NOBILITY HOMES INC 10-Q

10-Q Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended July 31, 2021 Commission File number 000-06506 NOBILITY HOMES, INC. (Exact name of registrant as specified in its charter) Florida 59-1166102 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3741 S.W. 7th Street Ocala , Florida 34474 (Address of principal executive offices) (Zip Code) ( 352 ) 732-5157 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒; No ☐. Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒; No ☐. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐; No ☒ . Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. Shares Outstanding on Title of Class September 10, 2021 Common Stock 3,532,100 Table of Contents NOBILITY HOMES, INC. INDEX Page Number PART I. Financial Information Item 1. Financial Statements (Unaudited) 3 Condensed Consolidated Balance Sheets as of July 31, 2021 (Unaudited) and October 31, 2020 3 Condensed Consolidated Statements of Income for the three and nine months ended July 31, 2021 (Unaudited) and August 1, 2020 (Unaudited) 4 Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended July 31, 2021 (Unaudited) and August 1, 2020 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2021 (Unaudited) and August 1, 2020 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12 Item 4. Controls and Procedures 16 PART II. Other Information Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17 Item 6. Exhibits 17 Signatures 18 2 Table of Contents NOBILITY HOMES, INC. Condensed Consolidated Balance Sheets July 31, 2021 October 31, 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 33,720,078 $ 30,305,902 Certificates of deposit 2,090,910 4,602,307 Short-term investments 562,270 358,960 Accounts receivable—trade 1,134,675 790,046 Note receivable 41,636 35,997 Mortgage notes receivable 22,217 20,162 Income taxes receivable 81,262 105,676 Inventories 9,428,923 9,294,677 Pre-owned homes, net 678,303 441,937 Prepaid expenses and other current assets 1,370,339 1,014,849 Total current assets 49,130,613 46,970,513 Property, plant and equipment, net 6,916,778 5,142,714 Pre-owned homes, net 716,582 1,077,240 Note receivable, less current portion 44,595 6,573 Mortgage notes receivable, less current portion 223,762 227,509 Mobile home park note receivable 72,731 — Other investments 1,775,323 1,729,364 Deferred income taxes 0 3,598 Operating lease right of use assets 684,142 715,368 Cash surrender value of life insurance 3,929,552 3,795,902 Other assets 156,287 156,287 Total assets $ 63,650,365 $ 59,825,068 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 818,230 $ 928,095 Accrued compensation 441,760 670,520 Accrued expenses and other current liabilities 1,427,862 1,383,833 Operating lease obligation 33,039 24,192 Customer deposits 12,350,225 5,098,633 Total current liabilities 15,071,116 8,105,273 Deferred income taxes 86,413 — Operating lease obligation, less current portion 752,300 778,519 Total liabilities 15,909,829 8,883,792 Commitments and contingencies Stockholders’ equity: Preferred stock, $ .10 par value, 500,000 shares authorized; none issued and outstanding — — Common stock, $ .10 par value, 10,000,000 shares authorized; 5,364,907 shares issued; 3,532,100 and 3,631,196 outstanding, respectively 536,491 536,491 Additional paid in capital 10,749,843 10,694,554 Retained earnings 58,185,400 57,976,051 Less treasury stock at cost, 1,832,807 shares in 2021 and 1,733,711 shares in 2020 ( 21,731,198 ) ( 18,265,820 ) Total stockholders’ equity 47,740,536 50,941,276 Total liabilities and stockholders’ equity $ 63,650,365 $ 59,825,068 The accompanying notes are an integral part of these condensed consolidated financial statements 3 Table of Contents NOBILITY HOMES, INC. