What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-09 · 452 added, 407 removed, 318 unchanged (73% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

Cash and cash equivalents

Held to maturity securities

Accounts receivable, net

5 unchanged sentences

Total current assets

Contracts - dealer financed, net

Contracts - dealer financed

Consumer loans receivable, net

Notes receivable from MHP, net

Notes receivable from mobile home parks (“MHP”), net

Other notes receivable, net

Inventories, net

Other assets - leased mobile homes

7 unchanged sentences

Escrow liability

Operating lease obligations

Operating lease obligation

Total current liabilities

Long‑term liabilities:

Operating lease obligations, less current portion

Operating lease obligation, less current portion

Lines of credit

7 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 September 30, 2023 and December 31, 2022, respectively

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

24,852,740 and 24,843,494 issued and 24,316,488 and 24,398,429 outstanding at March 31, 2024 and December 31, 2023, respectively

Treasury stock at cost, 536,252 and 445,065 shares at March 31, 2024 and December 31, 2023, respectively

Additional paid-in-capital

2 unchanged sentences

Total liabilities and stockholders' equity

See accompanying notes to unaudited condensed financial statements.

See accompanying notes to unaudited interim condensed financial statements.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(in thousands, except share and per share data)

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Product sales

Consumer and MHP loans interest

Consumer, MHP and dealer loans interest

Total net revenue

3 unchanged sentences

Dealer incentive

Total operating expenses

Income from operations

3 unchanged sentences

Interest expense

Total other income

Income before income tax expense

2 unchanged sentences

Net income per share:

See accompanying notes to unaudited condensed financial statements.

See accompanying notes to unaudited interim condensed financial statements.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(unaudited, in thousands)

Nine months ended September 30,

Three months ended March 31,

Operating activities:

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

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization expense

Amortization of deferred revenue

Amortization of treasury note discount

Amortization of lines of credit cost

Provision for accounts and notes receivable

Provision for inventory

Provision for long term inventory

Gain from sale of leased property

Amortization of operating lease right of use asset

Gain on disposal of treasury note

Non-cash operating lease expense

Share based payment expense

Other non cash items

Changes in operating assets and liabilities:

4 unchanged sentences

Prepaid expenses and other current assets

Other assets - leased mobile homes

Accounts payable and accrued liabilities

3 unchanged sentences

Dealer incentive liability

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

Investing activities:

1 unchanged sentence

Proceeds from sale of leased property

Sale of investments - treasury notes

Proceeds from sale of property

Issuance of notes receivable

1 unchanged sentence

Collections from purchased loans

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

Financing activities:

Proceeds from exercise of stock options

Purchases of treasury stock

Proceeds from lines of credit

1 unchanged sentence

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Net (decrease) increase in cash

Cash at beginning of period

Cash at end of period

Supplemental disclosure of cash flow information:

1 unchanged sentence

Cash paid for taxes

See accompanying notes to unaudited condensed financial statements.

See accompanying notes to unaudited interim condensed financial statements.

LEGACY HOUSING CORPORATION

3 unchanged sentences

Balances, December 31, 2022

Share based compensation expense

Balances, March 31, 2022

Share based compensation expense

Balances, June 30, 2022

Share based compensation expense

Balances, September 30, 2022

paid-in-capital

Balances, December 31, 2022

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

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

Share based compensation expense

Share based compensation

Balances, March 31, 2023

Share based compensation expense

paid-in-capital

Balances, December 31, 2023

Share based compensation

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.

Purchase of treasury stock

Balances, March 31, 2024

See accompanying notes to unaudited interim condensed financial statements.

LEGACY HOUSING CORPORATION

9 unchanged sentences

The Company relies on a network of dealers to market and sell its mobile homes.

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

The Company also sells homes directly to consumers, through its own retail stores, and to dealers and mobile home parks.

Basis of Presentation

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 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 unaudited interim condensed financial statements 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 condensed 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 months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024, or any other period.

The accompanying balance sheet as of December 31, 2023 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”), filed on March 15, 2024.

4 unchanged sentences

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 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.

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 receivable, other notes receivable, inventory obsolescence, income taxes, fair value of financial instruments and contingent liabilities.

Actual results could differ from these estimates.

Revenue Recognition

Product sales primarily consist of sales of mobile homes to consumers and mobile home parks through various sales channels, which include Direct Sales, Commercial Sales, Consignment Sales, and Retail Store Sales.

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

These homes are generally paid for prior to shipment.

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

The Company provides floor plan financing for independent retailers, which can take the form of a consignment arrangement or an inventory financing arrangement.

Consignment Sales under the consignment arrangement are considered sales of consigned homes from independent dealers to individual customers.

Consignment Sales under the inventory financing arrangement are

The Company has one reportable segment.

All of our activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others.

For example, the sale of manufactured homes includes providing transportation for dealers.

