What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-10 compared with 2022-11-08 · 235 added, 315 removed, 473 unchanged (54% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

Cash and cash equivalents

Held to maturity securities

Accounts receivable, net

5 unchanged sentences

Total current assets

Contracts - dealer financed

Contracts - dealer financed, net

Consumer loans receivable, net

Notes receivable from mobile home parks (“MHP”)

Notes receivable from MHP, net

Other notes receivable, net

Inventories, net

Other assets - leased mobile homes

7 unchanged sentences

Escrow liability

Operating lease obligation

Operating lease obligations

Lines of credit

Total current liabilities

Long‑term liabilities:

Operating lease obligation, less current portion

Operating lease obligations, less current portion

Lines of credit

7 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 September 30, 2022 and December 31, 2021, respectively

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

24,823,266 and 24,814,695 issued and 24,378,201 and 24,369,630 outstanding at March 31, 2023 and December 31, 2022, respectively

Treasury stock at cost, 445,065 shares at March 31, 2023 and December 31, 2022

Additional paid-in-capital

6 unchanged sentences

(in thousands, except share and per share data)

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Product sales

18 unchanged sentences

(unaudited, in thousands)

Nine months ended September 30,

Three months ended March 31,

Operating activities:

2 unchanged sentences

Amortization of deferred revenue

Amortization of treasury note discount

Amortization of lines of credit cost

Provision for accounts and notes receivable

Provision for long term inventory

Provision for inventory

Gain from sale of leased property

Amortization of operating lease right of use asset

7 unchanged sentences

Accounts payable and accrued liabilities

Right of use activity, net

Customer deposits

1 unchanged sentence

Dealer incentive liability

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Investing activities:

Purchases of property, plant and equipment

Proceeds from sale of leased property

Issuance of notes receivable

1 unchanged sentence

Collections from purchased loans

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Financing activities:

Proceeds from exercise of stock options

Proceeds from other liabilities

Proceeds from lines of credit

Payments on lines of credit

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents

11 unchanged sentences

Share based compensation expense and stock units vested

Net income (restated)

Balances, March 31, 2021 (restated)

Share based compensation expense and stock units vested

Net income (restated)

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)

Balances, March 31, 2022

paid-in-capital

Balances, December 31, 2022

Cumulative change in accounting principle, net of taxes (Note 1)

Balances, January 1, 2023 (as adjusted for change in accounting principle)

Share based compensation expense and stock units vested

Balances, March 31, 2023

Share based compensation expense and stock units vested

Balances, September 30, 2022

Share based compensation expense and stock units vested

Balances, September 30, 2022

See accompanying notes to condensed financial statements.

11 unchanged sentences

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

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

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

In January 2019, the Company sold an additional 600,000 shares of its common stock as part of the IPO at $ 12.00 per share.

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

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

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

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

Share purchases may be made from time to time in the open market or through privately negotiated transactions depending on market conditions, share price, trading volume and other factors.

Such purchases, if any, will be made in accordance with applicable insider trading and other securities laws and regulations.

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

Corporate Conversion

Effective January 1, 2018, the Partnership converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Legacy Housing Corporation.

In order to consummate the corporate conversion completed on January 1, 2018, a certificate of conversion was filed with the Secretary of State of the State of Delaware and with the Secretary of State of the State of Texas.

Holders of partnership interests in Legacy Housing, Ltd.

received an initial allocation, on a proportional basis, of 20,000,000 shares of common stock of Legacy Housing Corporation.

Following the corporate conversion, Legacy Housing Corporation continues to hold all property and assets of Legacy Housing, Ltd.

and all of the debts and obligations of Legacy Housing, Ltd.

On the effective date of the corporate conversion, the officers of Legacy Housing, Ltd.

became the officers of Legacy Housing Corporation.

As a result of the corporate conversion, the Company is now a federal corporate taxpayer.

Basis of Presentation

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.

The accompanying unaudited interim condensed financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022, 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 nine months ended September 30, 2022 are not necessarily indicative of the results to be

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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").

The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or any other period.

The accompanying balance sheet as of December 31, 2022 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”).

The accompanying financial statements do not include all of the information and footnotes required by GAAP for annual financial statements.

