legh_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission file number 001‑38761


 

Legacy Housing Corporation

(Exact name of registrant as specified in its charter)


 

Delaware

20‑2897516

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

1600 Airport Freeway, #100

Bedford, Texas 76022

(Address of principal executive offices)

(Zip Code)

(817)‑799‑4900

(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange 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 to Rule 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, 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 for complying 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  .

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock ($0.001 par value)

 

LEGH

 

NASDAQ Global Market

 

There were 24,722,936 shares of Common Stock ($0.001 par value) outstanding as of August 9, 2019.

 

 

 

 

Table of Contents

LEGACY HOUSING CORPORATION

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

Page

PART I - FINANCIAL INFORMATION 

2

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

 

 

Item 4.

Controls and Procedures

30

 

 

 

 

PART II - OTHER INFORMATION 

31

 

 

 

 

 

Item 1.

Legal Proceedings

31

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

31

 

 

 

 

 

Item 4.

Mine Safety Disclosures

31

 

 

 

 

 

Item 5.

Other Information

31

 

 

 

 

 

Item 6.

Exhibits

31

 

 

 

 

SIGNATURES 

32

 

 

 

 

 

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

LEGACY HOUSING CORPORATION

CONDENSED BALANCE SHEETS (in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

2019

 

2018

Assets

 

 

 

 

 

 

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

2,422

 

$

2,599

Accounts receivable, net of allowance for doubtful accounts

 

 

3,488

 

 

2,953

Current portion of consumer loans

 

 

5,252

 

 

4,945

Current portion of notes receivable from mobile home parks (“MHP”)

 

 

9,168

 

 

7,297

Current portion of other notes receivable

 

 

222

 

 

379

Inventories

 

 

33,584

 

 

42,033

Prepaid expenses and other current assets

 

 

2,593

 

 

2,938

Total current assets

 

 

56,729

 

 

63,144

Property, plant and equipment, net

 

 

18,041

 

 

17,128

Consumer loans, net of deferred financing fees and allowance for loan losses

 

 

95,772

 

 

92,230

Notes receivable from mobile home parks (“MHP”)

 

 

62,830

 

 

50,638

Other notes receivable, net of allowance for loan losses

 

 

3,179

 

 

1,912

Other assets

 

 

3,836

 

 

2,587

Inventory non‑current

 

 

11,429

 

 

7,399

Total assets

 

$

251,816

 

$

235,038

Liabilities and Stockholders' Equity

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

3,760

 

$

2,828

Accrued liabilities

 

 

10,605

 

 

9,156

Customer deposits

 

 

1,597

 

 

2,222

Escrow liability

 

 

6,057

 

 

5,951

Line of credit

 

 

7,124

 

 

 —

Current portion of notes payable

 

 

187

 

 

228

Total current liabilities

 

 

29,330

 

 

20,385

Long‑term liabilities:

 

 

  

 

 

  

Lines of credit

 

 

2,001

 

 

13,679

Deferred income taxes

 

 

1,842

 

 

1,842

Note payable, net of current portion

 

 

3,274

 

 

3,737

Dealer incentive liability

 

 

6,187

 

 

6,115

Total liabilities

 

 

42,634

 

 

45,758

Commitments and contingencies (Note 12)

 

 

  

 

 

  

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $.001 par value, 10,000,000 shares authorized: issued -0- 

 

 

 —

 

 

 —

Common stock, $.001 par value, 90,000,000 shares authorized; 24,617,143 and

 

 

 

 

 

 

24,000,000 issued at June 30, 2019 and December 31, 2018, respectively

 

 

25

 

 

24

Treasury stock, 300,000 and -0- shares at June 30, 2019 and December 31, 2018, respectively

 

 

(3,060)

 

 

 —

Additional paid-in-capital

 

 

174,858

 

 

167,743

Retained earnings

 

 

37,359

 

 

21,513

Total stockholders' equity

 

 

209,182

 

 

189,280

Total liabilities and stockholders' equity

 

$

251,816

 

$

235,038

See accompanying notes to condensed financial statements.

