What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-09-23 · 154 added, 129 removed, 634 unchanged (31% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

1 unchanged sentence

Accounts receivable, net

Accounts receivable - dealer financed

Current portion of contracts - dealer financed

Current portion of consumer loans receivable

3 unchanged sentences

Total current assets

Contracts - dealer financed

Consumer loans receivable, net

24 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 June 30, 2022 and December 31, 2021, respectively

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

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

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

Additional paid-in-capital

6 unchanged sentences

(in thousands, except share and per share data)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Product sales

18 unchanged sentences

(unaudited, in thousands)

Six months ended June 30,

Nine months ended September 30,

Operating activities:

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

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

Depreciation and amortization expense

2 unchanged sentences

Provision for long term inventory

Amortization of operating lease right of use asset

Share based payment expense

9 unchanged sentences

Dealer incentive liability

Net cash used in operating activities

Net cash provided by operating activities

Investing activities:

5 unchanged sentences

Financing activities:

Proceeds from other liabilities

Proceeds from exercise of stock options

Proceeds from lines of credit

Payments on lines of credit

Net cash provided by financing activities

Net cash used in financing activities

Net increase in cash and cash equivalents

16 unchanged sentences

Balances, June 30, 2021 (restated)

Share based compensation expense and stock units vested

Share based compensation expense - stock options exercised

Net income (restated)

Balances, September 30, 2021 (restated)

paid-in-capital

3 unchanged sentences

Share based compensation expense and stock units vested

Balances, June 30, 2022

Balances, September 30, 2022

Share based compensation expense and stock units vested

Balances, September 30, 2022

See accompanying notes to condensed financial statements.

32 unchanged sentences

Basis of Presentation

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.

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

The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

2022, or any other period.

expected for the year ending December 31, 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 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

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 September 30, 2021 to correct (i) an understatement of costs errantly assigned to accounts payable for inventory received but not invoiced, (ii) an overstatement of prepaid inventory and an understatement of cost of product sales and property, plant & equipment, (iii) an overstatement in finished goods inventory and an understatement of cost of product sales, (iv) a reclassification between prepaid expenses and other current assets and other assets, (v) a reclassification between prepaid expenses and other current assets and lines of credit, and (vi) 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 September 30, 2021 were as follows:

Three Months Ended September 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 income for the six months ended June 30, 2021 were as follows:

Six Months Ended June 30, 2021

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

Nine Months Ended September 30, 2021

Operating expenses:

7 unchanged sentences

(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

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

Nine months September 30, 2021

As Originally

20 unchanged sentences

Commercial Sales include homes sold to mobile home parks under commercial loan programs or paid for upfront.

The Company provides floor plan financing for independent retailers, which takes the form of a consignment arrangement.

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

The Company provides floor plan financing for independent retailers, which can take the form of a consignment arrangement or an inventory financing arrangement.

Consignment Sales under the consignment arrangement are considered sales of consigned homes from independent dealers to individual customers.

Consignment Sales under the inventory financing arrangement are considered sales of homes to the independent dealer.

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 paid in cash.

Revenue from product sales is recognized at a point in time when the performance obligation under the terms of a contract with our customer is satisfied, which typically occurs upon delivery and transfer of title of the home, as this depicts when control of the promised good is transferred to our customer.

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 operations.

For inventory financed sales, the independent dealer enters into a financing arrangement with the Company and is required to make monthly interest payments and an

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

annual curtailment payment for the first two years .

After three years , they are required to payoff any remaining principle balance.

Interest income is separately recorded in the statement of operations.

For other 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 operations.

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 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 .

For the three months ended September 30, 2022 and 2021, sales to an independent third-party and its affiliates accounted for $ 5,226 or 10.7 % and $ 2,335 or 4.8 % of our product sales, respectively.

For the nine months ended September 30, 2022 and 2021, sales to an independent third-party and its affiliates accounted for $ 11,420 or 7.3 % and $ 7,399 or 6.1 % of our product sales, respectively.

For the three months ended September 30, 2022 and 2021, total cost of product sales included $ 2,711 and $ 3,978 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 nine months ended September 30, 2022 and 2021, total cost of product sales included $ 8,964 and $ 8,976 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.

8 unchanged sentences

Disaggregation of Revenue .

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:

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

Three months ended

Six months ended

Nine months ended

September 30,

Product sales:

41 unchanged sentences

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

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

On September 30, 2022 and December 31, 2021, the allowance for doubtful accounts totaled $ 666 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.

