What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-15 · 490 added, 419 removed, 527 unchanged (63% of the section changed)

2 unchanged sentences

AUDITED FINANCIAL STATEMENTS OF LEGACY HOUSING CORPORATION

Reports of Independent Registered Public Accounting Firms

Reports of Frazier & Deeter, LLC, Independent Registered Public Accounting Firm (PCAOB ID:

Report of Daszkal Bolton, LLP, Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets as of December 31, 2023 and 2022

3 unchanged sentences

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Audit Committee, Board of Directors and Shareholders

Legacy Housing Corporation

Bedford, Texas

Report Of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Legacy Housing Corporation

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Legacy Housing Corporation (the Company) as of December 31, 2022, and the related statements of income, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying balance sheet of Legacy Housing Corporation (the "Company") as of December 31, 2023, and the related statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 15, 2024 expressed an adverse opinion on the effectiveness of the Company's internal control over financial reporting.

Allowance for Loan Losses

As discussed in Note 2 of the financial statements, the Company changed its method of accounting for expected loan losses in fiscal year 2023 due to the adoption of ASU No.

2016-13 Financial Instruments – Credit Losses (Topic 326).

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (Unites States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform 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 internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit 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 include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provide a reasonable basis for our opinion .

/s/ Daszkal Bolton, LLP

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses

As described in Note 2 to the financial statements, the allowance for loan losses represents management’s estimate of the expected credit losses in the Company’s loan portfolios.

As of December 31, 2023, the allowance for loan losses was

$2.2 million on total loans of $412.3 million.

The expected credit loss is typically estimated using quantitative methods that consider a variety of factors such as aging of the loan portfolios, collateral value, historical loss experience, the current credit quality of the portfolio as well as an economic outlook over the life of the loan.

Also included in the allowance for loan losses are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately reflected in the quantitative methods or the economic assumptions.

Factors that the Company considers includes changes in lending policies and procedures, business conditions, portfolio concentrations, collateral characteristics, volume and severity of past due loans, and legal and regulatory requirements, among others.

Further, the Company considers the inherent uncertainty in quantitative models that are built on historical data.

The principal considerations for our determination that performing procedures relating to the allowance for loan losses for the loan portfolios is a critical audit matter are the significant judgments and estimation used by management in developing loss rates and estimating collateral value which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence obtained.

Additionally, the audit effort involved the use of professionals with specialized skills and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

We evaluated the process and controls, but we took no reliance on controls due to the material weaknesses identified as listed on our opinion on the Internal Control over Financial Reporting.

The procedures performed in testing management’s process for estimating the allowance for loan losses, included, among others, (i) evaluating the appropriateness of the loss forecast models and methodology, (ii) testing the completeness and accuracy of data used in the estimate, and (iii) evaluating the reasonableness of certain qualitative reserves made to the model output results to determine the overall allowance for loan losses.

These procedures also included the use of professionals with specialized skills and knowledge to assist in evaluating the appropriateness of certain models and methodologies.

/s/ Frazier & Deeter, LLC

We have served as the Company's auditor since 2023.

Sunrise, Florida

Tampa, Florida

March 15, 2024

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Report Of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Legacy Housing Corporation

Opinion on the Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Legacy Housing Corporation (the “Company”) as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”), the balance sheet as of December 31, 2023, and the related statements of operations, changes in stockholders’ equity and cash flows for the period ended December 31, 2023, and the related notes (collectively referred to as the financial statements) of the Company and our report dated March 15, 2024 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management’s assessment:

(i) control activities are not sufficiently or appropriately designed or implemented and have a lack of documentation, review and approval of certain control activities.

Additionally, those activities are not sufficiently monitored and tested, (ii) management does not have sufficient qualified accounting personnel to support the preparation of financial statements that are in compliance with U.S.

GAAP and SEC reporting requirements, and (iii) information technology general controls are not sufficiently or appropriately designed or implemented over in-scope business processes and financial reporting systems.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the financial statements as of and for the year ended December 31, 2023, of the Company, and this report does not affect our report on such financial statements.

/s/ Frazier & Deeter, LLC

Tampa, Florida

March 15, 2024

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Shareholders

2 unchanged sentences

Opinion on the financial statements

We have audited the accompanying balance sheet of Legacy Housing Corporation (the Company) as of December 31, 2021, and the related statements of operations, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

13 unchanged sentences

We believe that our audit provide a reasonable basis for our opinion .

/s/ Weaver, LLP

We served as the Company’s auditor from 2021 to 2022.

Dallas, Texas

August 3, 2022

/s/ Daszkal Bolton, LLP

Sunrise, Florida

March 15, 2023

We served as the Company’s auditor from 2022 to March 2023.

LEGACY HOUSING CORPORATION

1 unchanged sentence

Current assets:

Cash and cash equivalents

Held to maturity securities

33 unchanged sentences

Common stock, $ .001 par value, 90,000,000 shares authorized;

24,814,695 and 24,654,621 issued and 24,369,630 and 24,209,556 outstanding at December 31, 2022 and December 31, 2021, respectively

Treasury stock at cost, 445,065 shares at December 31, 2022 and December 31, 2021

24,843,494 and 24,814,695 issued and 24,398,429 and 24,369,630 outstanding at December 31, 2023 and 2022, respectively

Treasury stock at cost, 445,065 shares at December 31, 2023 and 2022, respectively

Additional paid-in-capital

7 unchanged sentences

Product sales

Consumer and MHP loans interest

Consumer, MHP and dealer loans interest

Total net revenue

3 unchanged sentences

Dealer incentive

Total operating expenses

Income from operations

13 unchanged sentences

Balances, December 31, 2021

Share based compensation expense and stock units vested

Share based compensation expense - stock options exercised

Share based compensation

Balances, December 31, 2022

Share based compensation expense and stock units vested

Cumulative change in accounting principle, net of taxes (Note 2)

Share based compensation

Balances, December 31, 2023

4 unchanged sentences

Operating activities:

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

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization expense

5 unchanged sentences

Gain from sale of leased property

Amortization of operating lease right of use asset

Non-cash operating lease expense

Deferred income taxes

Share based payment expense

Gain on disposal of treasury note

Changes in operating assets and liabilities:

9 unchanged sentences

Dealer incentive liability

Net cash (used in) provided by operating activities

Net cash used in operating activities

Investing activities:

2 unchanged sentences

Purchase of investments - treasury notes

Sale of investments - treasury notes

Issuance of notes receivable

1 unchanged sentence

Collections from purchased loans

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Financing activities:

2 unchanged sentences

Payments on lines of credit

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Net cash provided by (used in) financing activities

Net (decrease) increase in cash

Cash at beginning of year

Cash at end of year

Supplemental disclosure of cash flow information:

1 unchanged sentence

Cash paid for taxes

Acquisition of property plant and equipment, included in accrued liabilities

See accompanying notes to financial statements

10 unchanged sentences

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.

During the year ended December 31, 2020, the Company purchased 145,065 shares of its common stock at an average price of $ 9.77 per share, pursuant to the Company’s repurchase program.

In November 2022, the Company’s Board of Directors approved a new repurchase program (the “2022 Repurchase Program”).

Under the 2022 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.

The 2022 Repurchase Program expires October 31, 2025.

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 a federal corporate taxpayer.

The Company also sells homes directly to consumers, through its own retail stores, and to dealers and mobile home parks.

Basis of Presentation

1 unchanged sentence

generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

These reclassifications had no effect on the previously reported net income.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

Use of Estimates

1 unchanged sentence

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, loans to mobile home parks, consumer loans and notes receivable, inventory obsolescence, income taxes, fair value of financial instruments and contingent liabilities.

Estimates that are susceptible to significant change in the near term primarily relate to the determination of accounts receivable, loans to mobile home parks, consumer loans and notes receivable, inventory obsolescence, income taxes, fair value of financial instruments and contingent liabilities.

Actual results could differ from these estimates.

2 unchanged sentences

All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others.

For example, the sale of manufactured homes includes providing transportation and consignment arrangements with dealers.

For example, the sale of manufactured homes includes providing transportation for 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.

Accordingly, all significant operating and strategic decisions by the chief operating decision-maker, the Chief Executive Officer, are based upon analyses of our company as one segment or unit.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

The Company considers all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents.