2

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LEGACY HOUSING CORPORATION

CONDENSED  STATEMENTS OF  OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six months ended June 30, 

 

 

 

2019

 

2018

    

2019

    

2018

 

Net revenue:

 

 

  

 

 

  

 

 

  

 

 

  

 

Product sales

 

$

39,766

 

$

38,188

 

$

71,316

 

$

75,602

 

Consumer and MHP loans interest

 

 

5,112

 

 

4,504

 

 

10,642

 

 

8,897

 

Other

 

 

883

 

 

1,314

 

 

1,757

 

 

2,191

 

Total net revenue

 

 

45,761

 

 

44,006

 

 

83,715

 

 

86,690

 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

Cost of product sales

 

 

27,876

 

 

29,335

 

 

49,760

 

 

56,981

 

Selling, general administrative expenses

 

 

6,144

 

 

5,175

 

 

12,635

 

 

9,974

 

Dealer incentive

 

 

239

 

 

 2

 

 

449

 

 

337

 

Income from operations

 

 

11,502

 

 

9,494

 

 

20,871

 

 

19,398

 

Other income (expense):

 

 

  

 

 

  

 

 

  

 

 

  

 

Non‑operating interest income

 

 

46

 

 

64

 

 

85

 

 

115

 

Miscellaneous, net

 

 

31

 

 

45

 

 

33

 

 

79

 

Interest expense

 

 

(158)

 

 

(669)

 

 

(347)

 

 

(1,308)

 

Total other

 

 

(81)

 

 

(560)

 

 

(229)

 

 

(1,114)

 

Income before income tax expense

 

 

11,421

 

 

8,934

 

 

20,642

 

 

18,284

 

Income tax expense

 

 

(2,788)

 

 

(2,046)

 

 

(4,796)

 

 

(6,036)

 

Net income

 

$

8,633

 

$

6,888

 

$

15,846

 

$

12,248

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,369,890

 

 

20,000,000

 

 

24,442,921

 

 

20,000,000

 

Diluted

 

 

24,369,890

 

 

20,000,000

 

 

24,457,967

 

 

20,000,000

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

$

0.34

 

$

0.65

 

$

0.61

 

Diluted

 

$

0.35

 

$

0.34

 

$

0.65

 

$

0.61

 

 

See accompanying notes to condensed financial statements.

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LEGACY HOUSING CORPORATION

CONDENSED STATEMENTS OF  CASH  FLOWS

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 

 

 

    

2019

    

2018

    

Operating activities:

 

 

  

 

 

  

 

Net income

 

$

15,846

 

$

12,248

 

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

 

 

  

 

 

  

 

Depreciation expense

 

 

494

 

 

402

 

Provision for loan loss—consumer loans

 

 

1,449

 

 

302

 

Deferred income taxes

 

 

 —

 

 

1,705

 

Share based payment expense

 

 

422

 

 

 —

 

Changes in operating assets and liabilities:

 

 

  

 

 

  

 

Accounts receivable

 

 

(535)

 

 

1,252

 

Consumer loans originations

 

 

(9,789)

 

 

(9,011)

 

Consumer loans principal collections

 

 

4,128

 

 

4,434

 

Notes receivable MHP originations

 

 

(29,079)

 

 

(17,683)

 

Notes receivable MHP principal collections

 

 

15,016

 

 

11,053

 

Inventories

 

 

4,419

 

 

(2,146)

 

Prepaid expenses and other current assets

 

 

388

 

 

(1,077)

 

Other assets

 

 

(1,248)

 

 

522

 

Accounts payable

 

 

934

 

 

(1,931)

 

Accrued liabilities

 

 

1,449

 

 

3,898

 

Customer deposits

 

 

(625)

 

 

(648)

 

Dealer incentive liability

 

 

72

 

 

(364)

 

Net cash provided by operating activities

 

 

3,341

 

 

2,956

 

Investing activities:

 

 

  

 

 

  

 

Purchases of property, plant and equipment

 

 

(1,454)

 

 

(4,708)

 

Issuance of notes receivable

 

 

(1,531)

 

 

(1,010)

 

Notes receivable collections

 

 

522

 

 

707

 

Purchases of consumer loans

 

 

(101)

 

 

(48)

 

Collections from purchased consumer loans

 

 

364

 

 

146

 

Net cash used in investing activities

 

 

(2,200)

 

 

(4,913)

 

Financing activities:

 

 

  

 

 

  

 

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

 

 

7,200

 

 

 —

 

Offering cost for over-allotment of initial public offering

 

 

(505)

 

 

 —

 

Treasury stock purchase

 

 

(3,060)

 

 

 —

 

Escrow liability

 

 

106

 

 

121

 

Principal payments on note payable

 

 

(504)

 

 

(111)

 

Proceeds from lines of credit

 

 

26,284

 

 

