Results of Operations Total revenues in the third quarter of 2021 increased 34% to$11,778,120 compared to$8,800,410 in the third quarter of 2020. Total net sales for the first nine months of 2021 increased 25% to$35,592,531 compared to$28,446,764 for the first nine months of 2020. The Company reported net income of$1,050,746 in the third quarter of 2021, compared to a net income of$1,160,138 during the third quarter of 2020. Net income for the first nine months of 2021 was$3,841,449 compared to a net income of$4,110,283 for the first nine months of 2020. According to theFlorida Manufactured Housing Association , shipments for the industry inFlorida for the period fromNovember 2020 throughJuly 2021 were up approximately 11% from the same period last year. The lack of lenders in our industry, still adversely affects our results by limiting many affordable manufactured housing buyers from purchasing homes. During third quarter of 2021, our production of homes was impacted due to the challenges in hiring additional factory workers and the unpredictable absenteeism of the COVID-19 quarantine. These factors have continued in the fourth quarter of 2021. Also, production has incurred shortages in certain building products delaying the completion of the homes and has continued to experience inflation in most building products resulting in significant increases to our material costs and a corresponding decrease in gross profits. We have continued to focus on increasing production of homes due to the above challenges. The following table summarizes certain key sales statistics and percent of gross profit. Three Months Ended Nine Months Ended July 31, August 1, July 31, August 1, 2021 2020 2021 2020 New homes sold through Company owned sales centers 104 70 318 232
Pre-owned
homes sold through Company owned sales centers 6 3 12 7 Homes sold to independent dealers 26 51 115 159 Total new factory built homes produced 120 127 448 393 Average new manufactured home price-retail$ 94,385 $ 91,017 $ 91,488 $ 91,644 Average new manufactured home price-wholesale$ 51,919 $ 44,308 $ 48,720 $ 43,913 As a percent of net sales: Gross profit from the Company owned retail sales centers 17 % 19 % 17 % 19 % Gross profit from the manufacturing facilities - including intercompany sales 11 % 20 % 14 % 22 % Maintaining our strong financial position is vital for future growth and success. Because of very challenging business conditions during economic recessions in our market area, management will continue to evaluate all expenses and react in a manner consistent with maintaining our strong financial position, while exploring opportunities to expand our distribution and manufacturing operations. Our many years of experience in the Florida market, combined with home buyers' increased need for more affordable housing, should serve the Company well in the coming years. Management remains convinced that our specific geographic market is one of the best long-term growth areas in the country. OnJune 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 inFlorida for over 30 years and an insurance agency subsidiary, we are the only vertically integrated manufactured home company headquartered inFlorida . 12 -------------------------------------------------------------------------------- Table of Contents Insurance agent commission revenues in the third quarter of 2021 were$68,294 compared to$72,898 in the third quarter of 2020. Total insurance agent commission revenues for the first nine months of 2021 were$216,908 compared to$212,418 for the first nine months of 2020. The increase in insurance agent commissions in the first nine months of 2021 were due to more new policies and renewals generated which affects agent commission earned. The Company establishes appropriate reserves for policy cancellations based on numerous factors, including past transaction history with customers, historical experience and other information, which is periodically evaluated and adjusted as deemed necessary. In the opinion of management, no reserve was deemed necessary for policy cancellations atJuly 31, 2021 andOctober 31, 2020 . Gross profit as a percentage of net sales was 21% in the third quarter of 2021 compared to 28% for the third quarter of 2020 and was 24% for the first nine months of 2021 compared to 30% for the first nine months of 2020. The gross profit in the third quarter of 2021 was$2,512,744 compared to$2,438,910 in the third quarter of 2020 and was$8,622,876 for the first nine months of 2021 compared to$8,466,254 for the first nine months of 2020. The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned homes sold. The decrease in gross profit as a percentage of net sales is primarily due to the continued inflation in most building products which increased the material cost of each home manufactured in all three quarters of 2021. We are continuing to monitoring this situation and will continue to adjust our selling prices to help offset some of the higher costs on each home. Selling, general and administrative expenses as a percent of net sales was 11% in third quarter of 2021 compared to 13% in the third quarter of 2020 and was 12% for the first nine months of 2021 compared to 13% for the first nine months of 2020. Selling, general and administrative expenses in third quarter of 2021 was$1,320,456 compared to$1,107,850 in the third quarter of 2020 and was$4,144,350 for the first nine months of 2021 compared to$3,586,622 for the first nine months of 2020. The increase in expenses in 2021 were due to the increase in variable expenses which were a direct result of employee benefits compensation due to the increase in sales. We earned interest income of$62,491 for the third quarter of 2021 compared to$53,209 for the third quarter of 2020. For the first nine months of 2021, interest income was$145,621 compared to$239,365 in the first nine months of 2020. The decrease during 2021 is primarily due to the decline in the investment rates and the decrease in the monies invested. Our earnings from Majestic 21 in the third quarter of 2021 were$20,202 compared to$20,855 , for the third