Legacy Housing Corp 10-K

ITEM 8. FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS ​ ​ Page AUDITED FINANCIAL STATEMENTS OF LEGACY HOUSING CORPORATION ​ ​ ​ Reports of Frazier & Deeter, LLC, Independent Registered Public Accounting Firm (PCAOB ID: 215 ) 29 Report of Daszkal Bolton, LLP, Independent Registered Public Accounting Firm (PCAOB ID: 229 ) 33 Balance Sheets as of December 31, 2023 and 2022 34 Statements of Operations for the Years Ended December 31, 2023 and 2022 35 Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2023 and 2022 36 Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 37 Notes to Financial Statements 38 ​ ​ ​ 28 Table of Contents 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, 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 ​ These financial statements are the responsibility of the Company's management. 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 (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. ​ 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 the financial statements are free of material misstatement, whether due to error or fraud. 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 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 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 29 Table of Contents $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. ​ Tampa, Florida March 15, 2024 ​ ​ ​ 30 Table of Contents 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. ​ 31 Table of Contents 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 ​ ​ 32 Table of Contents Report of Independent Registered Public Accounting Firm Audit Committee, Board of Directors and Shareholders Legacy Housing Corporation Bedford, Texas ​ 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. Basis for opinion These financial statements are the responsibility of the Company’s management. 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. 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 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. 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 Sunrise, Florida March 15, 2023 We served as the Company’s auditor from 2022 to March 2023. ​ ​ ​ ​ 33 Table of Contents ​ LEGACY HOUSING CORPORATION BALANCE SHEETS (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2023 ​ 2022 Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ Cash ​ $ 748 ​ $ 2,818 Held to maturity securities ​ ​ — ​ ​ 8,412 Accounts receivable, net ​ 4,656 ​ 4,873 Current portion of contracts - dealer financed ​ ​ 32,538 ​ ​ 29,441 Current portion of consumer loans receivable ​ 7,682 ​ 6,801 Current portion of notes receivable from mobile home parks (“MHP”) ​ 18,156 ​ 9,670 Current portion of other notes receivable ​ 6,013 ​ 8,927 Inventories ​ 33,176 ​ 32,075 Prepaid expenses and other current assets ​ 4,915 ​ 4,064 Total current assets ​ 107,884 ​ 107,081 Contracts - dealer financed ​ — ​ 595 Consumer loans receivable, net ​ 148,818 ​ 132,208 Notes receivable from mobile home parks (“MHP”), net ​ 163,824 ​ 133,072 Other notes receivable, net ​ 28,577 ​ 13,795 Inventories, net ​ ​ 7,793 ​ ​ 6,987 Other assets - leased mobile homes ​ ​ 7,601 ​ ​ 8,824 ROU assets - operating leases ​ ​ 1,794 ​ ​ 2,663 Other assets ​ 2,571 ​ 1,482 Property, plant and equipment, net ​ 37,880 ​ 30,106 Total assets ​ $ 506,742 ​ $ 436,813 Liabilities and Stockholders' Equity ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 4,090 ​ $ 4,549 Accrued liabilities ​ 18,504 ​ 16,895 Customer deposits ​ 4,146 ​ 9,715 Escrow liability ​ 10,104 ​ 9,653 Operating lease obligation ​ ​ 489 ​ ​ 650 Total current liabilities ​ 37,333 ​ 41,462 Long‑term liabilities: ​ ​ Operating lease obligation, less current portion ​ ​ 1,396 ​ ​ 2,121 Lines of credit ​ 23,680 ​ 2,545 Deferred income taxes, net ​ ​ 2,338 ​ ​ 3,065 Dealer incentive liability ​ 5,260 ​ 5,516 Total liabilities ​ 70,007 ​ 54,709 Commitments and contingencies (Note 17) ​ ​ Stockholders' equity: ​ ​ ​ ​ ​ ​ Preferred stock, $ .001 par value, 10,000,000 shares authorized: no shares issued or outstanding ​ ​ — ​ ​ — Common stock, $ .001 par value, 90,000,000 shares authorized; 24,843,494 and 24,814,695 issued and 24,398,429 and 24,369,630 outstanding at December 31, 2023 and 2022, respectively ​ ​ 30 ​ ​ 30 Treasury stock at cost, 445,065 shares at December 31, 2023 and 2022, respectively ​ ​ ( 4,477 ) ​ ​ ( 4,477 ) Additional paid-in-capital ​ ​ 181,424 ​ ​ 180,555 Retained earnings ​ ​ 259,758 ​ ​ 205,996 Total stockholders' equity ​ ​ 436,735 ​ ​ 382,104 Total liabilities and stockholders' equity ​ $ 506,742 ​ $ 436,813 ​ See accompanying notes to financial statements ​ 34 Table of Contents LEGACY HOUSING CORPORATION StatementS of Income (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 ​ Net revenue: ​ ​ ​ Product sales ​ $ 145,100 ​ $ 222,052 ​ Consumer, MHP and dealer loans interest ​ 37,420 ​ 28,564 ​ Other ​ 6,624 ​ 6,399 ​ Total net revenue ​ 189,144 ​ 257,015 ​ Operating expenses: ​ ​ ​ Cost of product sales ​ 99,692 ​ 150,114 ​ Selling, general and administrative expenses ​ 24,279 ​ 27,568 ​ Dealer incentive ​ 586 ​ 1,315 ​ Total operating expenses ​ ​ 124,557 ​ ​ 178,997 ​ Income from operations ​ 64,587 ​ 78,018 ​ Other income (expense): ​ ​ ​ Non‑operating interest income ​ 3,019 ​ 2,942 ​ Miscellaneous, net ​ 2,060 ​ 1,563 ​ Interest expense ​ ( 930 ) ​ ( 375 ) ​ Total other ​ 4,149 ​ 4,130 ​ Income before income tax expense ​ 68,736 ​ 82,148 ​ Income tax expense ​ ( 14,276 ) ​ ( 14,375 ) ​ Net income ​ $ 54,460 ​ $ 67,773 ​ Weighted average shares outstanding: ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 24,385,190 ​ ​ 24,357,785 ​ Diluted ​ ​ 25,070,626 ​ ​ 24,742,419 ​ Net income per share: ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 2.23 ​ $ 2.78 ​ Diluted ​ $ 2.17 ​ $ 2.74 ​ ​ See accompanying notes to financial statements. ​ 35 Table of Contents LEGACY HOUSING CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Treasury ​ Additional ​ Retained ​ ​ ​ ​ Shares Amount stock paid-in-capital earnings Total Balances, December 31, 2021 ​ 24,654,621 ​ $ 25 ​ $ ( 4,477 ) ​ $ 175,623 ​ $ 138,223 ​ $ 309,394 Share based compensation ​ 160,074 ​ ​ 5 ​ ​ — ​ ​ 4,932 ​ ​ — ​ ​ 4,937 Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 67,773 ​ ​ 67,773 Balances, December 31, 2022 ​ 24,814,695 ​ ​ 30 ​ ​ ( 4,477 ) ​ ​ 180,555 ​ ​ 205,996 ​ ​ 382,104 Cumulative change in accounting principle, net of taxes (Note 2) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 698 ) ​ ​ ( 698 ) Share based compensation ​ 28,799 ​ ​ — ​ ​ — ​ ​ 869 ​ ​ — ​ ​ 869 Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 54,460 ​ ​ 54,460 Balances, December 31, 2023 ​ 24,843,494 ​ ​ 30 ​ ​ ( 4,477 ) ​ ​ 181,424 ​ ​ 259,758 ​ ​ 436,735 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ See accompanying notes to financial statements ​ 36 Table of Contents LEGACY HOUSING CORPORATION STATEMENTS OF CASH FLOWS (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 2022 Operating activities: ​ ​ ​ Net income ​ $ 54,460 ​ $ 67,773 ​ Adjustments to reconcile net income to net cash used in operating activities: ​ ​ ​ Depreciation and amortization expense ​ 1,726 ​ 1,936 ​ Amortization of deferred revenue ​ ​ ( 1,285 ) ​ ​ ( 1,383 ) ​ Amortization of Treasury Note Discount ​ ​ ( 76 ) ​ ​ ( 25 ) ​ Amortization of lines of credit cost ​ ​ 70 ​ ​ 74 ​ Provision for accounts and notes receivable ​ ​ 1,354 ​ ​ ( 109 ) ​ Provision for long term inventory ​ ​ 49 ​ ​ ( 83 ) ​ Gain from sale of leased property ​ ​ ( 507 ) ​ ​ ( 753 ) ​ Non-cash operating lease expense ​ ( 50 ) ​ 62 ​ Deferred income taxes ​ ​ ( 524 ) ​ ​ 61 ​ Share based payment expense ​ ​ 769 ​ ​ 4,936 ​ Gain on disposal of treasury note ​ ​ ( 12 ) ​ ​ — ​ Changes in operating assets and liabilities: ​ ​ ​ Accounts receivable ​ ( 155 ) ​ 309 ​ Consumer loans activity, net ​ ( 17,362 ) ​ ( 13,346 ) ​ Notes receivable MHP activity, net ​ ( 39,192 ) ​ ( 39,423 ) ​ Dealer inventory loan activity, net ​ ​ ( 2,930 ) ​ ​ ( 26,553 ) ​ Inventories ​ ( 1,956 ) ​ 5,699 ​ Prepaid expenses and other current assets ​ ( 1,323 ) ​ 485 ​ Other assets ​ ( 1,246 ) ​ ( 1,449 ) ​ Accounts payable and accrued liabilities ​ ( 5 ) ​ ( 3,397 ) ​ Right of use activity, net ​ 33 ​ 46 ​ Customer deposits ​ ( 5,569 ) ​ 1,966 ​ Escrow liability ​ ​ 451 ​ ​ 303 ​ Dealer incentive liability ​ ( 256 ) ​ 1,180 ​ Net cash used in operating activities ​ ( 13,536 ) ​ ( 1,691 ) ​ Investing activities: ​ ​ ​ Purchases of property, plant and equipment ​ ( 7,713 ) ​ ( 3,800 ) ​ Proceeds from sale of leased property ​ ​ 1,108 ​ ​ 1,684 ​ Purchase of investments - treasury notes ​ ​ — ​ ​ ( 8,386 ) ​ Sale of investments - treasury notes ​ ​ 8,500 ​ ​ — ​ Issuance of notes receivable ​ ( 14,786 ) ​ ( 4,394 ) ​ Notes receivable collections ​ ​ 2,745 ​ ​ 23,495 ​ Collections from purchased loans ​ ​ 377 ​ ​ 482 ​ Net cash (used in) provided by investing activities ​ ( 9,769 ) ​ 9,081 ​ Financing activities: ​ ​ ​ Proceeds from exercise of stock options ​ ​ 100 ​ ​ — ​ Proceeds from lines of credit ​ 110,761 ​ 100,589 ​ Payments on lines of credit ​ ( 89,626 ) ​ ( 106,203 ) ​ Net cash provided by (used in) financing activities ​ 21,235 ​ ( 5,614 ) ​ Net (decrease) increase in cash ​ ( 2,070 ) ​ 1,776 ​ Cash at beginning of year ​ 2,818 ​ 1,042 ​ Cash at end of year ​ $ 748 ​ $ 2,818 ​ Supplemental disclosure of cash flow information: ​ ​ ​ Cash paid for interest ​ $ 478 ​ $ 251 ​ Cash paid for taxes ​ $ 18,859 ​ $ 10,314 ​ Acquisition of property plant and equipment, included in accrued liabilities ​ $ 1,154 ​ $ — ​ ​ See accompanying notes to financial statements ​ 37 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) 1. NATURE OF OPERATIONS Legacy Housing Corporation (referred herein as ”Legacy”, “we”, “our”, “us”, or the “Company”) was formed on January 1, 2018 as a Delaware corporation through a corporate conversion of Legacy Housing, Ltd., (the “Partnership”) a Texas limited partnership formed in May 2005. Effective December 31, 2019, the Company reincorporated from a Delaware corporation to a Texas corporation. The Company is headquartered in Bedford, Texas. The Company (1) manufactures and provides for the transport of mobile homes, (2) provides wholesale financing to dealers and mobile home parks and (3) provides retail financing to consumers and (4) is involved in financing and developing new manufactured home communities. The Company manufactures its mobile homes at plants located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia. The Company relies on a network of dealers to market and sell its mobile homes. The Company also sells homes directly to consumers, through its own retail stores, and to dealers and mobile home parks. Basis of Presentation The financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Use of Estimates The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. 