The Company maintains cash balances in bank accounts that may, at times, exceed federally insured limits.

The Company has not incurred any losses from such accounts and management considers the risk of loss to be minimal.

As of December 31, 2022, the Company had two bank accounts that exceeded the FDIC limit.

One account exceeded the FDIC limit by $ 1,504 and the second account exceeded the FDIC limit by $ 133 .

As of December 31, 2023, the Company had one bank account that exceeded the FDIC limit by $ 105 .

We consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

Held to Maturity Securities

Management determines the appropriate classification of its investment securities at the time of purchase.

The Company’s investments consist of US Treasury Notes with a maturity date of November 2023.

The Company’s investments as of December 31, 2022 consisted of US Treasury Notes, and these treasury notes were sold prior to maturity on June 22, 2023.

Accounts Receivable

Included in accounts receivable “net” are receivables from direct sales of mobile homes, sales of parts and supplies to customers, consignment fees and interest.

Accounts receivable “dealer financed” are receivables for interest, fees and curtailments owed from dealers under their inventory finance agreements.

Accounts receivables “net” are generally due within 30 days and are stated at amounts due from customers net of an allowance for doubtful accounts.

Accounts receivables “dealer financed” are due upon receipt and are stated at amounts due from customers net of an allowance for doubtful accounts.

“Accounts receivable, net” includes receivables from direct sales of mobile homes, sales of parts and supplies to customers, inventory finance fees and interest.

“Accounts receivables, net” related to inventory finance fees and interest generally are due upon receipt, and all other accounts receivables generally are due within 30 days.

Accounts receivable “net” are stated at amounts due from customers net of an allowance for doubtful accounts.

Accounts outstanding longer than the contractual payment terms are considered past due.

2 unchanged sentences

At December 31, 2023, 2022 and 2021, the allowance for doubtful accounts totaled $ 651 , $ 279 and $ 343 , respectively.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

Consumer Loans Receivable

2 unchanged sentences

Interest income is recognized monthly per the terms of the financing agreements.

The average contractual interest rate per loan was approximately 13.4 % as of December 31, 2022 and 13.5 % as of December 31, 2021.

The average contractual interest rate per loan was approximately 13.2 % and 13.4 % as of December 31, 2023 and 2022, respectively.

Consumer loans receivable have maturities that range from 2 to 30 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 reviews loan applications in an underwriting process which considers credit history, among other things, to evaluate credit risk of the consumer and determines interest rates on approved loans based on consumer credit score, payment ability and down payment amount.

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

The Company may also receive escrow payments for property taxes and insurance included in its consumer loan collections.

The liabilities associated with these escrow collections totaled $ 9,653 and $ 9,350 as of December 31, 2022 and 2021, respectively, and are included in escrow liability in the balance sheets.

The Company also may receive escrow payments for property taxes and insurance included in its consumer loan collections.

The liabilities associated with these escrow collections totaled $ 10,104 and $ 9,653 as of December 31, 2023 and 2022, respectively, and are included in escrow liability in the accompanying balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

3 unchanged sentences

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.

The Company’s calculation of the general reserve considers the historical loan default rates and collateral recovery rates for the last three years 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.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

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 generally is 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.

2 unchanged sentences

As of December 31, 2023 and 2022, total principal outstanding for consumer loans on nonaccrual status was $ 1,565 and $ 1,610 , respectively.

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 are those loans for which it is probable that 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.

1 unchanged sentence

A specific 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;

The Company uses various factors to determine the value of the underlying collateral for impaired loans.

These factors include:

(1) the length of time the unit remained unsold after construction;

(2) the amount of time the house was occupied;

(3) the cooperation level of the borrowers, i.e., loans requiring legal action or extensive field

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

collection efforts;

(4) units located on private property as opposed to a manufactured home park;

(3) the cooperation level of the borrowers (for example, loans requiring legal action or extensive field collection efforts may have a reduced value);

(4) the physical location of the home;

(5) the length of time the borrower has lived in the house without making payments;

(6) location, size, and market conditions;

(6) the size of the home and market conditions;

and (7) the experience and expertise of the particular dealer assisting in collection efforts.

1 unchanged sentence

At repossession, the collateral is recorded at the same amount as the principal balance as the loan.

The fair value of the collateral is then 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.

The fair value of the collateral is then 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 $ 795 and $ 517 as of December 31, 2022 and 2021, respectively, and are included in other assets in the balance sheets.

Repossessed homes totaled $ 2,215 and $ 795 as of December 31, 2023 and 2022, respectively, and are included in other assets in the accompanying balance sheets.

Notes Receivable from Mobile Home Parks

The notes receivable from mobile home parks (“MHP Notes” or “Notes”) relate to mobile homes sold to mobile home parks and financed through notes receivable.

The Notes have varying maturity dates and call for monthly principal and interest payments.

The interest rate on the MHP Notes can be fixed or variable.

Approximately $ 130,000 of the Notes have a fixed interest rate ranging from 6.9 % to 11.5 %.

The remaining Notes have a variable rate typically set at 4.0 % above prime with a minimum of 8.0 %.

The average interest rate per loan was approximately 8.1 % and 7.6 % as of December 31, 2022 and 2021, respectively with maturities that range from 1 to 10 years .

The collateral underlying the Notes are individual mobile homes which can be repossessed and resold.

The notes receivable from mobile home parks (“MHP Notes”) relate to mobile homes sold to mobile home parks and financed through notes receivable.

The MHP Notes have varying maturity dates and call for monthly principal and interest payments.

The interest rate on the MHP Notes can be fixed or variable, and the interest rates range from 6.9 % to 12.5 % .

The average interest rate per loan was approximately 8.0 % and 8.1 % as of December 31, 2023 and 2022, respectively, and with maturities that range from 1 to 10 years .

The collateral underlying the MHP Notes are individual mobile homes which can be repossessed and resold.

The MHP Notes are generally personally guaranteed by the borrowers with substantial financial resources.

As of December 31, 2023, the Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equaled 14.0 %, 17.9 % and 24.5 % of the principal balance outstanding, all of which was secured by the mobile homes.

As of December 31, 2021, the Company had concentrations of MHP Notes with two independent third-parties and their respective affiliates that equaled 10.4 % and 30.1 % of the principal balance outstanding, all of which was secured by the mobile homes.

As of December 31, 2022, the Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equaled 12.3 %, 16.6 % and 34.0 % of the principal balance outstanding, all of which was secured by the mobile homes.

Allowance for Loan Losses—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 December 31, 2022 and 2021 and no charge offs were recorded for MHP Notes for the years ended December 31, 2022 and 2021, respectively.

Allowance for loan loss is considered immaterial and accordingly no provision is recorded against the MHP Notes as of December 31, 2022 and 2021.

There were no impaired MHP Notes for the years ended December 31, 2022 and 2021, respectively, and there were no repossessed homes balances as of December 31, 2022 and 2021, respectively.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell.

Other Notes Receivable

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

The Company determines the allowance by considering several factors including the aging of the past due balance, the customer’s

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

are fixed and range from 5.00 % to 17.90 %.

payment history, and the Company’s previous loss history.

The Company establishes an allowance reserve composed of specific and general reserve amounts.

As of December 31, 2023 there were past due balances of $ 98 on the MHP Notes, and for the year ended December 31, 2023, there were no charge offs recorded for MHP Notes.

Allowance for loan loss for the MHP Notes was $ 735 as of December 31, 2023.

As of December 31, 2022 there were minimal past due balances on the MHP Notes, and for the year ended December 31, 2022, no charge offs were recorded for MHP Notes.

Allowance for loan loss was considered immaterial and accordingly no provision was recorded against the MHP Notes as of December 31, 2022.

As of December 31, 2023, there was a minimal impaired balance of MHP Notes and there was no repossessed home balance.

As of December 31, 2022 there was no impaired loan balance for MHP Notes and no repossessed homes balance.

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.

Other Notes Receivable

Other notes receivable relate to various notes issued to mobile home park owners and dealers and are not directly tied to the sale of mobile homes.

These other notes have varying maturity dates and generally require monthly principal and interest payments.

They are collateralized by mortgages on real estate, mobile homes that we have financed for which the borrower uses as offices, as well as vehicles.

These notes typically are personally guaranteed by the borrowers.

The interest rates on the other notes are fixed and generally range from 5.0 % to 17.9 %.

