What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-01 compared with 2022-02-04 · 64 added, 64 removed, 82 unchanged (61% of the section changed)

3 unchanged sentences

While Nobility actively seeks to make wholesale sales to independent retail dealers, its presence as a competitor limits potential sales to dealers located in the same geographic areas serviced by its Prestige retail sales centers.

Nobility has aggressively targeted the retirement community market, which is made up of retirees moving to Florida and typically purchasing or renting homes to be located on sites leased from park communities offering a variety of amenities.

Nobility has aggressively targeted the retirement community market, which is made up of retirees moving to Florida and typically purchasing homes to be located on sites leased from park communities offering a variety of amenities.

Sales are not limited by the presence of the Company’s Prestige retail sales centers in this type of arrangement, as the retirement community sells homes only within their community.

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Our three-, four- and five-bedroom manufactured homes are favored by families, compared with the one, two and three-bedroom homes that typically appeal to the retirement buyers who reside in the manufactured housing communities.

In an effort to make manufactured homes more competitive with site-built housing, financing packages are available through third-party lenders to provide (1) 30-year

financing, (2) an interest rate reduction program (buy-down),

(3) combination land/manufactured home loans, and (4) a 5% down payment program for qualified buyers.

In an effort to make manufactured homes more competitive with site-built housing, financing packages are available through third-party lenders to provide (1) 30-year financing, (2) an interest rate reduction program (buy-down), (3) combination land/manufactured home loans, and (4) a 5% down payment program for qualified buyers.

Prestige maintains several outside financing sources that provide financing to retail homebuyers for its manufactured homes.

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The lack of lenders in our industry, partly as a result of an increase in government regulations, still affects our results by limiting many affordable manufactured housing buyers from purchasing homes.

In addition, rising interest rates have slowed the demand for retail homebuyers.

Prestige’s wholly owned subsidiary, Mountain Financial, Inc., is an independent insurance agent and licensed loan originator.

Mountain Financial provides automobile insurance, extended warranty coverage and property and casualty insurance to Prestige customers in connection with their purchase and financing of manufactured homes.

pandemic’s future impact on the housing market, production work force, supply of certain building products and the operations of the Company is difficult to forecast.

We were deemed an essential business and never closed our manufacturing plant or retail sales centers.

We implemented the recommended protocols to limit the exposure and transmission of COVID-19,

but it has had a negative impact on customer traffic (and corresponding sales) within our sales centers, operations of the manufacturing facility and our business partners during the third and fourth quarters of fiscal 2021.

We expect COVID-19

to continue to negatively impact the Company and its retail customers during fiscal 2022.

The rising interest rate environment’s future impact on the housing market as well as the continued negative impact from COVID-19 and other factors on the Company’s production work force, supply of certain building products and the operations of the Company are difficult to forecast for fiscal year 2023.

These factors have had a negative impact on customer traffic (and corresponding sales) within our sales centers, operations of the manufacturing facility and our business partners through the most part of fiscal year 2022 and during the third and fourth quarters of fiscal 2021.

In fiscal year 2022 Prestige purchased from other manufacturers 153 ($12,595,593) new homes to help eliminate the large backlog from Nobility.

Prestige has 99 ($8,198,040) new homes from Nobility and outside manufacturers that are included in inventory and are in the field waiting to be completed and closed.

Nobility believes that being located in Florida offers a number of advantages such as an increasing population and a low-tax and business friendly state government.

However, Nobility is also aware of climate-related risks such as hurricanes, tornados, sea-level rise, flooding and wildfires which are prone to occur in Florida.

To date, management does not believe these climate-related risks have adversely impacted the Company.

However, management believes if such climate-related events impacted the Company’s manufacturing or sales facilities, then the Company would be adversely impacted.

If such climate-related events should deter future population growth in Florida, then the Company would be adversely impacted.

If climate-related disclosures are required in the future by the Securities and Exchange Commission or if customary business practices should change to require greater climate-risk mitigation, then the Company would face increased compliance costs and costs of doing business.

Such costs are not currently quantifiable.

The Company’s fiscal year ends on the first Saturday on or after October 31.

The year ended November 6, 2021 (fiscal year 2021) consisted of a fifty-three week period and the year ended October 31, 2020 (fiscal year 2020) consisted of a fifty-two

The year ended November 5, 2022 (fiscal year 2022) consisted of a fifty-two-week period and the year ended November 6, 2021 (fiscal year 2021) consisted of a fifty-three-week period.