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. Segment Reporting The Company has one reportable segment. 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 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 Chief Executive Officer, are based upon analyses of our company as one segment or unit. ​ ​ ​ 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash 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, 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. 38 Table of Contents 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 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 “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. 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 for doubtful accounts for amounts that are deemed to be uncollectible. At December 31, 2023, 2022 and 2021, the allowance for doubtful accounts totaled $ 651 , $ 279 and $ 343 , respectively. Consumer Loans Receivable Consumer loans receivable result from financing transactions entered into with retail consumers of mobile homes sold through independent retailers and company-owned retail locations. Consumer loans receivable generally consist of the sales price and any additional financing fees, less the buyer’s down payment. Interest income is recognized monthly per the terms of the financing agreements. The average contractual interest rate per loan was approximately 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 . 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 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 The allowance for loan losses reflects management’s estimate of losses inherent in the consumer loans that may be uncollectible based upon review and evaluation of the consumer loan portfolio as of the date of the balance sheet. An allowance for loan losses is determined after giving consideration to, among other things, the loan characteristics, including the financial condition of borrowers, the value and liquidity of collateral, delinquency and historical loss experience. The allowance for loan losses is comprised of two components: the general reserve and specific reserves. The Company’s calculation of the general reserve considers the historical 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. 39 Table of Contents 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. Payments received on nonaccrual loans are accounted for on a cash basis, first to interest and then to principal, as long as the remaining book balance of the asset is deemed to be collectible. The accrual of interest resumes when the past due principal or interest payments are brought within 90 days of being current. 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 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. A loan is generally deemed impaired if it is more than 90 days past due on principal or interest, is in bankruptcy proceedings, or is in the process of repossession. A specific reserve is created for impaired loans based on fair value of underlying collateral value, less estimated selling costs. The Company uses various factors to determine the value of the underlying collateral for impaired loans. These factors 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 (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) the size of the home and market conditions; and (7) the experience and expertise of the particular dealer assisting in collection efforts. Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell. At repossession, the 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. 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 $ 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”) 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, 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 40 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) 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, 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 Inventories consist of raw materials, work-in-process, and finished goods and are stated at the lower of cost or net realizable value. The cost of raw materials is based on the first-in first-out method. Finished goods and work-in-process are based on a standard cost system that approximates actual costs using the specific identification method. Estimates of the lower of cost and net realizable value of inventory are determined by comparing the actual cost of the product to the estimated selling prices in the ordinary course of business based on current market and economic conditions, less reasonably predictable costs of completion, disposal, and transportation of the inventory. For the periods ending, December 31, 2023 and 2022, the Company recorded an insignificant amount of inventory write-down. 41 Table of Contents 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. As of December 31, 2023 and 2022, non-current inventory was $ 7,793 and $ 6,987 , respectively. Leased Property The Company offers mobile home park operators the opportunity to lease mobile homes for rent in lieu of purchasing the homes for cash or under a longer-term financing agreement. In this arrangement title for the mobile homes remains with the Company, and the lease is accounted for as an operating lease. 