30,805

 

Payments on lines of credit

 

 

(30,839)

 

 

(28,514)

 

Net cash provided by (used in) financing activities

 

 

(1,318)

 

 

2,301

 

Net increase (decrease) in cash and cash equivalents

 

 

(177)

 

 

344

 

Cash and cash equivalents at beginning of period

 

 

2,599

 

 

428

 

Cash and cash equivalents at end of period

 

$

2,422

 

$

772

 

Supplemental disclosure of cash flow information:

 

 

  

 

 

  

 

Cash paid for interest

 

$

405

 

$

1,223

 

Cash paid for taxes

 

$

3,051

 

$

1,100

 

 

See accompanying notes to condensed financial statements.

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LEGACY HOUSING CORPORATION

CONDENSED  STATEMENTS OF  CHANGES IN  STOCKHOLDER’S  EQUITY

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total Partners’

 

Common Stock

 

Additional

 

Retained

 

 

 

 

    

capital

    

Shares

    

Amount

    

paid in capital

    

earnings

    

Total

Balances, December 31, 2017

 

$

124,271

 

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Shares issued upon incorporation

 

 

(124,271)

 

20,000,000

 

 

20

 

 

124,251

 

 

 —

 

 

124,271

Net income

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

5,360

 

 

5,360

Balances, March 31, 2018

 

 

 —

 

20,000,000

 

 

20

 

 

124,251

 

 

5,360

 

 

129,631

Net income

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

6,888

 

 

6,888

Balances, June 30, 2018

 

$

 —

 

20,000,000

 

$

20

 

$

124,251

 

$

12,248

 

$

136,519

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Treasury

 

Additional

 

Retained

 

 

 

 

    

Shares

    

Amount

    

Stock

 

paid in capital

    

earnings

    

Total

Balances, December 31, 2018

 

24,000,000

 

$

24

 

$

 —

 

$

167,743

 

$

21,513

 

$

189,280

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

 

600,000

 

 

 1

 

 

 —

 

 

6,694

 

 

 —

 

 

6,695

Share based compensation expense and stock units vested

 

17,143

 

 

 —

 

 

 —

 

 

234

 

 

 —

 

 

234

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

7,213

 

 

7,213

Balances, March 31, 2019

 

24,617,143

 

 

25

 

 

 —

 

 

174,671

 

 

28,726

 

 

203,422

Share based compensation expense and stock units vested

 

 —

 

 

 —

 

 

 —

 

 

187

 

 

 —

 

 

187

Purchase of treasury stock

 

 —

 

 

 —

 

 

(3,060)

 

 

 —

 

 

 —

 

 

(3,060)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

8,633

 

 

8,633

Balances, June 30, 2019

 

24,617,143

 

$

25

 

$

(3,060)

 

$

174,858

 

$

37,359

 

$

209,182

 

See accompanying notes to condensed financial statements.

 

 

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

1. NATURE OF OPERATIONS

Legacy Housing Corporation (the “Company”) was formed on January 1, 2018 through a corporate conversion of Legacy Housing, Ltd., (the “Partnership”) a Texas limited partnership formed in May 2005. The Company is incorporated as a Delaware corporation and is headquartered in Bedford, Texas. 

The Company (1) manufactures and provides for the transport of mobile homes, (2) provides wholesale financing to dealers and mobile home parks and (3) provides retail financing to consumers. The Company manufactures its mobile homes at plants located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia. The Company relies on a network of dealers to market and sell its mobile homes. The Company also sells homes directly to dealers and mobile home parks. 

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

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

Corporate Conversion

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

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

Basis of Presentation

The accompanying unaudited interim condensed financial statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018, respectively, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") as required by Regulation S-X, Rule 8-03. In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's financial position for the periods presented. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019, or any other period. The accompanying consolidated balance sheet as of December 31, 2018 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended

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Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

December 31, 2018 (the "Form 10-K"). The accompanying consolidated financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. Accordingly, they should be read in conjunction with the audited financial statements and notes thereto included in the Form 10-K.

Use of Estimates

The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period.  Material estimates that are susceptible to significant change in the near term primarily relate to the determination of accounts receivable, consumer loans and notes receivable, inventory obsolescence, repossessed assets, income taxes, fair value of financial instruments, contingent liabilities and accruals related to warranty costs. Actual results could differ from these estimates.