The Company reserves for estimated losses on the other notes based on current economic conditions that may affect the borrower’s ability to pay, the borrower’s financial strength, and historical loss experience.

As of December 31, 2022 and 2021, the allowance for loan losses on other notes was $ 0 and $ 5 , respectively.

There were no past due balances for other notes as of December 31, 2022 and 2021, respectively, and there were no impaired balances for other notes as of December 31, 2022 and 2021, respectively.

As of December 31, 2023, the allowance for loan losses on other notes was $ 236 , the past due balance for other notes was $ 22 , and the impaired balance for other notes was $ 84 .

As of December 31, 2022, the allowance for loan losses on other notes was $ 0 .

There were no past due balances for other notes as of December 31, 2022, and there were no impaired balances for other notes as of December 31, 2022.

Dealer Finance Receivable

Dealer finance receivable are receivables for loans that we make to independent retailers, or dealers, for the purchase of mobile homes so that dealers can then market them for sale to consumers.

The loans are part of our inventory finance program.

In late 2022 and early 2023, the Company transitioned many of its dealers from a traditional consignment arrangement to an inventory finance arrangement.

The terms of the financing typically include a three year term, a monthly interest payment, an annual curtailment payment and require the retailer to pay the principal amount of the loan to the Company upon the earlier of the sale of the home by the retailer to its customer or the end of the term.

Inventories consist of raw materials, work-in-process, and finished goods and are stated at the lower of cost or net realizable value.

3 unchanged sentences

For the periods ending, December 31, 2023 and 2022, 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 sold in less than a year.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

The Company evaluates finished goods inventory based on historical experience to estimate its inventory not expected to be sold in less than a year.

The Company classifies its inventory not expected to be sold in one year as non-current.

3 unchanged sentences

In this arrangement title for the mobile homes remains with the Company, and the lease is accounted for as an operating lease.

The standard lease agreement is typically for 96 months or 120 months .

Under the lease arrangement, the lessee (mobile home park operator) uses the mobile homes as personal property to be rented as a residence at the lessee's mobile home park.

The lessee makes monthly, periodic lease payments to the Company over the term of the lease.

The lessee is responsible for maintaining the homes during the term of the lease.

The lessee is also responsible for repairing all damages caused by force majeure events even in cases of total or partial loss of the property.

At the end of the lease term or in the event of default, the lessee is required to deliver to the Company the homes with all improvements in good repair and condition in substantially the same condition as existed at the commencement of the lease.

The lessee may terminate the lease with 30 days written notice to the Company and pay a lease termination fee equal to 10 % of the remaining lease payments or six month ’s rent, whichever is greater.

The lessee has an option to purchase the homes at the end of the lease term for fair market value based on an agreed upon determination of fair market value by both parties using comparable sales, recent appraisal, or NADA official guidance.

The lessee must provide the Company with 30 days written notice prior to expiration of the lease of intent to purchase the property for fair market value.

The lease also includes a renewal option whereby the lessee has the option to extend the lease for an additional 48 months (the extended term) at the same terms and conditions as the original lease.

The lessee must notify the Company of the intent to exercise the renewal extension option not less than six months prior to expiration of the lease term.

Our typical lease agreement has a term of 96 or 120 months .

It requires the lessee to maintain the home and to return the home to us at the end of the lease in good condition.

It provides the lessee with a termination option for a fee, an option to extend the lease and a purchase option at fair market value.

The leased mobile homes are included in other assets on the Company’s balance sheet, capitalized at manufactured cost and depreciated over a 15 year useful life.

Homes returned to the Company upon expiration of the lease or in the event of default will be sold by the Company through its standard sales and distribution channels.

Homes returned to the Company upon expiration of the lease or in the event of default are sold by the Company through its standard sales and distribution channels.

Depreciation expense for the leased property was $ 632 and $ 582 for the years ended December 31, 2023 and 2022, respectively.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

Future minimum lease income under all operating leases for each of the next five years at December 31, 2022, are as follows:

Future minimum lease income under all operating leases for each of the next five years at December 31, 2023,is as follows:

Property, Plant, and Equipment

11 unchanged sentences

Assets are grouped at the lowest level in which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets.

In such cases, if the future undiscounted cash flows of the underlying assets are less than the carrying amount, then the carrying amount of the long-lived asset will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying asset or its determinable fair value.

In such cases, if the future undiscounted cash flows of the underlying assets are less than the carrying amount, then the carrying amount of the long-lived asset will be adjusted for impairment.

No impairment for long-lived assets was recorded for the years ended December 31, 2023 and 2022.

Dealer Incentive Liability

Under a dealer agreement with qualifying independent retailers, a portfolio is created for houses sold by the independent retailer with consumer loan arrangements financed by the Company.

The independent retailer is eligible to a receive dealer incentive, which is a portion of total collections expected on a consumer loan portfolio after the Company’s contribution (collection thresholds set per the terms of dealer agreement which includes Legacy’s initial contribution, plus an 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 of individual dealer loan portfolios at period end, less the remaining portion of the Company’s contribution in respective portfolios.

As of December 31, 2022 and 2021, the dealer incentive liability was $ 5,516 and $ 4,336 , respectively.

Dealer incentive expense for the years ended December 31, 2022 and 2021 totaled $ 1,315 and $ 1,235 , respectively, and is included in the Company’s statements of income.

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

Dealer Incentive Liability

The Company has entered into agreements with qualifying independent retailers, or dealers, that provides incentives to retailers when their customers finance the purchase of a home with the Company.

The agreements provide for a portfolio for these consumer loans.

The independent retailer is eligible to receive a dealer incentive, which is a portion of total collections expected on this consumer loan portfolio after the Company recovers its contribution (the collection thresholds are set per the terms of the dealer agreement, and the contribution includes the Company’s initial contribution, interest and fees).

A dealer incentive liability is recorded in the Company’s balance sheet based on the total outstanding balance of individual dealer loan portfolios at period end, less the remaining portion of the Company’s contribution in respective portfolios.

As of December 31, 2023 and 2022, the dealer incentive liability was $ 5,260 and $ 5,516 , respectively.

Dealer incentive expense for the years ended December 31, 2023 and 2022 totaled $ 586 and $ 1,315 , respectively, and is included in the Company’s statements of income.

Product Warranties

3 unchanged sentences

Factors used to determine the warranty liability include the number of homes under warranty and the historical costs incurred in servicing the warranties.

The accrued warranty liability is reduced as costs are incurred and warranty liability balance is included as part of accrued liabilities in the Company’s balance sheet.

A tabular presentation of the activity within the warranty liability account for the years ended December 31, 2022 and 2021 is presented below:

The accrued warranty liability is reduced as costs are incurred and the warranty liability balance is included as part of accrued liabilities in the Company’s balance sheet.

The following table summarizes activity within the warranty liability for the years ended December 31, 2023 and 2022:

Warranty liability, beginning of year

8 unchanged sentences

That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurement) and the lowest priority to unobservable inputs (Level III measurements).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurement) and the lowest priority to unobservable inputs

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

(Level III measurements).

The three levels of fair value hierarchy under ASC 820-10, Fair Value Measurement , are as follows:

8 unchanged sentences

The asset or liability fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

The Company has used derivatives to manage risks related to interest rate movements.

The Company does not enter into derivative contracts for speculative purposes.

Interest rate swap contracts are recognized as assets or liabilities on the balance sheets and are measured at fair value.

The fair value was calculated and provided by the lender, a Level II valuation technique.

Management reviewed the fair values for the instruments as provided by the lender and determined the related asset and liability to be an accurate estimate of future gains and losses to the Company.

The Company was not a party to any interest rate swap agreements during the years ended December 31, 2022 and 2021.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, consumer loans, MHP Notes, other notes, accounts payable, lines of credit, notes payable, and dealer portion of consumer loans.

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values because of the short-term maturities or expected settlement dates of these instruments.

The Company’s financial instruments consist primarily of cash, investments in U.S.

Treasury Notes, accounts receivable, consumer loans, MHP Notes, other notes, accounts payable and lines of credit.

The carrying amounts of cash, accounts receivable, and accounts payable approximate their respective fair values because of the short-term maturities or expected settlement dates of these instruments.

This is considered a Level I valuation technique.