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

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

Accordingly, all significant operating and strategic decisions by the chief operating decision maker, the Chief Executive Officer, are based upon analyses of our company as one operating segment.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

considered sales of homes to the independent dealer.

Revenue Recognition

Product sales primarily consist of sales of mobile homes to consumers and mobile home parks through various sales channels, which include Direct Sales, Commercial Sales, Inventory Finance Sales, and Retail Store Sales.

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

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

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

Inventory Finance Sales include sales of homes to independent retailers, or dealers, who then resell the homes to consumers.

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

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

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

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

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

Interest income is separately recorded in the statement of income.

For other financed sales by the Company, the individual customer enters into a sales and financing contract and is required to make a down payment.

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

Revenue is measured as the amount of consideration expected to be received in exchange for transferring the homes to the customers.

Sales and other similar taxes collected concurrently with revenue-producing activities are excluded from revenue.

The Company made an accounting policy election to account for any shipping and handling costs that occur after the transfer of control as a fulfillment cost that is accrued when control is transferred.

Warranty obligations associated with the sale of a unit are assurance-type warranties for a period of twelve months that are a guarantee of the home’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract.

The Company has elected to use the practical expedient to expense the incremental costs of obtaining a contract if the amortization period of the asset that the Company would have otherwise recognized is one year or less.

Contract costs, which include commissions incurred related to the sale of homes, are expensed at the point-in-time when the related revenue is recognized.

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

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 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.

Consignment fees are determined as a percentage of the home’s wholesale price to the independent dealer.

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 nine months ended September 30, 2023 and 2022:

Three months ended

Nine months ended

September 30,

Product sales:

Commercial sales

Inventory finance sales

Retail store sales

Total product sales

Consumer and MHP loans interest:

Interest - consumer installment notes

Interest - MHP notes

Total consumer and MHP loans interest

Total net revenue

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

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

Inventory Finance Sales and Retail Store Sales of homes may be financed by the Company or a third party, or they may be paid in cash.

Consumer, MHP and dealer loans interest includes interest income from the consumer, MHP and dealer finance loan portfolios.

Other revenue consists of consignment fees, commercial lease rents, service fees and other miscellaneous income.

Share-Based Compensation

The Company accounts for share-based compensation in accordance with the provisions of Accounting Standards Codification (“ASC”) 718, Compensation—Stock Compensation .

Share-based compensation expense is recognized based on the award’s estimated grant date fair value in order to recognize compensation cost for those shares expected to vest.

Share-based compensation expense is recognized based on an award’s estimated grant date fair value in order to recognize compensation cost for those shares expected to vest.

The Company has elected to record forfeitures as they occur.

1 unchanged sentence

The fair value of each option grant with only service-based conditions is estimated using the Black-Scholes pricing model.

The fair value of each restricted stock unit (the ”RSU”) with only service-based conditions is calculated based on the closing price of the Company’s common stock on the grant date.

The fair value of each RSU with market based conditions is estimated using the Monte-Carlo Simulation valuation model.

The fair value of each restricted stock grant with only service-based conditions is calculated based on the closing price of the Company’s common stock on the grant date.

The fair value of stock option awards on the date of grant is estimated using the Black-Scholes option pricing model, which requires the Company to make certain predictive assumptions.

1 unchanged sentence

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

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 volatility is estimated based on the historical volatility of the Company’s common stock.

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

The 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:

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

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

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

Treasury bond yield issued with similar life terms to the expected life of the grant.

Accounts Receivable

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.

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

Accounts receivables “dealer financed” are due upon receipt and are stated at amounts due from customers net of an allowance for doubtful accounts.

“Accounts receivable, net” includes receivables from direct sales of mobile homes, sales of parts and supplies to customers, inventory finance fees and interest.

“Accounts receivable, net” related to inventory finance fees and interest generally are due upon receipt, and all other accounts receivable generally are due within 30 days .

Accounts receivable “net” are stated at amounts due from customers net of an allowance for doubtful accounts.

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, the Company’s previous loss history and the Company’s expected losses over the term of the receivable.

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

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

On March 31, 2024, December 31, 2023 and December 31, 2022, the allowance for doubtful accounts totaled $ 757 , $ 651 and $ 279 , respectively.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Leased Property

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

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

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

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

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

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

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

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

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

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

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

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

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

In this arrangement title for the mobile homes remains with the Company, and the lease is accounted for as an operating lease.

Our typical lease agreement is for 96 months or 120 months .

It requires the lessee to maintain the home and to return the home to us at the end of the lease in good condition.

It provides the lessee with a termination option for a fee, an option to extend the lease and a purchase option at fair market value.

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

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

Depreciation expense for the leased property was $ 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.

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

Depreciation expense for the leased property was $ 124 and $ 160 for the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024, the Company sold 120 leased mobile homes for $ 5.5 million to a mobile home park customer.

Future minimum lease income under all operating leases for each of the next five years at March 31, 2024, is as follows:

Product Warranties

The Company provides retail home buyers with a one-year warranty from the date of purchase on manufactured inventory.

