NOBILITY HOMES INC 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm—Daszkal Bolton LLP (auditor ID #229) 13 Consolidated Balance Sheets 14 Consolidated Statements of Income 15 Consolidated Statements of Changes in Stockholders’ Equity 16 Consolidated Statements of Cash Flows 17 Notes to Consolidated Financial Statements 18 12 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Nobility Homes, Inc. Ocala, Florida Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Nobility Homes, Inc. (the “Company”) at November 5, 2022 and November 6, 2021, and the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended November 5, 2022, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Daszkal Bolton LLP We have served as the Company’s auditor since 2018. Jupiter, Florida February 1 , 2023 PCAOB ID# 229 13 Table of Contents Nobility Homes, Inc. Consolidated Balance Sheets November 5, 2022 and November 6, 2021 November 5, November 6, 2022 2021 Assets Current assets: Cash and cash equivalents $ 16,653,449 $ 36,126,059 Certificates of deposit 3,903,888 2,093,015 Short-term investments 589,071 621,928 Accounts receivable - trade 1,288,645 680,228 Note receivable 23,905 32,825 Mortgage notes receivable 16,191 22,589 Inventories 22,775,239 10,394,288 Pre-owned homes, net 682,254 542,081 Prepaid expenses and other current assets 2,172,675 1,821,267 Total current assets 48,105,317 52,334,280 Property, plant and equipment, net 7,915,695 6,847,780 Pre-owned homes, net — 755,394 Note receivable, less current portion 16,599 38,895 Mortgage notes receivable, less current portion 131,514 222,459 Mobile home park note receivable — 72,731 Other investments 1,848,893 1,788,436 Deferred income taxes 43,778 — Operating lease right of use assets — 1,597 Cash surrender value of life insurance 4,143,035 3,966,939 Other assets 156,287 156,287 Total assets $ 62,361,118 $ 66,184,798 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,119,188 $ 939,964 Accrued compensation 1,132,423 555,222 Accrued expenses and other current liabilities 1,742,696 1,513,967 Income taxes payable 229,200 89,083 Operating lease obligation — 1,597 Customer deposits 10,214,078 13,671,092 Total current liabilities 14,437,585 16,770,925 Deferred income taxes — 99,568 Total liabilities 14,437,585 16,870,493 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; 3,370,912 and 3,532,100 shares outstanding, respectively 536,491 536,491 Additional paid in capital 10,849,687 10,766,253 Retained earnings 63,441,812 59,742,759 Less treasury stock at cost, 1,993,995 and 1,832,807 shares, respectively ( 26,904,457 ) ( 21,731,198 ) Total stockholders’ equity 47,923,533 49,314,305 Total liabilities and stockholders’ equity $ 62,361,118 $ 66,184,798 The accompanying notes are an integral part of these financial statements. 14 Table of Contents Nobility Homes, Inc. Consolidated Statements of Income For the years ended November 5, 2022 and November 6, 2021 Year Ended November 5, November 6, 2022 2021 Net sales $ 51,522,054 $ 45,062,558 Cost of sales ( 36,618,616 ) ( 33,630,362 ) Gross profit 14,903,438 11,432,196 Selling, general and administrative expenses ( 6,477,988 ) ( 5,286,172 ) Operating income 8,425,450 6,146,024 Other income (loss): Interest income 234,804 180,635 Undistributed earnings in joint venture - Majestic 21 60,457 59,072 Proceeds received under escrow arrangement 364,520 246,216 (Decrease) increase in fair value of equity investment ( 32,857 ) 262,968 Gain on disposal of property, plant and equipment 88,936 — Miscellaneous 295,224 223,818 Total other income 1,011,084 972,709 Income before provision for income taxes 9,436,534 7,118,733 Income tax expense ( 2,204,505 ) ( 1,719,925 ) Net income $ 7,232,029 $ 5,398,808 Weighted average number of shares outstanding: Basic 3,437,784 3,597,756 Diluted 3,445,498 3,607,448 Net income per share: $ 2.10 $ 1.50 Basic $ 2.10 $ 1.50 Diluted The accompanying notes are an integral part of these financial statements. 15 Table of Contents Nobility Homes, Inc. Consolidated Statements of Changes in Stockholders’ Equity For the years ended November 5, 2022 and November 6, 2021 Common Common Additional Retained Treasury Stock Shares Stock Paid-in-Capital Earnings Stock Total Balance at November 6, 2021 3,532,100 $ 536,491 $ 10,766,253 $ 59,742,759 $ ( 21,731,198 ) $ 49,314,305 Cash dividend — — — ( 3,532,976 ) — ( 3,532,976 ) Purchase of treasury stock ( 162,570 ) — — — ( 5,195,267 ) ( 5,195,267 ) Stock-based compensation 416 — 100,886 — 4,556 105,442 Exercise of employee stock options 966 — ( 17,452 ) — 17,452 — Net income — — — 7,232,029 — 7,232,029 Balance at November 5, 2022 3,370,912 $ 536,491 $ 10,849,687 $ 63,441,812 $ ( 26,904,457 ) $ 47,923,533 Common Common Additional Retained Treasury Stock Shares Stock Paid-in-Capital Earnings Stock Total Balance at October 31, 2020 3,631,196 $ 536,491 $ 10,694,554 $ 57,976,051 $ ( 18,265,820 ) $ 50,941,276 Cash dividend — — — ( 3,632,100 ) — ( 3,632,100 ) Purchase of treasury stock ( 100,346 ) — — — ( 3,478,553 ) ( 3,478,553 ) Stock-based compensation — — 69,749 — — 69,749 Exercise of employee stock — options 1,250 — 1,950 — 13,175 15,125 Net income — — — 5,398,808 — 5,398,808 Balance at November 6, 2021 3,532,100 $ 536,491 $ 10,766,253 $ 59,742,759 $ ( 21,731,198 ) $ 49,314,305 The accompanying notes are an integral part of these financial statements. 