What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-12 compared with 2024-03-15 · 112 added, 106 removed, 154 unchanged (59% of the section changed)

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Legacy Housing Corporation builds, sells and finances manufactured homes and “tiny houses” that are distributed through a network of independent retailers and company-owned stores and are sold directly to manufactured housing communities.

We are the sixth largest producer of manufactured homes in the United States as ranked by number of homes manufactured based on information available from the Manufactured Housing Institute and IBTS for the nine month period ending September 30, 2023.

We are one of the largest producers of manufactured homes in the United States.

With current operations focused primarily in the southern United States, we offer our customers an array of quality homes ranging in size from approximately 395 to 2,667 square feet consisting of 1 to 5 bedrooms, with 1 to 3 1 / 2 bathrooms.

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The Company has one reportable segment.

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

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

All of our 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 coordinating or providing transportation for dealers.

We also provide financing options for customers to facilitate home sales.

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 operating segment.

We believe our company is one of the most vertically integrated in the manufactured housing industry, allowing us to offer a complete solution to our customers.

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Department of Housing and Urban Development (“HUD”).

Our factories employ high-volume production techniques that allow us to produce, on average, approximately 70 home sections, or 60 fully-completed homes depending on product mix, in total per week.

Our factories employ high-volume production techniques that allow us to produce up to, on average, approximately 70 home sections, or 60 fully-completed homes depending on product mix, in total per week.

We use quality materials and operate our own component manufacturing facilities for many of the items used in the construction of our homes.

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Our homes are marketed under our premier “Legacy” brand name and currently are sold primarily across 15 states through a network of over 125 independent retail locations, 13 company-owned retail locations and through direct sales to owners of manufactured home communities.

Our 13 company-owned retail locations, including 11 Heritage Housing stores and two Tiny House Outlet stores exclusively sell our homes.

Our 13 company-owned retail locations, including 12 Heritage Housing stores and one Tiny House Outlet stores exclusively sell our homes.

During the years ended December 31, 2024 and 2023, no independent retailer accounted for 10% or more of our product sales.

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The following table shows the states in which we sold most of our manufactured homes and the approximate percentage of this sales to our total product sales:

Product Sales

North Carolina

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Factors Affecting Our Performance

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

● We have purchased several properties in our market area for the purpose of developing manufactured housing communities and subdivisions.

We believe that the growth of our business and our future success depend on various opportunities, challenges, trends and other factors, including, but not limited to, the following:

● We acquired several properties in our market area for the purpose of developing manufactured housing communities and subdivisions.

As of December 31, 2024, these properties include the following ($’s in thousands):

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February 2021

● We also expect to provide financing solutions to a select group of our manufactured housing community-owner customers in a manner that includes developing new sites for products in or near urban locations where there is a shortage of sites to place our products.

These solutions will be structured to give us an attractive return on investment when coupled with the gross margin we expect to make on products specifically targeted for sale to these new manufactured housing communities.

● Inflation recently was near its highest rates in the U.S.

over the last 30 years.

Richland, Mississippi (1)

February, 2024

Bonham, Texas

December, 2024

Balch Springs, Texas

December, 2024

(1) Land and improvement values do not include the value of Company owned homes located in this community

● We also may provide financing solutions to certain manufactured housing community-owner customers in a manner that includes developing new sites for products in or near urban locations where there is a shortage of sites to place our products.

These solutions are structured to give us an attractive return on

investment when coupled with the gross margin we expect to make on products specifically targeted for sale to these new manufactured housing communities.

● Inflation rates have been high in the U.S.

Our ability to maintain gross margins can be adversely impacted by sudden increases in specific costs, such as the increases in material and labor.

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We continue to explore opportunities to minimize the impact of inflation on our future profitability.

● Finally, our financial performance will be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers.

Our Georgia manufacturing facility has unutilized square footage available and with additional investment can add capacity to increase the number of homes that can be manufactured.

