What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-16 · 153 added, 161 removed, 480 unchanged (40% of the section changed)

2 unchanged sentences

CONDENSED BALANCE SHEETS (in thousands, except share and per share data)

September 30,

Current assets:

17 unchanged sentences

Escrow liability

Line of credit

Total current liabilities

2 unchanged sentences

Deferred income taxes

Accrued liabilities, net of current portion

Dealer incentive liability

4 unchanged sentences

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

24,637,222 and 24,620,079 issued and 24,192,157 and 24,320,079 outstanding at September 30, 2020 and December 31, 2019, respectively

Treasury stock at cost, 445,065 and 300,000 shares at September 30, 2020 and December 31, 2019, respectively

24,647,696 and 24,639,125 issued and 24,202,631 and 24,194,060 outstanding at March 31, 2021 and December 31, 2020, respectively

Treasury stock at cost, 445,065 shares at March 31, 2021 and December 31, 2020

Additional paid-in-capital

6 unchanged sentences

(in thousands, except share and per share data)

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Product sales

19 unchanged sentences

(unaudited, in thousands)

Nine months ended September 30,

Three months ended March 31,

Operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash used by operating activities:

Depreciation expense

1 unchanged sentence

Provision for loan loss—consumer loans

Deferred income taxes

Share based payment expense

10 unchanged sentences

Dealer incentive liability

Net cash provided by (used in) operating activities

Net cash used in operating activities

Investing activities:

6 unchanged sentences

Financing activities:

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

Offering cost for over-allotment of initial public offering

Treasury stock purchase

Proceeds from issuance of note payable

Principal payments on note payable

Escrow liability, net

2 unchanged sentences

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

9 unchanged sentences

Balances, December 31, 2019

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

Share based compensation expense and stock units vested

Balances, March 31, 2019

Share based compensation expense and stock units vested

Purchase of treasury stock

Balances, June 30, 2019

Share based compensation expense and stock units vested

Balances, September 30, 2019

Balances, March 31, 2020

paid-in-capital

1 unchanged sentence

Share based compensation expense and stock units vested

Purchase of treasury stock

Balances, March 31, 2021

Share based compensation expense and stock units vested

Purchase of treasury stock

Balances, June 30, 2020

Share based compensation expense and stock units vested

Balances, September 30, 2020

See accompanying notes to condensed financial statements.

1 unchanged sentence

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

13 unchanged sentences

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 nine months ended September 30, 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.

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.

13 unchanged sentences

Basis of Presentation

The accompanying unaudited interim condensed financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019, respectively, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the U.S.

The accompanying unaudited interim condensed financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020, respectively, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission ("SEC") as required by Regulation S-X, Rule 8-03.

In the opinion of management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's financial position for the periods presented.

The results for the three

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or any other period.

months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, or any other period.

The accompanying balance sheet as of December 31, 2020 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2020 (the "Form 10-K").

4 unchanged sentences

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

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.

19 unchanged sentences

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

For the three months ended September 30, 2020 and 2019, sales to an independent third-party and its affiliates accounted for $13,253 or 36.2% and $13,027 or 36.9% of our product sales, respectively.

For the nine months ended September 30, 2020 and 2019, sales to an independent third-party and its affiliates accounted for $39,559 or 37.0% and $26,350 or 24.7% of our product sales, respectively.

For the three and nine months ended September 30, 2020, total cost of product sales included $7,073 and $15,878 of costs, mainly relating to up front dealer commission and reimbursed dealer expenses for consignment sales and certain other similar costs incurred for retail store and commercial sales.

For the three and nine months ended September 30, 2019, total cost of product sales included $4,713 and $16,600 of costs, mainly relating to up front dealer commission and reimbursed dealer expenses for consignment sales and certain other similar costs incurred for retail store and commercial sales.

Other revenue consists of consignment fees, service fees and other miscellaneous income.

For the three months ended March 31, 2021 and 2020, sales to an independent third-party and its affiliates accounted for $ 2,664 or 8.3 % and $ 11,986 or 37.2 % of our product sales, respectively.

For the three months ended March 31, 2021 and 2020, total cost of product sales included $ 2,182 and $ 4,907 of costs, mainly relating to up front dealer commission and reimbursed dealer expenses for consignment sales and certain other similar costs incurred for retail store and commercial sales.

Other revenue consists of consignment fees, commercial lease rents, service fees and other miscellaneous income.

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.

1 unchanged sentence

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.

Revenue for commercial leases is recognized as earned monthly over a contractual period of 96 or 120 months .

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

1 unchanged sentence

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

Disaggregation of Revenue .