16 Table of Contents Nobility Homes, Inc. Consolidated Statements of Cash Flows For the years ended November 5, 2022 and November 6, 2021 Year Ended November 5, November 6, 2022 2021 Cash flows from operating activities: Net income $ 7,232,029 $ 5,398,808 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 169,661 186,320 Deferred income taxes ( 143,346 ) 103,166 Undistributed earnings in joint venture - Majestic 21 ( 60,457 ) ( 59,072 ) Gain on disposal of property, plant and equipment ( 88,936 ) — Decrease (increase) in fair market value of equity investments 32,857 ( 262,968 ) Stock-based compensation 105,442 69,750 Amortization of operating lease right of use assets 1,597 713,771 Decrease (increase) in: Accounts receivable - trade ( 608,417 ) 109,818 Inventories ( 12,380,951 ) ( 1,099,611 ) Pre-owned homes 615,221 221,702 Prepaid expenses and other current assets ( 351,408 ) ( 806,420 ) Interest receivable ( 23,888 ) ( 18,328 ) (Decrease) increase in: Accounts payable 179,224 11,869 Accrued compensation 577,201 ( 115,298 ) Accrued expenses and other current liabilities 228,729 130,135 Income taxes payable 140,117 194,759 Customer deposits ( 3,457,014 ) 8,572,459 Net cash (used in) provided by operating activities ( 7,832,339 ) 13,350,860 Cash flows from investing activities: Purchase of property, plant and equipment ( 1,245,610 ) ( 1,891,386 ) Purchase certificates of deposit ( 3,880,000 ) — Proceeds from certificates of deposit 2,087,936 2,496,000 Proceeds from disposal of property, plant and equipment 96,970 — Collections on interest receivable 5,079 31,620 Collections on mortgage notes receivable 97,343 2,623 Collections on equipment and other notes receivable 31,216 39,350 Collections of mobile park Note receivable 201,464 — Issuance of equipment note receivable — ( 68,500 ) Issuance of mobile home park note receivable ( 128,733 ) ( 72,731 ) Increase in cash surrender value of life insurance ( 176,096 ) ( 171,037 ) Net cash (used in) provided by investing activities ( 2,910,431 ) 365,939 Cash flows from financing activities: Payment of cash dividend ( 3,532,976 ) ( 3,632,100 ) Proceeds from exercise of employee stock option — 15,125 Purchase of treasury stock ( 5,195,267 ) ( 3,478,553 ) Reduction of operating lease obligation ( 1,597 ) ( 801,114 ) Net cash used in financing activities ( 8,729,840 ) ( 7,896,642 ) (Decrease) increase in cash and cash equivalents ( 19,472,610 ) 5,820,157 Cash and cash equivalents at beginning of year 36,126,059 30,305,902 Cash and cash equivalents at end of year $ 16,653,449 $ 36,126,059 Supplemental disclosure of cash flows information: Income taxes paid $ 2,262,000 $ 1,422,000 Noncash exercise of employee stock options $ ( 9,197 ) $ — The accompanying notes are an integral part of these financial statements. 17 Table of Contents NOTE 1 Reporting Entity and Significant Accounting Policies Description of Business and Principles of Consolidation – The consolidated financial statements include the accounts of Nobility Homes, Inc. (“Nobility”), its wholly-owned subsidiaries, Prestige Home Centers, Inc. (“Prestige”), and Prestige’s wholly-owned subsidiaries, Mountain Financial, Inc., an independent insurance agency and licensed mortgage loan originator and Majestic Homes, Inc., (collectively the “Company”). The Company is engaged in the manufacture and sale of manufactured and modular homes to various dealerships, including its own retail sales centers, and manufactured housing communities throughout Florida. The Company has a manufacturing plant in operation that is located in Ocala, Florida. At November 5, 2022, Prestige operated ten Florida retail sales centers: Ocala (2), Chiefland, Auburndale, Inverness, Hudson, Tavares, Yulee, Panama City and Punta Gorda. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates and assumptions are based upon management’s best knowledge of current events and actions that the Company may take in the future. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in the reported financial condition and results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect: valuation of pre-owned homes, the allowance for doubtful accounts, the carrying value of long-lived assets, the provision for income taxes and related deferred tax accounts, certain accrued expenses and contingencies, warranty reserve and stock-based compensation. Fiscal Year – The Company’s fiscal year ends on the first Saturday on or after October 31. 