The investment in US Treasury Notes has quoted prices available in active markets that the Company can access at measurement dates.

The US Treasury Notes were sold by the Company on June 22, 2023.

The Company determined that the fair value of the investment in US Treasury Notes was approximately $ 8,409 compared to the book value of $ 8,412 as of December 31, 2022.

This was considered a Level I valuation technique.

The lines of credit, notes payable, part of the MHP Notes and part of the other note receivables have variable interest rates that reflect market rates and their fair value approximates their carrying value.

1 unchanged sentence

The Company also assessed the fair value of the consumer loans receivable, the fixed rate MHP Notes and the portion of other note receivables with fixed rates based on the discounted value of the remaining principal and interest cash flows.

The Company determined that the fair value of the consumer loan portfolio was approximately $ 138,800 compared to the book value of $ 139,009 as of December 31, 2022, and a fair value of approximately $ 125,600 compared to the book value of $ 125,623 as of December 31, 2021.

The Company determined that the fair value of the fixed rate MHP Notes was approximately $ 128,400 compared to the book value of $ 129,966 as of December 31, 2022, and a fair value of approximately $ 83,000 compared to the book value of $ 83,773 as of December 31, 2021.

The Company determined that the fair value of the fixed rate other notes was approximately $ 21,600 compared to the book value of $ 22,722 as of December 31, 2022, and a fair value of approximately $ 38,500 compared to the book value of $ 38,886 as of December 31, 2021.

This is a Level II valuation technique.

Revenue Recognition

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 can take the form of a consignment arrangement or an inventory financing arrangement.

Consignment Sales under the consignment arrangement are considered sales of consigned homes from independent dealers to individual customers.

Consignment Sales under the inventory financing arrangement are considered sales of homes to the independent dealer.

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 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 customer 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 inventory financed sales, the independent dealer enters into a financing arrangement with the Company and is required to make monthly interest payments and an annual curtailment payment for the first two years .

After three years , they are required to payoff any remaining principle balance.

Interest income is separately recorded in the statement of income.

For other financed sales by the Company, the 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 income.

This is considered a Level III valuation technique.

The following table shows the fair market value and book value of these portfolios as of December 31, 2023 and December 31, 2022:

Consumer loan portfolio, fair value

Consumer loan portfolio, book value

Fixed rate MHP Notes, fair value

Fixed rate MHP Notes, book value

Fixed rate other notes, fair value

Fixed rate other notes, book value

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

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.

Warranty costs and contract costs are included in selling, general and administrative expenses in the statements of income.

For the year ended December 31, 2022, sales to two independent third-parties and their affiliates accounted for $ 13,008 or 5.9 % and $ 11,879 or 5.4 % of our product sales, respectively.

For the years ended December 31, 2021, sales to an independent third-party and its affiliates accounted for $ 9,165 or 5.5 % of our product sales, respectively.

For the years ended December 31, 2022 and 2021, total cost of product sales included $ 11,588 and $ 11,303 of costs relating to subcontracted production for commercial sales, reimbursed dealer expenses for consignment sales, and certain other similar costs incurred for retail store and commercial sales .

Revenue Recognition

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, Inventory Finance 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 inventory finance 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 inventory financing for independent retailers who purchase homes from us and then sell them to consumers.

Inventory Finance Sales are considered sales of homes to the independent dealer.

Retail Store Sales are homes sold through Company-owned retail locations.

Inventory Finance Sales and Retail Sales of homes may be financed by the Company, by a third party, or paid in cash.

Consumer, MHP and dealer loans interest includes interest income from the consumer, MHP and dealer finance loan portfolios.

Other revenue consists of consignment fees, commercial lease rents, 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 is 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 commercial leases is recognized as earned monthly over a contractual period of 96 or 120 months .

Revenue for service fees and miscellaneous income is recognized at a point in time when the performance obligation is satisfied.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

Disaggregation of Revenue .

The following table summarizes customer contract revenues disaggregated by source of the revenue for the years ended December 31, 2022 and 2021:

Product sales:

Commercial sales

Consignment sales

Retail store sales

Total product sales

Consumer and MHP loans interest:

Interest - consumer installment notes

Interest - MHP notes

Total consumer and MHP loans interest

Total net revenue

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

Reserve for Repurchase Commitments

3 unchanged sentences

The Company considers its current obligations on current contracts to be immaterial and accordingly have not recorded any reserve for repurchase commitments as of December 31, 2023 and 2022.

Other Income, Net

Other income primarily consists of interest related to other notes receivable balances and interest income earned on cash balances, reduced by interest expenses.

Interest Income

1 unchanged sentence

Fees associated with the origination of loans and certain direct loan origination costs are netted and the net amount is deferred and recognized over the life of the loan as an adjustment of yield.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

Interest related to other notes receivable balances and interest income earned on cash balances is shown in Non-operating Interest Income on the statements of income.

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.

Share-based compensation expense is recognized based on an 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.

1 unchanged sentence

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”) with only service-based conditions is calculated based on the closing price of the Company’s common stock on the grant date.

The fair value of each RSU with market based conditions is estimated using the Monte-Carlo Simulation valuation model.

The fair value of each restricted stock grant with only service-based conditions is calculated based on the closing price of the Company’s common stock on the grant date.

The fair value of 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.

The risk-free interest rate is based on the

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

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 volatility is estimated based on the historical volatility of the Company’s common stock.

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.

The fair value of RSU awards with market based conditions on the date of grant is estimated using the Monte-Carlo Simulation valuation model, and the Company uses the following methods to determine its underlying assumptions:

expected volatilities are based on the Company’s historic stock price volatility;

the expected term of the awards is based on performance measurement period;

the risk-free interest rate is based on the U.S.

Treasury bond yield issued with similar life terms to the expected life of the grant.

Shipping and Handling Costs

Shipping and handling costs incurred to deliver product to our customers are included as a component of cost of product sales in the statement of operations.

Shipping and handling costs incurred to deliver product to our customers are included as a component of cost of product sales in the statements of income.

Shipping and handling costs for the years ended December 31, 2023 and 2022 were $ 621 and $ 1,804 , respectively.

Earnings Per Share

Basic earnings per common share (“EPS”) is computed based on the weighted-average number of common shares outstanding during the reporting period.

Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s balance sheets.

Diluted EPS is based on the weighted-average number of common shares outstanding plus the number of additional shares that would have been outstanding had the dilutive common shares been issued.

The 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 not subject to U.S.

federal income tax at the entity level.

Rather, the tax liability with respect to its taxable income was passed through to its partners.

Accordingly, prior to the corporate conversion, the Partnership only recorded a provision for Texas franchise 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 financial statements and consist of taxes currently due, plus deferred taxes.

The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled.

Deferred tax assets and liabilities are reflected at income tax rates

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled.

Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled.

As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

3 unchanged sentences

In addition, management does not believe there are any unrecorded deferred tax liabilities that are material to the financial statements.

The determination of the provision for income taxes requires significant judgment, use of estimates, and the interpretation and application of complex tax laws.

Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions.

The determination of the provision for income taxes requires judgment, use of estimates, and the interpretation and application of complex tax laws.

Judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions.

The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities.

3 unchanged sentences

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable, consumer loans, MHP Notes and other notes receivable.

Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable, consumer loans, MHP Notes, inventory finance loans and other notes receivable.

Management believes that its credit policies are adequate to minimize potential credit risk related to accounts receivable and other notes receivable.

The consumer loans are secured by the mobile homes that were financed through the loans.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

The consumer loans and inventory finance loans are secured by the mobile homes that were financed through the loans.

The MHP Notes are secured by mobile homes, other assets, and are personally guaranteed.

1 unchanged sentence

As of December 31, 2023 and 2022, the Company had concentration of other notes receivable with one independent third-party and its affiliates that equaled 64.4 % and 77.6 %, respectively, of the principal balance outstanding.

The other notes are secured by land and other assets and are personally guaranteed.

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.

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

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) , to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and an asset representing its right to use the underlying asset for the lease term.

As an emerging growth company, ASU 2016-02 is effective for fiscal years beginning after December 15, 2021, and interim periods within those years.

ASU 2016-02 was effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within those years.