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended Nine Months Ended July 31, August 1, July 31, August 1, 2021 2020 2021 2020 Net sales $ 11,778,120 $ 8,800,410 $ 35,592,531 $ 28,446,764 Cost of sales ( 9,265,376 ) ( 6,361,500 ) ( 26,969,655 ) ( 19,980,510 ) Gross profit 2,512,744 2,438,910 8,622,876 8,466,254 Selling, general and administrative expenses ( 1,320,456 ) ( 1,107,850 ) ( 4,144,350 ) ( 3,586,622 ) Operating income 1,192,288 1,331,060 4,478,526 4,879,632 Other income (loss): Interest income 62,491 53,209 145,621 239,365 Undistributed earnings in joint venture - Majestic 21 20,202 20,855 45,959 61,125 Proceeds received under escrow arrangement 75,156 64,053 121,024 336,447 (Decrease) increase market value of equity investment ( 449 ) 21,475 203,310 ( 159,051 ) Gain on sale of assets — 32,041 — 32,041 Miscellaneous 48,169 12,910 73,434 32,504 Total other income 205,569 204,543 589,348 542,431 Income before provision for income taxes 1,397,857 1,535,603 5,067,874 5,422,063 Income tax expense ( 347,111 ) ( 375,465 ) ( 1,226,425 ) ( 1,311,780 ) Net income $ 1,050,746 $ 1,160,138 $ 3,841,449 $ 4,110,283 Weighted average number of shares outstanding: Basic 3,599,133 3,631,089 3,621,084 3,641,048 Diluted 3,613,187 3,632,420 3,630,216 3,642,397 Net income per share: Basic $ 0.29 $ 0.32 $ 1.06 $ 1.13 Diluted $ 0.29 $ 0.32 $ 1.06 $ 1.13 The accompanying notes are an integral part of these condensed consolidated financial statements 4 Table of Contents NOBILITY HOMES, INC. Condensed Consolidated Statements of Changes in Stockholders’ Equity For the nine months ended July 31, 2021 and August 1, 2020 (Unaudited) Accumulated Other Common Common Additional Retained Comprehensive Treasury Stock Shares Stock Paid-in-Capital Earnings Income Stock Total Balance at October 31, 2020 3,631,196 $ 536,491 $ 10,694,554 $ 57,976,051 $ — $ ( 18,265,820 ) $ 50,941,276 Stock-based compensation — — 20,521 — — — 20,521 Exercise of employee stock options 1,250 — 1,950 — — 13,175 15,125 Net income — — — 1,065,765 — — 1,065,765 Balance at January 30, 2021 3,632,446 536,491 10,717,025 59,041,816 — ( 18,252,645 ) 52,042,687 Cash dividend — — — ( 3,632,100 ) — — ( 3,632,100 ) Purchase of treasury stock ( 346 ) — — — — ( 10,553 ) ( 10,553 ) Stock-based compensation — — 16,409 — — — 16,409 Net income — — — 1,724,938 — — 1,724,938 Balance at May 1, 2021 3,632,100 536,491 10,733,434 57,134,654 — ( 18,263,198 ) 50,141,381 Purchase of treasury stock ( 100,000 ) — — — — ( 3,468,000 ) ( 3,468,000 ) Stock-based compensation — — 16,409 — — — 16,409 Net income — — — 1,050,746 — — 1,050,746 Balance at July 31, 2021 3,532,100 $ 536,491 $ 10,749,843 $ 58,185,400 $ — $ ( 21,731,198 ) $ 47,740,536 Balance at November 2, 2019 3,664,070 $ 536,491 $ 10,687,662 $ 55,298,750 $ 389,164 $ ( 17,445,752 ) $ 49,466,315 Adoption of ASU 2016-01 — — — 389,164 ( 389,164 ) — — Adoption of ASU 2016-02 — — — ( 64,591 ) — — ( 64,591 ) Balance at November 2, 2019 — — — — — — — as adjusted 3,664,070 536,491 10,687,662 55,623,323 — ( 17,445,752 ) 49,401,724 Purchase of treasury stock ( 14,400 ) — — — — ( 345,600 ) ( 345,600 ) Stock-based compensation — — 906 — — — 906 Net income — — — 1,400,141 — — 1,400,141 Balance at February 1, 2020 3,649,670 536,491 10,688,568 57,023,464 — ( 17,791,352 ) 50,457,171 Cash dividend — — — ( 3,630,970 ) — — ( 3,630,970 ) Purchase of treasury stock ( 18,700 ) — — — — ( 476,850 ) ( 476,850 ) Stock-based compensation — — 906 — — — 906 Net income — — — 1,550,004 — — 1,550,004 Balance at May 4, 2020 3,630,970 536,491 10,689,474 54,942,498 — ( 18,268,202 ) 47,900,261 Stock-based compensation 226 — 4,174 — — 2,382 6,556 Net income — — — 1,160,138 — — 1,160,138 Balance at August 1, 2020 3,631,196 $ 536,491 $ 10,693,648 $ 56,102,636 $ — $ ( 18,265,820 ) $ 49,066,955 The accompanying notes are an integral part of these condensed consolidated financial statements 5 Table of Contents NOBILITY HOMES, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended July 31, 2021 August 1, 2020 Cash flows from operating activities: Net income $ 3,841,449 $ 4,110,283 Adjustments to reconcile net income to net cash provide by operating activities: Depreciation 142,224 118,179 Deferred income taxes 90,011 60,055 Undistributed earnings in joint venture - Majestic 21 ( 45,959 ) ( 61,125 ) Gain on disposal of property, plant and equipment — ( 32,041 ) (Increase) decrease in fair market value of equity investments ( 203,310 ) 159,051 Stock-based compensation 53,340 8,368 Amortization of operating lease right of use assets 31,226 26,862 Decrease (increase) in: Accounts receivable - trade ( 344,629 ) 638,480 Inventories ( 134,246 ) ( 20,842 ) Pre-owned homes 124,292 ( 385,597 ) Prepaid expenses and other current assets ( 355,490 ) 155,518 Interest receivable ( 16,223 ) ( 130,097 ) Income tax receivables 24,414 — (Decrease) increase in: Accounts payable ( 109,865 ) ( 457,884 ) Accrued compensation ( 228,760 ) ( 296,735 ) Accrued expenses and other current liabilities 44,028 ( 883,146 ) Income taxes payable — ( 2,016,132 ) Customer deposits 7,251,592 69,067 Net cash provided by operating activities 10,164,094 1,062,264 Cash flows from investing activities: Purchase of property, plant and equipment ( 1,916,288 ) ( 270,365 ) Purchase of certificates of deposit — ( 20,000 ) Proceeds from certificates of deposit 2,496,000 2,024,000 Proceeds from disposal of property, plant and equipment — 33,139 Collections on interest receivable 31,620 87,358 Collections on mortgage notes receivable 1,692 1,596 (Issuance of) collections o n equipment note receivable ( 43,661 ) 66,218 Issuance of mobile home park note receivable ( 72,731 ) — Increase in cash surrender value of life insurance ( 133,650 ) ( 144,000 ) Net cash provided by investing activities 362,982 1,777,946 Cash flows from financing activities: Payment of cash dividend ( 3,632,100 ) ( 3,630,970 ) Proceeds from exercise of employee stock option 15,125 — Purchase of treasury stock ( 3,478,553 ) ( 822,450 ) Reduction of operating lease obligation ( 17,372 ) ( 9,507 ) Net cash used in financing activities ( 7,112,900 ) ( 4,462,927 ) Increase (decrease) in cash and cash equivalents 3,414,176 ( 1,622,717 ) Cash and cash equivalents at beginning of year 30,305,902 22,533,965 Cash and cash equivalents at end of period $ 33,720,078 $ 20,911,248 Supplemental disclosure of cash flows information: Income taxes paid $ 1,112,000 $ 3,368,000 The accompanying notes are an integral part of these condensed consolidated financial statements 6 Table of Contents Nobility Homes, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 Basis of Presentation and Accounting Policies The accompanying unaudited condensed consolidated financial statements for the three and nine months ended July 31, 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited financial information included in this report includes all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods. The results of operations for the three and nine months ended July 31, 2021 are not necessarily indicative of the results of the full fiscal year. The condensed consolidated financial statements included in this report should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2020. Note 2 Inventories New home inventory is carried at the lower of cost or net realizable value. The cost of finished home inventories determined on the specific identification method is removed from inventories and recorded as a component of cost of sales at the time revenue is recognized. In addition, an allocation of depreciation and amortization is included in cost of goods sold. Under the specific identification method, if finished home inventory can be sold for a profit there is no basis to write down the inventory below the lower of cost or net realizable value. The Company acquired certain repossessed pre-owned inventory (Buy Back Inventory) in 2011 as part of an Amendment of the Finance Revenue Sharing Agreement with 21 st Mortgage Corporation. This inventory is valued at the Company’s cost to acquire determined on the specific identification method, plus refurbishment costs (any item on the home that needs to be repaired or replaced) incurred to date to bring the inventory to a more saleable state. The Buy Back Inventory amount is reduced where necessary on a unit specific basis by a valuation reserve which management believes results in inventory being valued at market. Other pre-owned homes are acquired (Repossessions Inventory) as a convenience to the Company’s joint venture partner, 21st Mortgage Corporation. This inventory has been repossessed by 21 st Mortgage Corporation or through mortgage foreclosure. The Company acquired this inventory at the amount of the uncollected balance of the financing at the time of the foreclosure/repossessions by 21st Mortgage Corporation. The Company records this inventory at cost determined on the specific identification method. All of the refurbishment costs are paid by 21 st Mortgage Corporation. This arrangement assists 21 st Mortgage Corporation with liquidation of their repossessed inventory. The timing of these repurchases by the Company is unpredictable as it is based on the repossessions 21 st Mortgage Corporation incurs in the portfolio. When the home is sold, the Company retains the cost of the home, an interest factor on the cost of the home and a sales commission, from the sales proceeds. Any additional proceeds are paid to 21 st Mortgage. Any shortfall from the proceeds to cover these amounts is paid by 21 st Mortgage to the Company. As the Company has no risk of loss on the sale, there is no valuation allowance necessary for this inventory. 