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. Revenue Recognition – The Company’s revenue comes substantially from the sale of manufactured housing, modular housing and park models, along with freight billed to customers, parts sold and aftermarket services. The Company recognizes revenue following the comprehensive framework of Financial Accounting Standards Board ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09), which established a methodology for determining how much revenue to recognize and when it should be recognized through application of the following five-step approach: 1. Identify the contract(s) with a customer. 2. Identify each performance obligation in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to each performance obligation; and 5. Recognize revenue when or as each performance obligation is satisfied. The Company recognizes revenue from its retail sales of new manufactured homes upon the occurrence of the following: • Its receipt of a down payment, • Construction of the home is complete, • Home has been delivered and set up at the retail home buyer’s site, and title has been transferred to the retail home buyer, • Remaining funds have been released by the finance company (financed sales transaction), remaining funds have been committed by the finance company by an agreement with respect to financing obtained by the customer, usually in the form of a written approval for permanent home financing received from a lending institution, (financed construction sales transaction) or cash has been received from the home buyer (cash sales transaction), and • Completion of any other significant obligations. The accompanying notes are an integral part of these financial statements. 18 Table of Contents The Company recognizes revenue from the sale of the repurchased homes upon transfer of title to the new purchaser. The Company recognizes revenues 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 set up the home or to complete any other significant obligations. The Company recognizes revenues from its wholly owned subsidiary, Mountain Financial, Inc., as follows: commission income (and fees in lieu of commissions) is recorded as of the effective date of insurance coverage or the billing date, whichever is later. Commissions on premiums billed and collected directly by insurance companies are recorded as revenue when received which, in many cases, is the Company’s first notification of amounts earned due to the lack of policy and renewal information. Contingent commissions are recorded as revenue when received. Contingent commissions are commissions paid by insurance underwriters and are based on the estimated profit and/or overall volume of business placed with the underwriter. The data necessary for the calculation of contingent commissions cannot be reasonably obtained prior to the receipt of the commission which, in many cases, is the Company’s first notification of amounts earned. 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 5, 2022 and November 6, 2021. Sales of homes to affiliated entities that are subject to contingent payment terms are considered inventory consignment arrangements. Revenue from such arrangements is recognized when the homes are sold to the end users and payment is collected by the affiliated entity. See Note 4 “Related Party Transactions”. Revenues by Products and Services – Revenues by net sales from manufactured housing, pre-owned homes, and insurance agent commissions for the years ended November 5, 2022 and November 6, 2021 are as follows: 202 2 2021 Manufactured housing $ 50,264,637 $ 43,963,239 Pre-owned homes 957,745 816,165 Insurance agent commissions 299,672 283,154 Total net sales $ 51,522,054 $ 45,062,558 Cash and Cash Equivalents – The Company considers all money market accounts and highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Certificates of Deposit – Certificates of deposits are recorded at cost plus accrued interest and have maturities of twelve months or less. Accounts Receivable – Accounts receivable are stated at net realizable value. An allowance for doubtful accounts is provided based on prior collection experiences and management’s analysis of specific accounts. At November 5, 2022 or November 6, 2021, in the opinion of management, no material accounts were considered uncollectible and, accordingly, no allowance was deemed necessary. Accounts receivable fluctuate due to the number of homes sold to independent dealers. The Company recognizes revenues 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. Investments – The Company’s investments consist of equity securities of a public company. Investments with maturities of less than one year are classified as short-term investments. The Company’s equity investment in a public company is classified as “available-for-sale” and carried at fair value. Unrealized gains on the available-for-sale securities, net of taxes, were recorded in accumulated other comprehensive income. Upon the Company’s adoption of ASU 2016-01, unrealized gains and losses on these available-for-sale securities are reflected in the statement of income and comprehensive income. The accompanying notes are an integral part of these financial statements. 