LEGACY HOUSING CORPORATION

CONDENSED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(unaudited)


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Net revenue:				(restated)				(restated)
Product sales	$	55,098	$	41,115	$	106,885	$	73,389
Consumer and MHP loans interest		7,497		6,734		14,262		13,372
Other		1,616		740		2,992		1,767
Total net revenue		64,211		48,589		124,139		88,528
Operating expenses:
Cost of product sales		37,411		28,343		71,138		50,344
Selling, general and administrative expenses		5,901		5,165		13,560		9,958
Dealer incentive		439		114		713		576
Income from operations		20,460		14,967		38,728		27,650
Other income (expense):
Non‑operating interest income		783		429		1,635		677
Miscellaneous, net		17		34		603		238
Interest expense		(183)		(283)		(239)		(509)
Total other		617		180		1,999		406
Income before income tax expense		21,077		15,147		40,727		28,056
Income tax expense		(3,816)		(2,498)		(7,375)		(4,707)
Net income	$	17,261	$	12,649	$	33,352	$	23,349
Weighted average shares outstanding:
Basic		24,406,020		24,202,631		24,355,412		24,200,879
Diluted		24,922,125		24,234,913		24,773,345		24,229,265
Net income per share:
Basic	$	0.71	$	0.52	$	1.37	$	0.96
Diluted	$	0.69	$	0.52	$	1.35	$	0.96

See accompanying notes to condensed financial statements.

Table of Contents

LEGACY HOUSING ~~COPRORATION~~CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Three months ended March 31,


2019

2018

Operating activities:





Net income

$
7,213

$
5,361

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





Depreciation expense

241

196

Provision for loan loss—consumer loans

406

118

Deferred income taxes

—

2,068

Share based payment expense

234

—

Changes in operating assets and liabilities:





Accounts receivable

(142)

2,162

Consumer loans originations

(5,053)

(3,661)

Consumer loans principal collections

2,847

2,134

Notes receivable MHP originations

(12,849)

(9,427)

Notes receivable MHP principal collections

8,238

7,570

Inventories

1,015

(2,206)

Prepaid expenses and other current assets

(390)

(1,700)

Other assets

(467)

147

Accounts payable

888

(81)

Accrued liabilities

1,153

2,494

Customer deposits

52

(522)

Dealer incentive liability

5

(165)

Net cash provided by operating activities

3,391

4,488

Investing activities:





Purchases of property, plant and equipment

(757)

(389)

Issuance of notes receivable

(1,400)

(255)

Notes receivable collections

101

44

Purchases of consumer loans

(101)

—

Collections from purchased consumer loans

172

111

Net cash used in investing activities

(1,985)

(489)

Financing activities:





Proceeds from sale of over-allotment common stock in initial public offering

7,200

—

Offering cost for over-allotment of initial public offering

(505)

—

Escrow liability

(626)

(341)

Principal payments on note payable

(459)

(56)

Proceeds from lines of credit

1,482

14,213

Payments on lines of credit

(7,999)

(16,533)

Net cash used in financing activities

(907)

(2,717)

Net increase in cash and cash equivalents

499

1,282

Cash and cash equivalents at beginning of period

2,599

428

Cash and cash equivalents at end of period

$
3,098

$
1,710

Supplemental disclosure of cash flow information:





Cash paid for interest

$
227

$
585


	Six months ended June 30,
	2022		2021
Operating activities:				(restated)
Net income	$	33,352	$	23,349
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization expense		880		754
Amortization of deferred revenue		(727)		267
Provision for accounts and notes receivable		29		558
Provision for long term inventory		(117)		—
Share based payment expense		4,313		108
Changes in operating assets and liabilities:
Accounts receivable		(684)		(2,040)
Consumer loans activity, net		(5,205)		(5,337)
Notes receivable MHP activity, net		(19,169)		(10,221)
Dealer inventory loan activity, net		(6,937)		—
Inventories		(7,122)		(8,864)
Prepaid expenses and other current assets		146		(358)
Other assets		(4,265)		(1,208)
Accounts payable and accrued liabilities		(3,939)		(4,694)
Customer deposits		4,185		2,125
Escrow liability		666		1,008
Dealer incentive liability		638		(222)
Net cash used in operating activities		(3,956)		(4,775)
Investing activities:
Purchases of property, plant and equipment		(1,506)		(2,330)
Issuance of notes receivable		(2,423)		(13,554)
Notes receivable collections		13,731		5,940
Collections from purchased loans		270		1,462
Net cash provided by (used in) investing activities		10,072		(8,482)
Financing activities:
Proceeds from other liabilities		2,525		—
Proceeds from lines of credit		62,863		46,109
Payments on lines of credit		(58,279)		(32,811)
Net cash provided by financing activities		7,109		13,298
Net increase in cash and cash equivalents		13,225		41
Cash and cash equivalents at beginning of period		1,042		768
Cash and cash equivalents at end of period	$	14,267	$	809
Supplemental disclosure of cash flow information:
Cash paid for interest	$	204	$	464
Cash paid for taxes	$	9,601	$	5,700

See accompanying notes to ~~consolidated~~condensed financial statements.

Table of Contents

LEGACY HOUSING CORPORATION

CONDENSED ~~STATEMENT~~STATEMENTS OF CHANGES IN ~~STOCKHOLDER’S~~STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

Total Partners’

Common Stock

Additional

Retained


Capital

Shares

Amount

paid in capital

earnings

Total
Balances, December 31, 2017

$
124,271

—

$
—

$
—

$
—

$
—
Shares issued upon incorporation

(124,271)

20,000,000

20

124,251

—

124,271
Net income

—

—

—

—

5,361

5,361
Balances, March 31, 2018

$
—

20,000,000

$
20

$
124,251

$
5,361

$
129,632


	Common Stock			Treasury		Additional		Retained
	Shares	Amount		stock		paid-in-capital		earnings		Total
Balances, December 31, 2020	24,639,125	$	25	$	(4,477)	$	175,293	$	88,352	$	259,193
Share based compensation expense and stock units vested	8,571		—		—		44		—		44
Net income (restated)	—		—		—		—		10,700		10,700
Balances, March 31, 2021 (restated)	24,647,696		25		(4,477)		175,337		99,052		269,937
Share based compensation expense and stock units vested	—		—		—		64		—		64
Net income (restated)	—		—		—		—		12,649		12,649
Balances, June 30, 2021 (restated)	24,647,696		25		(4,477)		175,401		111,701		282,650

Common Stock

Additional

Retained


Shares

Amount

paid in capital

earnings

Total
Balances, December 31, 2018

24,000,000

$
24

$
167,743

$
21,513

$
189,280
Sale of over-allotment common stock in initial public offering, net of offering costs of $505

600,000

1

6,694

—

6,695
Share based compensation expense and stock units vested

17,143

—

234

—

234
Net income

—

—

—

7,213

7,213
Balances, March 31, 2019

24,617,143

$
25

$
174,671

$
28,726

$
203,422


	Common Stock			Treasury		Additional		Retained
	Shares	Amount		stock		paid-in-capital		earnings		Total
Balances, December 31, 2021	24,654,621	$	25	$	(4,477)	$	175,623	$	138,223	$	309,394
Share based compensation expense and stock units vested	158,571		4		—		4,003		—		4,007
Net income	—		—		—		—		16,092		16,092
Balances, March 31, 2022	24,813,192		29		(4,477)		179,626		154,315		329,493
Share based compensation expense and stock units vested	—		—		—		306		—		306
Net income	—		—		—		—		17,261		17,261
Balances, June 30, 2022	24,813,192		29		(4,477)		179,932		171,576		347,060

See accompanying notes to condensed financial statements.

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

(dollars in thousands)

1. NATURE OF OPERATIONS

Legacy Housing Corporation ~~(the~~(referred herein as ”Legacy”, “we”, “our”, “us”, or the “Company”) was formed on January 1, 2018 as a Delaware corporation through a corporate conversion of Legacy Housing, Ltd., (the “Partnership”), a Texas limited partnership formed in May 2005. ~~The~~Effective December 31, 2019, the Company ~~is incorporated as~~reincorporated from a Delaware corporation ~~and~~to a Texas corporation. The Company is headquartered in Bedford, Texas.

The Company (1) manufactures and provides for the transport of mobile homes, (2) provides wholesale financing to dealers and mobile home parks, ~~and~~ (3) provides retail financing to ~~consumers.~~consumers and (4) is involved in financing and developing new manufactured home communities. The Company manufactures its mobile homes at plants located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia. 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.

In December 2018, the Company sold 4,000,000 shares of its common stock through an initial public offering (“IPO”) at $12.00 per share. Proceeds from the IPO, net of $4,504 of underwriting discounts and offering expenses paid by the Company, were $43,492. In January 2019, the Company sold an additional 600,000 shares of its common stock as part of the IPO at $12.00 per share. Proceeds from the January 2019 issuance, net of ~~$504~~$505 of underwriting discounts and offering expenses paid by the Company, were ~~$6,696.~~ $6,695.

On April 17, 2019, the Company purchased 300,000 shares of its common stock at the price of $10.20 per share, pursuant to the Company’s repurchase program. During the year ended December 31, 2020, the Company purchased 145,065 shares of its common stock at an average price of $9.77 per share, pursuant to the Company’s repurchase program. Under the repurchase program, the Company may purchase up to $10,000 of its common stock. Share purchases may be made from time to time in the open market or through privately negotiated transactions depending on market conditions, share price, trading volume and other factors. Such purchases, if any, will be made in accordance with applicable insider trading and other securities laws and regulations. These repurchases may be commenced or suspended at any time or from time to time without prior notice.

Corporate Conversion

Effective January 1, 2018, the Partnership converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Legacy Housing Corporation. In order to consummate the corporate conversion completed on January 1, 2018, a certificate of conversion was filed with the Secretary of State of the State of Delaware and with the Secretary of State of the State of Texas. Holders of partnership interests in Legacy Housing, Ltd. received an initial allocation, on a proportional basis, of 20,000,000 shares of common stock of Legacy Housing Corporation.

Following the corporate conversion, Legacy Housing Corporation continues to hold all property and assets of Legacy Housing, Ltd. and all of the debts and obligations of Legacy Housing, Ltd. On the effective date of the corporate conversion, the officers of Legacy Housing, Ltd. became the officers of Legacy Housing Corporation. As a result of the corporate conversion, ~~The~~the Company is now a federal corporate taxpayer.

Basis of Presentation

The accompanying unaudited interim condensed financial statements as of ~~March 31, 2019~~June 30, 2022 and for the three and six months ended ~~March 31, 2019~~June 30, 2022 and ~~2018,~~2021, 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 ~~consolidated~~ financial statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's financial position for the periods presented. The results for the three and six months ended ~~March 31, 2019~~June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2019,~~

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Disaggregation of Revenue. The following table summarizes customer contract revenues disaggregated by source of the revenue for the three and six months ended ~~March 31, 2019~~June 30, 2022 and ~~2018:~~2021:


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Product sales:
Direct sales	$	11,745	$	5,493	$	22,608	$	8,915
Commercial sales		14,305		13,050		28,364		25,368
Consignment sales		20,247		13,889		40,287		24,488
Retail store sales		5,657		6,183		9,816		9,504
Other (1)		3,144		2,500		5,810		5,114
Total product sales		55,098		41,115		106,885		73,389
Consumer and MHP loans interest:
Interest - consumer installment notes		4,701		4,046		9,158		8,189
Interest - MHP notes		2,796		2,688		5,104		5,183
Total consumer and MHP loans interest		7,497		6,734		14,262		13,372
Other		1,616		740		2,992		1,767
Total net revenue	$	64,211	$	48,589	$	124,139	$	88,528

Three months ended

March 31,

2019

2018
Product sales:

Direct sales

$
4,457

$
12,499
Commercial sales

12,503

7,034
Consignment sales

10,037

12,751
Retail store sales

3,341

2,559
Other (1)

1,212

2,571
Total product sales

31,550

37,414
Consumer and MHP loans interest:




Interest - consumer installment notes

4,130

3,321
Interest - MHP notes

1,400

1,073
Total consumer and MHP loans interest

5,530

4,394
Other

874

878
Total net revenue

$
37,954

$
42,686

(1)

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

~~Table of Contents~~

~~LEGACY HOUSING CORPORATION~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

~~(dollars in thousands)~~

Share-Based Compensation

The Company accounts for share-based compensation in accordance with the provisions of ~~ASC~~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. The Company has elected to record forfeitures as they occur. Compensation cost is recognized on a straight-line basis over the vesting period of the awards and adjusted as forfeitures occur.