Results of Operations

Total net sales in fiscal year 2022 increased 14% to $51,522,054 compared to $45,062,558 in fiscal year 2021.

The Company reported net income of $5,398,808 in fiscal year 2021, compared to a net income of $5,983,698 during fiscal year 2020.

The Company reported net income of $7,232,029 in fiscal year 2022, an increase of 34% compared to $5,398,808 during fiscal year 2021.

The demand for affordable manufactured housing in Florida and the U.S.

is slowing as a result of the increased interest rate environment driven by the Federal Reserve.

Although net sales increased during the twelve months ended November 5, 2022 as compared to the same period last year, we continued to experience the negative impact of limitations being placed on certain key production materials from suppliers, the delay or lack of key components from vendors as well as back orders, delayed shipments, price increases and labor shortages.

These supply chain issues have caused delays in the completion of the homes at the manufacturing facility and the set-up process of retail homes in the field, resulting in decreased net sales due to our inability to timely deliver and setup homes to customers.

Certainly, the COVID-19 pandemic has had an impact on each of these areas.

We expect that these challenges will continue for the first six months of fiscal year 2023 or until the industry supply chain normalizes.

The Company has continued to experience inflation in most building products resulting in increases to our material and labor costs which has increased the wholesale and retail selling prices of our homes.

In addition, potential customers may delay or defer purchasing decisions in light of the rising interest rate environment.

According to the Florida Manufactured Housing Association, shipments for the industry in Florida for the period from November 2021 through October 2022 were up approximately 23% from the same period last year.

During third and fourth quarters of 2021 our production of homes was impacted due to the challenges in hiring additional and retaining production workers and the unpredictable absenteeism of the COVID-19

Production has incurred shortages in many building products which has limited production and delayed the completion of the homes both at the manufacturing plant and the set up process in the field.

The Company has continued to experience inflation in most building products resulting in increases to our material and labor costs and a corresponding decrease in gross profits.

The following table summarizes certain key sales statistics and percent of gross profit as of and for fiscal years ended November 6, 2021 and October 31, 2020.

The following table summarizes certain key sales statistics and percent of gross profit as of and for fiscal years 2022 and 2021.

New homes sold through Company owned sales centers

homes sold through Company owned sales centers

Pre-owned homes sold through Company owned sales centers

Homes sold to independent dealers

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Management remains convinced that our specific geographic market is one of the best long-term growth areas in the country.

On June 5, 2021 we celebrated our 54 th

anniversary in business specializing in the design and production of quality, affordable manufactured and modular homes.

On June 5, 2022, we celebrated our 55 th anniversary in business specializing in the design and production of quality, affordable manufactured and modular homes.

With multiple retail sales centers in Florida for over 32 years and an insurance agency subsidiary, we are the only vertically integrated manufactured home company headquartered in Florida.

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We have established 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 November 6, 2021 and October 31, 2020.

Cost of goods sold at our manufacturing facilities include:

materials, direct and indirect labor and manufacturing expenses (which consists of factory occupancy, salary and salary related, delivery costs, manufactured home service costs and other manufacturing expenses).

Cost of goods sold at our retail sales centers include:

appliances, air conditioners, electrical and plumbing hook-ups,

furniture, insurance, impact and permit fees, land and home fees, manufactured home, service warranty, setup contractor, interior drywall finish, setup display, skirting, steps, well, septic tank and other expenses.

In the opinion of management, no reserve was deemed necessary for policy cancellations at November 5, 2022 and November 6, 2021.

Cost of goods sold at our manufacturing facilities include materials, direct and indirect labor and manufacturing expenses (which consists of factory occupancy, salary and salary related, delivery costs, manufactured home service costs and other manufacturing expenses).

Cost of goods sold at our retail sales centers include appliances, air conditioners, electrical and plumbing hook-ups, furniture, insurance, impact and permit fees, land and home fees, manufactured home, service warranty, setup contractor, interior drywall finish, setup display, skirting, steps, well, septic tank and other expenses.

Gross profit as a percentage of net sales was 29% in fiscal year 2022 compared to 25% in fiscal year 2021.

Our gross profit was $14,903,438 for fiscal year 2022 compared to $11,432,196 for fiscal year 2021.

The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned

The decrease in gross profit as a percentage of net sales is primarily due to the continued inflation, shortages in certain building products and factory workers to work on the production line to build homes.

Selling, general and administrative expenses at our manufacturing facility include salaries, professional services, advertising and promotions, corporate expense, employee benefits, office equipment and supplies and utilities.