19 Table of Contents Inventories – New home inventory is carried at a 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 the 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. 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 a cost determined by 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 repossessions inventory. Inventory held at consignment locations by affiliated entities is included in the Company’s inventory on the Company’s consolidated balance sheets. Consigned inventory was $ 318,590 and $ 794,766 as of November 5, 2022 and November 6, 2021, 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 net realizable value. Other inventory costs are determined on a first-in, first-out basis. See Note 6 “Inventories”. Property, Plant and Equipment – Property, plant and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method. Routine maintenance and repairs are charged to expense when incurred. Major replacements and improvements are capitalized. Gains or losses are credited or charged to earnings upon disposition. Investment in Majestic 21 – Majestic 21 was formed in 1997 as a joint venture with our joint venture partner, an unrelated entity, 21 st Mortgage Corporation (“21 st Mortgage”). We have been allocated our share of net income and distributions on a 50/50 basis since Majestic 21’s formation. While Majestic 21 has been deemed to be a variable interest entity, the Company only holds a 50 % interest in this entity and all allocations of profit and loss are on a 50/50 basis. Since all allocations are to be made on a 50/50 basis and joint decisions with the joint venture partner are made which most significantly impact Majestic 21 economic performance therefore, the Company is not required to consolidate Majestic 21 with the accounts of Nobility Homes in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 810, “Consolidations” (ASC 810). Management believes that the Company’s maximum exposure to loss as a result of its involvement with Majestic 21 is its investment in the joint venture. Based on management’s evaluation, there was no impairment of this investment at November 5, 2022 or November 6, 2021. The Company entered into an arrangement in 2002 with 21 st Mortgage to repurchase certain pre-owned homes. Under this arrangement or any other arrangement, the Company is not obligated to repurchase any foreclosed/repossessed units of Majestic 21 as it does not have a repurchase agreement or any other guarantees with Majestic 21. However, the Company buys from 21 st Mortgage foreclosed/repossessed units from the Majestic 21 portfolio and acts as a remarketing agent. It resells those units through the Company’s network of retail centers which management believes benefits the historical loss experience of the joint venture. The only impact on the Company’s operations from this arrangement are commissions earned on the resale of these units and interest earned for the Company’s carrying costs of the units while in inventory. See Note 14 “Commitments and Contingent Liabilities”. Impairment of Long-Lived Assets – In the event that facts and circumstances indicate that the carrying value of a long-lived asset may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset’s carrying amount to determine if a write-down is required. If such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. The accompanying notes are an integral part of these financial statements. 20 Table of Contents Customer Deposits – A retail customer is required to make a down payment ranging from $ 500 to 35 % of the retail contract price based upon the creditworthiness of the customer. The retail customer receives the full down payment back when the Company is not able to obtain retail financing. If the retail customer receives retail financing and decides not to go through with the retail sale, the Company can withhold 20 % of the retail contract price. The Company does not typically receive any deposits from independent dealers. Company Owned Life Insurance – The Company has purchased life insurance policies for certain key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Warranty Costs – The Company provides a warranty as the manufactured homes are sold. Amounts related to these warranties for fiscal years 2022 