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”~~(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 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. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon securities that correspond to the expected life of the award. As a recently formed public entity with a small public float and limited trading of its common shares on the NASDAQ Global Market, it was not practicable for the Company to estimate the volatility of its common shares; therefore, management estimated volatility based on the historical volatilities of a small group of companies considered as close to comparable to the Company as available, all equally weighted, over the expected life of the option. Management concluded that this group is more characteristic of the Company’s business than a broad industry index. The expected life of awards granted represents the period of time that the awards are expected to be outstanding based on the “simplified” method, which 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. ~~Due~~

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 performance measurement period; the risk-free interest rate is based on the U.S. Treasury bond yield issued with similar life terms to the ~~nature~~expected life of the ~~grants,~~grant.

Accounts Receivable

Included in accounts receivable “net” are receivables from direct sales of mobile homes, sales of parts and supplies to customers, consignment fees and interest. Accounts receivable “dealer financed” are receivables for interest, fees and curtailments owed from 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 outstanding longer than the ~~company estimated zero option forfeitures. Share-based~~contractual payment ~~expense is recorded only~~terms are considered past due. The Company determines the allowance by considering several factors, including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history. The Company establishes an allowance for ~~those awards~~doubtful accounts for amounts that are ~~expected~~deemed to ~~vest.~~be uncollectible. On June 30, 2022 and December 31, 2021, the allowance for doubtful accounts totaled $456 and $343, respectively.

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 for the mobile homes remains with the Company.

The standard lease agreement is typically for 96 months or 120 months. Under the lease arrangement, the lessee (mobile home park operator) uses the mobile homes as personal property to be rented as a residence 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 all damages caused by force majeure events even in cases of total or partial loss of the property. At the end of the lease term or in the event of default, the lessee is required to deliver to the Company the homes with all improvements in good repair and condition in substantially the same condition as existed at the commencement of the lease. The lessee may terminate the lease with 30 days written notice to the Company 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 upon determination of fair market value by both parties using comparable sales, recent appraisal, or NADA official guidance. The lessee must provide the Company with 30 days written notice prior to expiration of the lease of intent to purchase the property for fair market value. 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 the renewal extension option not less than six months prior to expiration of the lease term. 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 $180 and $132 for the three months ended June 30, 2022 and 2021, respectively, and $340 and $230 for the six months ended June 30, 2022 and 2021, respectively.

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Future minimum lease income under all operating leases for each of the next five years at June 30, 2022, are as follows:


2022	$	1,082
2023		2,163
2024		2,163
2025		2,163
2026		2,163
Thereafter		4,929
Total	$	14,663

Recent Accounting Pronouncements

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

In February 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU 2016‑02,~~ Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and an asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous requirements. The Company plans to use longer phase‑in period for adoption and accordingly thisAs an emerging growth company, ASU 2016-02 is effective for ~~the Company’s~~ fiscal ~~year~~years beginning ~~January 1, 2020. Modified retrospective application~~after December 15, 2021, and ~~early adoption is permitted.~~interim periods within those years. The Company ~~expects~~adopted this standard in the first quarter of fiscal 2022 and elected certain practical expedients permitted under the transition guidance, including the package of practical expedients; however, the Company did not elect the hindsight practical expedient. Additionally, the Company elected the optional transition method that allowed for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The adoption of ASU 2016-02 resulted in an increase in total assets and total liabilities of $3,258 at transition. However, this standard ~~will result in a material increase to assets and liabilities on the consolidated balance sheets but will~~did not have a material impact on the consolidated statement of income ~~and comprehensive income. While~~or the ~~Company is continuing to assess all the effects~~consolidated statement of ~~adoption, it currently believes the most significant effects relate to (i) the recognition of new right-of-use assets and lease liabilities~~cash flows. See Note 5 for further discussion on ~~its balance sheet for its property and equipment operating leases and (ii) providing significant new disclosures about its leasing activities.~~leases.

In June 2016, the FASB issued ~~an accounting standards update~~ ASU ~~2016‑13~~ 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, 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

~~Table of Contents~~

~~LEGACY HOUSING CORPORATION~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

~~(dollars in thousands)~~

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~~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. The Company plans to use the longer ~~phase‑in~~phase-in period for adoption, and accordingly this ASU is effective for the Company’s fiscal year beginning January 1, ~~2021. The Company is continuing to evaluate the impact of the adoption of this ASU and is uncertain of the impact on the financial statements and disclosures at this point in time.~~

In March 2017, the FASB issued ASU 2017‑08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310‑20), Premium Amortization on Purchased Callable Debt Securities (“ASU 2017‑08”), which requires the premium on callable debt securities to be amortized to the earliest call date as opposed to the contractual life of the security. ASU 2017‑08 will be effective beginning with the first quarter of the Company’s fiscal year 2020.2023. The Company is continuing to evaluate the impact of the adoption of this ASU and is uncertain of the impact on the financial statements and disclosures at this point in time.

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~~financial statements upon adoption.

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

2. CONSUMER LOANS ~~RECEIVABLE~~

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 13.5% as of June 30, 2022 and December 31, 2021, respectively. Consumer loans receivable have maturities that range from 3 to 30 years.

Loan applications go through an underwriting process that considers credit history to evaluate credit risk of the consumer. Interest rates on approved loans are determined 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 $9,771 and $9,350 as of June 30, 2022 and December 31, 2021, respectively, and are included in escrow liability in the condensed 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 condensed 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.

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. 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 when either principal or interest is past due and remains unpaid for more than 90 days or other indications of distress. 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. Payments received on nonaccrual loans are accounted for on a cash basis, first to interest and then to principal, as long as the remaining book balance of the asset is deemed to be collectible. 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 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 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; (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; (5) the length of time the borrower has lived in the house without making payments; (6) location, size, and market conditions; and (7) the experience and expertise of the particular dealer assisting in collection efforts.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 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 $725 and $517 as of June 30, 2022 and December 31, 2021, respectively, and are included in other assets in the condensed balance sheets.

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

As of March 31,

As of December 31,

2019

2018
Consumer loan receivable

$
102,938

$
101,049
Loan discount and deferred financing fees, net

(3,149)

(3,162)
Allowance for loan losses

(885)

(712)
Consumer loans receivable, net

$
98,904

$
97,175


	As of June 30,		As of December 31,
	2022		2021
Consumer loans receivable	$	134,215	$	129,119
Loan discount and deferred financing fees		(2,522)		(2,612)
Allowance for loan losses		(763)		(884)
Consumer loans receivable, net	$	130,930	$	125,623

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

Three Months Ended March 31,

2019

2018

Allowance for loan losses, beginning of period

$
712

$
805

Provision for loan losses

406

118

Charge offs

(233)

(69)

Allowance for loan losses

$
885

$
854


	Three months ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Allowance for loan losses, beginning of period	$	724	$	927	$	884	$	905
Provision for loan losses		55		23		(257)		558
Charge offs (recoveries)		(16)		(136)		136		(649)
Allowance for loan losses	$	763	$	814	$	763	$	814

The reserve for loan losses consists of the following:


	As of June 30,		As of December 31,
	2022		2021
Total consumer loans	$	134,215	$	129,119
Allowance for loan losses	$	763	$	884
Impaired loans individually evaluated for impairment	$	1,180	$	1,239
Specific reserve against impaired loans	$	502	$	533
Other loans collectively evaluated for allowance	$	133,035	$	127,880
General allowance for loan losses	$	261	$	351

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NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

(dollars in thousands)

~~The impaired and general reserve for allowance for loan losses:~~

As of March 31,

As of December 31,

2019

2018
Total consumer loans

$
102,938

$
101,049
Total allowance for loan losses

885

712
Impaired loans individually evaluated for impairment

1,546

1,445
Specific reserve against impaired loans

456

427
Other loans collectively evaluated for allowance

101,392

99,604
General allowance for loan losses

429

285

As of ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018,~~2021, the total principal outstanding for consumer loans on nonaccrual status was ~~$1,546~~$1,180 and ~~$1,445,~~$1,239, respectively. A detailed aging of consumer loans receivable that are past due as of ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018~~2021 were as follows:

March 31,



December 31,


2019

%

2018

%
Total consumer loans receivable

$
102,938

100.0

$
101,049

100.0
Past due consumer loans:








31 - 60 days past due

$
591

0.6

$
968

1.0
61 - 90 days past due

269

0.3

404

0.4
91 - 120 days past due

—

—

133

0.1
Greater than 120 days past due

890

0.9

843

0.8
Total past due

$
1,750

1.7

$
2,348

2.3


	As of June 30,			As of December 31,
	2022		%	2021		%
Total consumer loans receivable	$	134,215	100.0	$	129,119	100.0
Past due consumer loans:
31 - 60 days past due	$	191	0.1	$	594	0.5
61 - 90 days past due		402	0.3		407	0.3
91 - 120 days past due		94	0.1		114	0.1
Greater than 120 days past due		1,105	0.8		967	0.7
Total past due	$	1,792	1.3	$	2,082	1.6

3. 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 and interest payments. The interest rate on the MHP Notes can be fixed or variable. Approximately $102 million of the MHP Notes have a fixed interest rate ranging from 6.9% to 8.9%. 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 7.6% and 7.6% as of June 30, 2022 and December 31, 2021, respectively, with maturities that range from 1 to 18 years. The collateral underlying the MHP Notes are individual mobile homes which can be repossessed and resold. The MHP Notes are generally guaranteed by the borrowers personally.

The Company had concentrations of MHP Notes with an independent third-party and its affiliates that equaled 29.1% and 52.1% of the principal balance outstanding, all of which was secured by the mobile homes, as of June 30, 2022 and December 31, 2021, respectively.

MHP Notes are stated at amounts due from customers, net of allowance for loan losses. 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 June 30, 2022 and December 31, 2021, the MHP Note balance is presented net of unamortized finance fees of $771 and $445, respectively. The finance fees are amortized over the life of the MHP Notes.

There were nominimal past due balances on the MHP Notes as of ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018~~2021 and no charge offs were recorded for MHP Notes during the three and six months ended ~~March 31, 2019~~June 30, 2022 and ~~2018,~~2021, respectively. ~~There is no allowance~~Allowance for loan loss is considered immaterial and accordingly no loss is recorded against the MHP Notes as of ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018.~~2021.

There were no impaired MHP Notes as of June 30, 2022 and December 31, 2021, respectively, and there were no repossessed homes balances as of June 30, 2022 and December 31, 2021, 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.

4. OTHER NOTES RECEIVABLE

Other notes receivable relate to various notes issued to mobile home park owners and dealers, which are not directly tied to sales 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

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

offices, as well as vehicles, and are typically guaranteed by the borrowers personally. The interest rate on the other notes are fixed and range from 5.00% to 12.00%. The Company reserves for estimated losses on the other notes based on current economic conditions that may affect the borrower’s ability to pay, the borrower’s financial strength, and historical loss experience. There were no past due balances for other notes as of June 30, 2022 and December 31, 2021, respectively, and there were no impaired balances for other notes as of June 30, 2022 and December 31, 2021, respectively.

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

As of March 31,

As of December 31,

2019

2018
Outstanding principal balance

$
3,658

$
2,354
Allowance for loan losses

(68)

(63)
Total

$
3,590

$
2,291


	As of June 30,		As of December 31,
	2022		2021
Outstanding principal balance	$	30,934	$	42,074
Allowance for loan losses		(53)		(74)
Total	$	30,881	$	42,000

5. LEASES

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 are for corporate and administrative offices in Bedford, TX and Norcross, GA. These leases typically have initial terms ranging from 5 to 10 years and include one or more options to renew.

Under ASC 842, a modified retrospective transition is required, applying the new standard to all leases at the date of initial application. The Company chose to use the adoption date of January 1, 2022 for ASC 842. As such, all periods presented after January 1, 2022, are under ASC 842 whereas periods presented prior to January 1, 2022, are in accordance with prior lease accounting of ASC 840. Financial information was not updated and the disclosures required under ASC 842 were not provided for dates and periods before January 1, 2022.

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 obligation and Operating lease obligation, less current portion on our Condensed Balance Sheet. 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.

ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. 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 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. We remeasure the lease liability and ROU asset when a change to our future minimum lease payments occurs. Key assumptions and judgments included in the determination of the lease liability include the discount rate used in the present value calculation and the exercise of renewal options.

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.

Our leases do not provide information about the rate implicit in the lease. Therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations. The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over

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NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

(dollars in thousands)

a similar term and in a similar economic environment. The remaining weighted-average lease term is 5.0 years and the weighted-average discount rate is 2.12%.

5.We consider lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from our calculation of lease liabilities. There were no variable lease costs for the three months ended June 30, 2022.