We intend to increase production at the Georgia facility over time, particularly in response to orders increasingly being generated from new markets.

In order to maintain our growth, we will need to be able to continue to properly estimate anticipated future volumes when making commitments regarding the level of business that we will seek and accept, the mix of products that we intend to manufacture, the timing of production schedules and the levels and utilization of inventory, equipment and personnel.

● Finally, our financial performance may be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers.

Our Georgia manufacturing facility has space available and with additional investment can add capacity to increase the number of homes that can be manufactured.

In order to continue to grow, we must be able to properly estimate future volumes when making commitments regarding the level of business that we will seek and accept, the mix of products that we intend to manufacture, the timing of production schedules and the levels and utilization of inventory, equipment and personnel.

We actively review organic and inorganic opportunities to add production capacity in attractive regions to meet future demand.

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Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following accounting policies are critical to our operating results or may affect significant judgments and estimates used in the preparation of our financial statements.

Allowance for Loan Losses—Consumer Loan Receivable

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Historically we have not experienced material losses on the MHP Notes.

Inventories consist of raw materials, work-in-process, and finished goods.

Finished goods are stated at the lower of cost or net realizable value.

Raw materials cost approximates the first-in first-out method.

Allowance for Loan Losses—Other Notes Receivable

Other notes receivable are stated at amounts due from customers net of allowance for loan losses.

We determine the allowance by considering several factors including the aging of the past due balance, the customer’s payment history,

and our previous loss history.

We establish an allowance reserve composed of specific and general reserve amounts that are deemed to be uncollectible.

Historically we have not experienced material losses on the Other notes receivable.

Allowance for Loan Losses—Dealer Financed Receivables

Dealer financed receivables are stated at amounts due from customers net of allowance for loan losses.

We determine the allowance by considering several factors including the aging of the past due balance, the customer’s payment history, and our previous loss history.

We establish a general reserve for amounts that are deemed to be uncollectible.

Historically we have not experienced material losses on the Dealer financed receivables.

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.

We evaluate finished goods inventory based on age, and we classify our finished goods inventory greater than one year old as non-current.

Revenue Recognition

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Revenue is recognized net of sales taxes.

Product Warranties

We provide retail home buyers with a one-year warranty from the date of purchase on manufactured inventory.

Product warranty costs are accrued when the covered homes are sold to customers.

Product warranty expense is 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 warranty liability balance is included as part of accrued liabilities in our balance sheet.

Results of Operations

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Product sales

Consumer and MHP loans interest

Consumer, MHP and dealer loans interest

Other revenue

Total net revenue

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Cost of product sales

Cost of other sales

Selling, general administrative expenses

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Interest expense

Total other income

Income before income tax expense

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Product sales decreased $15.8 million, or 10.9%, in 2024 as compared to 2023.

This decrease was driven by (i) the conversion of certain independent dealer consignment arrangements to inventory finance arrangements in 2022 that did not occur in 2023 and (ii) a decrease in unit volumes.

The conversion of consignment arrangements to inventory finance arrangements resulted in an increase to product sales of approximately $29.1 million during 2022, and the conversion had a minimal impact on product sales in 2023.

This decrease was driven primarily by a decrease in unit volumes shipped, primarily in direct sales and inventory finance sales categories.

Net revenue attributable to our factory-built housing consisted of the following in 2024 and 2023:

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Net revenue per unit sold

In 2023, our net revenue per product sold decreased primarily because of the conversion of consignment arrangements to inventory finance arrangements that occurred in 2022 but not in 2023, and this was partially offset by an increase in unit prices in 2023, as rising material and labor costs were passed on to our customers.

We had decreases in direct sales, commercial sales, inventory finance sales and retail store sales.

We believe the market for mobile homes in 2023 slowed considerably from prior years due to the economic environment, including higher inflation and rising home costs.

In 2024, our net revenue per product sold increased primarily because of a moderate increase in unit prices, as rising material and labor costs were passed on to our customers.

