What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-08-03 compared with 2021-03-17 · 235 added, 180 removed, 625 unchanged (40% of the section changed)

2 unchanged sentences

AUDITED FINANCIAL STATEMENTS OF LEGACY HOUSING CORPORATION

Report of Independent Registered Public Accounting Firms

Reports of Independent Registered Public Accounting Firms

Balance Sheets as of December 31, 2021 and 2020

3 unchanged sentences

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Audit Committee, Board of Directors and Shareholders

2 unchanged sentences

Opinion on the financial statements

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.

We have audited the accompanying balance sheet of Legacy Housing Corporation (the Company) as of December 31, 2021, 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, 2021, and the results of its operations and its cash flows for year then ended, 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 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.

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 (Unites 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 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.

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.

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.

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.

Accordingly, we express no such opinion.

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.

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.

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

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 .

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 provide a reasonable basis for our opinion .

/s/ Weaver, LLP

We have served as the Company’s auditor since 2021.

Dallas, Texas

August 3, 2022

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Audit Committee, Board of Directors and Shareholders

Legacy Housing Corporation

Bedford, Texas

Opinion on the financial statements

We have audited the accompanying balance sheet of Legacy Housing Corporation (the Company) as of December 31, 2020, the related statements of operations, changes in stockholders’ equity and cash flows for the year 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 the results of its operations and its cash flows for year then 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 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 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 provide a reasonable basis for our opinion .

We served as the Company’s auditor from 2019 to 2021.

Dallas, Texas

March 17, 2021

3 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts

Accounts receivable, net

Current portion of consumer loans

3 unchanged sentences

Total current assets

Property, plant and equipment, net

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

Consumer loans, net

Notes receivable from mobile home parks (“MHP”)

Other notes receivable, net of allowance for loan losses

Inventory non ‑ current

Other notes receivable, net

Inventories, net

Property, plant and equipment, net

Liabilities and Stockholders' Equity

4 unchanged sentences

Escrow liability

Line of credit

Total current liabilities

1 unchanged sentence

Lines of credit

Deferred income taxes

Deferred income taxes, net

Accrued liabilities, net of current portion

4 unchanged sentences

Preferred stock, $ .001 par value, 10,000,000 shares authorized:

no shares issued or outstanding

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

24,654,621 and 24,639,125 issued and 24,209,556 and 24,194,060 outstanding at December 31, 2021 and December 31, 2020, respectively

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

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

Additional paid-in-capital

11 unchanged sentences

Cost of product sales

Selling, general administrative expenses

Selling, general and administrative expenses

Dealer incentive

15 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

2 unchanged sentences

Share based compensation expense and stock units vested

Purchase of treasury stock

Proceeds from exercise of stock options

Balances, December 31, 2021

4 unchanged sentences

Operating activities:

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

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation expense

Amortization of debt discount and issuance costs

Provision for accounts receivable

Provision for long term inventory

Sale of leased property

Provision for loan loss—consumer loans

12 unchanged sentences

Customer deposits

Escrow liability

Dealer incentive liability

Net cash used in operating activities

Net cash provided by (used in) operating activities

Investing activities:

3 unchanged sentences

Notes receivable collections

Purchases of consumer loans

Collections from purchased consumer loans

Purchases of loans

Collections from purchased loans

Net cash used in investing activities

Financing activities:

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

Offering cost for over-allotment of initial public offering

Proceeds from exercise of stock options

Treasury stock purchase

1 unchanged sentence

Principal payments on note payable

Escrow liability, net

Proceeds from lines of credit, net

Proceeds from lines of credit

Payments on lines of credit

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Year ended December 31,

Supplemental disclosure of cash flow information:

3 unchanged sentences

Note receivable received in exchange of asset

Asset received in exchange of accounts receivable

Asset received in exchange of note receivable

See accompanying notes to financial statements

34 unchanged sentences

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

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

These reclassifications had no effect on the previously reported net income.

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

These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

expenses during the reporting period.

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, loans to mobile home parks, consumer loans and notes receivable, inventory obsolescence, income taxes, fair value of financial instruments and contingent liabilities.

26 unchanged sentences

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

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

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

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

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

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.

30 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 $1,395 and $1,846 as of December 31, 2020 and 2019, respectively, and are included in other assets in the balance sheets.

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

Repossessed homes totaled $ 517 and $ 1,395 as of December 31, 2021 and 2020, respectively, and are included in other assets in the balance sheets.

Notes Receivable from Mobile Home Parks

2 unchanged sentences

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%.

Approximately $ 83,000 of the Notes have a fixed interest rate ranging from 6.9 % to 8.9 %.

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

2 unchanged sentences

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 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.

