# Legacy Housing Corp: Form 10-Q for the period ended Jun 30, 2023

- Company: [Legacy Housing Corp](/companies/legh.md) (CIK 1436208)
- Form: 10-Q
- Filed: 2023-08-09
- Accepted by EDGAR: Aug 9, 2023, 15:17 ET
- Period: 2023-06-30
- Accession: 0001558370-23-014223
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1436208/000155837023014223/legh-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1436208/000155837023014223/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $42.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $85.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $29.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $58.7m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $5.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $10.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $17.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $35.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $195.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $285.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $3.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $6.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $15.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $31.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.60 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.25 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.62 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 25,101,937 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 25,085,158 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$7.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $1.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $1.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $92.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $465.8m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $43.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $52.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $413.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,823 characters.

*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 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 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 stores to consumers and manufactured housing communities. We are the fifth largest producer of manufactured homes in the United States as ranked by the number of homes manufactured based on information available from the Manufactured Housing Institute and the Institute for Building Technology and Safety for the twelve month period ending March 31, 2023. With current operations focused primarily in the southern United States, we offer our customers an array of quality homes ranging in size from approximately 395 to 2,667 square feet consisting of 1 to 5 bedrooms, with 1 to 3 1/2 bathrooms. Our homes range in price, at retail, from approximately $33,000 to $180,000. For the three and six months ended June 30, 2023, we sold 793 and 1,603 home sections, respectively (which are entire homes or single floors that are combined to create complete homes). For the three and six months ended June 30, 2022, we sold 999 and 2,003 home 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 the sale of homes. In addition, the sale of homes is directly related to financing provided by us. Accordingly, all significant operating and strategic decisions by the chief operating decision-maker, the 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 homes using quality materials and distributing those homes through our expansive network of independent retailers and 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 production techniques that allow us to produce, on average, approximately 70 home sections, or 60 fully-completed homes depending on product mix, 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 kitchens.

Our homes are marketed under our premier “Legacy” brand name and currently are sold primarily across 15 states through a network of 146 independent retail locations, 13 company-owned retail locations and through direct sales to owners of manufactured home communities. Our 13 company-owned retail locations, including 11 Heritage Housing stores and two Tiny House Outlet stores exclusively sell our homes. For the six months ended June 30, 2023, approximately 48% of our manufactured homes were sold in Texas, followed by 19% in Georgia, 7% in Louisiana, 4% in Florida, and 3% in Oklahoma. For the six months ended June 30, 2022, approximately 50% of our manufactured homes were sold in Texas, followed by 11% in Georgia, 8% in Florida, 5% in Louisiana and 5% in Alabama.

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 or a financed sale between the retailer and us. We also provide consumer financing for our products which are sold to end-users through both independent and company-owned retail locations, and we provide financing solutions to manufactured housing community owners that buy our products for use in their manufactured housing communities. Our ability to offer competitive financing options at our retail locations 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.

### 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:

- We have purchased several properties in our market area for the purpose of developing manufactured housing communities and subdivisions. As of June 30, 2023, the cost of these properties include the following (dollars in thousands):

| ​ Location | ​ | ​ Description | ​ ​ | ​ Date of Acquisition | ​ ​ | ​ ​ Land | ​ ​ | ​ ​ ​ Improvements | ​ ​ | ​ ​ Total |
| --- | --- | --- | --- | --- | --- | ---: | --- | ---: | --- | ---: |
| Bastrop County, Texas |  | 368 Acres |  | April 2018 | ​ | $4,215 | ​ | $3,804 | ​ | $8,019 |
| Bexar County, Texas |  | 69 Acres |  | November 2018 | ​ | 842 | ​ | 107 | ​ | 949 |
| Horseshoe Bay, Texas | ​ | 133 Acres |  | Various 2018-2019 | ​ | 2,639 | ​ | 1,842 | ​ | 4,481 |
| Johnson County, Texas | ​ | 91.5 Acres |  | July 2019 | ​ | 449 | ​ | - | ​ | 449 |
| Venus, Texas | ​ | 50 Acres |  | August 2019 | ​ | 422 | ​ | 25 | ​ | 447 |
| Wise County, Texas | ​ | 81.5 Acres | ​ | September 2020 | ​ | ​ 889 | ​ | ​ - | ​ | ​ 889 |
| Bexar County, Texas | ​ | 233 Acres | ​ | February 2021 | ​ | ​ 1,550 | ​ | ​ 382 | ​ | ​ 1,932 |
| ​ | ​ | ​ | ​ | ​ | ​ | $11,006 | ​ | $6,160 | ​ | $17,166 |

