What changed in this filing

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Item 1. Financial Statements

2022-09-23 compared with 2022-09-12 · 190 added, 168 removed, 573 unchanged (38% of the section changed)

38 unchanged sentences

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

24,851,085 and 24,654,621 issued and 24,406,020 and 24,209,556 outstanding at March 31, 2022 and December 31, 2021, respectively

Treasury stock at cost, 445,065 shares at March 31, 2022 and December 31, 2021

24,851,085 and 24,654,621 issued and 24,406,020 and 24,209,556 outstanding at June 30, 2022 and December 31, 2021, respectively

Treasury stock at cost, 445,065 shares at June 30, 2022 and December 31, 2021

Additional paid-in-capital

6 unchanged sentences

(in thousands, except share and per share data)

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Product sales

10 unchanged sentences

Interest expense

Total other income

Income before income tax expense

6 unchanged sentences

(unaudited, in thousands)

Three months ended March 31,

Six months ended June 30,

Operating activities:

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

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

Depreciation and amortization expense

7 unchanged sentences

Notes receivable MHP activity, net

Inventory loan activity, net

Dealer inventory loan activity, net

Prepaid expenses and other current assets

Accounts payable

Accounts payable and accrued liabilities

Customer deposits

12 unchanged sentences

Payments on lines of credit

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net increase in cash and cash equivalents

13 unchanged sentences

Balances, March 31, 2021 (restated)

Share based compensation expense and stock units vested

Net income (restated)

Balances, June 30, 2021 (restated)

paid-in-capital

2 unchanged sentences

Balances, March 31, 2022

Share based compensation expense and stock units vested

Balances, June 30, 2022

See accompanying notes to condensed financial statements.

32 unchanged sentences

Basis of Presentation

The accompanying unaudited interim condensed financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021, 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 June 30, 2022 and for the three and six months ended June 30, 2022 and 2021, 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 months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending

The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31,

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

December 31, 2022, or any other period.

2022, or any other period.

The accompanying balance sheet as of December 31, 2021 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2021 (the "Form 10-K").

4 unchanged sentences

Restatement of Previously Issued Condensed Financial Statements (unaudited)

As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company has restated its interim financial statements for the period ended March 31, 2021 to correct (i) an overstatement of costs errantly assigned to accounts payable for inventory received but not invoiced, (ii) a reclassification between prepaid expenses and other current assets and other assets, (iii) a reclassification between prepaid expenses and other current assets and lines of credit, and (iv) a change in accrued liabilities and income tax expense.

The effects of the restatement on the line items within the Company’s condensed statement of operations for the three months ended March 31, 2021 were as follows:

Three Months Ended March 31, 2021

As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company has restated its interim financial statements for the period ended June 30, 2021 to correct (i) an overstatement of costs errantly assigned to accounts payable for inventory received but not invoiced, (ii) a reclassification between prepaid expenses and other current assets and other assets, (iii) a reclassification between prepaid expenses and other current assets and lines of credit, and (iv) a change in accrued liabilities and income tax expense.

The effects of the restatement on the line items within the Company’s condensed statement of income for the three months ended June 30, 2021 were as follows:

Three Months Ended June 30, 2021

Operating expenses:

4 unchanged sentences

Net income per share:

The effects of the restatement on the line items within the Company’s condensed statement of cash flows for the three months ended March 31, 2021 were as follows:

Three months March 31, 2021

The effects of the restatement on the line items within the Company’s condensed statement of income for the six months ended June 30, 2021 were as follows:

Six Months Ended June 30, 2021

Operating expenses:

Cost of product sale

Income from operations

Income before income tax expense

Income tax expense

Net income per share:

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The effects of the restatement on the line items within the Company’s condensed statement of cash flows for the six months ended June 30, 2021 were as follows:

Six months June 30, 2021

As Originally

3 unchanged sentences

Accrued liabilities

Net cash provided by (used in) operating activities

Net cash used in operating activities

Investing activities:

3 unchanged sentences

Payments on lines of credit

Net cash provided by (used in) financing activities

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Net cash provided by financing activities

Use of Estimates

14 unchanged sentences

For financed sales by the Company, the individual customer enters into a sales and financing contract and is required to make a down payment.