Product warranty costs are accrued when the covered homes are sold to customers.

Product warranty expense is recognized based on the terms of the product warranty and the related estimated costs.

Factors used to determine the warranty liability include the number of homes under warranty and the historical costs incurred in servicing the warranties.

The accrued warranty liability is reduced as costs are incurred and the warranty liability balance is included as part of accrued liabilities in the Company’s balance sheet.

The following table summarizes activity within the warranty liability for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Warranty liability, beginning of period

Product warranty accrued

Warranty costs incurred

Warranty liability, end of period

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

Future minimum lease income under all operating leases for each of the next five years at September 30, 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 Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 Financial Instruments—Credit Losses (Topic 326):

In June 2016, the 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.

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

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

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

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

However, Topic 326 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.

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

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 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.

In November, 2023 the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss.

The update also requires disclosure regarding the chief operating decision maker and expands the interim segment disclosure requirements.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

We currently are evaluating the impact of ASU 2023-07 on our 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.

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

CONSUMER LOANS

Consumer loans result from financing transactions entered into with retail consumers of mobile homes sold through independent retailers and company-owned retail locations.

Consumer loans receivable generally consist of the sales price and any additional financing fees, less the buyer’s down payment.

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 September 30, 2023 and December 31, 2022, respectively.

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

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

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

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

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

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

Inventory Finance Sales include sales of homes to independent retailers, or dealers, who then resell the homes to consumers.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

Sales are homes sold through Company-owned retail locations.

Inventory Finance Sales and Retail Store Sales of homes may be financed by the Company or a third party, or they may be paid in cash.

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

For inventory financed sales, the independent dealer enters into a financing arrangement with the Company and is required to make monthly interest payments.

Interest income is recorded separately in the statement of income.

For other financed sales by the Company, the individual customer enters into a sales and financing contract and is required to make a down payment.

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

Revenue is measured as the amount of consideration expected to be received in exchange for transferring the homes to the customers.

Sales and other similar taxes collected concurrently with revenue-producing activities are excluded from revenue.

Contract costs, which include commissions incurred related to the sale of homes, are expensed at the point-in-time when the related revenue is recognized.

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

Warranty and contract costs were $ 537 and $ 627 for the three months ended March 31, 2024 and 2023, respectively.

For the three months ended March 31, 2024, mobile home park (“MHP”) sales to two independent third parties and their affiliates accounted for $ 5,450 or 17.7 % and $ 2,799 or 9.1 % of our product sales.

The $ 5,450 represents sales of 120 leased mobile homes to a mobile home park customer, and these sales are included in Commercial Sales in the Disaggregation of Revenue table below.

For the three months ended March 31, 2023, mobile home park (“MHP”) sales to an independent third party and its affiliates accounted for $ 5,647 or 13.0 % of our product sales.

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

For the three months ended March 31, 2024 and 2023, total cost of product sales included $ 1,408 and $ 2,623 of costs relating to subcontracted production for commercial sales, transportation and delivery costs, and certain other costs incurred for retail store and commercial sales.

Other revenue consists of contract deposit forfeitures, consignment fees, commercial lease rents, service fees and other miscellaneous income.

Consignment fees are determined as a percentage of the home’s wholesale price to the independent dealer.

The Company transitioned most of its independent retailers from consignment arrangements to inventory finance arrangements in late 2022.

As a result, consignment fees transitioned to interest income for inventory finance arrangements, and this interest income is included in Consumer, MHP and dealer loans interest on the accompanying statement of income.

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

Revenue for service fees and miscellaneous income is recognized at a point in time when the performance obligation is satisfied.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Disaggregation of Revenue.

The following table summarizes customer contract revenues disaggregated by the source of the revenue for the three months ended March 31, 2024 and 2023:

Three months ended

Product sales:

Commercial sales

Inventory finance sales

Retail store sales

Other product sales (1)

Total product sales

Consumer, MHP and dealer loans interest:

Interest - consumer installment notes

Interest - MHP notes

Interest - dealer finance notes

Total consumer, MHP and dealer loans interest

Total net revenue

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

CONSUMER LOANS RECEIVABLE

Consumer loans receivable result from financing transactions entered into with retail consumers of mobile homes sold through independent retailers and company-owned retail locations.

Consumer loans receivable generally consist of the sales price and any additional financing fees, less the buyer’s down payment.

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

The average contractual interest rate per loan was approximately 13.2 % as of March 31, 2024 and December 31, 2023.

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

The Company reviews loan applications in an underwriting process which considers credit history, among other things, to evaluate credit risk of the consumer and determines interest rates on approved loans based on consumer credit score, payment ability and down payment amount.

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 $ 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.

The liabilities associated with these escrow collections totaled $ 10,953 and $ 10,104 as of March 31, 2024 and December 31, 2023, respectively, and are included in escrow liability in the accompanying balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

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

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

An allowance for loan losses is determined after giving consideration to, among other things, the loan characteristics,

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

including the financial condition of borrowers, the value and liquidity of collateral, delinquency and historical loss experience.