- We also expect to provide financing solutions to a select group of our manufactured housing community-owner customers in a manner that includes developing new sites for products in or near urban locations 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.
- Inflation has most recently been at it’s highest rate in the U.S. over the last 30 years. Our ability to maintain gross margins can be adversely impacted by sudden increases in specific costs, such as the increases in material and labor. In addition, measures used to combat inflation, such as increases in interest rates, could also have an impact on the ability of home buyers to obtain affordable financing. We continue to explore opportunities to minimize the impact of inflation on our future profitability.
- Finally, our financial performance will be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers. 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 long term growth, we must 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. We are actively reviewing organic and inorganic opportunities to add production capacity in attractive regions to meet future demand.

### 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.

### Comparison of Three Months ended June 30, 2023 and 2022 (in thousands)

| ​ ​ ​ ​ Net revenue: | ​ ​ ​ ​ | ​ ​ Three months ended June 30, 2023 ​ ​ | ​ ​ | ​ ​ 2022 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ $ change ​ ​ | ​ ​ ​ ​ ​ ​ ​ % change ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Product sales | ​ | $42,316 | ​ | $55,098 | ​ | $(12,782) | (23.2)% |
| Consumer and MHP loans interest | ​ | 8,488 | ​ | 7,497 | ​ | 991 | 13.2% |
| Other | ​ | 1,832 | ​ | 1,616 | ​ | 216 | 13.4% |
| Total net revenue | ​ | 52,636 | ​ | 64,211 | ​ | (11,575) | (18.0)% |
| Operating expenses: | ​ |  | ​ |  | ​ |  | ​ |
| Cost of product sales | ​ | 29,709 | ​ | 37,411 | ​ | (7,702) | (20.6)% |
| Selling, general administrative expenses | ​ | 5,527 | ​ | 5,901 | ​ | (374) | (6.3)% |
| Dealer incentive | ​ | (100) | ​ | 439 | ​ | (539) | (122.8)% |
| Income from operations | ​ | 17,500 | ​ | 20,460 | ​ | (2,960) | (14.5)% |
| Other income (expense) | ​ |  | ​ |  | ​ |  | ​ |
| Non‑operating interest income | ​ | 626 | ​ | 783 | ​ | (157) | (20.1)% |
| Miscellaneous, net | ​ | 159 | ​ | 17 | ​ | 142 | 835.3% |
| Interest expense | ​ | (195) | ​ | (183) | ​ | (12) | 6.6% |
| Total other | ​ | 590 | ​ | 617 | ​ | (27) | (4.4)% |
| Income before income tax expense | ​ | 18,090 | ​ | 21,077 | ​ | (2,987) | (14.2)% |
| Income tax expense | ​ | (3,070) | ​ | (3,816) | ​ | 746 | (19.5)% |
| Net income | ​ | $15,020 | ​ | $17,261 | ​ | $(2,241) | (13.0)% |

Product sales primarily consist of direct sales, commercial sales, inventory finance sales and retail store sales. Product sales decreased $12.8 million, or 23.2%, during the three months ended June 30, 2023 as compared to the same period in 2022. This decrease was driven by an industry wide decrease in unit volumes and a decrease in the conversion of certain independent dealer consignment arrangements to financing arrangements.

Net revenue attributable to our factory-built housing consisted of the following during the three months of 2023 and 2022:

*(in thousands)*

| ​ ​ ​ ​ ​ Net revenue: | ​ ​ ​ | ​ ​ Three months ended June 30, 2023 ​ | ​ | ​ ​ 2022 ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ $ Change ​ | ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Products sold | ​ | $42,316 | ​ | $55,098 | ​ | $(12,782) | (23.2)% |
| Total products sold | ​ | 678 | ​ | 794 | ​ | (116) | (14.6)% |
| Net revenue per product sold | ​ | $62.4 | ​ | $69.4 | ​ | $(7) | (10.1)% |

For the three months ended June 30, 2023, our net revenue per product sold decreased primarily due to changes in our product sales mix slightly offset by increases in unit prices over the first half of 2022, as rising material and labor costs were passed on to our customers. We had decreases in direct sales, inventory finance sales and retail store sales, partially offset by an increase in commercial sales and other product sales. Our commercial sales have lower margins than sales through our company-owned retail stores and our inventory financed sales.

