General

Nobility focuses on home buyers who generally purchase their manufactured homes from retail sales centers to locate on property they own. Nobility has aggressively pursued this market through its Prestige retail sales centers. 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. 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.

Nobility has a product line of approximately 100 active models. Although market demand can fluctuate on a fairly short-term basis, the manufacturing process is such that Nobility can alter its product mix relatively quickly in response to changes in the market. During fiscal years 2020 and 2019, Nobility continued to experience consumer demand for affordable manufactured homes in Florida. 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 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 other outside financing sources that provide financing to retail homebuyers for its manufactured homes. The Company continually tries to develop relationships with new lenders, since established lenders will occasionally leave manufactured home lending.

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.

The coronavirus ("COVID-19") pandemic of 2020 has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. Although we were deemed an essential business and never closed our manufacturing plant or retail sales centers, these measures had a negative impact on customer traffic (and corresponding sales) within our centers and the operations of our business partners. While our manufacturing operations have continued, an outbreak in our manufacturing facility would adversely impact our ability to produce new homes. There is considerable uncertainty regarding the impact, and expected duration, of such measures and potential future measures, which could cause disruptions to our business in the future. In addition, since May of 2020, we have experienced unprecedented inflation in forest products, with little immediate relief in sight that have resulted in increases to our material costs. Hurricane Laura also damaged some of the plants that supply the resin used in residential vinyl siding and PVC piping, causing shortages and price increases. The Company is monitoring these issues and has adjusted our selling prices accordingly to help offset the higher costs.

The Company's fiscal year ends on the first Saturday on or after October 31. The year ended October 31, 2020 (fiscal year 2020) and the year ended November 2, 2019 (fiscal year 2019) each consisted of a fifty-two week period.





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Results of Operations

Total net sales in fiscal year 2020 were $41,612,307 compared to $46,347,931 in fiscal year 2019. The Company reported net income of $5,983,698 in fiscal year 2020, compared to a net income of $8,810,420 during fiscal year 2019. The demand for affordable manufactured housing in Florida has been adversely impacted by COVID-19 and actions taken in response thereto. According to the Florida Manufactured Housing Association, shipments for the industry in Florida for the period from November 2019 through October 2020 were down approximately 16% 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.

The following table summarizes certain key sales statistics and percent of gross profit as of and for fiscal years ended October 31, 2020 and November 2, 2019.





                                                                 2020             2019
New homes sold through Company owned sales centers                  343              440

Pre-owned homes sold through Company owned sales centers: Buy Back

                                                              0                5
Repossessions                                                         8                7
Trade-Ins                                                             4                4
Homes sold to independent dealers                                   225              145
Total new factory built homes produced                              547              662
Average new manufactured home price-retail                     $ 91,161         $ 84,217
Average new manufactured home price-wholesale                  $ 43,758         $ 45,757
As a percent of net sales:
Gross profit from the Company owned retail sales centers             19 %             18 %

Gross profit from the manufacturing facilities-including intercompany sales

                                                   22 %             20 %

Nobility's fourth quarter sales showed significant improvement from the first three quarters of fiscal year 2020. The current strong backlog of orders should produce a good fiscal 2021 first quarter, if COVID-19 measures and supply price increases can be controlled.

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, 2020 we celebrated our 53rd 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 30 years and an insurance agency subsidiary, we are the only vertically integrated manufactured home company headquartered in Florida.

Insurance agent commissions in fiscal year 2020 were $283,999 compared to $272,366 in fiscal year 2019. The increase in insurance agent commissions due to more new policies and renewals generated which affects agent commission earned. 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 October 31, 2020 and November 2, 2019.

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 2020 and in fiscal year 2019. Our gross profit was $12,130,487 for fiscal year 2020 compared to $13,653,000 for fiscal year 2019. The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned homes sold. The fluctuations in gross profit as a percentage of net sales is primarily due to the decrease in sales and the increase in the material cost of each home manufactured.





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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.

As a percent of net sales, selling, general and administrative expenses was 12% in fiscal year 2020 compared to 11% in fiscal year 2019. Selling, general and administrative expenses were $4,984,318 for fiscal year 2020 compared to $5,352,319 for fiscal year 2019. The dollar decrease in expenses in fiscal 2020 resulted from the decrease in variable and accrued compensation expenses which were direct results of decreased sales.

