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The Berkeley GroupTable of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10‑K(Mark One)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _________ to ________Commission file number 001‑38761Legacy Housing Corporation(Exact Name of Registrant as Specified in its Charter)Delaware 20‑2897516(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 1600 Airport Freeway, #100Bedford, Texas 76022 (Address of Principal Executive Offices) (Zip Code) Registrant’s telephone number, including area code (817)‑799‑4900Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock $0.001 par value The NASDAQ Global Market Securites registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant toRule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10‑K or any amendment to this Form 10‑K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reportingcompany, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and“emerging growth company” in Rule 12b‑2 of the Exchange Act.Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period forcomplying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of the registrant’s common equity held by non-affiliates as of June 30, 2018 (the last business day of theregistrant’s most recently completed second fiscal quarter) was zero. For purposes of the foregoing calculation only, all directors and theexecutive officers who were SEC reporting persons of the Registrant as of June 30, 2018 have been deemed affiliates.As of March 27, 2019, the total number of shares outstanding of the registrant’s common stock was 24,722,936 shares.Documents Incorporated by Reference: None Table of ContentsTABLE OF CONTENTS PagePART I Item 1. Business 2 Item 1A. Risk Factors 18 Item 1B. Unresolved Staff Comments 18 Item 2. Properties 19 Item 3. Legal Proceedings 19 Item 4. Mine Safety Disclosures 20 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 21 Item 6. Selected Financial Data 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30 Item 8. Financial Statements and Supplementary Data 31 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 55 Item 9A. Controls and Procedures 55 Item 9B. Other Information 56 PART III Item 10. Directors, Executive Officers and Corporate Governance 57 Item 11. Executive Compensation 61 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 65 Item 13. Certain Relationships and Related Transactions, and Director Independence 67 Item 14. Principal Accounting Fees and Services 68 PART IV Item 15. Exhibits and Financial Statement Schedules 69 1 Table of Contents PART I ITEM 1. BUSINESS.Forward-Looking StatementsThis Annual Report on Form 10-K (this “Form 10-K”) contains forward-looking statements. Forward-lookingstatements are predictions based on expectations and projections about future events, and are not statements of historicalfact. Forward-looking statements include statements concerning business strategy, among other things, including anticipatedtrends and developments in and management plans for our business and the markets in which we operate. In some cases, youcan identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,”“intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” "would,""can," “could,” “predict,” and “continue,” the negative or plural of these words and other comparable terminology. Allforward-looking statements included in this Form 10-K are based upon information available to us as of the filing date of thisForm 10-K, and we undertake no obligation to update any of these forward-looking statements for any reason. You shouldnot place undue reliance on forward-looking statements. The forward-looking statements involve known and unknown risks,uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differmaterially from those expressed or implied by these statements. These factors include the matters discussed under “RiskFactors” in our Registration Statement on Form S-1 and those described elsewhere in this Form 10-K and from time to time infuture reports that we file with the Securities and Exchange Commission. You should carefully consider the risks anduncertainties described in this Form 10-K. In this Form 10-K, unless otherwise indicated or the context otherwise requires, “Legacy,” “the Company,” “we,”“us” or “our” refers to Legacy Housing Corporation, a Delaware corporation.Our CompanyWe build, sell and finance manufactured homes and “tiny houses” that are distributed through a network ofindependent retailers and company‑owned stores and also sold directly to manufactured home communities. The companywas founded in 2005 as a Texas limited partnership named Legacy Housing, Ltd. Effective January 1, 2018, we convertedinto a Delaware corporation and changed our name to Legacy Housing Corporation. Our corporate office is located inBedford, Texas (between Dallas and Fort Worth). We completed our initial public offering (the “IPO”) in December 2018 andour common stock trades on The NASDAQ Global Market under the symbol “LEGH.” We are the fourth largest producer of manufactured homes in the United States as ranked by number of homesmanufactured based on information available from the Manufactured Housing Institute and IBTS for the second quarter of2018. With current operations focused primarily in the southern United States, we offer our customers an array of qualityhomes ranging in size from approximately 390 to 2,667 square feet consisting of 1 to 5 bedrooms, with 1 to 3/2 bathrooms.Our homes range in price, at retail, from approximately $22,000 to $95,000. During 2018, we sold 3,950 home sections(which are entire modules or single floors) and in 2017 we sold 3,274 home sections. We commenced operations in 2005 andhave experienced strong sales growth and increased our equity holders’ capital at a compound annual growth rate ofapproximately 28% between 2009 and 2018. We have experienced steady growth since our inception.Our homes address the significant need in the United States for affordable housing. This need for affordable housingis being driven by a nationwide trend of increasing rental rates for housing, higher prices for site‑built homes anddecreasing percentages of home ownership among portions of the U.S. population. Our customers typically have annualhousehold incomes of less than $60,000 and include young and working class families, as well as persons age 55 and older.In 2016, there were approximately 63,799,000 households in the United States with annual household incomes of less than$60,000, representing a majority of all U.S. households, according to the Current Population Survey and 2017 Annual Socialand Economic Supplement published by the U.S. Census Bureau.We believe our company is one of the most vertically integrated in the manufactured housing industry, allowing usto offer a complete solution to our customers, from manufacturing custom‑made homes using quality materials anddistributing those homes through our expansive network of independent retailers and company‑owned distribution2 1 Table of Contentslocations, to providing tailored financing solutions for our customers. Our homes are constructed in the United States at oneof our three manufacturing facilities in accordance with the construction and safety standards of the U.S. Department ofHousing and Urban Development (“HUD”). Our factories employ high‑volume production techniques that allow us toproduce approximately 75 home sections, or approximately 62 fully‑completed homes on average depending on productmix, in total per week. We use quality materials and operate our own component manufacturing facilities for many of theitems used in the construction of our homes. Each home can be configured according to a variety of floor plans and equippedwith such features as fireplaces, central air conditioning and state‑of‑the‑art kitchens.Our homes are marketed under our premier “Legacy” brand name and, as of December 31, 2018, are sold toconsumers, primarily across 15 states through a network of 114 independent retail locations, 12 company‑owned retaillocations and through direct sales to owners of manufactured home communities. Our 12 company‑owned retail locations,including ten Heritage Housing stores and two Tiny House Outlet stores, exclusively sell our homes. During 2018,approximately 56% of our manufactured homes were sold in Texas, followed by 13% in Georgia, 11% in Louisiana and 4%in Oklahoma. During 2017, approximately 62% of our manufactured homes were sold in Texas, followed by 8% in Georgia,8% in Colorado, 5% in Oklahoma, and 4% in Louisiana. We plan to deepen our distribution channel by using a portion ofthe net proceeds from the IPO to expand our 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 independentretailers, which takes the form of a consignment arrangement between the retailer and us. We also provide consumerfinancing for our products which are sold to end‑users through both independent and company‑owned retail locations, andwe provide financing solutions to manufactured housing community owners that buy our products for use in their housingcommunities. Our ability to offer competitive financing options at our retail locations provides us with several competitiveadvantages and allows us to capture sales that may not have otherwise occurred without the ability to offer consumerfinancing.Corporate ConversionPrior 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 changedour name to Legacy Housing Corporation. All of our outstanding partnership interests were converted on a proportional basisinto shares of common stock of Legacy Housing Corporation. The conversion qualified as a tax free transaction underSection 351 of the Internal Revenue Code.Following the corporate conversion, Legacy Housing Corporation continues to hold all of the property and assets ofLegacy Housing, Ltd. and all of the debts and obligations of Legacy Housing, Ltd. continue as the debts and obligations ofLegacy Housing Corporation. The purpose of the corporate conversion was to reorganize our corporate structure so that thetop‑tier entity in our corporate structure, the entity that offered common stock to the public in the IPO, was a corporationrather than a limited partnership. Except as otherwise noted, the financial statements included in this Form 10-K are those ofLegacy Housing Corporation.Our Market OpportunityManufactured housing is a competitive alternative to other forms of affordable housing, whether new or existing, orlocated in urban, suburban or rural areas. We believe the target universe of manufactured home buyers consists of householdswith total annual income below $60,000 which comprised a majority of total U.S. households in 2016. We believe our targetU.S. age groups consist of young families between the ages of 20‑39 and persons age 50 and older. These age groups havegrown significantly since 2007. The comparatively low all‑in cost of fully‑equipped manufactured housing is attractive toour target consumers. The chart below highlights the increasing all‑in average sales price per square foot difference between anew manufactured home and a new site‑built home (excluding land).3 Table of ContentsAverage Price per Square Foot ComparisonSource: U.S. Census Bureau, the Institute for Building Technology and Safety, and the Manufactured Housing Institute.Population Growth from 2007 to 2017Source: U.S. Census Bureau.Manufactured homes are an attractive alternative for consumers as new single‑family home prices continue to rise ata rapid rate. As shown in the chart below, the average sale price for new single‑family homes (including the land4 Table of Contentson which they were built) increased approximately 42% since 2009 while the annual average sale price of manufacturedhomes increased 14% during that time period.Average Sale Price ComparisonSource: U.S. Census Bureau, the Institute for Building Technology and Safety, and the Manufactured Housing Institute.Additionally, innovative engineering and design, as well as efficient production techniques, including the adventand development of the “tiny house” market, continue to position manufactured homes as a viable housing alternative.Demand for high‑quality affordable housing below $150,000 has also been driven by increasing rental rates5 Table of Contentsfor housing, higher prices for site‑built homes, decreasing percentages of home ownership among portions of the U.S.population and stagnant U.S. wage growth.Percentage of New Houses Sold Under $150,000Source: U.S. Census Bureau.In 2017, the manufactured housing industry shipped 92,891 manufactured homes according to data published bythe U.S. Census Bureau, the Institute for Building Technology and Safety (“IBTS”) and the Manufactured Housing Institute(“MHI”). Total annualized manufactured home shipments during the first half of 2018 increased to6 Table of Contentsapproximately 102,000, which remains well below the average annual shipments totaling approximately 350,000 between1994 and 1999.Manufactured Home Shipments vs. Total Completed HousingSource: U.S. Census Bureau, the Institute for Building Technology and Safety, and the Manufactured Housing Institute.Our Competitive AdvantagesWe offer a complete solution for affordable manufactured housing. We believe that we differentiate ourselves fromour competition and have been able to grow our business as a result of the following key competitive strengths:·Quality and Variety of Housing Designs. Based on more than 60 combined years of industry experience, ourco‑founders have developed an operating model that enables the efficient production of quality, customizablemanufactured homes. All of our homes are constructed in one of our three U.S.‑based manufacturing facilities.By utilizing an assembly‑line process that employs from approximately 150 to 275 individuals per facility, weare able to manufacture a home in approximately three to six days and, are on average producing approximately75 home sections, or 62 fully‑completed homes depending on product mix, in total per week. We utilize localmarket research to design homes that meet the specific needs of our customers and offer a variety of structuraland decorative customization options, including, among others, fireplaces, central air conditioning, overheadheat ducts, stipple‑textured ceilings, decorative woodgrain vinyl floors, wood cabinetry and energyconservation elements. Additionally, our homes have vaulted ceilings in every room, have numerousproprietary advantages such as our copyrighted “furniture friendly” floor plans and, in most cases, are wider,have taller ceilings and a steeper roof pitch than our competitors’ products. Taken together, we believe ourability to offer our customers a range of home sizes and styles, as well as sophisticated design andcustomization, allows us to accommodate virtually all reasonable customer requests. Our vertical integrationallows us the ability to respond quickly to our customers’ needs and modify designs during the constructionprocess.·Manufacturing Facilities Strategically Located Near Customers in Key Markets. Our three manufacturingfacilities are strategically located to allow us to serve our 114 independent and 12 company‑owned retaillocations primarily across 15 states. Currently, we have a manufacturing plant in Fort Worth, Texas thatmeasures 97,000 square feet in size and produced 1,133 homes in 2018 and 1,073 homes in 2017, amanufacturing plant in Commerce, Texas that measures 130,000 square feet in size and7 Table of Contentsproduced 987 homes in 2018 and 1,077 homes in 2017, and a manufacturing plant in Eatonton, Georgia thatmeasures 388,000 square feet in size and produced 1,000 homes in 2018 and 744 homes in 2017. Once ourhomes are constructed and equipped at our facilities, we have the ability to transport the finished productsdirectly to customers ensuring timely and efficient delivery of our manufactured homes. We currently haveapproximately 35 company‑owned trucks, which transported approximately 35% of our production during2018 to manufactured home communities and our company-owned retail locations.·Expansive and Growing Distribution Network. We distribute our products primarily in the southern UnitedStates through a network of independent retail locations, company‑owned retail locations and direct sales toowners of manufactured home communities. Our first company‑owned retail location opened in June 2016 andwe plan to significantly expand our company‑owned retail footprint over the next two years. Increasing the mixof company‑owned locations allows us to improve the customer experience through all the steps of the buyingprocess, from manufacturing and design to sales, financing and customer service. We believe ourcompany‑owned stores will, on average, be more productive than our independent retail locations and carryhigher gross margins.·Competitive Production Strategies and Direct Sourcing. We develop and maintain the resources necessary toefficiently build custom homes that incorporate unique and varied customer‑requested features. We areconstantly seeking ways in which to directly source materials to be used in the manufacturing process, whichallows us to ensure the materials are of high‑quality and can be customized to meet our customers’ needs.Customization enables us to attract additional retailers and consumers who seek individualized homes that areassembled on a factory production line. When these custom homes are sold through company‑owned retailstores, we expect to capture higher gross margins.·Available Financing for our Customers. Our financial position allows us to develop and offer financingsolutions to our customers in connection with their purchase of our homes. We offer three types of financingsolutions to our customers. We provide floor plan financing for our independent retailers, which takes the formof a consignment arrangement between the retailer and us. We also provide consumer financing for our productssold to end‑users through both independent and our company‑owned retail locations, and we provide financingto community owners that buy our products for use in their rental housing communities. Our company has beenproviding floor plan financing to our independent retailers since our formation and we now have more than 75independent retailers using our consignment solution. We now have more than 3,000 customers that purchasedtheir homes utilizing our retail financing solutions. The average interest rates of our retail financing loans wasapproximately 14.0% at December 31, 2018 and approximately 13.9% at December 31, 2017. The repossessionrates for our retail financing loans, measured by units, was approximately 2.3% and 2.6% for 2018 and 2017,respectively.·Support for Owners of Manufactured Home Communities. We provide manufacturing and financing solutionsfor owners of manufactured home communities in connection with the development of communities in ourgeographic market area. Such development projects can vary, but generally include custom park developmentfinancing and large purchase orders of manufactured homes. We also make loans to community owners for thepurpose of acquiring or developing properties and, as part of the arrangement, these community owners contractto buy homes from us. These loans typically range in term from two to five years and carry interest at 8% to12%. For the years ended December 31, 2018 and 2017, we had provided additional loans to owners ofmanufactured home communities for lot development purposes with a total amount outstanding of $1,077,000and $2,032,000, respectively. These financing solutions are structured to give us an attractive return oninvestment, when coupled with the gross margin we realize on products specifically targeted for these newmanufactured housing communities.·Strong Alignment of Interests through Co‑Founders’ Ownership. We believe that a strong alignment ofinterests with stockholders and investors exists through the ownership of a significant percentage of ouroutstanding shares by our co-founders, Curtis D. Hodgson (executive Chairman of the Board) and Kenneth E.Shipley (President and Chief Executive Officer). Messrs. Hodgson and Shipley acquired their ownership in2005 when they founded the company and have not sold any of their shares to date. Each individual has8 Table of Contentsand continues to receive a minimal annual salary ($50,000). By providing structural and economic alignmentwith the performance of our company, Messrs. Hodgson’s and Shipley’s continuing controlling interests aredirectly aligned with those of our investors. We believe the combination of these characteristics has promotedlong‑term planning, an enhanced culture among our customers, strategic partners and employees, andultimately the creation of value for our investors.Our Growth StrategyWe have a strong operating history of investing in successful growth initiatives over the past 13 years. We believethat the solution we are able to provide for our customers, as a result of the vertical integration of our company, enhances ourbrand recognition as a leading producer, results in higher and more efficient utilization of our manufacturing factories andexpands our direct‑to‑consumer outreach on the competitive advantages of our wide variety of customizable homes. Thisoperational focus has provided us with sustainable net sales and net income growth over the years. Our growth strategyincludes the following key initiatives:·Broaden and Deepen Our Retail Presence in Key Geographic Areas. As of December 31, 2018, we distributeour products primarily across 15 states through a combination of 12 company‑owned retail locations and114 independent retail locations. We believe that a more robust network of company‑owned retail locations willallow us to be more responsive and improve the customer experience at all stages, from manufacturing anddesign to sales, financing and customer service. We believe our company‑owned stores will, on average, bemore productive than our independent retail locations and carry higher gross margins due to our ability to selectcritical markets and develop highly‑trained sales representatives who possess a deep understanding of ourbusiness and customer needs.·Expand Financing Solutions for Our Customers. We recognize that offering financing solutions to ourcustomers is an important component of being a vertically integrated company that provides affordablemanufactured housing. Providing financing improves our responsiveness to the needs of prospective purchaserswhile also providing us with opportunities for loan origination and servicing revenues, which act as additionaldrivers of net income for us. During the years ended December 31, 2018 and 2017, we financed approximately37% and 38% of the homes we sold to consumers, respectively. We intend to expand financing solutions tomanufactured housing community‑owner customers, in a manner than includes developing new sites forproducts in or near urban locations where there is a shortage of sites to place our products.·Continue to Focus on Innovation and Customization for Core Customer Groups. Our production strategy isfocused on continually developing the resources necessary to efficiently build homes that incorporate unique,varied and innovative customer preferences. We are constantly seeking ways to directly source materials to beused in the manufacturing process, which allows us to ensure we have quality materials that can be customizedto meet our customers’ needs. Our principal focus is on designing and building highly functional and durableproducts that appeal to families of all sizes.·Seek Additional Agreements with Owners of Manufactured Home Communities. Community housingdevelopments provide us with large, concentrated sales opportunities. These projects vary in size and densitybut generally include sales of 30 to 300 homes. We believe there are significant growth opportunities to workwith our development partners on such projects and view these opportunities as an important driver for both thesale of more homes and for financing bulk purchases of those homes by community owners.