What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 187 added, 175 removed, 533 unchanged (40% of the section changed)

40 unchanged sentences

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

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

24,836,862 and 24,814,695 issued and 24,391,797 and 24,369,630 outstanding at June 30, 2023 and December 31, 2022, respectively

Treasury stock at cost, 445,065 shares at June 30, 2023 and December 31, 2022

Additional paid-in-capital

2 unchanged sentences

Total liabilities and stockholders' equity

See accompanying notes to condensed financial statements.

See accompanying notes to unaudited condensed financial statements.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(in thousands, except share and per share data)

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Product sales

14 unchanged sentences

Net income per share:

See accompanying notes to condensed financial statements.

See accompanying notes to unaudited condensed financial statements.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(unaudited, in thousands)

Three months ended March 31,

Six months ended June 30,

Operating activities:

8 unchanged sentences

Amortization of operating lease right of use asset

Gain on disposal of treasury note

Share-based payment expense

10 unchanged sentences

Dealer incentive liability

Net cash (used in) provided by operating activities

Net cash used in operating activities

Investing activities:

1 unchanged sentence

Proceeds from sale of leased property

Sale of investments - treasury notes

Issuance of notes receivable

1 unchanged sentence

Collections from purchased loans

Net cash (used in) provided by investing activities

Net cash provided by investing activities

Financing activities:

Proceeds from exercise of stock options

Proceeds from other liabilities

1 unchanged sentence

Payments on lines of credit

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Cash paid for taxes

See accompanying notes to condensed financial statements.

See accompanying notes to unaudited condensed financial statements.

LEGACY HOUSING CORPORATION

5 unchanged sentences

Balances, March 31, 2022

Share based compensation expense and stock units vested

Balances, June 30, 2022

paid-in-capital

4 unchanged sentences

Balances, March 31, 2023

See accompanying notes to condensed financial statements.

Share based compensation expense and stock units vested

Proceeds from exercise of stock options

Balances, June 30, 2023

See accompanying notes to unaudited condensed financial statements.

LEGACY HOUSING CORPORATION

11 unchanged sentences

Basis of Presentation

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.

The accompanying unaudited interim condensed financial statements as of June 30, 2023 and for the three and six months ended June 30, 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 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”).

In the opinion of management, the unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's financial position for the periods presented.

The results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or any other period.

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

34 unchanged sentences

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

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.

Warranty costs were $ 764 and $ 1,392 for the three and six months ended June 30, 2023, respectively, and $ 538 and $ 1,108 for the three and six months ended June 30, 2022, respectively.

For the three months ended June 30, 2023 and 2022, mobile home park (“MHP”) sales to an independent third party and it’s affiliates accounted for $ 3,886 or 9.6 % and $ 2,495 or 4.5 % of our product sales, respectively, and sales to another independent third party and it’s affiliates accounted for $ 480 or 1.2 % and $ 3,296 or 6.0 % of our product sales, respectively.

For the six months ended June 30, 2023 and 2022, MHP sales to an independent third party and it’s affiliates accounted for $ 9,534 or 11.8 % and $ 4,471 or 4.2 % of our product sales, respectively, and sales to another independent third party and it’s affiliates accounted for $ 2,449 or 3.0 % and $ 6,194 or 5.8 % 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.

For the three months ended June 30, 2023 and 2022, product sales included $ 3,949 and $ 3,253 of costs relating to subcontracted production for commercial sales, reimbursed dealer expenses for consignment sales, and certain other similar costs incurred for retail store and commercial sales.

For the six months ended June 30, 2023 and 2022, product sales included $ 6,573 and $ 6,252 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, contract forfeitures, service fees and other miscellaneous income.

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

2 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 when the performance obligation is satisfied.

Revenue for contract forfeitures is

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

recognized when the deposit is forfeited by the customer.

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

Disaggregation of Revenue .

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

The following table summarizes customer contract revenues disaggregated by the source of the revenue for the three and six months ended June 30, 2023 and 2022:

Three months ended

Six months ended

Product sales:

9 unchanged sentences

(1) Other product sales revenue from ancillary products and services including parts, freight and other services

(2) Other revenue includes dealer finance charges, contract forfeitures, lease income and other miscellaneous income

Share-Based Compensation

9 unchanged sentences

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

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.

The volatility is based on the Company’s historical volatility calculated monthly over the most recent five year period prior to the applicable grant date.

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 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.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

the expected life of options based on its historical award exercise experience.

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

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

11 unchanged sentences

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

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

On June 30, 2023 and December 31, 2022, the allowance for doubtful accounts totaled $ 333 and $ 279 , respectively.

Leased Property

8 unchanged sentences

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.