We had decreases in direct sales, inventory finance sales and other product sales.

We believe the market for mobile homes in 2024 remained slow due to the economic environment, including higher inflation and rising home costs.

Direct sales decreased $8.4 million, or 47.8% from 2023 to 2024, mainly due to general slowdown in the market for mobile homes.

Commercial sales decreased $6.4 million, or 10.5% from 2023 to 2022, due to mobile home park operators slowing or delaying purchases of mobile homes.

Retail store sales decreased $0.5 million, or 2.4% from 2023 to 2022, and we believe our efforts to to focus on our own retail sales channel in 2023 helped moderate the impact of market conditions.

Inventory finance sales decreased $39.9 million, or 47.5% from 2023 to 2022, due to the conversion of consignment arrangements to inventory finance arrangements that occurred in 2022 but not in 2023.

Commercial sales increased $0.2 million, or 0.3% from 2023 to 2024 reflecting steady purchases of mobile homes by mobile home park operators.

Retail store sales increased $0.9 million, or 4.5% from 2023 to 2024 as our continued efforts to focus on our own retail sales channel helped moderate the impact of market conditions.

Inventory finance sales decreased $7.4 million, or 16.8% from 2023 to 2024, primarily due to dealers continuing to sell through their existing inventories.

Consumer, MHP and dealer loans interest income increased $3.8 million, or 10.1%, from 2023 to 2024 due to growth in our loan portfolios.

Interest income in 2023 from dealer finance notes resulted from the 2022 conversion of consignment arrangements to inventory finance arrangements and the addition of new dealer finance notes in 2023.

Between December 31, 2023 and December 31, 2022 our consumer loan portfolio increased by $17.5 million, our MHP loan portfolio increased by $39.2 million, our other notes portfolio increased by $11.9 million and our dealer finance notes increased by $2.5 million.

Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, service fees and other miscellaneous income and increased $0.2 million, or 3.5%, primarily due to a $2.7 million increase in forfeited deposits, a $0.3 million increase in servicer fee revenue and a $2.8 million decrease in consignment fees.

Between December 31, 2024 and December 31, 2023 our consumer loan portfolio increased by $17.6 million, our MHP loan portfolio increased by $24.5 million, and our dealer finance notes balance did not change.

The change in the balance of our MHP loan portfolio is primarily due a settlement agreement we reached with a significant borrower, as discussed in Note 5, Notes Receivable from Mobile Home Parks, to our December 31, 2024 financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Form-10K, which resulted in reclassifying balances from Other notes receivable, net to Notes receivable from mobile home parks on our balance sheet.

Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees and other miscellaneous income and increased $7.0 million, or 106.3%, primarily due to $8.9 million in land sales related to the Forest Hollow mobile home community and the property in Marble Falls, Texas, $0.5 million in rental income from our mobile home park properties, partially offset by a $1.5 million decrease in forfeited deposits, a $0.6 million decrease in rental income from leased mobile homes and a $0.3 million decrease in other miscellaneous revenue.

The cost of product sales decreased $9.6 million, or 9.7%, in 2024 as compared to 2023.

The decrease in costs is primarily related to a decrease in units sold.

The cost of other sales was $8.2 million in 2024 and primarily reflects the cost associated with our land sales.

Selling, general and administrative expenses decreased $1.1 million, or 4.4%, in 2024 as compared to 2023.

This decrease was primarily due to a $3.2 million decrease in salaries and benefits costs, a $0.4 million decrease in warranty costs, a $0.1 million decrease in consulting and professional fees, and a $0.1 million decrease in depreciation and amortization expense, partially offset by a $1.0 million increase in loan loss provision, a $0.7 million increase in legal expense, a $0.4 million increase in marketing and advertising expense and a net $1.5 million decrease in other miscellaneous costs.

This decrease was primarily due to a $1.4 million decrease in warranty costs, a $0.4 million decrease in consulting and professional fees, and a $0.4 million decrease in salaries and benefits costs, partially offset by a $0.4 million increase in real estate taxes and a net $0.7 million increase in other miscellaneous costs.