These financed sales contain a significant financing component and any interest income is separately recorded in the statement of income.

These financed sales contain a significant financing component and any interest income is separately recorded in the statement of operations.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Revenue is measured as the amount of consideration expected to be received in exchange for transferring the homes to the customers.

5 unchanged sentences

Warranty costs and contract costs are included in selling, general and administrative expenses in the statements of income.

For the three months ended March 31, 2022 and 2021, sales to an independent third-party and its affiliates accounted for $ 3,134 or 6.1 % and $ 2,664 or 8.3 % of our product sales, respectively.

For the three months ended March 31, 2022 and 2021, total cost of product sales included $ 2,999 and $ 2,182 of costs relating to subcontracted production for commercial sales, reimbursed dealer expenses for consignment sales, and certain other similar costs incurred for retail store and commercial sales .

For the three months ended June 30, 2022 and 2021, sales to an independent third-party and its affiliates accounted for $ 3,296 or 6.0 % and $ 2,643 or 6.4 % of our product sales, respectively.

For the six months ended June 30, 2022 and 2021, sales to an independent third-party and its affiliates accounted for $ 6,194 or 5.8 % and $ 4,948 or 6.7 % of our product sales, respectively.

For the three months ended June 30, 2022 and 2021, total cost of product sales included $ 3,253 and $ 3,206 of costs relating to subcontracted production for commercial sales, reimbursed dealer expenses for consignment sales, and certain other similar costs incurred for retail store and commercial sales .

For the six months ended June 30, 2022 and 2021, total cost of product sales included $ 6,252 and $ 5,407 of costs relating to subcontracted production for commercial sales, 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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

retailers pursuant to a consignment arrangement until the home is sold to an individual customer.

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

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

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

Revenue recognition for consignment fees is 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.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Disaggregation of Revenue .

The following table summarizes customer contract revenues disaggregated by source of the revenue for the three months ended March 31, 2022 and 2021:

The following table summarizes customer contract revenues disaggregated by source of the revenue for the three and six months ended June 30, 2022 and 2021:

Three months ended

Six months ended

Product sales:

21 unchanged sentences

As a recently formed public entity with a small public float and limited trading of its common shares on the NASDAQ Global Market, it was not practicable for the Company to estimate the volatility of its common shares;

therefore, management estimated

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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

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

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

1 unchanged sentence

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The fair value of RSU awards with market based conditions on the date of grant is estimated using the Monte-Carlo Simulation valuation model, and the Company uses the following methods to determine its underlying assumptions:

3 unchanged sentences

Treasury bond yield issued with similar life terms to the expected life of the grant.

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

Accounts Receivable

6 unchanged sentences

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

At March 31, 2022 and December 31, 2021, the allowance for doubtful accounts totaled $ 375 and $ 343 , respectively.

On June 30, 2022 and December 31, 2021, the allowance for doubtful accounts totaled $ 456 and $ 343 , respectively.

Leased Property

14 unchanged sentences

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.

Depreciation expense for the leased property was $ 180 and $ 132 for the three months ended June 30, 2022 and 2021, respectively, and $ 340 and $ 230 for the six months ended June 30, 2022 and 2021, respectively.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

Future minimum lease income under all operating leases for each of the next five years at March 31, 2022, are as follows:

Future minimum lease income under all operating leases for each of the next five years at June 30, 2022, are as follows:

Recent Accounting Pronouncements

26 unchanged sentences

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

The average contractual interest rate per loan was approximately 13.5 % as of March 31, 2022 and December 31, 2021, respectively.

