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 Mortgage Corporation. The Company acquired this inventory at the amount of the uncollected balance of the financing at the time of the 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 Mortgage Corporation. This arrangement assists 21 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 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 21st Mortgage. Any shortfall from the proceeds to cover these amounts is paid by 21st Mortgage to the Company. As the Company has no risk of loss on the sale, there is no valuation allowance necessary for repossessions of inventory.

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 $21,143 and $318,590 as of May 6, 2023 and November 5, 2022, 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.

A breakdown of the elements of inventory at May 6, 2023 and November 5, 2022 is as follows:


	May 6,		November 5,
	2023		2022
	(unaudited)
Raw materials	$	1,153,175	$	2,119,372
Work-in-process		152,607		135,513
Inventory consigned to affiliated entities		21,143		318,590
Finished homes - Nobility		11,140,307		9,583,095
Finished homes - Other		9,860,115		10,432,998
Pre-owned homes		769,272		682,254
Model home furniture		233,045		185,671
Inventories	$	23,329,664	$	23,457,493