Depreciation expense for the leased property was $ 184 and $ 143 for the three months ended September 30, 2022 and 2021, respectively, and $ 538 and $ 373 for the nine months ended September 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 June 30, 2022, are as follows:

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

2022 (3 months)

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

The average contractual interest rate per loan was approximately 13.4 % and 13.5 % as of September 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 $ 9,771 and $ 9,350 as of June 30, 2022 and December 31, 2021, respectively, and are included in escrow liability in the condensed balance sheets.

The liabilities associated with these escrow collections totaled $ 10,572 and $ 9,350 as of September 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 $ 725 and $ 517 as of June 30, 2022 and December 31, 2021, respectively, and are included in other assets in the condensed balance sheets.

Repossessed homes totaled $ 960 and $ 517 as of September 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 June 30,

As of September 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 June 30,

Six Months Ended June 30,

Three months ended September 30,

Nine Months Ended September 30,

Allowance for loan losses, beginning of period

3 unchanged sentences

The reserve for loan losses consists of the following:

As of June 30,

As of September 30,

As of December 31,

8 unchanged sentences

(dollars in thousands)

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 September 30, 2022 and December 31, 2021, the total principal outstanding for consumer loans on nonaccrual status was $ 1,350 and $ 1,239 , respectively.

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

As of September 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 7.6 % and 7.6 % as of June 30, 2022 and December 31, 2021, respectively, with maturities that range from 1 to 18 years .

The average interest rate per loan was approximately 8.0 % and 7.6 % as of September 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.

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.

The Company had concentrations of MHP Notes with an independent third-party and its affiliates that equaled 31.0 % and 52.1 % of the principal balance outstanding, all of which was secured by the mobile homes, as of September 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 June 30, 2022 and December 31, 2021, the MHP Note balance is presented net of unamortized finance fees of $ 771 and $ 445 , respectively.

As of September 30, 2022 and December 31, 2021, the MHP Note balance is presented net of unamortized finance fees of $ 725 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 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.

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

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

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

9 unchanged sentences

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 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.

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

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

As of June 30,

As of September 30,

As of December 31,

29 unchanged sentences

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 June 30, 2022.

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

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

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

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

2022 (3 months)

Total lease payments

4 unchanged sentences

Inventories consists of the following:

As of June 30,

As of September 30,

As of December 31,

3 unchanged sentences

Allowance for obsolescence

(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.

(1) Finished goods includes $ 5,494 and $ 2,678 as of September 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 June 30,

As of September 30,

As of December 31,

4 unchanged sentences

Total property, plant and equipment

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.

Depreciation expense was $ 295 with $ 116 included as a component of cost of product sales for the three months ended September 30, 2022 and $ 403 with $ 113 included as a component of cost of product sales for the three months ended September 30, 2021.

Depreciation expense was $ 872 with $ 364 included as a component of cost of product sales for the nine months ended September 30, 2022 and $ 784 with $ 327 included as a component of cost of product sales for the nine months ended September 30, 2021.

Other assets consists of the following:

As of June 30,

As of September 30,

As of December 31,

5 unchanged sentences

Accrued liabilities consists of the following:

As of June 30,

As of September 30,

As of December 31,

10 unchanged sentences

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

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

The New Revolver had 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, 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, consumer loans and MHP Notes.

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

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 $ 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 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 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.

1 unchanged sentence

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.

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

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 under the New Revolver.

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

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

The interest rate in effect as of September 30, 2022 and December 31, 2021 was 4.56 % and 2.10 %, respectively.

The amount of available credit under the New Revolver was $ 20,000 and $ 61,841 as of September 30, 2022 and December 31, 2021, respectively.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

For the three months ended September 30, 2022 and 2021, interest expense under the New Revolver was $ 87 and $ 318 , respectively.

For the nine months ended September 30, 2022 and 2021, interest expense under the New Revolver was $ 326 and $ 827 , respectively.

The outstanding balance as of September 30, 2022 and December 31, 2021 was $ 0 and $ 7,993 , respectively.

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

As of September 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.

PILOT Agreement

5 unchanged sentences

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

As of June 30, 2022, the Company had not drawn on this credit facility.

No amounts have been 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 June 30, 2022, the Company had 8.1 million shares available for grant under the Compensation Plan.

At September 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.

14 unchanged sentences

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 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.

An additional equity award of

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

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”).