The average contractual interest rate per loan was approximately 13.5 % as of June 30, 2022 and December 31, 2021, respectively.

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

3 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 $ 9,142 and $ 9,350 as of March 31, 2022 and December 31, 2021, respectively, and are included in escrow liability in the condensed balance sheets.

The liabilities associated with these escrow collections totaled $ 9,771 and $ 9,350 as of June 30, 2022 and December 31, 2021, respectively, and are included in escrow liability in the condensed balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

29 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 $ 793 and $ 517 as of March 31, 2022 and December 31, 2021, respectively, and are included in other assets in the condensed balance sheets.

Repossessed homes totaled $ 725 and $ 517 as of June 30, 2022 and December 31, 2021, respectively, and are included in other assets in the condensed balance sheets.

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

As of March 31,

As of June 30,

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 March 31,

Three months ended June 30,

Six Months Ended June 30,

Allowance for loan losses, beginning of period

3 unchanged sentences

The reserve for loan losses consists of the following:

As of March 31,

As of June 30,

As of December 31,

8 unchanged sentences

(dollars in thousands)

As of March 31, 2022 and December 31, 2021, the total principal outstanding for consumer loans on nonaccrual status was $ 1,274 and $ 1,239 , respectively.

A detailed aging of consumer loans receivable that are past due as of March 31, 2022 and December 31, 2021 were as follows:

As of March 31,

As of June 30, 2022 and December 31, 2021, the total principal outstanding for consumer loans on nonaccrual status was $ 1,180 and $ 1,239 , respectively.

A detailed aging of consumer loans receivable that are past due as of June 30, 2022 and December 31, 2021 were as follows:

As of June 30,

As of December 31,

12 unchanged sentences

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

The average interest rate per loan was approximately 7.7 % and 7.6 % as of March 31, 2022 and December 31, 2021, respectively, with maturities that range from 1 to 18 years .

The average interest rate per loan was approximately 7.6 % and 7.6 % as of June 30, 2022 and December 31, 2021, respectively, with maturities that range from 1 to 18 years .

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

The MHP Notes are generally guaranteed by the borrowers personally.

As of March 31, 2022, the Company had concentrations of MHP Notes with two independent third-parties and their respective affiliates that equaled 29.1 % and 12.9 % of the principal balance outstanding, all of which was secured by the mobile homes.

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

The Company had concentrations of MHP Notes with an independent third-party and its affiliates that equaled 29.1 % and 52.1 % of the principal balance outstanding, all of which was secured by the mobile homes, as of June 30, 2022 and December 31, 2021, 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.

As of March 31, 2022 and December 31, 2021, the MHP Note balance is presented net of unamortized finance fees of $ 591 and $ 445 , respectively.

As of June 30, 2022 and December 31, 2021, the MHP Note balance is presented net of unamortized finance fees of $ 771 and $ 445 , 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 March 31, 2022 and December 31, 2021 and no charge offs were recorded for MHP Notes during the three months ended March 31, 2022 and 2021, respectively.

Allowance for loan loss is considered immaterial and accordingly no loss is recorded against the MHP Notes as of March 31, 2022 and December 31, 2021.

There were no impaired MHP Notes as of March 31, 2022 and December 31, 2021, respectively, and there were no repossessed homes balances as of March 31, 2022 and December 31, 2021, respectively.

There were minimal past due balances on the MHP Notes as of June 30, 2022 and December 31, 2021 and no charge offs were recorded for MHP Notes during the three and six months ended June 30, 2022 and 2021, respectively.

Allowance for loan loss is considered immaterial and accordingly no loss is recorded against the MHP Notes as of June 30, 2022 and December 31, 2021.

There were no impaired MHP Notes as of June 30, 2022 and December 31, 2021, respectively, and there were no repossessed homes balances as of June 30, 2022 and December 31, 2021, 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.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

OTHER NOTES RECEIVABLE

1 unchanged sentence

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

The other notes are collateralized by mortgages on real estate, units being financed and used as offices, as well as vehicles, and are typically guaranteed by the borrowers personally.