Short-term leases, those with a term of 12 months or less, are not recorded on our Condensed Balance Sheet. Our short-term lease costs were not material for the three months ended June 30, 2022.

As of June 30, 2022, future minimum lease payments under our operating lease liabilities were as follows:


2022	$	350
2023		709
2024		644
2025		608
2026		546
Thereafter		429
Total lease payments	$	3,286
Less amount representing interest		(99)
Total lease liability	$	3,187
Less current lease liability		(662)
Total non-current lease liability	$	2,525

6. INVENTORIES

Inventories ~~consisted~~consists of the following:


	As of June 30,		As of December 31,
	2022		2021
Raw materials	$	17,833	$	15,431
Work in progress		783		714
Finished goods (1)		33,072		28,195
Allowance for obsolescence		(315)		(432)
Total	$	51,373	$	43,908

As of March 31,

As of December 31,

2019

2018
Raw materials

$
11,492

$
13,481
Work in progress

160

526
Finished goods

36,766

35,425
Total

$
48,418

$
49,432

(1)

Finished goods includes $4,603 and $2,678 as of June 30, 2022 and December 31, 2021, respectively, held for more than twelve months and classified as long-term.

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6.LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment ~~consisted~~consists of the following:

As of March 31,

As of December 31,

2019

2018
Land

$
8,616

$
8,081
Buildings and leasehold improvements

9,344

9,234
Vehicles

1,566

1,477
Machinery and equipment

3,394

3,385
Furniture and fixtures

175

161
Total

23,095

22,338
Less accumulated depreciation

(5,451)

(5,210)
Total property, plant and equipment

$
17,644

$
17,128


	As of June 30,		As of December 31,
	2022		2021
Land	$	14,953	$	14,949
Buildings and leasehold improvements		14,936		13,722
Vehicles		1,702		1,682
Machinery and equipment		5,515		5,058
Furniture and fixtures		300		298
Total		37,406		35,709
Less accumulated depreciation		(8,909)		(8,193)
Total property, plant and equipment	$	28,497	$	27,516

Depreciation expense was ~~$241~~$286 with ~~$89~~$127 included as a component of cost of product sales for the ~~three‑~~three months ended ~~March 31, 2019~~June 30, 2022 and ~~$196~~$261 with ~~$75~~$109 included as a component of cost of product sales for the ~~three‑~~three months ended ~~March 31, 2018.~~June 30, 2021. Depreciation expense was $ 563 with $248 included as a component of cost of product sales for the six months ended June 30, 2022 and $524 with $214 included as a component of cost of product sales for the six months ended June 30, 2021.

7.8. OTHER ASSETS

Other assets includes prepaid rent in the amount of $1,726 and $1,412 at March 31, 2019 and December 31, 2018, respectively, and repossessed loans of $1,328 and $1,175 at March 31, 2019 and December 31, 2018, respectively.

~~8. ACCRUED LIABILITIES~~

~~Accrued liabilities consisted~~consists of the ~~following at March 31, 2019 and December 31, 2018:~~

As of March 31,

As of December 31,

2019

2018
Warranty liability

$
2,886

$
3,027
Litigation reserve

495

570
Federal and state taxes payable

4,255

2,252
Accrued expenses & other accrued liabilities

2,673

3,307
Total

$
10,309

$
9,156

following:


	As of June 30,		As of December 31,
	2022		2021
Prepaid rent	$	349	$	248
Other		332		332
Repossessed homes		725		517
Total	$	1,406	$	1,097

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

(dollars in thousands)

9. ACCRUED LIABILITIES

9.Accrued liabilities consists of the following:


	As of June 30,		As of December 31,
	2022		2021
Warranty reserve	$	2,240	$	2,876
Litigation reserve		1,402		2,764
Payroll		2,280		1,685
Portfolio taxes and title		2,283		2,467
Property tax		466		546
Dealer rebates		1,224		1,160
Sales tax		47		310
Federal and state income taxes		3,170		7,445
Other		1,868		1,433
Total accrued liabilities	$	14,980	$	20,686

10. DEBT

Lines of Credit

Revolver 1

~~The~~At December 31, 2019, the Company ~~has~~had a revolving line of credit (“Revolver 1”) with Capital One, N.A. with a maximum credit limit of $45,000 asand a maturity date of May 11, 2020. On March 30, 2020, the Company entered into an agreement with Capital One, N.A. to replace Revolver 1 with a new revolving line of credit (“New Revolver”). The New Revolver has a maximum credit limit of $70,000 and a maturity date of March ~~31, 2019. On May 12, 2017, Revolver 1 was amended to extend the maturity date to May 11, 2020 and increase the maximum borrowing availability to $45,000.~~30, 2024. For the ~~three months ended~~period January 1, 2020 through March ~~31, 2019 and for the year ended December 31, 2018,~~30, 2020, Revolver 1 accrued interest at ~~one month~~one-month LIBOR plus 2.40%. ~~The interest rates in effect as of March 31, 2019 and December 31, 2018 were 4.88% and 4.78%, respectively.~~ Amounts available under Revolver 1 were subject to a formula based on eligible consumer loans and MHP Notes and were secured by all accounts receivable, consumer loans and MHP Notes.

The New Revolver accrues interest at one-month LIBOR plus 2.00%. The interest rate in effect as of June 30, 2022 and December 31, 2021 was 3.06% and 2.10%, respectively. As with Revolver 1, amounts available under the New Revolver are subject to a formula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable, ~~and a percentage of the~~ consumer loans ~~receivable~~ and MHP Notes. The amount of available credit under the New Revolver 1 was ~~$39,839~~$57,386 and ~~$41,321 at March 31, 2019~~$61,841 as of June 30, 2022 and December 31, ~~2018,~~2021, respectively. In connection with the New Revolver, the Company paid certain arrangement fees and other fees of approximately $295, which were capitalized as unamortized debt issuance costs and will be amortized to interest expense over the life of the New Revolver.

For the three months ended June 30, 2022 and 2021, interest expense under the New Revolver was $182 and $283, respectively. For the six months ended June 30, 2022 and 2021, interest expense under the New Revolver was $239 and $509, respectively. The outstanding balance as of June 30, 2022 and December 31, 2021 was $12,614 and $7,993, respectively. The New Revolver requires the Company to comply with certain financial and non-financial covenants. As of June 30, 2022, the Company was in compliance with all ~~required~~financial covenants, as of March 31, 2019. For the three months ended March 31, 2019 and 2018, interest expense was $73 and $416, respectively. The outstanding balance as of March 31, 2019 and December 31, 2018 $5,161 and $3,679, respectively. The Company was in compliance with the other financial covenantsincluding that it maintain a tangible net worth of at least ~~$90,000~~$120,000 and that it maintain a ratio of debt to EBITDA of 4 to 1, or less.

~~Revolver 2~~

~~In April 2016,~~On June 21, 2022, the Company ~~entered into an~~received a Reservation of Rights notice from Capital One, N.A. The letter stated that the Company’s New 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 statement to Capital One, N.A. On July 28, 2022, the Company executed a forbearance agreement with Veritex Community Bank to secure an additional revolving line of credit of $15,000 (“Revolver 2”). Revolver 2 accrues interest at one month LIBOR plus 2.50% and all unpaid principal and interest is due at maturity on April 4, 2021. Revolver 2 is secured by all finished goods inventory excluding repossessed homes. Amounts available under Revolver 2 are subject to a formula based on eligible inventory. The interest rates in effect as of March 31, 2019 and December 31, 2018 were 4.99% and 4.85%, respectively. On May 12, 2017, the Company entered into an agreement to increase the line of credit to $20,000. On October 15, 2018, Revolver 2 was amended to extend the maturity date from April 4, 2019 to April 4, 2021. The amount of available credit under Revolver 2 was $17,999 and $10,000 at March 31, 2019 and December 31, 2018, respectively. The Company was in compliance with all required covenants as of March 31, 2019. For the three months ended March 31, 2019 and 2018, interest expense was $61 and $154, respectively. The outstanding balance as of March 31, 2019 and December 31, 2018 was $2,001 and $10,000. The Company was in compliance with the other financial covenants that it maintain a tangible net worth of at least $80,000.Capital One, N.A.

~~Notes Payable~~

On April 7, 2011, the Company signed a promissory note for $4,830 with Woodhaven Bank. The amount due under the promissory note accrues interest at an annual rate of 3.85% through February 2, 2017 and then at the prime interest rate plus 0.60% through maturity on April 7, 2018. On April 7, 2018, the promissory note with Woodhaven Bank was renewed with varying amounts of principal and interest due through the maturity date, April 7, 2033. The promissory note calls for monthly payments of $30 with a final payment due at maturity. The interest rates in effect as of March 31, 2019 and December 31, 2018 were 4.25% and 4.25%, respectively. The note is secured by certain real property of the Company. Interest expense was $38 and $40 for the three months ended March 31, 2019 and 2018, respectively. The balance outstanding on the note payable at March 31, 2019 and December 31, 2018 was $3,506 and $3,552, respectively.

On May 24, 2016, the Company signed a promissory note for $515 with Eagle One, LLC collateralized by the purchase of real property located in Oklahoma City, Oklahoma. The amount due under the promissory note accrues interest at an annual rate of 6.00%. The promissory note calls for monthly principal and interest payments of $6 until

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

(dollars in thousands)

June 1, 2026. Interest expense was $1 and $7 for the three months ended March 31, 2019 and 2018, respectively. The balance outstanding on the note payable at December 31, 2018 was $414. In January 2019, this note was paid in full.

~~Future minimum principal payments on notes payable at March 31, 2019 were as follows:~~

2019

$
138
2020

191
2021

201
2022

210
2023

219
Thereafter

2,547

$
3,506

On February 2, 2016, the Company entered into a $1,500 note payable agreement with stated annual interest rates of 3.75% with a related party through common ownership. The note is due on demand. Interest paid on the note payable was $14 for the three months ended March 31, 2018. In October 2018, this note payable was paid in full.

PILOT Agreement

In December 2016, the Company entered into a Payment in Lieu of Taxes (“PILOT”) agreement commonly offered in Georgia by local community development programs to encourage industry development. The net effect of the PILOT agreement is to provide the Company with incentives through the abatement of local, city and county property taxes and to provide financing for improvements to the Company’s Georgia plant (the “Project”). In connection with the PILOT agreement, the Putman County Development Authority provides a credit facility for up to $10,000, which can be drawn upon to fund Project improvements and capital expenditures as defined in the agreement. If funds are drawn, the Company would pay ~~transactions~~transaction costs and debt service payments. The PILOT agreement requires interest payments of 6.00% per annum on outstanding balances, which are due each December 1st through maturity on December 1, 2021, at which time all unpaid principal and interest are due. The PILOT agreement is collateralized by the assets of the Project. As of ~~March 31, 2019,~~June 30, 2022, the Company had not drawn on this credit facility.

~~10.~~11. SHARE-BASED COMPENSATION

Pursuant to the Legacy Housing Corporation 2018 Incentive Compensation Plan (the “Compensation Plan”), the Company may issue up to 10.0 million equity awards to employees, directors, consultants and nonemployee service providers in the form of stock options, stock and stock appreciation rights. Stock options may be granted with a contractual life of up to ten years. At ~~March 31, 2019,~~June 30, 2022, the Company had ~~9.8~~8.1 million shares available for grant under the Compensation Plan.

~~The~~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 ~~$234.~~$1,636. The shares vest at a rate of 14.3% annually, beginning on February 7, 2019, and becoming 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.

~~The~~In December 2020, the Company granted ~~2,936~~2,022 restricted shares of its common stock to the independent directors on the Company’s Board of Directors. The shares were granted on ~~February 7, 2019~~December 2, 2020 and had a grant date fair value of $30. The shares become fully vested on ~~December 13, 2019.~~October 4, 2021.

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 become 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 reaches and remains for a period of fifteen consecutive market days at a closing price of $36 per share (the “$36 Equity Award”). The $36 Equity Awards had a grant date fair value of $1,412 and fifty percent of the shares shall be vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date. An additional equity award of 175,000 shares of the Company’s restricted stock will be granted if the Company’s stock price reaches and remains for a period of fifteen consecutive market days at a closing price of $48 per share (the “$48 Equity Award”). The $48 Equity Awards had a grant date fair value of $683 and fifty percent of the shares shall be vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date. As of June 30, 2022, none of the conditions have been met for the vesting of the $36 Equity Awards or the $48 Equity Awards.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

(dollars in thousands)

On June 7, 2022, the Company granted 14,700 restricted shares of its common stock to the Chief Executive Officer of the Company pursuant to an employment agreement. The shares were granted on June 7, 2022 and had a grant date fair value of $235. One-half of the shares vest on June 7, 2023 and the remaining half vest on June 7, 2024.