2 unchanged sentences

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

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 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:

Cost of product sale

Income from operations

Income before income tax expense

Income tax expense

Net income per share:

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:

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 nine months ended September 30, 2021 were as follows:

Nine months September 30, 2021

As Originally

Operating activities:

Prepaid expenses and other current assets

Accounts payable

Accrued liabilities

Net cash used in operating activities

Investing activities:

Purchases of property, plant and equipment

Net cash used in investing activities

Financing activities:

Payments on lines of credit

Net cash provided by financing activities

Use of Estimates

6 unchanged sentences

Direct Sales include homes sold directly to independent retailers or customers that are not financed by the Company and are not sold under a consignment arrangement.

These types of homes are generally paid for prior to shipment.

These homes are generally paid for prior to shipment.

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

1 unchanged sentence

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 customers.

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

Consignment Sales under the inventory financing arrangement are

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

annual curtailment payment for the first two years .

considered sales of homes to the independent dealer.

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

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

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

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 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.

Interest income is separately recorded in the statement of income.

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.

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

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 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 .

Warranty costs were $ 627 and $ 565 for the three months ended March 31, 2023 and 2022, respectively.

For the three months ended March 31, 2023 and 2022, MHP sales to an independent third party and it’s affiliates accounted for $ 5,647 or 13.0 % and $ 3,134 or 6.7 % of our product sales, respectively.

No other customer accounted for more than 5.0% of our product sales.

For the three months ended March 31, 2023 and 2022, product sales included $ 2,623 and $ 2,999 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.

3 unchanged sentences

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.

Revenue for service fees and miscellaneous income is recognized when the performance obligation is satisfied.

LEGACY HOUSING CORPORATION

2 unchanged sentences

Disaggregation of Revenue .

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

The following table summarizes customer contract revenues disaggregated by the source of the revenue for the three months ended March 31, 2023 and 2022:

Three months ended

Nine months ended

September 30,

Product sales:

Commercial sales

Consignment sales

Inventory finance sales

Retail store sales

17 unchanged sentences

Treasury zero-coupon securities that correspond to the expected life of the award.

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;

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

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

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

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

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

4 unchanged sentences

expected volatilities are based on the Company’s historic stock price volatility;

the expected term of the awards is based on performance measurement period;

the expected term of the awards is based on the performance measurement period;

the risk-free interest rate is based on the U.S.

2 unchanged sentences

Included in accounts receivable “net” are receivables from direct sales of mobile homes, sales of parts and supplies to customers, consignment fees and interest.

Accounts receivable “dealer financed” are receivables for interest, fees and curtailments owed from dealers under their inventory finance agreements.

Accounts receivable “dealer financed” are receivables for interest, fees and curtailments owed by dealers under their inventory finance agreements.

Accounts receivables “net” are generally due within 30 days and are stated at amounts due from customers net of an allowance for doubtful accounts.

3 unchanged sentences

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

On September 30, 2022 and December 31, 2021, the allowance for doubtful accounts totaled $ 666 and $ 343 , respectively.

On March 31, 2023 and December 31, 2022, the allowance for doubtful accounts totaled $ 252 and $ 279 , respectively.

Leased Property

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

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

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

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

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

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

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

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

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

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

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

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

The lessee is also responsible for repairing any damage caused by force majeure events.

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

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

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

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

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

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

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

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

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

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.

Depreciation expense for the leased property was $ 160 and $ 170 for the three months ended March 31, 2023 and 2022, 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 September 30, 2022, are as follows:

2022 (3 months)

Future minimum lease income under all operating leases for each of the next five years at March 31, 2023, are as follows:

Recent Accounting Pronouncements

2 unchanged sentences

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

As an emerging growth company, ASU 2016-02 is effective for fiscal years beginning after December 15, 2021, and interim periods within those years.

As an emerging growth company, ASU 2016-02 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

The Company adopted this standard in the first quarter of fiscal 2022 and elected certain practical expedients permitted under the transition guidance, including the package of practical expedients;

6 unchanged sentences

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

For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.

For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, requires an entity to instead reflect its current estimate of all expected credit losses.

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

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

For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP.

However, Topic 326 will require that credit losses be presented as an allowance rather than a write-down and affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.

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

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

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

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

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

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

The adoption of ASU 2016-13 resulted in an increase in portfolio allowances of $ 900 at transition.

The $ 900 was comprised of a $ 225 increase for MHP notes, a $ 187 increase for dealer financed contracts and a $ 488 increase for other notes receivable.

The cumulative effect of the adoption was a net decrease of $ 698 to beginning retained earnings at January 1, 2023.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 .

The amendments in this update extend the transition relief period for reference rate reform from December 31, 2022 to December 31, 2024.

