What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-09 compared with 2023-08-09 · 177 added, 172 removed, 548 unchanged (39% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

22 unchanged sentences

Operating lease obligations

Lines of credit

Total current liabilities

10 unchanged sentences

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

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

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

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

Additional paid-in-capital

6 unchanged sentences

(in thousands, except share and per share data)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Product sales

18 unchanged sentences

(unaudited, in thousands)

Six months ended June 30,

Nine months ended September 30,

Operating activities:

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

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization expense

19 unchanged sentences

Dealer incentive liability

Net cash used in operating activities

Net cash (used in) provided by operating activities

Investing activities:

5 unchanged sentences

Collections from purchased loans

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Financing activities:

Proceeds from exercise of stock options

Proceeds from other liabilities

Proceeds from lines of credit

Payments on lines of credit

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

10 unchanged sentences

Balances, December 31, 2021

Share based compensation expense and stock units vested

Share based compensation expense

Balances, March 31, 2022

Share based compensation expense and stock units vested

Share based compensation expense

Balances, June 30, 2022

Share based compensation expense

Balances, September 30, 2022

paid-in-capital

2 unchanged sentences

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

Share based compensation expense and stock units vested

Share based compensation expense

Balances, March 31, 2023

Share based compensation expense and stock units vested

Share based compensation expense

Proceeds from exercise of stock options

Balances, June 30, 2023

Share based compensation expense

Balances, September 30, 2023

See accompanying notes to unaudited condensed financial statements.

12 unchanged sentences

Basis of Presentation

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.

The accompanying unaudited interim condensed financial statements as of September 30, 2023 and for the three and nine months ended September 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 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 results for the three and nine months ended September 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 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”), filed on March 15, 2023.

1 unchanged sentence

Accordingly, they should be read in conjunction with the audited financial statements and notes thereto included in the Form 10-K.

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

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

Use of Estimates

1 unchanged sentence

These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period.

Material estimates that are susceptible to significant change in the near term primarily relate to the determination of accounts receivable, loans to mobile home parks, consumer loans, other notes receivable, inventory obsolescence, income taxes, fair value of financial instruments and contingent liabilities.

Material estimates that are susceptible to significant change in the near term primarily relate to the determination and valuation of accounts receivable, loans to mobile home parks, consumer loans, other notes receivable, inventory valuation and obsolescence, income taxes, fair value of financial instruments and contingent liabilities.

Actual results could differ from these estimates.

15 unchanged sentences

For inventory financed sales, the independent dealer enters into a financing arrangement with the Company and is required to make monthly interest payments and an annual curtailment payment for the first two years .

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

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

Interest income is separately recorded in the statement of income.

8 unchanged sentences

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

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.

Warranty and contract costs were $ 666 and $ 2,024 for the three and nine months ended September 30, 2023, respectively, and $ 861 and $ 1,941 for the three and nine months ended September 30, 2022, respectively.

For the three months ended September 30, 2023 and 2022, mobile home park (“MHP”) sales to an independent third party and it’s affiliates accounted for $ 601 or 1.7 % and $ 5,226 or 10.7 % of our product sales, respectively, and sales to another independent third party and it’s affiliates accounted for $ 3,202 or 9.1 % and $ 2,307 or 4.7 % of our product sales, respectively.

For the nine months ended September 30, 2023 and 2022, MHP sales to an independent third party and its affiliates accounted for $ 10,134 or 8.8 % and $ 11,420 or 7.3 % of our product sales, respectively, and sales to another independent third party and its affiliates accounted for $ 4,894 or 4.2 % and $ 3,711 or 2.4 % of our product sales, respectively.

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

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.

For the three months ended September 30, 2023 and 2022, product sales included $ 3,285 and $ 2,711 of costs relating to subcontracted production for commercial sales, reimbursed dealer expenses for consignment sales, and certain other similar costs incurred for retail store and commercial sales.

For the nine months ended September 30, 2023 and 2022, product sales included $ 9,857 and $ 8,964 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 deposit 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.

1 unchanged sentence

Revenue recognition for consignment fees is recognized over time using the output method as it provides a faithful depiction of the Company’s performance toward completion of the performance obligation under the contract and the value transferred to the independent retailer for the time the home is held under consignment.

Revenue for commercial leases is recognized as earned monthly over a contractual period of 96 or 120 months .

Revenue for contract forfeitures is

Revenue for commercial

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

recognized when the deposit is forfeited by the customer.

leases is recognized as earned monthly over a contractual period of 96 or 120 months .

Revenue for contract deposit forfeitures is 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 and six months ended June 30, 2023 and 2022:

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

Three months ended

Six months ended

Nine months ended

September 30,

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

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

Share-Based Compensation

11 unchanged sentences

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 awards granted represents the period of time that the awards are expected to

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

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

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.