The following is a summary of restricted stock units (the “RSU”) activity (in thousands, except per unit data):


	Number of Units		Weighted Average Fair Value
Outstanding, January 1, 2019	-		-

				Number of Units		Weighted Average Grant Date Fair Value Per Unit
Nonvested, January 1, 2022				35	$	14.01
Granted	123	$	13.63	515	$	11.80
Vested	17	$	13.63	(158)	$	24.33
Outstanding, March 31, 2019	106	$	13.63
Nonvested, June 30, 2022				392	$	6.92

As of ~~March 31, 2019,~~June 30, 2022, approximately ~~106,000~~392,000 RSUs remained unvested. Unrecognized compensation expense related to these RSUs at ~~March 31, 2019~~June 30, 2022 was ~~$1,402~~$2,219 and is expected to be recognized over ~~5.86~~2.04 years.

The Company granted ~~58,694~~34,626 incentive stock options to a member of senior management. The options were granted on ~~February 7, 2019~~August 10, 2020 at an exercise price of ~~$13.63~~$14.44 per share. The options vest at a rate of ~~12.5%~~20.0% annually, beginning on ~~February 7, 2019,~~August 10, 2021, and becoming fully vested on ~~February 7, 2026.~~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 ~~2.41%~~0.24%; dividend yield of 0.00%; expected volatility of common stock of ~~65.0%~~75.0% and expected life of options of ~~7.9~~6.5 years. During the first quarter of 2022, 27,701 of these options were forfeited due to the departure of the senior manager.

The Company granted 55,490 incentive stock options to a member of management. The options were granted on September 23, 2021 at an exercise price of $18.02 per share. The options vest at a rate of 10.0% annually, beginning on September 23, 2022, and becoming 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.

The Company granted 62,460 incentive stock options to the Chief Executive Officer. The options were granted on June 7, 2022 at an exercise price of $16.01 per share. The options vest at a rate of 10.0% annually, beginning on June 7, 2023, and becoming 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.

The Company granted options to purchase 900,000 shares of the Company’s stock to the Chief Executive Officer. An option to purchase 300,000 shares of the Company’s stock was granted on June 7, 2022 at an exercise price of $36.00 per share and an option to purchase 600,000 shares of the Company’s stock was granted on June 7, 2022 at an exercise price of $48.00 per share. The options vest at a rate of 10.0% annually, beginning on June 7, 2023, and becoming 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.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The Company granted 62,460 incentive stock options to the Chief Financial Officer. The options were granted on June 7, 2022 at an exercise price of $16.01 per share. The options vest at a rate of 10.0% annually, beginning on June 7, 2023, and becoming 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.

The following is a summary of option activity (in thousands, except per unit data):


	Number of Units		Weighted Average Exercise Price		Weighted Average Fair Value	Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding, January 1, 2019	-		-		-	-		-

									Number of Units	Weighted Average Exercise Price Per Unit		Weighted Average Grant Date Fair Value Per Unit		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2022, nonvested									83	$	16.83	$	12.27	9.36
Granted	59	$	13.63	$	7.69	6.86	$	102	1,025	$	40.59	$	4.99	10
Exercised	-		-		-	-		-	—	$	—	$	—	—
Forfeited	-		-		-	-		-	(28)		14.44		8.67	—
Outstanding, March 31, 2019	59	$	13.63	$	7.69	6.86	$	102
Outstanding, June 30, 2022, nonvested									1,080	$	39.43	$	5.46	9.91	$	—
Exercisable, June 30, 2022									—	$	—	$	—	—	$	—

~~11.~~As of June 30, 2022, approximately 1,080,000 options remained nonvested. Unrecognized compensation expense related to these options at June 30, 2022 was $5,804 and is expected to be recognized over 9.91 years.

On March 31, 2020, the Company filed a registration statement on Form S-8 to register with the SEC approximately 2.3 million shares of Legacy common stock available for issuance under the 2018 Incentive Compensation Plan. The registration statement became effective upon filing.

12. INCOME TAXES

The provision for income tax expense for the ~~three~~six months ended ~~March 31, 2019~~June 30, 2022 and ~~2018~~2021 was ~~$2.0 million~~$7,375 and ~~$4.0 million,~~$4,707, respectively. The effective tax rate for the ~~three~~six months ended ~~March 31, 2019~~June 30, 2022 was ~~21.8%~~18.1% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and partially offset by state income taxes. The effective tax rate for the ~~three~~six months ended ~~March 31, 2018~~June 30, 2021 was ~~42.7%~~16.8% and differs from the federal statutory rate of 21% primarily due to ~~deferred~~a federal tax ~~expense associated with the corporate reorganization,~~credit for energy efficient construction and partially offset by state income ~~taxes and other permanent differences between book and tax basis.~~taxes.

~~12.~~

13. 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 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. At June 30, 2022 and December 31, 2021, the Company accrued a $280 and $373, respectively, liability for incurred but not reported claims.

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

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

for which the Company was liable under such agreements ~~approximated $1,549~~totaled $11,400 and ~~$2,186~~$4,908 at ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018,~~2021, respectively, without reduction for the resale value of the homes. The Company considers its

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~~LEGACY HOUSING CORPORATION~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

~~(dollars in thousands)~~

obligations on current contracts to be ~~immaterial~~insignificant and accordingly have not recorded any reserve for repurchase commitment as of ~~March 31, 2019 or~~June 30, 2022 and December 31, ~~2018.~~2021.

Leases. The Company leases facilities under operating leases that typically have ~~10 ‑year~~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 ~~$131~~$176 and ~~$91~~$146 for the three months ended ~~March 31, 2019~~June 30, 2022 and ~~2018,~~2021, respectively, and $339 and $402 for the six months ended June 30, 2022 and 2021, respectively. The Company also subleases properties to third parties, ranging from ~~3 ‑year~~3-year to ~~11 ‑year~~11-year terms with various renewal options. Rental income from the subleased property was approximately ~~$89~~$55 and ~~$92~~$91 for the three months ended ~~March 31, 2019~~June 30, 2022 and ~~2018,~~2021, respectively, and approximately $110 and $182 for the six months ended June 30, 2022 and 2021, respectively.

~~Future~~ See Note 5 – Leases, for a schedule of the Company’s future minimum lease ~~commitments under all non‑cancelable operating leases for each of the next five years at March 31, 2019, are as follows:~~

2019

$
451
2020

513
2021

450
2022

374
2023

318
Thereafter

969
Total

$
3,075

commitments.

Legal Matters

The Company is party to certain legal proceedings that arise in the ordinary course and are incidental to its business. 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 the claims. The Company has included legal reserves of $1,402 and $2,764 as of June 30, 2022 and December 31, 2021, 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 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.

~~13. DERIVATIVE FINANCIAL INSTRUMENTS AND~~14. FAIR VALUE MEASUREMENTS

~~Derivative Financial Instruments~~

On February 2, 2012, the Company entered into a master interest rate swap agreement. The Company elected not to designate the interest rate swap agreements as cash flow hedges and, therefore, gains or losses on the agreements as well as the other offsetting gains or losses on the hedged items attributable to the hedged risk are recognized in current earnings. ASC 815‑10, ~~Derivatives and Hedging~~ , requires derivative instruments to be measured at fair value and recorded in the statements of financial position as either assets or liabilities. The Company entered into interest rate swap agreement with Capital One Bank on June 12, 2017 to fix the variable rate portion for $8,000 of the line of credit. This interest rate swap agreement is the only one outstanding at March 31, 2019 and has a maturity of May 11, 2020. The fair values of the interest rate swap agreement are assets included in prepaid expenses and other current assets and were $50 and $80 at March 31, 2019 and December 31, 2018, respectively. Included in the statements of operations for the three months ended March 31, 2019 and 2018 were losses of $16 and $7, respectively, which are the result of the changes in the fair values of the interest rate swap agreement.

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~~LEGACY HOUSING CORPORATION~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

~~(dollars in thousands)~~

~~Fair Value Measurements~~

The Company accounts for its investments and derivative instruments in accordance with ASC ~~820‑10,~~ 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). The three levels of fair value hierarchy under ASC ~~820‑10,~~ 820-10, Fair Value Measurement, are as follows:

Level I Quoted prices are available in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement ~~date~~.date.

Level II Significant observable inputs other than quoted prices in active markets for which inputs to the valuation methodology include: (1) Quoted prices for similar assets or liabilities in active markets; (2) Quoted prices for identical or similar assets or liabilities in inactive markets; (3) Inputs other than quoted prices that are observable; (4) Inputs that are derived principally from or corroborated by observable market data by correlation or other means. 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.

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

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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~~.measurement.

The Company has used derivatives to manage risks related to interest rate movements. The Company does not enter into derivative contracts for speculative purposes. Interest rate swap contracts are recognized as assets or liabilities on the balance sheets and are measured at fair value. The fair value was calculated and provided by the lender, a Level II valuation technique. Management reviewed the fair values for the instruments as provided by the lender and determined the related asset and liability to be an accurate estimate of future gains and losses to the Company. The Company is not a party to any interest rate swaps as of June 30, 2022.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, consumer loans, MHP Notes, other ~~notes,~~note receivables, accounts payable, lines of credit, notes payable, and 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~~short-term maturities or expected settlement dates of these instruments. This is considered a Level I valuation technique. The ~~MHP Notes, other notes,~~ lines of credit, ~~and~~ notes payable, part of the MHP Notes and part of the other note 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 ~~$105,108~~$131,300 compared to the book value of ~~$98,904~~$130,932 as of ~~March 31, 2019,~~June 30, 2022, and a fair value of approximately ~~$109,231~~$125,600 compared to the book value of ~~$97,175~~$125,623 as of December 31, ~~2018.~~2021. The Company determined that the fair value of the fixed rate MHP Notes was approximately $100,500 compared to the book value of $101,850 as of June 30, 2022, and a fair value of approximately $83,000 compared to the book value of $83,773 as of December 31, 2021. The Company determined that the fair value of the other notes was approximately $29,400 compared to the book value of $30,321 as of June 30, 2022, and a fair value of approximately $38,500 compared to the book value of $38,886 as of December 31, 2021. This is a Level III valuation technique.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

(dollars in thousands)

~~14.~~15. EARNINGS PER SHARE

Basic earnings per common share (“EPS”) is computed based on the ~~weighted‑average~~weighted-average number of common shares outstanding during each reporting period. 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. The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS.

Three months ended

March 31,

2019

2018
Numerator:

Net income (in 000's)

$
7,213

$
5,361
Denominator:

Basic weighted-average common shares outstanding

24,516,762

20,000,000
Effect of dilutive securites:

Restricted stock grants

54,326

-
Diluted weighted-average common shares outstanding

24,571,088

20,000,000
Earnings per share attributable to Legacy Housing Corp

Basic

$
0.29

$
0.27
Diluted

$
0.29

$
0.27

~~15.~~


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Numerator:
Net income (in 000's)	$	17,261	$	12,649	$	33,352	$	23,349
Denominator:
Basic weighted-average common shares outstanding		24,406,020		24,202,631		24,355,412		24,200,879
Effect of dilutive securities:
Restricted stock grants		254,403		11,819		266,358		8,951
Stock options		261,702		20,463		151,575		19,435
Diluted weighted-average common shares outstanding		24,922,125		24,234,913		24,773,345		24,229,265
Earnings per share attributable to Legacy Housing Corporation
Basic	$	0.71	$	0.52	$	1.37	$	0.96
Diluted	$	0.69	$	0.52	$	1.35	$	0.96

16. RELATED PARTY TRANSACTIONS

Bell Mobile Homes, a retailer owned by one of the Company’s significant owners, purchases manufactured homes from the Company. Accounts receivable balances due from Bell Mobile Homes were ~~$481~~$2 and ~~$414~~$1 as of ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018,~~2021, respectively. Accounts payable balances due to Bell Mobile Homes for maintenance and related services were $0$116 and ~~$123~~$49 as of ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018,~~2021, respectively. Home sales to Bell Mobile Homes were ~~$858~~$1,223 and ~~$583~~$695 for the three months ended ~~March 31, 2019~~June 30, 2022 and ~~2018,~~2021, respectively, and $1,855 and $1,393 for the six months ended June 30, 2022 and 2021, respectively.

Shipley Bros., Ltd. (“Shipley Bros.”), a retailer owned by one of the Company’s significant shareholders, purchases manufactured homes from the Company. ~~Accounts receivable balances due from~~Home sales to Shipley Bros. were ~~$224~~$1,018 and ~~$832~~$524 for the three months ended June 30, 2022 and 2021, respectively, and $1,711 and $1,438 for the six months ended June 30, 2022 and 2021, respectively. There were no accounts receivable balances or accounts payable balances due from/to Shipley Bros. as of ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018,~~2021, respectively.

