actions in recent weeks, including stimulating demand by offering discounts and modified purchase terms, reducing production labor, suspending overtime, and reducing rates of pay for non-production workers.

Additionally, the Company has negotiated a new credit agreement with its primary bank that will expand and extend our credit facility.

Management expects to close and execute the new agreement in the near future.

In connection with the preparation of these financial statements, an evaluation of subsequent events was performed through the date of filing and there were no other events that have occurred that would require adjustments to the financial statements.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data