The Company adopted this standard in the first quarter of fiscal 2022 and elected certain practical expedients permitted under the transition guidance, including the package of practical expedients;

4 unchanged sentences

See Note 8 for further discussion on leases.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

In June 2016, the FASB issued ASU 2016-13 Financial Instruments—Credit Losses (Topic 326):

2 unchanged sentences

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 the longer phase-in period for adoption, and accordingly this ASU is effective for the Company’s fiscal year beginning January 1, 2023.

The Company expects that allowance amounts will increase due to the adoption of this ASU.

For available for sale debt securities, credit losses should be measured in a manner similar to previous GAAP, however Topic 326 requires 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 affected 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 used the longer phase-in period for adoption, and accordingly this ASU became effective for the Company’s fiscal year beginning January 1, 2023.

The adoption of ASU 2016-13 resulted in an increase in portfolio allowances of $ 900 at transition.

The $ 900 was comprised of a $ 225 increase for MHP notes, a $ 187 increase for dealer financed contracts and a $ 488 increase for other notes receivable.

The cumulative effect of the adoption was a net decrease of $ 698 to beginning retained earnings at January 1, 2023.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

1 unchanged sentence

The amendments in this update extend the transition relief period for reference rate reform from December 31, 2022 to December 31, 2024.

The amendments in ASU 2022-06 apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The amendments in ASU 2022-06 apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

reference rate expected to be discontinued because of reference rate reform.

ASU 2022-06 was effective upon issuance.

The new standard has had no material impact on the Company's financial statements.

In November, 2023 the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss.

The update also requires disclosure regarding the chief operating decision maker and expands the interim segment disclosure requirements.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact of ASU 2023-07 on our financial statements.

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.

Direct Sales include homes sold directly to independent retailers or customers that are not financed by the Company and are not sold under a inventory finance 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 inventory financing for independent retailers who purchase homes from us and then sell them to consumers.

Inventory Finance Sales are considered sales of homes to the independent dealer.

Retail Store Sales are homes sold through Company-owned retail locations.

Inventory Finance Sales and Retail Sales of homes may be financed by the Company, by a third party, or paid in cash.

Revenue from product sales is recognized when the performance obligation under the terms of a contract with our customer 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 inventory financed sales, the independent dealer enters into a financing arrangement with the Company and is required to make monthly interest payments.

Interest income is separately recorded in the statement of income.

For other financed sales by the Company, the 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 income.

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.

Contract costs, which include commissions incurred related to the sale of homes, are expensed at the point-in-time when the

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

related revenue is recognized.

Warranty costs and contract costs are included in selling, general and administrative expenses in the statements of income.

For the year ended December 31, 2023, sales to two independent third-parties and their affiliates accounted for $ 10,134 or 7.0 % and $ 10,033 or 6.9 % of our product sales, respectively.

For the year ended December 31, 2022, sales to two independent third-parties and their affiliates accounted for $ 13,008 or 5.9 % and $ 11,879 or 5.4 % of our product sales, respectively.

For the years ended December 31, 2023 and 2022, total cost of product sales included $ 10,188 and $ 11,588 of costs relating to subcontracted production for commercial sales, reimbursed dealer expenses for inventory finance sales, and certain other similar costs incurred for retail store and commercial sales.

Other revenue consists of contract deposit forfeitures, consignment fees, commercial lease rents, service fees and other miscellaneous income.

Consignment fees are determined as a percentage of the home’s wholesale price to the independent dealer.

The Company transitioned most of its independent retailers from consignment arrangements to inventory finance arrangements in late 2022.

Revenue for commercial leases is recognized as earned monthly over a contractual period of 96 or 120 months .

Revenue for service fees and miscellaneous income is recognized at a point in time when the performance obligation is satisfied.

Disaggregation of Revenue.

The following table summarizes customer contract revenues disaggregated by source of the revenue for the years ended December 31, 2023 and 2022:

Product sales:

Commercial sales

Inventory finance sales

Retail store sales

Total product sales

Consumer, MHP and dealer loans interest:

Interest - consumer installment notes

Interest - MHP notes

Interest - dealer finance notes

Total consumer, MHP and dealer loans interest

Total net revenue

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

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

CONSUMER LOANS RECEIVABLE

5 unchanged sentences

The following table presents a detail of the activity in the allowance for loan losses for the years ended December 31, 2023 and 2022:

Allowance for loan losses, beginning of period

Allowance for loan losses, beginning of year

Provision for loan losses

Charge offs (recoveries)

Allowance for loan losses

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

The impaired and general reserve for allowance for loan losses at December 31, 2022 and 2021:

Allowance for loan losses, end of year

The following table presents impaired and general reserve for allowance for loan losses at December 31, 2023 and 2022:

Total consumer loans

4 unchanged sentences

General allowance for loan losses

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

A detailed aging of consumer loans receivable that are past due as of December 31, 2023 and 2022 were as follows:

6 unchanged sentences

Total past due

We evaluate the credit quality of our consumer loan portfolio based on the aging status of the loan and by payment activity.

Loan delinquency reporting generally is based on borrower payment activity relative to the contractual terms of the loan.

The following table disaggregates the outstanding principal balance of consumer loans receivable by credit quality indicator based on delinquency status and fiscal year of origination:

Year of Origination

% of Portfolio

< 30 days past due

30-90 days past due

> 90 days past due

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

4 unchanged sentences

The finance fees are amortized over the life of the MHP Notes.

There were minimal past due balances on the MHP Notes as of December 31, 2022 and 2021, respectively, and no charge offs were recorded for MHP Notes during the for the years ended December 31, 2022 and 2021, respectively.

Allowance for loan loss is considered immaterial and accordingly no loss is recorded against the MHP Notes as of December 31, 2022 and 2021.

As of December 31, 2023 there were past due balances of $ 98 on the MHP Notes, and for the year ended December 31, 2023, there were no charge offs recorded for MHP Notes.

Allowance for loan loss for the MHP Notes was $ 735 as of December 31, 2023.

As of December 31, 2022 there were minimal past due balances on the MHP Notes, and for the year ended December 31, 2022, no charge offs were recorded for MHP Notes.

Allowance for loan loss was considered immaterial and accordingly no provision was recorded against the MHP Notes as of December 31, 2022.

Approximately $ 55 million of MHP Notes and Other notes receivable is with borrowers either owned or operated by one individual.

Approximately $ 37 million of these notes currently is in default and is the subject of ongoing litigation in which the Company is the plaintiff.

These notes are collateralized by mobile homes and land and are personally guaranteed by multiple borrowers.

The Company evaluated the recoverability of these notes as of December

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

31, 2023 and determined a provision for expected loan losses is not deemed necessary based on the analysis of the underlying collateral.

Notes receivable from mobile home parks, net of allowance for loan losses and deferred financing fees, consisted of the following at December 31, 2023 and 2022:

Outstanding principal balance

Loan discount and deferred financing fees

Allowance for loan losses

The following table presents a detail of the activity in the allowance for loan losses for the years ended December 31, 2023 and 2022:

Allowance for loan losses, beginning of year

Provision for loan losses

Charge offs (recoveries)

Allowance for loan losses, end of year

The following table presents impaired and general reserve for allowance for loan losses at December 31, 2023 and 2022:

Total MHP loans

Allowance for loan losses

Impaired loans individually evaluated for impairment

Specific reserve against impaired loans

Other loans collectively evaluated for allowance

General allowance for loan losses

We evaluate the credit quality of our MHP portfolio based on the aging status of the loan and by payment activity.

Loan delinquency reporting is generally based upon borrower payment activity relative to the contractual terms of the loan.

The following table disaggregates the outstanding principal balance of MHP receivable by credit quality indicator based on delinquency status and fiscal year of origination:

Year of Origination

% of Portfolio

< 30 days past due

30-90 days past due

> 90 days past due

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

Other Notes Receivable

Other notes receivable include loans that we make to community owners for the purpose of acquiring or developing properties and, as part of the arrangement, these community owners contract to buy homes from us.

Approximately $ 55 million of MHP Notes and Other notes receivable is with borrowers either owned or operated by one individual.

Approximately $ 37 million of these notes currently is in default and is the subject of ongoing litigation in which the Company is the plaintiff.

These notes are collateralized by mobile homes and land and are personally guaranteed by multiple borrowers.

The Company evaluated the recoverability of these notes as of December 31, 2023 and determined a provision for expected loan losses is not deemed necessary based on the analysis of the underlying collateral.