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 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. Future minimum lease income under all operating leases for each of the next five years at December 31, 2023,is as follows: ​ ​ ​ ​ 2024 $ 1,825 2025 ​ 1,825 2026 ​ 1,825 2027 ​ 1,653 2028 ​ 1,460 Thereafter ​ 804 Total ​ $ 9,392 ​ ​ Property, Plant, and Equipment Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation expense is calculated using the straight-line method over the estimated useful lives of each asset. Estimated useful lives for significant classes of assets are as follows: buildings and improvements, 30 to 39 years ; vehicles, 5 years ; machinery and equipment, 7 years ; and furniture and fixtures, 7 years . Repair and maintenance charges are expensed as incurred. Expenditures for major renewals or betterments which extend the useful lives of existing property, plant and equipment are capitalized and depreciated. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. 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. No impairment for long-lived assets was recorded for the years ended December 31, 2023 and 2022. 42 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (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 The Company provides retail home buyers with a one-year warranty from the date of purchase on manufactured inventory. Product warranty costs are accrued when the covered homes are sold to customers. Product warranty expense is recognized based on the terms of the product warranty and the related estimated costs. 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 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Warranty liability, beginning of year ​ $ 3,049 ​ $ 2,876 Product warranty accrued ​ 2,552 ​ 2,874 Warranty costs incurred ​ ( 2,691 ) ​ ( 2,701 ) Warranty liability, end of year ​ $ 2,910 ​ $ 3,049 ​ Advertising Costs The Company expenses all advertising and marketing expenses in the period incurred. Advertising costs for the years ended December 31, 2023 and 2022 were $ 409 and $ 120 , respectively. Fair Value Measurements The Company accounts for its investments and derivative instruments in accordance with the provisions of Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurement, which among other things provides the framework for measuring fair value. 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 43 Table of Contents 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: ​ ​ Level I Quoted prices are available in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. ​ Level II ​ Significant observable inputs other than quoted prices in active markets for which inputs to the valuation methodology include: (1) Quoted prices for similar assets or liabilities in active markets; (2) Quoted prices for identical or similar assets or liabilities in inactive markets; (3) Inputs other than quoted prices that are observable; (4) Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability. ​ Level III ​ Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities. The asset or liability fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. ​ Fair Value of Financial 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. This is considered a Level II valuation technique. 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. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Consumer loan portfolio, fair value ​ $ 155,146 ​ $ 138,800 Consumer loan portfolio, book value ​ 156,499 ​ 139,009 Fixed rate MHP Notes, fair value ​ ​ 176,270 ​ 128,400 Fixed rate MHP Notes, book value ​ ​ 178,724 ​ 129,966 Fixed rate other notes, fair value ​ ​ 34,340 ​ 21,600 Fixed rate other notes, book value ​ ​ 34,590 ​ 22,722 ​ 44 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) 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. Reserve for Repurchase Commitments In accordance with customary business practice in the manufactured housing industry, the Company has entered into certain repurchase agreements with certain financial institutions and other credit sources who provide floor plan financing to industry retailers, which provided that the Company will be obligated, under certain circumstances, to repurchase homes sold to retailers in the event of a default by a retailer in its obligation to such credit sources. The Company’s obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer. The Company applies ASC 460, Guarantees and ASC 450-20, Loss Contingencies , to account for its liability for repurchase commitments. 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. Interest Income Interest on consumer loans, MHP Notes and other notes is recognized using the effective-interest method on the daily balances of the principal amounts outstanding and recorded as part of total revenue. 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. 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 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. Compensation cost is recognized on a straight-line basis over the vesting period of the awards and adjusted as forfeitures occur. The fair value of each option grant with only service-based conditions is estimated using the Black-Scholes pricing model. The fair value of each restricted stock 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 45 Table of Contents 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. 