quarter of 2020. Earnings from Majestic 21 for the first nine months of 2021 were$45,959 compared to$61,125 for the first nine months of 2020. The earnings from Majestic 21 represent the allocation of profit and losses which are owned 50% by 21stMortgage Corporation and 50% by the Company. The earnings from the Majestic 21 loan portfolio will continue to decrease due to the amortization, maturity and payoff of the loans. We received distributions in the third quarter of 2021 of$75,156 compared to$64,053 in the third quarter of 2020 and$121,024 for the first nine months of 2021 compared to$336,447 for the first nine months of 2020. The distributions are from an escrow arrangement related to a Finance Revenue Sharing Agreement (FRSA) between 21 stMortgage Corporation and the Company. The distributions from the escrow arrangement, which relates to certain loans financed by 21 stMortgage Corporation , are recorded as income by the Company when received. The earnings from the FRSA loan portfolio will continue to decrease due to the amortization and payoff of the loans. The Company realized pre-tax income in the third quarter of 2021 of$1,397,857 as compared to$1,535,603 in the third quarter of 2020. The pre-tax income for the first nine months of 2021 was$5,067,874 as compared to$5,422,063 in first nine months of 2020. 13 -------------------------------------------------------------------------------- Table of Contents The Company recorded an income tax expense in the amount of$347,111 in the third quarter of 2021 as compared to$375,465 in third quarter 2020. Income tax expense for the nine months of 2021 was$1,226,425 compared to$1,311,780 for the nine months of 2020. We reported net income of$1,050,746 for the third quarter of 2021 or$0.29 per share, compared to$1,160,138 or$0.32 per share, for the third quarter of 2020. For the first nine months of 2021 net income was$3,841,449 or$1.06 per share, compared to$4,110,283 or$1.13 per share, in the first nine months of 2020. Liquidity and Capital Resources Cash and cash equivalents were$33,720,078 atJuly 31, 2021 compared to$30,305,902 atOctober 31, 2020 . Certificates of deposit were$2,090,910 atJuly 31, 2021 compared to$4,602,307 atOctober 31, 2020 . Short-term investments were$562,270 atJuly 31, 2021 compared to$358,960 atOctober 31, 2020 . Working capital was$34,059,497 atJuly 31, 2021 as compared to$38,865,240 atOctober 31, 2020 . During the first nine months of 2021, the Company repurchased an aggregate of 100,346 shares of its common stock for an aggregate of$3,478,553 . The Company purchased the land for the Ocala South retail sales center inMarch 2021 for$500,000 , the Tavares retail sales center inJanuary 2021 for$245,000 and land inOcala for a future retail sales center inFebruary 2021 for$1,040,000 . The Company paid a one-time cash dividend of$1.00 per common share inMarch 2021 for$3,632,100 . We own the entire inventory for our Prestige retail sales centers which includes new, pre-owned, repossessed or foreclosed homes and do not incur any third party floor plan financing expenses. We have a material commitment for a significant capital expenditure. Depending upon when the Company receives the building permit, we plan to build an 11,900 square foot frame shop to manufacture our frames on our current manufacturing plant property on ourOcala Florida property. The Company currently has no line of credit facility and no debt and does not believe that such a facility is currently necessary to its operations. The Company also has approximately$3.9 million of cash surrender value of life insurance which it may be able to access as an additional source of liquidity though the Company has not currently viewed this to be necessary. As ofJuly 31, 2021 , the Company continued to report a strong balance sheet which included total assets of approximately$64 million which was funded primarily by stockholders' equity of approximately$48 million . Critical Accounting Policies and Estimates In Item 7 of our Form 10-K, under the heading "Critical Accounting Policies and Estimates," we have provided a discussion of the critical accounting policies and estimates that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. No significant changes have occurred since that time. Forward-Looking Statements Certain statements in this report are unaudited or forward-looking statements within the meaning of the federal securities laws. Although Nobility believes that the amounts and expectations reflected in such forward-looking statements are based on reasonable assumptions, there are risks and uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, the potential adverse impact on our business caused by the COVID-19 pandemic or other health pandemic, competitive pricing pressures at both the wholesale and retail levels, inflation, increasing material costs (including forest based products) or availability of materials due to potential supply chain interruptions (such as current inflation with forest products and supply issues with vinyl siding and PVC piping), changes in market demand, changes in interest rates, availability of financing for retail and wholesale purchasers, consumer confidence, adverse 14 -------------------------------------------------------------------------------- Table of Contents weather conditions that reduce sales at retail centers, the risk of manufacturing plant shutdowns due to storms or other factors, the impact of marketing and cost-management programs, reliance on the Florida economy, impact of labor shortage, impact of materials shortage, increasing labor cost, cyclical nature of the manufactured housing industry, impact of rising fuel costs, catastrophic events impacting insurance costs, availability of insurance coverage for various risks to Nobility, market demographics, management's ability to attract and retain executive officers and key personnel, increased global tensions, market disruptions resulting from terrorist or other attack, any armed conflict involvingthe United States and the impact of inflation. 15
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