Selling, general and administrative expenses at our retail sales center include:

advertising, retail sales centers expenses, salary and salary related, professional fees, corporate expense, employee benefit, office equipment and supplies, utilities and travel.

Selling, general and administrative expenses at the insurance company include:

advertising, professional fees and office supplies.

Selling, general and administrative expenses as a percent of net sales was 12% in fiscal year 2021 and in fiscal year 2020.

The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned homes sold.

The increase in gross profit as a percentage of net sales is primarily due to the increase in the wholesale and retail selling prices of our homes.

Selling, general and administrative expenses at our manufacturing facility include salaries, professional services, advertising and promotions, corporate expenses, employee benefits, office equipment and supplies and utilities.

Selling, general and administrative expenses at our retail sales center include advertising, retail sales centers expenses, salary and salary related, professional fees, corporate expense, employee benefit, office equipment and supplies, utilities and travel.

Selling, general and administrative expenses at the insurance company include advertising, professional fees and office supplies.

Selling, general and administrative expenses as a percentage of net sales was 13% in fiscal year 2022 compared to 12% in fiscal year 2021.

Selling, general and administrative expenses were $6,477,988 for fiscal year 2022 compared to $5,286,172 for fiscal year 2021.

The dollar 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.

The dollar increases in expenses in 2022 were due to the increase in variable expenses which were a direct result of employee benefits compensation due to the increase in sales.

The Company earned interest in the amount of $234,804 in fiscal year 2022 compared to $180,635 in fiscal year 2021.

Interest income is dependent on our cash balance and available rates of return.

The decrease during 2021 is primarily due to the decline in the investment rates and the decrease in the monies invested.

The increase during 2022 is primarily due to the increase in the interest rates.

The Company earned $60,457 from its joint venture, Majestic 21, in fiscal year 2022 compared to $59,072 in fiscal year 2021.

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 $246,216 in fiscal year 2021 and $421,099 in fiscal year 2020 under an escrow arrangement related to a Finance Revenue Sharing Agreement (FRSA) between 21 st

Mortgage Corporation and the Company.

The distributions from the escrow account, related to certain loans financed by 21 st

Mortgage Corporation, are recorded in income by the Company as received, which has been the Company’s past practice.

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 of $7,118,733 in fiscal year 2021 compared to a pre-tax

income of $7,869,085 in fiscal year 2020.

The earnings from the Majestic 21 loan portfolio could vary year to year, but overall, the earnings will continue to decrease due to the amortization, maturity and payoff of the loans.

We received $364,520 in fiscal year 2022 and $246,216 in fiscal year 2021 under an escrow arrangement related to a Finance Revenue Sharing Agreement (FRSA) between 21 st Mortgage Corporation and the Company.

The distributions from the escrow account, related to certain loans financed by 21 st Mortgage Corporation, are recorded in income by the Company as received, which has been the Company’s past practice.

The increase in earnings is primarily due to the four distributions received in fiscal year 2022 compared to three distributions received fiscal year 2021.

The earnings overall from the FRSA loan portfolio will continue to decrease due to the amortization and payoff of the loans.

The Company realized pre-tax income of $9,436,534 in fiscal year 2022 compared to a pre-tax income of $7,118,733 in fiscal year 2021.

The Company recorded an income tax expense of $2,204,505 in fiscal year 2022 compared to $1,719,925 in fiscal year 2021.

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Liquidity and Capital Resources

Cash and cash equivalents were $36,126,059 at November 6, 2021 compared to $30,305,902 at October 31, 2020.

Certificates of deposit were $2,093,015 at November 6, 2021 compared to $4,602,307 at October 31, 2020.

Short-term investments were $621,928 at November 6, 2021 compared to $358,960 at October 31, 2020.

Working capital was $35,563,355 at November 6, 2021 compared to $38,865,240 at October 31, 2020.

Cash and cash equivalents were $16,653,449 at November 5, 2022 compared to $36,126,059 at November 6, 2021.

Certificates of deposit were $3,903,888 at November 5, 2022 compared to $2,093,015 at November 6, 2021.

Short-term investments were $589,071 at November 5, 2022 compared to $621,928 at November 6, 2021.

Working capital was $33,667,732 at November 5, 2022 compared to $35,563,355 at November 6, 2021.

A cash dividend was paid from our cash reserves in April 2022 in the amount of $1.00 per share ($3,532,976).