7 Table of Contents Inventory held at consignment locations by affiliated entities is included in the Company’s inventory on the Company’s condensed consolidated balance sheets. Consigned inventory was $ 382,279 and $ 1,277,681 as of July 31, 2021 and October 31, 2020, respectively. Pre-owned homes are also taken as trade-ins on new home sales (Trade-in Inventory). This inventory is recorded at estimated actual wholesale value, which is generally lower than market value, determined on the specific identification method, plus refurbishment costs incurred to date to bring the inventory to a more saleable state. The Trade-in Inventory amount is reduced where necessary on a unit specific basis by a valuation reserve, which management believes results in inventory being valued at market. Other inventory costs are determined on a first-in, first-out basis. A breakdown of the elements of inventory is as follows: July 31, 2021 October 31, 2020 Raw materials $ 1,854,317 $ 1,203,282 Work-in-process 136,723 107,651 Inventory consigned to affiliated entities 382,279 1,277,681 Finished homes 6,910,596 6,543,861 Model home furniture 145,008 162,202 Inventories $ 9,428,923 $ 9,294,677 Pre-owned homes $ 1,510,484 $ 1,686,373 Inventory impairment reserve ( 115,599 ) ( 167,196 ) 1,394,885 1,519,177 Less homes expected to sell in 12 months ( 678,303 ) ( 441,937 ) Pre-owned homes, long-term $ 716,582 $ 1,077,240 Note 3 Short-term Investments The following is a summary of short-term investments (available for sale): July 31, 2021 Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Equity securities in a public company $ 167,930 $ 394,340 $ — $ 562,270 October 31, 2020 Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Equity securities in a public company $ 167,930 $ 191,030 $ — $ 358,960 The fair values were estimated based on quoted market prices in active markets at each respective period end. 8 Table of Contents Note 4 Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses approximates fair value because of the short maturity of those instruments. The Company accounts for the fair value of financial investments in accordance with FASB Accounting Standards Codification (ASC) No. 820 “Fair Value Measurements” (ASC 820). ASC 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e. exit price) in an orderly transaction between market participants at the measurement date. ASC 820 requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e. inputs) used in the valuation. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The ASC 820 fair value hierarchy is defined as follows: • Level 1 - Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2 - Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly. • Level 3 - Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date. The following tables represent the Company’s financial assets and liabilities which are carried at fair value. July 31, 2021 Level 1 Level 2 Level 3 Equity securities in a public company $ 562,270 $ — $ — October 31, 2020 Level 1 Level 2 Level 3 Equity securities in a public company $ 358,960 $ — $ — Note 5 Net Income per Share These financial statements include “basic” and “diluted” net income per share information for all periods presented. The basic net income per share is calculated by dividing net income by the weighted-average number of shares outstanding. The diluted net income per share is calculated by dividing net income by the weighted-average number of shares outstanding, adjusted for dilutive common shares. Note 6 Revenues by Products and Service The Company operates in one business segment, which is manufactured housing and ancillary services. The Company considers there to be revenue concentration risks for distribution of its products where net product revenues exceed 10% of consolidated net product revenues. The concentration of the Company’s distribution net product revenues below may have a material adverse effect on the Company’s revenues and results of operations if sales in the respective distribution channels experience difficulties. 