The following table summarizes customer contract revenues disaggregated by source of the revenue for the three and nine months ended September 30, 2020 and 2019:

The following table summarizes customer contract revenues disaggregated by source of the revenue for the three months ended March 31, 2021 and 2020:

Three months ended

Nine months ended

September 30,

Product sales:

26 unchanged sentences

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

5 unchanged sentences

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

At September 30, 2020 and December 31, 2019, the allowance for doubtful accounts totaled $414 and $457, respectively.

At March 31, 2021 and December 31, 2020, the allowance for doubtful accounts totaled $ 111 and $ 97 , respectively.

Leased Property

The Company offers mobile home park operators the opportunity to lease mobile homes for rent in lieu of purchasing the homes for cash or under a longer-term financing agreement.

In this arrangement title for the mobile homes remains with the Company.

The standard lease agreement is typically for 96 months or 120 months .

Under the lease arrangement, the lessee (mobile home park operator) uses the mobile homes as personal property to be rented as a residence at the lessee's mobile home park.

The lessee makes monthly, periodic lease payments to the Company over the term of the lease.

The lessee is responsible for maintaining the homes during the term of the lease.

The lessee is also responsible for repairing all damages caused by force majeure events even in cases of total or partial loss of the property.

At the end of the lease term or in the event of default, the lessee is required to deliver to the Company the homes with all improvements in good repair and condition in substantially the same condition as existed at the commencement of the lease.

The lessee may terminate the lease with 30 days written notice to the Company and pay a lease termination fee of either 10 % of the remaining lease payments or six month ’s rent, whichever is greater.

The lessee has an option to purchase the homes at the end of the lease term for fair market value based on an agreed upon determination of fair market value by both parties for example comparable sales, recent appraisal, or NADA official guidance.

The lessee must provide the Company with 30 days written notice prior to expiration of the lease of intent to purchase the property for fair market value.

The lease also includes a renewal option whereby the lessee has the option to extend the lease for an additional 48 months (the extended term) at the same terms and conditions as the original lease.

The lessee must notify the Company of the intent to exercise the renewal extension option not less than six months prior to expiration of the lease term.

The leased mobile homes are included in other assets on the Company’s balance sheet, capitalized at manufactured cost and depreciated over a 15 year useful life.

Homes returned to the Company upon expiration of the lease or in the event of default will be sold by the Company through its standard sales and distribution channels.

Future minimum lease income under all non-cancelable operating leases for each of the next five years at March 31, 2021, are as follows:

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

Recent Accounting Pronouncements

17 unchanged sentences

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.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(dollars in thousands)

CONSUMER LOANS RECEIVABLE

2 unchanged sentences

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

The average contractual interest rate per loan was approximately 13.9% as of September 30, 2020 and 14.0% as of December 31, 2019.

The average contractual interest rate per loan was approximately 13.7 % as of March 31, 2021 and 13.8 % as of December 31, 2020.

Consumer loans receivable have maturities that range from 3 to 30 years .

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

Loan applications go through an underwriting process that considers credit history to evaluate credit risk of the consumer.

2 unchanged sentences

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 $8,305 and $7,530 as of September 30, 2020 and December 31, 2019, respectively, and are included in escrow liability in the balance sheets.

The liabilities associated with these escrow collections totaled $ 8,015 and $ 7,729 as of March 31, 2021 and December 31, 2020, respectively, and are included in escrow liability in the balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

19 unchanged sentences

(4) units located on private property as opposed to a manufactured home park;

(5) the length of time

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(dollars in thousands)

the borrower has lived in the house without making payments;

(5) the length of time the borrower has lived in the house without making payments;

(6) location, size, and market conditions;

4 unchanged sentences

At each reporting period, the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell, based on current information.

Repossessed homes totaled $2,121 and $1,846 as of September 30, 2020 and December 31, 2019, respectively, and are included in other assets in the balance sheets.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

Repossessed homes totaled $ 751 and $ 1,395 as of March 31, 2021 and December 31, 2020, respectively, and are included in other assets in the balance sheets.

Consumer loans receivable, net of allowance for loan losses and deferred financing fees, consisted of the following:

As of September 30,

As of March 31,

As of December 31,

4 unchanged sentences

The following table presents a detail of the activity in the allowance for loan losses:

Three months ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Allowance for loan losses, beginning of period

2 unchanged sentences

The impaired and general reserve for allowance for loan losses consisted of the following:

As of September 30,

As of March 31,

As of December 31,

5 unchanged sentences

General allowance for loan losses

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(dollars in thousands)

As of September 30, 2020 and December 31, 2019, the total principal outstanding for consumer loans on nonaccrual status was $1,898 and $1,677, respectively.