The allowance for loan losses is comprised of two components:

the general reserve and specific reserves.

The Company’s calculation of the general reserve considers the historical loss rate for the last three years , adjusted for the estimated loss discovery period and any qualitative factors both internal and external to the Company.

The Company’s calculation of the general reserve considers the historical loan default rates and collateral recovery rates for the last three years and any qualitative factors both internal and external to the Company.

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

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

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

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

1 unchanged sentence

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

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

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

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

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

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

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

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

These factors are:

(1) the length of time the unit was unsold after construction;

These factors include:

(1) the length of time the unit remained unsold after construction;

(2) the amount of time the house was occupied;

(3) the cooperation level of the borrowers, i.e., loans requiring legal action or extensive field collection efforts;

(4) units located on private property as opposed to a manufactured home park;

(3) the cooperation level of the borrowers (for example, loans requiring legal action or extensive field collection efforts may have a reduced value);

(4) the physical location of the home;

(5) the length of time the borrower has lived in the house without making payments;

(6) location, size, and market conditions;

(6) the size of the home and market conditions;

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

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.

At repossession, the fair value of the collateral is computed based on the historical recovery rates of previously charged off loans;

the loan is charged off and the loss is charged to the allowance for loan losses.

At repossession, the collateral is recorded at the same amount as the principal balance as the loan.

The fair value of the collateral is then computed based on the historical recovery rates of previously charged off loans, the loan is charged off and the loss is charged to the allowance for loan losses.

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 $ 1,486 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

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Repossessed homes totaled $ 2,940 and $ 2,215 as of March 31, 2024 and December 31, 2023, respectively, and are included in other assets in the accompanying balance sheets.

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

As of September 30,

As of March 31,

As of December 31,

3 unchanged sentences

Consumer loans receivable, net

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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

Three months ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Allowance for loan losses, beginning of period

Provision for loan losses

Charge offs (recoveries)

Allowance for loan losses

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

As of September 30,

Allowance for loan losses, end of period

The following table presents impaired and general reserve for allowance for loan losses:

As of March 31,

As of December 31,

5 unchanged sentences

General allowance for loan losses

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 March 31, 2024 and December 31, 2023, the total principal outstanding for consumer loans on nonaccrual status was $ 2,041 and $ 1,565 , respectively.

A detailed aging of consumer loans receivable that are past due is as follows:

As of March 31,

As of December 31,

6 unchanged sentences

Total past due

NOTES RECEIVABLE FROM MOBILE HOME PARKS

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

We evaluate the credit quality of our consumer loan portfolio based on the aging status of the loan and by payment activity.

Loan delinquency reporting generally is based on borrower payment activity relative to the contractual terms of the loan.

The following table disaggregates the outstanding principal balance of consumer loans receivable by credit quality indicator based on delinquency status and fiscal year of origination:

Year of Origination

% of Portfolio

< 30 days past due

30-90 days past due

> 90 days past due

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

and interest payments.

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

Approximately $ 172 million of the MHP Notes have a fixed interest rate ranging from 6.9 % to 12.5 %.

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 September 30, 2023 and December 31, 2022, with maturities that range from 1 to 10 years .

NOTES RECEIVABLE FROM MOBILE HOME PARKS

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 require monthly principal and interest payments.

The interest rate on the MHP Notes can be fixed or variable, and the interest rates range from 6.9 % to 12.5 %, excluding the Default Loans defined below.

The average interest rate per loan, excluding the Default Loans below, was approximately 8.0 % as of March 31, 2024 and December 31, 2023, 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 15.4 %, 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 March 31, 2024, the Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 24.0 %, 17.2 % and 13.4 % of the principal balance outstanding, all of which was secured by the mobile homes.

As of December 31, 2023, the Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 24.5 %, 17.9 % and 14.0 % of the principal balance outstanding, all of which was secured by the mobile homes.

1 unchanged sentence

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

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

As of March 31, 2024 and December 31, 2023, the MHP Notes balance is presented net of unamortized finance fees of $ 1 ,257 and $ 1,565 , respectively.

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

There were minimal past due balances on the MHP Notes as of September 30, 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.

As of March 31, 2024 and December 31, 2023 there were past due balances of $ 262 and $ 98 , respectively, on the MHP Notes excluding the Default Loans, as defined below.

For the three months ended March 31, 2024 and 2023, there were no charge offs recorded for MHP Notes.

Allowance for loan loss for the MHP Notes was $ 616 and $ 735 as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024 and December 31, 2023, there was a minimal impaired balance of MHP Notes.

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.

Approximately $ 54 million of MHP Notes and Other notes receivable is with borrowers either owned or operated by one individual.

Approximately $ 36 million of these notes currently is in default (the “Default Loans”) and is the subject of ongoing litigation in which the Company is the plaintiff.