17. SUBSEQUENT EVENTS

On ~~February 2, 2016,~~July 28, 2022, the Company entered into a ~~$1,500 note payable agreement~~Limited Waiver and First Amendment to Credit Agreement (the “Amendment”) with ~~stated annual interest rates of 3.75%~~Capital One, N.A. The Amendment replaces the LIBOR borrowing rate with a ~~related party through common ownership. The note was due on demand. Interest paid on the note payable to Shipley~~secured overnight financing rate and ~~Sons was $14 for the three months ended March 31, 2018. On October 18, 2018, this note payable was paid in full.~~

~~At March 31, 2019,~~waives a default arising out of a monetary judgement against the Company ~~has a receivable of $375 from a principal shareholder for certain business expenses related to a potential business venture. This~~that exceeded the amount ~~is included~~allowed in the ~~Company’s accounts receivable balance as of March 31, 2019.~~

New Revolver.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~

(dollars in thousands)

~~16. SUBSEQUENT EVENTS~~

On ~~April 17, 2019,~~August 11, 2022, the Company ~~purchased 300,000 shares of its common stock at the price of $10.20 per share, pursuant to~~received notice from Nasdaq regarding the Company’s ~~repurchase program. Under~~failure to file timely Form 10-Q for the ~~repurchase program,~~period ending June 30, 2022. As a result of this delinquency, the Company ~~may purchase up~~submitted an update to ~~$10,000~~its original plan to regain compliance with the Rule. The updated plan was submitted to Nasdaq on September 12, 2022.

On August 24, 2022, the Company received a Notice of ~~its common stock, Share purchases may be made~~Default and Partial Suspension of Loan Commitments from ~~time~~Capital One, N.A. The notice stated that the July 28, 2022 forbearance agreement had been terminated and that Capital One, N.A. was permitted to ~~time~~suspend $50,000 of the $70,000 loan commitment under the New Revolver. As a result, the available line of credit in the open market or through privately negotiated transactions depending on market conditions, share price, trading volume and other factors. Such purchases, if any, will be made in accordance with applicable insider trading and other securities laws and regulations. These repurchases may be commenced or suspended at any time or from timeNew Revolver has been limited to ~~time without prior notice.~~$20,000.

In connection with the preparation of these financial statements, an evaluation of subsequent events was performed through the date of ~~filing and there were no other events that have occurred that would require adjustments to the financial statements.~~filing.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the financial statements and accompanying notes and the information contained in other sections of this Form 10-Q. It contains ~~forward‑looking~~forward-looking statements that involve risks and uncertainties, and is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those anticipated by our management in these ~~forward‑looking~~forward-looking statements as a result of various factors, including those discussed in this Form 10-Q and in our Registration Statement on Form S-1, particularly under the heading “Risk Factors.”

Overview

Legacy Housing Corporation builds, sells and finances manufactured homes and “tiny houses” that are distributed through a network of independent retailers and ~~company‑owned~~company-owned stores and are sold directly to manufactured housing communities. We are the ~~fourth~~sixth largest producer of manufactured homes in the United States as ranked by number of homes manufactured based on information available from the Manufactured Housing Institute and IBTS for the ~~second quarter of 2018.~~twelve month period ending March 31, 2022. With current operations focused primarily in the southern United States, we offer our customers an array of quality homes ranging in size from approximately 390 to 2,667 square feet consisting of 1 to 5bedrooms, with 1 to 31/₂ bathrooms. Our homes range in price, at retail, from approximately ~~$18,000~~$22,000 to ~~$122,000.~~$140,000. For the three and six months ended ~~March 31, 2019,~~June 30, 2022, we sold ~~918~~999 and 2,003 home sections, respectively (which are entire homes or single floors that are combined to create complete homes) ~~and for~~. For the three and six months ended ~~March 31, 2018,~~June 30, 2021, we sold ~~1,032~~945 and 1,665 home sections. We commenced operations in 2005 and have experienced strong sales growth and increased our equity holders’ capital at a compound annual growth rate of approximately 28% between 2009 and 2018.sections, respectively.

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 Company supports the others. For example, the sale of manufactured homes includes providing transportation and consignment arrangements with dealers. We also provide financing options to the customers to facilitate such sale of homes. 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,~~decision-maker, the Executive Chairman of the Board, are based upon analyses of our company as one segment or unit.

We believe our company is one of the most vertically integrated in the manufactured housing industry, allowing us to offer a complete solution to our customers, from manufacturing ~~custom‑made~~custom-made homes using quality materials and distributing those homes through our expansive network of independent retailers and ~~company‑owned~~company-owned distribution locations, to providing tailored financing solutions for our customers. Our homes are constructed in the United States at one of our three manufacturing facilities in accordance with the construction and safety standards of the U.S. Department of Housing and Urban Development (“HUD”). Our factories employ ~~high‑volume~~high-volume production techniques that allow us to produce, on average, approximately 75 home sections, or 62 ~~fully‑completed~~fully-completed homes depending on product mix, in total per week. We use quality materials and operate our own component manufacturing facilities for many of the items used in the construction of our homes. Each home can be configured according to a variety of floor plans and equipped with such features as fireplaces, central air conditioning and ~~state‑of‑the‑art~~state-of-the-art kitchens.

Our homes are marketed under our premier “Legacy” brand name and currently are sold primarily across 15 states through a network of ~~111~~71 independent retail locations, ~~12 company‑owned~~13 company-owned retail locations and through direct sales to owners of manufactured home communities. Our ~~12 company‑owned~~13 company-owned retail locations, including ~~ten~~11 Heritage Housing stores and two Tiny House Outlet stores exclusively sell our homes. For the ~~three~~six months ended ~~March 31, 2019,~~June 30, 2022, approximately ~~54%~~50% of our manufactured homes were sold in Texas, followed by ~~10%~~11% in Georgia, 8% in Florida, 8%5% in ~~Kansas~~Louisiana and 5% in ~~Michigan.~~Alabama. For the ~~three~~six months ended ~~March 31, 2018, 48%~~June 30, 2021, approximately 50% of our manufactured homes were sold in Texas, followed by ~~20%~~13% in Georgia, ~~13%~~9% in Louisiana ~~4% in Colorado~~ and 4% in ~~Oklahoma.~~Alabama. We plan to deepen our distribution channel by using cash from operations and borrowings from our lines of credit to expand our ~~company‑owned~~company-owned retail locations in new and existing markets.

We offer three types of financing solutions to our customers. We provide floor plan financing for our independent retailers, which takes the form of a consignment arrangement between the retailer and us. We also provide consumer financing for our products which are sold to ~~end‑users~~end-users through both independent and ~~company‑owned~~company-owned retail locations, and we provide financing solutions to manufactured housing community owners that buy our products for use

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in their manufactured housing communities. Our ability to offer competitive financing options at our retail locations

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

Corporate Conversion

Prior to January 1, 2018, we were a Texas limited partnership named Legacy Housing, Ltd. Effective January 1, 2018, we converted into a Delaware corporation pursuant to a statutory conversion, or the Corporate Conversion, and changed our name to Legacy Housing Corporation. All of our outstanding partnership interests were converted on a proportional basis into shares of common stock of Legacy Housing Corporation. Effective December 31, 2019, the Company reincorporated from a Delaware corporation to a Texas corporation. For more information, see “Corporate Conversion” in Note 1.

Following the Corporate Conversion, Legacy Housing Corporation continues to hold all of the property and assets of Legacy Housing, Ltd. and all of the debts and obligations of Legacy Housing, Ltd. continue as the debts and obligations of Legacy Housing Corporation. The purpose of the Corporate Conversion was to reorganize our corporate structure so that the ~~top‑tier~~top-tier entity in our corporate structure is a corporation rather than a limited partnership and so that our existing owners own shares of our common stock rather than partnership interests in a limited partnership. Except as otherwise noted, the financial statements included in this Form 10-Q are those of Legacy Housing ~~Ltd.~~Corporation.

Factors Affecting Our Performance

We believe that the growth of our business and our future success depend on various opportunities, challenges, trends and other factors, including the following:

●

~~Consistent~~ ~~with~~We have purchased several properties in our ~~long‑term strategy~~market area for the purpose of ~~conservatively deploying our capital to achieve above average rates~~developing manufactured housing communities and subdivisions. As of ~~return, we intend to expand our retail presence~~June 30, 2022, these properties include the following (dollars in the geographic markets we now serve, particularly in the southern United States. Each retail center requires between $1,000,000 and $2,000,000 to acquire the location, situate an office, provide inventory, and provide the initial working capital. We expect to open 8 to 12 additional retail centers by the end of 2020.

000’s):


Location	Description	Date of Acquisition	Land			Improvements	Total
Bastrop County, Texas	400 Acres	April 2018	$	4,400	$	1,564	$	5,964
Bexar County, Texas	100 Acres	November 2018		1,300		114		1,414
Horseshoe Bay, Texas	133 Acres	Various 2018-2019		2,431		2,079		4,510
Johnson County, Texas	91.5 Acres	July 2019		445		16		461
Venus, Texas	50 Acres	August 2019		422		7		429
Wise County, Texas	81.5 Acres	September 2020		889		-		889
Bexar County, Texas	233 Acres	February 2021		1,550		129		1,679
			$	11,437	$	3,909	$	15,346

●

We also expect to provide financing solutions to a select group of our manufactured housing ~~community‑owner~~community-owner customers in a manner that includes developing new sites for products in or near urbanlocations where there is a shortage of sites to place our products. These solutions will be structured to give us an attractive return on investment when coupled with the gross margin we expect to make on products specifically targeted for sale to these new manufactured housing communities.

●

Finally, our financial performance will be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers. Currently, our two Texas manufacturing facilities are operating at near peak capacity, with limited ability to increase the volume of homes produced at those plants. Our Georgia manufacturing facility has unutilized square footage available and with additional investment can add capacity to increase the number of homes that can be manufactured. We intend to increase production at the Georgia facility over time, particularly in response to orders increasingly being generated from new markets in Florida and the Carolinas. In order to maintain our growth, we will need to be able to continue to properly estimate anticipated future volumes when making commitments regarding the level of business that we will seek and accept, the mix of products that we intend to manufacture, the timing of production schedules and the levels and utilization of inventory, equipment and personnel.

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●

The coronavirus pandemic is an evolving threat to the economy and all businesses. At this time both the duration of the pandemic and the magnitude of the economic consequences are unknown. Risks to the Company include but are not limited to:

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

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

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

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

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

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

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

We continue to monitor government responses to support the economy and evaluate how those actions might mitigate the risks noted above. At this time, we believe that the pandemic will have a negative effect on our financial results that could range from minor to material.

Results of Operations

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

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Comparison of Three Months ended ~~March 31, 2019~~June 30, 2022 and ~~2018~~2021 (in thousands)

Three months ended





March 31,


2019

2018

$ change

% change

Net revenue:

Product sales

$
31,550

$
37,414

$
(5,864)

(15.7)
%
Consumer and MHP loans interest

5,530

4,394

1,136

25.9
%
Other

874

878

(4)

(0.5)
%
Total net revenue

37,954

42,686

(4,732)

(11.1)
%
Operating expenses:









Cost of product sales

21,885

27,647

(5,762)

(20.8)
%
Selling, general administrative expenses

6,491

4,799

1,692

35.3
%
Dealer incentive

210

335

(125)

(37.3)
%
Income from operations

9,368

9,905

(537)

(5.4)
%
Other income (expense)









Non‑operating interest income

39

51

(12)

(23.5)
%
Miscellaneous, net

3

34

(31)

(91.2)
%
Interest expense

(189)

(639)

450

(70.4)
%
Total other

(147)

(554)

407

(73.5)
%
Income before income tax expense

9,221

9,351

(130)

(1.4)
%
Income tax expense

(2,008)

(3,990)

1,982

(49.7)
%
Net income

$
7,213

$
5,361

$
1,852

34.5
%


	Three months ended
	June 30,
	2022		2021		$ change		% change
Net revenue:
Product sales	$	55,098	$	41,115	$	13,983	34.0	%
Consumer and MHP loans interest		7,497		6,734		763	11.3	%
Other		1,616		740		876	118.4	%
Total net revenue		64,211		48,589		15,622	32.2	%
Operating expenses:
Cost of product sales		37,411		28,343		9,068	32.0	%
Selling, general administrative expenses		5,901		5,165		736	14.2	%
Dealer incentive		439		114		325	285.1	%
Income from operations		20,460		14,967		5,493	36.7	%
Other income (expense)
Non‑operating interest income		783		429		354	82.5	%
Miscellaneous, net		17		34		(17)	(50.0)	%
Interest expense		(183)		(283)		100	(35.3)	%
Total other		617		180		437	242.8	%
Income before income tax expense		21,077		15,147		5,930	39.1	%
Income tax expense		(3,816)		(2,498)		(1,318)	52.8	%
Net income	$	17,261	$	12,649	$	4,612	36.5	%

Product sales primarily consist of direct sales, commercial sales, consignment sales and retail store sales. Product sales ~~decreased $5.9~~increased $14.0 million, or ~~15.7%~~34.0%, during the three months ended ~~March 31, 2019~~June 30, 2022 as compared to the same period in ~~2018.~~2021. This ~~change~~increase was driven by higher average sales price and a ~~15.9% decrease~~slight increase in volume of homes sold. The first quarter of 2018 included $8.9 million of sales as a subcontractor operating under a contract with FEMA to provide housing for victims of Hurricane Harvey. Direct sales decreased $8.1 million to $4.5 million in 2019 from $12.5 million in 2018 primarily due to the nonrecurring sales to FEMA. Commercial sales increased $5.5 million to $12.5 million in 2019 from $7.0 million in 2018, and our company‑owned retail stores sales increased $0.8 million to $3.3 million in 2019 from $2.5 million in 2018. These increases were partially offset by a net $2.7 million decrease in consignment sales. The remaining decrease of $1.4 million is primarily due to a decline in direct freight related to the 2018 FEMA sales.unit volumes.