and 2021 are as follows: 2022 2021 Beginning accrued warranty expense $ 125,000 $ 125,000 Less: reduction for payments ( 428,031 ) ( 465,549 ) Plus: additions to accrual 428,031 465,549 Ending accrued warranty expense $ 125,000 $ 125,000 The Company’s limited warranty covers substantial defects in material or workmanship in specified components of the home including structural elements, plumbing systems, electrical systems, and heating and cooling systems which are supplied by the Company that may occur under normal use and service during a period of twelve (12) months from the date of delivery to the original homeowner, and applies to the original homeowner or any subsequent homeowner to whom this product is transferred during the duration of this twelve ( 12 ) month period. The Company tracks the warranty claims per home. Based on the history of the warranty claims, the Company has determined that a majority of warranty claims usually occur within the first three months after the home is sold. The Company determines its warranty accrual using the last three months of home sales. Accrued warranty costs are included in accrued expenses in the accompanying consolidated balance sheets. Accrued Home Setup Costs – Accrued home setup costs represent amounts due to vendors and/or independent contractors for various items related to the actual setup of the home on the retail home buyers’ site. These costs include appliances, air conditioners, electrical/plumbing hook-ups, furniture, insurance, impact/permit fees, land/home fees, extended service plan, freight, skirting, steps, well, septic tanks and other setup costs and are included in accrued expenses in the accompanying consolidated balance sheets. Stock-Based Compensation – The Company has a stock incentive plan (the “Plan”) which authorizes the issuance of options to purchase common stock. Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). Rebate Program – The Company has a rebate program for some dealers based upon the number and type of home purchased, which pays rebates based upon sales volume to the dealers. Volume rebates are recorded as a reduction of sales in the accompanying consolidated financial statements. 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. There were no rebates earned by dealers during fiscal years 2022 and 2021. Advertising – Advertising for Prestige retail sales centers consists primarily of internet, newspaper, radio and television advertising. All costs are expensed as incurred. Advertising expenses amounted to approximately $ 70,123 and $ 141,581 for fiscal years 2022 and 2021, respectively. The accompanying notes are an integral part of these financial statements. 21 Table of Contents Income Taxes – The Company accounts for income taxes utilizing the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. 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. Shipping and Handling Costs – Net sales include the revenue related to shipping and handling charges billed to customers. The related costs associated with shipping and handling is included as a component of cost of goods sold. Segments – The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information on a company-wide or consolidated basis. Accordingly, the Company accounts for its operations in accordance with FASB ASC No. 280, “Segment Reporting.” No segment disclosures have been made as the Company considers its business activities as a single segment. Major Customers – There were no customers that accounted for more than 10 % of our total net sales in fiscal year 2022. Concentration of Credit Risk – The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term and long-term investments and accounts receivable. At times, the Company’s deposits may exceed federally insured limits. However, the Company has not experienced any losses in such accounts and management believes the Company is not exposed to any significant credit risk in these accounts. The majority of the Company’s sales are credit sales which are made primarily to customers whose ability to pay is dependent upon the industry economics prevailing in the areas where they operate; however, concentrations of credit risk with respect to accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. The Company maintains reserves for potential credit losses when deemed necessary and such losses have historically been within management’s expectations. Concentration of Retail Financing Sources – There are two national lenders that service the manufactured housing industry with several others who specialize in government insured loans (Fannie, Freddie, FHA, VA, etc.). With only a few lenders dedicated to our industry, the loss of any of them could adversely affect our retail sales. The accompanying notes are an integral part of these financial statements. 