Revenue Recognition

In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (Topic 606), which outlines a comprehensive five‑step model for entities to use in accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry‑specific guidance. The standard requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the requirements of the new revenue standard on January 1, 2019 using the modified retrospective transition method, applied to contracts that were not completed as of the date of initial application, which did not have a material impact on the financial statements.

The new guidance under ASU 2014-09 is applicable to our product sales which includes sales of homes through various sales channels, and other revenue which includes consignment fees, service fees and miscellaneous income. Income generated from interest, other lending activities, and investment income are excluded from ASU 2014-09 and will continue to be accounted for under existing guidance.

For those revenue streams that are subject to ASU 2014-09, the Company evaluated the impact of adopting the new standard on our revenue recognition policies under existing guidance and determined there is no impact. The adoption did not have a significant impact on the consolidated operating results, financial position or cash flows of the Company. The Company’s evaluation of ASU 2014-09 impact on primary revenue streams are as follows:

Product sales, primarily consist of sales of mobile homes to consumers and mobile home parks through various sales channels, which include Direct Sales, Commercial Sales, Consignment Sales, and Retail Store Sales. Direct Sales include homes sold directly to independent retailers or customers that are not financed by the Company and are not sold under a consignment arrangement. These types of homes are generally paid for prior to shipment. Commercial Sales include homes sold to mobile home parks under commercial loan programs or paid for upfront. The Company provides floor plan financing for independent retailers, which takes the form of a consignment arrangement. Consignment Sales are considered sales of consigned homes from independent dealers to individual customers. Retail Store Sales are homes sold through Company-owned retail locations. Consignment Sales and Retail Sales of homes may be financed by the Company, by a third party, or in paid in cash.

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

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

individual customer enters into a sales and financing contract and is required to make a down payment. These financed sales contain a significant financing component and any interest income is separately recorded in the statement of operations.

Revenue is measured as the amount of consideration expected to be received in exchange for transferring the homes to the customers.  Sales and other similar taxes collected concurrently with revenue-producing activities are excluded from revenue.

The Company made an accounting policy election to account for any shipping and handling costs that occur after the transfer of control as a fulfillment cost that is accrued when control is transferred. Warranty obligations associated with the sale of a unit are assurance-type warranties for a period of twelve months that are a guarantee of the home’s  intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract. The Company has elected to use the practical expedient to expense the incremental costs of obtaining a contract if the amortization period of the asset that the Company would have otherwise recognized is one year or less. Contract costs, which include commissions incurred related to the sale of homes, are expensed at the point-in-time when the related revenue is recognized.

For the three months ended June 30, 2019 and 2018, total cost of product sales included $7,573 and $4,029 of costs, mainly relating to up front dealer commission and reimbursed dealer expenses for consignment sales and certain other similar costs incurred for retail store and commercial sales. For the six months ended June 30, 2019 and 2018, total cost of product sales included $11,900 and $10,004 of costs, mainly relating to up front dealer commission and reimbursed dealer expenses for consignment sales and certain other similar costs incurred for retail store and commercial sales.

Other revenue consists of consignment fees, service fees and other miscellaneous income. Consignment fees are charged to independent retailers on a monthly basis for homes held by the independent retailers pursuant to a consignment arrangement until the home is sold to an individual customer. Consignment fees are determined as a percentage of the home’s wholesale price to the independent dealer. Revenue recognition for consignment fees are recognized over time using the output method as it provides a faithful depiction of the Company’s performance toward completion of the performance obligation under the contract and the value transferred to the independent retailer for the time the home is held under consignment. Revenue for service fees and miscellaneous income is recognized at a point in time when the performance obligation is satisfied.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30, 

 

June 30, 

 

 

2019

    

2018

 

2019

    

2018

Product sales:

 

 

 

 

 

 

 

 

 

 

 

 

Direct sales

 

$

5,553

 

$

7,608

 

$

10,000

 

$

20,154

Commercial sales

 

 

17,604

 

 

9,130

 

 

30,107

 

 

16,165

Consignment sales

 

 

10,625

 

 

16,039

 

 

20,662

 

 

28,790

Retail store sales

 

 

4,928

 

 

4,438

 

 

8,269

 

 

6,997

Other (1)

 

 

1,056

 

 

973

 

 

2,278

 

 

3,496

Total product sales

 

 

39,766

 

 

38,188

 

 

71,316

 

 

75,602

Consumer and MHP loans interest:

 

 

  

 

 

  

 

 

  

 

 

  

Interest - consumer installment notes

 

 

3,697

 

 