3 unchanged sentences

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

Depreciation expense for the leased property was $ 160 and $ 170 for the three months ended March 31, 2023 and 2022, respectively.

Depreciation expense for the leased property was $ 157 and $ 180 for the three months ended June 30, 2023 and 2022, respectively, and $ 317 and $ 340 for the six months ended June 30, 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 March 31, 2023, are as follows:

Future minimum lease income under all operating leases for each of the next five years at June 30, 2023, are as follows:

Recent Accounting Pronouncements

The Company has elected to use longer phase-in periods for the adoption of new or revised financial accounting standards under the JOBS Act as an emerging growth company.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) , to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

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 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;

however, the Company did not elect the hindsight practical expedient.

Additionally, the Company elected the optional transition method that allowed for a cumulative-effect adjustment in the period of adoption and did not restate prior periods.

The adoption of ASU 2016-02 resulted in an increase in total assets and total liabilities of $ 3,258 at transition.

However, this standard did not have a material impact on the consolidated statement of income or the consolidated statement of cash flows.

See Note 5 for further discussion on leases.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments—Credit Losses (Topic 326):

3 unchanged sentences

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.

However, Topic 326 requires 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.

3 unchanged sentences

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

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(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.

4 unchanged sentences

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

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

The average contractual interest rate per loan was approximately 13.3 % and 13.4 % as of June 30, 2023 and December 31, 2022, respectively.

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

1 unchanged sentence

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The Company uses payment history to monitor the credit quality of the consumer loans on an ongoing basis.

The Company may also receive escrow payments for property taxes and insurance included in its consumer loan collections.

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

The liabilities associated with these escrow collections totaled $ 10,022 and $ 9,653 as of June 30, 2023 and December 31, 2022, respectively, and are included in escrow liability in the condensed balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

9 unchanged sentences

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

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.

15 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 $ 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.

Repossessed homes totaled $ 1,204 and $ 795 as of June 30, 2023 and December 31, 2022, respectively, and are included in other assets in the condensed balance sheets.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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

As of March 31,

As of June 30,

As of December 31,

4 unchanged sentences

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

Three Months Ended March 31,

Three months ended June 30,

Six Months Ended June 30,

Allowance for loan losses, beginning of period

2 unchanged sentences

Allowance for loan losses

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 June 30,

As of December 31,

5 unchanged sentences

General allowance for loan losses

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 June 30, 2023 and December 31, 2022, the total principal outstanding for consumer loans on nonaccrual status was $ 1,666 and $ 1,610 , respectively.

A detailed aging of consumer loans receivable that are past due as of June 30, 2023 and December 31, 2022 were as follows:

As of June 30,

As of December 31,

8 unchanged sentences

The notes receivable from mobile home parks (“MHP Notes”) relate to mobile homes sold to mobile home parks and financed through notes receivable.

The MHP Notes have varying maturity dates and call for monthly principal and interest payments.

The MHP Notes have varying maturity dates and call for monthly principal

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

and interest payments.

The interest rate on the MHP Notes can be fixed or variable.

1 unchanged sentence

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 8.1 % as of March 31, 2023 and December 31, 2022, respectively, with maturities that range from 1 to 10 years .

The average interest rate per loan was approximately 8.1 % as of June 30, 2023 and December 31, 2022, 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 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.

The Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 16.1 %, 16.5 % and 28.4 % of the principal balance outstanding, all of which was secured by the mobile homes, as of June 30, 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.

2 unchanged sentences

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

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.

As of June 30, 2023 and December 31, 2022, the MHP Notes balance is presented net of unamortized finance fees of $ 1,423 and $ 1,068 , respectively.

The finance fees are amortized over the life of the MHP Notes.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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.

There were minimal past due balances on the MHP Notes as of June 30, 2023 and December 31, 2022 and no charge offs were recorded for MHP Notes during the three and six months ended June 30, 2023 and 2022.

The allowance for loan loss is $ 358 and $ 0 at June 30, 2023 and December 31, 2022, respectively.

There were no impaired MHP Notes as of June 30, 2023 and December 31, 2022, and there was no repossessed homes balances as of June 30, 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.

5 unchanged sentences

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

There were no past due balances for other notes as of 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.

There were no past due balances for other notes as of June 30, 2023 and December 31, 2022, and there were no impaired balances for other notes as of June 30, 2023 and December 31, 2022.

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

As of March 31,

As of June 30,

As of December 31,

1 unchanged sentence

Allowance for loan losses

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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.

Under ASC 842, a modified retrospective transition is required, applying the new standard to all leases at the date of initial application.

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 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.

6 unchanged sentences

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

when a change to our future minimum lease payments occurs.

We remeasure the lease liability and ROU asset 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.