·Pursue Selective Acquisitions. We seek to grow through selective acquisitions of existing manufactured homeretailers in both existing markets and new markets that exhibit strong and reliable long‑term fundamentals. Wealso regularly evaluate opportunities related to our affordable housing business in our geographic markets. InApril 2018, we acquired approximately 420 acres of raw land located near Austin, Texas for $4.2 million. InNovember 2018, we acquired approximately 69 acres of raw land located near Adkins, Texas for$0.8 million. We are in the process of securing the required approvals to develop9 Table of Contentsmanufactured housing communities on the land. We expect to begin development of the communities in thefirst half of 2019. We will continue to evaluate opportunities to develop, or to provide financing to third partydevelopers of, additional manufactured housing communities in order to provide locations for manufacturedhomes for our customers.We have experienced substantial year‑over‑year growth in the equity holders’ value of our company, as illustratedfrom 2009 to 2018 below. We believe our future business growth will be facilitated by the fact that we have alreadyestablished our company as one of the nation’s leading providers of manufactured homes.Equity Holders’ Capital—End of Years 2009 - 2018Our ProductsOverview. We are the fourth largest producer of manufactured homes in the United States as ranked by the numberof homes manufactured based on information available from the Manufactured Housing Institute and IBTS for the secondquarter of 2018. We produce a wide variety of homes that can be used by our customers in a number of ways. We build avariety of sizes and floor plans of residential homes and tiny houses. We work collaboratively with our partners to meetdiverse housing needs, such as residences on privately‑owned land and in manufactured home communities, recreational andvacation properties, such as hunting cabins, and accommodations for workforces in oilfields and other industries.Manufacturing and Quality Design. We utilize local market research to design homes that meet the specificrequirements of our customers and our homes are designed after extensive field research and consumer feedback. We10 Table of Contentsfrequently introduce new floor plans, decor, exterior design, features and accessories to appeal to changing consumer trendsand we offer an assortment of customizations to match each customer’s individual tastes. Each home typically contains aliving room, dining area, kitchen, 1 to 5 bedrooms and 1 to 3/2 bathrooms, and each home can be customized to includecertain features including, among others, fireplaces, central air conditioning, overhead heat ducts, stipple‑textured ceilings,decorative wood grain vinyl floors, wood cabinetry and energy conservation elements.The manufactured homes we build are constructed in accordance with the construction and safety standards of HUD.Our Texas factories are certified to build homes according to the Texas Industrialized Housing and Buildings law (known asthe Texas Modular Code) and our Georgia factory is certified to build homes according to Georgia state construction codes.In addition to traditional manufactured homes, we offer a diverse assortment of tiny houses, which are recreational structuresbetween 320 and 400 square feet in size that are used as temporary dwellings, can be pulled by a pick‑up truck and aregenerally aesthetically similar to larger homes. Our tiny houses are built in a variety of models and floor plans and typicallyrange from 1 to 3 bedrooms with 1 to 2 bathrooms. Tiny houses do not need to be built to HUD standards.Manufacturing Process. Our manufactured homes are entirely constructed and equipped at our three factories. Ourhomes are constructed using high‑volume production techniques and employ approximately 150 to 275 employees at eachfacility. Most of our homes are constructed in one or more sections (or floors) on a steel chassis. Each section is assembled instages beginning with the construction of the chassis, followed by the addition of other constructed and purchasedcomponents and ending with a final quality control inspection. The efficiency of the production process and the benefits ofconstructing homes in a controlled factory environment enable us to produce homes in less time and at a lower costper‑square‑foot than traditional home building. The finished home is then transported directly to a customer at a retail salescenter, work site or manufactured home community. During the years ended December 31, 2018 and 2017, we sold 3,950and 3,274 home sections, including 245 and 366 tiny houses, respectively.Manufacturing Facilities. We currently operate three manufacturing facilities located in Fort Worth, Texas,Commerce, Texas and Eatonton, Georgia, each of which range in size from approximately 97,000 to 388,000 square feet. Theproduction schedules for our manufacturing facilities are based on wholesale orders received from distributors, whichfluctuate from week to week. In general, our facilities are structured to operate on one 8‑ to 9‑hour shift per day, five days perweek. We currently manufacture a typical home in approximately three to six production days. For the year ended December31, 2018, we produced, on average, approximately 75 home sections per week, or 62 fully‑completed homes, compared toapproximately 70 home sections per week, or 58 fully‑completed homes depending on product mix, for the year endedDecember 31, 2017.Raw Materials and Suppliers. The principal materials used in the production of our manufactured homes includewood, wood products, steel, aluminum, gypsum wallboard, windows, doors, fiberglass insulation, carpet, vinyl, fasteners,plumbing materials, appliances and electrical items. We currently buy these materials from various third‑party manufacturersand distributors. We procure multiple sources of supplies for all key materials in order to mitigate any supply chain risk. Weintend to continue seeking greater direct sourcing of materials from original manufacturers. This will allow us to save costs,gain greater control over the quality of the materials we use in our products and increase customization to meet ourcustomers’ changing preferences. The inability to obtain any materials used in the production of our homes, whetherresulting from material shortages, limitation of supplier facilities or other events affecting production of component parts,may affect our ability to meet or maintain production requirements. We have not previously experienced any materialdifficulty in obtaining key materials in adequate quantity or quality.Warranties. We provide the retail home buyer with a one‑year limited warranty from the date of purchase coveringdefects in material or workmanship in home structure, plumbing and electrical systems. Our warranty does not extend toinstallation and setup of the home, which is generally arranged by the retailer. Appliances, carpeting, roofing and similaritems are warranted by their original manufacturer for various lengths of time. At this time, we do not provide any warrantieswith respect to tiny houses.Backlog. As of December 31, 2018, we had a backlog of orders of approximately 416 home sections totaling$13.3 million. Our backlog figure is calculated based on purchase orders received from retailers; however, retailers maycancel purchase orders prior to production without penalty. After production of a particular home has commenced, the11 1 Table of Contentspurchase order becomes non‑cancelable and the retailer is obligated to take delivery of the home. Accordingly, untilproduction of a particular home has commenced, our order backlog should not necessarily be construed as representing firmorders or as net sales until actually earned. Therefore, management does not view backlog as a key performance indicator andthis information is primarily tracked by management for internal review purposes.DistributionAs of December 31, 2018, we distribute our manufactured homes primarily across 15 states through a network of114 independent retail locations, 12 company‑owned retail locations and direct sales to owners of manufactured homecommunities. As is common in the industry, our independent distributors typically sell manufactured homes produced byother manufacturers in addition to our manufactured homes. Additionally, some independent retailers operate multiple salesoutlets. During the years ended December 31, 2018 and 2017, no independent retailer accounted for 10% or more of ourmanufacturing sales.Below is a list of the states in which we sold most of our manufactured homes and the approximate percentage ofthose sales to our total product sales: % of 2018 % of 2017 Total Total Location Net Sales Net Sales Texas 56% 62%Georgia 13% 8%Louisiana 11% 4%Oklahoma 4% 5%Colorado 2% 8% In 2018 and 2017, we also sold homes in Alabama, Arkansas, California, Florida, Illinois, Indiana, Kansas,Kentucky, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, New Mexico, Ohio, Pennsylvania, SouthCarolina, Tennessee, Virginia, Wisconsin and West Virginia. We continually seek to increase our wholesale shipments bygrowing sales at our existing independent retailers and by finding new independent retailers to sell our homes. We providecomprehensive sales training to retail sales associates and bring them to our manufacturing facilities for product training andto view new product designs as they are developed. These training seminars facilitate the sale of our homes by increasing theskill and knowledge of the retail sales consultants. Additionally, we display our products at trade shows and support ourretailers through the distribution of floor plan literature, brochures, decor selection displays and point of sale promotionalmaterial, as well as internet‑based marketing assistance. We believe we have the most comprehensive printed catalog ofmanufactured housing products in the industry.Our independent retailers generally either pay cash to purchase inventory or finance their inventory needs throughour consignment arrangements. Certain of our independent retailers finance a portion of their inventory through wholesalefloor plan financing arrangements with third parties. In such cases, we verify the order with the third party, then manufacturethe home and ship it to the retailer. Payment is due from the third‑party lender upon shipment of the product to the retailerand, depending on the terms of each arrangement, we may or may not have limited repurchase obligations associated withthis inventory. The maximum amount of our contingent obligations under such repurchase agreements was approximately$2,186,000 and $1,765,000 as of December 31, 2018 and 2017, respectively, without reduction for the resale value of thehomes.Approximately 67% of our 2018 product sales were attributable to our independent retail distributors, 9% to ourcompany‑owned retail locations and 24% to direct sales to owners of manufactured housing communities. Approximately73% of our 2017 product sales were attributable to our independent retail distributors, 6% to our company‑owned retaillocations and 21% directly to owners of manufactured housing communities.12 Table of ContentsIn addition to our expansive independent retailer channel, we have attractive growth opportunities to expand ourcompany‑owned locations. As of December 31, 2018, we operate 12 company‑owned retail locations. Our company‑ownedlocations allow us to improve the customer experience through all steps of the buying process, from manufacturing anddesign to sales, financing and customer service. This also gives us a direct window into consumer preferences and lendingopportunities. We believe that our company‑owned stores will, on average, be more productive than our independent retaillocations and carry higher gross margins.Sales and MarketingOur corporate marketing efforts focus on increasing our brand awareness and communicating our commitment toquality along with the many other competitive advantages our company offers. Our marketing strategy is to offer severallines of manufactured homes that appeal to a wide range of home buyers, continually elevate awareness of our brand andgenerate demand for our products. We rely on a number of channels in this area, including digital advertising, emailmarketing, social media and affiliate marketing, as well as through various strategic partnerships. We maintain our website atwww.legacyhousingcorp.com. We intend to hire additional sales and marketing personnel and increase our spending onsales, marketing and promotion in connection with the continued development of our company‑owned retail locations.Our sales and marketing strategy focuses on households with annual incomes of less than $60,000 which includesyoung families, working class families and persons age 50 and older. We also market to other types of customers, includingowners of manufactured home communities, buyers interested in tiny houses, recreational buyers and houses for workforcesor man‑camp housing. Additionally, we continue to be well‑positioned to react to any increase in demand for affordable,quickly‑delivered manufactured homes as a result of unforeseen harsh weather conditions and similar events. All of ourcustomers are located in the United States. During the years ended December 31, 2018 and 2017, no single customeraccounted for more than 10% of our net sales.Financing Solutions for Our CustomersWe offer three types of financing solutions:·Floor Plan Financing. We provide floor plan or wholesale financing for our independent retailers, which takesthe form of a consignment arrangement between the retailer and us.·Consumer Financing. We provide consumer financing for our products sold to end‑users through bothindependent and our company‑owned retail locations.·Manufactured Housing Community Financing. We provide financing to community owners that buy ourproducts for use in their rental housing communities. Overview of Consumer and MHP Financing Options as of December 31, 2018($ in thousands) Principal Average Amount Number of Contractual Rate Remaining Outstanding Loans or Monthly Fee TermConsumer Financing $101,049 2,868 14% average contractual rate 137monthsMHP Community Financing $57,935 346 Typically prime rate + 4.0%with 8% floor 82months We also offer inventory floor plan financing to retailers that takes the form of a consignment arrangement. As ofDecember 31, 2018, we had $28,373,000 of inventory under consignment to our retailers.13 Table of ContentsThree Types of Financing. Offering financing solutions to our dealers and customers generally improves ourresponsiveness to the needs of prospective purchasers while also providing us with opportunities for loan origination andservicing revenues, which acts as an additional driver of net income for us.Floor Plan Financing. We provide floor plan or wholesale financing for most of our independent retailers forproducts we manufacture and for pre‑owned products. This wholesale financing is a consignment from us to our independentretailers. The retailers pay their own freight and pay us a monthly fee ranging from 0.5% to 1.4% per month of the wholesaleinvoice amount of the home. They are also obligated to pay $1,000 toward the invoice amount each year after theconsignment with the first $1,000 reduction due one year following consignment. During 2018, we collected $98,000 fromthe independent retailers. Upon sale, the independent retailer is obligated to pay us the invoice amount, less any prepaidreductions, prior to moving the home away from their retail location. If they provide certain documentation to us, we allowthem to move the home to their customer’s location and we notify the customer’s lending source to pay us the amount dueupon funding of the loan. We have proprietary technology that we install in each consigned home that gives us the ability todetermine if any consigned home has been moved from the retail location without permission. The independent dealer is freeto terminate the consignment agreement by giving us 90‑days’ advance notice if it is current on all its obligations to us. Ourwholesale consignment contracts allow us to defer income recognition until we are paid in full. For the years endedDecember 31, 2018 and 2017, we recorded consignment sales of $50,133,000 and $46,986,000, respectively. Consignmentsales are recorded when a house under one of our consignment agreements is sold to the end consumer. Certain of our wholesale factory‑built housing sales to independent retailers are purchased through wholesale floorplan financing arrangements. Under a typical floor plan financing arrangement, an independent financial institutionspecializing in this line of business provides the retailer with a loan for the purchase price of the home and maintains asecurity interest in the home as collateral. The financial institution customarily requires us, as the manufacturer of the home,to enter into a separate repurchase agreement with the financial institution under which we are obligated, upon default by theretailer and under certain other circumstances, to repurchase the financed home at declining prices over the term of therepurchase agreement (which is typically 24 months). The price at which we may be obligated to repurchase a home underthese agreements is based upon the amount financed, plus certain administrative and shipping expenses. Our obligationunder these repurchase agreements ceases upon the purchase of the home by the retail customer. The maximum amount ofcontingent obligations under our repurchase agreements (without reduction for the resale value of the homes) as ofDecember 31, 2018 was $2,186,000. The risk of loss under these agreements is spread over many retailers and is furtherreduced by the resale value of the homes. We carry no reserve for this contingent liability.Consumer Financing. Sales of factory‑built homes are significantly affected by the availability and cost ofconsumer financing. There are three basic types of consumer financing in the factory‑built housing industry: (i) chattel orpersonal property loans, for purchasers of a home without any underlying land involved (generally HUD code homes),(ii) non‑conforming mortgages for purchasers of a home and the land on which the home is placed, and (iii) conformingmortgage loans which comply with the requirements of the Federal Housing Administration (“FHA”), Veterans Affairs or GSEloans. At the present time, we currently offer only chattel loans. As our own network of company‑owned retail centersbecomes a larger share of our production, we will be able to couple our consumer‑financing solutions with increased levels ofanticipated sales from our own centers.We provide retail consumer financing to consumers who purchase our full‑size manufactured homes and tiny housesand dealer incentive arrangements to encourage independent retailers to use our financing product. Under thesearrangements, once a customer executes a home purchase agreement with Legacy financing, we pay to the retailer 80% of theretailer’s gross margin through these consignment arrangements and we retain 20% of the retail gross margins in theconsignment portfolio. We transfer the consigned value of the home to the consignment portfolio as our contribution to theconsignment arrangement. The retailer is obligated to remarket any repossessions associated with consignment transactions,and obtain 90% of the outstanding balance on the home at the time of repossession. We charge each dealer in theconsignment arrangement fees for servicing the loans and receive a preferred return of 10% to 12% per annum for amounts weinvest. Upon payback of our contribution, fees and preferred returns, we split the remaining balance with the independentretailer according to a negotiated formula which is accounted for as the dealer incentive liability. As of December 31, 2018,we owned 2,868 retail consumer loans with an average principal balance of $35,000. Our average14 Table of Contentsremaining term on these loans as of December 31, 2018 was 137 months and the average percentage rate (APR) of interestwas 14%. Our average loan‑to‑value (“LTV”) at the time of loan origination, which is based on the gross sales price to theborrower, was 82% for the consumer financing portfolio as of December 31, 2018. We have not financed, and have no currentplans to finance, new homes manufactured by our competitors in the ordinary course of our business.All loan applications go through an underwriting process conducted at our corporate headquarters to evaluate creditrisk that takes into account numerous factors including the down payment, FICO score, monthly income, and total housingpayment coverage of the borrower. The interest rates on approved loans are determined by a buyer’s credit score and downpayment amount. We use payment history to monitor the credit quality of the consumer loans on an ongoing basis.Manufactured Housing Community Financing. We provide financing to owners of manufactured housingcommunities for our products that they buy in order to rent to their residents. These loans generally have a ten‑year term andbear interest at the prime rate plus 4%, with a floor and a ceiling. Down payments, delivery expenses and installationexpenses are negotiated on a case‑by‑case basis. As of December 31, 2018 and 2017, loans outstanding from manufacturedhome communities totaled $57,935,000 and $49,500,000, which comprised 346 and 365 loans, respectively. Our averageremaining term on these loans as of December 31, 2018 and 2017 was approximately seven years.We also make loans to community owners for the purpose of acquiring or developing properties and, as part of thearrangement, these community owners contract to buy homes from us. These loans typically range in term from two tofive years and carry interest at 8% to 12%. For the year ended December 31, 2018, we originated loans to owners ofmanufactured home communities for lot development purpose with a total amount outstanding of $1,077,000.CompetitionThe manufactured housing industry is highly competitive at both the manufacturing and retail levels, withcompetition based upon several factors, including price, product features, reputation for service and quality, depth ofdistribution, promotion, merchandising and the terms of retail and wholesale consumer financing. We compete with otherproducers of manufactured homes and new producers continue to enter the market. We also compete with companies offeringfor sale homes repossessed from wholesalers or consumers and we compete with new and existing site‑built homes, as well asapartments, townhouses and condominiums.In addition to our company, there are a number of other national manufacturers competing for a significant share ofthe manufactured housing market in the United States, including Clayton Homes, Inc., Cavco Industries, Inc. and SkylineChampion Corporation. Certain of these competitors possess greater financial, manufacturing, distribution and marketingresources than we do. For the past 15 years, the industry has experienced a trend towards consolidation and, as a result, thebulk of the market share is controlled by a small number of companies. We are the country’s fourth largest producer ofmanufactured homes. Accordingly, we believe we have a significant opportunity to expand in this industry by effectivelygrowing our market share.Among lenders to manufactured home buyers, there are significant competitors including national, regional andlocal banks, independent finance companies, mortgage brokers and mortgage banks such as 21st Mortgage Corporation, anaffiliate of Clayton Homes, Inc., Berkshire Hathaway, Inc., Triad Finance Corporation and CU Factory Built Lending, LP.Certain of these competitors are larger than us and have access to substantially more capital and cost efficiencies.Protection of Proprietary TechnologyWe rely on a combination of copyright and trade secret laws in the United States and other jurisdictions, as well asconfidentiality procedures and contractual provisions, to protect our proprietary information, technology and brands. Weprotect our proprietary information and technology, in part, by requiring certain of our employees to enter into agreementsproviding for the maintenance of confidentiality and the assignment of rights to inventions made by them15 Table of Contentswhile employed by us. We also may enter into non‑disclosure and invention assignment agreements with certain of ourtechnical consultants to protect our confidential and proprietary information and technology. We cannot assure you that ourconfidentiality agreements with our employees and consultants will not be breached, that we will be able to effectivelyenforce these agreements, that we will have adequate remedies for any breach of these agreements, or that our trade secretsand other proprietary information and technology will not be disclosed or will otherwise be protected.Our intellectual property includes copyrights issued by the U.S. Copyright Office for many of our floor plans. We arenot currently aware of any claims of infringement or other challenges to our intellectual property rights.Government RegulationGeneral. Our company operates in a regulated industry, and there are many federal, state and local laws, codes andregulations that impact our business. Governmental authorities have the power to enforce compliance with their regulations,and violations may result in the payment of fines, the entry of injunctions or both. Although we believe that our operationsare in substantial compliance with the requirements of all applicable laws and regulations, we are unable to predict theultimate cost of compliance with all applicable laws and enforcement policies.Federal Manufactured Homes Regulations. Our manufactured homes are subject to a number of federal, state andlocal laws, codes and regulations. Construction of manufactured housing is governed by the National Manufactured HousingConstruction and Safety Standards Act of 1974, and the regulations issued under such act by HUD. The HUD regulations,known collectively as the Federal Manufactured Home Construction and Safety Standards, cover all aspects of manufacturedhome construction, including structural integrity, fire safety, wind loads, thermal protection and ventilation. Our Texasmanufacturing facilities, and the plans and specifications of the HUD‑compliant homes they produce, have been approved bya HUD‑certified inspection agency. Further, an independent HUD‑certified third‑party inspector regularly reviews ourmanufactured homes for compliance with HUD regulations during construction. Failure to comply with applicable HUDregulations could expose us to a wide variety of sanctions, including mandated closings of our manufacturing facilities. Webelieve our manufactured homes are in substantial compliance with all present HUD requirements. Manufactured homes aretypically built with wood products that contain formaldehyde resins. HUD regulates the allowable concentrations offormaldehyde in certain products used in manufactured homes and requires manufacturers to warn purchasers as toformaldehyde‑associated risks. The Environmental Protection Agency (“EPA”) and other governmental agencies have in thepast evaluated the effects of formaldehyde. We use materials in our manufactured homes that meet HUD standards forformaldehyde emissions and believe we comply with HUD and other applicable government regulations in this regard.Transportation and Zoning Regulations. The transportation of manufactured homes on highways is subject toregulation by various federal, state and local authorities. Such regulations may prescribe size and road use limitations andimpose lower than normal speed limits and various other requirements. Our manufactured homes (including our tiny houses)are also subject to local zoning and housing regulations. In certain cities and counties in areas where our homes are sold,local governmental ordinances and regulations have been enacted which restrict the placement of manufactured homes onprivately‑owned land or which require the placement of manufactured homes in manufactured home communities. Suchordinances and regulations may adversely affect our ability to sell homes for installation in communities where they are ineffect. A number of states have adopted procedures governing the installation of manufactured homes. Utility connectionsare subject to state and local regulations which must be complied with by the retailer or other person installing the home.Warranty Regulations. Certain warranties we issue may be subject to the Magnuson‑Moss Warranty Federal TradeCommission Improvement Act, which regulates the descriptions of warranties on consumer products. For example, warrantiesthat are subject to the act must be included in a single easy‑to‑read document that is generally made available prior topurchase. The act also prohibits certain attempts to disclaim or modify implied warranties and the use of deceptive ormisleading terms. The description and substance of our warranties are also subject to a variety of state laws and regulations. Anumber of states require manufactured home producers to post bonds to ensure the satisfaction of consumer warranty claims.16 Table of ContentsFinancial Services Regulations. A variety of laws affect the financing of the homes we manufacture. The FederalConsumer Credit Protection Act and Regulation Z promulgated under that act require written disclosure of informationrelating to such financing, including the amount of the annual percentage interest rate and the finance charge. The FederalFair Credit Reporting Act also requires certain disclosures to potential customers concerning credit information used as abasis to deny credit. The Federal Equal Credit Opportunity Act and Regulation B promulgated under that act prohibitdiscrimination against any credit applicant based on certain specified grounds. The Real Estate Settlement Procedures