During fiscal 2022, the Company repurchased an aggregate 162,570 of shares of its common stock for an aggregate of $5,195,267 and Prestige purchased from other manufacturers 153 ($12,595,593) new homes to help eliminate the large backlog from Nobility.

Prestige new home inventory was $20,016,093 at November 5, 2022 compared to $7,140,880 at November 6, 2021.

The increase in Prestige new home inventory was due to the 121 ($10,432,998) new homes in inventory that were purchased from other manufacturers.

Prestige has 99 ($8,198,040) new homes from Nobility and other manufacturers that are included in inventory and are in the field waiting to be completed and closed.

We own the entire inventory for our Prestige retail sales centers which includes new, pre-owned and repossessed or foreclosed homes and do not incur any third-party floor plan financing expenses.

The Company incurred $1.1 million in fiscal year 2022 in building an 11,900 square foot frame shop to manufacture steel frames for our homes.

In April 2022 Prestige sold 4.38 acres of land frontage at the Inverness location for $96,970 to the Florida Department of Transportation for SR 41 road widening project.

A cash dividend was paid from our cash reserves in March 2021 in the amount of $1.00 per share ($3,632,100).

During fiscal 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 Tavares retail sales center in January 2021 for $245,000, land in Ocala for a future retail sales center in February 2021 for $1,040,000 and land for the Ocala South retail sales center in March 2021 for $500,000.

During fiscal 2020, the Company repurchased an aggregate of 33,100 shares of its common stock for an aggregate of $822,450.

A cash dividend was paid from the Company’s cash reserves in March 2020 in the amount of $1.00 per share ($3,630,970) .

We own the entire inventory for our Prestige retail sales centers which includes new, pre-owned

and repossessed or foreclosed homes and do not incur any third party floor plan financing expenses.

In December 2021, the Company broke ground to build an 11,900 square foot frame shop at a cost of approximately $1.1 million to manufacture the steel frames for our homes, on our current manufacturing plant property in Ocala Florida.

In January 2021 the Company purchased the land for the Tavares retail sales center for $245,000, land in Ocala for a future retail sales center in February 2021 for $1,040,000 and land for the Ocala South retail sales center in March 2021 for $500,000.

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.

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Looking ahead, the Company’s strong balance sheet and significant cash reserves accumulated in profitable years has allowed the Company to remain sufficiently liquid to allow the continuation of operations and should enable the Company to take advantage of any market opportunities.

Management believes it has sufficient levels of liquidity as of the date of the filing of this Form 10-K

to allow the Company to operate into the foreseeable future.

Management believes it has sufficient levels of liquidity as of the date of the filing of this Form 10-K to allow the Company to operate into the foreseeable future.

Critical Accounting Policies and Estimates

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The Company recognizes revenue from its independent dealers upon receiving wholesale floor plan financing or establishing retail credit approval for terms, shipping of the home and transferring title and risk of loss to the independent dealer.

For wholesale shipments to independent dealers, the Company has no obligation to setup the home or to complete any other significant obligations.

For wholesale shipments to independent dealers, the Company has no obligation to set up the home or to complete any other significant obligations.

Sales of homes to affiliated entities that are subject to contingent payment terms are considered inventory consignment arrangements.

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The Company provides 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 November 6, 2021 or October 31, 2020.

In the opinion of management, no reserve was deemed necessary for policy cancellations on November 5, 2022 or November 6, 2021.

The Company accounts for income taxes utilizing the asset and liability method.

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The rebate liability is calculated and recognized as eligible homes are sold based upon factors surrounding the activity and prior experience of specific dealers and is included in accrued expenses in the accompanying consolidated balance sheets.

Sheet Arrangements

As part of our ongoing business, we generally do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities (“VIE’s”), which would have been established for the purpose of facilitating off-balance

sheet arrangements or other contractually narrow or limited purposes.

Off-Balance Sheet Arrangements

As of November 5, 2022, we are not involved in any material unconsolidated entities (other than the Company’s investments in Majestic 21).

Forward Looking Statements

Certain statements in this report are unaudited or forward-looking statements within the meaning of the federal securities laws.

Certain statements in this report are 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 pandemics, 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 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.

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 pandemics, competitive pricing pressures at both the wholesale and retail levels, inflation, increasing material costs (including forest based products) or availability of materials due to supply chain interruptions (such as current inflation with forest products and supply issues with vinyl siding and PVC piping), changes in market demand, increase in interest rates, availability of financing for retail and wholesale purchasers, consumer confidence, adverse 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.

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