Other notes receivable, net of allowance for loan losses and deferred financing fees, consisted of the following at December 31, 2023 and 2022:

Outstanding principal balance

Loan discount and deferred financing fees

Allowance for loan losses

The following table presents a detail of the activity in the allowance for loan losses for the years ended December 31, 2023 and 2022:

Allowance for loan losses, beginning of year

Provision for loan losses

Charge offs (recoveries)

Allowance for loan losses, end of year

The following table presents impaired and general reserve for allowance for loan losses at December 31, 2023 and 2022:

Total Other notes receivable

Allowance for loan losses

Impaired loans individually evaluated for impairment

Specific reserve against impaired loans

Other notes receivable collectively evaluated for allowance

General allowance for loan losses

We evaluate the credit quality of our Other notes receivable portfolio based on the aging status of the loan and by payment activity.

Loan delinquency reporting is generally based upon borrower payment activity, relative to the contractual terms of the loan.

The following table disaggregates the outstanding principal balance of Other notes receivable by credit quality indicator based on delinquency status and fiscal year of origination:

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

The Company currently has 13 operating leases, eight of which are for the Company’s Heritage Housing and Tiny Homes retail locations, three which are subleased by the Company and two are for corporate and administrative offices in Bedford, TX and Norcross, GA.

Year of Origination

% of Portfolio

< 30 days past due

30-90 days past due

> 90 days past due

DEALER FINANCED RECEIVABLES

Dealer financed receivables include receivables from loans that we make to independent retailers, or dealers, for the purchase of mobile homes so that dealers can then market them for sale to consumers.

Dealer financed notes receivable, net of allowance for loan losses and deferred financing fees, consisted of the following at December 31, 2023 and 2022:

Outstanding principal balance

Loan discount and deferred financing fees

Allowance for loan losses

The following table presents a detail of the activity in the allowance for loan losses for the years ended December 31, 2023 and 2022:

Allowance for loan losses, beginning of year

Provision for loan losses

Charge offs (recoveries)

Allowance for loan losses, end of year

The dealer financed loan portfolio was established primarily in late 2022 and 2023 as a result of converting from consignment arrangements with dealers to inventory finance arrangements with dealers.

As such, there is relatively little historical data to measure credit quality of the loans in this portfolio.

The Company currently has 13 operating leases, eight of which are for the Company’s Heritage Housing and Tiny Homes retail locations, three are subleased by the Company and two are for corporate and administrative offices in Bedford, TX and Norcross, GA.

These leases typically have initial terms ranging from 5 to 10 years and include one or more options to renew.

Under ASC 842, a modified retrospective transition is required, applying the new standard to all leases at the date of initial application.

The Company chose to use the adoption date of January 1, 2022 for ASC 842.

As such, all periods presented after January 1, 2022, are under ASC 842 whereas periods presented prior to January 1, 2022, are in accordance with prior lease accounting of ASC 840.

Financial information was not updated and the disclosures required under ASC 842 were not provided for dates and periods before January 1, 2022.

We determine if an arrangement is a lease at inception.

Operating leases are right-of-use (“ROU”) assets and are shown as ROU assets – operating leases on our Condensed Balance Sheet.

The lease liabilities are shown as Operating lease obligation and Operating lease obligation, less current portion on our Condensed Balance Sheet.

Under ASC 842, the Company elected the modified retrospective approach, applying the new standard to all leases at the date of initial application.

The Company adopted the new standard on January 1, 2022.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

We determine if an arrangement is or contains a lease at inception.

Operating leases are right-of-use (“ROU”) assets and are shown as ROU assets – operating leases on our balance sheets.

The lease liabilities are shown as Operating lease obligations and Operating lease obligations, less the current portion on our balance sheets.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

6 unchanged sentences

Many of our leases contain renewal options.

As the exercise of the renewal options is not certain at commencement of a lease, we generally do not include the option periods in the lease term when determining the lease liabilities and ROU assets.

We remeasure the lease liability and ROU asset when we are reasonably certain that we will exercise a renewal option.

As the exercise of the renewal options is not likely at the commencement of a lease, we generally do not include the option periods in the lease term when determining the lease liabilities and ROU assets.

We remeasure the lease liability and ROU asset when it is reasonably likely that we will exercise a renewal option.

Our leases do not provide information about the rate implicit in the lease.

6 unchanged sentences

Our short-term lease costs were not material for the year ended December 31, 2023.

Lease expense for operating leases consists of fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred.

Amortization of the ROU asset for operating leases reflects amortization of the lease liability, any differences between straight-line expense and related lease payments during the accounting period, and any impairments.

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

As of December 31, 2022, future minimum lease payments under our operating lease liabilities were as follows:

As of December 31, 2023, present value of future lease payments under our operating lease liabilities were as follows:

Total lease payments

7 unchanged sentences

Finished goods

Allowance for obsolescence

(1) Finished goods includes $ 6,987 and $ 2,678 as of December 31, 2022 and 2021, respectively, held for more than twelve months and classified as long-term.

Finished goods expected to be held for more than twelve months is classified as long-term and represented $ 7,793 and $ 6,987 as of December 31, 2023 and 2022, respectively.

The Company has an inventory allowance of $ 439 and $ 402 as of December 31, 2023 and December 31, 2022, respectively, for finished goods expected to be held for more than twelve months.

PROPERTY, PLANT AND EQUIPMENT

1 unchanged sentence

Buildings and leasehold improvements

Construction in Progress

Machinery and equipment

11 unchanged sentences

Debt securities have been classified according to management’s intent.

The Company purchased US Treasury Notes in November 2022 and they mature in November 2023.

The debt securities have been classified as held-to-maturity and the amortized cost are $ 8,412 and $ 0 at December 31, 2022 and 2021, respectively.

The Company purchased US Treasury Notes in November 2022 that were to mature in November 2023.

The Debt Securities were sold prior to maturity on June 22, 2023 and the proceeds were used to pay down the credit line.

The Company recognized a gain of $ 12 when the Debt Securities were sold.

The debt securities were classified as held-to-maturity and the amortized cost was $ 8,412 at December 31, 2022.

There were no such securities held at December 31, 2023.

ACCRUED LIABILITIES

7 unchanged sentences

LINES OF CREDIT

On March 30, 2020, the Company entered into an agreement with Capital One, N.A.

for a new revolving line of credit (“Revolver”).

On March 30, 2020, the Company entered into an agreement with Capital One (“Capital One”) for a revolving line of credit (“Revolver”).

The Revolver had a maximum credit limit of $ 70,000 and a maturity date of March 30, 2024.

On June 21, 2022, the Company received a Reservation of Rights notice from Capital One, N.A.

On June 21, 2022, we received a Reservation of Rights notice from Capital One.

The letter stated that the Company’s Revolver was in default.

The default condition occurred due to the Company’s failure to timely file the Form 10-K and deliver certain financial statement to Capital One, N.A.

On July 28, 2022, the Company entered into a Limited Waiver and First Amendment to Credit Agreement (the “Amendment”) with Capital One, N.A.

The default condition occurred due to the our failure to timely file the Form 10-K and deliver certain financial statements to Capital One.

On July 28, 2022, we entered into a Limited Waiver and First Amendment to Credit Agreement (the “Amendment”) with Capital One.

The Amendment replaced the LIBOR

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

The Amendment replaced the LIBOR borrowing rate with a secured overnight financing rate (“SOFR”) and waived a default arising out of a monetary judgement against the Company that exceeded the amount allowed in the Revolver.

On August 24, 2022, the Company 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 Revolver.

As a result, the available line of credit in the Revolver has been limited to $ 20,000 .

The Revolver accrues interest at one-month SOFR plus 2.00 %.

The interest rates in effect as of December 31, 2022 and 2022 were 6.12 % and 2.10 %, respectively.

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

The amount of available credit under the Revolver was $ 17,400 and $ 61,841 as of December 31, 2022 and 2021, respectively.

In connection with the Revolver, the Company paid certain arrangement fees and other fees of approximately $ 295 , which were capitalized as unamortized debt issuance costs and will be amortized to interest expense over the life of the Revolver.

For the years ended December 31, 2022 and 2021, interest expense under the Revolver was $ 225 and $ 887 , respectively.

The outstanding balance as of December 31, 2022 and 2021 was $ 2,545 and $ 7,993 , respectively.