Actand Regulation X promulgated under that act require certain disclosures regarding the nature and costs of real estatesettlements. The Federal Trade Commission has adopted or proposed various Trade Regulation Rules dealing with unfaircredit and collection practices and the preservation of consumers’ claims and defenses. Installment sales contracts, directloans and mortgage loans eligible for inclusion in a Ginnie Mae program are subject to the credit underwriting requirementsof the FHA. The American Housing Rescue and Foreclosure Prevention Act provides assistance for the housing industry,including manufactured homes, including, among other things, increased loan limits for chattel (home‑only Title I) loans.Recent FHA guidelines provide Ginnie Mae the ability to securitize manufactured home FHA Title I loans to allow lenders toobtain new capital, which can then be used to fund new loans for our customers. The Secure and Fair Enforcement forMortgage Licensing Act established requirements for the licensing and registration of all individuals that are Mortgage LoanOriginators (“MLOs”). Traditionally, manufactured housing retailers have assisted home buyers with securing financing forthe purchase of homes, including negotiating rates and the terms for their loans. Under the act, however, these activities areprohibited unless performed by a registered or licensed MLO. A variety of state laws also regulate the form of financingdocuments and the allowable deposits, finance charge and fees chargeable pursuant to financing documents. Regulation C ofthe Home Mortgage Disclosure Act, among other things, requires certain financial institutions, including non‑depositoryinstitutions, to collect, record, report and disclose information about their mortgage lending activity, which is used toidentify potential discriminatory lending patterns and enforce anti‑discrimination statutes.The Dodd‑Frank Wall Street Reform and Consumer Protection Act was passed into law and established theConsumer Financial Protection Bureau (“CFPB”) regulates consumer financial products and services. Certain CFPBmortgage finance rules apply to consumer credit transactions secured by a dwelling, including real property mortgages andchattel loans secured by manufactured homes. These rules, among other things, define standards for origination of “QualifiedMortgages,” establish specific requirements for lenders to prove borrowers’ ability to repay, outline conditions under whichQualified Mortgages are subject to safe harbor limitations on liability to borrowers and establish interest rates and other costparameters for determining which Qualified Mortgages fall under safe harbor protection. While many manufactured homesare financed with agency‑conforming mortgages in which the ability to repay is verified, and interest rates and other costs arewithin the safe harbor limits, a significant amount of loans to finance the purchase of manufactured homes, particularlychattel loans and non‑conforming land‑home loans, fall outside such safe harbors. Additionally, the CFPB rules, among otherthings, amended the Truth‑in‑Lending Act and the Real Estate Settlement Procedures Act by expanding the types ofmortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (“HOEPA”)and imposing additional restrictions on mortgages that are covered by HOEPA. As a result, certain manufactured home loansare now subject to HOEPA limits on interest rates and fees. Loans with rates or fees in excess of the limits are deemed “HighCost Mortgages” and provide additional protections for borrowers, including with respect to determining the value of thehome. Most loans for the purchase of manufactured homes have been written at rates and fees that would not appear to beconsidered High Cost Mortgages under these rules and while some lenders may offer loans that are deemed High CostMortgages, the rate and fee limits may deter some lenders from offering such loans to borrowers or be reluctant to enter intoloans subject to the provisions of HOEPA. Additionally, certain CFPB rules apply to appraisals on principal residencessecuring higher‑priced mortgage loans. Certain loans secured by manufactured homes, primarily chattel loans, could beconsidered higher‑priced mortgage loans. Among other things, the rules require creditors to provide copies of appraisalreports to borrowers prior to loan closing. Compliance with the regulations may constrain lenders’ ability to profitably pricecertain loans or may cause lenders to incur additional costs to implement new processes, procedures, controls andinfrastructure and may cause some lenders to curtail underwriting certain loans altogether. Furthermore, some investors maybe reluctant to participate in owning such loans because of the uncertainty of potential litigation and other costs. As a result,some prospective buyers of manufactured homes may be unable to secure necessary financing. Failure to comply with theseregulations, changes in these or other regulations, or the imposition of additional regulations, could affect our earnings, limitour access to capital and have a material adverse effect on our business and results of operations.17 Table of ContentsOn May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“Dodd‑Frank ReformAct”) was signed into law. The Dodd‑Frank Reform Act revises portions of the Dodd‑Frank Act, reduces the regulatoryburden on smaller financial institutions, including eliminating provisions of the Secure and Fair Enforcement for MortgageLicensing Act of 2008 (“SAFE Act”), and protects consumer access to credit. With the elimination of certain provisions of theSAFE Act, manufactured housing retailers can now assist home buyers with securing financing for the purchase of homes;however, they may not assist in negotiating the financing terms. This will enable buyers to more easily find access tofinancing and make the overall home buying experience smoother.On January 25, 2018, HUD announced a top‑to‑bottom review of its manufactured housing rules as part of a broadereffort to identify regulations that may be ineffective, overly burdensome, or excessively costly given the critical need foraffordable housing. If certain changes are made, our company may be able to more effectively serve buyers of affordablehomes.In 2017, our lead lender required an extensive review of our retail installment contract and associated procedures,which we use as part of our consumer financing solutions strategy. Based on that review, we improved certain elements of thelanguage used in our contracts, and modified certain aspects of our practices. Although we believe there are no materialcompliance issues with our forms and procedures, we are subject to the federal and other regulations described above.SeasonalityGenerally, we experience higher sales volume during the months of March through October. Our sales are generallyslower during the winter months, and shipments can be delayed in certain geographic market areas that we serve whichexperience harsh weather conditions.EmployeesAs of December 31, 2018, we had approximately 800 employees. Of our employees, approximately 700 individualsare hourly employees and approximately 100 individuals are salaried employees. Our employees are currently notrepresented by any collective bargaining unit. We believe that our relationship with our employees is good. ITEM 1A. RISK FACTORS.Not applicable for smaller reporting companies. ITEM 1B. UNRESOLVED STAFF COMMENTS.None.18 Table of Contents ITEM 2. PROPERTIES.FacilitiesThe following table sets forth certain information with respect to the facilities where our company operates: Date of Commencement Owned / SquareLocation of Operations Leased FeetManufacturing/Warehouse Facilities Fort Worth, TX 2005 Owned 96,880Commerce, TX 2007 Owned 129,600Eatonton, GA 2016 Leased 388,000Retail Locations Albany, GA 2018 Leased 1,536Asheboro, NC 2017 Leased 1,472Athens, GA 2016 Leased 2,016Augusta, GA 2018 Leased 3,136Canton, TX 2018 Leased 2,362Jennings, LA 2017 Leased 2,432Minden, LA 2017 Leased 2,369Mobile, AL 2017 Leased 1,700Mt. Pleasant, TX 2016 Leased 1,792Greenville, TX 2016 Owned 1,256Gainesville, TX 2017 Owned 2,240Oklahoma City, OK 2016 Owned 2,100Corporate/Regional Headquarters Bedford, TX 2018 Leased 5,398Norcross, GA 2018 Leased 3,358 We own the manufacturing facilities and the land on which the facilities are located in Fort Worth, Texas andCommerce, Texas. We believe that these facilities are adequately maintained and suitable for the purposes for which they areused. We currently lease our facility in Eatonton, Georgia from the Putnam Development Authority pursuant to a lease thathas been renewed until December 1, 2021. In December 2016, we entered into a payment in lieu of taxes (“PILOT”)arrangement commonly offered in Georgia by local community development programs to encourage industry development.The net effect of the PILOT arrangement is to provide us with incentives through the abatement of local, city and countyproperty taxes and to provide financing for improvements of our Georgia plant (the “Project”). As part of the PILOTarrangement, the Putnam County Development Authority provided us with a credit facility for up to $10 million that can bedrawn upon to fund Project improvements and capital expenditures as defined in the credit facility. If funds are drawn, wewould pay transaction costs and debt service payments. The credit facility requires interest payments of 6.0% per annum onoutstanding balances, which are due each December 1 through maturity on December 1, 2021, at which time all unpaidprincipal and interest are due. The credit facility is collateralized by the assets of the Project. As of December 31, 2018, wehad not drawn down on this credit facility.We currently operate 12 retail locations. Each retail location sits on approximately five to seven acres of land. Welease nine of the 12 retail locations we operate in the business, pursuant to leases expiring from 2020 to 2028. Total rentexpense for the years ended December 31, 2018 and 2017 was $542,000 and $340,000, respectively. ITEM 3. LEGAL PROCEEDINGS.We are party to certain legal proceedings that have arisen in the ordinary course of our business and are incidental toour business. Certain of the claims pending against us allege, among other things, breach of contract, breach19 Table of Contentsof express and implied warranties, construction defects, deceptive trade practices, unfair insurance practices, product liabilityand personal injury. Although litigation is inherently uncertain, and we believe we are insured against many such instances,based on past experience and the information currently available, management does not believe that the currently pendingand threatened litigation or claims will have a material adverse effect on our company’s financial position, liquidity orresults of operations. However, future events or circumstances, currently unknown to management, will determine whetherthe resolution of pending or threatened litigation or claims will ultimately have a material effect on our financial position,liquidity or results of operations in any future reporting periods. ITEM 4. MINE SAFETY DISCLOSURES.Not applicable.20 Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES.Market InformationOur common stock has traded on The NASDAQ Global Market under the symbol “LEGH” since December 14,2018, when we completed our IPO. Prior to that date, there was no public market for our common stock. As of March 27,2019, there were 15 holders of record of our common stock. This does not include persons who hold our common stock innominee or “street name” accounts through brokers or banks.DividendsWe did not declare or pay cash dividends during 2018 or 2017. We have no plans to pay any cash dividends on ourcommon stock for the foreseeable future and instead plan to retain earnings, if any, for future operations, to finance thegrowth of the business and service debt. Any decision to declare and pay dividends in the future will be made at thediscretion of our board of directors and will depend on, among other things, our results of operations, cash requirements,financial condition, contractual restrictions and other factors that our board of directors may deem relevant.Recent Sales of Unregistered SecuritiesWe did not sell any unregistered equity securities during the period covered by this Form 10-K. Issuer Purchases of Equity SecuritiesWe did not purchase any of our equity securities during the period covered by this Form 10-K. ITEM 6. SELECTED FINANCIAL DATA.Not applicable for smaller reporting companies. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.The following discussion should be read in conjunction with the financial statements and accompanying notes andthe information contained in other sections of this Form 10-K. It contains forward‑looking statements that involve risks anduncertainties, and is based on the beliefs of our management, as well as assumptions made by, and information currentlyavailable to, our management. Our actual results could differ materially from those anticipated by our management in theseforward‑looking statements as a result of various factors, including those discussed in this Form 10-K and in ourRegistration Statement on Form S-1, particularly under the heading “Risk Factors.”OverviewLegacy Housing Corporation builds, sells and finances manufactured homes and “tiny houses” that are distributedthrough a network of independent retailers and company‑owned stores and are sold directly to manufactured housingcommunities. We are the fourth largest producer of manufactured homes in the United States as ranked by number of homesmanufactured based on information available from the Manufactured Housing Institute and IBTS for the second quarter of2018. With current operations focused primarily in the southern United States, we offer our customers an array of qualityhomes ranging in size from approximately 390 to 2,667 square feet consisting of 1 to 521 Table of Contentsbedrooms, with 1 to 3/2 bathrooms. Our homes range in price, at retail, from approximately $22,000 to $95,000. During2018, we sold 3,950 home sections (which are entire homes or single floors that are combined to create complete homes) andin 2017, we sold 3,274 home sections. We commenced operations in 2005 and have experienced strong sales growth andincreased our equity holders’ capital at a compound annual growth rate of approximately 28% between 2009 and 2018.The Company has one reportable segment. All of our activities are interrelated, and each activity is dependent andassessed based on how each of the activities of Company supports the others. For example, the sale of manufactured homesincludes providing transportation and consignment arrangements with dealers. We also provide financing options to thecustomers to facilitate such sale of homes. In addition, the sale of homes is directly related to financing provided by us.Accordingly, all significant operating and strategic decisions by the chief operating decision‑maker, the Executive Chairmanof 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 usto offer a complete solution to our customers, from manufacturing custom‑made homes using quality materials anddistributing 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 threemanufacturing facilities in accordance with the construction and safety standards of the U.S. Department of Housing andUrban Development (“HUD”). Our factories employ high‑volume production techniques that allow us to produce, onaverage, approximately 75 home sections, or 62 fully‑completed homes depending on product mix, in total per week. We usequality materials and operate our own component manufacturing facilities for many of the items used in the construction ofour 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 statesthrough a network of 114 independent retail locations, 12 company‑owned retail locations and through direct sales to ownersof manufactured home communities. Our 12 company‑owned retail locations, including ten Heritage Housing stores and twoTiny House Outlet stores exclusively sell our homes. During 2018, approximately 56% of our manufactured homes were soldin Texas, followed by 13% in Georgia, 11% in Louisiana, and 4% in Oklahoma. During 2017, 62% of our manufacturedhomes were sold in Texas, followed by 8% in Georgia, 8% in Colorado, 5% in Oklahoma, and 4% in Louisiana. We plan todeepen our distribution channel by using a portion of the net proceeds from the IPO to expand our company‑owned retaillocations in new and existing markets.We offer three types of financing solutions to our customers. We provide floor plan financing for our independentretailers, which takes the form of a consignment arrangement between the retailer and us. We also provide consumerfinancing for our products which are sold to end‑users through both independent and company‑owned retail locations, andwe provide financing solutions to manufactured housing community owners that buy our products for use in theirmanufactured housing communities. Our ability to offer competitive financing options at our retail locations provides uswith several competitive advantages and allows us to capture sales which may not have otherwise occurred without ourability to offer consumer financing.Factors Affecting Our PerformanceWe 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 our long‑term strategy of conservatively deploying our capital to achieve above average ratesof return, we intend to expand our retail presence in the geographic markets we now serve, particularly in thesouthern 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 12additional retail centers by the end of 2020.·We also expect to provide financing solutions to a select group of our manufactured housing community‑ownercustomers in a manner that includes developing new sites for products in or near urban22 1 Table of Contentslocations where there is a shortage of sites to place our products. These solutions will be structured to give us anattractive return on investment when coupled with the gross margin we expect to make on products specificallytargeted for sale to these new manufactured housing communities.·Finally, our financial performance will be impacted by our ability to fulfill current orders for our manufacturedhomes from dealers and customers. Currently, our two Texas manufacturing facilities are operating at near peakcapacity, with limited ability to increase the volume of homes produced at those plants. Our Georgiamanufacturing facility has unutilized square footage available and with additional investment can add capacityto increase the number of homes that can be manufactured. We intend to increase production at the Georgiafacility over time, particularly in response to orders increasingly being generated from new markets in Floridaand the Carolinas. In order to maintain our growth, we will need to be able to continue to properly estimateanticipated future volumes when making commitments regarding the level of business that we will seek andaccept, the mix of products that we intend to manufacture, the timing of production schedules and the levelsand utilization of inventory, equipment and personnel.Critical Accounting Policies and EstimatesOur management’s discussion and analysis of our financial condition and results of operations is based upon ourfinancial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases itsestimates and judgments on historical experience and on various other factors that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilitiesthat are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions orconditions.Management believes the following accounting policies are critical to our operating results or may affect significantjudgments and estimates used in the preparation of our financial statements.Allowance for Loan Losses—Consumer Loan ReceivableThe allowance for loan losses reflects management’s estimate of losses inherent in the consumer loans that may beuncollectible based upon review and evaluation of the consumer loan portfolio as of the date of the balance sheet. A reserveis calculated after giving consideration to, among other things, the loan characteristics, including the financial condition ofborrowers, 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. Ourcalculation of the general reserve considers the historical loss rate for the last three years, adjusted for the estimated lossdiscovery period and any qualitative factors both internal and external to our company. Specific reserves are determinedbased on probable losses on specific classified impaired loans.Our policy is to place a loan on nonaccrual status when there is a clear indication that the borrower’s cash flow maynot be sufficient to meet payments as they become due, which is normally when either principal or interest is past due andremains unpaid for more than 90 days. Management implemented this policy based on an analysis of historical data andperformance of loans and the likelihood of recovery once principal or interest payments became delinquent and were agedmore than 90 days. Payments received on nonaccrual loans are accounted for on a cash basis, first to interest and then toprincipal, as long as the remaining book balance of the asset is deemed to be collectible. The accrual of interest resumeswhen the past due principal or interest payments are brought within 90 days of being current.Impaired loans are those loans where it is probable we will be unable to collect all amounts due in accordance withthe original contractual terms of the loan agreement, including scheduled principal and interest payments. Impaired loans, orportions thereof, are charged-off when deemed uncollectible. A loan is generally deemed impaired if it is more than 90 dayspast due on principal or interest, is in bankruptcy proceedings, or is in the process of repossession. A specific reserve iscreated for impaired loans based on fair value of underlying collateral value, less estimated selling23 Table of Contentscosts. We used certain factors to determine to the value of the underlying collateral for impaired loans. These factors were:(1) the length of time the unit was unsold after construction; (2) the amount of time the house was occupied; (3) thecooperation level of the borrowers, i.e., loans requiring legal action or extensive field collection efforts will reduce the value;(4) units located on private property present additional value loss because it tends to be more expensive to remove units fromprivate property as opposed to a manufactured home park; (5) the length of time the borrower has lived in the house withoutmaking payments; (6) location and size, including market conditions; and (7) the experience and expertise of the particulardealer assisting in collection efforts.Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at theestimated fair value of the home, less the costs to sell. At repossession, the fair value of the collateral is computed based onthe historical recovery rates of previously charged‑off loans; the loan is charged off and the loss is charged to the allowancefor loan losses. At each reporting period, the fair value of the collateral is adjusted to the lower of the amount recorded atrepossession or the estimated sales price less estimated costs to sell, based on current information.Allowance for Loan Losses—MHP NotesMHP Notes are stated at amounts due from customers net of allowance for loan losses. We determine the allowanceby considering several factors including the aging of the past due balance, the customer’s payment history, and our previousloss history. We establish an allowance reserve composed of specific and general reserve amounts that are deemed to beuncollectible. Historically we have not experienced any losses on the MHP Notes.InventoriesInventories consist of raw materials, work‑in‑process, and finished goods and are stated at the lower of cost or netrealizable value. Raw materials cost approximates the first‑in first‑out method. Finished goods and work‑in‑process are basedon a standard cost system that approximates actual costs using the specific identification method.Estimates of the lower of cost and net realizable value of inventory are determined by comparing the actual cost ofthe product to the estimated selling prices in the ordinary course of business based on current market and economicconditions, less reasonably predictable costs of completion, disposal, and transportation of the inventory.We evaluate inventory based on historical experience to estimate our inventory not expected to be sold in less thana year. We classify our inventory not expected to be sold in one year as non‑current.Property, Plant and EquipmentProperty, plant and equipment are carried at cost less accumulated depreciation. Depreciation expense is calculatedusing the straight‑line method over the estimated useful lives of each asset. Estimated useful lives for significant classes ofassets are as follows: buildings and improvements, 30 to 39 years; vehicles, 5 years; machinery and equipment, 7 years; andfurniture and fixtures, 7 years. Repair and maintenance charges are expensed as incurred. Expenditures for major renewals orbetterments which extend the useful lives of existing property, plant, and equipment are capitalized and depreciated. Weperiodically evaluate the carrying value of long‑lived assets to be held and used and when events and circumstances warrantsuch a review. The carrying value of long‑lived assets is considered impaired when the anticipated undiscounted cash flowfrom such assets is less than its carrying value. In that event, a loss is recognized based on the amount by which the carryingvalue exceeds the fair value of the long‑lived assets. Fair value is determined primarily using the anticipated cash flowsdiscounted at a rate commensurate with the risk involved. Losses on long‑lived assets to be disposed of are determined in asimilar manner, except that the fair values are based primarily on independent appraisals and preliminary or definitivecontractual arrangements less costs to dispose.24 Table of ContentsRevenue RecognitionDirect SalesRevenue from homes sold to independent retailers that are not financed and not under a consignment arrangementare generally recognized upon execution of a sales contract and when the home is shipped, at which time title passes to theindependent retailer and collectability is reasonably assured. These types of homes are generally either paid for prior toshipment or floor plan financed through a third party lender by the independent retailer through standard industryarrangements, which can include repurchase agreements.Commercial SalesRevenue from homes sold to mobile home parks under commercial loan programs involving funds provided by ourcompany is recognized when the home is shipped, at which time title passes to the customer and a sales and financingcontract is executed, down payment received, and collectability is reasonably