The other notes are collateralized by mortgages on real estate, units being financed and used as

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

offices, as well as vehicles, and are typically guaranteed by the borrowers personally.

The interest rate on the other notes are fixed and range from 5.00 % to 12.00 %.

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

There were no past due balances for other notes as of March 31, 2022 and December 31, 2021, respectively, and there were no impaired balances for other notes as of March 31, 2022 and December 31, 2021, respectively.

There were no past due balances for other notes as of June 30, 2022 and December 31, 2021, respectively, and there were no impaired balances for other notes as of June 30, 2022 and December 31, 2021, respectively.

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

As of March 31,

As of June 30,

As of December 31,

1 unchanged sentence

Allowance for loan losses

The Company currently has 13 operating leases, 8 of which are for the Company’s Heritage Housing and Tiny Homes retail locations, three which are subleased by the Company and two are for corporate and administrative offices in Bedford, TX and Norcross, GA.

The Company currently has 13 operating leases, eight of which are for the Company’s Heritage Housing and Tiny Homes retail locations, three which are subleased by the Company and two are for corporate and administrative offices in Bedford, TX and Norcross, GA.

These leases typically have initial terms ranging from 5 to 10 years and include one or more options to renew.

14 unchanged sentences

Many of our leases contain renewal options.

As the exercise of the renewal options is not certain at commencement of a lease, we generally do not include the option periods in the lease term when determining the lease

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

liabilities and ROU assets.

As the exercise of the renewal options is not certain at commencement of a lease, we generally do not include the option periods in the lease term when determining the lease liabilities and ROU assets.

We remeasure the lease liability and ROU asset when we are reasonably certain that we will exercise a renewal option.

1 unchanged sentence

Therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations.

The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over a similar term and in a similar economic environment.

The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

a similar term and in a similar economic environment.

The remaining weighted-average lease term is 5.0 years and the weighted-average discount rate is 2.12 %.

We consider lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from our calculation of lease liabilities.

There were no variable lease costs for the three months ended March 31, 2022.

There were no variable lease costs for the three months ended June 30, 2022.

Short-term leases, those with a term of 12 months or less, are not recorded on our Condensed Balance Sheet.

Our short-term lease costs were not material for the three months ended March 31, 2022.

As of March 31, 2022, future minimum lease payments under our operating lease liabilities were as follows:

Our short-term lease costs were not material for the three months ended June 30, 2022.

As of June 30, 2022, future minimum lease payments under our operating lease liabilities were as follows:

Total lease payments

4 unchanged sentences

Inventories consists of the following:

As of March 31,

As of June 30,

As of December 31,

3 unchanged sentences

Allowance for obsolescence

(1) Finished goods includes $ 3,738 and $ 2,678 as of March 31, 2022 and December 31, 2021, respectively , held for more than twelve months and classified as long-term.

(1) Finished goods includes $ 4,603 and $ 2,678 as of June 30, 2022 and December 31, 2021, respectively , held for more than twelve months and classified as long-term.

LEGACY HOUSING CORPORATION

3 unchanged sentences

Property, plant and equipment consists of the following:

As of March 31,

As of June 30,

As of December 31,

4 unchanged sentences

Total property, plant and equipment

Depreciation expense was $ 260 with $ 121 included as a component of cost of product sales for the three months ended March 31, 2022 and $ 264 with $ 104 included as a component of cost of product sales for the three months ended March 31, 2021.

Depreciation expense was $ 286 with $ 127 included as a component of cost of product sales for the three months ended June 30, 2022 and $ 261 with $ 109 included as a component of cost of product sales for the three months ended June 30, 2021.

Depreciation expense was $ 563 with $ 248 included as a component of cost of product sales for the six months ended June 30, 2022 and $ 524 with $ 214 included as a component of cost of product sales for the six months ended June 30, 2021.