7 unchanged sentences

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

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

There were no variable lease costs for the three and six months ended June 30, 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:

Our short-term lease costs were not material for the three and six months ended June 30, 2023 and 2022.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

As of June 30, 2023, future minimum lease payments under our operating lease liabilities were as follows:

Total lease payments

3 unchanged sentences

Total non-current lease liability

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Inventories consists of the following:

As of March 31,

As of June 30,

As of December 31,

1 unchanged sentence

Work in progress

Finished goods (1)

Allowance for obsolescence

(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.

Finished goods, net of allowance (1)

(1) Finished goods includes $ 7,091 and $ 6,987 as of June 30 , 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 March 31,

As of June 30,

As of December 31,

4 unchanged sentences

Total property, plant and equipment

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 March 31,

As of December 31,

Repossessed homes

Depreciation expense was $ 269 with $ 124 included as a component of cost of product sales for the three months ended June 30, 2023, and $ 286 with $ 127 included as a component of cost of product sales for the three months ended June 30, 2022.

Depreciation expense was $ 540 with $ 249 included as a component of cost of product sales for the six months ended June 30, 2023, and $ 563 with $ 248 included as a component of cost of product sales for the six months ended June 30, 2022.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

Other assets consists of the following:

As of June 30,

As of December 31,

Stadium license

Repossessed homes

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.

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

The Debt Securities were classified as held-to-maturity and the amortized costs are $ 8,412 at December 31, 2022.

The Debt Securities were sold prior to maturity on June 22, 2023 at a discount of 99.0 % and the proceeds were used to pay down the credit line.

The Company recognized a gain of $ 12 when the Debt Securities were sold.

ACCRUED LIABILITIES

Accrued liabilities consist of the following:

As of March 31,

As of June 30,

As of December 31,

7 unchanged sentences

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

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

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

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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

5 unchanged sentences

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.

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 .

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

As of June 30, 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.

The interest rates in effect as of June 30, 2023 and December 31, 2022 are 7.17 % 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

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 amount of available credit under the Revolver was $ 15,315 and $ 17,400 as of June 30, 2023 and December 31, 2022, respectively.

In connection with the Revolver, the Company paid certain arrangement fees and other fees of approximately $ 295 , which were capitalized as unamortized debt issuance costs and is being amortized to interest expense over the life of the Revolver.

For the three months ended June 30, 2023 and 2022, interest expense under the Revolver was $ 195 and $ 182 , respectively.

For the six months ended June 30, 2023 and 2022, interest expense under the Revolver was $ 286 and $ 239 , respectively.

The outstanding balance as of June 30, 2023 and December 31, 2022 was $ 4,685 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.

As of June 30, 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.

On July 28, 2023, the Company entered into a new Credit Agreement with Prosperity Bank and terminated the Revolver with Capital One.

See Note 18 – Subsequent Events.

SHARE-BASED COMPENSATION

1 unchanged sentence

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

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

At June 30, 2023, 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.

8 unchanged sentences

The shares became fully vested upon grant.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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.

8 unchanged sentences

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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

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

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

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

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

3 unchanged sentences

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 shares become 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, 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.

Nonvested, June 30, 2023

As of June 30, 2023, approximately 26,000 RSUs remained unvested.

The unrecognized compensation expense related to these RSUs at June 30, 2023 was $ 309 and is expected to be recognized over 1.33 years.

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

3 unchanged sentences

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.

risk free interest rate of 0.24 %, dividend yield of 0.00 %, expected volatility of common stock of 75.0 % and

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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.

12 unchanged sentences

risk free interest rate of 2.98 %, dividend yield of 0.00 %, expected volatility of common stock of 45.7 % and expected life of options of 7.8 years.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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

10 unchanged sentences

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 22,104 incentive stock options to a member of management.

The options were granted on June 22, 2023 at an exercise price of $ 22.62 per share.

The options vest at a rate of 20.0 % annually, beginning on June 22, 2023, and become fully vested on June 22, 2028.

All options expire five 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 4.03 %, dividend yield of 0.00 %, expected volatility of common stock of 85.0 % and expected life of options of 4.0 years.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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

5 unchanged sentences

Outstanding, January 1, 2022

Outstanding, March 31, 2022

Exercisable, March 31, 2022

Outstanding, June 30, 2022

Exercisable, June 30, 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

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Outstanding, June 30, 2023

Exercisable, June 30, 2023

As of June 30, 2023, approximately 1,041,000 options remained nonvested.

Unrecognized compensation expense related to these options at June 30, 2023 was $ 4,888 and is expected to be recognized over 8.86 years.

The provision for income tax expense for the three months ended June 30, 2023 and 2022 was $ 3,070 and $ 3,816 , respectively and $ 6,505 and $ 7,375 for the six months ended June 30, 2023 and 2022, respectively.