A detailed aging of consumer loans receivable that are past due as of September 30, 2020 and December 31, 2019 were as follows:

As of September 30,

As of March 31, 2021 and December 31, 2020, the total principal outstanding for consumer loans on nonaccrual status was $ 1,611 and $ 1,603 , respectively.

A detailed aging of consumer loans receivable that are past due as of March 31, 2021 and December 31, 2020 were as follows:

As of March 31,

As of December 31,

6 unchanged sentences

Total past due

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

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

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 can be fixed or variable.

Approximately $ 114 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 7.6 % and 7.7 % as of March 31, 2021 and December 31, 2020, respectively, with maturities that range from 1 to 20 years .

The collateral underlying the Notes are individual mobile homes which can be repossessed and resold.

The MHP Notes are generally personally guaranteed by the borrowers.

The Company had concentrations of MHP Notes with an independent third-party and its affiliates that equaled 52.1 % and 52.9 % of the principal balance outstanding, all of which was secured by the mobile homes, as of March 31, 2021 and December 31, 2020, respectively.

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

1 unchanged sentence

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

The Company had concentrations of MHP Notes with an independent third-party and its affiliates that equaled 51.1% and 38.3% of the principal balance outstanding, all of which was secured, as of September 30, 2020 and December 31, 2019, respectively.

There were minimal past due balances on the MHP Notes as of September 30, 2020 and December 31, 2019 and no charge offs were recorded for MHP Notes during the three and nine months ended September 30, 2020 and 2019, respectively.

Allowance for loan loss is considered immaterial and accordingly no loss is recorded against the MHP Notes as of September 30, 2020 and December 31, 2019.

There were minimal past due balances on the MHP Notes as of March 31, 2021 and December 31, 2020 and no charge offs were recorded for MHP Notes during the three months ended March 31, 2021 and 2020, respectively.

Allowance for loan loss is considered immaterial and accordingly no loss is recorded against the MHP Notes as of March 31, 2021 and December 31, 2020.

OTHER NOTES RECEIVABLE

5 unchanged sentences

The balance outstanding on the other notes receivable were as follows:

As of September 30,

As of March 31,

As of December 31,

3 unchanged sentences

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

Inventories consisted of the following:

As of September 30,

As of March 31,

As of December 31,

4 unchanged sentences

Property, plant and equipment consisted of the following:

As of September 30,

As of March 31,

As of December 31,

4 unchanged sentences

Total property, plant and equipment

Depreciation expense was $249 with $88 included as a component of cost of product sales for the three months ended September 30, 2020 and $272 with $94 included as a component of cost of product sales for the three months ended September 30, 2019.

Depreciation expense was $750 with $267 included as a component of cost of product sales for the nine months ended September 30, 2020 and $766 with $275 included as a component of cost of product sales for the nine months ended September 30, 2019.

Depreciation expense was $ 264 with $ 104 included as a component of cost of product sales for the three months ended March 31, 2021 and $ 248 with $ 106 included as a component of cost of product sales for the three months ended March 31, 2020.

Other assets consisted of the following:

As of September 30,

As of March 31,

As of December 31,

1 unchanged sentence

Repossessed homes

Depreciation expense for the leased property was $53 and $124 for the three and nine months ended September 30, 2020.

Depreciation expense for the leased property was $ 98 and $ 33 for the three months ended March 31, 2021 and 2020, respectively.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

1 unchanged sentence

Accrued liabilities consisted of the following:

As of September 30,

As of March 31,

As of December 31,

9 unchanged sentences

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%.

For the period January 1, 2020 through March 30, 2020, Revolver 1 accrued interest at one-month LIBOR plus 2.40 %.

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 September 30, 2020 was 2.16%.

The interest rate in effect as of March 31, 2021 was 2.11 %.

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 $26,180 as of September 30, 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 three months ended September 30, 2020 and 2019, interest expense under the Capital One Revolvers was $239 and $94, respectively, and for the nine months ended September 30, 2020 and 2019, interest expense under the Capital One Revolvers was $785 and $233, respectively.

The outstanding balance as of September 30, 2020 and December 31, 2019 was $43,820 and $28,860, respectively.

The Company was in compliance with all financial covenants as of September 30, 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.

The amount of available credit under the New Revolver was $ 24,653 as of March 31, 2021.

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

For the three months ended March 31, 2021 and 2020, interest expense under the Capital One Revolvers was $ 226 and $ 320 .