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. 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 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. Income Taxes The Company is subject to U.S. federal and state income taxes as a corporation. 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 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. A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. 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 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. When facts and circumstances change, the Company reassesses these probabilities and records any changes through the provision for income taxes. The Company recognizes interest and penalties relating to uncertain tax provisions as a component of tax expense. For the periods presented, management has determined there are no material uncertain tax positions for the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2023, which includes the tax years 2020, 2021 and 2022. Concentrations 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. 46 Table of Contents 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. The MHP Notes personal guarantor may cover multiple parks and each park is treated as a customer. 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, 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. 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 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. 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; however, the Company did not elect the hindsight practical expedient. Additionally, the Company elected the optional transition method that allowed for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The adoption of ASU 2016-02 resulted in an increase in total assets and total liabilities of $ 3,258 at transition. However, this standard did not have a material impact on the consolidated statement of income or the consolidated statement of cash flows. See Note 8 for further discussion on leases. In June 2016, the FASB issued ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to 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): Deferral of the Sunset Date of Topic 848 . 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 47 Table of Contents 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. ​ 3. REVENUE 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. 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. 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 48 Table of Contents 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 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. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, ​ ​ 2023 2022 Product sales: ​ ​ ​ ​ ​ ​ Direct sales ​ $ 17,540 ​ $ 45,549 Commercial sales ​ 54,955 ​ 61,373 Inventory finance sales ​ ​ 44,135 ​ ​ 84,037 Retail store sales ​ ​ 19,169 ​ ​ 19,629 Other (1) ​ 9,301 ​ 11,464 Total product sales ​ 145,100 ​ 222,052 Consumer, MHP and dealer loans interest: ​ ​ Interest - consumer installment notes ​ 19,360 ​ 18,369 Interest - MHP notes ​ 14,330 ​ 10,195 Interest - dealer finance notes ​ ​ 3,730 ​ ​ — Total consumer, MHP and dealer loans interest ​ 37,420 ​ 28,564 Other ​ 6,624 ​ 6,399 Total net revenue ​ $ 189,144 ​ $ 257,015 49 Table of Contents 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 ​ 4. CONSUMER LOANS RECEIVABLE Consumer loans receivable, net of allowance for loan losses and deferred financing fees, consisted of the following at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Consumer loans receivable ​ $ 159,738 ​ $ 142,340 Loan discount and deferred financing fees ​ ( 2,473 ) ​ ( 2,501 ) Allowance for loan losses ​ ( 765 ) ​ ( 830 ) Consumer loans receivable, net ​ $ 156,500 ​ $ 139,009 ​ The following table presents a detail of the activity in the allowance for loan losses for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Allowance for loan losses, beginning of year ​ $ 830 ​ $ 884 ​ Provision for loan losses ​ ( 114 ) ​ ( 243 ) ​ Charge offs ​ 49 ​ 189 ​ Allowance for loan losses, end of year ​ $ 765 ​ $ 830 ​ ​ The following table presents impaired and general reserve for allowance for loan losses at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Total consumer loans ​ $ 159,738 ​ $ 142,340 Allowance for loan losses ​ $ 765 ​ $ 830 Impaired loans individually evaluated for impairment ​ $ 1,565 ​ $ 1,610 Specific reserve against impaired loans ​ $ 562 ​ $ 612 Other loans collectively evaluated for allowance ​ $ 158,173 ​ $ 140,730 General allowance for loan losses ​ $ 203 ​ $ 218 ​ 50 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ % ​ 2022 ​ % Total consumer loans receivable ​ $ 159,738 100.0 $ 142,340 100.0 Past due consumer loans: ​ ​ 31 - 60 days past due ​ $ 624 0.4 ​ $ 1,150 0.8 61 - 90 days past due ​ 149 0.1 ​ 108 0.1 91 - 120 days past due ​ 123 0.1 ​ 486 0.3 Greater than 120 days past due ​ 1,449 0.9 ​ 1,255 0.9 Total past due ​ $ 2,345 1.5 ​ $ 2,999 2.1 ​ 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 ​ ​ 2023 ​ 2022 ​ 2021 ​ 2020 ​ 2019 ​ Prior ​ Total ​ % of Portfolio < 30 days past due ​ $ 32,584 ​ $ 24,951 ​ $ 21,705 ​ $ 13,550 ​ $ 12,857 ​ $ 51,747 ​ $ 157,394 ​ % 98.5 30-90 days past due ​ ​ 217 ​ ​ 89 ​ ​ 108 ​ ​ 86 ​ ​ — ​ ​ 231 ​ ​ 731 ​ ​ 0.5 > 90 days past due ​ ​ 110 ​ ​ — ​ ​ 511 ​ ​ 104 ​ ​ 197 ​ ​ 691 ​ ​ 1,613 ​ ​ 1.0 Total ​ $ 32,911 ​ $ 25,040 ​ $ 22,324 ​ $ 13,740 ​ $ 13,054 ​ $ 52,669 ​ $ 159,738 ​ % 100.0 ​ ​ ​ ​ ​ ​ 5. NOTES RECEIVABLE FROM MOBILE HOME PARKS (“MHP Notes”) MHP Notes are stated at amounts due from customers, net of allowance for loan losses. The Company determines the allowance by considering several factors including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history. The Company establishes an allowance reserve composed of specific and general reserve amounts. As of December 31, 2023 and 2022, the MHP Note balance is presented net of unamortized finance fees of $ 1,565 and $ 1,068 , respectively. The finance fees are amortized over the life of the MHP Notes. 