Consumer and MHP loans interest income grew $1.0 million, or 13.2%, during the three months ended June 30, 2023 as compared to the same period in 2022 and is related to our increase in average outstanding MHP note portfolio balance and average outstanding consumer loan portfolio balance. Between June 30, 2023 and June 30, 2022 our MHP note portfolio increased by $43.9 million and our consumer loan portfolio increased by $15.1 million.

Other revenue primarily consists of contract forfeitures, dealer finance fees and commercial lease rents and increased $0.2 million, or 13.4% during the three months ended June 30, 2023 as compared to the same period in 2022. This increase was primarily due to $0.1 million increase in forfeited deposits, a $0.2 million increase in dealer finance fees, partially offset by a $0.1 million decrease in portfolio fees & servicer revenue. Commercial lease rents were flat for the quarter.

The cost of product sales decreased $7.7 million, or 20.6%, during the three months ended June 30, 2023 as compared to the same period in 2022. The decrease in costs is primarily related to the decrease in units sold.

Selling, general and administrative expenses decreased $0.4 million, or 6.3%, during the three months ended June 30, 2023 as compared to the same period in 2022. This decrease was primarily due to a $0.4 million decrease in consulting and professional fees, a $0.2 million decrease in warranty costs and a net $0.3 million decrease in other miscellaneous costs, partially offset by a $0.1 million increase in salaries and incentive costs, a $0.2 million increase in legal expense, and a $0.2 million increase in loan loss provision.

Dealer incentive expense decreased $0.5 million, or 122.8%, during the three months ended June 30, 2023 as compared to the same period in 2022.

Other income (expense), net was flat during the three months ended June 30, 2023 as compared to the same period in 2022. There was a decrease of $0.2 million in non-operating interest income, net offset by an increase of $0.2 million in miscellaneous income, net.

Income tax expense was $3.1 million during the three months ended June 30, 2023 compared to $3.8 million for the same period in 2022. The effective tax rate for the three months ended June 30, 2023 was 17.0% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction, partially offset by state income taxes. The effective tax rate for the three months ended June 30, 2022 was 18.1% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction, partially offset by state income taxes.

### Comparison of Six Months ended June 30, 2023 and 2022 (in thousands)

| ​ ​ ​ ​ Net revenue: | ​ ​ ​ ​ | ​ ​ Six months ended June 30, 2023 ​ ​ | ​ ​ | ​ ​ 2022 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ $ change ​ ​ | ​ ​ ​ ​ ​ ​ ​ % change ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Product sales | ​ | $85,497 | ​ | $106,885 | ​ | $(21,388) | (20.0)% |
| Consumer and MHP loans interest | ​ | 16,193 | ​ | 14,262 | ​ | 1,931 | 13.5% |
| Other | ​ | 3,803 | ​ | 2,992 | ​ | 811 | 27.1% |
| Total net revenue | ​ | 105,493 | ​ | 124,139 | ​ | (18,646) | (15.0)% |
| Operating expenses: | ​ |  | ​ |  | ​ |  | ​ |
| Cost of product sales | ​ | 58,670 | ​ | 71,138 | ​ | (12,468) | (17.5)% |
| Selling, general administrative expenses | ​ | 10,938 | ​ | 13,560 | ​ | (2,622) | (19.3)% |
| Dealer incentive | ​ | 32 | ​ | 713 | ​ | (681) | (95.5)% |
| Income from operations | ​ | 35,853 | ​ | 38,728 | ​ | (2,875) | (7.4)% |
| Other income (expense) | ​ |  | ​ |  | ​ |  | ​ |
| Non‑operating interest income | ​ | 1,321 | ​ | 1,635 | ​ | (314) | (19.2)% |
| Miscellaneous, net | ​ | 912 | ​ | 603 | ​ | 309 | 51.2% |
| Interest expense | ​ | (285) | ​ | (239) | ​ | (46) | 19.2% |
| Total other | ​ | 1,948 | ​ | 1,999 | ​ | (51) | (2.6)% |
| Income before income tax expense | ​ | 37,801 | ​ | 40,727 | ​ | (2,926) | (7.2)% |
| Income tax expense | ​ | (6,505) | ​ | (7,375) | ​ | 870 | (11.8)% |
| Net income | ​ | $31,296 | ​ | $33,352 | ​ | $(2,056) | (6.2)% |