3,295

 

 

7,828

 

 

6,616

Interest - MHP notes

 

 

1,415

 

 

1,209

 

 

2,814

 

 

2,281

Total consumer and MHP loans interest

 

 

5,112

 

 

4,504

 

 

10,642

 

 

8,897

Other

 

 

883

 

 

1,314

 

 

1,757

 

 

2,191

Total net revenue

 

$

45,761

 

$

44,006

 

$

83,715

 

$

86,690

(1)

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

Share-Based Compensation

The Company accounts for share-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation. Share-based compensation expense is recognized based on the award’s estimated grant date fair value in order to recognize compensation cost for those shares expected to vest. The Company has elected to record forfeitures as they occur. Compensation cost is recognized on a straight-line basis over the vesting period of the awards and adjusted as forfeitures occur.

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

The fair value of stock option awards on the date of grant is estimated using the Black-Scholes option pricing model, which requires the Company to make certain predictive assumptions. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon securities that correspond to the expected life of the award. As a recently formed public entity with a small public float and limited trading of its common shares on the NASDAQ Global Market, it was not practicable for the Company to estimate the volatility of its common shares; therefore, management estimated volatility based on the historical volatilities of a small group of companies considered as close to comparable to the Company as available, all equally weighted, over the expected life of the option. Management concluded that this group is more characteristic of the Company’s business than a broad industry index. The expected life of awards granted represents the period of time that the awards are expected to be outstanding based on the “simplified” method, which is allowed for companies that cannot reasonably estimate the expected life of options based on its historical award exercise experience. The Company does not expect to pay dividends on its common stock. Due to the nature of the grants, the company estimated zero option forfeitures. Share-based payment expense is recorded only for those awards that are expected to vest.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

Recent Accounting Pronouncements

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

In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and an asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous requirements. The Company plans to use longer phase‑in period for adoption and accordingly this ASU is effective for the Company’s fiscal year beginning January 1, 2020. Modified retrospective application and early adoption is permitted. The Company expects that the adoption of this standard will result in a material increase to assets and liabilities on the balance sheet but will not have a material impact on the statement of operations.  While the Company is continuing to assess all the effects of adoption, it currently believes the most significant effects relate to (i) the recognition of new right-of-use assets and lease liabilities on its balance sheet for its property and equipment operating leases and (ii) providing significant new disclosures about its leasing activities.

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 for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write‑down and affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company plans to use longer phase‑in period for adoption and accordingly this ASU is effective for the Company’s fiscal year beginning January 1, 2021. The Company is continuing to evaluate the impact of the adoption of this ASU and is uncertain of the impact on the financial statements and disclosures at this point in time.

In March 2017, the FASB issued ASU 2017‑08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310‑20), Premium Amortization on Purchased Callable Debt Securities (“ASU 2017‑08”), which requires the premium on callable debt securities to be amortized to the earliest call date as opposed to the contractual life of the security. ASU 2017‑08 will be effective beginning with the first quarter of the Company’s fiscal year 2020. The Company is continuing to evaluate the impact of the adoption of this ASU and is uncertain of the impact on the financial statements and disclosures at this point in time.

From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted by the Company as of the specified effective dates. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s Financial Statements upon adoption.

 

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

2. CONSUMER LOANS RECEIVABLE

Consumer loans receivable result from financing transactions entered into with retail consumers of mobile homes sold through independent retailers and company-owned retail locations. Consumer loans receivable generally consist of the sales price and any additional financing fees, less the buyer’s down payment. Interest income is recognized monthly per the terms of the financing agreements. The average contractual interest rate per loan was approximately 14.1% as of June 30, 2019 and approximately 14.0% as of December 31, 2018. Consumer loans receivable have maturities that range from 5 to 25 years.

Loan applications go through an underwriting process which considers credit history to evaluate credit risk of the consumer. Interest rates on approved loans are determined based on consumer credit score, payment ability and down payment amount.

The Company uses payment history to monitor the credit quality of the consumer loans on an ongoing basis.

The Company may also receive escrow payments for property taxes and insurance included in its consumer loan collections. The liabilities associated with these escrow collections totaled $6,057 and $5,951 as of June 30, 2019 and December 31, 2018, respectively, and are included in escrow liability in the balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

The allowance for loan losses reflects management’s estimate of losses inherent in the consumer loans that may be uncollectible based upon review and evaluation of the consumer loan portfolio as of the date of the balance sheet. An allowance for loan losses is determined after giving consideration to, among other things, the loan characteristics, including the financial condition of borrowers, the value and liquidity of collateral, delinquency and historical loss experience.