Other assets consists of the following:

As of March 31,

As of June 30,

As of December 31,

Repossessed homes

Depreciation expense for the leased property was $ 170 and $ 98 for the three months ended March 31, 2022 and 2021, respectively.

LEGACY HOUSING CORPORATION

3 unchanged sentences

Accrued liabilities consists of the following:

As of March 31,

As of June 30,

As of December 31,

14 unchanged sentences

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

The interest rate in effect as of March 31, 2022 and December 31, 2021 was 2.23 % and 2.10 %, respectively.

The interest rate in effect as of June 30, 2022 and December 31, 2021 was 3.06 % and 2.10 %, 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 receivable, consumer loans and MHP Notes.

The amount of available credit under the New Revolver was $ 64,923 and $ 61,841 as of March 31, 2022 and December 31, 2021, respectively.

The amount of available credit under the New Revolver was $ 57,386 and $ 61,841 as of June 30, 2022 and December 31, 2021, respectively.

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 three months ended March 31, 2022 and 2021, interest expense under the New Revolver was $ 56 and $ 226 , respectively.

The outstanding balance as of March 31, 2022 and December 31, 2021 was $ 5,224 and $ 8,159 , respectively.

For the three months ended June 30, 2022 and 2021, interest expense under the New Revolver was $ 182 and $ 283 , respectively.

For the six months ended June 30, 2022 and 2021, interest expense under the New Revolver was $ 239 and $ 509 , respectively.

The outstanding balance as of June 30, 2022 and December 31, 2021 was $ 12,614 and $ 7,993 , respectively.

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

As of March 31, 2022, 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 March 31, 2022, the Company was not in compliance with certain non-financial covenants and obtained a waiver from Capital One.

PILOT Agreement

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

The net effect of the PILOT agreement is to provide the Company with incentives through the abatement of local, city and county property

As of June 30, 2022, 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.

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 Form 10-K 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.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

taxes and to provide financing for improvements to the Company’s Georgia plant (the “Project”).

PILOT Agreement

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

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

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

2 unchanged sentences

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

As of March 31, 2022, the Company had not drawn on this credit facility.

As of June 30, 2022, 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 March 31, 2022, the Company had 9.2 million shares available for grant under the Compensation Plan.

At June 30, 2022, the Company had 8.1 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.

13 unchanged sentences

An equity award of 175,000 shares 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 (the “$ 36 Equity Award”).

The $ 36 Equity Awards had a grant date fair value of $ 1,412 and fifty percent of the shares shall be vested when the consecutive closing price condition is met and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

The $ 36 Equity Awards had a grant date fair value of $ 1,412 and fifty percent of the shares shall be vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

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 (the “$ 48 Equity Award”).

The $ 48 Equity Awards had a grant date fair value of $ 683 and fifty percent of the shares shall be vested when the consecutive closing price condition is met and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

As of March 31, 2022, none of the conditions have been met for the vesting of the $ 36 Equity Awards or the $ 48 Equity Awards.

The $ 48 Equity Awards had a grant date fair value of $ 683 and fifty percent of the shares shall be vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

As of June 30, 2022, none of the conditions have been met for the vesting of the $ 36 Equity Awards or the $ 48 Equity Awards.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

On June 7, 2022, the Company granted 14,700 restricted shares of its common stock to the Chief Executive Officer of the Company pursuant to an employment agreement.

The shares were granted on June 7, 2022 and had a grant date fair value of $ 235 .

One-half of the shares vest on June 7, 2023 and the remaining half vest on June 7, 2024.

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

2 unchanged sentences

Nonvested, January 1, 2022

Nonvested, March 31, 2022

As of March 31, 2022, approximately 377,000 RSUs remained unvested.

Unrecognized compensation expense related to these RSUs at March 31, 2022 was $ 2,238 and is expected to be recognized over 2.30 years.