5 unchanged sentences

Accounts Receivable

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

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

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

2 unchanged sentences

Accounts outstanding longer than the contractual payment terms are considered past due.

The Company determines the allowance by considering several factors, including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history.

The Company determines the allowance by considering several factors, including the aging of the past due balance, the customer’s payment history, the Company’s previous loss history and the Company’s expected losses over the term of the receivable.

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

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

On September 30, 2023 and December 31, 2022, the allowance for doubtful accounts totaled $ 651 and $ 279 , respectively.

Leased Property

14 unchanged sentences

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

Depreciation expense for the leased property was $ 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.

Depreciation expense for the leased property was $ 157 and $ 184 for the three months ended September 30, 2023 and 2022, respectively, and $ 474 and $ 538 for the nine months ended September 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 June 30, 2023, are as follows:

Future minimum lease income under all operating leases for each of the next five years at September 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 June 2016, the FASB issued ASU 2016-13 Financial Instruments—Credit Losses (Topic 326):

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

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

14 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 June 30, 2023 and December 31, 2022, respectively.

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

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

6 unchanged sentences

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

The liabilities associated with these escrow collections totaled $ 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.

The liabilities associated with these escrow collections totaled $ 11,008 and $ 9,653 as of September 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

26 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 $ 1,204 and $ 795 as of June 30, 2023 and December 31, 2022, respectively, and are included in other assets in the condensed balance sheets.

Repossessed homes totaled $ 1,486 and $ 795 as of September 30, 2023 and December 31, 2022, respectively, and are included in other assets in the condensed balance sheets.

LEGACY HOUSING CORPORATION

2 unchanged sentences

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

As of June 30,

As of September 30,

As of December 31,

4 unchanged sentences

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

Three months ended June 30,

Six Months Ended June 30,

Three months ended September 30,

Nine Months Ended September 30,

Allowance for loan losses, beginning of period

3 unchanged sentences

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

As of June 30,

As of September 30,

As of December 31,

5 unchanged sentences

General allowance for loan losses

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 September 30, 2023 and December 31, 2022, the total principal outstanding for consumer loans on nonaccrual status was $ 1,771 and $ 1,610 , respectively.

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

As of September 30,

As of December 31,

16 unchanged sentences

The remaining MHP Notes have a variable rate typically set at 4.0 % above prime with a minimum of 8.0 %.

The average interest rate per loan was approximately 8.1 % as of June 30, 2023 and December 31, 2022, with maturities that range from 1 to 10 years .

The average interest rate per loan was approximately 8.1 % as of September 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 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.

The Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 15.4 %, 16.9 % and 28.9 % of the principal balance outstanding, all of which was secured by the mobile homes, as of September 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 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.

As of September 30, 2023 and December 31, 2022, the MHP Notes balance is presented net of unamortized finance fees of $ 1,534 and $ 1,068 , respectively.

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

There were minimal past due balances on the MHP Notes as of 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.

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

The allowance for loan loss for the MHP Notes is $ 751 and $ 0 at September 30, 2023 and December 31, 2022, respectively.

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

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

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

As of June 30,

As of September 30,

As of December 31,

4 unchanged sentences

(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.

16 unchanged sentences

The remaining weighted-average lease term is 4.23 years and the weighted-average discount rate is 2.10 %.

See Note 14 – Commitments and Contingencies for additional details on the Company’s lease expense.

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

There were no variable lease costs for the three and six months ended June 30, 2023 and 2022.

There were no variable lease costs for the three and nine months ended September 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 and six months ended June 30, 2023 and 2022.

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

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

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

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

Total lease payments

4 unchanged sentences

Inventories consists of the following:

As of June 30,

As of September 30,

As of December 31,

1 unchanged sentence

Work in progress

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.

Finished goods

Finished goods includes $ 6,704 and $ 6,987 as of September 30, 2023 and December 31, 2022, respectively, held for more than twelve months and classified as long-term.

The Company has an inventory allowance of $ 402 as of both September 30, 2023 and December 31, 2022.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

As of June 30,

As of September 30,

As of December 31,

4 unchanged sentences

Total property, plant and equipment

Depreciation expense was $ 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.

Depreciation expense was $ 273 with $ 127 included as a component of cost of product sales for the three months ended September 30, 2023, and $ 295 with $ 116 included as a component of cost of product sales for the three months ended September 30, 2022.

Depreciation expense was $ 812 with $ 377 included as a component of cost of

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

product sales for the nine months ended September 30, 2023, and $ 872 with $ 364 included as a component of cost of product sales for the nine months ended September 30, 2022.

Other assets consists of the following:

As of June 30,

As of September 30,

As of December 31,

5 unchanged sentences

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 Debt Securities were sold prior to maturity on June 22, 2023 and the proceeds were used to pay down the credit line.