These notes are collateralized by mobile homes and land and are personally guaranteed by multiple borrowers.

The Company evaluated the recoverability of these notes as of March 31, 2024 and determined a provision for expected loan losses is not deemed necessary based on the analysis of the underlying collateral.

The Company accelerated the Default Loans at the end of January, 2024.

Upon acceleration, the loans accrue interest at a rate of 17.5 % and are due on demand.

At March 31, 2024 the Default Loans are presented on the accompanying balance sheets under the heading Current assets, with $ 26 million in Current portion of notes receivable from mobile home parks (“MHP”) and $ 10 million in Current portion of other notes receivable.

During the three months ended March 31, 2024, the Company foreclosed on property and homes of $ 2.3 million that is included on the accompanying balance sheets in Property, plant and equipment, net.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Notes receivable from mobile home parks, net of allowance for loan losses and deferred financing fees, consisted of the following at March 31, 2024 and December 31, 2023:

As of March 31,

As of December 31,

Outstanding principal balance

Loan discount and deferred financing fees

Allowance for loan losses

The following table presents a detail of the activity in the allowance for loan losses for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

Allowance for loan losses, beginning of period

Provision for loan losses

Charge offs (recoveries)

Allowance for loan losses, end of period

The following table presents impaired and general reserve for allowance for loan losses at March 31, 2024 and December 31, 2023:

As of March 31,

As of December 31,

Total MHP loans

Allowance for loan losses

Impaired loans individually evaluated for impairment

Specific reserve against impaired loans

Other loans collectively evaluated for allowance

General allowance for loan losses

We evaluate the credit quality of our MHP portfolio based on the aging status of the loan and by payment activity.

Loan delinquency reporting is generally based upon borrower payment activity relative to the contractual terms of the loan.

The following table disaggregates the outstanding principal balance of MHP receivable by credit quality indicator based on delinquency status and fiscal year of origination and is presented as of March 31, 2024:

Year of Origination

% of Portfolio

< 30 days past due

30-90 days past due

> 90 days past due

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

OTHER NOTES RECEIVABLE

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

The other notes have varying maturity dates and call for monthly principal and interest payments.

The other notes are collateralized by mortgages on real estate, units being financed and used as offices, as well as vehicles, and are typically personally guaranteed by the borrowers.

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

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

These other notes have varying maturity dates and generally require monthly principal and interest payments.

They are collateralized by mortgages on real estate, mobile homes that we have financed for which the borrower uses as offices, as well as vehicles.

These notes typically are personally guaranteed by the borrowers.

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

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

There were 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 September 30,

As of March 31, 2024 and December 31, 2023 there were past due balances of $ 286 and $ 22 , respectively, on the other notes excluding the Default Loans, as defined below.

For the three months ended March 31, 2024 and 2023, there were no charge offs recorded for other notes.

Allowance for loan loss for the other notes was $ 176 and $ 236 as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024 and December 31, 2023, the impaired balance of other notes was $ 76 and $ 84 , respectively.

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

Approximately $ 54 million of MHP Notes and Other notes receivable is with borrowers either owned or operated by one individual.

Approximately $ 36 million of these notes currently is in default (the “Default Loans” as defined in Note 4 above) and is the subject of ongoing litigation in which the Company is the plaintiff.

These notes are collateralized by mobile homes and land and are personally guaranteed by multiple borrowers.

The Company accelerated the Default Loans at the end of January, 2024.

Upon acceleration, the loans accrue interest at a rate of 17.5 % and are due on demand.

During the three months ended March 31, 2024, the Company foreclosed on property and homes of $ 2.3 million that is included on the accompanying balance sheets in Property, plant and equipment, net.

Other notes receivable, net of allowance for loan losses and deferred financing fees, consisted of the following at March 31, 2024 and December 31, 2023:

As of March 31,

As of December 31,

Outstanding principal balance

Loan discount and deferred financing fees

Allowance for loan losses

The following table presents a detail of the activity in the allowance for loan losses for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

Allowance for loan losses, beginning of period

Provision for loan losses

Charge offs (recoveries)

Allowance for loan losses, end of period

LEGACY HOUSING CORPORATION

1 unchanged sentence

(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, Texas and Norcross, Georgia.

The following table presents impaired and general reserve for allowance for loan losses at March 31, 2024 and December 31, 2023:

As of March 31,

As of December 31,

Total Other notes receivable

Allowance for loan losses

Impaired loans individually evaluated for impairment

Specific reserve against impaired loans

Other notes receivable collectively evaluated for allowance

General allowance for loan losses

We evaluate the credit quality of our Other notes receivable portfolio based on the aging status of the loan and by payment activity.

Loan delinquency reporting is generally based upon borrower payment activity, relative to the contractual terms of the loan.