The amendments in ASU 2022-06 apply to all entities, subject to meeting

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

ASU 2022-06 was effective upon issuance.

The new standard has had no material impact on the Company's financial statements.

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

CONSUMER LOANS

2 unchanged sentences

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

The average contractual interest rate per loan was approximately 13.4 % and 13.5 % as of September 30, 2022 and December 31, 2021, respectively.

The average contractual interest rate per loan was approximately 13.3 % and 13.4 % as of March 31, 2023 and December 31, 2022, respectively.

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

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

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

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

1 unchanged sentence

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 $ 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.

The liabilities associated with these escrow collections totaled $ 9,272 and $ 9,653 as of March 31, 2023 and December 31, 2022, respectively, and are included in escrow liability in the condensed balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

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

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

3 unchanged sentences

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

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

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

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

1 unchanged sentence

The accrual of interest resumes when the past due principal or interest payments are brought within 90 days of being current.

Impaired loans are those loans where it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Impaired loans are those loans where it is probable the Company will be unable to collect all amounts due under the terms of the loan agreement, including scheduled principal and interest payments.

Impaired loans, or portions thereof, are charged off when deemed uncollectible.

A loan is generally deemed impaired if it is more than 90 days past due on principal or interest, is in bankruptcy proceedings, or is in the process of repossession.

A specific reserve is created for impaired loans based on fair value of underlying collateral value, less estimated selling costs.

A specific reserve is created for impaired loans based on the fair value of the underlying collateral, less estimated selling costs.

The Company uses various factors to determine the value of the underlying collateral for impaired loans.

7 unchanged sentences

and (7) the experience and expertise of the particular dealer assisting in collection efforts.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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.

2 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 $ 960 and $ 517 as of September 30, 2022 and December 31, 2021, respectively, and are included in other assets in the condensed balance sheets.

Repossessed homes totaled $ 1,333 and $ 795 as of March 31, 2023 and December 31, 2022, 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 September 30,

As of March 31,

As of December 31,

4 unchanged sentences

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

Three months ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Allowance for loan losses, beginning of period

2 unchanged sentences

Allowance for loan losses

The reserve for loan losses consists of the following:

As of September 30,

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The following table presents loan loss and impairment detail for the consumer loans receivable portfolio:

As of March 31,

As of December 31,

5 unchanged sentences

General allowance for loan losses

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 March 31, 2023 and December 31, 2022, the total principal outstanding for consumer loans on nonaccrual status was $ 1,612 and $ 1,610 , respectively.

A detailed aging of consumer loans receivable that are past due as of March 31, 2023 and December 31, 2022 were as follows:

As of March 31,

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 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 average interest rate per loan was approximately 8.0 % and 8.1 % as of March 31, 2023 and December 31, 2022, respectively, with maturities that range from 1 to 10 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 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.

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

The Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 15.3 %, 16.6 % and 31.0 % of the principal balance outstanding, all of which was secured by the mobile homes, as of March 31, 2023.

As of December 31, 2022, the Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 12.3 %, 16.6 % and 34.0 % of the principal balance outstanding, all of which was secured by the mobile homes.

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

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

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.

As of March 31, 2023 and December 31, 2022, the MHP Notes balance is presented net of unamortized finance fees of $ 1,254 and $ 1,068 , 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 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.

OTHER NOTES RECEIVABLE

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

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

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

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

There were minimal past due balances on the MHP Notes as of March 31, 2023 and December 31, 2022 and no charge offs were recorded for MHP Notes during the three months ended March 31, 2023 and 2022.

The allowance for loan loss is $ 205 and $ 0 at March 31, 2023 and December 31, 2022, respectively.

There were no impaired MHP Notes as of March 31, 2023 and December 31, 2022, and there was no repossessed homes balances as of March 31, 2023 and December 31, 2022.

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

OTHER NOTES RECEIVABLE

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

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 personally guaranteed by the borrowers.

The interest rate on the other notes are fixed and range from 5.00 % to 17.90 %.

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 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.

There were no past due balances for other notes as of March 31, 2023 and December 31, 2022, and there were no impaired balances for other notes as of March 31, 2023 and December 31, 2022.

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

As of September 30,

As of March 31,

As of December 31,

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Allowance for loan losses

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.

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 of which 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.

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The Company chose to use the adoption date of January 1, 2022 for ASC 842.

As such, all periods presented after January 1, 2022, are under ASC 842 whereas periods presented prior to January 1, 2022, are in accordance with prior lease accounting of ASC 840.

