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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-08 · 76 added, 164 removed, 101 unchanged (70% of the section changed)

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Our actual results could differ materially from those anticipated by our management in these forward-looking statements as a result of various factors, including those discussed in this Form 10-Q and in our Registration Statement on Form S-1, particularly under the heading “Risk Factors.”

Legacy Housing Corporation builds, sells and finances manufactured homes and “tiny houses” that are distributed through a network of independent retailers and company-owned stores and are sold directly to manufactured housing communities.

We are the fifth largest producer of manufactured homes in the United States as ranked by number of homes manufactured based on information available from the Manufactured Housing Institute and IBTS for the twelve month period ending June 30, 2022.

We are the fifth largest producer of manufactured homes in the United States as ranked by the number of homes manufactured based on information available from the Manufactured Housing Institute and the Institute for Building Technology and Safety for the twelve month period ending December 31, 2022.

With current operations focused primarily in the southern United States, we offer our customers an array of quality homes ranging in size from approximately 395 to 2,667 square feet consisting of 1 to 5 bedrooms, with 1 to 3 1/2 bathrooms.

Our homes range in price, at retail, from approximately $33,000 to $180,000.

For the three and nine months ended September 30 , 2022, we sold 944 and 2,947 home sections, respectively (which are entire homes or single floors that are combined to create complete homes).

For the three and nine months ended September 30, 2021, we sold 1,044 and 2,709 home sections, respectively.

For the three months ended March 31, 2023, we sold 810 home sections (which are entire homes or single floors that are combined to create complete homes) and for the three months ended March 31, 2022, we sold 1,004 home sections.

The Company has one reportable segment.

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For example, the sale of manufactured homes includes providing transportation and consignment arrangements with dealers.

We also provide financing options to the customers to facilitate such sale of homes.

We also provide financing options to the customers to facilitate the sale of homes.

In addition, the sale of homes is directly related to financing provided by us.

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Department of Housing and Urban Development (“HUD”).

Our factories employ high-volume production techniques that allow us to produce, on average, approximately 75 home sections, or 62 fully-completed homes depending on product mix, in total per week.

Our factories employ high-volume production techniques that allow us to produce, on average, approximately 70 home sections, or 60 fully-completed homes depending on product mix, per week.

We use quality materials and operate our own component manufacturing facilities for many of the items used in the construction of our homes.

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Our 13 company-owned retail locations, including 11 Heritage Housing stores and two Tiny House Outlet stores exclusively sell our homes.

For the nine months ended September 30, 2022, approximately 51% of our manufactured homes were sold in Texas, followed by 11% in Georgia, 6% in Florida, 5% in Louisiana and 5% in Arizona.

For the nine months ended September 30, 2021, approximately 47% of our manufactured homes were sold in Texas, followed by 15% in Georgia, 10% in Louisiana and 6% in Alabama.

For the three months ended March 31, 2023, approximately 38% of our manufactured homes were sold in Texas, followed by 19% in Georgia, 8% in Louisiana, 7% in Florida, and 4% in Alabama.

For the three months ended March 31, 2022, approximately 49% of our manufactured homes were sold in Texas, followed by 11% in Georgia, 8% in Florida, 7% in Louisiana and 5% in Arizona.

We offer three types of financing solutions to our customers.

We provide floor plan financing for our independent retailers, which takes the form of a consignment arrangement between the retailer and us.

We provide floor plan financing for our independent retailers, which takes the form of a consignment arrangement or a financed sale between the retailer and us.

We also provide consumer financing for our products which are sold to end-users through both independent and company-owned retail locations, and we provide financing solutions to manufactured housing community owners that buy our products for use in their manufactured housing communities.

Our ability to offer competitive financing options at our retail locations provides us with several competitive advantages and allows us to capture sales which may not have otherwise occurred without our ability to offer consumer financing.

Corporate Conversion

Prior to January 1, 2018, we were a Texas limited partnership named Legacy Housing, Ltd.

Effective January 1, 2018, we converted into a Delaware corporation pursuant to a statutory conversion, or the Corporate Conversion, and changed our name to Legacy Housing Corporation.

All of our outstanding partnership interests were converted on a proportional basis into shares of common stock of Legacy Housing Corporation.