As of December 31, 2021, the Company had concentrations of MHP Notes with two independent third-parties and their respective affiliates that equaled 10.4 % and 30.1 % of the principal balance outstanding, all of which was secured by the mobile homes.

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

Allowance for Loan Losses—MHP Notes

4 unchanged sentences

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

There were no impaired MHP Notes for the years ended December 31, 2021 and 2020, respectively, and there were no repossessed homes balances as of December 31, 2021 and 2020, respectively.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell.

Other Notes Receivable

5 unchanged sentences

As of December 31, 2021 and 2020, the allowance for loan losses on other notes was $ 74 and $ 75 , respectively.

There were no past due balances for other notes as of December 31, 2021 and 2020, respectively, and there were no impaired balances for other notes as of December 31, 2021 and 2020, respectively.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

Inventories consist of raw materials, work-in-process, and finished goods and are stated at the lower of cost or net realizable value.

3 unchanged sentences

For the periods ending, December 31, 2021 and 2020, the Company recorded an insignificant amount of inventory write-down.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(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.

22 unchanged sentences

Dealer incentive expense for the years ended December 31, 2021 and 2020 totaled $ 1,235 and $ 336 , respectively, and is included in the Company’s statements of operations.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

Product Warranties

4 unchanged sentences

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, 2021 and 2020 is presented below:

20 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.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

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

3 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 valued as an $3 asset as of December 31, 2019.

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

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

The Company is not a party to any interest rate swaps as of December 31, 2021.

Fair Value of Financial Instruments

7 unchanged sentences

The Company determined that the fair value of the fixed rate MHP Notes was approximately $ 83,000 compared to the book value of $ 83,773 as of December 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 $15,000 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.

The Company determined that the fair value of the fixed rate other notes was approximately $ 38,500 compared to the book value of $ 38,886 as of December 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.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which outlines a comprehensive five-step model for entities to use in accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry-specific guidance.

The standard requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The Company adopted the requirements of the new revenue standard on January 1, 2019 using the modified retrospective transition method, applied to contracts that were not completed as of the date of initial application, which did not have a material impact on the financial statements.

The new guidance under ASU 2014-09 is applicable to our product sales which includes sales of homes through various sales channels, and other revenue which includes consignment fees, service fees and miscellaneous income.

Income generated from interest, other lending activities, and investment income are excluded from ASU 2014-09 and will continue to be accounted for under existing guidance.

For those revenue streams that are subject to ASU 2014-09, the Company evaluated the impact of adopting the new standard on our revenue recognition policies under existing guidance and determined there is no impact.

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.

4 unchanged sentences

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

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.

Retail Store Sales are homes 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.

4 unchanged sentences

Sales and other similar taxes collected concurrently with revenue-producing activities are excluded from revenue.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

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.

9 unchanged sentences

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 .

11 unchanged sentences

(1) Other product sales revenue from ancillary products and services including parts, freight and other services

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

Reserve for Repurchase Commitments

4 unchanged sentences

Other Income, Net

Other income primarily consists of interest related to commercial loan receivable balances and interest income earned on cash balances, reduced by interest expenses.

Other income primarily consists of interest related to other notes receivable balances and interest income earned on cash balances, reduced by interest expenses.

Interest Income

2 unchanged sentences

Share-Based Compensation

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 .

12 unchanged sentences

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

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

Shipping and Handling Costs

16 unchanged sentences

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.

tax reform package, the Tax Cuts and Jobs Act, or Tax Act, was enacted which, among other things, lowered the corporate income tax rate from 35% to 21%.

As a result of the corporate conversion on January 1, 2018, the Company measured its opening deferred tax assets and liabilities at the newly enacted rate.

The determination of the provision for income taxes requires significant judgment, use of estimates, and the interpretation and application of complex tax laws.

10 unchanged sentences

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

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.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

Recent Accounting Pronouncements

11 unchanged sentences

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.

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.

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.

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.

6 unchanged sentences

Consumer loans receivable

Loan discount and deferred financing fees, net

Loan discount and deferred financing fees

Allowance for loan losses

Consumer loans receivable, net

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(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, 2021 and 2020:

4 unchanged sentences

Total consumer loans

Total allowance for loan losses

Allowance for loan losses

Impaired loans individually evaluated for impairment

2 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:

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

Total consumer loans receivable

9 unchanged sentences

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.

As of December 31, 2021 and 2020, the MHP Note balance is presented net of unamortized finance fees of $ 445 and $ 183 , respectively.

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

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

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

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

Other Notes Receivable

The balances outstanding on the other notes receivable were as follows as of December 31, 2020 and 2019:

Other notes receivable, net of allowance for loan losses and deferred financing fees, consisted of the following at December 31, 2021 and 2020:

Outstanding principal balance

4 unchanged sentences

Finished goods (1)

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

Allowance for obsolescence

(1) Finished goods includes $ 2,678 and $ 8,656 as of December 31, 2021 and 2020, respectively, held for more than twelve months and classified as long-term.