The outstanding balance as of March 31, 2021 and December 31, 2020 was $ 45,347 and $ 36,174 , respectively.

The Company was in compliance with all financial covenants as of March 31, 2021, 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”).

2 unchanged sentences

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(dollars in thousands)

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

The interest rate in effect as of March 31, 2020 was 4.17 %.

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

2 unchanged sentences

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

For the nine months ended September 30, 2020 and 2019, interest expense was $17 and $111, respectively.

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.

For the three months ended March 31,

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

2020 interest expense was $ 21 .

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

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

4 unchanged sentences

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

Notes Payable

On April 7, 2011, the Company signed a promissory note for $4,830 with Woodhaven Bank.

The amount due under the promissory note accrues interest at an annual rate of 3.85% through February 2, 2017 and then at the prime interest rate plus 0.60% through maturity on April 7, 2018.

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 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 $37 and $113 for the three and nine months ended September 30, 2019.

In October 2019, this note was paid in full.

On May 24, 2016, the Company signed a promissory note for $515 with Eagle One, LLC collateralized by the purchase of real property located in Oklahoma City, Oklahoma.

The amount due under the promissory note accrues interest at an annual rate of 6.00%.

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

Interest expense was $0 and $1 for the three and nine months ended September 30, 2019.

In January 2019, this note was paid in full.

PILOT Agreement

5 unchanged sentences

The PILOT agreement is collateralized by the assets of the Project.

As of September 30, 2020, the Company had not drawn on this credit facility.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(dollars in thousands)

As of March 31, 2021, the Company had not drawn on this credit facility.

SHARE-BASED COMPENSATION

1 unchanged sentence

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

At September 30, 2020, the Company had 9.7 million shares available for grant under the Compensation Plan.

At March 31, 2021, the Company had 9.7 million shares available for grant under the Compensation Plan.

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

8 unchanged sentences

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

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

4 unchanged sentences

Nonvested, January 1, 2021

Nonvested, September 30, 2020

As of September 30, 2020, approximately 45,000 RSUs remained unvested.

Unrecognized compensation expense related to these RSUs at September 30, 2020 was $512 and is expected to be recognized over 4.32 years.

Nonvested, March 31, 2021

As of March 31, 2021, approximately 34,000 RSUs remained unvested.

Unrecognized compensation expense related to these RSUs at March 31, 2021 was $ 451 and is expected to be recognized over 3.86 years.

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

7 unchanged sentences

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(dollars in thousands)

The Company granted 34,626 incentive stock options to a member of senior management.

11 unchanged sentences

Outstanding, January 1, 2021

Outstanding, September 30, 2020

Exercisable, September 30, 2020

Outstanding, March 31, 2021

Exercisable, March 31, 2021

As of March 31, 2021, approximately 35,000 options remained unvested.

Unrecognized compensation expense related to these options at March 31, 2021 was $ 262 and is expected to be recognized over 4.36 years.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

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.

The provision for income tax expense for the nine months ended September 30, 2020 and 2019 was $8.1 million and $6.7 million, respectively.

The effective tax rate for the nine months ended September 30, 2020 was 22.7% and differs from the federal statutory rate of 21% primarily due to state income taxes.

The effective tax rate for the nine months ended September 30, 2019 was 23.3% and differs from the federal statutory rate of 21% due to state income taxes.

The provision for income tax expense for the three months ended March 31, 2021 and 2020 was $ 1.9 million and $ 2.6 million, respectively.

The effective tax rate for the three months ended March 31, 2021 was 17.1 % and differs from the federal statutory rate of 21 % primarily due to a federal tax credit for energy efficient construction partially offset by state income taxes.

The effective tax rate for the three months ended March 31, 2020 was 22.3 % and differs from the federal statutory rate of 21 % due to state income taxes.

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

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

At September 30, 2020, the Company accrued a $271 liability for incurred but not reported claims.

At March 31, 2021, the Company accrued a $ 85 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.

1 unchanged sentence

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 $603 and $260 at September 30, 2020 and

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(dollars in thousands)

December 31, 2019, respectively, without reduction for the resale value of the homes.

The Company considers its obligations on current contracts to be immaterial and accordingly have not recorded any reserve for repurchase commitment as of September 30, 2020 or December 31, 2019.

The maximum amount for which the Company was liable under such agreements approximated $ 3,073 and $ 2,967 at March 31, 2021 and December 31, 2020, respectively, without reduction for the resale value of the homes.

The Company considers its obligations on current contracts to be insignificant and accordingly have not recorded any reserve for repurchase commitment as of March 31, 2021 or December 31, 2020.