Dealer incentive expense decreased $1.5 million, or 258.7% in 2024 as compared to 2023.

Other income (expense), net did not change in 2023, as compared to 2022.

Net changes included a $1.3 million increase in income from gains related to financing dealer and consumer loans, a decrease of $0.2 million in capital gains related to the sale of leased property, an increase of $0.1 million in interest income, a decrease of $0.5 million in other income, a $0.6 million increase in interest expense and an increase of $0.1 million in other expense.

Income tax expense was $14.3 million for 2023 compared to $14.4 million for and 2022.

Other income (expense), net increased by $8.3 million in 2024, as compared to 2023.

We had a $8.5 million increase in Miscellaneous, net primarily due to (i) gains related to the settlement agreement described above, (ii) a gain on the sale of property in Georgia, (iii) gains related to properties acquired through foreclosure and (iv) reversals of certain balance sheet liabilities.

We had a $0.4 million decrease in interest income on Other notes and a $0.2 million decrease in interest expense.

Income tax expense was $14.4 million for 2024 compared to $14.3 million for 2023.

The effective tax rate for the year ended December 31, 2024 was 18.9% and primarily differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and partially offset by state income taxes.

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(in thousands)

Net cash used in operating activities

Net cash (used in) provided by investing activities

Net cash provided by (used in) financing activities

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net change in cash

Cash at beginning of year

Cash at end of year

Cash at beginning of period

Cash at end of period

Comparison of Cash Flow Activities from 2024 to 2023

Net cash used in operating activities was $13.5 million during the year ended December 31, 2023, compared to net cash of $1.7 million used in operating activities during 2022.

This change was primarily a result of increased cash used for a decrease in operating income before non-cash adjustments, increased volume of consumer loan originations net of principal collections, increased inventories, increased prepaid expenses and other current assets, decreased customer deposits and a decrease in dealer incentives.

The increase in cash used in operating activities was partially offset by a decreased volume of dealer inventory loans net of collections, decreased other assets, and decreased accounts payable and accrued liabilities.

Net cash used in investing activities of $9.8 million in 2023 was primarily attributable to $14.8 million of originations related to loans we made to third parties for the development of manufactured housing parks, $8.5 million in proceeds from the sale of U.S.

treasury notes, and $7.7 million in improvements and development related to property, plant and equipment.

These were offset by $2.7 million of collections related to loans we made to third parties for the development of manufactured housing parks, proceeds of $1.1 million for the sale of leased property and collections of $0.4 million from our purchased consumer loans.

Net cash provided by financing activities of $21.2 million in 2023 was attributable to net uses of $21.1 million on our lines of credit offset by $0.1 million received from the exercise of stock options.

Net cash used in financing activities of $5.6 million in 2022 was attributable to net payments of $5.6 million on our lines of credit.

Net cash provided by operating activities was $36.0 million during the year ended December 31, 2024, compared to net cash of $13.5 million used in operating activities during 2023.

This change was primarily a result of increased cash provided by operating income before non-cash adjustments, decreased volume of MHP loan originations net of principal collections, decreased inventories, decreased other assets – leased mobile homes, increased accounts payable, increased customer deposits and increased escrow liability.

The increase in cash provided by operating activities was partially offset by decreased accrued liabilities and decreased dealer incentive liability.

Net cash used in investing activities of $6.7 million in 2024 was primarily attributable to $5.5 million of originations related to loans we made to third parties for the development of manufactured housing parks, and $9.2 million in improvements and development related to property, plant and equipment.

These were offset by $6.4 million of collections related to loans we made to third parties for the development of manufactured housing parks and proceeds of $1.6 million from the sale of property.

Net cash used in financing activities of $28.9 million in 2024 was attributable to net uses of $23.7 million to pay down our lines of credit and $5.4 million of stock repurchases offset by $0.2 million received from the exercise of stock options.