The allowance for loan losses is comprised of two components: the general reserve and specific reserves. The Company’s calculation of the general reserve considers the historical loss rate for the last three years, adjusted for the estimated loss discovery period and any qualitative factors both internal and external to the Company. Specific reserves are determined based on probable losses on specific classified impaired loans.

The Company’s policy is to place a loan on nonaccrual status when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is normally when either principal or interest is past due and remains unpaid for more than 90 days. Management implemented this policy based on an analysis of historical data, current performance of loans and the likelihood of recovery once principal or interest payments became delinquent and were aged more than 90 days. Payments received on nonaccrual loans are accounted for on a cash basis, first to interest and then to principal, as long as the remaining book balance of the asset is deemed to be collectible. The accrual of interest resumes when the past due principal or interest payments are brought within 90 days of being current.

Impaired loans are those loans where it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impaired loans, or portions thereof, are charged off when deemed uncollectible. A loan is generally deemed impaired if it is  more than 90 days past due on principal or interest, is in bankruptcy proceedings, or is in the process of repossession. A specific reserve is created for impaired loans based on fair value of underlying collateral value, less estimated selling costs. The Company uses various factors to determine the value of the underlying collateral for impaired loans. These factors are: (1) the length of time the unit was unsold after construction; (2) the amount of time

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

the house was occupied; (3) the cooperation level of the borrowers, i.e., loans requiring legal action or extensive field collection efforts; (4) units located on private property as opposed to a manufactured home park; (5) the length of time the borrower has lived in the house without making payments; (6) location, size, and market conditions; and (7) the experience and expertise of the particular dealer assisting in collection efforts.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell. At repossession, the fair value of the collateral is computed based on the historical recovery rates of previously charged‑off loans; the loan is charged off and the loss is charged to the allowance for loan losses. At each reporting period, the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell, based on current information. Repossessed homes totaled $1,477 and $1,175 as of June 30, 2019 and December 31, 2018, respectively, and are included in other assets in the balance sheets.

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

 

 

 

 

 

 

 

 

    

As of June 30, 

    

As of December 31, 

 

 

2019

 

2018

Consumer loans receivable

 

$

105,038

 

$

101,049

Loan discount and deferred financing fees, net

 

 

(3,201)

 

 

(3,162)

Allowance for loan losses

 

 

(813)

 

 

(712)

Consumer loans receivable, net

 

$

101,024

 

$

97,175

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

 

2019

    

2018

 

2019

    

2018

    

Allowance for loan losses, beginning of period

 

$

885

 

$

854

 

$

712

 

$

805

 

Provision for loan losses

 

 

30

 

 

263

 

 

437

 

 

380

 

Charge offs

 

 

(102)

 

 

(326)

 

 

(336)

 

 

(394)

 

Allowance for loan losses

 

$

813

 

$

791

 

$

813

 

$

791

 

 

The impaired and general reserve for allowance for loan losses:

 

 

 

 

 

 

 

 

    

As of June 30, 

    

As of December 31, 

 

 

2019

 

2018

Total consumer loans

 

$

105,038

 

$

101,049

Total allowance for loan losses

 

 

813

 

 

712

Impaired loans individually evaluated for impairment

 

 

1,429

 

 

1,445

Specific reserve against impaired loans

 

 

394

 

 

427

Other loans collectively evaluated for allowance

 

 

103,609

 

 

99,604

General allowance for loan losses

 

 

419

 

 

285

 

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

As of June 30, 2019 and December 31, 2018, the total principal outstanding for consumer loans on nonaccrual status was $1,429 and $1,445, respectively. A detailed aging of consumer loans receivable that are past due as of June 30, 2019 and December 31, 2018 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 

    

 

    

As of December 31, 

    

 

 

 

2019

 

%

 

2018

 

%

Total consumer loans receivable

 

$

105,038

 

100.0

   

$

101,049

 

100.0

Past due consumer loans:

 

 

  

 

  

 

 

  

 

  

31 - 60 days past due

 

$

469

 

0.4

 

$

968

 

1.0

61 - 90 days past due

 

 

563

 

0.5

 

 

404

 

0.4

91 - 120 days past due

 

 

116

 

0.1

 

 

133

 

0.1

Greater than 120 days past due

 

 

859

 

0.8

 

 

843

 

0.8

Total past due

 

$

2,007

 

1.9

 

$

2,348

 

2.3

 

 

3.  NOTES RECEIVABLE FROM MOBILE HOME PARKS (“MHP Notes”)

MHP Notes are stated at amounts due from customers, net of allowance for loan losses. The Company determines the allowance by considering several factors including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history. The Company establishes an allowance reserve composed of specific and general reserve amounts. 