Financial information was not updated and the disclosures required under ASC 842 were not provided for dates and periods before January 1, 2022.

As such, all periods presented after January 1, 2022, are under ASC 842 whereas periods presented prior to January 1, 2022, are in accordance with prior lease accounting under ASC 840.

Financial information was not updated and the disclosures required under ASC 842 were not provided for dates and periods prior to January 1, 2022.

We determine if an arrangement is a lease at inception.

Operating leases are right-of-use (“ROU”) assets and are shown as ROU assets – operating leases on our Condensed Balance Sheet.

The lease liabilities are shown as Operating lease obligation and Operating lease obligation, less current portion on our Condensed Balance Sheet.

The lease liabilities are shown as operating lease obligations and operating lease obligations, less current portion on our Condensed Balance Sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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We have elected the practical expedient to not separate lease and non-lease components.

Therefore, lease payments included in the measurement of the lease liability include all fixed payments in the lease arrangement.

Therefore, lease payments included in the measurement of the lease liability include all fixed payments under the lease agreement.

We record a ROU asset for an amount equal to the lease liability, increased for any prepaid lease costs and initial direct costs and reduced by any lease incentives.

We remeasure the lease liability and ROU asset when a change to our future minimum lease payments occurs.

We remeasure the lease liability and ROU asset

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

when a change to our future minimum lease payments occurs.

Key assumptions and judgments included in the determination of the lease liability include the discount rate used in the present value calculation and the exercise of renewal options.

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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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

a similar term and in a similar economic environment.

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

The remaining weighted-average lease term is 4.40 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 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 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)

There were no variable lease costs for the three months ended March 31, 2023 and 2022.

Short-term leases, defined as 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, 2023 and 2022.

As of March 31, 2023, future minimum lease payments under our operating lease liabilities were as follows:

Total lease payments

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Total non-current lease liability

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Inventories consists of the following:

As of September 30,

As of March 31,

As of December 31,

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Allowance for obsolescence

(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

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

(1) Finished goods includes $ 7,242 and $ 6,987 as of March 31, 2023 and December 31, 2022 , respectively , held for more than twelve months and classified as long-term.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

As of September 30,

As of March 31,

As of December 31,

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Total property, plant and equipment

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.

Depreciation expense was $ 270 with $ 126 included as a component of cost of product sales for the three months ended March 31, 2023, and $ 260 with $ 121 included as a component of cost of product sales for the three months ended March 31, 2022.

Other assets consists of the following:

As of September 30,

As of March 31,

As of December 31,

3 unchanged sentences

(dollars in thousands)

DEBT SECURITIES

Debt Securities have been classified according to management’s intent.

The Company purchased US Treasury Notes in November 2022 that mature in November 2023.

The Debt Securities have been classified as held-to-maturity and the amortized costs are $ 8,452 and $ 8,412 at March 31, 2023 and December 31, 2022, respectively.

ACCRUED LIABILITIES

Accrued liabilities consists of the following:

As of September 30,

Accrued liabilities consist of the following:

As of March 31,

As of December 31,

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Lines of Credit

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

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

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

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

The New Revolver 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.

for a new revolving line of credit (“Revolver”).

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

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 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.

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 $ 20,000 and $ 61,841 as of September 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.

(“Capital One”).

The letter stated that the Company’s 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 statements to Capital One.

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

The Amendment replaced the LIBOR borrowing rate with a secured overnight financing rate (“SOFR”) and waived a default arising out of a monetary judgement against the Company that exceeded the amount allowed in the Revolver.

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

The notice stated that the July 28, 2022 forbearance agreement had been terminated and that Capital One suspending $ 50,000 of the $ 70,000 loan commitment under the Revolver.

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

As of March 31, 2023, the Company was in compliance with all non-financial covenants.

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

The interest rates in effect as of March 31, 2023 and December 31, 2022 are 6.66 % and 6.12 %, respectively.

Amounts available under the 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 Revolver was $ 12,162 and $ 17,400 as of March 31, 2023 and December 31, 2022, respectively.

In connection with the Revolver, the Company paid certain arrangement fees and other

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

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.

If funds are drawn, the Company would pay transaction costs and debt service payments.

The PILOT agreement requires interest payments of 6.00 % per annum on outstanding balances, which are due each December 1st through maturity on December 1, 2021, at which time all unpaid principal and interest are due.

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

No amounts have been drawn on this credit facility.

fees of approximately $ 295 , which were capitalized as unamortized debt issuance costs and will be amortized to interest expense over the life of the Revolver.