Product sales primarily consist of direct sales, commercial sales, inventory finance sales and retail store sales. Product sales decreased $21.4 million, or 20.0%, during the six months ended June 30, 2023 as compared to the same period in 2022. This decrease was driven by an industry wide decrease in unit volumes and a decrease in the conversion of certain independent dealer consignment arrangements to financing arrangements.

Net revenue attributable to our factory-built housing consisted of the following during the six months of 2023 and 2022:

*(in thousands)*

| ​ ​ ​ ​ ​ Net revenue: | ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 ​ | ​ | ​ ​ 2022 ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ $ Change ​ | ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Products sold | ​ | $85,497 | ​ | $106,885 | ​ | $(21,388) | (20.0)% |
| Total products sold | ​ | 1,366 | ​ | 1,596 | ​ | (230) | (14.4)% |
| Net revenue per product sold | ​ | $62.6 | ​ | $67.0 | ​ | $(4.4) | (6.5)% |

For the six months ended June 30, 2023, our net revenue per product sold decreased primarily due to changes in our product sales mix slightly offset by increases in unit prices over the first half of 2022, as rising material and labor costs were passed on to our customers. We had decreases in inventory finance sales, direct sales, retail store sales, and other product sales, partially offset by an increase in commercial sales. Our commercial sales have lower margins than sales through our company-owned retail stores and our inventory financed sales. For the six months ending June 30, 2023, we experienced a decrease in net revenue attributable to product sales due to 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. We increased shipments from our Eatonton facility during the second quarter of 2023 and plan to meet or exceed historical levels in 2023, pending market conditions.

Consumer and MHP loans interest income grew $1.9 million, or 13.5%, during the six months ended June 30, 2023 as compared to the same period in 2022 and is related to our increase in average outstanding MHP note portfolio balance and average outstanding consumer loan portfolio balance. Between June 30, 2023 and June 30, 2022 our MHP note portfolio increased by $43.9 million and our consumer loan portfolio increased by $15.1 million.

Other revenue primarily consists of contract forfeitures, dealer finance fees and commercial lease rents and increased $0.8 million, or 27.1% during the six months ended June 30, 2023 as compared to the same period in 2022. This increase was primarily due to $0.2 million increase in forfeited deposits, a $0.6 million increase in dealer finance fees and a $0.1 million increase in commercial lease rents and a $0.1 million increase in setup and service sales, partially offset by a $0.2 million decrease in portfolio fees & servicer revenue.

The cost of product sales decreased $12.5 million, or 17.5%, during the six months ended June 30, 2023 as compared to the same period in 2022. The decrease in costs is primarily related to the decrease in units sold.

Selling, general and administrative expenses decreased $2.6 million, or 19.3%, during the six months ended June 30, 2023 as compared to the same period in 2022. This decrease was primarily due to a $3.2 million decrease in salaries and incentive costs, a $0.4 million decrease in consulting and professional fees, a $0.2 million decrease in legal expense and a net $0.1 million decrease in other miscellaneous costs, partially offset by a $0.7 million increase in warranty costs, a $0.1 million increase in loan loss provision related to the adoption of ASU 2016-13 *Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments*, a $0.4 million increase in loan loss provision not related to the adoption of ASU 2016-13, and a $0.1 million increase in advertising costs.

Dealer incentive expense decreased $0.7 million, or 95.5%, during the six months ended June 30, 2023 as compared to the same period in 2022.