assured.Consignment SalesWe provide floor plan financing for independent retailers, which takes the form of a consignment arrangement. Salesunder a consignment agreement are recognized as revenue when we enter into a sales contract and receive full payment forcash sales, and title passes; or, upon execution of a sales and financing contract, with a down payment received from andupon delivery of the home to the final individual customer, at which time title passes and collectability is reasonablyassured. For homes sold to customers through independent retailers under consignment arrangements and financed by us,a percentage of profit is paid to the independent retailer up front as a commission for sale and also reimburses certain directexpenses incurred by the independent retailer for each transaction. Such payments are recorded as cost of product sales in ourstatement of operations.Retail Store SalesRevenue from direct retail sales through company‑owned retail locations are generally recognized when thecustomer has entered into a legally binding sales contract, and payment received, the home is delivered at the customer’s site,title has transferred, and collection is reasonably assured. Retail sales financed by us are recognized as revenue upon theexecution of a sales and financing contract with a down payment received and upon delivery of the home to the finalcustomer, at which time title passes and collectability is reasonably assured.Revenue is recognized net of sales taxes.Product WarrantiesWe provide retail home buyers with a one‑year warranty from the date of purchase on manufactured inventory.Product warranty costs are accrued when the covered homes are sold to customers. Product warranty expense is recognizedbased on the terms of the product warranty and the related estimated costs. Factors used to determine the warranty liabilityinclude the number of homes under warranty and the historical costs incurred in servicing the warranties. The accruedwarranty liability is reduced as costs are incurred and warranty liability balance is included as part of accrued liabilities inour balance sheet.Results of OperationsThe following discussion should be read in conjunction with the information set forth in the financial statementsand the accompanying notes appearing elsewhere in this Form 10-K.25 Table of ContentsComparison of Years ended December 31, 2018 and 2017 (in thousands) Year ended December 31, 2018 2017 $ change % change Net revenue: Product sales $139,165 $109,750 $29,415 26.8%Consumer and MHP loans interest 18,759 15,647 3,112 19.9%Other 3,953 3,339 614 18.4%Total net revenue 161,877 128,736 33,141 25.7%Operating expenses: Cost of product sales 107,231 82,498 24,733 30.0%Selling, general administrative expenses 21,017 17,105 3,912 22.9%Dealer incentive 829 1,038 (209) (20.1)%Income from operations 32,800 28,095 4,705 16.7%Other income (expense) Non‑operating interest income 190 272 (82) (30.1)%Miscellaneous, net 162 149 13 8.7%Interest expense (2,507) (2,044) (463) 22.7%Total other (2,155) (1,623) (532) 32.8%Income before income tax expense 30,645 26,472 4,173 15.8%Income tax expense (9,132) (124) (9,008) 7,264.5%Net income $21,513 $26,348 $(4,835) (18.4)%Pro forma information: Net income $26,348 Pro forma provision for income taxes (9,448) Pro forma net income $16,900 We were a partnership in 2017 and, therefore a pass‑through entity with respect to taxes. However, the pro forma taxprovision for 2017 reflects pro forma income tax expense of $9.4 million and pro forma net income of $16.9 million as if wehad been taxed as a corporation in 2017. Product sales primarily consist of direct sales, commercial sales, consignment sales and retail store sales. Productsales increased $29.4 million, or 26.8%, in 2018 as compared to 2017. This change was driven by a 17.0% increase involume of homes sold, as well as a series of price increases. Direct sales, including sales as a subcontractor operating under acontract with FEMA to provide housing for victims of Hurricane Harvey, increased $15.0 million to $33.6 million in 2018from $18.6 million in 2017. Commercial sales increased $10.0 million to $33.1 million in 2018 from $23.1 million in 2017.Likewise, our company‑owned retail stores sales increased $2.8 million to $13.2 million in 2018 from $10.4 million in 2017. The remaining increase of $1.6 million is primarily related to sales of used product and miscellaneous parts.Net revenue attributable to our factory‑built housing consisted of the following in 2018 and 2017: Year Ended December 31, (in thousands) 2018 2017 $ Change % Change Net revenue: Products sold $139,165 $109,750 $29,415 26.8%Total products sold 3,392 2,900 492 17.0%Net revenue per product sold $41,027 $37,845 $3,183 8.4% In 2018, our net revenue per product sold increased in part because of increased sales to manufactured homecommunities and increased sales through our company‑owned stores, all of which carry higher margins. In addition, therewere multiple price increases to our product prices due to rising material and labor costs, which resulted in higher26 Table of Contentshome sales prices and more revenue generated per home sold. Additionally, sales and production volumes increased, drivenby greater demand for our products.Consumer and MHP loans interest income grew $3.1 million, or 19.9%, in 2018 as compared to 2017 and is relatedto our increase in outstanding MHP Note portfolio and consumer loan portfolio. Between December 31, 2018 andDecember 31, 2017 our consumer loan portfolio increased by $10.5 million and the MHP Note portfolio increased by$8.4 million, primarily as a result of our increase in products sold during 2018. In addition, other revenue increased $0.6million and is primarily related to a $0.4 million increase in consignment fees and a $0.2 increase in other miscellaneousincome.The cost of product sales increased $24.7 million, or 30.0%, in 2018 as compared to 2017. These additional costswere primarily related to the production of a greater volume of homes in 2018, increased material costs and the continuedand expanded operations of our company‑owned stores.Selling, general and administrative expenses increased $3.9 million, or 22.9%, in 2018 as compared to 2017. Thisincrease was primarily due to increased operations of our company‑owned retail lots, the opening of a corporate office inBedford, Texas and a sales office in Norcross, Georgia and non-capitalizable costs related to our IPO. In addition, dealerincentive expense decreased $0.2 million, or 20.1% in 2018 as compared to 2017. This decrease was the result of our declinein consignment sales. Other income (expense), net was a loss of $2.2 million in 2018, as compared to a loss of $1.6 million in 2017. Thisadditional expense was primarily due to an increase in interest rates and an increase of $8.7 million in our averageborrowings outstanding on our lines of credit prior to the completion of our IPO. Following the completion of our IPO, wepaid off over $40.0 million borrowed aginst our lines of credit.Income tax expense for 2018 was $9.1 million compared to $0.1 million for 2017. This increase in tax expense wasprimarily due to a structural change of our tax status from a partnership to a subchapter C corporation subject to federalincome tax. The change in tax status required the recognition of a deferred tax liability between the historical cost basis andtax basis of our assets and liabilities. The resulting net deferred tax liability was recorded as a one‑time income tax expenseof $2.1 million. Our effective tax rate was 29.8% for the year ended December 31, 2018. The effective tax rate, before the netimpact of discrete items relating to net deferred tax expense associated with the corporate reorganization, was 23.1% anddiffers from the statutory rate of 21% due to state income taxes and other permanent differences between book and taxaccounting.Liquidity and Capital ResourcesCash and Cash EquivalentsWe consider all cash and highly liquid investments with an original maturity of three months or less to be cashequivalents. We maintain cash balances in bank accounts that may, at times, exceed federally insured limits. We have notincurred any losses from such accounts and management considers the risk of loss to be minimal. We believe that cash andcash equivalents at December 31, 2018, together with cash flow from operations and the proceeds from the IPO, will besufficient to fund our operations and provide for growth for the next 12 to 18 months and into the foreseeable future. As ofDecember 31, 2018, we had approximately $2.6 million in cash and cash equivalents, compared to $0.4 million as ofDecember 31, 2017. Subsequent to December 31, 2018, we recived gross proceeds of $7.2 million from the exercise of theunderwriters’ option to purchase additional shares to cover over-allotments in connection with the IPO.27 Table of ContentsCash Flow Activities Year ended December 31, (in thousands) 2018 2017 Net cash provided by operating activities $2,820 $4,373Net cash used in investing activities $(4,453) $(1,938)Net cash provided by (used in) financing activities $3,804 $(3,016)Net change in cash and cash equivalents $2,171 $(581)Cash and cash equivalents at beginning of period $428 $1,009Cash and cash equivalents at end of period $2,599 $428 Comparison of Cash Flow Activities from 2018 to 2017Net cash provided by operating activities decreased $1.6 million during the year ended December 31, 2018,compared to the year ended December 31, 2017, primarily as a result of cash generated by operating income before non-cashadjustments, an increase in net working capital used for additional loan originations associated with higher demand for homesales to MHPs, an increase in inventory purchases and a decrease in operating cash flow attributed to net cash used foroperating liabilities. The decrease in operating cash flows described above was offset by cash collections on accountsreceivable and an increase in accrued liabilities including increases in income taxes payable due to the incorporation of thecompany.Net cash used in investing activities of $ 4.5 million in 2018 was primarily attributable to $5.1 million used for theacquisition of land for development, $1.4 million used to purchase consumer loans and $1.2 million used for loans to thirdparties for the development of manufactured housing parks. In addition, we had capital expenditures of $0.8 million formachinery and equipment and $0.2 million for building and leasehold improvements. These were offset by collections of$4.1 million of loans we made to third parties for the development of manufactured housing parks and collections of $0.2million from our purchased consumer loans. Net cash provided by financing activities of $3.8 million in 2018 was primarily attributable to proceeds of $43.5million from the issuance of our common stock offset by net payments of $39.4 million on our lines of credit. In addition, theJanuary 2018 change in our structure from a partnership to a corporation eliminated partner distributions and we paid off anaffiliate note payable of $1.5 million in October 2018. IndebtednessCapital One Revolver. We have a revolving line of credit (“Revolver 1”) with Capital One, N.A. with a maximumcredit limit of $45,000,000 as of December 31, 2018. On May 12, 2017, Revolver 1 was amended to extend the maturity dateto May 11, 2020 and increase the maximum borrowing availability under Revolver 1 to $45,000,000. For the years endedDecember 31, 2018 and 2017, Revolver 1 accrued interest at one month LIBOR plus 2.40%. The interest rates in effect as ofDecember 31, 2018 and 2017 were 4.78% and 3.78%, respectively. Amounts available under Revolver 1 are subject to aformula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable and a percentage of theconsumer loans receivable and MHP Notes. The amount of available credit under Revolver 1 was $41,321,000 and$6,906,000 at December 31, 2018 and 2017, respectively. For the years ended December 31, 2018 and 2017, interest expensewas $1,701,000 and $1,223,000, respectively. The outstanding balance as of December 31, 2018 and 2017 was $3,679,000and $38,094,000, respectively. We were in compliance with all financial covenants as of December 31, 2018, including thatwe maintain a tangible net worth of at least $90,000,000 and that we maintain a ratio of debt to EBITDA of 4‑to‑1, or less.Veritex Community Bank Revolver. In April 2016, we entered into an agreement with Veritex Community Bankto secure an additional revolving line of credit of $15,000,000 (“Revolver 2”). Revolver 2 accrues interest at one monthLIBOR plus 2.50% and all unpaid principal and interest is due at maturity on April 4, 2021. Revolver 2 is secured by allfinished goods inventory excluding repossessed homes. Amounts available under Revolver 2 are subject28 Table of Contentsto a formula based on eligible inventory. The interest rates in effect as of December 31, 2018 and 2017 was 4.85% and3.87%, respectively. On May 12, 2017, we entered into an agreement to increase the maximum borrowing availability underRevolver 2 to $20,000,000. On October 15, 2018, Revolver 2 was amended to extend the maturity date from April 4, 2019 toApril 4, 2021. The amount of available credit under Revolver 2 was $10,000,000 and $5,000,000 at December 31, 2018 and2017, respectively. For the years ended December 31, 2018 and 2017, interest expense was $700,000 and 527,000,respectively. The outstanding balance as of December 31, 2018 and 2017 was $10,000,000 and $15,000,000, respectively.We were in compliance with all financial covenants as of December 31, 2018, including that we maintain a tangible networth of at least $80,000,000.Notes Payable. We have a promissory note with Woodhaven Bank. The amount due under the promissory noteaccrued interest at an annual rate of 3.85% through February 2, 2017 and then at the prime interest rate plus 0.60% throughmaturity on April 7, 2018. The loan was subsequently renewed through April 7, 2033. The promissory note calls for monthlyprincipal and interest payments of $30,000 with a final payment due at maturity. The interest rates in effect as ofDecember 31, 2018 and 2017 were 4.25% and 4.35%, respectively. The note is secured by certain of our real property.Interest paid on the note payable was $159,000 and $166,000 for the years ended December 31, 2018 and 2017, respectively.The balance outstanding on the note payable at December 31, 2018 and 2017 was $3,552,000 and $3,734,000, respectively.On May 24, 2016, we signed a promissory note for $515,000 with Eagle One, LLC collateralized by the purchase ofreal property located in Oklahoma City, Oklahoma. The amount due under the promissory note accrues interest at an annualrate of 6.00%. The promissory note calls for monthly principal and interest payments of $6,000 until June 1, 2026. Interestpaid on the note payable was $26,000 and $28,000 for the years ended December 31, 2018 and 2017, respectively. Thebalance outstanding on the note payable at December 31, 2018 and 2017 was $414,000 and $453,000, respectively. InJanuary 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 withstated 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 President and Chief Executive Officer. The note was due ondemand. Interest paid on the note payable was $47,000 and $56,000 for the years ended December 31, 2018 and 2017,respectively. The balance outstanding on the note payable at December 31, 2017 was $1,500,000. On October 18, 2018, thisnote payable was paid in full.PILOT Agreement. In December 2016, we entered into a Payment in Lieu of Taxes (“PILOT”) agreementcommonly offered in Georgia by local community development programs to encourage industry development. The net effectof the PILOT agreement is to provide us with incentives through the abatement of local, city and county property taxes andto provide financing for improvements to our Georgia plant (the “Project”). In connection with the PILOT agreement, thePutman County Development Authority provides a credit facility for up to $10,000,000, which can be drawn upon to fundProject improvements and capital expenditures as defined in the agreement. If funds are drawn, we would pay transactionscosts and debt service payments. The PILOT agreement requires interest payments of 6.00% per annum on outstandingbalances, which are due each December 1 through maturity on December 1, 2021, at which time all unpaid principal andinterest are due. The PILOT agreement is collateralized by the assets of the Project. As of December 31, 2018, we had notdrawn down on this credit facility.Contractual ObligationsThe following table is a summary of contractual cash obligations as of December 31, 2018: Payments Due by Period Less than More than Contractual Obligations Total 1 year 2 - 3 years 4 - 5 years 5 yearsLines of credit $13,679,000 — 13,679,000 — —Notes payable 3,965,000 228,000 491,000 541,000 2,705,000Operating lease obligations $3,190,000 566,000 963,000 692,000 969,000 29 Table of ContentsOff‑Balance Sheet ArrangementsWe did not have any off‑balance sheet arrangements that are reasonably likely to have a current or future effect onour financial condition, net sales, results of operations, liquidity or capital expenditures. However, we do have a repurchaseagreement with a financial institution providing inventory financing for independent retailers of our products. Under thisagreement, we have agreed to repurchase homes at declining prices over the term of the agreement (24 months). Ourobligation under this repurchase agreement ceases upon the purchase of the home by the retail customer. The maximumamount of our contingent obligations under such repurchase agreements was approximately $2,186,000 and $1,765,000 as ofDecember 31, 2018 and 2017, respectively, without reduction for the resale value of the homes. We may be required to honorcontingent repurchase obligations in the future and may incur additional expense as a consequence of these repurchaseagreements. We consider our obligations on current contracts to be immaterial and accordingly we have not recorded anyreserve for repurchase commitment as of December 31, 2018.Recent Accounting PronouncementsFor information regarding recently issued and adopted accounting pronouncements, see Note 2, Summary ofSignificant Accounting Policies, to our December 31, 2018 financial statements included in Part II, Item 8, FinancialStatements and Supplementary Data, of this Form-10K. Emerging Growth Company StatusWe 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 theSecurities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” candelay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Wehave elected to take advantage of these exemptions until we are no longer an emerging growth company or until weaffirmatively and irrevocably opt out of this exemption. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Not applicable for smaller reporting companies.30 Table of Contents ITEM 8. FINANCIAL STATEMENTSINDEX TO FINANCIAL STATEMENTS PageAUDITED FINANCIAL STATEMENTS OF LEGACY HOUSING CORPORATION Report of Independent Registered Public Accounting Firm 32Balance Sheets as of December 31, 2018 and 2017 33Statements of Operations for the Years Ended December 31, 2018 and 2017 34Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2018 and 2017 35Statement of Cash Flows for the Years Ended December 31, 2018 and 2017 36Notes to Financial Statements 37 31 Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersLegacy Housing CorporationOpinion on the financial statementsWe have audited the accompanying balance sheets of Legacy Housing Corporation (a Delaware corporation) (the“Company”) as of December 31, 2018 and 2017, the related statements of operations, changes in stockholders’ equity, andcash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to asthe “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financialposition of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each ofthe two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in theUnited States of America.Basis for opinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect tothe Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. As part of our audits we are required to obtain an understanding of internal control overfinancial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting. Accordingly, we express no such opinionOur audits included performing procedures to assess the risks of material misstatement of the financial statements,whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, ona test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluatingthe accounting principles used and significant estimates made by management, as well as evaluating the overall presentationof the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ GRANT THORNTON LLPWe have served as the Company’s auditor since 2018.Dallas, TexasApril 9, 201932 Table of ContentsLEGACY HOUSING CORPORATIONBALANCE SHEETS (in thousands, except share data) As of December 31, 2018 2017Assets Current assets: Cash and cash equivalents $2,599 $428Accounts receivable, net of allowance for doubtful accounts 2,953 3,792Current portion consumer loans 4,945 4,305Current portion of notes receivable from mobile home parks (“MHP”) 7,297 7,216Current portion of other notes receivable 379 2,339Inventories 42,033 39,561Prepaid expenses and other current assets 2,938 1,800Total current assets 63,144 59,441Property, plant and equipment, net 17,128 11,826Consumer loans, net of deferred financing fees and allowance for loan losses 92,230 82,331Notes receivable from mobile home parks (“MHP”) 50,638 42,286Other notes receivable, net of allowance for loan losses 1,912 2,867Other assets 2,587 2,205Inventory non‑current 7,399 7,379Total assets $235,038 $208,335Liabilities and Equity Current liabilities: Accounts payable $2,828 $6,280Accrued liabilities 9,156 4,820Customer deposits 2,222 2,903Note payable to related party — 1,500Escrow liability 5,951 4,508Current portion of notes payable 228 3,776Total current liabilities 20,385 23,787Long‑term liabilities: Lines of credit 13,679 53,094Deferred income taxes 1,842 —Note payable, net of current portion 3,737 410Dealer incentive liability 6,115 6,773Total liabilities 45,758 84,064Commitments and contingencies (Note 12) Equity: Preferred stock, $.001 par value, 10,000,000 shares authorized: issued -0- — —Common stock, $.001 par value, 90,000,000 shares authorized; 24,000,000 and -0- issued and outstanding as of December 31, 2018 and 2017, respectively 24 —Partners’ Capital — 124,271Additional paid-in-capital 167,743 —Retained earnings 21,513 —Total equity 189,280 124,271Total liabilities and equity $235,038 $208,335 See accompanying notes to financial statements33 Table of ContentsLEGACY HOUSING CORPORATIONSTATEMENTS OF OPERATIONS (in thousands, except share and per share data) Year Ended December 31, 2018 2017Net revenue: Product sales $139,165 $109,750Consumer and MHP loans interest 18,759 15,647Other 3,953 3,339Total net revenue 161,877 128,736Operating expenses: Cost of product sales 107,231 82,498Selling, general administrative expenses 21,017 17,105Dealer incentive 829 1,038Income from operations 32,800 28,095Other income (expense): Non‑operating interest income 190 272Miscellaneous, net 162 149Interest expense (2,507) (2,044)Total other (2,155) (1,623)Income before income tax expense 30,645 26,472Income tax expense (9,132) (124)Net income $21,513 $26,348Weighted average shares outstanding: Basic and diluted 20,197,260 —Net income per share: Basic and diluted $1.07 $ —Pro Forma Information: Net income $26,348Pro forma provision for income taxes (9,448)Pro forma net income $16,900Pro forma weighted average shares outstanding: Pro forma basic and diluted 20,000,000Pro forma net income per share: Pro forma basic and diluted $0.84 See accompanying notes to financial statements.34 Table of ContentsLEGACY HOUSING CORPORATIONSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY(in thousands, except share data) Total Partners’ Common Stock Additional Retained Capital Shares Amount paid incapital earnings TotalBalances, January 1, 2017 $115,591 — $ — $ — $ — $ —Partner distributions (17,668) — — — — —Net income 26,348 — — — — —Balances, December 31, 2017 $124,271 — $ — $ — $ — $ —Shares issued upon incorporation (124,271) 20,000,000 20 124,251 — 124,271Sale of common stock in initial publicoffering, net of offering costs of $4,504 — 4,000,000 4 43,492 — 43,496Net income — — — — 21,513 21,513Balances, December 31, 2018 $ — 24,000,000 $24 $167,743 $21,513 $189,280 See accompanying notes to financial statements35 Table of ContentsLEGACY HOUSING CORPORATIONSTATEMENTS OF CASH FLOWS (in thousands) December 31, 2018 2017Operating activities: Net income $21,513 $26,348Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 838 652Provision for loan loss—consumer loans 851 961Deferred income taxes 1,842 —Changes in operating assets and liabilities: Accounts receivable 839 (2,314)Consumer loans originations (19,615) (17,980)Consumer loans principal collections 9,455 6,814Notes receivable MHP originations (37,893) (19,715)Notes receivable MHP principal collections 29,459 13,971Inventories (2,493) (9,960)Prepaid expenses and other current assets (1,138) 142Other assets (382) 435Accounts payable (3,452) 1,896Accrued liabilities 4,335 767Customer deposits (681) 1,876Dealer incentive liability (658) 480Net cash provided by operating activities 2,820 4,373Investing activities: Purchases of property, plant and equipment (6,137) (1,428)Issuance of notes receivable (1,231) (2,376)Notes receivable collections 4,146 1,548Purchases of consumer loans (1,443) —Collections from purchased consumer loans 212 318Net cash used in investing activities (4,453) (1,938)Financing activities: Proceeds from sale of common stock in initial public offering 48,000 —Offering cost for initial public offering (4,504) —Partner distributions — (17,668)Escrow liability 1,444 1,350Principal payments on affiliate note payable (1,500) —Principal payments on note payable (221) (231)Proceeds from lines of credit 63,052 59,599Payments on lines of credit (102,467) (46,066)Net cash provided by (used in) financing activities 3,804 (3,016)Net increase (decrease) in cash and cash equivalents 2,171 (581)Cash and cash equivalents at beginning of period 428 1,009Cash and cash equivalents at end of period $2,599 $428Supplemental disclosure of cash flow information: Cash paid for interest $2,746 $1,914Cash paid for taxes $5,153 $150Supplemental disclosure of non‑cash transactions: Sale of an asset in exchange for note receivable $ — $156 See accompanying notes to financial statements 36 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts) 1. NATURE OF OPERATIONSLegacy Housing Corporation (the “Company”) was formed on January 1, 2018 through a corporate conversion ofLegacy Housing, Ltd., (the “Partnership”) a Texas limited partnership formed in May 2005. The Company is incorporated asa Delaware corporation and is headquartered in Bedford, Texas. The Company (1) manufactures and provides for the transport of mobile homes, (2) provides wholesale financing todealers and mobile home parks and (3) provides retail financing to consumers. The Company manufactures its mobile homesat plants located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia. The Company relies on a network of dealersto 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 theCompany, were $43,492. Corporate ConversionEffective January 1, 2018, the Partnership converted into a Delaware corporation pursuant to a statutory conversionand changed its name to Legacy Housing Corporation. In order to consummate the corporate conversion completed onJanuary 1, 2018, a certificate of conversion was filed with the Secretary of State of the State of Delaware and with theSecretary of State of the State of Texas. Holders of partnership interests in Legacy Housing, Ltd. received an initialallocation, 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 ofLegacy Housing, Ltd. and all of the debts and obligations of Legacy Housing, Ltd. On the effective date of the corporateconversion, the officers of Legacy Housing, Ltd. became the officers of Legacy Housing Corporation. As a result of thecorporate conversion, The Company is now a federal corporate taxpayer.Basis of PresentationThe financial statements of the Company have been prepared in accordance with U.S. generally acceptedaccounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission(“SEC”).Use of EstimatesThe preparation of our financial statements in conformity with GAAP requires management to make estimates andassumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income andexpenses during the reporting period. Material estimates that are susceptible to significant change in the near term primarilyrelate to the determination of accounts receivable, consumer loans and notes receivable, inventory obsolescence, repossessedassets, income taxes, fair value of financial instruments, contingent liabilities and accruals related to warranty costs. Actualresults could differ from these estimates. Segment ReportingThe Company has one reportable segment. All of the Company’s activities are interrelated, and each activity isdependent and assessed based on how each of the activities of the Company supports the others. For example, the sale of37 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)manufactured homes is done through wholesale and retail operations that include providing transportation and consignmentarrangements with dealers. The Company also provides financing options to the customers to facilitate such sale of homes. Inaddition, the sale of homes is directly related to financing provided by the Company. Accordingly, all significant operatingand strategic decisions by the chief operating decision‑maker, the Executive Chairman of the Board, are based upon analysesof the Company as one segment or unit. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESCash and Cash EquivalentsThe Company considers all cash and highly liquid investments with an original maturity of three months or less tobe cash equivalents. The Company maintains cash balances in bank accounts that may, at times, exceed federally insuredlimits. The Company has not incurred any losses from such accounts and management considers the risk of loss to beminimal. As of December 31, 2018, the Company had two bank accounts that exceeded the FDIC limit by an aggregateamount of $1,534.Accounts ReceivableIncluded in accounts receivable are receivables from direct sales of mobile homes and sales of parts and supplies tocustomers, consignment fees and interest receivables.Accounts receivables are generally due within 30 days and are stated at amounts due from customers net of anallowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due.The Company determines the allowance by considering several factors, including the aging of the past due balance, thecustomer’s payment history, and the Company’s previous loss history. The Company establishes an allowance for doubtfulaccounts for amounts that are deemed to be uncollectible. At December 31, 2018 and 2017, the allowance for doubtfulaccounts totaled $341 and $115, respectively.Consumer Loans ReceivableConsumer loans receivable result from financing transactions entered into with retail consumers of mobile homessold through independent retailers and company-owned retail locations. Consumer loans receivable generally consist of thesales price and any additional financing fees, less the buyer’s down payment. Interest income is recognized monthly per theterms of the financing agreements. The average contractual interest rate per loan was approximately 14.0% as ofDecember 31, 2018 and approximately 13.9% as of December 31, 2017. Consumer loans receivable have maturities thatrange from 5 to 25 years.Loan applications go through an underwriting process which considers credit history to evaluate credit risk of theconsumer. Interest rates on approved loans are determined based on consumer credit score, payment ability and downpayment 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 loancollections. The liabilities associated with these escrow collections totaled $5,951 and $4,508 as of December 31, 2018 and2017, respectively, and are included in escrow liability in the balance sheets.38 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)Allowance for Loan Losses—Consumer Loans ReceivableThe allowance for loan losses reflects management’s estimate of losses inherent in the consumer loans that may beuncollectible based upon review and evaluation of the consumer loan portfolio as of the date of the balance sheet. Anallowance for loan losses is determined after giving consideration to, among other things, the loan characteristics, includingthe 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. TheCompany’s calculation of the general reserve considers the historical loss rate for the last three years, adjusted for theestimated loss discovery period and any qualitative factors both internal and external to the Company. Specific reserves aredetermined 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’scash flow may not be sufficient to meet payments as they become due, which is normally when either principal or interest ispast due and remains unpaid for more than 90 days. Management implemented this policy based on an analysis of historicaldata, current performance of loans and the likelihood of recovery once principal or interest payments became delinquent andwere aged more than 90 days. Payments received on nonaccrual loans are accounted for on a cash basis, first to interest andthen to principal, as long as the remaining book balance of the asset is deemed to be collectible. The accrual of interestresumes when the past due principal or interest payments are brought within 90 days of being current. As of December 31,2018 and 2017, total principal outstanding for consumer loans on nonaccrual status was $976 and $1,237, respectively.Impaired loans are those loans where it is probable the Company will be unable to collect all amounts due inaccordance 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. Aspecific reserve is created for impaired loans based on fair value of underlying collateral value, less estimated selling costs.The Company used various factors to determine the value of the underlying collateral for impaired loans. These factors were:(1) the length of time the unit was unsold after construction; (2) the amount of time the house was occupied; (3) thecooperation level of the borrowers, i.e., loans requiring legal action or extensive field collection efforts; (4) units located onprivate property as opposed to a manufactured home park; (5) the length of time the borrower has lived in the house withoutmaking payments; (6) location, size, and market conditions; and (7) the experience and expertise of the particular dealerassisting in collection efforts.Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at theestimated fair value of the home, less the costs to sell. At repossession, the fair value of the collateral is computed based onthe historical recovery rates of previously charged‑off loans; the loan is charged off and the loss is charged to the allowancefor loan losses. At each reporting period, the fair value of the collateral is adjusted to the lower of the amount recorded atrepossession or the estimated sales price less estimated costs to sell, based on current information. Repossessed homes totaled$1,175 and $1,856 as of December 31, 2018 and 2017, respectively, and are included in other assets in the balance sheets.Notes Receivable from Mobile Home ParksThe notes receivable from mobile home parks (“MHP Notes” or “Notes”) relate to mobile homes sold to mobilehome parks and financed through notes receivable. The Notes have varying maturity dates and call for monthly principal andinterest payments. The interest rate on the MHP Notes are typically set at 4.0% above prime with a minimum of 8.0%. Theaverage interest rate per loan was approximately 9.2% and 8.2% as of December 31, 2018 and 2017, respectively withmaturities that range from 4 to 15 years. The collateral underlying the Notes are individual mobile39 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)homes which can be repossessed and resold. The MHP Notes are generally personally guaranteed by the borrowers withsubstantial financial resources.Allowance for Loan Losses—MHP NotesMHP Notes are stated at amounts due from customers, net of allowance for loan losses. The Company determines theallowance by considering several factors including the aging of the past due balance, the customer’s payment history, andthe Company’s previous loss history. The Company establishes an allowance reserve composed of specific and generalreserve amounts. The allowance for loan losses on MHP notes was $0 as of December 31, 2018 and 2017, respectively.Other Notes ReceivableOther notes receivable relate to various notes issued to mobile park owners and dealers, which are not directly tiedto sale of mobile homes. The other notes have varying maturity dates and call for monthly principal and interest payments.The other notes are collateralized by mortgages on real estate, units being financed and used as offices, as well as vehicles,and are typically personally guaranteed by the borrowers. The interest rate on the other notes are fixed and range from 6.25%to 12.00%. The Company reserves for estimated losses on the other notes based on current economic conditions that mayaffect the borrower’s ability to pay, the borrower’s financial strength, and historical loss experience. The allowance for loanlosses on other notes was $0 as of December 31, 2018 and 2017, respectively.InventoriesInventories consist of raw materials, work‑in‑process, and finished goods and are stated at the lower of cost or netrealizable value. The cost of raw materials is based on the first‑in first‑out method. Finished goods and work‑in‑process arebased on a standard cost system that approximates actual costs using the specific identification method.Estimates of the lower of cost and net realizable value of inventory are determined by comparing the actual cost ofthe product to the estimated selling prices in the ordinary course of business based on current market and economicconditions, less reasonably predictable costs of completion, disposal, and transportation of the inventory. For the periodsending, December 31, 2018 and 2017, the Company recorded an insignificant amount of inventory write‑down.The Company evaluates inventory based on historical experience to estimate its inventory not expected to be soldin less than a year. The company classifies its inventory not expected to be sold in one year as non‑current. As ofDecember 31, 2018 and 2017 non‑current inventory was $7,399 and $7,379, respectively.Property, Plant, and EquipmentProperty, plant and equipment are carried at cost less accumulated depreciation. Depreciation expense is calculatedusing the straight‑line method over the estimated useful lives of each asset. Estimated useful lives for significant classes ofassets are as follows: buildings and improvements, 30 to 39 years; vehicles, 5 years; machinery and equipment, 7 years; andfurniture and fixtures, 7 years. Repair and maintenance charges are expensed as incurred. Expenditures for major renewals orbetterments which extend the useful lives of existing property, plant and equipment are capitalized and depreciated.Impairment of Long‑Lived AssetsThe Company reviews long‑lived assets for impairment whenever events or changes in circumstances indicate thecarrying amount of an asset may not be recoverable. Assets are grouped at the lowest level in which there are40 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)identifiable cash flows that are largely independent of the cash flows of other groups of assets. In such cases, if the futureundiscounted cash flows of the underlying assets are less than the carrying amount, then the carrying amount of thelong‑lived asset will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of theunderlying asset or its determinable fair value. No impairment for long‑lived assets was recorded for the years endedDecember 31, 2018 or 2017.Dealer Incentive LiabilityUnder a dealer agreement with qualifying independent retailers, a portfolio is created for houses sold by theindependent retailer with consumer loan arrangements financed by the Company. The independent retailer is eligible to areceive dealer incentive, which is a portion of total collections expected on a consumer loan portfolio after the Company’scontribution (collection thresholds set per the terms of dealer agreement which includes Legacy’s initial contribution, plusan allocation of interest and other agreed upon periodic fees) is met.A dealer incentive liability is recorded in the Company’s balance sheet based on total outstanding balance ofindividual dealer loan portfolios at period end, less the remaining portion of the Company’s contribution in respectiveportfolios. As of December 31, 2018 and 2017, the dealer incentive liability was $6,115 and $6,773, respectively. Dealerincentive expense for the years ended December 31, 2018 and 2017 totaled $829 and $1,038, respectively, and is included inthe Company’s statements of operations.Product WarrantiesThe Company provides retail home buyers with a one‑year warranty from the date of purchase on manufacturedinventory. Product warranty costs are accrued when the covered homes are sold to customers. Product warranty expense isrecognized based on the terms of the product warranty and the related estimated costs. Factors used to determine the warrantyliability include the number of homes under warranty and the historical costs incurred in servicing the warranties. Theaccrued warranty liability is reduced as costs are incurred and warranty liability balance is included as part of accruedliabilities in the Company’s balance sheet.A tabular presentation of the activity within the warranty liability account for the years ended December 31, 2018and 2017 is presented below: 2018 2017Warranty liability, beginning of period $2,602 $2,126Product warranty accrued 2,957 2,923Warranty costs incurred (2,532) (2,447)Warranty liability, end of period $3,027 $2,602 Advertising CostsThe Company expenses all advertising and marketing expenses in the period incurred. Advertising costs forthe years ended December 31, 2018 and 2017 were $762 and $982, respectively.Fair Value MeasurementsThe Company accounts for its investments and derivative instruments in accordance with ASC 820‑10, Fair ValueMeasurement, which among other things provides the framework for measuring fair value. That framework provides a fairvalue hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highestpriority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I41 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)measurement) and the lowest priority to unobservable inputs (Level III measurements). The three levels of fair valuehierarchy under ASC 820‑10, Fair Value Measurement, are as follows:Level IQuoted prices are available in active markets for identical assets or liabilities that thereporting entity has the ability to access at the measurement date.Level IISignificant observable inputs other than quoted prices in active markets for whichinputs to the valuation methodology include: (1) Quoted prices for similar assets orliabilities in active markets; (2) Quoted prices for identical or similar assets orliabilities in inactive markets; (3) Inputs other than quoted prices that are observable;(4) Inputs that are derived principally from or corroborated by observable market databy 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 assetor liability.Level IIISignificant unobservable inputs that reflect an entity’s own assumptions that marketparticipants would use in pricing the assets or liabilities. The asset or liability fair value measurement level within the fair value hierarchy is based on the lowest level of anyinput that is significant to the fair value measurement.The Company uses derivatives to manage risks related to interest rate movements. The Company does not enter intoderivative contracts for speculative purposes. Interest rate swap contracts are recognized as assets or liabilities on the balancesheets and are measured at fair value. The fair value was calculated and provided by the lender, a Level II valuationtechnique. Management reviewed the fair values for the instruments as provided by the lender and determined the relatedasset and liability to be an accurate estimate of future gains and losses to the Company. The fair values of the interest rateswap were valued at an $80 asset as of December 31, 2018 and $34 liability as of December 31, 2017.Fair Value of Financial InstrumentsThe Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, consumerloans, MHP Notes, other notes, 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 theirrespective fair values because of the short‑term maturities or expected settlement dates of these instruments. This isconsidered a Level I valuation technique. The MHP Notes, other notes, lines of credit, and notes payable have variableinterest rates that reflect market rates and their fair value approximates their carrying value. This is considered a Level IIvaluation technique. The Company also assessed the fair value of the consumer loans receivable based on the discountedvalue of the remaining principal and interest cash flows. The Company determined that the fair value of the consumer loanportfolio was approximately $109,231 compared to the book value of $97,175 as of December 31, 2018, as well as a fairvalue of approximately $90,900 compared to the book value of $86,636 as of December 31, 2017. This is a Level IIIvaluation technique.Revenue RecognitionDirect SalesRevenue from homes sold to independent retailers that are not financed and not under a consignment arrangementare generally recognized upon execution of a sales contract and when the home is shipped, at which time title passes to theindependent retailer and collectability is reasonably assured. These types of homes are generally either42 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)paid for prior to shipment or floor plan financed by the independent retailer through standard industry arrangements, whichcan include repurchase agreements.Commercial SalesRevenue from homes sold to mobile home parks under commercial loan programs involving funds provided by theCompany is recognized when the home is shipped, at which time title passes to the customer and a sales and financingcontract is executed, down payment received, and collectability is reasonably assured.Consignment SalesThe Company provides floor plan financing for independent retailers, which takes the form of a consignmentarrangement. Sales under a consignment agreement are recognized as revenue when the Company enters into a sales contractand receives full payment for cash sales, and title passes; or, upon execution of a sales and financing contract, with a downpayment received and upon delivery of the home to the final individual customer, at which time title passes andcollectability is reasonably assured. For homes sold to customers through independent retailers under consignmentarrangements and financed by the Company, a percentage of profit is paid to the independent retailer up front as acommission for sale and also reimburses certain direct expenses incurred by the independent retailer for each transaction.Such payments are recorded as cost of product sales in the Company’s statement of operations.Retail Store SalesRevenue from direct retail sales through Company‑owned retail locations are generally recognized when thecustomer has entered into a legally binding sales contract, and full payment received, the home is delivered at the customer’ssite, title has transferred and collection is reasonably assured. Retail sales financed by the Company are recognized asrevenue upon the execution of a sales and financing contract with a down payment received and upon delivery of the hometo the final customer, at which time title passes and collectability is reasonably assured. Revenue is recognized net of salestaxes.For 2018 and 2017, total cost of product sales included $20,419 and $15,900 of costs, mainly relating to up frontdealer commission and reimbursed dealer expenses for consignment sales and certain other similar costs incurred for retailstore and commercial sales.Other salesOther sales revenue primarily consists of consignment fees, service fees and other miscellaneous income. These salesare recognized as revenue upon completion of the service and collectability is reasonably assured. Reserve for Repurchase CommitmentsIn accordance with customary business practice in the manufactured housing industry, the Company has enteredinto certain repurchase agreements with certain financial institutions and other credit sources who provide floor planfinancing to industry retailers, which provided that the Company will be obligated, under certain circumstances, torepurchase homes sold to retailers in the event of a default by a retailer in its obligation to such credit sources. TheCompany’s obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer. TheCompany applies ASC 460, Guarantees and ASC 450‑20, Loss Contingencies, to account for its liability for repurchasecommitments. The Company considers its current obligations on current contracts to be immaterial and accordingly have notrecorded any reserve for repurchase commitments as of December 31, 2018 and 2017.43 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)Other Income, NetOther income primarily consists of interest related to commercial loan receivable balances and interest incomeearned on cash balances, reduced by interest expenses.Interest IncomeInterest on consumer loans, MHP Notes and other notes is recognized using the effective‑interest method on thedaily balances of the principal amounts outstanding and recorded as part of total revenue. Fees associated with theorigination of loans and certain direct loan origination costs are netted and the net amount is deferred and recognized overthe life of the loan as an adjustment of yield.Share-Based CompensationShare-based compensation to employees, directors and other persons who provide services to the Company, includinggrants of employee stock options, are recognized in the financial statements based on their estimated grant-date fair value.No awards have been made as of December 31, 2018.Shipping and Handling CostsShipping and handling costs incurred to deliver product to our customers are included as a component of cost ofproduct sales in the statement of operations. Shipping and handling costs for the years ended December 31, 2018 and 2017were $1,625 and $1,021, respectively.Income TaxesThe Company is subject to U.S. federal and state income taxes as a corporation. Prior to the corporate conversion,the Partnership was treated as a flow‑through entity for U.S. federal income tax purposes, and as such, was generally notsubject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income was passedthrough to its partners. Accordingly, prior to the corporate conversion, the Partnership only recorded a provision for Texasfranchise tax as the Partnership’s taxable income was included in the income tax returns of the individual partners.Income tax expense for the Company is recognized for the tax effects of the transactions reported in the financialstatements and consist of taxes currently due, plus deferred taxes. The deferred tax assets and liabilities represent the futuretax return consequences of those differences, which will be either taxable or deductible when the assets and liabilities arerecovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which thedeferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred taxassets and liabilities are adjusted through the provision for income taxes.A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized.Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income andrecoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not thatthe deferred tax assets will be realized. In addition, management does not believe there are any unrecorded deferred taxliabilities that are material to the financial statements.In December 2017, a comprehensive U.S. tax reform package, the Tax Cuts and Jobs Act, or Tax Act, was enactedwhich, among other things, lowered the corporate income tax rate from 35% to 21%. As a result of the corporate conversionon January 1, 2018, the Company measured its opening deferred tax assets and liabilities at the newly enacted rate.44 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)The determination of the provision for income taxes requires significant judgment, use of estimates, and theinterpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts ofdeductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain taxpositions are recorded in the Company’s financial statements only after determining a more‑likely‑than‑not probability thatthe uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change,the Company reassesses these probabilities and records any changes through the provision for income taxes. The Companyrecognizes interest and penalties relating to uncertain tax provisions as a component of tax expense. For the periodspresented, management has determined there are no uncertain tax positions. There are no open tax years for the Company and2018 will be the first filing year as a corporation.ConcentrationsFinancial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable,consumer loans, MHP Notes and other notes receivable. Management believes that its credit policies are adequate tominimize potential credit risk related to accounts receivable and other notes receivable. The consumer loans are secured bythe mobile homes that were financed through the loans. The MHP Notes are secured by mobile homes, other assets, and arepersonally guaranteed. The MHP Notes personal guarantor may cover multiple parks and each park is treated as a customer.As of December 31, 2018, there were no customers that represented more than 10% of MHP Notes and as of December 31,2017, two customers represented approximately 21% of MHP Notes.Recent Accounting PronouncementsThe Company has elected to use longer phase‑in periods for the adoption of new or revised financial accountingstandards under the JOBS Act as an emerging growth company.In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (Topic 606), which outlines acomprehensive five‑step model for entities to use in accounting for revenue arising from contracts with customers andsupersedes most current revenue recognition guidance, including industry‑specific guidance. The standard requires entitiesto recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance alsoincludes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensiveinformation about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts withcustomers.In August 2015, the FASB issued ASU 2015‑14, Revenue from Contracts with Customers (Topic 606): Deferral ofthe Effective Date, which deferred the effective date of the new revenue standard. The Company will adopt the requirementsof the new standard in the fiscal year beginning January 1, 2019 using the modified retrospective transition method.The following revenues streams are subject to the guidance under ASU 2014-09: (1) direct sales, (2) commercialsales, (3) consignment sales and (4) retail store sales. Revenue generated from interest income, lending activities and leasingactivities are excluded from ASU 2014-09 and will continue to be accounted for under existing guidance.The Company has evaluated the potential impacts of ASU 2014-09 by gaining an understanding of the newstandard, inventorying its revenue streams, analyzing and mapping contract features to revenue streams and considering theenhancement of disclosures related to revenue. Based on its evaluation and the manner in which the Company recognizesrevenue, the Company has concluded that the adoption of ASU 2014-09 will not have a material impact on the amount ortiming of its revenue recognition.45 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842), to increase transparency and comparabilityamong organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key informationabout leasing arrangements. A lessee should recognize in the balance sheet a liability to make lease payments (the leaseliability) and an asset representing its right to use the underlying asset for the lease term. The recognition, measurement andpresentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previousrequirements. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11"), which provides entities with an additional transition method that allows entities to initially apply the new leasesstandard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings whilecontinuing to present all prior periods under the previous lease accounting guidance. Also, in July 2018, the FASB issuedAccounting Standards Update No. 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”), whichprovides clarification about the proper implementation of several topics in ASU 2016-02. Modified retrospective applicationand early adoption is permitted. The Company plans to use longer phase‑in period for adoption and accordingly this ASU iseffective for the Company’s fiscal year beginning January 1, 2020. The Company is continuing to evaluate the impact of theadoption of this ASU. The Company is anticipating a material change to the balance sheet due to recording the Right of UseAsset, however we do not expect there to be a material change to our Statement of Operations.In June 2016, the FASB issued an accounting standards update ASU 2016‑13 Financial Instruments—Credit Losses(Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses forassets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its currentestimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from theamortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debtsecurities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that creditlosses be presented as an allowance rather than as a write‑down and affects entities holding financial assets and netinvestment 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 otherfinancial assets not excluded from the scope that have the contractual right to receive cash. The Company plans to use longerphase‑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 thefinancial statements at this point in time. In March 2017, the FASB issued ASU 2017‑08, Receivables—Nonrefundable Fees and Other Costs (Subtopic310‑20), Premium Amortization on Purchased Callable Debt Securities (“ASU 2017‑08”), which requires the premium oncallable debt securities to be amortized to the earliest call date as opposed to the contractual life of the security. ASU2017‑08 will be effective beginning with the first quarter of the Company’s fiscal year 2020. The Company is continuing toevaluate the impact of the adoption of this ASU and is uncertain of the impact on the financial statements and disclosures atthis point in time.From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that areadopted by the Company as of the specified effective dates. Unless otherwise discussed, management believes that theimpact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s FinancialStatements upon adoption46 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts) 3. CONSUMER LOANS RECEIVABLEConsumer loans receivable, net of allowance for loan losses and deferred financing fees, consisted of the followingat December 31, 2018 and 2017: 2018 2017Consumer loan receivable $101,049 $90,276Loan discount and deferred financing fees, net (3,162) (2,835)Allowance for loan losses (712) (805)Consumer loans receivable, net $97,175 $86,636 The following table presents a detail of the activity in the allowance for loan losses for the years ended December31, 2018 and 2017: 2018 2017 Allowance for loan losses, beginning of period $805 $578 Provision for loan losses 851 961 Charge offs (944) (734) Allowance for loan losses $712 $805 The impaired and general reserve for allowance for loan losses at December 31, 2018 and 2017: 2018 2017Total consumer loans $101,049 $90,276Total allowance for loan losses 712 805Impaired loans individually evaluated for impairment 1,445 1,237Specific reserve against impaired loans 427 447Other loans collectively evaluated for allowance 99,604 89,039General allowance for loan losses 285 358 As of December 31, 2018 and 2017, the total principal outstanding for consumer loans on nonaccrual status was$1,445 and $1,237 respectively. A detailed aging of consumer loans receivable that are past due as of December 31, 2018were as follows: 2018 %Total consumer loans receivable $101,049 100.0Past due consumer loans: 31 - 60 days past due $968 1.061 - 90 days past due 404 0.491 - 120 days past due 133 0.1Greater than 120 days past due 843 0.8Total past due $2,348 2.3 4. NOTES RECEIVABLE FROM MOBILE HOME PARKS (“MHP Notes”)There were no past due MHP Notes as of December 31, 2018 and 2017 and also no charge offs recorded for MHPNotes during the year ended December 31, 2018 and 2017. There is no allowance for loan loss against the MHP Notes as ofDecember 31, 2018 or 2017.47 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)5. OTHER NOTES RECEIVABLEThe balance outstanding on the other notes receivable were as follows as of December 31, 2018 and 2017: 2018 2017Outstanding principal balance $2,354 $5,270Allowance for loan losses (63) (64)Total $2,291 $5,206 6. INVENTORIESInventories consisted of the following at December 31, 2018 and 2017: 2018 2017Raw materials $13,481 $11,956Work in progress 526 703Finished goods 35,425 34,281Total $49,432 $46,940 7. PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment consisted of the following at December 31, 2018 and 2017: 2018 2017Land $8,081 $3,004Buildings and leasehold improvements 9,234 9,008Vehicles 1,477 1,269Machinery and equipment 3,385 2,788Furniture and fixtures 161 135Total 22,338 16,204Less accumulated depreciation (5,210) (4,378)Total property, plant and equipment $17,128 $11,826 Depreciation expense was $838 with $306 included as a component of cost of product sales for the year endedDecember 31, 2018 and $652 with $222 included as a component of cost of product sales for the year ended December 31,2017.8. OTHER ASSETSOther assets includes prepaid rent in the amount of $1,412 and $349 at December 31, 2018 and 2017, respectively,and repossessed homes of $1,175 and $1,856 at December 31, 2018 and 2017, respectively.48 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)9. ACCRUED LIABILITIESAccrued liabilities consisted of the following at December 31, 2018 and 2017: 2018 2017Warranty liability $3,027 $2,602Litigation reserve 570 315Derivative liabilities — 34Federal and state taxes payable 2,252 1,144Accrued expenses & other accrued liabilities 3,307 725Total $9,156 $4,820 10. DEBTLines of CreditRevolver 1The Company has a revolving line of credit (“Revolver 1”) with Capital One, N.A. with a maximum credit limit of$45,000 as of December 31, 2018. On May 12, 2017, Revolver 1 was amended to extend the maturity date to May 11, 2020and increase the maximum borrowing availability to $45,000. For the years ended December 31, 2018 and 2017, Revolver 1accrued interest at one month LIBOR plus 2.40%. The interest rates in effect as of December 31, 2018 and 2017 were 4.78%and 3.78%, respectively. Amounts available under Revolver 1 are subject to a formula based on eligible consumer loans andMHP 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 Revolver 1 was $41,321 and $6,906 at December 31, 2018 and 2017, respectively. TheCompany was in compliance with all required covenants as of December 31, 2018. For the years ended December 31, 2018and 2017, interest expense was $1,701 and $1,223, respectively. The outstanding balance as of December 31, 2018 and 2017was $3,679 and $38,094, respectively. The Company was in compliance with the other financial covenants that it maintain atangible net worth of at least $30,000 and that it maintain a ratio of debt to EBITDA of 4 to 1 or less.Revolver 2In April 2016, the Company entered into an agreement with Veritex Community Bank to secure an additionalrevolving line of credit of $15,000 (“Revolver 2”). Revolver 2 accrues interest at one month LIBOR plus 2.50% and allunpaid principal and interest is due at maturity on April 4, 2021. Revolver 2 is secured by all finished goods inventoryexcluding repossessed homes. Amounts available under Revolver 2 are subject to a formula based on eligible inventory. Theinterest rates in effect as of December 31, 2018 and 2017 were 4.85% and 3.87%, respectively. On May 12, 2017, theCompany entered into an agreement to increase the line of credit to $20,000. On October 15, 2018, Revolver 2 was amendedto extend the maturity date from April 4, 2019 to April 4, 2021. The amount of available credit under Revolver 2 was$10,000 and $5,000 at December 31, 2018 and 2017, respectively. The Company was in compliance with all requiredcovenants as of December 31, 2018. For the years ended December 31, 2018 and 2017, interest expense was $700 and $527,respectively. The outstanding balance as of December 31, 2018 and 2017 was $10,000 and $15,000. The Company was incompliance with the other financial covenants that it maintain a tangible net worth of at least $80,000.Notes PayableOn April 7, 2011, the Company signed a promissory note for $4,830 with Woodhaven Bank. The amount due underthe promissory note accrues interest at an annual rate of 3.85% through February 2, 2017 and then at the prime interest rateplus 0.60% through maturity on April 7, 2018. On April 7, 2018, the promissory note with Woodhaven49 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)Bank was renewed with varying amounts of principal and interest due through the maturity date, April 7, 2033. Thepromissory note calls for monthly payments of $30 with a final payment due at maturity. The interest rates in effectat December 31, 2018 and 2017 were 4.25% and 4.35%, respectively. The note is secured by certain real property of theCompany. Interest expense was $159 and $166 for the years ended December 31, 2018 and 2017, respectively. The balanceoutstanding on the note payable at December 31, 2018 and 2017 was $3,552 and $3,734, respectively.On May 24, 2016, the Company signed a promissory note for $515 with Eagle One, LLC collateralized by thepurchase of real property located in Oklahoma City, Oklahoma. The amount due under the promissory note accrues interest atan annual rate of 6.00%. The promissory note calls for monthly principal and interest payments of $6 until June 1, 2026.Interest expense was $26 and $28 for the years ended December 31, 2018 and 2017, respectively.The balance outstanding onthe note payable at December 31, 2018 and 2017 was $414 and $453, respectively. In January 2019, this note was paid infull.Future minimum principal payments on notes payable at December 31, 2018 were as follows:2019 $2282020 2392021 2522022 2642023 277Thereafter 2,705 $3,965 Note Payable to an AffiliateOn February 2, 2016, the Company entered into a $1,500 note payable agreement with stated annual interest rates of3.75% with a related party through common ownership. The note is due on demand. Interest paid on the note payable was$47 and $56 for the years ended December 31, 2018 and 2017, respectively. The balance outstanding on the note payable atDecember 31, 2017 was $1,500. In October 2018, this note payable was paid in full.PILOT AgreementIn December 2016, the Company entered into a Payment in Lieu of Taxes (“PILOT”) agreement commonly offeredin Georgia by local community development programs to encourage industry development. The net effect of the PILOTagreement is to provide the Company with incentives through the abatement of local, city and county property taxes and toprovide financing for improvements to the Company’s Georgia plant (the “Project”). In connection with the PILOTagreement, the Putman County Development Authority provides a credit facility for up to $10,000 which can be drawn uponto fund Project improvements and capital expenditures as defined in the agreement. If funds are drawn, the Company wouldpay transactions costs and debt service payments. The PILOT agreement requires interest payments of 6.00% per annum onoutstanding balances, which are due each December 1st through maturity on December 1, 2021, at which time all unpaidprincipal and interest are due. The PILOT agreement is collateralized by the assets of the Project. As of December 31, 2018,the Company had not drawn on this credit facility.11. INCOME TAXESThe Company became a corporation subject to federal income taxes on January 1, 2018, see corporate conversion inNote 1. The change in tax status required the recognition of a deferred tax asset or liability for the initial temporarydifferences at the time of the change in status. The resulting net deferred tax liability of $2,066 was recorded as income taxexpense at the date of the completion of the corporate conversion.50 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)Significant components of the provision for income taxes are as follows(in thousands): Year ended December 31, 2018 Current: Federal $6,567 State 723 Total current income tax provision 7,290 Deferred: Federal 1,777 State 65 Total deferred income tax provision 1,842 Provision for income taxes $9,132 For the year ended December 31, 2018, the Company recorded tax expense of $9,132 resulting in an effective taxrate of 29.8%. A reconciliation of the Company’s effective tax rate from operations to the U.S. federal income tax rate is asfollows: Year ended December 31, 2018 Federal statutory rate 21.0%State income taxes, net of federal tax benefit 2.3 Tax adjustment related to corporate conversion 6.5 Effective tax rate 29.8% The tax effects of cumulative temporary differences that give rise to deferred tax assets and liabilities are as follows(in thousands): Year ended December 31, 2018 Deferred tax assets: Allowance for doubtful accounts $368 Reserve accounts 148 Uniform capitalization 54 Total deferred tax assets 570 Deferred tax liabilities: Installment sale revenue (1,356) Depreciation (732) Accrued interest receivable (288) Other (36) Total deferred tax liabilities (2,412) Net deferred tax liabilities $(1,842) 12. COMMITMENTS AND CONTINGENCIESThe Company is contingently liable under terms of repurchase agreements with financial institutions providinginventory 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 obligation51 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)under these repurchase agreements ceases upon the purchase of the home by the retail customer. The maximum amount forwhich the Company was liable under such agreements approximated $2,186 and $1,765 at December 31, 2018 and 2017,respectively, without reduction for the resale value of the homes. The Company considers its obligations on current contractsto be immaterial and accordingly have not recorded any reserve for repurchase commitment as of December 31, 2018 or2017.Leases. The Company leases facilities under operating leases that typically have 10‑year terms. These leases usuallyoffer the Company a right of first refusal that affords the Company the option to purchase the leased premises under certainterms in the event the landlord attempts to sell the leased premises to a third party. Rent expense was $542 and $340 forthe years ended December 31, 2018 and 2017, respectively. The Company also subleases properties to third parties, rangingfrom 3‑year to 11‑year terms with various renewal options. Rental income from the subleased property is included in otherrevenue in the Company’s statements of operations and was approximately $373 and $369 for the years ended December 31,2018 and 2017, respectively.Future minimum lease commitments under all non‑cancelable operating leases for each of the next five years atDecember 31, 2018, are as follows:2019 $5662020 5132021 4502022 3742023 318Thereafter 969Total $3,190 Legal MattersThe 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 andwarranty, product liability and personal injury. Although litigation is inherently uncertain, based on past experience and theinformation currently available, management does not believe that the currently pending and threatened litigation or claimswill have a material adverse effect on the Company’s financial position, liquidity or results of operations. However, futureevents or circumstances currently unknown to management will determine whether the resolution of pending or threatenedlitigation or claims will ultimately have a material effect on the Company’s financial position, liquidity or results ofoperations in any future reporting periods.13. DERIVATIVESOn February 2, 2012, the Company entered into a master interest rate swap agreement. The Company elected not todesignate the interest rate swap agreements as cash flow hedges and, therefore, gains or losses on the agreements as well asthe 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 thestatements of financial position as either assets or liabilities. The Company entered into interest rate swap agreement withCapital One Bank on June 12, 2017 to fix the variable rate portion for $8,000 of the line of credit. This interest rate swapagreement is the only one outstanding at December 31, 2018 and has a maturity of May 11, 2020. The fair value of theinterest rate swap agreement at December 31, 2018 is an asset of $80 and is included in prepaid expenses and other currentassets. The fair value of the interest rate swap agreement at December 31, 2017 is a liability of $34 and is included in accruedliabilities. Included in the statements of operations for the years ended December 31, 2018 and 2017 were gains of $87 andlosses of $46, respectively, which are the result of the changes in the fair values of the interest rate swap agreement.52 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)14. EARNINGS PER SHAREBasic earnings per common share is computed based on the weighted-average number of common sharesoutstanding during the reporting period. The Company has no common stock equivalents. As a result, there is no differencebetween diluted net income per share and basic net income per share amounts Year ended December 31, 2018 2017Numerator: Net earnings attributable to Legacy Housing Corp (in 000's) $21,513 $26,348Denominator: Weighted-average common shares outstanding 20,197,260 -Earnings per share attributable to Legacy Housing Corp Basic $1.07 $ -Diluted $1.07 $ -Pro forma information (in 000's): $26,348Net earnings attributable to Legacy Housing Corp (9,448)Pro forma provision for income taxes $16,900Pro forma net income Pro forma weighted-average common shares outstanding: Pro forma basic and diluted 20,000,000Pro forma net income per share: Pro forma basic and diluted $0.84 15. RELATED PARTY TRANSACTIONSBell Mobile Homes, a retailer owned by one of the Company’s significant shareholders, purchases manufacturedhomes from the Company. Accounts receivable balances due from Bell Mobile Homes were $414 and $385 as ofDecember 31, 2018 and 2017, respectively. Accounts payable balances due to Bell Mobile Homes for maintenance andrelated services were $123 and $57 as of December 31, 2018 and 2017, respectively. Home sales to Bell Mobile Homes were$3,640 and $2,529 for the years ended December 31, 2018 and 2017, respectively. Rebates paid to Bell Mobile Homes were$390 and $246 for the years ended December 31, 2018 and 2017, respectively.Shipley Bros., Ltd. (“Shipley Bros.”), a retailer owned by one of the Company’s significant shareholders, purchasesmanufactured homes from the Company. Accounts receivable balances due from Shipley Bros. were $832 and $41 as ofDecember 31, 2018 and 2017, respectively.On February 2, 2016, the Company entered into a $1,500 note payable agreement with stated annual interest rates of3.75% with a related party through common ownership. The note was due on demand. Interest paid on the note payable to anaffiliate was $47 and $56 for the years ended December 31, 2018 and 2017, respectively. The balance outstanding on thenote payable at December 31, 2017 was $1,500. On October 18, 2018, this note payable was paid in full. During the fourth quarter of 2018, the Company has a receivable of $375 from a principal shareholder for certainbusiness expenses related to a potential business venture. This amount is included in the Company’s accounts receivablebalance as of December 31, 2018. 53 Table of ContentsLEGACY HOUSING CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2018 and 2017(Dollars in thousands, except per share amounts)16. SUBSEQUENT EVENTSOn January 16, 2019, the Company sold an additional 600,000 shares of its common stock at the IPO price of$12.00 per share, less the underwriting discount, pursuant to the exercise in full of the underwriters’ option to purchaseadditional shares to cover over-allotments in connection with the Company’s IPO.In connection with the preparation of these financial statements, an evaluation of subsequent events was performedthrough the date of filing and there were no other events that have occurred that would require adjustments to the financialstatements.17. UNAUDITED PRO FORMA TAX PROVISION AND NET INCOME PER SHAREThe Company computed a pro forma income tax provision for the year ended December 31, 2017, as if the Companywas subject to income taxes since January 1, 2017, using an effective tax rate of 35.9%. The Company’s pro forma basic netincome per common share amount for the year ended December 31, 2017 has been computed based on the weighted‑averagenumber of shares of common stock outstanding as if the common shares issued at the corporate conversion were outstandingfor that entire period. 54 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE.None. ITEM 9A. CONTROLS AND PROCEDURES.Evaluation of Disclosure Controls and ProceduresWe are subject to the periodic reporting requirements of the Exchange Act which requires designing disclosurecontrols and procedures to provide reasonable assurance that information we disclose in reports we file or submit under theExchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of theSEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated andcommunicated to our management, including our principal executive officer and principal financial officer, as appropriate, toallow for timely decisions regarding required disclosures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluatedthe effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the ExchangeAct), as of the end of the period covered by this Report. Based on the evaluation of our disclosure controls and procedures asof December 31, 2018, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controlsand procedures were not effective as of such date due to material weaknesses in internal control over financial reporting, asdescribed below.Material Weaknesses in Internal Control Over Financial ReportingAs previously disclosed in our prospectus filed with the SEC on December 14, 2018, we identified materialweaknesses in our internal control over financial reporting during the preparation of our financial statements for the yearended December 31, 2017. Under standards established by the PCAOB, a material weakness is a deficiency or combination ofdeficiencies in internal control over financial reporting, such that there is a reasonable possibility that a materialmisstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis. Thematerial weaknesses in internal control over financial reporting have not been remediated as of December 31, 2018.The material weaknesses in financial reporting as of December 31, 2018 are summarized as follows:·We determined that we did not have sufficient accounting processes and procedures in place, particularly in theareas of allowance for loan loss, finished goods inventory costing, revenue recognition, income taxes, andprocessing of accounts payable and accruals for period end cut-off.·We determined that we did not have sufficient experienced personnel to support preparation of financial statementsfor compliance with U.S. GAAP and SEC rules.·We determined that we did not have sufficient policies and procedures to ensure the appropriate review andapproval of user access rights to our accounting system; and lack of approval of journal entries and segregation ofduties in our financial reporting process.Remediation Efforts to Address Previously-Identified Material Weaknesses In connection with these material weaknesses, we are in the process of taking remediation action,including the evaluation of implementing appropriate processes and procedures with respect to key areas,including allowance for loan loss, finished goods inventory costing, revenue recognition, income taxes and processing ofaccounts payable and accruals. We are also in the process of implementing remediation measures, including providingfurther training of accounting personnel as well as hiring additional personnel, designing internal controls over financial55 Table of Contentsreporting, including user access rights and journal entry processes and approvals, and researching more robust financialreporting databases and systems for implementation. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in management’s evaluationpursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the fourth quarter of fiscal 2018 that materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations in Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that ourdisclosure controls and procedures, or our internal controls, will prevent all error and all fraud. A control system, no matterhow well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controlsystem are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefitsof controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluationof controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company havebeen detected. These inherent limitations include the realities that judgments in decision making can be faulty, and thatbreakdowns can occur because of simple error or mistake or fraud. Additionally, controls can be circumvented by individualsor groups of persons or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in ourcontrol system, misstatements in our public reports due to error or fraud may occur and not be detected. Exemption from Management’s Annual Report and Auditor Attestation on Internal Controls This Report on Form 10-K does not include a report of management’s assessment regarding internal control overfinancial reporting or an attestation report of our independent registered public accounting firm due to a transition periodestablished by rules of the SEC for newly public companies and emerging growth companies. ITEM 9B. OTHER INFORMATION.None.56 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.Executive Officers and DirectorsThe following table identifies our executive officers and directors as of the date of this filing.Name Age Position (s)Executive Officers and Employee Directors Curtis D. Hodgson 64 Executive Chairman of the BoardKenneth E. Shipley 59 President, Chief Executive Officer and DirectorJeffrey V. Burt 57 Chief Financial Officer and TreasurerNeal J. Suit 43 Executive Vice President, General Counsel andSecretaryNon‑Employee Directors Mark E. Bennett 65 DirectorPhilip T. Blazek 51 DirectorJohn A. Isakson 48 Director The following information provides a brief description of the business experience of each executive officer anddirector.Executive Officers and Employee DirectorsCurtis D. Hodgson co‑founded our company in 2005 and served as our Co‑Chief Executive Officer from January2018 to February 2019, then became our executive Chairman of the Board. He has been a member of our board of directorssince January 2018. Prior to that, Mr. Hodgson served as a partner of the company’s predecessor, Legacy Housing, Ltd., andcontrolled its general partner. Over the past 37 years, Mr. Hodgson has owned and operated several manufactured home retailoperations and manufactured housing communities in Texas. Mr. Hodgson has significant expertise in the manufacturedhousing industry. Mr. Hodgson earned a B.S. in Engineering from the University of Michigan and J.D. from The University ofTexas.Mr. Hodgson is the co‑founder, executive Chairman and one of our largest stockholders and he was selected to serveon our board of directors due to his decades of experience and deep knowledge of our industry, his leadership and substantialoperational and strategic planning expertise. His service as the executive Chairman creates a critical link betweenmanagement and the board.Kenneth E. Shipley co‑founded our company in 2005 with Curtis D. Hodgson. Mr. Shipley was our Co‑ChiefExecutive Officer from January 2018 and, since February 2019, has served as our President and sole Chief Executive Officer.He has been a member of our board of directors since January 2018, when our company converted to a corporation and priorto that, Mr. Shipley, together with Mr. Hodgson, served as a general partner of the company’s predecessor, LegacyHousing, Ltd. Mr. Shipley has more than 30 years of experience in the manufactured home industry. Since 1981, he has alsoowned and operated Bell Mobile Homes and Shipley Bros. in Lubbock, Texas, a manufactured home retailer.Mr. Shipley is the co‑founder, President and Chief Executive Officer and one of our largest stockholders and he wasselected to serve on our board of directors due to his decades of experience and knowledge of our industry, his leadership andsubstantial sales and distribution experience with dealers and customers in the industry. His service as a director and thePresident and Chief Executive Officer creates a critical link between management and the board.57 Table of ContentsJeffrey V. Burt joined our company in September 2010 and serves as Chief Financial Officer and Treasurer. In thiscapacity, Mr. Burt oversees all accounting functions with respect to our manufacturing facilities. Mr. Burt began his careerwith our company as Controller from 2010 to 2013, then as Chief Financial Officer and Treasurer since April 2013. Prior tojoining our company, from 1993 to 2009, Mr. Burt served as Vice President and Chief Financial Officer of KohnerProperties, Inc., a company that manages multi‑family housing for owners across the central part of the United States.Mr. Burt has more than 20 years of experience in the real estate and manufactured housing industry and has expertise in theareas of accounting systems, performance reporting tools and evaluations of key performance indicators versus a company’sgoals. Mr. Burt earned a B.S. degree from the University of Southern Illinois and M.B.A. from the University of Notre Dame.Neal J. Suit joined our company in January 2018 and serves as our Executive Vice President, General Counsel andSecretary. In this capacity, Mr. Suit oversees the legal affairs of our company, as well as its corporate controls andgovernance. Prior to joining our company, Mr. Suit worked in the law firm of Carrington, Coleman, Sloman &Blumenthal, LLP in Dallas, Texas from December 2008 to January 2018, where he was a partner, and previously he was alawyer at the law firms Bell Nunnally & Martin LLP from February 2006 to December 2008 and Baker Botts, LLP fromSeptember 2003 to January 2006. Mr. Suit has practiced law for more than 15 years, primarily handling complex litigationmatters and serving as outside general counsel to companies. Mr. Suit earned a B.A. degree from Baylor University and J.D.from Harvard Law School.Non‑Employee DirectorsMark E. Bennett became a member of our board of directors upon the closing of our IPO in December 2018. He is apartner in the law firm of Bennett, Weston, LaJone & Turner, P.C. in Dallas, Texas, a firm he founded in 1985 and where hecurrently serves as a partner focused on real estate, business law and litigation. Mr. Bennett previously worked for the taxdepartment of Ernst & Young from 1979‑1981, served as Vice President, Tax Counsel, and Secretary for SouthmarkCorporation, a real estate company that at the time was traded on the New York Stock Exchange, from 1981 to 1984, anExecutive Vice President for Pacific Realty, a real estate services firm, from 1984 to 1986, and he held the position of GeneralCounsel for Greenbriar Corporation, a real estate company, from 1995 to 2002. Mr. Bennett earned a B.A. degree in Businessand J.D. from the University of Kansas. Mr. Bennett was admitted to practice law in Texas in 1980, and is also a certifiedpublic accountant.Mr. Bennett’s substantial knowledge and over 35 years of legal and accounting and tax experience in a wide rangeof real estate development projects and related regulatory and dispute resolution matters makes him well‑qualified as amember of the Board.Philip T. Blazek became a member of our board of directors upon the closing of our IPO in December 2018. He hasserved as the Chief Financial Officer of Marconi Group, LLC, an international technology holding company focused onintellectual property acquisition, licensing and development since April 2016, where he directs financial strategy, businessplanning and operations. Mr. Blazek previously served as the Chief Executive Officer and President of Strategic Diagnostics,a small -cap publicly traded company that served as a holding company for diversified acquisitions, from 2013 to 2015. Healso served in 2012 as Managing Director at Korenvaes Management LLC, a family office focusing on deep value debt andequity investments, and he was the founder and President of Blazek Crow Holdings Capital, LP, an active investment fundfocused on small -cap public companies and formed in partnership with the Trammell Crow Family Office, from 2008 to2012. He also co‑founded Greenway Capital, LP, a small cap equity investment fund, which he led from 2005‑2008. Earlierin his career, Mr. Blazek worked in the investment banking industry for Wasserstein Perella (from 1996 to 2004) andGoldman Sachs & Co. (from 1991 to 1994). Mr. Blazek served on the Board of Directors of Myers Industries, Inc., apublicly‑traded plastic manufacturing company, from 2015 to 2016. Mr. Blazek earned a B.A. degree from HarvardUniversity and M.B.A from Harvard Business School. Since 1996, he has been certified as a Chartered Financial Analyst.Mr. Blazek brings more than 25 years of expertise in corporate financial management, mergers and acquisitions,investment analytics, public capital markets and strategic transformation, as well as experience as a board member in a publiccompany, making his insights invaluable to the Board.58 Table of ContentsJohn A. Isakson became a member of our board of directors upon the closing of our IPO in December 2018. He hasserved as the Chief Financial Officer of Preferred Apartment Communities, Inc., a publicly traded operator of multifamilyproperties throughout the United States (“PAC”), since August 2018, and acted as Executive Vice President and ChiefCapital Officer of PAC from 2011 until August 2018. He served as Chief Executive Officer of Main Street ApartmentHomes, LLC, an indirect subsidiary of PAC, since PAC’s commencement of operations in 2015. Prior to his role at PAC, hewas the Chief Executive Officer of Williams Asset Management, an investment and asset management firm for a privateequity fund he co‑founded, from 2006 to June 2013, and he co‑founded Tarpon Development, LLC, serving as ChiefExecutive Officer from 1999 to 2005. He also served as Vice President of Finance for Julian LeCraw & Company from 1995to 1999, where he oversaw the financing and acquisition of multifamily investments. Mr. Isakson earned a B.A. degree inEconomics from Tulane University and M.A. in Economics from the University of Georgia.Mr. Isakson demonstrates a broad depth of knowledge of both the private and institutional side of the housingindustry in acquisitions, dispositions, corporate and property‑level finance, investor relations and asset management, whichare highly relevant to our business.Board CompositionOur business and affairs are managed under the direction of our board of directors. The number of directors isdetermined by our board of directors, subject to the terms of our certificate of incorporation and bylaws. Our board ofdirectors currently consists of five members. The Board of Directors held its inaugural meeting on February 7, 2019.Director IndependenceOur common stock trades on The NASDAQ Global Market. Under Nasdaq rules, independent directors mustcomprise a majority of a listed company’s board of directors. In addition, Nasdaq rules require that, subject to specifiedexceptions, each member of a listed company’s audit, compensation and nominating and governance committees must beindependent. Under Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of thatcompany’s board of directors, that person does not have a relationship that would interfere with the exercise of independentjudgment in carrying out the responsibilities of a director.Audit committee members must also satisfy the independence criteria set forth in Rule 10A‑3 under the ExchangeAct. In order to be considered independent for purposes of Rule 10A‑3, a member of an audit committee of a listed companymay not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other boardcommittee: (i) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company orany of its subsidiaries; or (ii) be an affiliated person of the listed company or any of its subsidiaries.Our board of directors undertook a review of its composition, the composition of its committees and theindependence of each director. Based upon information requested from and provided by each director concerning his or herbackground, employment and affiliations, including family relationships, our board of directors has determined that Mark E.Bennett, Philip T. Blazek and John Isakson, representing a majority of our directors, do not have any relationships that wouldinterfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of thesedirectors is “independent” as that term is defined under Nasdaq rules. In making these determinations, our board of directorsconsidered the relationships that each non‑employee director has with our company and all other facts and circumstances ourboard of directors deemed relevant in determining their independence, including the beneficial ownership of our capitalstock by each non‑employee director.Board CommitteesCommencing with the closing of our IPO on December 14, 2018, our board of directors established three standingcommittees: an audit committee, a compensation committee and a nominating and corporate governance committee. UnderNasdaq rules, the membership of each committee consists entirely of independent directors. Given the date our committeeswere first established, our committees did not separately meet until early 2019. The following is a brief description of ourcommittees.59 Table of ContentsAudit committee. In accordance with our audit committee charter, our audit committee oversees our corporateaccounting and financial reporting processes and our internal controls over financial reporting; evaluates the independentpublic accounting firm’s qualifications, independence and performance; engages and provides for the compensation of theindependent public accounting firm; approves the retention of the independent public accounting firm to perform anyproposed permissible non‑audit services; reviews our financial statements; reviews our critical accounting policies andestimates and internal controls over financial reporting; and discusses with management and the independent registeredpublic accounting firm the results of the annual audit and the reviews of our quarterly financial statements. We believe thatour audit committee members meet the requirements for financial literacy under the current requirements of theSarbanes‑Oxley Act, Nasdaq and SEC rules and regulations. In addition, the board of directors has determined that PhilipT. Blazek is qualified as an audit committee financial expert within the meaning of SEC regulations. We have made thisdetermination based on information received by our board of directors. The audit committee is composed of Messrs. Blazek(Chairman), Bennett and Isakson.Compensation committee. In accordance with our compensation committee charter, our compensation committeereviews and recommends policies relating to compensation and benefits of our officers and employees, including reviewingand approving corporate goals and objectives relevant to compensation of the Chief Executive Officer and other seniorofficers, evaluating the performance of these officers in light of those goals and objectives and setting compensation of theseofficers based on such evaluations. The compensation committee also administers the issuance of stock options and otherawards under our equity‑based incentive plans. We believe that the composition of our compensation committee meets therequirements for independence under, and the functioning of our compensation committee complies with, any applicablerequirements of the Sarbanes‑Oxley Act, Nasdaq and SEC rules and regulations. We intend to comply with futurerequirements to the extent they become applicable to us. The compensation committee is composed of Messrs. Isakson(Chairman) and Blazek.Nominating and governance committee. In accordance with our nominating and governance committee charter, ournominating and governance committee recommends to the board of directors nominees for election as directors, and meets asnecessary to review director candidates and nominees for election as directors; recommends members for each committee ofthe board; oversees corporate governance standards and compliance with applicable listing and regulatory requirements;develops and recommends to the board governance principles applicable to the company; and oversees the evaluation of theboard and its committees. We believe that the composition of our nominating and governance committee meets therequirements for independence under, and the functioning of our compensation committee complies with, any applicablerequirements of the Sarbanes‑Oxley Act, Nasdaq and SEC rules and regulations. We intend to comply with futurerequirements to the extent they become applicable to us. The nominating and governance committee is composed ofMessrs. Bennett (Chairman) and Isakson.Code of Business Conduct and EthicsWe adopted a code of business conduct and ethics that applies to all of our officers, directors and employees,including our principal executive officer, principal financial officer, principal accounting officer and controller, or personsperforming similar functions, which is posted on our website. Our code of business conduct and ethics is a “code of ethics,”as defined in Item 406(b) of Regulation S‑K. The information contained on, or accessible from, our website is not part of thisForm 10-K by reference or otherwise. We will make any legally required disclosures regarding amendments to, or waivers of,provisions of our code of business conduct and ethics on our website.Compensation Committee Interlocks and Insider ParticipationNone of the members of our compensation committee is an executive officer or employee of our company. None ofour executive officers serves as a member of the board of directors or compensation committee of any entity that has one ormore executive officers serving on our board of directors or compensation committee.60 Table of ContentsLimitations on Director and Officer Liability and IndemnificationOur certificate of incorporation limits the liability of our directors to the maximum extent permitted by Delawarelaw. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach oftheir fiduciary duties as directors, except liability for:·any breach of their duty of loyalty to the corporation or its stockholders;·acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;·unlawful payments of dividends or unlawful stock repurchases or redemptions; or·any transaction from which the director derived an improper personal benefit.Our certificate of incorporation and our bylaws provide that we are required to indemnify our directors and officers,in each case to the fullest extent permitted by Delaware law. Any repeal of, or modification to, our certificate of incorporationand our bylaws may not adversely affect any right or protection of a director or officer for or with respect to any acts oromissions of such director or officer occurring prior to such amendment or repeal. Our bylaws also provide that we willadvance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permitus to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or heractions in connection with their services to us, regardless of whether our bylaws permit such indemnification.We have entered into separate indemnification agreements with our directors and executive officers, in addition tothe indemnification provided for in our bylaws. These agreements, among other things, provide that we will indemnify ourdirectors and executive officers for certain expenses (including attorneys’ fees), judgments, fines, penalties and settlementamounts incurred by a director or executive officer in any action or proceeding arising out of such person’s services as one ofour directors or executive officers, or any other company or enterprise to which the person provides services at our request.We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors andexecutive officers.The limitation of liability and indemnification provisions that are contained in our certificate of incorporation andour bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. Theymay also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful,might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that wepay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.There is no pending litigation or proceeding involving one of our directors or executive officers as to which indemnificationis required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim forindemnification. ITEM 11. EXECUTIVE COMPENSATION.Summary Compensation TableThe following table sets forth summary compensation information for the following persons: (i) all persons servingas our principal executive officer during the years ended December 31, 2018 and 2017, and (ii) our two other most highlycompensated executive officers who received compensation during the years ended December 31, 2018 and 2017 of at least$100,000 and who were executive officers on December 31, 2018 and 2017. We refer to these persons as61 Table of Contentsour “named executive officers” in this Form 10-K. The following table includes all compensation earned by the namedexecutive officers for the respective period, regardless of whether such amounts were actually paid during the period: Stock Option All Other Name and Position Years Salary ($) Bonus ($) Awards ($) Awards ($) Compensation($) Total ($)Curtis D. Hodgson 2018 50,000 — — — — 50,000Executive Chairman (formerCo-Chief Executive Officer) 2017 50,000 — — — 3,981,846 4,031,846Kenneth E. Shipley 2018 50,000 — — — — 50,000President and ChiefExecutive Officer (formerCo‑Chief Executive Officer) 2017 50,000 — — — 2,963,000 3,013,000Jeffrey V. Burt 2018 223,654 30,000 — — — 253,654Chief Financial Officer andTreasurer 2017 190,000 30,000 — — — 220,000Neal J. Suit 2018 183,077 30,000 — — — 213,077Executice Vice Oresident,General Counsel andSecretary(1) 2017 — — — — — —(1)Mr. Suit joined our company in January 2018.The “All Other Compensation” column represents all distributions made to Mr. Hodgson and Mr. Shipley in thepresented time periods when our company was still a partnership. The distributions of profits to Mr. Hodgson andMr. Shipley were based upon their allocable share of partnership income. These distributions were primarily used to coverindividual tax liability of the partners. There were no other distributions made to Mr. Hodgson or Mr. Shipley during theseperiods.Mr. Hodgson and Mr. Shipley’s compensation structure, in light of the fact they have traditionally only received arelatively nominal salary of $50,000, is focused on increasing the equity value of our company as their primarycompensation is in the value of their ownership interests in the company. Mr. Hodgson, whether individually or throughentities or trusts he controls, owned 50% of the partnership interests in the company as of year‑end 2017, which interests wereconverted to an initial allocation of 10,000,000 shares of common stock of the company upon the conversion to acorporation effective January 1, 2018. Mr. Shipley and his family members, whether individually or through an entityMr. Shipley controls, owned 50% of the partnership interests of the company as of year‑end 2017, which interests wereconverted into an initial allocation of 10,000,000 shares of our common stock of the company upon the conversion to acorporation. Mr. Hodgson and Mr. Shipley will continue to be compensated based on a fixed annual salary of $50,000.Employment AgreementsOn November 27, 2018, we entered into an employment agreement with each of Curtis D. Hodgson and Kenneth E.Shipley to serve as our Co‑Chief Executive Officer for an initial term beginning January 1, 2018 and ending December 31,2021. Following the initial expiration date of the employment agreements, and on each subsequent one year anniversary ofsuch date, the term of the employment agreements will automatically be extended for one year, unless earlier terminated byeither party. Generally, since founding our company, Mr. Hodgson has overseen our day‑to‑day business operations,including strategic planning and manufacturing, and Mr. Shipley has overseen our sales and distribution, including ourcompany‑owned retail locations. Under the employment agreements, each executive’s annual salary is $50,000, which issubject to increase at the discretion of our compensation committee. The employment agreements provide for customaryprovisions for the termination of the executive’s employment with us for cause (as defined in the applicable employmentagreement) and for any reason other than for cause. The executive will be entitled to receive his salary for the remainingportion of the employment period if he is terminated other than for cause, payable in accordance with our company’s regularpayroll practices. Additionally, in the event the executive’s employment with us is terminated within one year after a changeof control (as defined in the applicable employment agreement) for62 Table of Contentsreasons other than cause, we have agreed to pay the executive an amount equal to two years’ compensation at his thencurrent rate of pay.The employment agreements also contain covenants (a) confirming that all intellectual property developed by eachexecutive and relating to our business constitutes our sole and exclusive property, (b) prohibiting each executive fromdisclosing confidential information regarding our company at any time, (c) restricting each executive from engaging in anyactivities competitive with our business during his employment with us and for a period of one year thereafter, and(d) preventing each executive from recruiting, soliciting or hiring away employees of our company for a period of two yearsafter his employment with us. The employment agreements are governed by the laws of the State of Delaware. On February 7, 2019, our board of directors separated the roles of Chief Executive Officer and Chairman of theBoard, consistent with corporate governance best practices. Mr. Hodgson transitioned from his role as our Co-ChiefExecutive Officer to become our executive Chairman of the Board and Mr. Shipley became our sole Chief Executive Officerand President. Mr. Hodgson, as an executive Chairman, will remain