Nonvested, June 30, 2022

As of June 30, 2022, approximately 392,000 RSUs remained unvested.

Unrecognized compensation expense related to these RSUs at June 30, 2022 was $ 2,219 and is expected to be recognized over 2.04 years.

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

15 unchanged sentences

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

The Company granted 62,460 incentive stock options to the Chief Executive Officer.

The options were granted on June 7, 2022 at an exercise price of $ 16.01 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and becoming fully vested on June 7, 2032.

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 2.98 %;

dividend yield of 0.00 %;

expected volatility of common stock of 45.7 % and expected life of options of 7.8 years.

The Company granted options to purchase 900,000 shares of the Company’s stock to the Chief Executive Officer.

An option to purchase 300,000 shares of the Company’s stock was granted on June 7, 2022 at an exercise price of $ 36.00 per share and an option to purchase 600,000 shares of the Company’s stock was granted on June 7, 2022 at an exercise price of $ 48.00 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and becoming fully vested on June 7, 2032.

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 2.98 %;

dividend yield of 0.00 %;

expected volatility of common stock of 45.7 % and expected life of options of 7.8 years.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The Company granted 62,460 incentive stock options to the Chief Financial Officer.

The options were granted on June 7, 2022 at an exercise price of $ 16.01 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and becoming fully vested on June 7, 2032.

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 2.98 %;

dividend yield of 0.00 %;

expected volatility of common stock of 45.7 % and expected life of options of 7.8 years.

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

5 unchanged sentences

Outstanding, January 1, 2022, nonvested

Outstanding, March 31, 2022, nonvested

Exercisable, March 31, 2022

As of March 31, 2022, approximately 55,000 options remained nonvested.

Unrecognized compensation expense related to these options at March 31, 2022 was $ 740 and is expected to be recognized over 9.49 years.

Outstanding, June 30, 2022, nonvested

Exercisable, June 30, 2022

As of June 30, 2022, approximately 1,080,000 options remained nonvested.

Unrecognized compensation expense related to these options at June 30, 2022 was $ 5,804 and is expected to be recognized over 9.91 years.

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

The registration statement became effective upon filing.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The provision for income tax expense for the three months ended March 31, 2022 and 2021 was $ 3,558 and $ 2,208 , respectively.

The effective tax rate for the three months ended March 31, 2022 was 18.1 % and differs from the federal statutory rate of 21 % primarily due to a federal tax credit for energy efficient construction and partially offset by state income taxes.

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 and partially offset by state income taxes.

The provision for income tax expense for the six months ended June 30, 2022 and 2021 was $ 7,375 and $ 4,707 , respectively.

The effective tax rate for the six months ended June 30, 2022 was 18.1 % and differs from the federal statutory rate of 21 % primarily due to a federal tax credit for energy efficient construction and partially offset by state income taxes.

The effective tax rate for the six months ended June 30, 2021 was 16.8 % and differs from the federal statutory rate of 21 % primarily due to a federal tax credit for energy efficient construction and partially offset by 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 March 31, 2022 and December 31, 2021, the Company accrued a $ 326 and $ 373 , respectively, liability for incurred but not reported claims.

At June 30, 2022 and December 31, 2021, the Company accrued a $ 280 and $ 373 , respectively, 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 totaled $ 14,749 and $ 4,908 at March 31, 2022 and December 31, 2021, 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, 2022 and December 31, 2021.

The maximum amount

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

for which the Company was liable under such agreements totaled $ 11,400 and $ 4,908 at June 30, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021.

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 $ 163 and $ 151 for the three months ended March 31, 2022 and 2021, respectively.

Rent expense was $ 176 and $ 146 for the three months ended June 30, 2022 and 2021, respectively, and $ 339 and $ 402 for the six months ended June 30, 2022 and 2021, 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 $ 82 and $ 91 for the three months ended March 31, 2022 and 2021, respectively.