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

4. OTHER NOTES RECEIVABLE

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

 

 

 

 

 

 

 

 

    

As of June 30, 

    

As of December 31, 

 

 

2019

 

2018

Outstanding principal balance

 

$

3,470

 

$

2,354

Allowance for loan losses

 

 

(69)

 

 

(63)

Total

 

$

3,401

 

$

2,291

 

 

5. INVENTORIES

Inventories consisted of the following:

 

 

 

 

 

 

 

 

    

As of June 30, 

    

As of December 31, 

 

 

2019

 

2018

Raw materials

 

$

10,043

 

$

13,481

Work in progress

 

 

335

 

 

526

Finished goods

 

 

34,635

 

 

35,425

Total

 

$

45,013

 

$

49,432

 

 

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

 

 

 

 

 

 

 

 

    

As of June 30, 

    

As of December 31, 

 

 

2019

 

2018

Land

 

$

9,072

 

$

8,081

Buildings and leasehold improvements

 

 

9,379

 

 

9,234

Vehicles

 

 

1,552

 

 

1,477

Machinery and equipment

 

 

3,518

 

 

3,385

Furniture and fixtures

 

 

215

 

 

161

Total

 

 

23,736

 

 

22,338

Less accumulated depreciation

 

 

(5,695)

 

 

(5,210)

Total property, plant and equipment

 

$

18,041

 

$

17,128

 

Depreciation expense was $253 with $91 included as a component of cost of product sales for the three months ended June 30, 2019 and $206 with $75 included as a component of cost of product sales for the three‑months ended June 30, 2018. Depreciation expense was $494 with $181 included as a component of cost of product sales for the six months ended June 30, 2019 and $402 with $150 included as a component of cost of product sales for the six months ended June 30, 2018.

7. OTHER ASSETS

Other assets includes leased property of $2,046 and $1,088 at June 30, 2019 and December 31, 2018, respectively, prepaid rent in the amount of $312 and $324 at June 30, 2019 and December 31, 2018, respectively, and repossessed loans of $1,477 and $1,175 at June 30, 2019 and December 31, 2018, respectively.

8. ACCRUED LIABILITIES

Accrued liabilities consisted of the following at June 30, 2019 and December 31, 2018:

 

 

 

 

 

 

 

 

    

As of June 30, 

    

As of December 31, 

 

 

2019

 

2018

Warranty liability

 

$

3,177

 

$

3,027

Litigation reserve

 

 

495

 

 

570

Federal and state taxes payable

 

 

3,990

 

 

2,252

Accrued expenses & other accrued liabilities

 

 

2,943

 

 

3,307

Total

 

$

10,605

 

$

9,156

 

 

9. DEBT

Lines of Credit

Revolver 1

The Company has a revolving line of credit (“Revolver 1”) with Capital One, N.A. with a maximum credit limit of $45,000 as of June 30, 2019. On May 12, 2017, Revolver 1 was amended to extend the maturity date to May 11, 2020 and increase the maximum borrowing availability to $45,000. For the six months ended June 30, 2019 and for the year ended December 31, 2018, Revolver 1 accrued interest at one month LIBOR plus 2.40%. The interest rates in effect as

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

of June 30, 2019 and December 31, 2018 were 4.83% and 4.78%, respectively. Amounts available under Revolver 1 are subject to a formula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable and a percentage of the consumer loans receivable and MHP Notes. The amount of available credit under Revolver 1 was $37,876 and $41,321 at June 30, 2019 and December 31, 2018, respectively. The Company was in compliance with all required covenants as of June 30, 2019. For the six months ended June 30, 2019 and 2018, interest expense was $139 and $858, respectively. The outstanding balance as of June 30, 2019 and December 31, 2018 $7,124 and $3,679, respectively. The Company was in compliance with the other financial covenants that it maintain a tangible net worth of at least $90,000 and that it maintain a ratio of debt to EBITDA of 4 to 1 or less.