Effective December 31, 2019, the Company reincorporated from a Delaware corporation to a Texas corporation.

For more information, see “Corporate Conversion” in Note 1.

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

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

continue as the debts and obligations of Legacy Housing Corporation.

The purpose of the Corporate Conversion was to reorganize our corporate structure so that the top-tier entity in our corporate structure is a corporation rather than a limited partnership and so that our existing owners own shares of our common stock rather than partnership interests in a limited partnership.

Except as otherwise noted, the financial statements included in this Form 10-Q are those of Legacy Housing Corporation.

Factors Affecting Our Performance

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● We have purchased several properties in our market area for the purpose of developing manufactured housing communities and subdivisions.

As of September 30, 2022, these properties include the following (dollars in 000’s):

As of March 31, 2023, the cost of these properties include the following (dollars in thousands):

Date of Acquisition

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● Finally, our financial performance will be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers.

Currently, our two Texas manufacturing facilities are operating at near peak capacity, with limited ability to increase the volume of homes produced at those plants.

Currently, our two Texas manufacturing facilities are operating at or near peak capacity, with limited ability to increase the volume of homes produced at those plants.

Our Georgia manufacturing facility has unutilized square footage available and with additional investment can add capacity to increase the number of homes that can be manufactured.

We intend to increase production at the Georgia facility over time, particularly in response to orders increasingly being generated from new markets in Florida and the Carolinas.

In order to maintain our growth, we will need to be able to continue to properly estimate anticipated future volumes when making commitments regarding the level of business that we will seek and accept, the mix of products that we intend to manufacture, the timing of production schedules and the levels and utilization of inventory, equipment and personnel.

● The coronavirus pandemic is an evolving threat to the economy and all businesses.

At this time both the duration of the pandemic and the magnitude of the economic consequences are unknown.

Risks to the Company include but are not limited to:

o increased loan losses or deferred loan payments as loan obligors suffer cash flow issues resulting from reduced employment, reduced rental income or unit sales, or other factors;

o reduced sales volume as potential customers are unable to shop for new homes or cannot qualify for a home purchase, retail dealers or company stores reduce or stop operations, or MHP owners reduce their future home purchases;

o reduced production resulting from factors such as the spread of the illness through the Company’s workforce or the impact of government interventions on labor force participation, reduced product demand, or government-mandated closures of our factories, company-owned stores, or retail lots of independent dealers who carry our products;

o delays in development projects as zoning, regulatory, and permitting decisions are likely to be postponed and the expected negative impact of the pandemic on the construction industry;

o reduced raw material availability related to global supply chain disruption from the pandemic, including possible border closures;

o decreased cash flow from operations which could negatively affect our liquidity;

o an outbreak of illness among our management and accounting staff could negatively affect our ability to maintain operations, operate our financial systems, delay our statutory reporting, and reduce our internal control of financial reporting.

We continue to monitor government responses to support the economy and evaluate how those actions might mitigate the risks noted above.

At this time, we believe that the pandemic will have a negative effect on our financial results that could range from minor to material.

In order to maintain our growth, we must be able to continue to properly estimate anticipated future volumes when making commitments regarding the level of business that we will seek and accept, the mix of products that we intend to manufacture, the timing of production schedules and the levels and utilization of inventory, equipment and personnel.

We are actively reviewing organic and inorganic opportunities to add production capacity in attractive regions to meet future demand.

Results of Operations

The following discussion should be read in conjunction with the information set forth in the financial statements and the accompanying notes appearing elsewhere in this Form 10-Q.

Comparison of Three Months ended September 30, 2022 and 2021 (in thousands)

Comparison of Three Months ended March 31, 2023 and 2022 (in thousands)

Three months ended

September 30,

Product sales

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Income tax expense

Product sales primarily consist of direct sales, commercial sales, consignment sales and retail store sales.

Product sales increased $0.4 million, or 0.8%, during the three months ended September 30, 2022 as compared to the same period in 2021.

This increase was driven by higher average sales price offset by a decrease in unit volumes.

Product sales primarily consist of direct sales, commercial sales, inventory finance sales and retail store sales.