Rental income from the subleased property was approximately $ 55 and $ 91 for the three months ended June 30, 2022 and 2021, respectively, and approximately $ 110 and $ 182 for the six months ended June 30, 2022 and 2021, respectively.

See Note 5 – Leases, for a schedule of the Company’s future minimum lease commitments.

3 unchanged sentences

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

The Company has included legal reserves of $ 2,707 and $ 2,764 as of March 31, 2022 and December 31, 2021, respectively, in accrued liabilities on the accompanying balance sheets.

The Company has included legal reserves of $ 1,402 and $ 2,764 as of June 30, 2022 and December 31, 2021, respectively, in accrued liabilities on the accompanying condensed 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.

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

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

The Company elected not to designate the interest rate swap agreements as cash flow hedges and, therefore, gains or losses on the agreements as well as the other offsetting gains or losses on the hedged items attributable to the hedged risk are recognized in current earnings.

ASC 815-10, Derivatives and Hedging , requires derivative instruments to be measured at fair value and recorded in the statements of financial position as either assets or liabilities.

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.

FAIR VALUE MEASUREMENTS

11 unchanged sentences

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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.

4 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 Company is not a party to any interest rate swaps as of March 31, 2022.

The Company is not a party to any interest rate swaps as of June 30, 2022.

Fair Value of Financial Instruments

2 unchanged sentences

This is considered a Level I valuation technique.

The lines of credit, notes payable, part of the MHP Notes and part of the other

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

note receivables 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 note receivables have variable interest rates that reflect market rates and their fair value approximates their carrying value.

This is considered a Level II valuation technique.

The Company also assessed the fair value of the consumer loans receivable, the fixed rate MHP Notes and the portion of other note receivables 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 $ 127,600 compared to the book value of $ 127,259 as of March 31, 2022, and a fair value of approximately $ 125,600 compared to the book value of $ 125,623 as of December 31, 2021.

The Company determined that the fair value of the fixed rate MHP Notes was approximately $ 92,000 compared to the book value of $ 97,782 as of March 31, 2022, and a fair value of approximately $ 83,000 compared to the book value of $ 83,773 as of December 31, 2021.

The Company determined that the fair value of the other notes was approximately $ 33,300 compared to the book value of $ 38,748 as of March 31, 2022, and a fair value of approximately $ 38,500 compared to the book value of $ 38,886 as of December 31, 2021.

The Company determined that the fair value of the consumer loan portfolio was approximately $ 131,300 compared to the book value of $ 130,932 as of June 30, 2022, and a fair value of approximately $ 125,600 compared to the book value of $ 125,623 as of December 31, 2021.

The Company determined that the fair value of the fixed rate MHP Notes was approximately $ 100,500 compared to the book value of $ 101,850 as of June 30, 2022, and a fair value of approximately $ 83,000 compared to the book value of $ 83,773 as of December 31, 2021.

The Company determined that the fair value of the other notes was approximately $ 29,400 compared to the book value of $ 30,321 as of June 30, 2022, and a fair value of approximately $ 38,500 compared to the book value of $ 38,886 as of December 31, 2021.

This is a Level III valuation technique.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

EARNINGS PER SHARE

3 unchanged sentences

Three months ended

Six months ended

Net income (in 000's)

7 unchanged sentences

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 $ 139 and $ 1 as of March 31, 2022 and December 31, 2021, respectively.

Accounts payable balances due to Bell Mobile Homes for maintenance and related services were $ 69 and $ 49 as of March 31, 2022 and December 31, 2021, respectively.

Home sales to Bell Mobile Homes were $ 632 and $ 699 for the three months ended March 31, 2022 and 2021, respectively.

Accounts receivable balances due from Bell Mobile Homes were $ 2 and $ 1 as of June 30, 2022 and December 31, 2021, respectively.