The following table disaggregates the outstanding principal balance of Other notes receivable by credit quality indicator based on delinquency status and fiscal year of origination and is presented as of March 31, 2024:

Year of Origination

% of Portfolio

< 30 days past due

30-90 days past due

> 90 days past due

DEALER FINANCED RECEIVABLES

Dealer finance receivable are receivables for loans that we make to independent retailers, or dealers, for the purchase of mobile homes so that dealers can then market them for sale to consumers.

The loans are part of our inventory finance program.

In late 2022 and early 2023, the Company transitioned many of its dealers from a traditional consignment arrangement to an inventory finance arrangement.

The terms of the financing typically include a three year term, a monthly interest payment, an annual curtailment payment and require the retailer to pay the principal amount of the loan to the Company upon the earlier of the sale of the home by the retailer to its customer or the end of the term.

Dealer financed notes receivable, net of allowance for loan losses and deferred financing fees, consisted of the following at March 31, 2024 and December 31, 2023:

As of March 31,

As of December 31,

Outstanding principal balance

Loan discount and deferred financing fees

Allowance for loan losses

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The following table presents a detail of the activity in the allowance for loan losses for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

Allowance for loan losses, beginning of period

Provision for loan losses

Charge offs (recoveries)

Allowance for loan losses, end of period

The dealer financed loan portfolio was established primarily in late 2022 and 2023 as a result of converting from consignment arrangements with dealers to inventory finance arrangements with dealers.

As such, there is relatively little historical data to measure credit quality of the loans in this portfolio.

The Company currently has 13 operating leases, eight of which are for the Company’s Heritage Housing and Tiny Homes retail locations, three are subleased by the Company and two 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.

We determine if an arrangement is a lease at inception.

Operating leases are right-of-use (“ROU”) assets and are shown as ROU assets – operating leases on our condensed balance sheet.

The lease liabilities are shown as operating lease obligations and operating lease obligations, less current portion on our condensed balance sheet.

Under ASC 842, the Company elected the modified retrospective approach, applying the new standard to all leases at the date of initial application.

The Company adopted the new standard on January 1, 2022.

We determine if an arrangement is or contains a lease at inception.

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

The lease liabilities are shown as Operating lease obligation and Operating lease obligation, less current portion on our balance sheets.

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

1 unchanged sentence

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

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

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

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.

2 unchanged sentences

Many of our leases contain renewal options.

As the exercise of the renewal options is not certain at commencement of a lease, we generally do not include the option periods in the lease term when determining the lease liabilities and ROU assets.

We remeasure the lease liability and ROU asset when we are reasonably certain that we will exercise a renewal option.

As the exercise of the renewal options is not likely at the commencement of a lease, we generally do not include the option periods in the lease term when determining the lease liabilities and ROU assets.

We remeasure the lease liability and ROU asset when it is reasonably likely that we will exercise a renewal option.

Our leases do not provide information about the rate implicit in the lease.

1 unchanged sentence

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

The remaining weighted-average lease term is 4.23 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 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 nine months ended September 30, 2023 and 2022.

As of March 31, 2024, the remaining weighted-average lease term is 3.80 years and the weighted-average discount rate is 2.10 %.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(dollars in thousands)

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

There were no variable lease costs for the year ended March 31, 2024.

Short-term leases, those with a term of 12 months or less, are not recorded on our balance sheet.

Our short-term lease costs were not material for the year ended March 31, 2024.

Lease expense for operating leases consists of fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred.

Amortization of the ROU asset for operating leases reflects amortization of the lease liability, any differences between straight-line expense and related lease payments during the accounting period, and any impairments.

As of March 31, 2024, present value of future lease payments under our operating lease liabilities were as follows:

Total lease payments

3 unchanged sentences

Total non-current lease liability

Inventories consists of the following:

As of September 30,

Inventories consisted of the following at March 31, 2024 and December 31, 2023:

As of March 31,

As of December 31,

2 unchanged sentences

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.

Finished goods expected to be held for more than twelve months is classified as long-term and represented $ 8,727 and $ 7,793 as of March 31, 2024 and December 31, 2023, respectively.

The Company has an inventory allowance of $ 527 and $ 439 as of March 31, 2024 and December 31, 2023, respectively, for finished goods expected to be held for more than twelve months.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

As of September 30,

Property, plant and equipment consisted of the following at March 31, 2024 and December 31, 2023:

As of March 31,

As of December 31,

Buildings and leasehold improvements

Construction in Progress

Machinery and equipment

2 unchanged sentences

Total property, plant and equipment

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

Depreciation expense was $ 403 with $ 158 included as a component of cost of product sales for the three months ended March 31, 2024, and $ 270 with $ 126 included as a component of cost of product sales for the three months ended March 31, 2023.

Other assets consisted of the following at March 31, 2024 and December 31, 2023:

As of March 31,

As of December 31,

Repossessed homes

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 September 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 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 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 September 30,

Accrued liabilities consisted of the following at March 31, 2024 and December 31, 2023:

As of March 31,

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

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

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.

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

(“Capital One”).

The letter stated that the Company’s Revolver was in default.

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

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

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

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

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

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.

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

Subsequently, the Company repaid in full the balance due on its prior line of credit with Capital One, N.A.

and all commitments under this prior line of credit were terminated.

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

The 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 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 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 Revolver.

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

The Revolver matures July 28, 2027.

For the three months ended March 31, 2024, interest expense for the under the Revolver was $ 2 76, and for the three months ended March 31, 2023, interest expense under the prior line of credit was $ 91 .

The outstanding balance of the Revolver as of March 31, 2024 and December 31, 2023 was $ 11,797 and $ 23,680 , respectively.

The interest rate in effect as of March 31, 2024 and December 31, 2023 for the Revolver was 7.67 % and 7.95 %, respectively.

The amount of available credit under the Revolver was $ 38,203 and $ 26,320 as of March 31, 2024 and December 31, 2023, respectively.

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

As of March 31, 2024, the Company was in compliance with all financial covenants, including that it maintain a maximum leverage 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.

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, restricted stock and stock appreciation rights.

Pursuant to the Legacy Housing Corporation 2018 Incentive Compensation Plan (the “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, restricted stock and stock appreciation rights.

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

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.

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

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

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

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

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

The shares became fully vested on October 24, 2022.

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

The shares were granted on January 6, 2022 and had a grant date fair value of $ 3,741 .

The shares became fully vested upon grant.

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

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

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

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

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

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

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

At March 31, 2024, the Company had 8.7 million shares available for grant under the Plan.

LEGACY HOUSING CORPORATION

1 unchanged sentence

(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 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.

The shares were granted on June 7, 2022 and had a grant date fair value of $ 5 .

The shares became fully vested on October 24, 2022.

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

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

The shares 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):

Restricted Stock

The following is a summary of restricted stock award activity for the year ended December 31, 2023 and the three months ended March 31, 2024 (number of units in thousands except per unit data):

Number of Units

1 unchanged sentence

Nonvested, January 1, 2023

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.

All options expire ten years after the date of grant.

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

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

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

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.

All options expire ten years after the date of grant.

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

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

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

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.

All options expire ten years after the date of grant.

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

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

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

Nonvested, December 31, 2023

Nonvested, January 1, 2024

Nonvested, March 31, 2024

As of March 31, 2024, approximately 8,000 shares of restricted stock remained unvested.

Unrecognized compensation expense related to these restricted stock awards at March 31, 2024 was $ 42 and is expected to be recognized over 0.4 years.

Compensation expense for restricted stock awards for the three months ended March 31, 2024 and 2023 was $ 37 and $ 66 , respectively.

LEGACY HOUSING CORPORATION

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(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.

All options expire ten years after the date of grant.

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

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

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.

All options expire ten years after the date of grant.

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

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

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.

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.

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

Stock Options

The following is a summary of option award activity for the year ended December 31, 2023 and the three months ended March 31, 2024 (number of units in thousands except per unit data):

Number of Units

2 unchanged sentences

Fair Value Per Unit

Contractual Life

Contractual Life (years)

Outstanding, January 1, 2023

Outstanding, September 30, 2022

Exercisable, September 30, 2022

Outstanding, December 31, 2023

Exercisable, December 31, 2023

Outstanding, January 1, 2024

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.

Outstanding, March 31, 2024

Exercisable, March 31, 2024

As of March 31, 2024, approximately 910,000 options remained nonvested.

Unrecognized compensation expense related to these options at March 31, 2024 was $ 4,332 and is expected to be recognized over 8.0 years.

Compensation expense for stock option awards for the three months ended March 31, 2024 and 2023 was $ 147 and $ 126 , respectively.

The provision for income tax expense for the three months ended March 31, 2024 and 2023 was $ 3,373 and $ 3,435 respectively.

The effective tax rate for the three months ended March 31, 2024 and 2023 was 18.2 % and 17.4 %, respectively.

These rates differ from the federal statutory rate of 21 % primarily due to a federal tax credit for the sale of energy efficient homes under the Internal Revenue Code §45L, partially offset by state income taxes.

The §45L tax credit was initially established under the Federal Energy Policy Act of 2005 and was extended through December 31, 2032 by the Inflation Reduction Act of 2022.

COMMITMENTS AND CONTINGENCIES

As of January 1, 2020, the Company instituted a self-insured health benefits plan with a stop-loss policy, which provides medical benefits to employees electing coverage under the plan.

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

The Company estimates and records costs for incurred but not reported medical claims and claim development.

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

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

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.

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

As of March 31, 2024 and December 31, 2023, the Company accrued a $ 253 and $ 242 liability for incurred but not reported claims, respectively.

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent retailers of its products.

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

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

The maximum amount for which the Company was liable under such agreements totaled $ 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 believes that risk of loss is mitigated due to the resale value of the repurchased homes and the fact that the agreements are spread over many retailers.