The Company leases facilities under operating leases that typically have 10-year terms.

These leases usually offer the Company a right of first refusal that affords the Company the option to purchase the leased premises under certain terms in the event the landlord attempts to sell the leased premises to a third party.

Rent expense was $135 and $139 for the three months ended September 30, 2020, and 2019, respectively, and $423 and $403 for the nine months ended September 30, 2020, and 2019, respectively.

Rent expense was $ 151 and $ 144 for the three months ended March 31, 2021, and 2020, respectively.

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 was approximately $90 and $86 for the three months ended September 30, 2020 and 2019, respectively, and $264 and $272 for the nine months ended September 30, 2020 and 2019, respectively.

Future minimum lease commitments under all non-cancelable operating leases for each of the next five years at September 30, 2020, are as follows:

Rental income from the subleased property was approximately $ 91 and $ 85 for the three months ended March 31, 2021 and 2020.

Future minimum lease commitments under all non-cancelable operating leases for each of the next five years at March 31, 2021, are as follows:

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

Legal Matters

9 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 matured on May 11, 2020 and is the only one outstanding during 2020.

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

Included in the statements of operations for the nine months ended September 30, 2020 and 2019 were losses of $15 and $37, respectively, which are the result of the changes in the fair values of the interest rate swap agreement.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(dollars in thousands)

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

The fair value of the interest rate swap agreement was an asset included in prepaid expenses and other current assets and was $ 7 at March 31, 2020.

Included in the statements of operations for the three months ended March 31, 2020 is a gain of $ 2 which was the result of the changes in the fair values of the interest rate swap agreement.

Fair Value Measurements

12 unchanged sentences

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.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

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

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

2 unchanged sentences

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

The fair value of the interest rate swap was an asset valued at $ 7 at March 31, 2020.

Fair Value of Financial Instruments

2 unchanged sentences

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.

The lines of credit, notes payable, part of the MHP Notes and part of the other 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 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 $134,000 compared to the book value of $108,573 as of September 30, 2020, and a fair value of approximately $119,000 compared to the book value of $105,042 as of December 31, 2019.

The Company also assessed the fair value of the consumer loans receivable, the fixed rate MHP Notes and the portion of other notes with fixed rates 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 $ 113,680 as of March 31, 2021, and a fair value of approximately $ 115,000 compared to the book value of $ 111,742 as of December 31, 2020.

The Company determined that the fair value of the fixed rate MHP Notes was approximately $ 114,000 compared to the book value of $ 116,161 as of March 31, 2021, and a fair value of approximately $ 108,000 compared to the book value of $ 109,806 as of December 31, 2020.

The Company determined that the fair value of the other notes was approximately $ 15,500 compared to the book value of $ 15,797 as of March 31, 2021, and a fair value of approximately $ 15,000 compared to the book value of $ 15,104 as of December 31, 2020.

This is a Level III valuation technique.

1 unchanged sentence

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(dollars in thousands)

4 unchanged sentences

Three months ended

Nine months ended

September 30,

Net income (in 000's)

5 unchanged sentences

Earnings per share attributable to Legacy Housing Corporation

The diluted earnings per share calculation excludes 123,624 potential shares for the three months ended September 30, 2019, and excludes 54,446 and 124,498 potential shares for the nine months ended September 30, 2020 and 2019, respectively because the effect of including theses potential shares would be antidilutive.

The diluted earnings per share calculation excludes 144,082 potential shares for the three months ended March 31, 2020, because the effect of including theses potential shares would be antidilutive.

RELATED PARTY TRANSACTIONS

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

Accounts receivable balances due from Bell Mobile Homes were $34 and $549 as of September 30, 2020 and December 31, 2019, respectively.

Accounts payable balances due to Bell Mobile Homes for maintenance and related services were $33 and $74 as of September 30, 2020 and December 31, 2019, respectively.

Home sales to Bell Mobile Homes were $383 and $829 for the three months ended September 30, 2020 and 2019, respectively and $1,800 and $3,118 for the nine months ended September 30, 2020 and 2019, respectively.

Accounts receivable balances due from Bell Mobile Homes were $ 298 and $ 1 as of March 31, 2021 and December 31, 2020, respectively.

Accounts payable balances due to Bell Mobile Homes for maintenance and related services were $ 86 and $ 61 as of March 31, 2021 and December 31, 2020, respectively.

Home sales to Bell Mobile Homes were $ 699 and $ 883 for the three months ended March 31, 2021 and 2020, respectively.

SUBSEQUENT EVENTS

1 unchanged sentence

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-Q

Item 1. Financial Statements