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

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.

1 unchanged sentence

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

On June 7, 2022, the Company granted 301 restricted shares of its common stock to an independent director on the Company’s Board of Directors.

The shares were granted on June 7, 2022 and had a grant date fair value of $ 5 .

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):

2 unchanged sentences

Nonvested, January 1, 2022

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.

Nonvested, September 30, 2022

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

Unrecognized compensation expense related to these RSUs at September 30, 2022 was $ 1,943 and is expected to be recognized over 1.80 years.

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

23 unchanged sentences

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

6 unchanged sentences

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.

6 unchanged sentences

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):

The following is a summary of option activity (number of units in thousands):

Number of Units

3 unchanged sentences

Contractual Life

Outstanding, January 1, 2022, nonvested

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.

Outstanding, January 1, 2022

Outstanding, September 30, 2022

Exercisable, September 30, 2022

As of September 30, 2022, approximately 1,075,000 options remained nonvested.

Unrecognized compensation expense related to these options at September 30, 2022 was $ 5,655 and is expected to be recognized over 9.66 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.

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.

The provision for income tax expense for the nine months ended September 30, 2022 and 2021 was $ 10,210 and $ 7,427 , respectively.

The effective tax rate for the nine months ended September 30, 2022 was 17.5 % 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 nine months ended September 30, 2021 was 17.0 % 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

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

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

The Company estimates and records costs for

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

incurred but not reported medical claims and claim development.

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

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

At June 30, 2022 and December 31, 2021, the Company accrued a $ 280 and $ 373 , respectively, liability for incurred but not reported claims.

At September 30, 2022 and December 31, 2021, the Company accrued a $ 206 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

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 maximum amount for which the Company was liable under such agreements totaled $ 9,905 and $ 4,908 at September 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 September 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 $ 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.

Rent expense was $ 180 and $ 140 for the three months ended September 30, 2022 and 2021, respectively, and $ 530 and $ 436 for the nine months ended September 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 $ 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.

Rental income from the subleased property was approximately $ 55 and $ 82 for the three months ended September 30, 2022 and 2021, respectively, and approximately $ 165 and $ 263 for the nine months ended September 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 $ 1,402 and $ 2,764 as of June 30, 2022 and December 31, 2021, respectively, in accrued liabilities on the accompanying condensed balance sheets.

The Company has included legal reserves of $ 1,362 and $ 2,764 as of September 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.

8 unchanged sentences

(1) Quoted prices for similar assets or liabilities in active markets;

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

(2) Quoted prices for identical or similar assets or liabilities in inactive markets;

3 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 June 30, 2022.

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

Fair Value of Financial Instruments

5 unchanged sentences

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 $ 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.

The Company determined that the fair value of the consumer loan portfolio was approximately $ 134,500 compared to the book value of $ 134,450 as of September 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 $ 116,900 compared to the book value of $ 118,300 as of September 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 fixed rate other notes was approximately $ 19,700 compared to the book value of $ 20,759 as of September 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.

7 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

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 $ 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.

Accounts receivable balances due from Bell Mobile Homes were $ 57 and $ 1 as of September 30, 2022 and December 31, 2021, respectively.

Accounts payable balances due to Bell Mobile Homes for maintenance and related services were $ 57 and $ 49 as of September 30, 2022 and December 31, 2021, respectively.

Home sales to Bell Mobile Homes were $ 695 and $ 1,750 for the three months ended September 30, 2022 and 2021, respectively, and $ 2,550 and $ 3,143 for the nine months ended September 30, 2022 and 2021, respectively.

Shipley Bros., Ltd.

1 unchanged sentence

Home sales to Shipley Bros.

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.

were $ 524 and $ 1,047 for the three months ended September 30, 2022 and 2021, respectively, and $ 2,235 and $ 2,486 for the nine months ended September 30, 2022 and 2021, respectively.

Accounts receivable balances due from Shipley Bros.

were $ 117 and $ 0 as of September 30, 2022 and December 31, 2021, respectively.

There were no accounts payable balances due to Shipley Bros.

as of September 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.

On November 3, 2022, Legacy’s Board of Directors unanimously approved a stock repurchase program that will enable the Company to repurchase up to $ 10,000 of its outstanding common stock.

The timing and amount of any shares purchased will be determined by the Company’s management based on its evaluation of market conditions and other factors.

The repurchase program will be in effect until October 31, 2025.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

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 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 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.

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