Net revenue attributable to our ~~factory‑built~~factory-built housing consisted of the following during the ~~first~~ three months of ~~2019~~2022 and ~~2018:~~2021:


	Three Months Ended
	March 31,
	(in thousands)
	2019		2018		$ Change		% Change

									Three months ended
									June 30,
									(in thousands)
									2022		2021		$ Change		% Change
Net revenue:
Products sold	$	31,550	$	37,414	$	(5,864)	(15.7)	%	$	55,098	$	41,115	$	13,983	34.0	%
Total products sold		767		912		(145)	(15.9)	%		794		783		11	1.4	%
Net revenue per product sold	$	41,134	$	41,024	$	110	0.3	%	$	69.4	$	52.5	$	17	32.2	%

For the three months ended ~~2019,~~ June 30, 2022, our net revenue per product sold increased ~~in part~~ because of ~~increased sales to manufactured home communities~~the increase in units sold and ~~increased sales through our company‑owned stores, all of which carry higher margins. In addition, there were multiple price~~ increases to our product prices in the second quarter of 2022 due to rising material and labor costs, which resulted in higherhome sales prices and more revenue generated per home sold. We had increases in consignment sales, direct sales, commercial sales and other product sales partially offset by a decline in retail store sales. Sales through our company-owned retail stores have higher margins than our direct sales and consignment sales. For the three months ending September 30, 2022, we expect a decrease in net revenue attributable to product sales because of the Company and the State of Georgia’s efforts to evaluate and improve the quality and consistency of homes manufactured in our Eatonton facility. These efforts have resulted in a temporary decrease in the rate of issuing HUD Labels of Certification and shipping finished homes from our Eatonton facility.

Consumer and MHP loans interest income grew ~~$1.1~~$0.8 million, or ~~25.9%~~11.3%, during the three months ended ~~March 31, 2019~~June 30, 2022 as compared to the same period in ~~2018~~2021 and is primarily related to our increase in outstanding consumer loan portfolio partially offset by a decrease in outstanding MHP Note portfolio. The consumer loan portfolio has a higher average contractual interest rate compared to the MHP Note portfolio average contractual interest rate. Between June 30, 2022 and ~~consumer loan portfolio. Between March 31, 2019~~June 30, 2021 our MHP Note portfolio decreased by $23.5 million and ~~March 31, 2018 our~~the consumer loan portfolio increased ~~by $10.3 million and the MHP Note portfolio increased by $11.2 million.~~

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by $14.9 million. On September 30, 2021, we collected $44.9 million in principal payment from one of our borrowers. As a result of this payment, MHP loan interest income is expected to decrease during 2022 as compared to 2021.

Other revenue primarily consists of ~~service~~consignment fees, commercial lease rents and ~~consignment fees. Other~~servicer fee revenue ~~remained flat at~~and increased $0.9 million, ~~for the three months ended March 31, 2019 and 2018 as a $0.1 million increase in consignment fees was offset by a $0.1 decrease in service fees.~~

~~The cost of product sales decreased $5.8 million,~~ or ~~20.8%,~~118.4% during the three months ended ~~March 31, 2019~~June 30, 2022 as compared to the same period in ~~2018.~~ 2021.

The ~~reduction~~cost of product sales increased $9.1 million, or 32.0%, during the three months ended June 30, 2022 as compared to the same period in 2021. The increase in costs is primarily related to a slight increase in units sold and increases in the ~~declining number~~cost of ~~homes sold~~materials and labor in ~~2019.~~2022 which was materially passed along to our end-customer.

Selling, general and administrative expenses increased ~~$1.7~~$0.7 million, or ~~35.3%~~14.2%, during the three months ended ~~March 31, 2019~~June 30, 2022 as compared to the same period in ~~2018.~~2021. This increase was primarily due to ~~increased operations of our company‑owned retail lots, increases~~a $0.5 million increase in ~~advertisng~~salaries and ~~promotions, the opening of~~incentive costs, a ~~corporate office~~$0.3 million increase in ~~Bedford, Texas~~consulting and professional fees, a $0.2 million increase in title fees & expenses and a ~~sales office in Norcross, Georgia. We also incurred an~~$0.2 million increase in ~~accounting fees, incentive compensation and non-capitalizable costs related to our operations as a public company. These increases were~~loan losses partially offset by a ~~$0.6~~net $0.5 million decrease in ~~warranty costs related to the decline in product sales to FEMA. In addition, dealer~~other miscellaneous costs.

Dealer incentive expense ~~decreased $0.1 million, or 37.3% in 2019 as compared to 2018. This decrease was the result of our decline in consignment sales.~~

~~Other income (expense), net was a loss of $0.1~~increased $0.3 million during the three months ended ~~March 31, 2019~~June 30, 2022 as compared to ~~a loss of $0.6~~the same period in 2021.

Other income (expense), net increased $0.4 million during the three months ended June 30, 2022 as compared to the same period in ~~2018.~~2021. This ~~decline~~increase was primarily due to a $0.4 million increase in non-operating interest income and a decrease of ~~$43.6~~$0.1 million in ~~our average borrowings outstanding on our lines of credit after the completion of our IPO. Following the completion of our IPO, we paid off over $40.0 million borrowed against our lines of credit.~~interest expense.

Income tax expense was $3.8 million during the three months ended ~~March 31, 2019 was $2.0 million~~June 30, 2022 compared to ~~$4.0~~$2.5 million for the same period in ~~2018.~~ 2021. The effective tax rate for the three months ended ~~March 31, 2019~~June 30, 2022 was ~~21.8%~~18.1% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and partially offset by state income taxes. The effective tax rate for the three months ended ~~March 31, 2018~~June 30, 2021 was ~~42.7%~~16.5% and differs from the federal statutory rate of 21% primarily due to ~~recognition~~a federal tax credit for energy efficient construction and partially offset by state income taxes.

Comparison of Six Months ended June 30, 2022 and 2021 (in thousands)


	Six months ended
	June 30,
	2022		2021		$ change		% change
Net revenue:
Product sales	$	106,885	$	73,389	$	33,496	45.6	%
Consumer and MHP loans interest		14,262		13,372		890	6.7	%
Other		2,992		1,767		1,225	69.3	%
Total net revenue		124,139		88,528		35,611	40.2	%
Operating expenses:
Cost of product sales		71,138		50,344		20,794	41.3	%
Selling, general administrative expenses		13,560		9,958		3,602	36.2	%
Dealer incentive		713		576		137	23.8	%
Income from operations		38,728		27,650		11,078	40.1	%
Other income (expense)
Non‑operating interest income		1,635		677		958	141.5	%
Miscellaneous, net		603		238		365	153.4	%
Interest expense		(239)		(509)		270	(53.0)	%
Total other		1,999		406		1,593	392.4	%
Income before income tax expense		40,727		28,056		12,671	45.2	%
Income tax expense		(7,375)		(4,707)		(2,668)	56.7	%
Net income	$	33,352	$	23,349	$	10,003	42.8	%

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Product sales primarily consist of direct sales, commercial sales, consignment sales and retail store sales. Product sales increased $33.5 million, or 45.6%, during the six months ended June 30, 2022 as compared to the same period in 2021. This increase was driven by higher average sales price and an increase in unit volumes.

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


	Six Months Ended
	June 30,
	(in thousands)
	2022		2021		$ Change		% Change
Net revenue:
Products sold	$	106,885	$	73,389	$	33,496	45.6	%
Total products sold		1,596		1,410		186	13.2	%
Net revenue per product sold	$	67.0	$	52.0	$	14.9	28.7	%

For the six months ended June 30, 2022, our net revenue per product sold increased because of the increase in units sold and increases to our product prices in the first half of 2022 due to rising material and labor costs, which resulted in higher home sales prices and more revenue generated per home sold. We had increases in consignment sales, direct sales, commercial sales, other product sales and retail store sales. Sales through our company-owned retail stores have higher margins than our direct sales and consignment sales. For the three months ending September 30, 2022, we expect a ~~$2.1~~decrease in net revenue attributable to product sales because of the Company and the State of Georgia’s efforts to evaluate and improve the quality and consistency of homes manufactured in our Eatonton facility. These efforts have resulted in a temporary decrease in the rate of issuing HUD Labels of Certification and shipping finished homes from our Eatonton facility.

Consumer and MHP loans interest income grew $0.9 million, ~~deferred~~or 6.7%, during the six months ended June 30, 2022 as compared to the same period in 2021 and is primarily related to our increase in outstanding consumer loan portfolio partially offset by a decrease in outstanding MHP Note portfolio. The consumer loan portfolio has a higher average contractual interest rate compared to the MHP Note portfolio average contractual interest rate. Between June 30, 2022 and June 30, 2021 our MHP Note portfolio decreased by $23.5 million and the consumer loan portfolio increased by $14.9 million. On September 30, 2021, we collected $44.9 million in principal payment from one of our borrowers. As a result of this payment, MHP loan interest income is expected to decrease during 2022 as compared to 2021.

Other revenue primarily consists of consignment fees, commercial lease rents and servicer fee revenue and increased $1.2 million, or 69.3% during the six months ended June 30, 2022 as compared to the same period in 2021.

The cost of product sales increased $20.1 million, or 41.3%, during the six months ended June 30, 2022 as compared to the same period in 2021. The increase in costs is primarily related to an increase in units sold and increases in the cost of materials and labor in 2022 which was materially passed along to our end-customer.

Selling, general and administrative expenses increased $3.6 million, or 36.2%, during the six months ended June 30, 2022 as compared to the same period in 2021. This increase was primarily due to a $4.7 million increase in salaries and incentive costs and a $0.5 million increase in legal expense, a $0.1 million increase in consulting and professional fees, a $0.2 million increase in title fees & expenses partially offset by a $0.4 million decrease in loan losses, a $0.3 million decrease in warranty costs and a net $1.2 million decrease in other miscellaneous costs.

Dealer incentive expense increased $0.1 million, or 23.8%, during the six months ended June 30, 2022 as compared to the same period in 2021.

Other income (expense), net increased $1.6 million during the six months ended June 30, 2022 as compared to the same period in 2021. This increase was primarily due to a $0.9 million increase in non-operating interest income, an increase of $0.4 million in miscellaneous income, net and a decrease of $0.3 million in interest expense.

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Income tax expense ~~associated with~~was $7.4 million during the ~~corporate reorganization,~~six months ended June 30, 2022 compared to $4.7 million for the same period in 2021. The effective tax rate for the six months ended June 30, 2022 was 18.1% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and partially offset by state income ~~taxes~~taxes. The effective tax rate for the six months ended June 30, 2021 was 16.8% and ~~other permanent differences between book~~differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and ~~tax basis.~~partially offset by state income taxes.