Accounts payable balances due to Bell Mobile Homes for maintenance and related services were $ 116 and $ 49 as of June 30, 2022 and December 31, 2021, respectively.

Home sales to Bell Mobile Homes were $ 1,223 and $ 695 for the three months ended June 30, 2022 and 2021, respectively, and $ 1,855 and $ 1,393 for the six months ended June 30, 2022 and 2021, respectively.

Shipley Bros., Ltd.

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

Accounts receivable balances due from Shipley Bros.

were $ 424 and zero as of March 31, 2022 and December 31, 2021, respectively.

Home sales to Shipley Bros.

were $ 693 and $ 914 for the three months ended March 31, 2022 and 2021, respectively.

There were no accounts payable balances due to Shipley Bros.

as of March 31, 2022 and December 31, 2021, respectively.

were $ 1,018 and $ 524 for the three months ended June 30, 2022 and 2021, respectively, and $ 1,711 and $ 1,438 for the six months ended June 30, 2022 and 2021, respectively.

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

as of June 30, 2022 and December 31, 2021, respectively.

SUBSEQUENT EVENTS

On July 28, 2022, the Company entered into a Limited Waiver and First Amendment to Credit Agreement (the “Amendment”) with Capital One, N.A.

The Amendment replaces the LIBOR borrowing rate with a secured overnight financing rate and waives a default arising out of a monetary judgement against the Company that exceeded the amount allowed in the New Revolver.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

SUBSEQUENT EVENTS

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 year ended December 31, 2021 and Form 10-Q for the period ended 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 August 3, 2022, the Company filed Form 10-K for the year ended December 31, 2021.

On August 11, 2022, the Company received notice from Nasdaq regarding the Company’s failure to file timely Form 10-Q for the period ending June 30, 2022.

As a result of this delinquency, the Company must submit an update to its original plan to regain compliance with the Rule.

The updated plan must be submitted to Nasdaq by September 12, 2022.

On June 7, 2022, the Company entered into an employment agreement (the “Employment Agreement”) with Duncan Bates, to serve as President and Chief Executive Officer of the Company.

The Employment Agreement provides for a term that commences on June 7, 2022 and expires on June 7, 2027 (the “Initial Employment Period”).

The Employment Agreement provides for Mr.

Bates to receive a base salary of $ 300 per year and a signing bonus of 14,700 shares of restricted stock, which shall vest 50 % on June 7, 2023 and 50 % on June 7, 2024.

Bates also received 62,460 incentive stock options, an option to purchase 300,000 shares of the Company’s common stock at an exercise price of $ 36 per share and an option to purchase 600,000 shares of the Company’s common stock at an exercise price of $ 48 per share.

The incentive stock options have an exercise price of $ 16.01 per share.

The incentive stock options and the options to purchase shares vest at a rate of 10.0 % annually, beginning on June 7, 2023, becoming fully vested on June 7, 2032.

On June 7, 2022, the Company granted 62,460 incentive stock options to Ronald Arrington, the Chief Financial Officer.

The options were granted on June 7, 2022 at an exercise price of $ 16.01 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and becoming fully vested on June 7, 2032.

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 Form 10-K 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.

As a result of this delinquency, the Company submitted an update to its original plan to regain compliance with the Rule.

The updated plan was submitted to Nasdaq on September 12, 2022.

On August 24, 2022, the Company received a Notice of Default and Partial Suspension of Loan Commitments from Capital One, N.A.

The notice stated that the July 28, 2022 forbearance agreement had been terminated and that Capital One, N.A.

was permitted to suspend $ 50,000 of the $ 70,000 loan commitment in the New Revolver.

As a result, the available line of credit in the New Revolver is $ 20,000 .

The Company is not currently using any of the available credit under the New Revolver.

was permitted to suspend $ 50,000 of the $ 70,000 loan commitment under the New Revolver.

As a result, the available line of credit in the New Revolver has been limited to $ 20,000 .

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.

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