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 51 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Outstanding principal balance ​ $ 184,280 ​ $ 143,810 Loan discount and deferred financing fees ​ ​ ( 1,565 ) ​ ​ ( 1,068 ) Allowance for loan losses ​ ( 735 ) ​ — Total ​ $ 181,980 ​ $ 142,742 ​ ​ The following table presents a detail of the activity in the allowance for loan losses for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Allowance for loan losses, beginning of year ​ $ — ​ $ — Provision for loan losses ​ ​ 735 ​ ​ — Charge offs (recoveries) ​ — ​ — Allowance for loan losses, end of year ​ $ 735 ​ $ — ​ ​ The following table presents impaired and general reserve for allowance for loan losses at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Total MHP loans ​ $ 184,280 ​ $ 134,067 Allowance for loan losses ​ ​ 735 ​ ​ — Impaired loans individually evaluated for impairment ​ ​ 31,215 ​ ​ — Specific reserve against impaired loans ​ ​ 5 ​ ​ — Other loans collectively evaluated for allowance ​ 153,065 ​ — General allowance for loan losses ​ ​ 730 ​ ​ — ​ ​ 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 ​ ​ 2023 ​ 2022 ​ 2021 ​ 2020 ​ 2019 ​ Total ​ % of Portfolio < 30 days past due ​ $ 55,783 ​ $ 51,809 ​ $ 36,215 ​ $ 35,551 ​ $ 4,073 ​ $ 183,431 ​ % 99.5 30-90 days past due ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — > 90 days past due ​ ​ 462 ​ ​ 387 ​ ​ — ​ ​ — ​ ​ — ​ ​ 849 ​ ​ 0.5 Total ​ $ 56,245 ​ $ 52,196 ​ $ 36,215 ​ $ 35,551 ​ $ 4,073 ​ $ 184,280 ​ % 100 ​ ​ ​ ​ 52 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) 6. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Outstanding principal balance ​ $ 35,353 ​ $ 23,017 Loan discount and deferred financing fees ​ ​ ( 527 ) ​ ​ ( 295 ) Allowance for loan losses ​ ( 236 ) ​ — Total ​ $ 34,590 ​ $ 22,722 ​ ​ ​ The following table presents a detail of the activity in the allowance for loan losses for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Allowance for loan losses, beginning of year ​ $ — ​ $ — Provision for loan losses ​ ​ 236 ​ ​ — Charge offs (recoveries) ​ — ​ — Allowance for loan losses, end of year ​ $ 236 ​ $ — ​ ​ ​ The following table presents impaired and general reserve for allowance for loan losses at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Total Other notes receivable ​ $ 35,353 ​ $ 23,017 Allowance for loan losses ​ ​ 236 ​ ​ — Impaired loans individually evaluated for impairment ​ ​ 25,135 ​ ​ — Specific reserve against impaired loans ​ ​ 84 ​ ​ — Other notes receivable collectively evaluated for allowance ​ 10,218 ​ — General allowance for loan losses ​ ​ 152 ​ ​ — ​ 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: ​ 53 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year of Origination ​ ​ 2023 ​ 2022 ​ 2021 ​ 2020 ​ 2019 ​ Total ​ % of Portfolio < 30 days past due ​ $ 33,348 ​ $ 461 ​ $ 191 ​ $ 300 ​ $ 105 ​ $ 34,405 ​ % 97.3 30-90 days past due ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — > 90 days past due ​ ​ — ​ ​ 299 ​ ​ 649 ​ ​ — ​ ​ — ​ ​ 948 ​ ​ 2.7 Total ​ $ 33,348 ​ $ 760 ​ $ 840 ​ $ 300 ​ $ 105 ​ $ 35,353 ​ % 100.0 ​ ​ ​ ​ ​ ​ 7. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Outstanding principal balance ​ $ 32,980 ​ $ 30,049 Loan discount and deferred financing fees ​ ​ — ​ ​ — Allowance for loan losses ​ ( 442 ) ​ ( 13 ) Total ​ $ 32,538 ​ $ 30,036 ​ The following table presents a detail of the activity in the allowance for loan losses for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Allowance for loan losses, beginning of year ​ $ 13 ​ $ — Provision for loan losses ​ ​ 429 ​ ​ 13 Charge offs (recoveries) ​ — ​ — Allowance for loan losses, end of year ​ $ 442 ​ $ 13 ​ 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. ​ 8. LEASES 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, 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. 54 Table of Contents 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. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We have elected the practical expedient to not separate lease and non-lease components. Therefore, lease payments included in the measurement of the lease liability include all fixed payments in the lease arrangement. We record a ROU asset for an amount equal to the lease liability, increased for any prepaid lease costs and initial direct costs and reduced by any lease incentives. We remeasure the lease liability and ROU asset when a change to our future minimum lease payments occurs. Key assumptions and judgments included in the determination of the lease liability include the discount rate used in the present value calculation and the exercise of renewal options. Many of our leases contain renewal options. 