The maximum amount for which the Company was liable under such agreements approximated $ 1,671 and $ 3,030 at March 31, 2024 and December 31, 2023, respectively, without reduction for the resale value of the homes.

The Company considers its obligations on current contracts to be immaterial and accordingly has not recorded any reserve for repurchase commitment as of March 31, 2024 and December 31, 2023.

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 $ 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.

Rent expense was $ 159 and $ 182 for the three months ended March 31, 2024 and 2023, 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 $ 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.

Rental income from the subleased properties was approximately $ 54 and $ 67 for the three months ended March 31, 2024 and 2023, respectively.

See Note 7 – Leases, for a schedule of the Company’s future minimum lease commitments.

2 unchanged sentences

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

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

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.

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

The Company has included legal reserves of $ 610 and $ 990 as of March 31, 2024 and December 31, 2023, respectively, in accrued liabilities on the accompanying balance sheets.

Although litigation is inherently uncertain, based on past experience and the information currently available, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company’s financial position, liquidity or results of operations.

However, future events or circumstances currently unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company’s financial position, liquidity or results of operations in any future reporting periods.

FAIR VALUE MEASUREMENTS

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 Company accounts for its investments and derivative instruments in accordance with the provisions of Accounting Standards Codification (“ASC”) 820 10, Fair Value Measurement, which among other things provides the framework for measuring fair value.

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

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).

7 unchanged sentences

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

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Level III Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

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

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

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

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

This is considered a Level I valuation technique.

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

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.

The lines of credit, part of the MHP Notes and part of the other notes receivables have variable interest rates that reflect market rates and their fair value approximates their carrying value.

This is considered a Level II valuation technique.

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

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

This is considered a Level III valuation technique.

The following table shows the fair market value and book value of these portfolios as of March 31, 2024 and December 31, 2023:

As of March 31,

As of December 31,

Consumer loan portfolio, fair value

Consumer loan portfolio, book value

Fixed rate MHP Notes, fair value

Fixed rate MHP Notes, book value

Fixed rate other notes, fair value

Fixed rate other notes, book value

LEGACY HOUSING CORPORATION

2 unchanged sentences

EARNINGS PER SHARE

Basic earnings per common share (“EPS”) is computed based on the weighted-average number of common shares outstanding during each reporting period.

Basic earnings per common share (“EPS”) is computed based on the weighted-average number of common shares outstanding during the reporting period.

Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s balance sheets.

Diluted EPS is based on the weighted-average number of common shares outstanding plus the number of additional shares that would have been outstanding had the dilutive common shares been issued.

1 unchanged sentence

Three months ended

Nine months ended

September 30,

Net income (in 000's)

1 unchanged sentence

Effect of dilutive securities:

Restricted stock units

Restricted stock grants

Stock options

1 unchanged sentence

Earnings per share attributable to Legacy Housing Corporation

In November 2022, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $ 10.0 million of the Company’s common stock.

We repurchased 91,187 shares for $ 1.9 million in the open market during the three months ended March 31, 2024.

As of March 31, 2024, we had a remaining authorization of approximately $ 8.1 million.

Between April 1, 2024 and May 9, 2024, we repurchased 170,342 shares for $ 3.5 million in the open market.

RELATED PARTY TRANSACTIONS

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.

Accounts receivable balances due from Bell were $ 189 and $ 403 as of March 31, 2024 and December 31, 2023, respectively.

Accounts payable balances due to Bell were $ 43 and $ 18 as of March 31, 2024 and December 31, 2023, respectively.

Home sales to Bell were $ 1,119 and $ 479 for the three months ended March 31, 2024 and 2023, respectively.

Shipley Bros., Ltd.

(“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.

And Crazy Red’s Mobile Homes (together, “Shipley”), retailers owned by one of the Company’s significant shareholders, purchase manufactured homes from the Company.

Accounts receivable balances due from Shipley were $ 0 and $ 143 as of March 31, 2024 and December 31, 2023, respectively.

Accounts payable balances due to Shipley were $ 15 and $ 67 as of March 31, 2024 and December 31, 2023.

Home sales to Shipley were $ 299 and $ 632 for the three months ended March 31, 2024 and 2023, respectively.

At March 31, 2024, the Company had a receivable of $ 1 from a principal shareholder.

This amount is included in the Company’s accounts receivable balance as of March 31, 2024.

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

SUBSEQUENT EVENTS

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.

In connection with the preparation of these financial statements, we evaluated subsequent events after the balance sheet date of March 31, 2024 and through the date of this filing and determined that no events occurred that would require adjustments or disclosures in the financial statements except those listed below.

In November 2022, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $ 10.0 million of the Company’s common stock.

We repurchased 91,187 shares for $ 1.9 million in the open market during the three months ended March 31, 2024.

As of March 31, 2024, we had a remaining authorization of approximately $ 8.1 million.

Between April 1, 2024 and May 9, 2024, we repurchased 170,342 shares for $ 3.5 million in the open market.

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