For the three months ended March 31, 2023 and 2022, interest expense under the Revolver was $ 91 and $ 56 , respectively.

The outstanding balance as of March 31, 2023 and December 31, 2022 was $ 7,838 and $ 2,545 , respectively.

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

As of March 31, 2023, 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.

SHARE-BASED COMPENSATION

1 unchanged sentence

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

At September 30, 2022, the Company had 8.1 million shares available for grant under the Compensation Plan.

At December 31, 2022, the Company had 9.7 million shares available for grant under the Compensation Plan.

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

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

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

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

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

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

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

The shares become fully vested on October 4, 2021.

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

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

The shares become fully vested on October 24, 2022.

The shares became fully vested on October 24, 2022.

In January 2022, the Company granted 150,000 restricted shares of its common stock to the Executive Chairman of the Company pursuant to an amended and restated employment agreement.

2 unchanged sentences

On January 6, 2022, the Company gave contingent equity awards of 350,000 shares of the Company’s restricted stock to the Executive Chairman of the Company pursuant to an amended and restated employment agreement.

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 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

An equity award of 175,000 shares will be granted if the Company’s stock price closes at $ 36 per share for a period of fifteen consecutive market days (the “$ 36 Equity Award”).

The $ 36 Equity Awards had a grant date fair value of $ 1,412 .

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 closes at $ 48 per share for a period of fifteen consecutive market days (the “$ 48 Equity Award”).

The $ 48 Equity Awards had a grant date fair value of $ 683 .

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.

On November 15, 2022, the Company entered into a rescission and relinquishment agreement (the “Rescission Agreement”) with the Executive Chairman.

The Rescission Agreement allows the Executive Chairman to rescind and relinquish the $ 36 Equity Awards and the $ 48 Equity Awards granted under the amended and restated employment agreement and allows the Company to accept such rescission and relinquishment without penalty.

The effective date of the Rescission Agreement was October 1, 2022.

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”).

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 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.

3 unchanged sentences

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 shares became fully vested on October 24, 2022.

In November 2022, the Company granted 1,734 restricted shares of its common stock to the independent directors on the Company’s Board of Directors.

The shares were granted on November 29, 2022 and had a grant date fair value of $ 30 .

The shares became fully vested on October 23, 2023.

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

2 unchanged sentences

Nonvested, January 1, 2023

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.

Nonvested, March 31, 2023

As of March 31, 2023, approximately 34,000 RSUs remained unvested.

The unrecognized compensation expense related to these RSUs at March 31, 2023 was $ 376 and is expected to be recognized over 1.55 years.

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

The options were granted on August 10, 2020 at an exercise price of $ 14.44 per share.

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

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

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 0.24 %;

dividend yield of 0.00 %;

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

During the first quarter of 2022, 27,701 of these options were forfeited due to the departure of the senior manager.

risk free interest rate of 0.24 %, dividend yield of 0.00 %, expected volatility of common stock of 75.0 % and expected life of options of 6.5 years.

During the first quarter of 2022, 27,701 of these options were forfeited due to the individual’s departure.

The Company granted 55,490 incentive stock options to a member of management.

The options were granted on September 23, 2021 at an exercise price of $ 18.02 per share.

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

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

All options expire ten years after the date of grant.

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

risk free interest rate of 1.41 %;

dividend yield of 0.00 %;

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

risk free interest rate of 1.41 %, dividend yield of 0.00 %, expected volatility of common stock of 75.0 % and expected life of options of 7.8 years.

During the fourth quarter of 2022, these options were forfeited due to the individual’s departure.

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.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and become 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.

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

3 unchanged sentences

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.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and become 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.

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 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.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and become 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.

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 (number of units in thousands):

5 unchanged sentences

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 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

Outstanding, March 31, 2022

Exercisable, March 31, 2022

Outstanding, January 1, 2023

Outstanding, March 31, 2023

Exercisable, March 31, 2023

As of March 31, 2023, approximately 1,025,000 options remained nonvested.

Unrecognized compensation expense related to these options at March 31, 2023 was $ 4,699 and is expected to be recognized over 9.19 years.

The provision for income tax expense for the three months ended March 31, 2023 and 2022 was $ 3,435 and $ 3,558 , respectively.

The effective tax rate for the three months ended March 31, 2023 was 17.4 % 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, 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.

LEGACY HOUSING CORPORATION

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(dollars in thousands)

incurred but not reported medical claims and claim development.

