LEGACY HOUSING CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Form 10-Q)


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

Insight

Legacy Housing Corporation builds, sells and finances manufactured homes and
"tiny houses" that are distributed through a network of independent retailers
and company-owned stores and are sold directly to manufactured housing
communities. We are the sixth largest producer of manufactured homes in the
United States as ranked by number of homes manufactured based on information
available from the Manufactured Housing Institute and IBTS for the twelve month
period ending March 31, 2022. With current operations focused primarily in the
southern United States, we offer our customers an array of quality homes ranging
in size from approximately 390 to 2,667 square feet consisting of 1 to 5
bedrooms, with 1 to 31/2 bathrooms. Our homes range in price, at retail, from
approximately $22,000 to $140,000. For the three and six months ended June 30,
2022, we sold 999 and 2,003 home sections, respectively (which are entire homes
or single floors that are combined to create complete homes). For the three and
six months ended June 30, 2021, we sold 945 and 1,665 home sections,
respectively.

The Company has one reportable segment. All of our activities are interrelated,
and each activity is dependent and assessed based on how each of the activities
of Company supports the others. For example, the sale of manufactured homes
includes providing transportation and consignment arrangements with dealers. We
also provide financing options to the customers to facilitate 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 Chairman of the Board, are based
upon analyses of our company as one segment or unit.

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

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

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

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

Business Conversion

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

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

Factors affecting our performance

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

We have purchased several properties in our market area with the aim of

? develop communities and prefabricated housing estates. From June 30th,

2022, these properties include the following (dollars in thousands):


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

We also plan to provide financing solutions to a select group of our

customer owners of the prefab housing community in a manner that includes

develop new sites for the products in or near urban areas where there is a

? lack of sites to place our products. These solutions will be structured to

give us an attractive return on investment when coupled with gross margin

we plan to do on products specifically for sale to these new

prefabricated housing communities.

Finally, our financial performance will be impacted by our ability to fulfill

current orders for our prefabricated houses with dealers and customers.

Currently our two Texas manufacturing facilities are running near full capacity

capacity, with a limited ability to increase the volume of homes produced at

these plants. Our Georgia manufacturing plant has unused floor space

available and with additional investment can add capacity to increase the

? number of houses that can be made. We intend to increase production to

the Georgia facilitated over time, in particular in response to more and more orders

generated by new markets in Florida and the Carolinas. For

maintain our growth, we must be able to continue to estimate well

future volumes anticipated when making commitments on the level of

business we will seek and accept, the mix of products we intend to

manufacturing, timing of production schedules and levels and usage

inventory, equipment and personnel.

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The coronavirus pandemic is an evolving threat to the economy and all

? companies. Currently, both the duration of the pandemic and the magnitude of

the economic consequences are unknown. Risks to the Company include but are not

limited to:

increased loan losses or deferred loan repayments as loan debtors suffer from liquidity

o flow issues resulting from reduced employment, lower rental income or

sales or other factors;

reduced sales volume as potential customers cannot buy new homes or

o cannot qualify for a home purchase, retailer or company store discount or

stop operations, or MHP owners reduce future home purchases;

reduced production resulting from factors such as the spread of disease

through the Company’s workforce or the impact of government interventions on

o participation in the labor market, reduction in demand for products or

closures of our factories, company-owned stores or independent retail lots

resellers who sell our products;

delays in development projects as zoning, regulatory and permitting decisions

o are likely to be postponed and the expected negative impact of the pandemic on

the construction industry;

o Reduced raw material availability due to global supply chain disruption

the pandemic, including possible border closures;

o a decline in cash flow from operations which could negatively affect our

liquidity;

an outbreak of illness among our management and accounting staff could

o adversely affect our ability to maintain our operations, operate our

systems, delaying our statutory reports and reducing our internal control over

financial report.


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

Operating results

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

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Comparison of three months ended June 30, 2022 and 2021 (in thousands)

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


Product sales primarily consist of direct sales, commercial sales, consignment
sales and retail store sales. Product sales increased $14.0 million, or 34.0%,
during the three months ended June 30, 2022 as compared to the same period in
2021. This increase was driven by higher average sales price and a slight
increase in unit volumes.

Net revenue attributable to our manufactured homes consisted of the following during the three months of 2022 and 2021:

                                  Three months ended
                                      June 30,
                                    (in thousands)
                                   2022         2021      $ Change     % Change
Net revenue:
Products sold                   $   55,098    $ 41,115    $  13,983        34.0 %
Total products sold                    794         783           11         1.4 %
Net revenue per product sold    $     69.4    $   52.5    $      17        32.2 %

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

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

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

Other income primarily includes consignment fees, commercial lease rents and service charge income and the increase $0.9 millioni.e. 118.4% during the three months ended June 30, 2022 compared to the same period in 2021.

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

Selling, general and administrative expenses increased $0.7 million, or 14.2%,
during the three months ended June 30, 2022 as compared to the same period in
2021. This increase was primarily due to a $0.5 million increase in salaries and
incentive costs, a $0.3 million increase in consulting and professional fees, a
$0.2 million increase in title fees & expenses and a $0.2 million increase in
loan losses partially offset by a net $0.5 million decrease in other
miscellaneous costs.