actively involved in our management in this role,including with respect to overall corporate strategy and manufactured home park development and financing. Outstanding Equity Awards at December 31, 2018The following table shows outstanding option awards held by the named executive officers as of December 31,2018.Name Vested Shares Unvested Shares Total SharesCurtis D. Hodgson — — —Kenneth E. Shipley — — —Jeffrey V. Burt — — —Neal J. Suit — — — 2018 Incentive Compensation PlanOur board of directors and the holders of a majority of our outstanding shares of common stock adopted our 2018Incentive Compensation Plan (the “Plan”) prior to the closing of our IPO. The purpose of our Plan is to assist us in attracting,motivating, retaining and rewarding high‑quality executives and other employees, officers, directors, consultants and otherpersons who provide services to us. No awards under the Plan have been made to date. We have set aside an aggregate of200,000 shares of common stock (including stock options) as additional compensation that we expect to award to ourofficers, directors and key personnel under the terms of our Plan, and this amount will not exceed 10% of the thenoutstanding shares of our common stock.Administration. Our Plan is to be administered by our Compensation Committee, provided, however, that except asotherwise expressly provided in the Plan, the board of directors may exercise any power or authority granted to thecommittee under our Plan. Subject to the terms of our Plan, the committee is authorized to select eligible persons to receiveawards, determine the type, number and other terms and conditions of, and all other matters relating to, awards, prescribeaward agreements (which need not be identical for each participant), and the rules and regulations for the administration ofthe Plan, construe and interpret the Plan and award agreements, and correct defects, supply omissions or reconcileinconsistencies in them, and make all other decisions and determinations as the committee may deem necessary or advisablefor the administration of our Plan.Eligibility. The persons eligible to receive awards under our Plan are the officers, directors, employees, consultantsand other persons who provide services to us. An employee on leave of absence may be considered as still in the employ ofour company for purposes of eligibility for participation in our Plan.63 Table of ContentsTypes of Awards. Our Plan provides for the issuance of stock options, stock appreciation rights, or SARs, restrictedstock, deferred stock, dividend equivalents, bonus stock and awards in lieu of cash compensation, other stock‑based awardsand performance awards. Performance awards may be based on the achievement of specified business or personal criteria orgoals, as determined by the committee.Shares Available for Awards. The total number of shares of common stock that may be subject to the granting ofawards under our Plan at any time during the term of the Plan will be equal to 2,500,000 shares. This limit will be increasedby the number of shares with respect to which awards previously granted under our Plan that are forfeited, expire or otherwiseterminate without issuance of shares, or that are settled for cash or otherwise do not result in the issuance of shares, and thenumber of shares that are tendered (either actually or by attestation) or withheld upon exercise of an award to pay the exerciseprice or any tax withholding requirements.Stock Options and Stock Appreciation Rights. The committee is authorized to grant stock options, including bothincentive stock options, or ISOs, which can result in potentially favorable tax treatment to the participant, and non‑qualifiedstock options, and stock appreciation rights entitling the participant to receive the amount by which the fair market value ofa share of common stock on the date of exercise exceeds the grant price of the stock appreciation right. The exercise price pershare subject to an option and the grant price of a stock appreciation right are determined by the committee, but in the case ofan ISO must not be less than the fair market value of a share of common stock on the date of grant. For purposes of our Plan,the term “fair market value” means the fair market value of common stock, awards or other property as determined by thecommittee or under procedures established by the committee. The maximum term of each option or stock appreciation right,the times at which each option or stock appreciation right will be exercisable, and provisions requiring forfeiture ofunexercised options or stock appreciation rights at or following termination of employment generally are fixed by thecommittee, except that no option or stock appreciation right may have a term exceeding ten years.Restricted and Deferred Stock. The committee is authorized to grant restricted stock and deferred stock. Restrictedstock is a grant of shares of common stock which may not be sold or disposed of, and which may be forfeited in the event ofcertain terminations of employment, prior to the end of a restricted period specified by the committee. A participant grantedrestricted stock generally has all of the rights of a stockholder of our company, unless otherwise determined by thecommittee. An award of deferred stock confers upon a participant the right to receive shares of common stock at the end of aspecified deferral period, subject to possible forfeiture of the award in the event of certain terminations of employment priorto the end of a specified restricted period. Prior to settlement, an award of deferred stock carries no voting or dividend rightsor other rights associated with share ownership, although dividend equivalents may be granted, as discussed below.Other Terms of Awards. Awards may be settled in the form of cash, shares of common stock, other awards or otherproperty, in the discretion of the committee. The committee may require or permit participants to defer the settlement of all orpart of an award in accordance with such terms and conditions as the committee may establish, including payment orcrediting of interest or dividend equivalents on deferred amounts, and the crediting of earnings, gains and losses based ondeemed investment of deferred amounts in specified investment vehicles. The committee is authorized to place cash, sharesof common stock or other property in trusts or make other arrangements to provide for payment of our obligations under ourPlan.Awards under our Plan are generally granted without a requirement that the participant pay consideration in theform of cash or property for the grant (as distinguished from the exercise), except to the extent required by law. Thecommittee may, however, grant awards in exchange for other awards under our Plan, awards under other company plans orother rights to payment from us, and may grant awards in addition to and in tandem with such other awards, rights or otherawards.Acceleration of Vesting; Change in Control. The committee may, in its discretion, accelerate the exercisability, thelapsing of restrictions or the expiration of deferral or vesting periods of any award, and such accelerated exercisability, lapse,expiration and if so provided in the award agreement or otherwise determined by the committee, vesting will occurautomatically in the case of a “change in control” of our company, as defined in our Plan (including the cash settlement ofstock appreciation rights which may be exercisable in the event of a change in control). In64 Table of Contentsaddition, the committee may provide in an award agreement that the performance goals relating to any performance awardwill be deemed to have been met upon the occurrence of any “change in control.”Amendment and Termination. The board of directors may amend, alter, suspend, discontinue or terminate our Planor the committee’s authority to grant awards without further stockholder approval, except stockholder approval must beobtained for any amendment or alteration if such approval is required by law or regulation or under the rules of any stockexchange or quotation system on which shares of common stock are then listed or quoted. Thus, stockholder approval maynot necessarily be required for every amendment to our Plan which might increase the cost of our Plan or alter the eligibilityof persons to receive awards. Stockholder approval will not be deemed to be required under laws or regulations, such as thoserelating to ISOs, that condition favorable treatment of participants on such approval, although the board of directors may, inits discretion, seek stockholder approval in any circumstance in which it deems such approval advisable. Our Plan willterminate at the earliest of (a) such time as no shares of common stock remain available for issuance under our Plan,(b) termination of our Plan by the board of directors, or (c) the tenth anniversary of the effective date of the Plan. Awardsoutstanding upon expiration of our Plan will remain in effect until they have been exercised or terminated, or have expired.It is intended that any amounts payable under the Plan will either be exempt from Section 409A of the Code or willcomply with Section 409A (including Treasury regulations and other published guidance related thereto) so as not to subjectan employee to payment of any other additional tax, penalty or interest imposed under Section 409A of the Code.Director CompensationWe currently compensate each non‑employee director through annual stock option grants and by paying annualfees for their participation on the board and on respective board committees. Our board members will receive compensationof $10,000 per quarter, as well as an annual award of $10,000 in stock option grants that would vest as of the next annualmeeting or in one year. Our board of directors will review director compensation annually and adjust it according to thencurrent market conditions and good business practices. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS.The following table and accompanying footnotes set forth certain information with respect to the beneficialownership of our common stock as of March 27, 2019, referred to in the table below as the “Beneficial Ownership Date,” by:·each person who is known to be the beneficial owner of 5% or more of the outstanding shares of our commonstock;·each of our current directors and director nominees and each of our named executive officers individually; and·all our current directors, director nominees and executive officers as a group.Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of sharesbeneficially owned by a person and the percentage ownership of that person, shares of common stock subject to stockoptions or warrants held by that person that are currently exercisable or exercisable within 60 days of the BeneficialOwnership Date and shares of restricted stock subject to vesting until the occurrence of certain events are deemedoutstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Percentage ofbeneficial ownership is based on 24,600,000 shares of common stock outstanding as of the Beneficial Ownership Date.To our knowledge, except as set forth in the footnotes to this table and subject to applicable community propertylaws, each person named in the table has sole voting and investment power with respect to the shares set forth65 Table of Contentsopposite such person’s name. Except as otherwise indicated, the address of each of the persons in this table is c/o LegacyHousing Corporation, 1600 Airport Freeway, #100, Bedford, Texas 76022. Shares of Common Stock Beneficially Owned Name and Address of Beneficial Owner Number of Shares Percentage Directors and Executive Officers Curtis D. Hodgson(1) 8,900,734 36.2% Kenneth E. Shipley(2) 3,400,000 13.8% Jeffrey V. Burt(3) 8,580 * Neal J. Suit(4) 15,917 * Mark Bennett(5) 69,913 * Philip T. Blazek 5,734 * John Isakson 734 * 5% Stockholders William Shipley(2) 3,300,000 13.4% Douglas Shipley(2) 3,300,000 13.4% All directors, director nominees and executive officers as a group(7 persons) 12,401,612 50.4% * Less than 1% of outstanding shares of common stock(1)Mr. Hodgson’s beneficial ownership includes 1,000,000 shares of common stock owned by Hodgson Ventures, a Texaslimited partnership, of which Mr. Hodgson is the general partner, 3,300,000 shares of common stock owned by theHodgson 2015 Grandchild’s Trust, of which Mr. Hodgson shares voting and investment power with respect to suchshares and 100,000 shares owned by Cusach, Inc., an entity controlled by Mr. Hodgson.(2)Kenneth E. Shipley’s beneficial ownership includes 100,000 shares of common stock owned by Shipley Bros., Ltd., anentity controlled by Kenneth E. Shipley. Each of Kenneth E. Shipley’s brothers, William Shipley and Douglas Shipley,owns 3,300,000 shares of our common stock, as to which shares Kenneth E. Shipley disclaims any beneficial interest.(3)Mr. Burt’s beneficial ownership consists of 8,580 shares of common stock, representing the initial annual increment of14.3% of the 60,000 shares of common stock granted to him during the seven-year period commencing February 7, 2019under our 2018 Incentive Compensation Plan, which are currently vested.(4)Mr. Suit’s beneficial ownership consists of (a) 8,580 shares of common stock, representing the initial annual incrementof 14.3% of the 60,000 shares of common stock granted to him during the seven-year period commencing February 7,2019 under our 2018 Incentive Compensation Plan, which are currently vested, and (b) 7,337 shares of common stockunderlying stock options, representing the initial annual increment of 12.5% of the 58,694 stock options granted to himduring the eight-year period commencing February 7, 2019 under our 2018 Incentive Compensation Plan, which arecurrently exercisable.(5)Mr. Bennett’s beneficial ownership includes 31,000 shares of common stock owned by his spouse. 66 Table of Contents ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.Transactions and Relationships with Directors, Officers and 5% StockholdersBell Mobile Homes, a retailer owned by one of the Company’s significant shareholders, purchases manufacturedhomes from the Company. Accounts receivable balances due from Bell Mobile Homes were $414 and $385 as ofDecember 31, 2018 and 2017, respectively. Accounts payable balances due to Bell Mobile Homes for maintenance andrelated services were $123 and $57 as of December 31, 2018 and 2017, respectively. Home sales to Bell Mobile Homes were$3,640 and $2,529 for the years ended December 31, 2018 and 2017, respectively. Rebates paid to Bell Mobile Homes were$390 and $246 for the years ended December 31, 2018 and 2017, respectively.Shipley Bros., Ltd. (“Shipley Bros.”), a retailer owned by one of the Company’s significant shareholders, purchasesmanufactured homes from the Company. Accounts receivable balances due from Shipley Bros. were $832 and $41 as ofDecember 31, 2018 and 2017, respectively.On February 2, 2016, the Company entered into a $1,500 note payable agreement with stated annual interest rates of3.75% with a related party through common ownership. The note was due on demand. Interest paid on the note payable to anaffiliate was $47 and $56 for the years ended December 31, 2018 and 2017, respectively. The balance outstanding on thenote payable at December 31, 2017 was $1,500. On October 18, 2018, this note payable was paid in full. During the fourth quarter of 2018, the Company has a receivable of $375 from a principal shareholder for certainbusiness expenses related to a potential business venture. This amount is included in the Company’s accounts receivablebalance as of December 31, 2018.Indemnification AgreementsWe have entered into an indemnification agreement with each of our directors and executive officers. Theindemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors andexecutive officers to the fullest extent permitted by Delaware law.Corporate ConversionEffective January 1, 2018, we converted to a Delaware corporation and changed our name to Legacy HousingCorporation. Prior to January 1, 2018, we were a Texas limited partnership controlled by our Executive Chairman andPresident and Chief Executive Officer. Upon the corporate conversion, all of our outstanding partnership interests wereexchanged on a proportional basis for shares of common stock of Legacy Housing Corporation. The conversion qualified as atax free transaction under Section 351 of the Internal Revenue Code. Policies and Procedures for Transactions with Related PersonsOur board of directors adopted a written related person transaction policy setting forth the policies and proceduresfor the review and approval or ratification of related person transactions. Related persons include any executive officer,director or a holder of more than 5% of our common stock, including any of their immediate family members and any entityowned or controlled by such persons. Related person transactions refers to any transaction, arrangement or relationship, orany series of similar transactions, arrangements or relationships in which (i) we were or are to be a participant, (ii) the amountinvolved exceeds $120,000, and (iii) a related person had or will have a direct or indirect material interest. Related persontransactions include, without limitation, purchases of goods or services by or from the related person or entities in which therelated person has a material interest, indebtedness, guarantees of indebtedness, and employment by us of a related person, ineach case subject to certain exceptions set forth in Item 404 of Regulation S‑K under the Securities Act.67 Table of ContentsThe policy provides that in any related person transaction, our audit committee and board of directors will considerall of the available material facts and circumstances of the transaction, including the direct and indirect interests of therelated persons, in the event the related person is a director (or immediate family member of a director or an entity with whicha director is affiliated), the impact that the transaction will have on a director’s independence, the risks, costs and benefits ofthe transaction to us, and whether any alternative transactions or sources for comparable services or products are available.After considering all such facts and circumstances, our audit committee and board of directors will determine whetherapproval or ratification of the related person transaction is in our best interests. For example, if our audit committeedetermines that the proposed terms of a related person transaction are reasonable and at least as favorable as could have beenobtained from unrelated third parties, it will recommend to our board of directors that such transaction be approved orratified. In addition, if a related person transaction will compromise the independence of one of our directors, our auditcommittee may recommend that our board of directors reject the transaction if it could affect our ability to comply withsecurities laws and regulations or Nasdaq listing requirements.Each transaction described above was entered into prior to the adoption of our audit committee charter and theforegoing policy. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.Grant Thornton LLP served as our independent registered public accountants for the years ended December 31,2018 and 2017. Audit Fees For our fiscal years ended December 31, 2018 and 2017, we were billed approximately $1,507,067 and $0,respectively, for professional services rendered by our independent auditors. Audit fees consist of the aggregate fees billedfor (i) the audit of our annual financial statements included herein (ii) audits and reviews included in our RegistrationStatement on Form S-1 related to our IPO in 2018 (iii) services that are normally provided in connection with statutory andregulatory filings or engagements such as comfort letters, consents and other services, and (iv) accounting consultations. As aresult of our IPO, the amounts reported are not necessarily representative of the fees we expect to pay Grant Thornton LLP infuture years. Audit Related Fees There were no fees for audit related services rendered by our independent auditors or the years ended December 31,2018 and 2017. Tax Fees For our fiscal years ended December 31, 2018 and 2017, there were no fees for professional services rendered by ourindependent auditors for tax compliance, tax advice, and tax planning. All Other Fees There were no fees that fell into the classification of “Other Fees” for our fiscal years ended December 31, 2018 and2017. Pre-Approval Policies Following the appointment of all three current members to the Board’s audit committee, such committee began itsactivities in December 2018. Prior to then, all of the above services and fees were reviewed and approved by the entire Board.No services were performed before or without approval. 68 Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. ExhibitNumber Description 3.1 Amended and Restated Certificate of Incorporation of Legacy Housing Corporation.3.2 Amended and Restated Bylaws of Legacy Housing Corporation.4.1 Specimen Common Stock Certificate.10.1†2018 Incentive Compensation Plan.10.2 Promissory Note, dated December 14, 2011, from Legacy Housing, Ltd. to Capital One, N.A.10.3 Amended and Restated Promissory Note, dated December 12, 2013, from Legacy Housing, Ltd. to Capital One,N.A.10.4 Second Amended and Restated Promissory Note, dated March 31, 2014, from Legacy Housing, Ltd. to CapitalOne, N.A.10.5 Third Amended and Restated Promissory Note, dated May 12, 2017, from Legacy Housing, Ltd. to CapitalOne, N.A.10.6 Fourth Amendment to Loan and Security Agreement, dated July 2015, between Legacy Housing, Ltd. andCapital One, N.A.10.7 Amended and Restated Promissory Note, dated April 4, 2016, from Legacy Housing, Ltd. to VeritexCommunity Bank.10.8 Promissory Note, dated April 7, 2011, from Legacy Housing, Ltd. to Woodhaven Bank Fossil Creek, a Branchof Woodhaven National Bank.10.9 Promissory Note, dated May 24, 2016, from Legacy Housing, Ltd. to Eagle One, LLC.10.10 Promissory Note, dated February 16, 2016, from Legacy Housing, Ltd. to DT Casualty InsuranceCompany Ltd.10.11 Lease Agreement, dated as of December 1, 2016, between Putnam Development Authority and LegacyHousing, Ltd., together with related Option Agreement.10.12 Bond Purchase Loan Agreement, dated as of December 1, 2016, between Putnam Development Authority andLegacy Housing, Ltd.10.13 Form of Indemnification Agreement.10.14 Form of Non-Disclosure, Non-Competition and Non-Solicitation Agreement between Legacy HousingCorporation and its employees.10.15†Employment Agreement, dated as of November 27, 2018, between Legacy Housing Corporation and Curtis D.Hodgson.10.16†Employment Agreement, dated as of November 27, 2018, between Legacy Housing Corporation and KennethE. Shipley.10.17 Loan and Security Agreement, dated December 14, 2011, between Legacy Housing, Ltd. and Capital One, N.A.10.18 First Amendment to Loan and Security Agreement, dated December 12, 2013, between Legacy Housing, Ltd.and Capital One, N.A.10.19 Second Amendment to Loan and Security Agreement, dated March 31, 2014, between Legacy Housing, Ltd.and Capital One, N.A.10.20 Third Amendment to Loan and Security Agreement, dated May 20, 2014, between Legacy Housing, Ltd. andCapital One, N.A.10.21 Amendment to Loan and Security Agreement, dated May 12, 2017, between Legacy Housing, Ltd. and CapitalOne, N.A.10.22 Loan Agreement, dated April 4, 2016, by and between Legacy Housing, Ltd. and Veritex Bank.14.1 Code of Ethics and Business Conduct.14.2 Code of Ethics for the CEO and Senior Financial Officers.31.1*Rule 13a‑14(a)/15d‑14(a) Certification. 69 Table of ContentsExhibitNumber Description 31.2*Rule 13a‑14(a)/15d‑14(a) Certification.32.1*Section 1350 Certifications.32.2*Section 1350 Certifications.Unless otherwise indicated, each document was filed as an exhibit to the Company’s Registration Statement on Form S-1(File No. 333-228288).†Compensatory plan or agreement.*Filed herewith. (a)2. Financial Statement Schedules There are no Financial Statement Schedules included with this filing for the reason that they are not applicableor are not required or the information is included in the financial statements or notes thereto. 70 Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LEGACY HOUSING CORPORATION By:/s/ Kenneth E. Shipley Name:Kenneth E. Shipley Title:President and Chief Executive OfficerDate:April 9, 2019 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Curtis D. HodgsonCurtis D. HodgsonExecutive Chairman of the BoardApril 9, 2019 /s/ Kenneth E. ShipleyKenneth E. ShipleyPresident and Chief ExecutiveOfficer and Director (principalexecutive officer)April 9, 2019 /s/ Jeffrey V. BurtJeffrey V. BurtChief Financial Officer (principalfinancial and accounting officer)April 9, 2019 /s/ Mark E. BennettMark E. BennettDirectorApril 9, 2019 /s/ Philip T. BlazekPhilip T. BlazekDirectorApril 9, 2019 /s/ John A. IsaksonJohn A. IsaksonDirectorApril 9, 2019 71 EXHIBIT 31.1 CERTIFICATION I, Kenneth E. Shipley, certify that: 1.I have reviewed this annual report on Form 10-K of Legacy Housing Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and reportfinancial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting. Date: April 9, 2019 /s/ Kenneth E. Shipley Name: Kenneth E. Shipley Title: President and Chief Executive Officer EXHIBIT 31.2 CERTIFICATION I, Jeffrey V. Burt certify that: 1.I have reviewed this annual report on Form 10-K of Legacy Housing Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and reportfinancial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting. Date: April 9, 2019 /s/ Jeffrey V. Burt Name: Jeffrey V. Burt Title: Chief Financial Officer EXHIBIT 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) In connection with the Annual Report on Form 10-K for the year ended December 31, 2018 (the “Report”), I, Kenneth E.Shipley, President and Chief Executive Officer of Legacy Housing Corporation (the “Company”) hereby certify that: 1.The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities ExchangeAct of 1934; and 2.The information contained in the Periodic Report fairly presents, in all material respects, the financial condition andresults of operations of the Company. Dated: April 9, 2019/s/ Kenneth E. Shipley Name: Kenneth E. Shipley Title: President and Chief Executive Officer EXHIBIT 32.2 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) In connection with the Annual Report on Form 10-K for the year ended December 31, 2018 (the “Report”), I, Jeffrey V. Burt,Chief Financial Officer of Legacy Housing Corporation (the “Company”) hereby certify that: 1.The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities ExchangeAct of 1934; and 2.The information contained in the Periodic Report fairly presents, in all material respects, the financial condition andresults of operations of the Company. Dated: April 9, 2019/s/ Jeffrey V. Burt Name: Jeffrey V. Burt Title: Chief Financial Officer
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