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 May 1, 2021

Commission File number 000-06506

NOBILITY HOMES, INC.

(Exact name of registrant as specified in its charter)

(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.

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.

NOBILITY HOMES, INC.

INDEX

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NOBILITY HOMES, INC.

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these condensed consolidated financial statements

2

NOBILITY HOMES, INC.

Condensed Consolidated Statements of Income

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements

3

NOBILITY HOMES, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the six months ended May 1, 2021 and May 2, 2020

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements

4

NOBILITY HOMES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements

5

Nobility Homes, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 Basis of Presentation and Accounting Policies

The accompanying unaudited condensed financial statements for the three and six months ended May 1, 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 six months ended May 1, 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.

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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 $1,052,059 and $1,277,681 as of May 1, 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:

Note 3 Short-term Investments

The following is a summary of short-term investments (available for sale):

The fair values were estimated based on quoted market prices in active markets at each respective period end.

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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:

The following tables represent the Company’s financial assets and liabilities which are carried at fair value.

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.

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Revenues by net sales from manufactured housing, pre-owned homes and insurance agent commissions are as follows:

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 $694,629, net of amortization in the consolidated Balance Sheet as of May 1, 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 8.65 years and 2.94%, 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 $98,162 for the six months ended May 1, 2021.

The amount of future minimum lease payments under operating leases are as follows:

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Total revenues in the second quarter of 2021 increased 45% to $14,742,900 compared to $10,202,502 in the second quarter of 2020. Total net sales for the first six months of 2021 increased 21% to $23,814,411 compared to $19,646,354 for the first six months of 2020. The Company reported net income of $1,724,938 in the second quarter of 2021, compared to a net income of $1,550,004 during the second quarter of 2020. Net income for the first six months of 2021 was $2,790,703 compared to a net income of $2,950,145 for the first six months of 2020. According to the Florida Manufactured Housing Association, shipments for the industry in Florida for the period from November 2020 through May 2021 were up approximately 6% from the same period last year. In addition, the lack of lenders in our industry, partly as a result of an increase in government regulations, still adversely affects our results by limiting many affordable manufactured housing buyers from purchasing homes. Since May of 2020, the Company has experienced unprecedented inflation in most building products, with no immediate relief in sight resulting in significant increases to our material costs and a corresponding decrease in gross profits.

The following table summarizes certain key sales statistics and percent of gross profit.

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.

Insurance agent commission revenues in the second quarter of 2021 were $82,643 compared to $72,772 in the second quarter of 2020. Total insurance agent commission revenues for the first six months of 2021 were $148,614 compared to $139,520 for the first six months of 2020. The increase in insurance agent commissions in the first six months of 2020 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 May 1, 2021and October 31, 2020.

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Gross profit as a percentage of net sales was 25% in the second quarter of 2021 compared to 31% for the second quarter of 2020 and was 26% for the first six months of 2021 compared to 31% for the first six months of 2020. The gross profit in the second quarter of 2021 was $3,612,685 compared to $3,137,495 in the second quarter of 2020 and was $6,110,132 for the first six months of 2021 compared to $6,027,344 for the first six 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 unprecedented inflation in most building products which increased the material cost of each home manufactured in first and second quarter 2021. We are monitoring this situation and will continue to adjust our selling prices to help offset the higher costs on each home.

Selling, general and administrative expenses as a percent of net sales was 11% in second quarter of 2021 compared to 12% in the second quarter of 2020 and was 12% for the first six months of 2021 compared to 13% for the first six months of 2020. Selling, general and administrative expenses in second quarter of 2021 was $1,550,513 compared to $1,222,628 in the second quarter of 2020 and was $2,823,894 for the first six months of 2021 compared to $2,478,772 for the first six 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 $52,474 for the second quarter of 2021 compared to $84,273 for the second quarter of 2020. For the first six months of 2021, interest income was $83,130 compared to $186,156 in the first six months of 2020. The decrease is primarily due to the decline in the investment rates and the decrease in the monies invested.

Our earnings from Majestic 21 in the second quarter of 2021 were $12,049 compared to $20,398, for the second quarter of 2020. Earnings from Majestic 21 for the first six months of 2021 were $25,757 compared to $40,270 for the first six 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 no distributions in the second quarter of 2021 compared to $189,285 in the second quarter of 2020 and $45,868 for the first six months of 2021 compared to $272,394 for the first six 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, 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 second quarter of 2021 of $2,268,443 as compared to $2,040,739 in the second quarter of 2020. The pre-tax income for the first six months of 2021 was $3,670,017 as compared to $3,886,460 in first six months of 2020.

The Company recorded an income tax expense in the amount of $543,505 in the second quarter of 2021 as compared to $490,735 in second quarter 2020. Income tax expense for the six months of 2021 was $879,314 compared to $936,315 for the six months of 2020.

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We reported net income of $1,724,938 for the second quarter of 2021 or $0.47 per share, compared to $1,550,004 or $0.43 per share, for the second quarter of 2020. For the first six months of 2021 net income was $2,790,703 or $0.77 per share, compared to $2,950,145 or $0.81 per share, in the first six months of 2020.

Liquidity and Capital Resources

Cash and cash equivalents were $33,227,818 at May 1, 2021 compared to $30,305,902 at October 31, 2020. Certificates of deposit were $2,088,805 at May 1, 2021 compared to $4,602,307 at October 31, 2020. Short-term investments were $562,719 at May 1, 2021 compared to $358,960 at October 31, 2020. Working capital was $36,246,631 at May 1, 2021 as compared to $38,865,240 at October 31, 2020. 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.

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 $3.8 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 May 1, 2021, the Company continued to report a strong balance sheet which included total assets of approximately $65 million which was funded primarily by stockholders’ equity of approximately $50 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, 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.

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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 May 1, 2021.

Changes in Internal Control over Financial Reporting. There were no changes in our internal controls over financial reporting that occurred during the second quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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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 May 1, 2021.

Item 6. Exhibits

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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.

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