9 Table of Contents Revenues by net sales from manufactured housing, pre-owned homes and insurance agent commissions are as follows: Three Months Ended Nine Months Ended July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020 Manufactured housing Homes sold through Company owned sales centers $ 10,128,706 $ 6,252,906 $ 30,033,265 $ 20,874,755 Homes sold to independent dealers 833,904 1,998,720 3,661,753 6,260,268 Homes sold through manufactured home parks 458,955 380,875 1,108,600 845,634 $ 11,421,565 $ 8,632,501 $ 34,803,618 $ 27,980,657 Pre-owned homes 288,261 95,011 572,005 253,689 Insurance agent commissions 68,294 72,898 216,908 212,418 Total net sales $ 11,778,120 $ 8,800,410 $ 35,592,531 $ 28,446,764 Note 7 Operating Leases The Company leases the property for several Prestige retail sales centers from various unrelated entities under operating lease agreements expiring through December 2021. The Company also leases certain equipment under unrelated operating leases. These leases have varying renewal options. To offset expiring leases, The Company purchased the land for the Ocala South retail sales center in March 2021 for $ 500,000 and the Tavares retail sales center in January 2021 for $ 245,000 . Right of use assets are included as a non-current asset in the amount of $ 684,142 , net of amortization in the condensed consolidated Balance Sheet as of July 31, 2021. Based on the terms of the lease agreements, all of the Company’s leases are classified as operating leases. The weighted average remaining lease term and weighted average discount rate of the operating leases is 8.40 years and 3.0 %, respectively. Minimum rental payments under operating leases are recognized on a straight-line basis over the term of the lease. Individual components of the total lease cost incurred by the Company in the amount of $ 136,872 for the nine months ended July 31, 2021. 10 Table of Contents The amount of future minimum lease payments under operating leases are as follows: Operating Lease Undiscounted future minimum lease payments: 2021 (3 months remaining) $ 16,106 2022 68,401 2023 74,322 2024 80,955 2025 88,388 Thereafter 458,175 Total 786,347 Amount representing imputed interest ( 1,008 ) Total operating lease liability 785,339 Current portion of operating lease liability ( 33,039 ) Operating lease liability, non-current $ 752,300 Note 8 Stockholders’ Equity and Related Party Transaction During the nine months ended July 31, 2021, the Company repurchased 100,346 shares of its common stock for per share prices ranging from $ 30.50 —$ 34.68 for an aggregate total of $ 3,478,553 . Of these repurchased shares, 100,000 were from a related party for which the Company paid $ 34.68 per share. 11 Table of Contents Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total revenues in the third quarter of 2021 increased 34% to $11,778,120 compared to $8,800,410 in the third quarter of 2020. Total net sales for the first nine months of 2021 increased 25% to $35,592,531 compared to $28,446,764 for the first nine months of 2020. The Company reported net income of $1,050,746 in the third quarter of 2021, compared to a net income of $1,160,138 during the third quarter of 2020. Net income for the first nine months of 2021 was $3,841,449 compared to a net income of $4,110,283 for the first nine months of 2020. According to the Florida Manufactured Housing Association, shipments for the industry in Florida for the period from November 2020 through July 2021 were up approximately 11% from the same period last year. The lack of lenders in our industry, still adversely affects our results by limiting many affordable manufactured housing buyers from purchasing homes. During third quarter of 2021, our production of homes was impacted due to the challenges in hiring additional factory workers and the unpredictable absenteeism of the COVID-19 quarantine. These factors have continued in the fourth quarter of 2021. Also, production has incurred shortages in certain building products delaying the completion of the homes and has continued to experience