Product sales decreased $8.5 million, or 16.4%, during the three months ended March 31, 2023 as compared to the same period in 2022.

This decrease was driven by a decrease in unit volumes and a decrease in the conversion of certain independent dealer consignment arrangements to financing arrangements.

Net revenue attributable to our factory-built housing consisted of the following during the three months of 2023 and 2022:

Three Months Ended

September 30,

(in thousands)

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Net revenue per product sold

For the three months ended September 30, 2022, our net revenue per product sold increased because of increases to our product prices due to rising material and labor costs, which resulted in higher home sales prices and more revenue generated per home sold.

We had increases in direct sales and commercial sales partially offset by a decline in consignment sales, retail store sales and other product sales.

Sales through our company-owned retail stores have higher margins than our direct sales and consignment sales.

For the three months ending September 30, 2022, we experienced a decrease in net revenue attributable to product sales due to the Company and the State of Georgia’s efforts to evaluate and improve the quality and consistency of homes manufactured in our Eatonton facility.

These efforts have resulted in a temporary decrease in the rate of issuing HUD Labels of Certification and shipping finished homes from our Eatonton facility.

We plan to increase shipments from our Eatonton facility during the fourth quarter and meet or exceed historical levels by early 2023.

Consumer and MHP loans interest income declined $0.3 million, or 3.5%, during the three months ended September 30, 2022 as compared to the same period in 2021 and is primarily related to our increase in outstanding consumer loan portfolio partially offset by a decrease in outstanding MHP Note portfolio.

The consumer loan portfolio has a higher average contractual interest rate compared to the MHP Note portfolio average contractual interest rate.

September 30, 2021, we collected $44.9 million in principal payment from one of our borrowers.

As a result of this payment, MHP loan interest income decreased during 2022 as compared to 2021.

Between September 30, 2022 and September 30, 2021 our consumer loan portfolio increased by $12.8 million, partially offsetting the decline in MHP loan interest income.

Other revenue primarily consists of consignment fees, commercial lease rents and servicer fee revenue and increased $0.7 million, or 80.6% during the three months ended September 30, 2022 as compared to the same period in 2021.

This increase was primarily due to a $0.4 million increase in servicer fee revenue, a $0.2 million increase in commercial lease rents and a $0.1 million increase in consignment fees.

The cost of product sales decreased $2.2 million, or 6.1%, during the three months ended September 30, 2022 as compared to the same period in 2021.

The decrease in costs is primarily related to a decrease in units sold, partially offset by increases in the cost of materials and labor in 2022 which was materially passed along to our end-customer.

Selling, general and administrative expenses increased $1.7 million, or 33.3%, during the three months ended September 30, 2022 as compared to the same period in 2021.

This increase was primarily due to a $0.8 million increase in warranty costs, a $0.4 million increase in salaries and incentive costs, a $0.2 million increase in consulting and professional fees, a $0.2 million increase in bad debts, a $0.1 million increase in loan loss provision and a $0.1 million increase in advertising and promotions, partially offset by a net $0.1 million decrease in other miscellaneous costs.

Dealer incentive expense decreased $0.2 million, or 46.2% during the three months ended September 30, 2022 as compared to the same period in 2021.

Other income (expense), net increased $0.3 million, or 83.7% during the three months ended September 30, 2022 as compared to the same period in 2021.

This increase was primarily due to a $0.2 million decrease in interest expense and an increase of $0.1 million in miscellaneous income, net.

Income tax expense was $2.8 million during the three months ended September 30, 2022 compared to $2.7 million for the same period in 2021.

The effective tax rate for the three months ended September 30, 2022 was 16.1% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and partially offset by state income taxes.

The effective tax rate for the three months ended September 30, 2021 was 17.3% 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.

Comparison of Nine Months ended September 30, 2022 and 2021 (in thousands)

Nine months ended

September 30,

Product sales

Consumer and MHP loans interest

Total net revenue

Operating expenses:

Cost of product sales

Selling, general administrative expenses

Dealer incentive

Income from operations

Other income (expense)

Non‑operating interest income

Miscellaneous, net

Interest expense

Income before income tax expense

Income tax expense

Product sales primarily consist of direct sales, commercial sales, consignment sales and retail store sales.