The Revolver requires the Company to comply with certain financial and non-financial covenants.

As of December 31, 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.

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 was 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 provided a credit facility for up to $ 10,000 which could have been drawn upon to fund Project improvements and capital expenditures as defined in the agreement.

If funds had been drawn, the Company would have paid transaction costs and debt service payments.

The PILOT agreement required interest payments of 6.00 % per annum on outstanding balances, which would have been due each December 1st through maturity on December 1, 2021, at which time all unpaid principal and interest would have been due.

The PILOT agreement was collateralized by the assets of the Project.

No amounts were drawn on this credit facility.

borrowing rate with a secured overnight financing rate (“SOFR”) and waived a default arising out of a monetary judgment against the Company that exceeded the amount allowed in the Revolver.

On August 24, 2022, we received a Notice of Default and Partial Suspension of Loan Commitments from Capital One.

The notice stated that the July 28, 2022 forbearance agreement had been terminated and that Capital One was permitted to suspend $ 50,000 of the $ 70,000 loan commitment under the Revolver.

As a result, the available line of credit in the Revolver was limited to $ 20,000 .

The Revolver accrued interest at one-month SOFR plus 2.00 %.

Amounts available under the Revolver 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.

In connection with the Revolver, the Company paid certain arrangement fees and other fees of approximately $ 295 , which were capitalized as unamortized debt issuance costs and were amortized to interest expense over the life of the Revolver.

The Revolver required the Company to comply with certain financial and non-financial covenants.

On July 28, 2023, upon entry into the New Revolver described below, the Capital One Revolver was repaid in full, and all commitments thereunder were terminated.

On July 28, 2023, the Company entered into a new Credit Agreement (the “New Revolver”), by and among the Company as borrower, the financial institutions from time to time party thereto, as lenders, and Prosperity Bank as administrative agent.

The New Revolver provides for a four-year senior secured revolving credit facility with an initial commitment of $ 50,000 and an additional $ 25,000 commitment under an accordion feature.

The New Revolver is secured by the Company’s consumer loans receivables and all escrow accounts associated with the consumer loans receivables.

At the Company's option, borrowings will bear interest at a per annum rate equal to, (i) Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.5 % or 2.75 % based upon the Company's average quarterly borrowings under the New Revolving Credit Agreement or (ii) a base rate plus an applicable margin of 2.5 % or 2.75 % based upon the Company's average quarterly borrowings under the New Revolver.

The Company paid certain arrangement fees and other fees in connection with the New Revolver of approximately $ 271 , which were capitalized as unamortized debt issuance costs and included within lines of credit balance in the accompanying balance sheets and are amortized to interest expense over the life of the New Revolver.

The New Revolver matures July 28, 2027.

For the year ended December 31, 2023, interest expense under the Revolver and New Revolver was $ 930 , and for the year ended December 31, 2022, interest expense under the Revolver was $ 225 .

The outstanding balance of the New Revolver as of December 31, 2023 was $ 23,680 , and the outstanding balance of the Revolver as of December 31, 2022 was $ 2,545 .

The interest rate in effect as of December 31, 2023 for the New Revolver was 7.95 % and the interest rate in effect as of December 31, 2022 for the Revolver was 6.12 %.

The amount of available credit under the New Revolver was $ 26,320 as of December 31, 2023 and the amount of available credit under the Revolver was $ 17,400 as of December 31, 2022.

The New Revolver requires the Company to comply with certain financial and non-financial covenants.

As of December 31, 2023, the Company was in compliance with all financial covenants, including that it maintain a maximum leverage ratio of no more than 1.00 to 1.00 and a minimum fixed charge coverage ratio of no less than 1.75 to 1.00.

The provision for income tax expense for the years ended December 31, 2023 and 2022 was $ 14,276 and $ 14,375 , respectively.

The effective tax rates for the years ended December 31, 2023 and 2022 were 20.8 % and 17.5 %,

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

Significant components of the provision for income taxes are as follows (in thousands):

respectively.

These rates differ from the federal statutory rate of 21 % primarily due to a federal tax credit for the sale of energy efficient homes under the Internal Revenue Code §45L, partially offset by state income taxes.

The §45L tax credit was initially established under the Federal Energy Policy Act of 2005 and was extended through December 31, 2032 by the Inflation Reduction Act of 2022.

Significant components of the provision for income taxes are as follows:

Total current income tax provision

7 unchanged sentences

Effective tax rate

The tax effects of cumulative temporary differences that give rise to deferred tax assets and liabilities are as follows (in thousands):

The tax effects of cumulative temporary differences that give rise to deferred tax assets and liabilities are as follows:

Deferred tax assets:

14 unchanged sentences

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.

Pursuant to the Legacy Housing Corporation 2018 Incentive Compensation Plan (the “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 December 31, 2022, the Company had 9.7 million shares available for grant under the Compensation Plan.

In February 2019, the Company granted 120,000 restricted shares of its common stock to members of senior management.

The shares were granted on February 7, 2019 and had a grant date fair value of $ 1,636 .

The shares vest at a rate of 14.3 % annually, beginning on February 7, 2019, and becoming fully vested on February 7, 2025.

During the second quarter of 2020, 42,857 of these restricted shares were forfeited due to the departure of a member of senior management.

In December 2020, the Company granted 2,022 restricted shares of its common stock to the independent directors on the Company’s Board of Directors.

The shares were granted on December 2, 2020 and had a grant date fair value of $ 30 .

The shares became fully vested on October 4, 2021.

In November 2021, the Company granted 1,202 restricted shares of its common stock to the independent directors on the Company’s Board of Directors.

The shares were granted on November 30, 2021 and had a grant date fair value of $ 30 .

The shares became fully vested on October 24, 2022.

In January 2022, the Company granted 150,000 restricted shares of its common stock to the Executive Chairman of the Company pursuant to an amended and restated employment agreement.

The shares were granted on January 6, 2022 and had a grant date fair value of $ 3,741 .

The shares became fully vested upon grant.

On January 6, 2022, the Company gave contingent equity awards of 350,000 shares of the Company’s restricted stock to the Executive Chairman of the Company pursuant to an amended and restated employment agreement.

An equity award of 175,000 shares will be granted if the Company’s stock price reaches and remains for a period of fifteen consecutive market days at a closing price of $ 36 per share (the “$ 36 Equity Award”).

The $ 36 Equity Awards had a grant date fair value of $ 1,412 and fifty percent of the shares shall be vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

An additional equity award of 175,000 shares of the Company’s restricted stock will be granted if the Company’s stock price reaches and remains for a period of fifteen consecutive market days at a closing price of $ 48 per share (the “$ 48 Equity Award”).

The $ 48 Equity Awards had a grant date fair value of $ 683 and fifty percent of the shares shall be vested at grant and fifty percent shall vest on June 16, 2024, so long as the Executive Chairman is employed by the Company on that date.

On November 15, 2022, the Company entered into a rescission and relinquishment agreement (the “Rescission Agreement”) with the Executive Chairman.

The Rescission Agreement allows the Executive Chairman to rescind and relinquish the $ 36 Equity Awards and the $ 48 Equity Awards granted under the amended and restated employment agreement and allows the Company to accept such rescission and relinquishment, without any payment therefor.

The effective date of the Rescission Agreement is October 1, 2022.

On June 7, 2022, the Company granted 14,700 restricted shares of its common stock to the Chief Executive Officer of the Company pursuant to an employment agreement.

The shares were granted on June 7, 2022 and had a grant date fair value of $ 235 .

One -half of the shares vest on June 7, 2023 and the remaining half vest on June 7, 2024.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

On June 7, 2022, the Company granted 301 restricted shares of its common stock to an independent director on the Company’s Board of Directors.

The shares were granted on June 7, 2022 and had a grant date fair value of $ 5 .

The shares became fully vested on October 24, 2022.

In November 2022, the Company granted 1,734 restricted shares of its common stock to the independent directors on the Company’s Board of Directors.

The shares were granted on November 29, 2022 and had a grant date fair value of $ 30 .

The shares became fully vested on October 23, 2023.

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

At December 31, 2023, the Company had 8.7 million shares available for grant under the Plan.

Restricted Stock

The following is a summary of restricted stock award activity for the year ending December 31, 2023 (in thousands, except per unit data):

Number of Units

2 unchanged sentences

Nonvested, December 31, 2022

As of December 31, 2022, approximately 42,000 RSUs remained unvested.