inflation in most building products resulting in significant increases to our material costs and a corresponding decrease in gross profits. We have continued to focus on increasing production of homes due to the above challenges. The following table summarizes certain key sales statistics and percent of gross profit. Three Months Ended Nine Months Ended July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020 New homes sold through Company owned sales centers 104 70 318 232 Pre-owned homes sold through Company owned sales centers 6 3 12 7 Homes sold to independent dealers 26 51 115 159 Total new factory built homes produced 120 127 448 393 Average new manufactured home price—retail $ 94,385 $ 91,017 $ 91,488 $ 91,644 Average new manufactured home price—wholesale $ 51,919 $ 44,308 $ 48,720 $ 43,913 As a percent of net sales: Gross profit from the Company owned retail sales centers 17 % 19 % 17 % 19 % Gross profit from the manufacturing facilities - including intercompany sales 11 % 20 % 14 % 22 % Maintaining our strong financial position is vital for future growth and success. Because of very challenging business conditions during economic recessions in our market area, management will continue to evaluate all expenses and react in a manner consistent with maintaining our strong financial position, while exploring opportunities to expand our distribution and manufacturing operations. Our many years of experience in the Florida market, combined with home buyers’ increased need for more affordable housing, should serve the Company well in the coming years. Management remains convinced that our specific geographic market is one of the best long-term growth areas in the country. On June 5, 2021 the Company celebrated its 54th anniversary in business specializing in the design and production of quality, affordable manufactured homes. With multiple retail sales centers in Florida for over 30 years and an insurance agency subsidiary, we are the only vertically integrated manufactured home company headquartered in Florida. 12 Table of Contents Insurance agent commission revenues in the third quarter of 2021 were $68,294 compared to $72,898 in the third quarter of 2020. Total insurance agent commission revenues for the first nine months of 2021 were $216,908 compared to $212,418 for the first nine months of 2020. The increase in insurance agent commissions in the first nine months of 2021 were due to more new policies and renewals generated which affects agent commission earned. The Company establishes appropriate reserves for policy cancellations based on numerous factors, including past transaction history with customers, historical experience and other information, which is periodically evaluated and adjusted as deemed necessary. In the opinion of management, no reserve was deemed necessary for policy cancellations at July 31, 2021 and October 31, 2020. Gross profit as a percentage of net sales was 21% in the third quarter of 2021 compared to 28% for the third quarter of 2020 and was 24% for the first nine months of 2021 compared to 30% for the first nine months of 2020. The gross profit in the third quarter of 2021 was $2,512,744 compared to $2,438,910 in the third quarter of 2020 and was $8,622,876 for the first nine months of 2021 compared to $8,466,254 for the first nine months of 2020. The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned homes sold. The decrease in gross profit as a percentage of net sales is primarily due to the continued inflation in most building products which increased the material cost of each home manufactured in all three quarters of 2021. We are continuing to monitoring this situation and will continue to adjust our selling prices to help offset some of the higher costs on each home. Selling, general and administrative expenses as a percent of net sales was 11% in third quarter of 2021 compared to 13% in the third quarter of 2020 and was 12% for the first nine months of 2021 compared to 13% for the first nine months of 2020. Selling, general and administrative expenses in third quarter of 2021 was $1,320,456 compared to $1,107,850 in the third quarter of 2020 and was $4,144,350 for the first nine months of 2021 compared to $3,586,622 for the first nine months of 2020. The increase in expenses in 2021 were