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. Therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations. The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over a similar term and in a similar economic environment. The remaining weighted-average lease term is 4.21 years and the weighted-average discount rate is 2.08 %. We consider lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from our calculation of lease liabilities. There were no variable lease costs for the year ended December 31, 2023. Short-term leases, those with a term of 12 months or less, are not recorded on our Balance Sheet. 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. 55 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) As of December 31, 2023, present value of future lease payments under our operating lease liabilities were as follows: ​ ​ ​ ​ ​ 2024 $ 519 2025 ​ 495 2026 ​ 431 2027 ​ 345 2028 ​ 145 Thereafter ​ — Total lease payments ​ $ 1,935 Less amount representing interest ​ ​ ( 50 ) Total lease liability ​ $ 1,885 Less current lease liability ​ ​ ( 489 ) Total non-current lease liability ​ $ 1,396 ​ ​ 9. INVENTORIES Inventories consisted of the following at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Raw materials ​ $ 13,506 ​ $ 17,442 Work in progress ​ 552 ​ 592 Finished goods ​ ​ 26,911 ​ ​ 21,028 Total ​ $ 40,969 ​ $ 39,062 ​ 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. ​ 10. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Land ​ $ 14,953 ​ $ 14,953 Buildings and leasehold improvements ​ 13,419 ​ 11,818 Construction in Progress ​ ​ 11,576 ​ ​ 5,131 Vehicles ​ 1,571 ​ 1,556 Machinery and equipment ​ 6,527 ​ 5,750 Furniture and fixtures ​ 329 ​ 300 Total ​ 48,375 ​ 39,508 Less accumulated depreciation ​ ( 10,495 ) ​ ( 9,402 ) Total property, plant and equipment ​ $ 37,880 ​ $ 30,106 ​ Depreciation expense was $ 1,663 with $ 512 included as a component of cost of product sales for the year ended December 31, 2023 and $ 1,137 with $ 568 included as a component of cost of product sales for the year ended December 31, 2022. 56 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) 11. OTHER ASSETS Other assets consisted of the following at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Prepaid rent ​ $ 349 ​ $ 349 Other ​ 7 ​ 338 Repossessed homes ​ 2,215 ​ 795 Total ​ $ 2,571 ​ $ 1,482 ​ ​ ​ ​ 12. DEBT SECURITIES Debt securities have been classified according to management’s intent. 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. ​ 13. ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Warranty reserve ​ $ 2,910 ​ $ 3,049 Litigation reserve ​ 990 ​ 753 Payroll ​ ​ 879 ​ ​ 1,006 Portfolio taxes and title ​ 2,234 ​ 1,610 Property tax ​ ​ 1,018 ​ ​ 54 Dealer rebates ​ ​ 1,040 ​ ​ 1,402 Sales tax ​ 190 ​ 61 Federal and state income taxes ​ 3,759 ​ 6,699 Other ​ 5,484 ​ 2,261 Total accrued liabilities ​ $ 18,504 ​ $ 16,895 ​ ​ 14. LINES 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, 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 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 57 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) 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. New Revolver 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. ​ 15. INCOME TAXES 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 %, 58 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, ​ ​ 2023 2022 Current: ​ ​ ​ ​ ​ ​ Federal ​ $ 13,763 ​ $ 13,092 State ​ ​ 1,037 ​ ​ 1,222 Total current income tax provision ​ ​ 14,800 ​ ​ 14,314 Deferred: ​ ​ ​ ​ ​ ​ Federal ​ ​ ( 445 ) ​ ​ 51 State ​ ​ ( 79 ) ​ ​ 10 Total deferred income tax provision ​ ​ ( 524 ) ​ ​ 61 Provision for income taxes ​ $ 14,276 ​ $ 14,375 ​ A reconciliation of the Company’s effective tax rate from operations to the U.S. federal income tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ December 31, ​ ​ ​ 2023 2022 ​ Federal statutory rate ​ 21.0 % ​ 21.0 % State income taxes, net of federal tax benefit ​ 0.9 ​ ​ 1.5 ​ Energy efficiency credit ​ ( 1.1 ) ​ ​ ( 5.0 ) ​ Effective tax rate ​ 20.8 % ​ 17.5 % ​ The tax effects of cumulative temporary differences that give rise to deferred tax assets and liabilities are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, ​ ​ 2023 2022 Deferred tax assets: ​ ​ ​ ​ ​ ​ Allowance for doubtful accounts ​ $ 983 ​ $ 439 Reserve accounts ​ ​ 231 ​ ​ 204 State taxes ​ ​ 124 ​ ​ 76 Payroll taxes ​ ​ - ​ ​ 8 Uniform capitalization ​ ​ 19 ​ ​ 15 Other ​ ​ 199 ​ ​ 256 Total deferred tax assets ​ ​ 1,556 ​ ​ 998 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Installment sale revenue ​ ​ ( 530 ) ​ ​ ( 674 ) Depreciation ​ ​ ( 2,601 ) ​ ​ ( 2,808 ) Accrued interest receivable ​ ​ ( 742 ) ​ ​ ( 581 ) Other ​ ​ ( 21 ) ​ ​ - Total deferred tax liabilities ​ ​ ( 3,894 ) ​ ​ ( 4,063 ) Net deferred tax liabilities ​ $ ( 2,338 ) ​ $ ( 3,065 ) ​ ​ 59 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) ​ ​ ​ 16. SHARE BASED COMPENSATION 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, 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 ​ ​ Weighted Average Grant Date Fair Value Per Unit Nonvested, January 1, 2022 ​ 35 ​ $ 14.01 Granted ​ 517 ​ $ 11.82 Vested ​ ( 160 ) ​ $ 24.32 Canceled ​ ( 350 ) ​ $ 5.99 Nonvested, December 31, 2022 ​ 42 ​ $ 