The Company earned interest in the amount of $286,897 in fiscal year 2020 compared to $556,142 in fiscal year 2019. Interest income is dependent on our cash balance and available rates of return. The decrease is primarily due to the decrease in the interest rate in the money market accounts and certificates of deposit.

The Company earned $80,091 from its joint venture, Majestic 21, in fiscal year 2020 compared to $78,107 in fiscal year 2019. 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.

We received $421,099 in fiscal year 2020 and $379,104 in fiscal year 2019 under an escrow arrangement related to a Finance Revenue Sharing Agreement between 21st Mortgage Corporation and the Company. The distributions from the escrow account, related to certain loans financed by 21st Mortgage Corporation, are recorded in income by the Company as received, which has been the Company's past practice.

The Company realized pre-tax income of $7,869,085 in fiscal year 2020 compared to a pre-tax income of $11,779,529 in fiscal year 2019.

The Company recorded an income tax expense of $1,885,387 in fiscal year 2020 compared to $2,969,109 in fiscal year 2019.

Net income in fiscal year 2020 was $5,983,698 or $1.64 per basic and diluted share and net income in fiscal year 2019 was $8,810,420 or $2.32 per basic and diluted share.

Liquidity and Capital Resources

Cash and cash equivalents were $30,305,902 at October 31, 2020 compared to $22,533,965 at November 2, 2019. Certificates of deposit were $4,602,307 at October 31, 2020 compared to $10,153,575 at November 2, 2019. Short-term investments were $358,960 at October 31, 2020 compared to $521,283 at November 2, 2019. Working capital was $38,865,240 at October 31, 2020 as compared to $37,872,687 at November 2, 2019. A cash dividend was paid from our cash reserves in March 2020 in the amount of $1.00 per share ($3,630,970). During fiscal 2020, the Company repurchased an aggregate of 33,100 shares of its common stock for an aggregate of $822,450. In June 2019, the Company sold its former Pace, Florida retail sales center property for net proceeds of $1,078,325. In October 2019, the Company sold its 31.3% investment interest in Walden Woods South LLC for $1,510,000 in cash. During fiscal 2019, the Company repurchased an aggregate of 212,396 shares of its common stock for an aggregate of $4,585,861.A cash dividend was paid from the Company's cash reserves in March 2019 in the amount of $1.00 per share ($3,864,216). 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 has no material commitments for capital expenditures.

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 October 31, 2020, the Company continued to report a strong balance sheet which included total assets of approximately $60 million which was funded primarily by stockholders' equity of approximately $51 million.

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.





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Critical Accounting Policies and Estimates

The Company applies judgment and estimates, which may have a material effect in the eventual outcome of assets, liabilities, revenues and expenses, accounts receivable, inventory and goodwill. The following explains the basis and the procedure where judgment and estimates are applied.

Revenue Recognition

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 Company recognizes revenue from the sale of the repurchased homes upon transfer of title to the new purchaser.

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.

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" to the Company's financial statement included herein

The Company recognizes revenue 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 October 31, 2020 or November 2, 2019.

Inventory Impairment Reserve

The Company has raw materials, work-in-process, finished home and pre-owned home inventory. The Company continually reviews its inventory to determine if there is a decline in the fair value below the cost basis. Historically, the Company has only recorded valuation allowances for its pre-owned home inventory. The Company acquires pre-owned homes from 21st Mortgage Corporation, trade-ins on new home sales, and other sources. Management primarily uses current sales values of new and pre-owned homes to determine market value. When the cost of a housing unit exceeds market value, a valuation reserve is recorded and the loss is recorded in the accompanying consolidated statements of comprehensive income.

Investments in Retirement Communities

Prior to its divestiture in October 2019, the Company owned a 31.3% investment interest in Walden Woods South LLC. Following the divestiture, we currently own no investments in retirement communities.





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Investment in Majestic 21

On May 20, 2009, the Company became a 50% guarantor on a $5 million note payable entered into by Majestic 21, a joint venture engaged in providing mortgage financing on manufactured homes in which the Company owns a 50% interest. The outstanding principal balance of $94,694 on the note was repaid in February 2019, at which time the company was relieved of its guarantee obligation.

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.

Rebate Program

The Company has a rebate program for some dealers, based upon the number and type of homes 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.

Off-Balance 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-balancesheet arrangements or other contractually narrow or limited purposes. As of October 31, 2020, 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. 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 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), continued excess retail inventory, increase in repossessions, 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 and any armed conflict involving the United States and the impact of inflation.

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