due to the increase in variable expenses which were a direct result of employee benefits compensation due to the increase in sales. We earned interest income of $62,491 for the third quarter of 2021 compared to $53,209 for the third quarter of 2020. For the first nine months of 2021, interest income was $145,621 compared to $239,365 in the first nine months of 2020. The decrease during 2021 is primarily due to the decline in the investment rates and the decrease in the monies invested. Our earnings from Majestic 21 in the third quarter of 2021 were $20,202 compared to $20,855, for the third quarter of 2020. Earnings from Majestic 21 for the first nine months of 2021 were $45,959 compared to $61,125 for the first nine months of 2020. The earnings from Majestic 21 represent the allocation of profit and losses which are owned 50% by 21st Mortgage Corporation and 50% by the Company. The earnings from the Majestic 21 loan portfolio will continue to decrease due to the amortization, maturity and payoff of the loans. We received distributions in the third quarter of 2021 of $75,156 compared to $64,053 in the third quarter of 2020 and $121,024 for the first nine months of 2021 compared to $336,447 for the first nine months of 2020. The distributions are from an escrow arrangement related to a Finance Revenue Sharing Agreement (FRSA) between 21 st Mortgage Corporation and the Company. The distributions from the escrow arrangement, which relates to certain loans financed by 21 st Mortgage Corporation, are recorded as income by the Company when received. The earnings from the FRSA loan portfolio will continue to decrease due to the amortization and payoff of the loans. The Company realized pre-tax income in the third quarter of 2021 of $1,397,857 as compared to $1,535,603 in the third quarter of 2020. The pre-tax income for the first nine months of 2021 was $5,067,874 as compared to $5,422,063 in first nine months of 2020. 13 Table of Contents The Company recorded an income tax expense in the amount of $347,111 in the third quarter of 2021 as compared to $375,465 in third quarter 2020. Income tax expense for the nine months of 2021 was $1,226,425 compared to $1,311,780 for the nine months of 2020. We reported net income of $1,050,746 for the third quarter of 2021 or $0.29 per share, compared to $1,160,138 or $0.32 per share, for the third quarter of 2020. For the first nine months of 2021 net income was $3,841,449 or $1.06 per share, compared to $4,110,283 or $1.13 per share, in the first nine months of 2020. Liquidity and Capital Resources Cash and cash equivalents were $33,720,078 at July 31, 2021 compared to $30,305,902 at October 31, 2020. Certificates of deposit were $2,090,910 at July 31, 2021 compared to $4,602,307 at October 31, 2020. Short-term investments were $562,270 at July 31, 2021 compared to $358,960 at October 31, 2020. Working capital was $34,059,497 at July 31, 2021 as compared to $38,865,240 at October 31, 2020. During the first nine months of 2021, the Company repurchased an aggregate of 100,346 shares of its common stock for an aggregate of $3,478,553. The Company purchased the land for the Ocala South retail sales center in March 2021 for $500,000, the Tavares retail sales center in January 2021 for $245,000 and land in Ocala for a future retail sales center in February 2021 for $1,040,000. The Company paid a one-time cash dividend of $1.00 per common share in March 2021 for $3,632,100. We own the entire inventory for our Prestige retail sales centers which includes new, pre-owned, repossessed or foreclosed homes and do not incur any third party floor plan financing expenses. We have a material commitment for a significant capital expenditure. Depending upon when the Company receives the building permit, we plan to build an 11,900 square foot frame shop to manufacture our frames on our current manufacturing plant property on our Ocala Florida property. The Company currently has no line of credit facility and no debt and does not believe that such a facility is currently necessary to its operations. The Company also has approximately $3.9 million of cash surrender value of life insurance which it may be able to access as an additional source of liquidity though the Company has not currently viewed this to be necessary. As of July 31, 