Revolver 2

In April 2016, the Company entered into an agreement with Veritex Community Bank to secure an additional revolving line of credit of $15,000 (“Revolver 2”). Revolver 2 accrues interest at one month LIBOR plus 2.50% and all unpaid principal and interest is due at maturity on April 4, 2021. Revolver 2 is secured by all finished goods inventory excluding repossessed homes. Amounts available under Revolver 2 are subject to a formula based on eligible inventory. The interest rates in effect as of June 30, 2019 and December 31, 2018 were 4.94% and 4.85%, respectively. On May 12, 2017, the Company entered into an agreement to increase the line of credit to $20,000. On October 15, 2018, Revolver 2 was amended to extend the maturity date from April 4, 2019 to April 4, 2021. The amount of available credit under Revolver 2 was $12,568 and $10,000 at June 30, 2019 and December 31, 2018, respectively. The Company was in compliance with all required covenants as of June 30, 2019. For the six months ended June 30, 2019 and 2018, interest expense was $86 and $323, respectively. The outstanding balance as of June 30, 2019 and December 31, 2018 was $2,001 and $10,000. The Company was in compliance with the other financial covenants that it maintain a tangible net worth of at least $80,000.

Notes Payable

On April 7, 2011, the Company signed a promissory note for $4,830 with Woodhaven Bank. The amount due under the promissory note accrues interest at an annual rate of 3.85% through February 2, 2017 and then at the prime interest rate plus 0.60% through maturity on April 7, 2018. On April 7, 2018, the promissory note with Woodhaven Bank was renewed with varying amounts of principal and interest due through the maturity date, April 7, 2033. The promissory note calls for monthly payments of $30 with a final payment due at maturity. The interest rates in effect as of June 30, 2019 and December 31, 2018 were 4.25% and 4.25%, respectively. The note is secured by certain real property of the Company. Interest expense was $76 and $81 for the six months ended June 30, 2019 and 2018, respectively. The balance outstanding on the note payable at June 30, 2019 and December 31, 2018 was $3,461 and $3,552, respectively.

On May 24, 2016, the Company signed a promissory note for $515 with Eagle One, LLC collateralized by the purchase of real property located in Oklahoma City, Oklahoma. The amount due under the promissory note accrues interest at an annual rate of 6.00%. The promissory note calls for monthly principal and interest payments of $6 until June 1, 2026. Interest expense was $1 and $14 for the six months ended June 30, 2019 and 2018, respectively. The balance outstanding on the note payable at December 31, 2018 was $414. In January 2019, this note was paid in full.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

Future minimum principal payments on notes payable at June 30, 2019 were as follows:

 

 

 

 

2019

    

$

93

2020

 

 

191

2021

 

 

201

2022

 

 

210

2023

 

 

219

Thereafter

 

 

2,547

 

 

$

3,461

 

On February 2, 2016, the Company entered into a $1,500 note payable agreement with stated annual interest rates of 3.75% with a related party through common ownership. The note is due on demand. Interest paid on the note payable was $28 for the six months ended June 30, 2018. In  October 2018, this note payable was paid in full.

PILOT Agreement

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

10. SHARE-BASED COMPENSATION

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

The Company granted 120,000 restricted shares of its common stock to members of senior management. The shares were granted on February 7, 2019 and had a grant date fair value of $1,636. The shares vest at a rate of 14.3% annually, beginning on February 7, 2019, and becoming fully vested on February 7, 2025. 

The Company granted 2,936 restricted shares of its common stock to the independent directors on the Company’s Board of Directors. The shares were granted on February 7, 2019 and become fully vested on December 13, 2019.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(dollars in thousands)

 

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

 

 

 

 

 

 

 

 

Number of Units

 

 

Weighted Average Grant date Fair Value

Nonvested, January 1, 2019

 

 -

 

 

 -

Granted

 

123

 

$

13.63

Vested

 

17

 

$

13.63

Nonvested, June 30, 2019

 

106

 

$

13.63

As of June 30, 2019, approximately 106,000 RSUs remained unvested. Unrecognized compensation expense related to these RSUs at June 30, 2019 was $1,332 and is expected to be recognized over 5.61 years. 

The Company granted 58,694 incentive stock options to a member of senior management. The options were granted on February 7, 2019 at an exercise price of $13.63 per share. The options vest at a rate of 12.5% annually, beginning on February 7, 2019, and becoming fully vested on February 7, 2026. All options expire ten years after the date of grant. Weighted-average assumptions used in the Black-Scholes option pricing model for stock options granted were as follows: risk free inte