Product sales increased $33.9 million, or 27.8%, during the nine months ended September 30, 2022 as compared to the same period in 2021.

This increase was driven by higher average sales price and an increase in unit volumes.

Net revenue attributable to our factory-built housing consisted of the following during the nine months of 2022 and 2021:

Nine Months Ended

September 30,

(in thousands)

Products sold

Total products sold

Net revenue per product sold

For the nine months ended September 30, 2022, our net revenue per product sold increased primarily because of the increase in unit prices over the first half of 2022, as rising material and labor costs were passed on to our customers.

We had increases in consignment sales, direct sales, commercial sales and other product sales, slightly offset by a decrease in retail store sales.

Sales through our company-owned retail stores have higher margins than our direct sales and consignment sales.

For the three months ended March 31, 2023, our net revenue per product sold decreased primarily due to changes in our product sales mix slightly offset by increases in unit prices over the first half of 2022, as rising material and labor costs were passed on to our customers.

We had decreases in inventory finance sales, direct sales and retail store sales, partially offset by an increase in commercial sales and other product sales.

Our commercial sales have lower margins than sales through our company-owned retail stores and our inventory financed sales.

For the nine months ending March 31, 2023, we experienced a decrease in net revenue attributable to product sales due to the Company and the State of Georgia’s efforts to evaluate and improve the quality and consistency of homes manufactured in our Eatonton facility.

These efforts have resulted in a temporary decrease in the rate of issuing HUD Labels of Certification and shipping finished homes from our Eatonton facility.

We plan to increase shipments from our Eatonton facility during the fourth quarter and meet or exceed historical levels by early 2023.

Consumer and MHP loans interest income grew $0.6 million, or 3.1%, during the nine months ended September 30, 2022 as compared to the same period in 2021 and is primarily related to our increase in average outstanding consumer loan portfolio balance partially offset by a decrease in average outstanding MHP Note portfolio

The consumer loan portfolio has a higher average contractual interest rate compared to the MHP Note portfolio average contractual interest rate.

Between September 30, 2022 and September 30, 2021 our consumer loan portfolio increased by $12.8 million resulting in an increase of consumer loan interest income.

On September 30, 2021, we collected $44.9 million in principal payment from one of our borrowers.

As a result of this payment, MHP loan interest income decreased during 2022 as compared to 2021, partially offsetting the increase in consumer loan interest income.

Other revenue primarily consists of consignment fees, commercial lease rents and servicer fee revenue and increased $2.0 million, or 73.1% during the nine months ended September 30, 2022 as compared to the same period in 2021.

This increase was primarily due to a $1.0 million increase in consignment fees, a $0.5 million increase in commercial lease rents and a $0.5 million increase in servicer fee revenue.

The cost of product sales increased $18.6 million, or 21.7%, during the nine months ended September 30, 2022 as compared to the same period in 2021.

The increase in costs is primarily related to an increase in units sold and increases in the cost of materials and labor in 2022 which was materially passed along to our end-customer.

Selling, general and administrative expenses increased $5.3 million, or 35.2%, during the nine months ended September 30, 2022 as compared to the same period in 2021.

This increase was primarily due to a $5.0 million increase in salaries and incentive costs, a $0.6 million increase in legal expense, a $0.5 million increase in warranty costs, a $0.3 million increase in consulting and professional fees, a $0.2 million increase in bad debts, and a $0.2 million increase in depreciation and amortization expense, partially offset by a $0.3 million increase in loan loss provision and a net $1.2 million decrease in other miscellaneous costs.

Dealer incentive expense decreased $0.1 million, or 5.9%, during the nine months ended September 30, 2022 as compared to the same period in 2021.

Other income (expense), net increased $1.9 million, or 241.9% during the nine months ended September 30, 2022 as compared to the same period in 2021.

This increase was primarily due to a $1.0 million increase in non-operating interest income, an increase of $0.4 million in miscellaneous income, net and a decrease of $0.5 million in interest expense.

Income tax expense was $10.2 million during the nine months ended September 30, 2022 compared to $7.4 million for the same period in 2021.

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.

We increased shipments from our Eatonton facility during the first quarter of 2023 and plan to meet or exceed historical levels in 2023.

Consumer and MHP loans interest income grew $0.9 million, or 13.9%, during the three months ended March 31, 2023 as compared to the same period in 2022 and is related to our increase in average outstanding MHP note

portfolio balance and average outstanding consumer loan portfolio balance.

Between March 31, 2023 and March 31, 2022 our MHP note portfolio increased by $44.0 million and our consumer loan portfolio increased by $14.1 million.

Other revenue primarily consists of dealer finance fees and commercial lease rents and increased $0.5 million, or 33.3% during the three months ended March 31, 2023 as compared to the same period in 2022.

This increase was primarily due to a $0.4 million increase in dealer finance fees and a $0.1 million increase in commercial lease rents.

The cost of product sales decreased $4.8 million, or 14.1%, during the three months ended March 31, 2023 as compared to the same period in 2022.

The decrease in costs is primarily related to the decrease in units sold.

Selling, general and administrative expenses decreased $2.2 million, or 29.3%, during the three months ended March 31, 2023 as compared to the same period in 2022.

This decrease was primarily due to a $3.3 million decrease in salaries and incentive costs and a $0.4 million decrease in legal expense, partially offset by a $0.9 million increase in warranty costs, a $0.1 million increase in loan loss provision related to the adoption of ASU 2016-13 Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , a $0.2 million increase in loan loss provision not related to the adoption of ASU 2016-13, a $0.1 million increase in advertising costs and a net $0.2 million increase in other miscellaneous costs.

Dealer incentive expense decreased $0.1 million, or 52.4%, during the three months ended March 31, 2023 as compared to the same period in 2022.

Other income (expense), net was flat during the three months ended March 31, 2023 as compared to the same period in 2022.

There was an increase of $0.2 million in miscellaneous income, net offset by a decrease of $0.2 million in non-operating interest income.

Income tax expense was $3.4 million during the three months ended March 31, 2023 compared to $3.6 million for the same period in 2022.

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.

Liquidity and Capital Resources

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We have not incurred any losses from such accounts and management considers the risk of loss to be minimal.

We believe that cash flow from operations, cash and cash equivalents at September 30, 2022, and availability on our lines of credit will be sufficient to fund our operations and provide for growth for the next 12 to 18 months and into the foreseeable future.

We believe that cash flow from operations, cash and cash equivalents at March 31, 2023, and availability on our lines of credit will be sufficient to fund our operations and provide for growth for the next 12 to 18 months and into the foreseeable future.

In 2020, we negotiated a new credit agreement with Capital One, N.A.

that expanded and extended our credit availability (see Indebtedness – Capital One Revolver , below).

As of September 30, 2022, we had approximately $11.3 million in cash and cash equivalents, compared to $1.0 million as of December 31, 2021.

As of March 31, 2023, we had approximately $3.0 million in cash and cash equivalents, compared to $2.8 million as of December 31, 2022.

Cash Flow Activities

Nine Months Ended

September 30,

Three Months Ended

(in thousands)

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

Net cash (used in) provided by operating activities

Net cash (used in) provided by investing activities

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

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Cash and cash equivalents at end of period

Comparison of Cash Flow Activities from September 30, 2022 to September 30, 2021

Net cash provided by operating activities decreased $49.7 million during the nine months ended September 30, 2022, compared to the comparable period in 2021, primarily as a result of increased MHP originations net of collections, increased dealer inventory loan originations net of collections, increased volume of consumer loan originations net of principal collections, increased inventories, increase in other assets and a decrease in accounts payable and accrued liabilities.

The increase in cash used in operating activities was partially offset by an increase in customer deposits, an increase in escrow liability and increased dealer incentive liability.

Net cash provided by investing activities of $17.6 million in 2022 was primarily attributable to $23.5 million of collections related to loans we made to third parties for the development of manufactured housing parks and collections of $0.4 million from our purchased consumer loans.

These were offset by $3.1 million used for loans to third parties for the development of manufactured housing parks and $3.3 million used for the acquisition of property plant and equipment.