PROPERTY, PLANT AND EQUIPMENT

6 unchanged sentences

Depreciation expense was $ 1,145 with $ 450 included as a component of cost of product sales for the year ended December 31, 2021 and $ 1,013 with $ 409 included as a component of cost of product sales for the year ended December 31, 2020.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

Other assets consisted of the following at December 31, 2021 and 2020:

Leased property

Leased property, net of accumulated depreciation

Repossessed homes

1 unchanged sentence

ACCRUED LIABILITIES

Accrued liabilities consisted of the following at December 31, 2020 and 2019:

Warranty liability

Accrued liabilities consist of the following at December 31, 2021 and 2020:

Warranty reserve

Litigation reserve

Federal and state taxes payable

Accrued expenses & other accrued liabilities

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

Portfolio taxes and title

Dealer rebates

Federal and state income taxes

Total accrued liabilities

Accrued liabilities, non-current

Accrued liabilities, current

Lines of Credit

4 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 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 interest rates in effect as of December 31, 2021 and 2020 were 2.10 % and 2.15 %, respectively.

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

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

receivable and the consumer loans receivable and MHP Notes.

The amount of available credit under the New Revolver was $ 61,841 as of December 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 unamortized debt issuance costs and will be amortized to interest expense over the life of the New Revolver.

In connection with the New Revolver, the Company paid certain arrangement fees and other fees of approximately $ 295 , 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, 2021 and 2020, interest expense under the Capital One Revolvers was $ 887 and $ 1,020 , respectively.

The outstanding balance as of December 31, 2021 and 2020 was $ 8,159 and $ 36,174 , respectively.

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.

The New Revolver requires the Company to comply with certain financial and non-financial covenants.

As of December 31, 2021, the Company was in compliance with all financial covenants, 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.

As of December 31, 2021, the Company was not in compliance with certain non-financial covenants and obtained a waiver from Capital One.

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.

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 $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 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

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

The amount of available credit under Revolver 2 was $ 12,028 at March 31, 2020 and the interest rate in effect as of March 31, 2020 was 4.17 %.

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

For the year ended December 31, 2020 interest expense was $ 17 .

The outstanding balance as of March 31, 2020 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 when the facility was terminated.

On April 10, 2020, the Company entered into a loan with Peoples Bank as the lender in an aggregate principal amount of $ 6,546 (the “Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act.

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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 $135 and for the year ended December 31, 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 $1 for the year ended December 31, 2019.

In January 2019, this note was paid in full.

PILOT Agreement

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

The Company became a corporation subject to federal income taxes on January 1, 2018, see corporate conversion in Note 1.

The change in tax status required the recognition of a deferred tax asset or liability for the initial temporary differences at the time of the change in status.

The resulting net deferred tax liability of $2,066 was recorded as income tax expense at the date of the completion of the corporate conversion.

LEGACY HOUSING CORPORATION

42 unchanged sentences

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.

In March 2020, 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 had a grant date fair value of $ 18 .

The shares became fully vested on December 13, 2020.

In December 2020, the Company granted 2,022 restricted shares of its common stock to the independent directors on the Company’s Board of Directors.

The shares were granted on December 2, 2020 and had a grant date fair value of $ 30 .

The shares became fully vested on October 4, 2021.

In November 2021, the Company granted 1,202 restricted shares of its common stock to the independent directors on the Company’s Board of Directors.

The shares were granted on November 30, 2021 and had a grant date fair value of $ 30 .

The shares become fully vested on October 24, 2022.

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

Number of Units

Weighted Average Grant date Fair Value

Weighted Average Grant Date Fair Value Per Unit

Nonvested, January 1, 2021

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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.

The options vest at a rate of 12.5 % annually, beginning on February 7, 2019, and

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

becoming fully vested on February 7, 2026.

All options expire ten years after the date of grant.

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All options expire ten years after the date of grant.

Weighted-average

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

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

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

risk free interest rate of 0.24 %;

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

In September 2021, the Company granted 55,490 incentive stock options to a member of management at an exercise price of $ 18.02 per share.

The options vest at a rate of 10.0 % annually, beginning on September 23, 2022, and becoming fully vested on September 23, 2031.

All options expire ten years after the date of grant.

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

risk free interest rate of 1.41 %;

dividend yield of 0.00 %;

expected volatility of common stock of 75.0 % and expected life of options of 7.8 years.

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

Number of Units

Exercise Price

Exercise Price Per Unit

Average Grant Date

Fair Value Per Unit

Contractual Life

Outstanding, January 1, 2020

Outstanding, December 31, 2020

Outstanding, January 1, 2021, nonvested

Outstanding, December 31, 2021, nonvested

Exercisable, December 31, 2021

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

As of December 31, 2021, approximately 83,000 options remain nonvested.