Increased Dealer Incentive Spending $0.3 million in the three months ended
June 30, 2022 compared to the same period in 2021.

Other income (expense), net increased $0.4 million during the three months ended
June 30, 2022 as compared to the same period in 2021.  This increase was
primarily due to a $0.4 million increase in non-operating interest income and a
decrease of $0.1 million in interest expense.

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

Comparison of the six months ended June 30, 2022 and 2021 (in thousands)

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


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

Net revenue attributable to our manufactured homes consisted of the following during the six months of 2022 and 2021:

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

13.2% Net revenue per product sold $67.0 $52.0 $14.9 28.7%


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

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

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

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

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

Increased Dealer Incentive Spending $0.1 millioni.e. 23.8%, during the half-year ended June 30, 2022 compared to the same period in 2021.

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

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

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Cash and capital resources

Cash and cash equivalents

We consider all cash and highly liquid investments with an original maturity of
three months or less to be cash equivalents. We maintain cash balances in bank
accounts that may, at times, exceed federally insured limits. We have not
incurred any losses from such accounts and management considers the risk of loss
to be minimal. We believe that cash flow from operations, cash and cash
equivalents at June 30, 2022, and availability on our lines of credit will be
sufficient to fund our operations and provide for growth for the next 12 to
18 months and into the foreseeable future. In 2020, we negotiated a new credit
agreement with Capital One, N.A. that expanded and extended our credit
availability (see Indebtedness - Capital One Revolver, below). As of June 30,
2022, we had approximately $14.3 million in cash and cash equivalents, compared
to $1.0 million as of December 31, 2021.

Cash Flow Activities

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

Net cash used in operating activities                  $ (3,956)    $ 

(4,775)

Net cash provided by (used in) investing activities $10,072 ($8,482)
Net cash provided by financing activities

              $   7,109    $  

13,298

Net change in cash and cash equivalents                $  13,225    $     

41

Cash and cash equivalents at the beginning of the period $1,042 $768
Cash and cash equivalents at the end of the period

             $  14,267    $     

809

Comparison of treasury activities of June 30, 2022 at June 30, 2021

Net cash used in operating activities decreased $0.8 million during the six
months ended June 30, 2022, compared to the comparable period in 2021, primarily
as a result of increased MHP originations net of collections, increased dealer
inventory loan originations net of collections, increased volume of consumer
loan originations net of principal collections, increased inventories, increased
accounts receivable, increase in other assets and a decrease in accounts
payable. The increase in cash used in operating activities was partially offset
by an increase in customer deposits, an increase in escrow liability and
increased dealer incentive liability.

Net cash provided by investing activities of $10.1 million in 2022 was primarily
attributable to $13.7 million of collections related to loans we made to third
parties for the development of manufactured housing parks and collections of
$0.3 million from our purchased consumer loans. These were offset by $2.4
million used for loans to third parties for the development of manufactured
housing parks and $1.5 million used for the acquisition of property plant and
equipment.

Net cash provided by financing activities of $7.1 million in 2022 was
attributable to net proceeds of $4.6 million on our lines of credit and $2.5
million of proceeds from other liabilities. Net cash provided by financing
activities of $13.5 million in 2021 was attributable to net proceeds of $13.5
million on our lines of credit.

Debt

Capital One Revolver. At December 31, 2019, we had a revolving line of credit
("Revolver 1") with Capital One, N.A. with a maximum credit limit of $45,000 and
a maturity date of May 11, 2020. On March 30, 2020, we entered into an agreement
with Capital One, N.A. to replace Revolver 1 with a new revolving line of credit
("New Revolver"). The New Revolver has a maximum credit limit of $70,000 and a
maturity date of March 30, 2024. For the period January 1, 2020 through March
30, 2020, Revolver 1 accrued interest at one-month LIBOR plus 2.40%. Amounts

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

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

For the six months ended June 30, 2022 and 2021, interest expense under the New
Revolver was $239 and $509, respectively. The outstanding balance as of June 30,
2022 and December 31, 2021 was $12,614 and $7,993 respectively. The New Revolver
requires the Company to comply with certain financial and non-financial
covenants. As of June 30, 2022, the Company was in compliance with all financial
covenants, including that it maintain a tangible net worth of at least $120,000
and that it maintain a ratio of debt to EBITDA of 4 to 1, or less.

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

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

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

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Contractual Obligations

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

                                                        Payments Due by Period (in thousands)

Contractual Obligations                     Total        2022     2023 - 2024    2025 - 2026     After 2026
Lines of credit                            $ 12,743          -         12,743              -              -
Operating lease obligations                $  3,286        350          1,353          1,154            429

Off-balance sheet arrangements

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

Critical accounting estimates

Critical accounting estimates are those that we believe are both significant and
that require us to make difficult, subjective or complex judgments, often
because we need to estimate the effect of inherently uncertain matters. We base
our estimates and judgments on historical experiences and various other factors
that we believe to be appropriate under the circumstances. Actual results may
differ from these estimates, and we might obtain different estimates if we used
different assumptions or conditions. Our critical accounting estimates are
identified and described in our Annual Report on Form 10-K for the year ended
December 31, 2021. Subsequent to the filing of our Annual Report, there have
been no material changes to our critical accounting estimates.

Recent accounting pronouncements

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

Emerging Growth Company Status

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

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