Unrecognized compensation expense related to these RSUs at December 31, 2022 was $ 442 and is expected to be recognized over 1.77 years.

The Company granted 34,626 incentive stock options to a member of senior management.

The options were granted on August 10, 2020 at an exercise price of $ 14.44 per share.

The options vest at a rate of 20.0 % annually, beginning on August 10, 2021, and becoming fully vested on August 10, 2025.

All options expire ten years after the date of grant.

Weighted-average assumptions used in the Black-Scholes option pricing model for stock options granted were as follows:

risk free interest rate of 0.24 %;

dividend yield of 0.00 %;

expected volatility of common stock of 75.0 % and expected life of options of 6.5 years.

During the first quarter of 2022, 27,701 of these options were forfeited due to the individual’s departure.

The Company granted 55,490 incentive stock options to a member of management.

The options were granted on September 23, 2021 at an exercise price of $ 18.02 per share.

The options vest at a rate of 10.0 % annually, beginning on September 23, 2022, and becoming fully vested on September 23, 2031.

All options expire ten years after the date of grant.

Weighted-average assumptions used in the Black-Scholes option pricing model for stock options granted were as follows:

risk free interest rate of 1.41 %;

dividend yield of 0.00 %;

expected volatility of common stock of 75.0 % and expected life of options of 7.8 years.

During the fourth quarter of 2022, these options were forfeited due to the individual’s departure.

The Company granted 62,460 incentive stock options to the Chief Executive Officer.

The options were granted on June 7, 2022 at an exercise price of $ 16.01 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and becoming fully vested on June 7, 2032.

All options expire ten years after the date of grant.

Weighted-average assumptions used in the Black-Scholes option pricing model for stock options granted were as follows:

risk free interest rate of 2.98 %;

dividend yield of 0.00 %;

expected volatility of common stock of 45.7 % and expected life of options of 7.8 years.

The Company granted options to purchase 900,000 shares of the Company’s stock to the Chief Executive Officer.

An option to purchase 300,000 shares of the Company’s stock was granted on June 7, 2022 at an exercise price of $ 36.00 per share and an option to purchase 600,000 shares of the Company’s stock was granted on June 7, 2022 at an exercise price of $ 48.00 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and

Nonvested, January 1, 2023

Nonvested, December 31, 2023

As of December 31, 2023, approximately 8,000 shares of restricted stock remained unvested.

Unrecognized compensation expense related to these restricted stock awards at December 31, 2023 was $ 78 and is expected to be recognized over 0.6 years.

Compensation expense for restricted stock awards for the years ended December 31, 2023 and 2022 was $ 234 and $ 3,960 , respectively.

Stock Options

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

becoming fully vested on June 7, 2032.

All options expire ten years after the date of grant.

Weighted-average assumptions used in the Black-Scholes option pricing model for stock options granted were as follows:

risk free interest rate of 2.98 %;

dividend yield of 0.00 %;

expected volatility of common stock of 45.7 % and expected life of options of 7.8 years.

The Company granted 62,460 incentive stock options to the Chief Financial Officer.

The options were granted on June 7, 2022 at an exercise price of $ 16.01 per share.

The options vest at a rate of 10.0 % annually, beginning on June 7, 2023, and becoming fully vested on June 7, 2032.

All options expire ten years after the date of grant.

Weighted-average assumptions used in the Black-Scholes option pricing model for stock options granted were as follows:

risk free interest rate of 2.98 %;

dividend yield of 0.00 %;

expected volatility of common stock of 45.7 % and expected life of options of 7.8 years.

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

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

Number of Units

9 unchanged sentences

Exercisable, December 31, 2023

As of December 31, 2022, approximately 1,025,000 options remain nonvested.

As of December 31, 2023, approximately 1,006,000 options remain unvested.

Unrecognized compensation expense related to these options at December 31, 2023 was $ 4,479 and is expected to be recognized over 8.3 years.

Compensation expense for stock option awards for the years ended December 31, 2023 and 2022 was $ 535 and $ 348 , respectively.

COMMITMENTS AND CONTINGENCIES

5 unchanged sentences

The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent retailers of its products.

These arrangements, which are customary in the industry,

These arrangements, which are customary in the industry, provide for the repurchase of products sold to retailers in the event of default by the retailer.

The Company’s obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer.

The Company believes that risk of loss is mitigated due to the resale value of the repurchased homes and the fact that the agreements are spread over many retailers.

The maximum amount for which the Company was liable under such agreements approximated $ 3,030 and $ 8,925 at December 31, 2023 and 2022, respectively, without reduction for the resale value of the homes.

The Company considers its obligations on current contracts to be immaterial and accordingly have not recorded any reserve for repurchase commitment as of December 31, 2023 or 2022.

LEGACY HOUSING CORPORATION

2 unchanged sentences

(Dollars in thousands, except per share amounts)

provide for the repurchase of products sold to retailers in the event of default by the retailer.

The Company’s obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer.

The maximum amount for which the Company was liable under such agreements approximated $ 8,925 and $ 4,908 at December 31, 2022 and 2021, respectively, without reduction for the resale value of the homes.

The Company considers its obligations on current contracts to be immaterial and accordingly have not recorded any reserve for repurchase commitment as of December 31, 2022 or 2021.

The Company leases facilities under operating leases that typically have 10 -year terms.

13 unchanged sentences

Basic earnings per common share (“EPS”) is computed based on the weighted-average number of common shares outstanding during the reporting period.

Diluted EPS is based on the weighted-average number of common shares outstanding plus the number of additional shares that would have been outstanding had the dilutive common shares been

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

(Dollars in thousands, except per share amounts)

Diluted EPS is based on the weighted-average number of common shares outstanding plus the number of additional shares that would have been outstanding had the dilutive common shares been issued.

The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS.

6 unchanged sentences

Earnings per share attributable to Legacy Housing Corporation

The diluted earnings per share calculation excludes 102,408 and zero potential shares related to stock grants and stock options for the years ended December 31, 2022 and 2021, respectively, because the effect of including these potential shares would be antidilutive.

LEGACY HOUSING CORPORATION

NOTES TO FINANCIAL STATEMENTS

December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

RELATED PARTY TRANSACTIONS

1 unchanged sentence

Accounts receivable balances due from Bell Mobile Homes were $ 403 and $ 0 as of December 31, 2023 and 2022, respectively.

Accounts payable balances due to Bell Mobile Homes for maintenance and related services were $ 132 and $ 49 as of December 31, 2022 and 2021, respectively.

Accounts payable balances due to Bell Mobile Homes were $ 18 and $ 132 as of December 31, 2023 and 2022, respectively.

Home sales to Bell Mobile Homes were $ 4,543 and $ 4,499 for the years ended December 31, 2023 and 2022, respectively.

Shipley Bros., Ltd.

(“Shipley Bros.”), a retailer owned by one of the Company’s significant shareholders, purchases manufactured homes from the Company.

and Crazy Red’s Mobile Homes (together, “Shipley Bros.”), retailers owned by one of the Company’s significant shareholders, purchase manufactured homes from the Company.

Accounts receivable balances due from Shipley Bros.

were $ 143 and $ 0 as of December 31, 2023 and 2022, respectively.

Accounts payable balances due to Shipley Bros.

were $ 67 and $ 0 as of December 31, 2023 and 2022, respectively.

Home sales to Shipley Bros.

were $ 1,199 and $ 3,181 as of December 31, 2023 and 2022, respectively.

There were no accounts receivable balances or accounts payable balances due from/to Shipley Bros.

as of December 31, 2022 and 2021, respectively.

At December 31, 2022, the Company had a receivable of $ 68 from a principal shareholder.

This amount is included in the Company’s accounts receivable balance as of December 31, 2022.

At December 31, 2023 and 2022, the Company had an accounts receivable balance of $ 0 and $ 68 , respectively, from a principal shareholder.

SUBSEQUENT EVENTS

In connection with the preparation of these financial statements, an evaluation of subsequent events was performed through the date of filing.

In connection with the preparation of these financial statements, we evaluated subsequent events after the balance sheet date of December 31, 2023 and through the date of this filing and determined that no events occurred that would require adjustments or disclosures in the financial statements.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data