Net cash provided by financing activities of $21.2 million in 2023 was attributable to net proceeds from our lines of credit.

In November 2022, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $10.0 million of the Company’s common stock.

On August 6, 2024, our Board of Directors authorized the repurchase of an additional $10.0 million of the Company’s common stock under the share repurchase program.

We repurchased 262,530 shares of common stock for $5,398 in the open market during the year ended December 31, 2024.

As of December 31, 2024, we had a remaining authorization of approximately $14,602.

Between January 1, 2025 and March 10, 2025 we repurchased 29,385 shares of common stock for $674 in the open market

Lines of Credit

Capital One Revolver.

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

(“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, N.A.

The letter stated that our Revolver was in default.

The default condition occurred due to 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 borrowing rate with a secured overnight financing rate (“SOFR”) and waived a default arising out of a monetary judgment against us 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, we 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.

Prosperity 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 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.

On July 28, 2023, the Company entered into a new Credit Agreement (the “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.

Subsequently, the Company repaid in full the balance due on its prior line of credit with Capital One, N.A.

and all commitments under this prior line of credit were terminated.

The 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 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 Revolver 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 Revolver.

The Company paid certain arrangement fees and other fees in connection with the Revolver of approximately $271, which were capitalized

as unamortized debt issuance costs and included in Prepaid expenses and other current assets in the accompanying balance sheets and are amortized to interest expense over the life of the Revolver.

The Revolver matures July 28, 2027.

For the year ended December 31, 2024 and 2023, interest expense under the Revolver was $689 and $930, respectively.

The outstanding balance of the Revolver as of December 31, 2024 and 2023 was $0 and $23,680, respectively.

The interest rate in effect as of December 31, 2024 and 2023 for the Revolver was 7.61% and 7.95%, respectively.

The amount of available credit under the Revolver was $50,000 and $26,320 as of December 31, 2024 and 2023, respectively.

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

As of December 31, 2024, 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.

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We did not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, results of operations, liquidity or capital expenditures.

However, we do have a repurchase agreement with a financial institution providing inventory financing for independent retailers of our products.

Under this agreement, we have agreed to repurchase homes at declining prices over the term of the agreement (24 months).

Our obligation under this repurchase agreement ceases upon the purchase of the home by the retail customer.

However, we do have repurchase agreements with financial institutions providing inventory financing for independent retailers of our products.

Under these agreements, we have agreed to repurchase homes at declining prices over the term of the agreement.

Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer.

The maximum amount of our contingent obligations under such repurchase agreements was approximately $805 and $3,030 as of December 31, 2024 and 2023, respectively, without reduction for the resale value of the homes.

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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):

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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 $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.

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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 enhances current and interim annual reportable segment disclosures and requires additional disclosures about significant segment expenses.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as existing segment disclosures and reconciliation requirements in ASC 280 – Segment Reporting on an interim and annual basis.

In 2024, we adopted ASU 2023-07 on a retrospective basis for annual periods starting with this Annual Report on Form 10-K.

For additional information, refer to “Note 18 Segment Information.”

Pronouncements Issued But Not Yet Adopted

In December 2023, the FASB issued Accounting Standard Update 2023-09, Income taxes (Topic 740):

Improvements to Income Tax Disclosures which requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction.

The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively.

The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the disclosure requirements related to the new standard.

In November 2024, the FASB issued ASU 2024-03, Income Statement Reporting-Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), Disaggregation of Income Statement Expenses.

The standard update improves the disclosures about a public business entity’s expenses by requiring more detailed information about certain types of costs and expenses in the notes to the financial statements.

The guidance will be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The standard updates are to be applied prospectively with the option for retrospective application.

We are currently evaluating the impact of disclosure requirements related to the new standard 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.

Emerging Growth Company Status

The Company’s status as an “emerging growth company” ended on December 31, 2023.

An “emerging growth company,” as defined in the JOBS Act.

Section 107 of the JOBS Act, provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis