Legacy Housing Corp 10-Q

Item 4. Controls and Procedures. Disclosure Controls and Procedures We are subject to the periodic reporting requirements of the Exchange Act that require designing disclosure controls and procedures to provide reasonable assurance that the information we disclose in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosures. As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer each concluded, as of the end of the period, that our disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and as described below. Material Weaknesses in Internal Control Over Financial Reporting As previously disclosed in our Annual report on Form 10-K filed with the SEC on March 15, 2023, we identified material weaknesses in our internal control over financial reporting during the preparation of our financial statements for the year ended December 31, 2022. Under standards established by the PCAOB, a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis. The material weaknesses in financial reporting as of March 31, 2023 are summarized as follows: ● We determined that we did not have sufficient accounting systems and procedures in place, particularly in the areas of revenue recognition, processing of accounts payable, prepaid expenses, and inventory costing and management . ● We determined that we did not have sufficient policies and procedures to ensure the appropriate review and approval of user access rights to our accounting system, and lack of approval of journal entries and segregation of duties in our financial reporting process. ● We determined that our information technology infrastructure does not provide sufficient safeguards required by the COBIT framework. Remediation Efforts to Address Previously-Identified Material Weaknesses As previously described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022, Management has evaluated the material weaknesses described above and has implemented a remediation plan to address the material weaknesses. Remediation efforts to strengthen our internal control over financial reporting and accounting functions continued throughout the three months ended March 31, 2023. While significant actions to improve our internal processes have been implemented, the enhanced controls have not operated for a sufficient period of time to demonstrate that the material weakness have been remediated as of March 31, 2022. Our material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that the controls operate effectively. We expect to complete the remediation of most of our material weaknesses by the end of fiscal year 2023. 32 Table of Contents Changes in Internal Control over Financial Reporting Under the applicable SEC rules, management is required to evaluate any changes in internal control over financial reporting that occurred during each fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. On January 1, 2023, 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. Other than the changes described above regarding adoption of ASC 326 and enhancements associated with ongoing material weakness remediation efforts, there were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. While we continue to implement remediation efforts and design enhancements to our internal control procedures, we believe there were no other changes to our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the three months ended March 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION Item 1. Legal Proceedings. See Note 14 - Commitments and Contingencies in our March 31, 2023 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None Item 3. Defaults Upon Senior Securities. None Item 4. Mine Safety Disclosures. None