2021, the Company continued to report a strong balance sheet which included total assets of approximately $64 million which was funded primarily by stockholders’ equity of approximately $48 million. Critical Accounting Policies and Estimates In Item 7 of our Form 10-K, under the heading “Critical Accounting Policies and Estimates,” we have provided a discussion of the critical accounting policies and estimates that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. No significant changes have occurred since that time. Forward-Looking Statements Certain statements in this report are unaudited or forward-looking statements within the meaning of the federal securities laws. Although Nobility believes that the amounts and expectations reflected in such forward-looking statements are based on reasonable assumptions, there are risks and uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, the potential adverse impact on our business caused by the COVID-19 pandemic or other health pandemic, competitive pricing pressures at both the wholesale and retail levels, inflation, increasing material costs (including forest based products) or availability of materials due to potential supply chain interruptions (such as current inflation with forest products and supply issues with vinyl siding and PVC piping), changes in market demand, changes in interest rates, availability of financing for retail and wholesale purchasers, consumer confidence, adverse 14 Table of Contents weather conditions that reduce sales at retail centers, the risk of manufacturing plant shutdowns due to storms or other factors, the impact of marketing and cost-management programs, reliance on the Florida economy, impact of labor shortage, impact of materials shortage, increasing labor cost, cyclical nature of the manufactured housing industry, impact of rising fuel costs, catastrophic events impacting insurance costs, availability of insurance coverage for various risks to Nobility, market demographics, management’s ability to attract and retain executive officers and key personnel, increased global tensions, market disruptions resulting from terrorist or other attack, any armed conflict involving the United States and the impact of inflation. 15 Table of Contents Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures . The Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of July 31, 2021. Changes in Internal Control over Financial Reporting. There were no changes in our internal controls over financial reporting that occurred during the third quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. 16 Table of Contents Part II. OTHER INFORMATION AND SIGNATURES There were no reportable events for Item 1 and Items 3 through 5. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The following table represents information with respect to purchases by the Company of its common stock during the three months ended July 31, 2021. Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs* Maximum number of shares that may yet be purchased under the plans or programs* May 2 – May 29, 2021 0 0 0 199,654 May 30 – Jun 26, 2021 0 0 0 199,654 Jun 27 – Jul 31, 2021 100,000 $34.68 100,000 99,654 * In September 2020 the Company’s Board of Directors authorized 200,000 shares to be repurchased during fiscal year 2021 in the open market. During the first nine months ended July 31, 2021 management has repurchased an aggregate of 100,346 shares of common stock and is authorized to purchase up to an additional 99,654 shares. Item 6. Exhibits 31. (a) Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 (b) Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 32. (a) Written Statement of Chief Executive Officer Pursuant to 18 U.S.C. §1350 (b) Written Statement of Chief Financial Officer Pursuant to 18 U.S.C. §1350 101. Interactive data filing formatted in IXBRL 17 Table of Contents Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NOBILITY HOMES, INC. DATE: September 10, 2021 By: /s/ Terry E. Trexler Terry E. Trexler, Chairman, President and Chief Executive Officer DATE: September 10, 2021 By: /s/ Thomas W. Trexler Thomas W. Trexler, Executive Vice President, and Chief Financial Officer DATE: September 10, 2021 By: /s/ Lynn J. Cramer, Jr. Lynn J. Cramer, Jr., Treasurer and Principal Accounting Officer 18