Comparison of Cash Flow Activities from March 31, 2023 to March 31, 2022

Net cash used in operating activities increased $1.6 million during the three months ended March 31, 2023, compared to the same period in 2022, primarily as a result of increased MHP originations net of collections, increased dealer inventory loan originations net of collections, increased volume of consumer loan originations net of principal collections, decrease in customer deposits, increased inventories, an increase in other assets and a decrease in accounts payable.

The increase in cash used in operating activities was partially offset by a decrease in accounts receivable, a decrease in prepaid expenses and other current assets and an increase in accrued liabilities.

Net cash used in investing activities of $2.2 million in 2023 was primarily attributable to $3.1 million used for loans to third parties for the development of manufactured housing parks and $0.8 million used for the acquisition of property plant and equipment.

These were offset by $1.1 million in proceeds from the sale of leased property, $0.5 million of collections related to loans to third parties for the development of manufactured housing parks and collections of $0.1 million from our purchased consumer loans.

Net cash provided by financing activities of $5.3 million in 2023 was attributable to net proceeds of $5.3 million on our lines of credit.

Net cash used in financing activities of $2.9 million in 2022 was attributable to net payments of $2.9 million on our lines of credit.

Net cash used in financing activities of $28.0 million in 2021 was attributable to net payments of $28.1 million on our lines of credit offset by $0.1 million received from the exercise of stock options.

Capital One Revolver.

At December 31, 2019, we 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, we 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%.

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.

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

The letter stated that our New Revolver was in default.

The default condition occurred due to our failure to timely file the Form 10-K and deliver certain financial statement to Capital One, N.A.

(“Capital One”) 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, we received a Reservation of Rights notice from Capital One.

The letter stated that our Revolver was in default.

The default condition occurred due to our failure to timely file the Form 10-K and deliver certain financial statements to Capital One.

On July 28, 2022, we 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 us that exceeded the amount allowed in the New Revolver.

On August 24, 2022, we 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 was 4.56%.

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 as of September 30, 2022.

In connection with the New Revolver, we 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 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, we 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 us with incentives through the abatement of local, city and county property taxes and to provide financing for improvements to our 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, we 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 1 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.

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, we 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 was 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.

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, we 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 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.

We were in compliance with all financial covenants as of as of March 31, 2023, including that we 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.

Contractual Obligations

The following table is a summary of contractual cash obligations as of September 30, 2022:

The following table is a summary of contractual cash obligations as of March 31, 2023:

Payments Due by Period (in thousands)

Contractual Obligations

Lines of credit

Operating lease obligations

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We did not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, results of operations, liquidity or capital expenditures.

However, we do have a repurchase agreement with a financial institution providing inventory financing for independent retailers of our products.

However, we do have a repurchase agreement with a financial institution that provides inventory financing for independent retailers of our products.

Under this agreement, we have agreed to repurchase homes at declining prices over the term of the agreement (24 months).

Our obligation under this repurchase agreement ceases upon the purchase of the home by the retail customer.

The maximum amount of our contingent obligations under such repurchase agreements was approximately $9,905 and $4,908 as of September 30, 2022 and December 31, 2021, respectively, without reduction for the resale value of the homes.

The maximum amount of our contingent obligations under such repurchase agreements was approximately $8,396 and $8,925 as of March 31, 2023 and December 31, 2022, respectively, without reduction for the resale value of the homes.

We may be required to honor contingent repurchase obligations in the future and may incur additional expense as a consequence of these repurchase agreements.

We consider our obligations on current contracts to be immaterial and accordingly we have not recorded any reserve for repurchase commitment as of September 30, 2022.

We consider our obligations on current contracts to be immaterial and accordingly we have not recorded any reserve for repurchase commitment as of March 31, 2023.

Critical Accounting Estimates

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters.

Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters.

We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances.

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Our critical accounting estimates are identified and described in our Annual Report on Form 10-K for the year ended December 31, 2022.

Subsequent to the filing of our Annual Report, there have been no material changes to our critical accounting estimates.

Subsequent to the filing of our Annual Report, we adopted FASB’s ASC 326 for determining Current Expected Credit Losses.

In connection with this adoption, we implemented certain changes to our processes and controls related to our methods for estimating allowances for credit losses.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our September 30, 2022 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.

For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our March 31, 2023 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.

Emerging Growth Company Status

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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 2. Management’s Discussion and Analysis