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Liquidity and Capital Resources

Cash and Cash Equivalents

We consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents. We maintain cash balances in bank accounts that may, at times, exceed federally insured limits. We have not incurred any losses from such accounts and management considers the risk of loss to be minimal. We believe that cash flow from operations, cash and cash equivalents at ~~March 31, 2019, together with cash flow from operations,~~June 30, 2022, and availability on our lines of credit will be sufficient to fund our operations and provide for growth for the next 12 to 18 months and into the foreseeable future. In 2020, we negotiated a new credit agreement with Capital One, N.A. that expanded and extended our credit availability (see Indebtedness – Capital One Revolver, below). As of ~~March 31, 2019,~~June 30, 2022, we had approximately ~~$3.1~~$14.3 million in cash and cash equivalents, compared to ~~$2.6~~$1.0 million as of December 31, 2018. In January 2019, we recived gross proceeds of $7.2 million from the exercise of the underwriters’ option to purchase additional shares to cover over-allotments in connection with the IPO. These proceeds were primarily used for payments to reduce our borrowings under the lines of credit.2021.

Cash Flow Activities


	Three Months Ended
	March 31,
	(in thousands)
	2019		2018

Net cash provided by operating activities	$	3,391	$	4,488
Net cash used in investing activities	$	(1,985)	$	(489)
Net cash provided by (used in) financing activities	$	(907)	$	(2,717)

					Six Months Ended
					June 30,
					(in thousands)
					2022		2021

Net cash used in operating activities					$	(3,956)	$	(4,775)
Net cash provided by (used in) investing activities					$	10,072	$	(8,482)
Net cash provided by financing activities					$	7,109	$	13,298
Net change in cash and cash equivalents	$	499	$	1,282	$	13,225	$	41
Cash and cash equivalents at beginning of period	$	2,599	$	428	$	1,042	$	768
Cash and cash equivalents at end of period	$	3,098	$	1,710	$	14,267	$	809

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Comparison of Cash Flow Activities from ~~March 31, 2019~~June 30, 2022 to ~~March 31, 2018~~June 30, 2021

Net cash ~~provided by~~used in operating activities decreased ~~$1.1~~$0.8 million during the ~~three~~six months ended ~~March 31, 2019,~~June 30, 2022, compared to the comparable period in ~~2018,~~2021, primarily as a result of anincreased MHP originations net of collections, increased dealer inventory loan originations net of collections, increased volume of consumer loan originations net of principal collections, increased inventories, increased accounts receivable, increase in ~~net working capital used for additional loan originations associated with higher demand for home sales to MHPs~~other assets and a decrease in accounts payable. The increase in cash ~~collections on accounts receivable. The decrease~~used in operating ~~cash flows described above~~activities was partially offset ~~from cash generated~~ by ~~operating income before non-cash adjustments, a decrease in inventory purchases and~~ an increase in ~~accounts payable~~customer deposits, an increase in escrow liability and ~~accrued liabilities.~~increased dealer incentive liability.

Net cash ~~used in~~provided by investing activities of ~~$2.0~~$10.1 million in ~~2019~~2022 was primarily attributable to ~~$0.6~~$13.7 million ~~used for the acquisition~~ of ~~land for development, $0.1 million used~~collections related to purchase consumer loans and $1.4 million used for loans to third parties for the development of manufactured housing parks. In addition, we had capital expenditures of $0.1 million for property plant and equipment and $0.1 million for transportion equipment. These were offset by collections of $0.1 million of loans we made to third parties for the development of manufactured housing parks and collections of ~~$0.2~~$0.3 million from our purchased consumer loans. These were offset by $2.4 million used for loans to third parties for the development of manufactured housing parks and $1.5 million used for the acquisition of property plant and equipment.

Net cash ~~used in~~provided by financing activities of ~~$0.9~~$7.1 million in ~~2019~~2022 was ~~primarily~~ attributable to net ~~payments~~proceeds of ~~$6.5~~$4.6 million on our lines of credit ~~$0.5~~and $2.5 million of ~~payments on our notes payable and $0.6~~proceeds from other liabilities. Net cash provided by financing activities of $13.5 million ~~of payments~~in 2021 was attributable to ~~reduce our escrow liability, offset by~~ net proceeds of ~~$6.7~~$13.5 million ~~from the issuance~~on our lines of ~~our common stock.~~credit.

Indebtedness

Capital One Revolver. ~~We have~~At December 31, 2019, we had a revolving line of credit (“Revolver 1”) with Capital One, N.A. with a maximum credit limit of $~~45,000,000 as~~$45,000 and a maturity date of May 11, 2020. On March 30, 2020, we entered into an agreement with Capital One, N.A. to replace Revolver 1 with a new revolving line of credit (“New Revolver”). The New Revolver has a maximum credit limit of $70,000 and a maturity date of March ~~31, 2019. On May 12, 2017, Revolver 1 was amended to extend the maturity date to May 11, 2020 and increase the maximum borrowing availability under Revolver 1 to $45,000,000.~~ 30, 2024. For the ~~three months ended~~period January 1, 2020 through March ~~31, 2019 and for the year ended December 31, 2018,~~30, 2020, Revolver 1 accrued interest at ~~one month~~one-month LIBOR plus 2.40%. Amounts

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available under Revolver 1 were subject to a formula based on eligible consumer loans and MHP Notes and were secured by all accounts receivable, consumer loans and MHP Notes.

The New Revolver accrues interest at one-month LIBOR plus 2.00%. The interest ~~rates~~rate in effect as of ~~March 31, 2019 and December 31, 2018 were 4.88% and 4.78%, respectively. Amounts~~June 30, 2022 was 3.06%. As with Revolver 1, amounts available under the New Revolver 1 are subject to a formula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable, ~~and a percentage of the~~ consumer loans ~~receivable~~ and MHP Notes. The amount of available credit under the New Revolver 1 was ~~$39,839,000~~$57,386 as of June 30, 2022. In connection with the New Revolver, we paid certain arrangement fees and ~~$41,321,000 at March 31, 2019~~other fees of approximately $295, which were capitalized as unamortized debt issuance costs and ~~December 31, 2018, respectively.~~ will be amortized to interest expense over the life of the New Revolver.

For the ~~three~~six months ended ~~March 31, 2019~~June 30, 2022 and ~~2018,~~2021, interest expense under the New Revolver was ~~$73,000~~$239 and ~~$416,000,~~$509, respectively. The outstanding balance as of ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018 $5,161,000~~2021 was $12,614 and ~~$3,679,000,~~$7,993 respectively. ~~We were~~The New Revolver requires the Company to comply with certain financial and non-financial covenants. As of June 30, 2022, the Company was in compliance with all financial covenants, ~~as of March 31, 2019,~~ including that weit maintain a tangible net worth of at least ~~$90,000,000~~$120,000 and that weit maintain a ratio of debt to EBITDA of ~~4‑to‑~~4 to 1, or less.

~~Veritex Community Bank Revolver.~~ ~~In April 2016,~~On June 21, 2022, we ~~entered into an~~received a Reservation of Rights notice from Capital One, N.A. The letter stated that our New Revolver was in default. The default condition occurred due to our failure to timely file the Form 10-K and deliver certain financial statement to Capital One, N.A. On July 28, 2022, we executed a forbearance agreement with ~~Veritex Community Bank~~Capital One, N.A.

On August 24, 2022, we received a Notice of Default and Partial Suspension of Loan Commitments from Capital One, N.A. The notice stated that the July 28, 2022 forbearance agreement had been terminated and that Capital One, N.A. was permitted to ~~secure an additional revolving~~suspend $50,000 of the $70,000 loan commitment under the New Revolver. As a result, the available line of credit ~~of $15,000,000 (“~~in the New Revolver 2”). Revolver 2 accrues interest at one month LIBOR plus 2.50% and all unpaid principal and interest is due at maturity on April 4, 2021. Revolver 2 is secured by all finished goods inventory excluding repossessed homes. Amounts available under Revolver 2 are subjecthas been limited to a formula based on eligible inventory. The interest rates in effect as of March 31, 2019 and December 31, 2018 was 4.99% and 4.85%, respectively. On May 12, 2017, we entered into an agreement to increase the maximum borrowing availability under Revolver 2 to $20,000,000. On October 15, 2018, Revolver 2 was amended to extend the maturity date from April 4, 2019 to April 4, 2021. The amount of available credit under Revolver 2 was $17,999,000 and $10,000,000 at March 31, 2019 and December 31, 2018, respectively. For the three months ended March 31, 2019 and 2018, interest expense was $61,000 and $154,000, respectively. The outstanding balance as of March 31, 2019 and December 31, 2018 was $2,001,000 and $10,000,000, respectively. We were in compliance with all financial covenants as of March 31, 2019, including that we maintain a tangible net worth of at least $80,000,000.$20,000.

~~Notes Payable.~~ We have a promissory note with Woodhaven Bank. The amount due under the promissory note accrued interest at an annual rate of 3.85% through February 2, 2017 and then at the prime interest rate plus 0.60% through maturity on April 7, 2018. The loan was subsequently renewed through April 7, 2033. The promissory note calls for monthly principal and interest payments of $30,000 with a final payment due at maturity. The interest rates in effect as of March 31, 2019 and December 31, 2018 were 4.25% and 4.25%, respectively. The note is secured by certain of our real property. Interest expense was $38,000 and $40,000 for the ~~three months ended March 31, 2019 and 2018~~,

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~~respectively. The balance outstanding on the note payable at March 31, 2019 and December 31, 2018 was $3,506,000 and $3,552,000, respectively.~~

On May 24, 2016, we signed a promissory note for $515,000 with Eagle One, LLC collateralized by the purchase of real property located in Oklahoma City, Oklahoma. The amount due under the promissory note accrues interest at an annual rate of 6.00%. The promissory note calls for monthly principal and interest payments of $6,000 until June 1, 2026. Interest expense was $1,000 and $7,000 for the ~~three months ended March 31, 2019 and 2018, respectively. The balance outstanding on the note payable at December 31, 2018 was $414,000. In January 2019, this note was paid in full.~~

~~Notes Payable to an Affiliate.~~ On February 2, 2016, we entered into a $1,500,000 note payable agreement with stated annual interest rates of 3.75% with Shipley & Sons, Ltd., a related party through the common ownership of Kenneth E. Shipley, a significant shareholder of our company and our Co‑Chief Executive Officer. The note is due on demand. Interest paid on the note payable was $14,000 for the three months ended March 31, 2018. On October 18, 2018, this note payable was paid in full.

PILOT Agreement. In December 2016, we entered into a Payment in Lieu of Taxes (“PILOT”) agreement commonly offered in Georgia by local community development programs to encourage industry development. The net effect of the PILOT agreement is to provide us with incentives through the abatement of local, city and county property taxes and to provide financing for improvements to our Georgia plant (the “Project”). In connection with the PILOT agreement, the Putman County Development Authority provides a credit facility for up to ~~$10,000,000,~~$10,000, which can be drawn upon to fund Project improvements and capital expenditures as defined in the agreement. If funds are drawn, we would pay ~~transactions~~transaction costs and debt service payments. The PILOT agreement requires interest payments of 6.00% per annum on outstanding balances, which are due each December 1 through maturity on December 1, 2021, at which time all unpaid principal and interest are due. The PILOT agreement is collateralized by the assets of the Project. As of ~~March 31, 2019,~~June 30, 2022, we had not drawn down on this credit facility.

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Contractual Obligations

The following table is a summary of contractual cash obligations as of ~~March 31, 2019:~~June 30, 2022:


	Payments Due by Period
			Less than			More than

							Payments Due by Period (in thousands)

Contractual Obligations	Total		1 year	2 - 3 years	4 - 5 years	5 years	Total		2022	2023 - 2024	2025 - 2026	After 2026
Lines of credit	$	7,163,000	—	7,163,000	—	—	$	12,743	—	12,743	—	—
Notes payable		3,506,000	138,000	392,000	429,000	2,547,000
Operating lease obligations	$	3,075,000	451,000	963,000	692,000	969,000	$	3,286	350	1,353	1,154	429

~~Off‑~~Off Balance Sheet Arrangements

We did not have any ~~off‑balance~~off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, results of operations, liquidity or capital expenditures. However, we do have a repurchase agreement with a financial institution providing inventory financing for independent retailers of our products. Under this agreement, we have agreed to repurchase homes at declining prices over the term of the agreement (24 months). Our obligation under this repurchase agreement ceases upon the purchase of the home by the retail customer. The maximum amount of our contingent obligations under such repurchase agreements was approximately ~~$1,549,000~~$11,400 and ~~$2,186,000~~$4,908 as of ~~March 31, 2019~~June 30, 2022 and December 31, ~~2018,~~2021, respectively, without reduction for the resale value of the homes. We may be required to honor contingent repurchase obligations in the future and may incur additional expense as a consequence of these repurchase agreements. We consider our obligations on current contracts to be immaterial and accordingly we have not recorded any reserve for repurchase commitment as of ~~March 31, 2019.~~June 30, 2022.