6.93 ​ ​ ​ ​ ​ ​ Nonvested, January 1, 2023 ​ 42 ​ $ 6.93 Granted ​ 1 ​ $ 23.26 Vested ​ ( 18 ) ​ $ 14.98 Canceled ​ ( 17 ) ​ $ 13.63 Nonvested, December 31, 2023 ​ 8 ​ $ 17.09 ​ 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 60 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) The following is a summary of option award activity (in thousands, except per unit data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Units Weighted Average Exercise Price Per Unit Weighted Average Grant Date Fair Value Per Unit Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding, January 1, 2022 ​ 83 ​ $ 16.83 ​ $ 12.27 ​ 9.36 ​ ​ ​ Granted ​ 1,025 ​ $ 40.59 ​ $ 4.99 ​ 9.44 ​ ​ ​ Exercised ​ — ​ $ - ​ $ - ​ — ​ ​ ​ Forfeited ​ ( 83 ) ​ $ 16.83 ​ $ 12.27 ​ — ​ ​ ​ Outstanding, December 31, 2022 ​ 1,025 ​ $ 40.59 ​ $ 4.99 ​ 9.44 ​ $ ​ Exercisable, December 31, 2022 ​ — ​ $ — ​ $ — ​ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding, January 1, 2023 ​ 1,025 ​ $ 40.59 ​ $ 4.99 ​ 9.44 ​ ​ ​ Granted ​ 43 ​ $ 22.94 ​ $ 15.32 ​ 4.70 ​ ​ ​ Exercised ​ ( 6 ) ​ $ 16.01 ​ $ 8.57 ​ — ​ ​ ​ Forfeited ​ ( 56 ) ​ $ 16.01 ​ $ 8.57 ​ — ​ ​ ​ Outstanding, December 31, 2023 ​ 1,006 ​ $ 41.35 ​ $ 5.22 ​ 8.28 ​ $ ​ Exercisable, December 31, 2023 ​ 96 ​ $ 42.18 ​ $ 4.76 ​ 8.44 ​ $ — ​ 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. ​ ​ 17. COMMITMENTS AND CONTINGENCIES As of January 1, 2020, the Company instituted a self-insured health benefits plan with a stop-loss policy, which provides medical benefits to employees electing coverage under the plan. The Company estimates and records costs for incurred but not reported medical claims and claim development. This reserve is based on historical experience and other assumptions, some of which are subjective. The Company will adjust its self-insured medical benefits reserve based on actual experience, estimated costs and changes to assumptions. At December 31, 2023 and 2022, the Company accrued a $ 242 and $ 149 liability for incurred but not reported claims, respectively. 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, 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. 61 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) Leases. The Company leases facilities under operating leases that typically have 10 -year terms. These leases usually offer the Company a right of first refusal that affords the Company the option to purchase the leased premises under certain terms in the event the landlord attempts to sell the leased premises to a third party. Rent expense was $ 645 and $ 710 for the years ended December 31, 2023 and 2022, respectively. The Company also subleases properties to third parties, ranging from 3-year to 11-year terms with various renewal options. Rental income from the subleased property was approximately $ 245 and $ 326 for the years ended December 31, 2023 and 2022, respectively. See Note 6 – Leases, for a schedule of the Company’s future minimum lease commitments. ​ Legal Matters The Company is party to certain legal proceedings that arise in the ordinary course and are incidental to its business. Certain of the claims pending against the Company in these proceedings allege, among other things, breach of contract and warranty, product liability and personal injury. The Company has determined that it is probable that it has some liability related to the claims. The Company has included legal reserves of $ 990 and $ 753 as of December 31, 2023 and 2022, respectively, in accrued liabilities on the accompanying balance sheets. Although litigation is inherently uncertain, based on past experience and the information currently available, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company’s financial position, liquidity or results of operations. However, future events or circumstances currently unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company’s financial position, liquidity or results of operations in any future reporting periods. ​ 18. 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 following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, ​ ​ 2023 2022 Numerator: ​ ​ ​ ​ ​ ​ Net income (in 000's) ​ $ 54,460 ​ $ 67,773 Denominator: ​ ​ ​ ​ ​ ​ Basic weighted-average common shares outstanding ​ ​ 24,385,190 ​ ​ 24,357,785 Effect of dilutive securities: ​ ​ ​ ​ ​ ​ Restricted stock grants ​ ​ 2,283 ​ ​ 13,286 Stock options ​ ​ 683,153 ​ ​ 371,348 Diluted weighted-average common shares outstanding ​ ​ 25,070,626 ​ ​ 24,742,419 Earnings per share attributable to Legacy Housing Corporation ​ ​ ​ ​ ​ ​ Basic ​ $ 2.23 ​ $ 2.78 Diluted ​ $ 2.17 ​ $ 2.74 ​ ​ ​ ​ 62 Table of Contents LEGACY HOUSING CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2023 and 2022 (Dollars in thousands, except per share amounts) 19. RELATED PARTY TRANSACTIONS Bell Mobile Homes, a retailer owned by one of the Company’s significant shareholders, purchases manufactured homes from the Company. 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 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. 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. At December 31, 2023 and 2022, the Company had an accounts receivable balance of $ 0 and $ 68 , respectively, from a principal shareholder. 20. SUBSEQUENT EVENTS 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. ​ ​ ​ ​ 63 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.