Unrecognized compensation expense related to these options at December 31, 2021 was $ 976 and is expected to be recognized over 9.36 years.

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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.

At December 31, 2021 and 2020, the Company accrued a $ 373 and $ 110 liability for incurred but not reported claims, respectively.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

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

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Rental income from the subleased property is included in other revenue in the Company’s statements of operations and was approximately $ 394 and $ 343 for the years ended December 31, 2021 and 2020, respectively.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2020 and 2019

(Dollars in thousands, except per share amounts)

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

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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.

The Company has determined that it is probable that it has some liability related to the claims.

The Company's reasonable estimate of this liability is a range between $ 2,613 and $ 5,038 and has included legal reserves of $ 2,764 and $ 899 as of December 31, 2021 and 2020, respectively, in accrued liabilities on the accompanying balance sheets.

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.

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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 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

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

interest rate swap agreement matured on May 11, 2020.

Included in the statements of operations for the years ended December 31, 2020 is a loss of $ 15 which was 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.

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

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Earnings per share attributable to Legacy Housing Corporation

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.

The diluted earnings per share calculation excludes zero and 35,935 potential shares related to stock grants and stock options for the years ended December 31, 2021 and 2020, respectively, because the effect of including these potential shares would be antidilutive.

RELATED PARTY TRANSACTIONS

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Home sales to Bell Mobile Homes were $ 3,724 and $ 2,631 for the years ended December 31, 2021 and 2020, respectively.

Shipley Bros., Ltd.

(“Shipley Bros.”), a retailer owned by one of the Company’s significant shareholders, purchases manufactured homes from the Company.

Home sales to Shipley Bros.

were $ 2,825 and $ 1,786 as of December 31, 2021 and 2020, respectively.

There were no accounts receivable balances or accounts payable balances due from/to Shipley Bros.

as of December 31, 2021 and 2020, respectively.

SUBSEQUENT EVENTS

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.

On January 5, 2022, the Company entered into an amended and restated employment agreement (the “Employment Agreement”) with Curtis D.

Hodgson, Executive Chairman of the Company.

The Employment Agreement provides for a term that commences on January 1, 2022 and expires on June 16, 2024, unless earlier terminated (the “Employment Period”).

Pursuant to the Employment Agreement, Mr.

Hodgson will continue to serve in his current

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2021 and 2020

(Dollars in thousands, except per share amounts)

position with the Company, as set forth above, and will have duties, responsibilities, and authority that are customary to such position.

The Employment Agreement provides for Mr.

Hodgson to receive a base salary of $ 200,000 per year and a signing bonus of 150,000 shares of restricted stock, which shall be vested upon grant.

Hodgson is also eligible for an annual incentive bonus and equity awards.

The annual inventive bonus will be determined by the Board but will not exceed 100 % of Mr.

Hodgson’s base salary.

An equity award of 175,000 shares of the Company’s restricted stock will be granted if the Company’s stock price reaches and remains for a period of fifteen consecutive market days at a closing price of $ 36 per share.

An additional equity award of 175,000 shares of the Company’s restricted stock will be granted if the Company’s stock price reaches and remains for a period of fifteen consecutive market days at a closing price of $ 48 per share.

On May 30, 2022, the Company submitted to Nasdaq a plan to regain compliance with Nasdaq Listing Rule 5250(c)(1) (the “Rule”) regarding the Company’s failure to file timely Form 10-K for the period ending December 31, 2021 and Form 10-Q for the period ending on March 31, 2022.

On June 9, 2022, the Company received a response from Nasdaq informing the Company that Nasdaq granted an exception to the filing requirements set forth in the Rule that allows the Company to file these reports and any other required filings as required by the Rule on or before September 27, 2022.

On June 21, 2022, the Company received a Reservation of Rights notice from Capital One, N.A.

The letter stated that the Company’s New Revolver was in default.

The default condition occurred due to the Company’s failure to timely file the 10K and deliver certain financial statement to Capital One, N.A.

On July 28, 2022, the Company executed a forbearance agreement with Capital One, N.A.

In connection with the preparation of these financial statements, an evaluation of subsequent events was performed through the date of filing.

The Company recently updated its management of escrow collections.

Historically, escrow collections were deposited in an unsegregated deposit account subject to the Company's credit agreement with Capital One, N.A.

On June 28, 2022, the Company segregated escrow collections by purchasing an $ 8.5 M certificate of deposit that is not subject to the credit agreement.

The certificate of deposit principal amount will be adjusted periodically.

The Company will continue to hold escrow collections separately from its other operating funds where required by law..

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