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

1 unchanged sentence

Accrued liabilities consist of the following:

As of June 30,

As of September 30,

As of December 31,

5 unchanged sentences

Total accrued liabilities

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Lines of Credit

2 unchanged sentences

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.

6 unchanged sentences

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 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 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 $ 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 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.

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

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

Amounts available under the Revolver 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.

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 was amortized to interest expense over the life of the Revolver.

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

On July 28, 2023, upon entry into the New Revolver described below, the Capital One Revolver was repaid in full, and all commitments thereunder were terminated.

On July 28, 2023, the Company entered into a new Credit Agreement (the “New Revolver”), 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 Revolver 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 Revolver 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 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 Revolver 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 Revolver.

The Company paid certain arrangement fees and other fees in connection with the New Revolver of approximately $ 271 , which were capitalized as unamortized debt issuance costs and are amortized to interest expense over the life of the New Revolver.

The New Revolver matures July 28, 2027.

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

As of September 30, 2023, the Company was in compliance with all financial covenants, including that it maintain a total debt to tangible net worth ratio of no more than 1.00 to 1.00 and a minimum fixed charge coverage ratio of no less than 1.75 to 1.00.

For the three months ended September 30, 2023 and 2022, interest expense under the Revolvers was $ 302 and $ 87 , respectively.

For the nine months ended September 30, 2023 and 2022, interest expense under the Revolvers was

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

$ 588 and $ 326 , respectively.

The outstanding balance of the New Revolver as of September 30, 2023 was $ 13,013 , and the outstanding balance of the Revolver as of December 31, 2022 was $ 2,545 .

The interest rate in effect as of September 30, 2023 for the New Revolver was 7.95 % and the interest rate in effect as of December 31, 2022 for the Revolver was 6.12 %.

The amount of available credit under the New Revolver was $ 36,987 as of September 30, 2023 and the amount of available credit under the Revolver was $ 17,400 as of December 31, 2022.

SHARE-BASED COMPENSATION

Pursuant to the Legacy Housing Corporation 2018 Incentive Compensation Plan (the “Compensation Plan”), the Company may issue up to 10.0 million equity awards to employees, directors, consultants and nonemployee service providers in the form of stock options, stock and stock appreciation rights.

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

At June 30, 2023, the Company had 9.7 million shares available for grant under the Compensation Plan.

At September 30, 2023, the Company had 9.7 million shares available for grant under the Compensation Plan.

Restricted Stock Units

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.

1 unchanged sentence

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

Fifty percent of the shares shall be vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

Fifty percent of the shares vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

An additional equity award of 175,000 shares of the Company’s restricted stock will be granted if the Company’s stock price closes at $ 48 per share for a period of fifteen consecutive market days (the “$ 48 Equity Award”).

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

Fifty percent of the shares shall be vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

Fifty percent of the shares vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

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

1 unchanged sentence

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.

11 unchanged sentences

Nonvested, January 1, 2023

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.

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

Nonvested, September 30, 2023

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

The unrecognized compensation expense related to these RSUs at September 30, 2023 was $ 242 and is expected to be recognized over 1.33 years.

Stock Options

On August 10, 2020, the Company granted 34,626 incentive stock options to a member of senior management at an exercise price of $ 14.44 per share.

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

1 unchanged sentence

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 expected life of options of 6.5 years.

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

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

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

On September 23, 2021, the Company granted 55,490 incentive stock options to a member of management at an exercise price of $ 18.02 per share.

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

3 unchanged sentences

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

The Company granted 62,460 incentive stock options to the Chief Executive Officer.

The options were granted on June 7, 2022 at an exercise price of $ 16.01 per share.

On June 7, 2022, the Company granted 62,460 incentive stock options to the Chief Executive Officer at an exercise price of $ 16.01 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and become fully vested on June 7, 2032.

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

An option to purchase 300,000 shares of the Company’s stock was granted on June 7, 2022 at an exercise price of $ 36.00 per share and an option to purchase 600,000 shares of the Company’s stock was granted on June 7, 2022 at an exercise price of $ 48.00 per share.

On June 7, 2022, the Company granted options to purchase 900,000 shares of the Company’s stock to the Chief Executive Officer.

This grant included an option to purchase 300,000 shares of the Company’s stock at an exercise price

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

of $ 36.00 per share and an option to purchase 600,000 shares of the Company’s stock at an exercise price of $ 48.00 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and become fully vested on June 7, 2032.

2 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 62,460 incentive stock options to the Chief Financial Officer.

The options were granted on June 7, 2022 at an exercise price of $ 16.01 per share.

On June 7, 2022, the Company granted 62,460 incentive stock options to the Chief Financial Officer at an exercise price of $ 16.01 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and become fully vested on June 7, 2032.

2 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.