Critical Accounting Estimates

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under

~~Table of Contents~~

the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. Our critical accounting estimates are identified and described in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2018.~~ ~~Other than recent accounting pronouncement adoptions discussed in Note 1~~2021. Subsequent to the filing of our ~~condensed financial statements,~~ ~~we had~~Annual Report, there have been no ~~significant~~material changes ~~in those~~to our critical accounting ~~estimates since our last annual report.~~estimates.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our ~~March 31, 2019~~June 30, 2022 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly ~~Report~~Report.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of these exemptions until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for smaller reporting companies

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We are subject to the periodic reporting requirements of the Exchange Act ~~which~~that requires designing disclosure controls and procedures to provide reasonable assurance that information we disclose in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer each concluded, as of the end of the period, our disclosure controls and procedures were not effective as of ~~March 31, 2019~~June 30, 2022, due to material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2021, and as described ~~below~~.below.

Material Weaknesses in Internal Control Over Financial Reporting

As previously disclosed in our Annual report on Form 10-K filed with the SEC on ~~April 9, 2019,~~August 3, 2022, we identified material weaknesses in our internal control over financial reporting during the preparation of our financial statements for the year ended December 31, ~~2018.~~2021. Under standards established by the PCAOB, a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

~~Table of Contents~~

The material weaknesses in financial reporting as of ~~March 31, 2019~~June 30, 2022 are summarized as follows:

	●
			We determined that we did not have sufficient accounting ~~processes~~systems and procedures in place, particularly in the areas of ~~allowance for loan loss, finished goods inventory costing,~~ revenue ~~recognition, income taxes, and~~recognition; processing of accounts ~~payable~~payable; prepaid expenses; and ~~accruals for period end cut-off.~~ inventory costing and management.

	●
			We determined that we did not have sufficient ~~experienced personnel~~systems and processes to support timely preparation of financial statements for compliance with U.S. GAAP and ~~SEC rules.~~ SEC.



●

We determined that we did not have sufficient policies and procedures to ensure the appropriate review and approval of user access rights to our accounting system; and lack of approval of journal entries and segregation of duties in our financial reporting process.

●

We determined that our information technology infrastructure does not provide sufficient safeguards required by the COBIT framework.

Remediation Efforts to Address Previously-Identified Material Weaknesses

As previously described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2021, we began implementing remediation plans to address the material weaknesses. The weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the majority of the remediation of these material weaknesses will be completed by the end of fiscal ~~2019.~~2022.

Table of Contents

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the ~~first~~second quarter of fiscal ~~2019~~2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 1113 - Commitments and Contingencies in our ~~March 31, 2019~~June 30, 2022 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

None

Item 5. Other Information

None

2738

Table of Contents

Item 6. Exhibits.


Exhibit No.		Description
~~Exhibit No.~~		~~Description~~
EXHIBIT 10.1		Employment Agreement, effective as of June 7, 2022, between Legacy Housing Corporation and Duncan Bates (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed on June 13, 2022)

EXHIBIT 10.2 *		Limited Waiver and First Amendment to Credit Agreement, dated July 28, 2022, between Legacy Housing Corporation and Capital One, N.A.

EXHIBIT 31.1 *	-	Rule 13a—14(a) / 15d—14(a) Certifications — Chief Executive Officer.

EXHIBIT 31.2 *	-	Rule 13a—14(a) / 15d—14(a) Certifications — Chief Financial Officer.

EXHIBIT 32.1 *	-	Section 1350 Certification.

EXHIBIT 32.2 *	-	Section 1350 Certification.

EXHIBIT 101.INS *	-	XBRL Instance Document.

EXHIBIT 101.SCH *	-	Inline XBRL Taxonomy Extension Schema Document.

EXHIBIT 101.CAL *	-	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

EXHIBIT 101.DEF *	-	Inline XBRL Taxonomy Extension Definition Linkbase Document.

EXHIBIT 101.LAB *	-	Inline XBRL Taxonomy Extension Label Linkbase Document.

EXHIBIT 101.PRE *	-	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Filed herewith

2839

Table of Contents

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LEGACY HOUSING CORPORATION

Dated: ~~May 15, 2019~~September 23, 2022	By:	/s/ ~~Jeffrey V. Burt~~Ronald Arrington
		Name: ~~Jeffrey V. Burt~~Ronald Arrington
		Title: Chief Financial Officer
		(On behalf of Registrant and as Principal Financial Officer)

2940

~~Delaware~~Texas	~~20‑2897516~~20-2897516
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Large accelerated filer ☐◻	Accelerated filer ☐☒

Non-accelerated filer ☒◻	Smaller reporting company ☒
		Emerging growth company ☒


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock ($0.001 par value)	LEGH	NASDAQ Global Market


	March 31,		December 31,
	2019		2018
Assets
Current assets:
Cash and cash equivalents	$	3,098	$	2,599
Accounts receivable, net of allowance for doubtful accounts		3,095		2,953
Current portion consumer loans		5,132		4,945
Current portion of notes receivable from mobile home parks (“MHP”)		8,339		7,297
Current portion of other notes receivable		773		379
Inventories		37,966		42,033
Prepaid expenses and other current assets		3,327		2,938
Total current assets		61,730		63,144
Property, plant and equipment, net		17,644		17,128
Consumer loans, net of deferred financing fees and allowance for loan losses		93,772		92,230
Notes receivable from mobile home parks (“MHP”)		54,207		50,638
Other notes receivable, net of allowance for loan losses		2,817		1,912
Other assets		3,054		2,587
Inventory non‑current		10,451		7,399
Total assets	$	243,675	$	235,038
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,714	$	2,828
Accrued liabilities		10,309		9,156
Customer deposits		2,274		2,222
Escrow liability		5,325		5,951
Current portion of notes payable		185		228
Total current liabilities		21,807		20,385
Long‑term liabilities:
Lines of credit		7,163		13,679
Deferred income taxes		1,842		1,842
Note payable, net of current portion		3,321		3,737
Dealer incentive liability		6,120		6,115
Total liabilities		40,253		45,758
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized: issued -0-		—		—
Common stock, $.001 par value, 90,000,000 shares authorized; 24,617,143 and
24,000,000 issued and outstanding at March 31, 2019 and December 31, 2018, respectively		25		24
Additional paid-in-capital		174,671		167,743
Retained earnings		28,726		21,513
Total stockholders' equity		203,422		189,280
Total liabilities and stockholders' equity	$	243,675	$	235,038


	June 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	14,267	$	1,042
Accounts receivable, net		5,688		5,118
Accounts receivable - dealer financed		10,394		3,496
Current portion of consumer loans receivable		5,759		6,080
Current portion of notes receivable from mobile home parks (“MHP”)		10,310		10,049
Current portion of other notes receivable		16,791		21,070
Inventories		46,770		41,230
Prepaid expenses and other current assets		4,284		4,456
Total current assets		114,263		92,541
Consumer loans receivable, net		125,172		119,543
Notes receivable from mobile home parks (“MHP”)		111,972		92,943
Other notes receivable, net		14,090		20,930
Inventories, net		4,603		2,678
Other assets - leased mobile homes		9,943		9,419
ROU assets - operating leases		3,083		—
Other assets		1,406		1,097
Property, plant and equipment, net		28,497		27,516
Total assets	$	413,029	$	366,667
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	5,505	$	4,155
Accrued liabilities		14,980		20,686
Customer deposits		11,934		7,749
Escrow liability		9,771		9,350
Operating lease obligation		662		—
Total current liabilities		42,852		41,940
Long‑term liabilities:
Operating lease obligation, less current portion		2,525		—
Lines of credit		12,614		7,993
Deferred income taxes, net		3,004		3,004
Dealer incentive liability		4,974		4,336
Total liabilities		65,969		57,273
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized: no shares issued or outstanding		—		—
Common stock, $.001 par value, 90,000,000 shares authorized; 24,851,085 and 24,654,621 issued and 24,406,020 and 24,209,556 outstanding at June 30, 2022 and December 31, 2021, respectively		29		25
Treasury stock at cost, 445,065 shares at June 30, 2022 and December 31, 2021		(4,477)		(4,477)
Additional paid-in-capital		179,932		175,623
Retained earnings		171,576		138,223
Total stockholders' equity		347,060		309,394
Total liabilities and stockholders' equity	$	413,029	$	366,667


			Page
				~~Page~~
PART I - FINANCIAL INFORMATION			2
			2

	Item 1.	Financial Statements (Unaudited)	2


	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
			27

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
			36

	Item 4.	Controls and Procedures	26 37

PART II - OTHER INFORMATION			27
			38

	Item 1.	Legal Proceedings	27
			38

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
			38

	Item 3.	Defaults Upon Senior Securities	27
			38

	Item 4.	Mine Safety Disclosures	27
			38

	Item 5.	Other Information	27
			38

	Item 6.	Exhibits	28 39

SIGNATURES			29 40


	Three months ended March 31,
	2019		2018
Net revenue:
Product sales	$	31,550	$	37,414
Consumer and MHP loans interest		5,530		4,394
Other		874		878
Total net revenue		37,954		42,686
Operating expenses:
Cost of product sales		21,885		27,647
Selling, general administrative expenses		6,491		4,799
Dealer incentive		210		335
Income from operations		9,368		9,905
Other income (expense):
Non‑operating interest income		39		51
Miscellaneous, net		3		34
Interest expense		(189)		(639)
Total other		(147)		(554)
Income before income tax expense		9,221		9,351
Income tax expense		(2,008)		(3,990)
Net income	$	7,213	$	5,361
Weighted average shares outstanding:
Basic		24,516,762		20,000,000
Diluted		24,571,088		20,000,000
Net income per share:
Basic	$	0.29	$	0.27
Diluted	$	0.29	$	0.27


	Total Partners’		Common Stock			Additional		Retained
	Capital		Shares	Amount		paid in capital		earnings		Total
Balances, December 31, 2017	$	124,271	—	$	—	$	—	$	—	$	—
Shares issued upon incorporation		(124,271)	20,000,000		20		124,251		—		124,271
Net income		—	—		—		—		5,361		5,361
Balances, March 31, 2018	$	—	20,000,000	$	20	$	124,251	$	5,361	$	129,632


	Three Months Ended June 30, 2021
	As
	Originally				As
	Reported		Adjustments		Restated
Operating expenses:
Cost of product sale	$	28,608	$	(265)	$	28,343
Income from operations	$	14,702	$	265	$	14,967
Income before income tax expense	$	14,882	$	265	$	15,147
Income tax expense	$	(2,454)	$	(44)	$	(2,498)
Net income	$	12,428	$	221	$	12,649
Net income per share:
Basic	$	0.51	$	0.01	$	0.52
Diluted	$	0.51	$	0.01	$	0.52


	Six Months Ended June 30, 2021
	As
	Originally				As
	Reported		Adjustments		Restated
Operating expenses:
Cost of product sale	$	52,632	$	(2,288)	$	50,344
Income from operations	$	25,362	$	2,288	$	27,650
Income before income tax expense	$	25,768	$	2,288	$	28,056
Income tax expense	$	(4,317)	$	(390)	$	(4,707)
Net income	$	21,451	$	1,898	$	23,349
Net income per share:
Basic	$	0.89	$	0.07	$	0.96
Diluted	$	0.89	$	0.07	$	0.96


	Six months June 30, 2021
	As Originally				As
	Reported		Adjustments		Restated
Operating activities:
Net income	$	21,451	$	1,898	$	23,349
Inventories	$	(8,864)	$	—	$	(8,864)
Prepaid expenses and other current assets	$	(893)	$	535	$	(358)
Other assets	$	(876)	$	(332)	$	(1,208)
Accounts payable	$	(2,004)	$	(2,288)	$	(4,292)
Accrued liabilities	$	(792)	$	390	$	(402)
Net cash used in operating activities	$	(4,978)	$	203	$	(4,775)
Investing activities:
Purchases of property, plant and equipment	$	(2,330)	$	—	$	(2,330)
Net cash used in investing activities	$	(8,482)	$	—	$	(8,482)
Financing activities:
Payments on lines of credit	$	(32,608)	$	(203)	$	(32,811)
Net cash provided by financing activities	$	13,501	$	(203)	$	13,298


	As of March 31,		As of December 31,
	2019		2018
Consumer loan receivable	$	102,938	$	101,049
Loan discount and deferred financing fees, net		(3,149)		(3,162)
Allowance for loan losses		(885)		(712)
Consumer loans receivable, net	$	98,904	$	97,175


2019	$	451
2020		513
2021		450
2022		374
2023		318
Thereafter		969
Total	$	3,075