The effective tax rate for the three and six months ended June 30, 2023 was 17.0 % and 17.2 %, respectively.

These rate differ from the federal statutory rate of 21 % primarily due to a federal tax credit for energy efficient construction, partially offset by state income taxes.

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

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

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

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.

As of June 30, 2023 and December 31, 2022, the Company had accrued a $ 219 and $ 149 liability for incurred but not reported claims, respectively.

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

1 unchanged sentence

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 $ 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’s obligation under these repurchase agreements ceases upon the purchase of the home by the retail

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The maximum amount for which the Company was liable under such agreements totaled $ 6,740 and $ 8,925 at June 30, 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 June 30, 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 $ 182 and $ 163 for the three months ended March 31, 2023 and 2022, respectively.

Rent expense was $ 141 and $ 176 for the three months ended June 30, 2023 and 2022, respectively, and $ 323 and $ 339 for the six months ended June 30, 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 properties was approximately $ 67 and $ 82 for the three months ended March 31, 2023 and 2022, respectively.

Rental income from the subleased properties was approximately $ 39 and $ 55 for the three months ended June 30, 2023 and 2022, respectively, and $ 95 and $ 110 for the six months ended June 30, 2023 and 2022, respectively.

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

3 unchanged sentences

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

The Company has included legal reserves of $ 515 and $ 753 as of June 30, 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.

6 unchanged sentences

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.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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

6 unchanged sentences

The asset or liability fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company has used derivatives to manage risks related to interest rate movements.

The Company does not enter into derivative contracts for speculative purposes.

Interest rate swap contracts are recognized as assets or liabilities on the balance sheets and are measured at fair value.

The fair value was calculated and provided by the lender, a Level II valuation technique.

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Fair Value of Financial Instruments

3 unchanged sentences

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 US Treasury Notes were sold by the Company on June 22, 2023.

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

This was 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.

1 unchanged sentence

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 $ 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.

The Company determined that the fair value of the consumer loan portfolio was approximately $ 145,700 compared to the book value of $ 146,010 as of June 30, 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 $ 157,100 compared to the book value of $ 159,241 as of June 30, 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 $ 26,100 compared to the book value of $ 26,740 as of June 30, 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

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

EARNINGS PER SHARE

3 unchanged sentences

Three months ended

Six months ended

Net income (in 000's)

5 unchanged sentences

Earnings per share attributable to Legacy Housing Corporation

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

RELATED PARTY TRANSACTIONS

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 $ 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.

Accounts receivable balances due from Bell Mobile Homes were $ 0 as of June 30, 2023 and December 31, 2022.

Accounts payable balances due to Bell Mobile Homes for maintenance and related services were $ 222 and $ 132 as of June 30, 2023 and December 31, 2022, respectively.

Home sales to Bell Mobile Homes were $ 1,507 and $ 1,223 for the three months ended June 30, 2023 and 2022, respectively, and $ 1,987 and $ 1,855 for the six months ended June 30, 2023 and 2022, respectively.

Shipley Bros., Ltd.

1 unchanged sentence

Home sales to Shipley Bros.

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

were $ 252 and $ 1,018 for the three months ended June 30, 2023 and 2022, respectively, and $ 622 and $ 1,711 for the six months ended June 30, 2023 and 2022, respectively.

Accounts receivable balances due from Shipley Bros.

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

were $ 0 as of June 30, 2023 and December 31, 2022.

There were no accounts payable balances due to Shipley Bros.

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.

as of June 30, 2023 and December 31, 2022.

At June 30, 2023, the Company had a payable of $ 5 to a principal shareholder.

This amount is included in the Company’s accounts payable balance as of June 30, 2023.

SUBSEQUENT EVENTS

On July 28, 2023, the Company entered into a new Credit Agreement (the “New Revolving Credit Agreement”), by and among the Company as borrower, the financial institutions from time to time party thereto, as lenders, and Prosperity Bank as administrative agent.

The New Revolving Credit Agreement provides for a four-year senior secured revolving credit facility with an initial commitment of $ 50,000,000 and an additional $ 25,000,000 commitment under an accordion feature.

The New Revolving Credit Agreement is secured by the Company’s consumer loans receivables and all escrow accounts associated with the consumer loans receivables.

At the Company's option, borrowings will bear interest at a per annum rate equal to, (i) Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.5 % or 2.75 % based upon the Company's average quarterly borrowings under the New Revolving Credit Agreement or (ii) a base rate plus an applicable margin of 2.5 % or 2.75 % based upon the Company's average quarterly borrowings under the New Revolving Credit Agreement.

On July 28, 2023, upon entry into the New Revolving Credit Agreement described above, the Capital One, N.A.

revolving credit agreement was repaid in full, and all commitments thereunder were terminated.

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