Other income (expense), net was flat during the six months ended June 30, 2023 as compared to the same period in 2022. There was a decrease of $0.3 million in non-operating interest income offset by an increase of $0.3 million in miscellaneous income, net.

Income tax expense was $6.5 million during the six months ended June 30, 2023 compared to $7.4 million for the same period in 2022. The effective tax rate for the six months ended June 30, 2023 was 17.2% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction, partially offset by state income taxes. 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.

### 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 June 30, 2023, 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 credit agreement with Capital One, N.A. that expanded and extended our credit availability (see ***Indebtedness –*** **Capital One Revolver**, below). As of June 30, 2023, we had approximately $1.5 million in cash and cash equivalents, compared to $2.8 million as of December 31, 2022. On July 28, 2023, the Company entered into a new Credit Agreement with Prosperity Bank and terminated the Revolver with Capital One. See Note 18 – Subsequent Events in our June 30, 2023 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.

### Cash Flow Activities

*(in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 ​ ​ | ​ ​ | ​ ​ 2022 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Net cash used in operating activities | ​ | $(7,464) | ​ | $(3,956) |
| Net cash provided by investing activities | ​ | $3,937 | ​ | $10,072 |
| Net cash provided by financing activities | ​ | $2,240 | ​ | $7,109 |
| Net change in cash and cash equivalents | ​ | $(1,287) | ​ | $13,225 |
| Cash and cash equivalents at beginning of period | ​ | $2,818 | ​ | $1,042 |
| Cash and cash equivalents at end of period | ​ | $1,531 | ​ | $14,267 |

### Comparison of Cash Flow Activities from June 30, 2023 to June 30, 2022

Net cash used in operating activities increased $3.5 million during the six months ended June 30, 2023, compared to the same period in 2022, primarily as a result of increased 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, decrease in customer deposits, decrease in accounts payable and accrued liabilities and a decrease in dealer incentive liability. The increase in cash used in operating activities was partially offset by an increase in escrow liability.

Net cash provided by investing activities of $3.9 million in 2023 was primarily attributable to $8.5 million in proceeds from the sale of treasury notes, $1.1 million in proceeds from the sale of leased property, $0.9 million of collections related to loans to third parties for the development of manufactured housing parks and collections of $0.2 million from our purchased consumer loans. These were offset by $5.3 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 provided by financing activities of $2.2 million in 2023 was attributable to net proceeds of $2.1 million on our lines of credit and $0.1 million received from the exercise of stock options. Net cash used in financing activities of $7.1 million in 2022 was attributable to net proceeds of $4.6 million on our lines of credit and $2.5 million in proceeds from other liabilities.

### Indebtedness

**Capital One Revolver.** On March 30, 2020, we entered into an agreement with Capital One, N.A. (“Capital One”) for a new revolving line of credit (“Revolver”). The Revolver had a maximum credit limit of $70,000 and a maturity date of March 30, 2024.

On June 21, 2022, we received a Reservation of Rights notice from Capital One. The letter stated that our Revolver was in default. The default condition occurred due to our failure to timely file the Form 10-K and deliver certain financial statements to Capital One. On July 28, 2022, we entered into a Limited Waiver and First Amendment to Credit Agreement (the “Amendment”) with Capital One, N.A. The Amendment replaced the LIBOR borrowing rate with a secured overnight financing rate (“SOFR”) and waived a default arising out of a monetary judgement against the Company that exceeded the amount allowed in the Revolver.

On August 24, 2022, we received a Notice of Default and Partial Suspension of Loan Commitments from Capital One. The notice stated that the July 28, 2022 forbearance agreement had been terminated and that Capital One was suspending $50,000 of the $70,000 loan commitment under the Revolver. As a result, the available line of credit in the Revolver has been limited to $20,000.

The Revolver accrues interest at one-month SOFR plus 2.00%. The interest rates in effect as of June 30, 2023 and December 31, 2022 are 7.17% and 6.12%, respectively. Amounts available under the Revolver are subject to a formula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable, consumer loans and MHP Notes. The amount of available credit under the Revolver was $15,315 and $17,400 as of June 30, 2023 and December 31, 2022, respectively. In connection with the Revolver, we 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 Revolver.