During the third quarter of 2023, the unvested options were forfeited due to the individual’s departure.

On June 22, 2023, the Company granted 22,104 incentive stock options to a member of management 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.

2 unchanged sentences

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, June 30, 2022

Exercisable, June 30, 2022

Outstanding, September 30, 2022

Exercisable, September 30, 2022

Outstanding, January 1, 2023

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.

Outstanding, September 30, 2023

Exercisable, September 30, 2023

As of September 30, 2023, approximately 985,000 options remained nonvested.

Unrecognized compensation expense related to these options at September 30, 2023 was $ 4,279 and is expected to be recognized over 8.6 years.

The provision for income tax expense for the three months ended September 30, 2023 and 2022 was $ 3,380 and $ 2,836 respectively and $ 9,885 and $ 10,210 for the nine months ended September 30, 2023 and 2022, respectively.

The effective tax rate for the three and nine months ended September 30, 2023 was 17.4 % and 17.3 %, respectively.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

rates 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 rates for the three and nine months ended September 30, 2022 were 16.1 % and 17.5 %, respectively, 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 June 30, 2023 and December 31, 2022, the Company had accrued a $ 219 and $ 149 liability for incurred but not reported claims, respectively.

As of September 30, 2023 and December 31, 2022, the Company had accrued a $ 260 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

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’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 $ 4,767 and $ 8,925 at September 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 September 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 $ 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.

Rent expense was $ 159 and $ 180 for the three months ended September 30, 2023 and 2022, respectively, and $ 482 and $ 530 for the nine months ended September 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 $ 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.

Rental income from the subleased properties was approximately $ 59 and $ 55 for the three months ended September 30, 2023 and 2022, respectively, and $ 184 and $ 165 for the nine months ended September 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 $ 515 and $ 753 as of June 30, 2023 and December 31, 2022, respectively, in accrued liabilities on the accompanying condensed balance sheets.

The Company has included legal reserves of $ 660 and $ 753 as of September 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.

1 unchanged sentence

FAIR VALUE MEASUREMENTS

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

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

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

This framework provides a fair value

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

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

9 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.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Fair Value of Financial Instruments

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

8 unchanged sentences

The Company also assessed the fair value of the consumer loans receivable, the fixed rate MHP Notes and the portion of other note receivables with fixed rates based on the discounted value of the remaining principal and interest cash flows.

The Company determined that the fair value of the consumer loan portfolio was approximately $ 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.

The Company determined that the fair value of the consumer loan portfolio was approximately $ 150,603 compared to the book value of $ 151,528 as of September 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 $ 169,538 compared to the book value of $ 172,178 as of September 30, 2023, and a fair value of approximately $ 128,400 compared to the book value of $ 129,966 as of December 31, 2022.

The difference between the book value and fair value as of September 30, 2023 primarily is due to the Company’s current average discount rate of 8.5 % compared to the average coupon rate on the notes of 7.8 %.

The Company determined that the fair value of the fixed rate other notes was approximately $ 35,026 compared to the book value of $ 35,448 as of September 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

Nine months ended

September 30,

Net income (in 000's)

1 unchanged sentence

Effect of dilutive securities:

Restricted stock grants

Restricted stock units

Stock options

1 unchanged sentence

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 $ 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.

Bell Mobile Homes (“Bell”), a retailer owned by one of the Company’s significant stockholders, purchases manufactured homes from the Company.

Accounts receivable balances due from Bell were $ 242 and $ 0 as of September 30, 2023 and December 31, 2022, respectively.

Accounts payable balances due to Bell for maintenance and related services were $ 62 and $ 132 as of September 30, 2023 and December 31, 2022, respectively.

Home sales to Bell were $ 1,163 and $ 695 for the three months ended September 30, 2023 and 2022, respectively, and $ 3,150 and $ 2,550 for the nine months ended September 30, 2023 and 2022, respectively.

Shipley Bros., Ltd.

(“Shipley Bros.”), a retailer owned by one of the Company’s significant shareholders, purchases manufactured homes from the Company.

Home sales to Shipley Bros.

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

There were no accounts payable balances due to Shipley Bros.

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.

(“Shipley”), a retailer owned by one of the Company’s significant stockholders, purchases manufactured homes from the Company.

Home sales to Shipley were $ 207 and $ 524 for the three months ended September 30, 2023 and 2022, respectively, and $ 830 and $ 2,235 for the nine months ended September 30, 2023 and 2022, respectively.

Accounts receivable balances due from Shipley were $ 0 as of September 30, 2023 and December 31, 2022.

There were no accounts payable balances due to Shipley as of September 30, 2023 and December 31, 2022.

At September 30, 2023, the Company had a payable of $ 4 to a principal shareholder.

This amount is included in the Company’s accounts payable balance as of September 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.

Legacy evaluated events after September 30, 2023, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

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