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 reserves estimated costs for incurred but not reported medical claims and claim development.

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

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

At 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.

As of March 31, 2023 and December 31, 2022, the Company had accrued a $ 174 and $ 149 liability for incurred but not reported claims, respectively.

These accrued amounts are included in accrued liabilities on the condensed balance sheets.

The Company is contingently liable under the terms of repurchase agreements with financial institutions that provide inventory financing for independent retailers that sell the Company’s products.

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

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

The maximum amount for which the Company was liable under such agreements 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 maximum amount for which the Company was liable under such agreements totaled $ 8,396 and $ 8,925 at March 31, 2023 and December 31, 2022, respectively, without reduction for the resale value of the homes.

The Company considers its obligations on current contracts to be insignificant and accordingly has not recorded any reserve for repurchase commitment as of March 31, 2023 and December 31, 2022.

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 $ 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.

Rent expense was $ 182 and $ 163 for the three months ended March 31, 2023 and 2022, 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 $ 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.

Rental income from the subleased properties was approximately $ 67 and $ 82 for the three months ended March 31, 2023 and 2022, respectively.

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

2 unchanged sentences

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

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

The Company 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.

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

The Company has included legal reserves of $ 394 and $ 753 as of March 31, 2023 and December 31, 2022, 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 pending or threatened litigation 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.

1 unchanged sentence

The Company accounts for its investments and derivative instruments in accordance with ASC 820-10, Fair Value Measurement, which among other things provides the framework for measuring fair value.

That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

This framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurement) and the lowest priority to unobservable inputs (Level III measurements).

1 unchanged sentence

Level I Quoted prices are available in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level II Significant observable inputs other than quoted prices in active markets for which inputs to the valuation methodology include:

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

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

Level II Significant observable inputs other than quoted prices in active markets for which inputs to the valuation methodology include:

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

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

(3) Inputs other than quoted prices that are observable;

(4) Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

and (4) Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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

6 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 September 30, 2022.

The Company was not a party to any interest rate swap agreements during the three months ended March 31, 2023 and 2022.

Fair Value of Financial Instruments

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

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

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

This is considered a Level I valuation technique.

The 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.

The investment in US Treasury Notes has quoted prices available in active markets that the Company can access at measurement dates.

The Company determined that the fair value of the investment in US Treasury Notes was approximately $ 8,448 compared to the book value of $ 8,452 as of March 31, 2023, and a fair value of approximately $ 8,409 compared to the book value of $ 8,412 as of December 31, 2022.

This is considered a Level I valuation technique.

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

The Company determined that the fair value of the consumer loan portfolio was approximately $ 140,900 compared to the book value of $ 141,316 as of March 31, 2023, and a fair value of approximately $ 138,800 compared to the book value of $ 139,009 as of December 31, 2022.

The Company determined that the fair value of the fixed rate MHP Notes was approximately $ 143,500 compared to the book value of $ 145,333 as of March 31, 2023, and a fair value of approximately $ 128,400 compared to the book value of $ 129,966 as of December 31, 2022.

The Company determined that the fair value of the fixed rate other notes was approximately $ 24,400 compared to the book value of $ 24,972 as of March 31, 2023, and a fair value of approximately $ 21,600 compared to the book value of $ 22,722 as of December 31, 2022.

This is a Level II valuation technique.

LEGACY HOUSING CORPORATION

6 unchanged sentences

Three 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 $ 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.

Accounts receivable balances due from Bell Mobile Homes were $ 104 and $ 0 as of March 31, 2023 and December 31, 2022, respectively.

Accounts payable balances due to Bell Mobile Homes for maintenance and related services were $ 41 and $ 132 as of March 31, 2023 and December 31, 2022, respectively.

Home sales to Bell Mobile Homes were $ 479 and $ 632 for the three months ended March 31, 2023 and 2022, respectively.

Shipley Bros., Ltd.

1 unchanged sentence

Home sales to Shipley Bros.

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.

were $ 632 and $ 693 for the three months ended March 31, 2023 and 2022, respectively.

Accounts receivable balances due from Shipley Bros.

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

were $ 224 and $ 0 as of March 31, 2023 and December 31, 2022, respectively.

There were no accounts payable balances due to Shipley Bros.

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

SUBSEQUENT EVENTS

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

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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

as of March 31, 2023 and December 31, 2022.

At March 31, 2023, the Company had a receivable of $ 14 from a principal shareholder.

This amount is included in the Company’s accounts receivable balance as of March 31, 2023.

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