For the three months ended June 30, 2023 and 2022, interest expense under the Revolver was $195 and $182, respectively. For the six months ended June 30, 2023 and 2022, interest expense under the Revolver was $286 and $239, respectively. The outstanding balance as of June 30, 2023 and December 31, 2022 was $4,685 and $2,545, respectively. The Revolver requires the Company to comply with certain financial and non-financial covenants. We were in compliance with all financial covenants as of as of June 30, 2023, including that we maintain a tangible net worth of at least $120,000 and that it maintain a ratio of debt to EBITDA of 4 to 1, or less.

### Contractual Obligations

The following table is a summary of contractual cash obligations as of June 30, 2023:

| ​ ​ ​ Contractual Obligations | ​ | ​ ​ Payments Due by Period (in thousands) ​ ​ Total | ​ ​ ​ ​ 2023 | ​ ​ ​ 2024 - 2025 | ​ ​ ​ 2026 - 2027 | ​ ​ After 2027 |
| --- | --- | ---: | ---: | ---: | ---: | ---: |
| Lines of credit | ​ | $4,685 | — | 4,685 | — | — |
| Operating lease obligations | ​ | $2,204 | 305 | 1,043 | 743 | 113 |

### Off Balance Sheet Arrangements

We did not have any 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 that provides 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 $6,740 and $8,925 as of June 30, 2023 and December 31, 2022, 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 June 30, 2023.

### Critical Accounting Estimates

Critical accounting estimates are those that we believe are both significant and 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 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 on Form 10-K for the year ended December 31, 2022. Subsequent to the filing of our Annual Report, we adopted FASB’s ASC 326 for determining Current Expected Credit Losses. In connection with this adoption, we implemented certain changes to our processes and controls related to our methods for estimating allowances for credit losses.

### Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our June 30, 2023 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly 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.

## Controls and procedures

As filed, 6,013 characters.

### Disclosure Controls and Procedures

We are subject to the periodic reporting requirements as defined in Rule 13a-15(e) of the Exchange Act that require designing disclosure controls and procedures to provide reasonable assurance that the information we disclose in reports we file or submit with the SEC are recorded, processed, summarized, and reported within the time periods specified in the rules and forms. 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 of the Exchange Act). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer each concluded, as of the end of the period, that our disclosure controls and procedures were not effective as of June 30, 2023, due to material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as described below.

### Material Weaknesses in Internal Control Over Financial Reporting

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

The material weaknesses in financial reporting as of June 30, 2023 are summarized as follows:

- We determined that we did not have sufficient accounting systems and procedures in-place, particularly in the areas of revenue recognition, processing of accounts payable, prepaid expenses, and inventory costing and management.
- We determined that we did not have sufficient policies and procedures to ensure the appropriate review and approval of user access rights to our accounting system, and lack of approval of journal entries and segregation of duties in our financial reporting process.
- We determined that our information technology infrastructure does not provide sufficient safeguards required by the COBIT framework.

### Remediation Efforts to Address Previously-Identified Material Weaknesses

As previously described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022, Management has evaluated the material weaknesses described above and implemented a remediation plan to address its material weaknesses. During the three-month period ending June 30, 2023 we continued implementing a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting and accounting functions.

While significant actions to improve our internal processes continue to be implemented, the enhanced controls have not operated for a sufficient period-of-time to demonstrate that the material weakness have been remediated as of June 30, 2023. Our material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period-of-time and management has concluded, through testing, that the controls operate effectively.

We are committed to improving our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. We expect to complete the remediation of our material weaknesses by the end of fiscal year 2023.

### Changes in Internal Control over Financial Reporting

Under the applicable SEC rules, management is required to evaluate any changes in internal control over financial reporting that occurred during each fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As discussed in “Item 9A. Controls and Procedures” of the 2022 Report, we have undertaken a broad range of remedial procedures to address material weaknesses in our internal control over financial reporting. These remedial procedures continued throughout the three months ended June 30, 2023 and will continue throughout the remainder of 2023.

While we continue to implement remediation efforts and design enhancements to our internal control procedures, we believe there were no other changes to our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act during the second quarter of 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, as specified above. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Filed Aug 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-014223. Last ingested by Listed: Oct 30, 2026, 17:37 ET. No prices; not investment advice.