22 Table of Contents NOTE 2 Investments The following is a summary of short-term investments (available for sale): November 5, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Equity securities in a public company $ 167,930 $ 421,141 $ — $ 589,071 November 6, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Equity securities in a public company $ 167,930 $ 453,998 $ — $ 621,928 The fair values were estimated based on unadjusted quoted prices at each respective period end. NOTE 3 Fair Values of Financial Investments The carrying amount of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses are approximate fair value because of the short maturity of those instruments. The Company accounts for the fair value of financial investments in accordance with FASB 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 table represents the Company’s financial assets and liabilities which are carried at fair value at November 5, 2022 and November 6, 2021. November 5, 2022 Level 1 Level 2 Level 3 Equity securities in a public company $ 589,071 $ — $ — November 6, 2021 Level 1 Level 2 Level 3 Equity securities in a public company $ 621,928 $ — $ — The accompanying notes are an integral part of these financial statements. 23 Table of Contents NOTE 4 Related Party Transactions Affiliated Entities TLT, Inc. – Our President and Chairman of the Board of Directors (“President”) and the Executive Vice President each own 50 % of the stock of TLT, Inc. TLT, Inc. is the general partner of limited partnerships which are developing manufactured housing communities in Central Florida (the “TLT Communities”). Our President owns between a 24.75 % and a 56.0 % direct and indirect interest in each of these limited partnerships. Our Executive Vice President owns between a 23.0 % and a 57.75 % direct and indirect interest in each of these limited partnerships. The TLT Communities have purchased manufactured homes exclusively from the Company since 1990. Sales to TLT Communities were not significant during fiscal years 2022 and 2021. Repurchase of Common Stock – In April 2022, the Company repurchased 100,000 shares of common stock from our President at $ 32.61 per share. NOTE 5 Other Investments Investment in Joint Venture – Majestic 21 – During fiscal 1997, the Company contributed $ 250,000 for a 50 % interest in a joint venture engaged in providing mortgage financing on manufactured homes. This investment is accounted for under the equity method of accounting. While Majestic 21 has been deemed to be a variable interest entity, the Company only holds a 50 % interest in this entity and all allocations of profit and loss are on a 50/50 basis . Since all allocations are to be made on a 50/50 basis and the Company’s maximum exposure is limited to its investment in Majestic 21, management has concluded that the Company would not absorb a majority of Majestic 21’s expected losses nor receive a majority of Majestic 21’s expected residual returns; therefore, the Company is not required to consolidate Majestic 21 with the accounts of Nobility Homes in accordance with ASC 810. See Note 14 “Commitments and Contingent Liabilities”. We received no distributions from the joint venture in fiscal year 2022 or 2021. With regard to our investment in Majestic 21, there are no differences between our investment balance and the amount of underlying equity in net assets owned by Majestic 21. NOTE 6 Inventories A breakdown of the elements of inventory at November 5, 2022 and November 6, 2021 is as follows: November 5, 2022 November 6, 2021 Raw materials $ 2,119,372 $ 2,225,532 Work-in-process 135,513 97,021 Inventory consigned to affiliated entities 318,590 794,766 Finished homes – Nobility 9,583,095 7,140,880 Finished homes – Other 10,432,998 — Model home furniture 185,671 136,089 Inventories $ 22,775,239 $ 10,394,288 Pre-owned homes $ 682,254 $ 1,297,475 Less homes expected to sell in 12 months ( 682,254 ) ( 542,081 ) Pre-owned homes, long-term $ — $ 755,394 The accompanying notes are an integral part of these financial statements. 24 Table of Contents NOTE 7 Property, Plant and Equipment Property, plant and equipment, along with their estimated useful lives and related accumulated depreciation are summarized as follows: Range of Lives in Years November 5, 2022 November 6, 2021 Land — $ 4,872,382 $ 4,880,416 Land improvements 10 - 20 1,253,025 1,245,975 Buildings and improvements 15 - 40 2,584,852 2,579,772 Machinery and equipment 3 - 10 1,059,377 1,038,455 Furniture and fixtures 3 - 10 301,889 301,889 Construction in progress — 1,212,558 — 11,284,083 10,046,507 Less accumulated depreciation ( 3,368,388 ) ( 3,198,727 ) $ 7,915,695 $ 6,847,780 Depreciation expenses during the years ended November 5, 2022 and November 6, 2021 totaled $ 169,661 and $ 186,320 , respectively. NOTE 8 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities are comprised of the following: November 5, 2022 November 6, 2021 Accrued warranty expense $ 125,000 $ 125,000 Accrued property and sales taxes 407,968 351,784 Other accrued expenses 1,209,728 1,037,183 Total accrued expenses and other current liabilities $ 1,742,696 $ 1,513,967 NOTE 9 Proceeds Received Under Escrow Arrangement The Company 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 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 when received, which has been the Company’s past practice. NOTE 10 Income Taxes The Company computes income tax expense using the liability method. Under this method, deferred income taxes are provided, to the extent considered realizable by management, for basis differences of assets and liabilities for financial reporting and income tax purposes. The Company follows guidance issued by the FASB with respect to accounting for uncertainty in income taxes. A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 % likely of being realized on examination. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded. The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the state of Florida. The Company’s income tax returns for the past three years are subject to examination by tax authorities and may change upon examination. The accompanying notes are an integral part of these financial statements. 25 Table of Contents The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not reflect any amounts for interest and penalties in its 2022 or 2021 statements of operations, nor are any amounts accrued for interest and penalties at November 5, 2022 and November 6, 2021. The provision for income taxes for the years ended consists of the following: November 5, 2022 November 6, 2021 Current tax expense: Federal $ 2,009,567 $ 1,327,166 State 338,284 289,593 Deferred tax (benefit) ( 143,346 ) 103,166 Provision for income taxes $ 2,204,505 $ 1,719,925 The following table shows the reconciliation between the statutory federal income tax rate and the actual provision for income taxes for the years ended: November 5, 2022 November 6, 2021 Provision—federal statutory tax rate $ 1,981,672 $ 1,494,934 Increase (decrease) resulting from: State taxes, net of federal tax benefit 263,528 250,708 Permanent differences: Decrease in FL corporate tax rate — ( 135 ) Other ( 40,695 ) ( 25,582 ) Provision for income taxes $ 2,204,505 $ 1,719,925 The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts and the related deferred tax assets and deferred tax liabilities are as follows: November 5, 2022 November 6, 2021 Deferred tax assets: Allowance for doubtful accounts $ 58,173 $ 55,455 Prepaid Expenses . 14,995 14,295 Accrued expenses 198,633 107,893 Other assets 32,411 17,789 Lease right of use liability — 382 Stock-based compensation 34,789 19,502 Total deferred tax assets 339,001 215,316 Deferred tax liabilities: Depreciation ( 123,033 ) ( 135,466 ) Carrying value of investments ( 106,253 ) ( 109,146 ) Amortization ( 39,206 ) ( 37,374 ) Prepaid expenses ( 26,731 ) ( 32,516 ) Lease right of use asset — ( 382 ) Net deferred tax assets (liabilities) $ 43,778 $ ( 99,568 ) The accompanying notes are an integral part of these financial statements. 26 Table of Contents These amounts are included in the accompanying consolidated balance sheets under the following captions: November 5, 2022 November 6, 2021 Current assets (liabilities): Deferred tax assets $ — $ — Deferred tax liabilities — — Net current deferred tax assets — — Non-current assets (liabilities): Deferred tax assets 339,001 215,316 Deferred tax liabilities ( 295,223 ) ( 314,884 ) Net non-current deferred tax assets (liabilities) 43,778 ( 99,568 ) Net deferred tax assets (liabilities) $ 43,778 $ ( 99,568 ) In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. For fiscal years 2022 and 2021, the Company determined that a valuation reserve for the Company’s deferred tax assets was not considered necessary as the deferred tax assets were fully realizable. NOTE 11 Stockholders’ Equity Authorized preferred stock may be issued in series with rights and preferences designated by the Board of Directors at the time it authorizes the issuance of such stock. The Company has never issued any preferred stock. Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the accompanying consolidated financial statements. The Company repurchased 162,570 and 100,346 shares of its common stock during fiscal years 2022 and 2021, respectively. NOTE 12 Stock Option Plan In June 2011, the Company’s Board of Directors adopted, and the Company’s shareholders later approved, the Nobility Homes, Inc. 2011 Stock Incentive Plan (the “Plan”), providing for the issuance of options to purchase shares of common stock, stock appreciation rights and other stock-based awards to employees and non-employee directors. A total of 300,000 shares were reserved for issuance under the Plan, all of which may be issued pursuant to the exercise of incentive stock options. The Plan was amended by the Board of Directors to extend the termination date from June 2021 until June 1, 2026. At November 5, 2022, 233,800 options were available for future grant under the Plan and 66,200 options were outstanding. The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is to be recognized over the period during which an employee is required to provide a service in exchange for the award (usually the vesting period). The grant date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. During fiscal years 2022 and 2021, the Company recognized compensation costs related to the vesting of stock options of approximately $ 105,442 and $ 69,750 respectively. The accompanying notes are an integral part of these financial statements. 27 Table of Contents A summary of information with respect to options granted is as follows: Number of Shares Stock Oprtion Price Range Weighted Average Exercies Price Aggregate Intrinsic Value Outstanding at October 31, 2020 27,300 $ 12.10 - 24.00 $ 23.36 Granted 21,250 25.75 25.75 Exercised 1,250 12.10 12.10 Canceled — — — Outstanding at November 6, 2021 47,300 $ 12.10 - 25.75 $ 24.41 Granted 20,400 33.10 33.10 Exercised 1,500 * 12.10 12.10 Canceled — — — Outstanding at November 5, 2022 66,200 $ 12.10 - 33.10 $ 27.37 $ — * Options for the exercise of 1,500 shares were exercised on a cashless basis, resulting in the net issuance of 966 shares. The aggregate intrinsic value in the table above represents total intrinsic value (of options in the money), which is the difference between the Company’s closing stock price on the last trading day of fiscal year 2022 and the exercise price times the number of shares, that would have been received by the option holder had the option holder exercised their options on November 5, 2022. The following table summarizes information about the outstanding stock options at November 5, 2022: Options Outstanding Options Exercisable Exercise Price Shares Outstanding Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 24.00 24,550 3 $ 24.00 $ 24,550 $ 24.00 $ 25.75 21,250 4 25.75 $ 21,250 25.75 $ 33.10 20,400 5 33.10 $ 20,400 33.10 66,200 3.94 $ 27.37 $ 66,200 $ 27.37 The fair value of each option is determined using the Black-Scholes option-pricing model which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments, and the risk-free interest rate over the expected life of the option. The dividend yield was calculated by dividing the current annualized dividend by the option exercise price for each grant. The expected volatility was determined considering the Company’s historical stock prices for the fiscal year the grant occurred and prior fiscal years for a period equal to the expected life of the option. The risk-free interest rate was the rate available on zero coupon U.S. government obligations with a term equal to the expected life of the option. The expected life of the option was estimated based on the exercise history from previous grants. NOTE 13 Employee Benefit Plan The Company has a defined contribution retirement plan (the “Plan”) qualifying under Section 401(k) of the Internal Revenue Code. The Plan covers employees who have met certain service requirements. The Company makes a discretionary matching contribution, up to a maximum of 6 % of an employee’s compensation. The contribution expense charged to operations amounted to approximately $ 220,100 and $ 219,900 in fiscal years 2022 and 2021, respectively. The accompanying notes are an integral part of these financial statements. 28 Table of Contents NOTE 14 Commitments and Contingent Liabilities Operating Leases – The Company leases the property for several Prestige retail sales centers from various unrelated entities under operating lease agreements expiring through October 2023. The Company also leases certain equipment under unrelated operating leases. Other Contingent Liabilities – Certain claims and suits arising in the ordinary course of business have been filed or are pending against the Company. In the opinion of management, the ultimate outcome of these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. Accordingly, the Company has made an accrual provision of $ 150,000 for litigation settlements in the accompanying consolidated financial statements. The Company does not maintain casualty insurance on some of its property, including the inventory at our retail centers, our plant machinery and plant equipment and is at risk for those types of losses. The accompanying notes are an integral part of these financial statements. 29 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no disagreements with accountants on accounting and financial disclosure matters.