Inventories

9 Months Ended

Aug. 06, 2011

Inventories [Abstract]

Inventories

3. Inventories

New home inventory is carried at the lower of cost or market 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 market value.

Pre-owned inventory is valued at the Company’s cost to acquire the inventory plus refurbishment costs incurred to date to bring the inventory to a more saleable state. This amount is reduced by a discretionary valuation reserve determined by the Company to facilitate the accelerated liquidation of the inventory and the minimum amount receivable from the escrow account under the provisions of the FRSA agreement which fund the refurbishment costs. These amounts are outlined below. Management believes that this results in inventory being valued at market, though if additional losses were to be incurred on the liquidation of the inventory, additional amounts are expected to be available for recovery under the reimbursement provisions of the FRSA arrangement.

Other inventory costs are determined on a first-in, first-out basis.

Inventories were as follows:

	August 6,			November 6,
	2011			2010
Raw materials	$	403,724		$	398,332
Work-in-process		80,458			73,668
Finished homes		5,820,485			6,886,540
Model home furniture and others		92,753			135,236
Inventories, net	$	6,397,420		$	7,493,776
Pre-owned homes	$	12,281,937		$	9,478,621
Less valuation reserve		(523,900	)		(402,994	)
Less minimum receivable due from escrow		(2,918,954	)		(2,311,454	)
		8,839,083			6,764,173
Less homes expected to sell in 12 months		(2,276,039	)		(1,549,211	)
Pre-owned homes, long-term	$	6,563,044		$	5,214,962

As described in Note 14 to these financial statements, the Company entered into the 7 ^th amendment to the FRSA in the fourth quarter of 2011. As a result, the Company took responsibility to liquidate the then existing pre-owned inventory without reimbursement of funds from the escrow account. In assessing the accounting for this amendment, the Company reassessed the expected time frames to liquidate the inventory and based on this assessment, determined that more appropriate accounting would be to reflect as a long-term asset the portion of the inventory it expects to liquidate beyond a one-year period from the balance sheet date. The Company has made this change in these financial statements and has applied this accounting policy change retroactively to the comparative November 6, 2010 balance sheet included in this filing.

The Company expects that repossessed inventory will be sold over the next 3 years and has classified the value of the inventory it expects to sell after the ensuing 12 months from the 2011 balance sheet date as a long-term asset. As indicated above, the Company deemed the change in how inventories and pre-owned homes are classified in the balance sheet to be a change in accounting policy and, as such, the November 6, 2010 balances have been reclassified to conform with the current year presentation based on the expectation of the sale of those inventories in the next year. This new policy is preferable to the prior policy which accounted for all pre-owned homes within inventory classified as a current asset. The new policy classifies pre-owned homes expected to be monetized in the normal operating cycle as current assets and those not expected to be monetized in that cycle as non-current assets.

As described above, the Company maintains a lower or cost of market valuation reserve of $523,900 and $402,994 at August 6, 2011 and November 6, 2010, respectively, due to the large volumes of pre-owned homes coupled with a slow housing market. In addition, pre-owned homes have been reduced by the minimum receivable due from escrow of $2,918,954 at August 6, 2011 and $2,311,454 at November 6, 2010. The current portion of the minimum receivable due from escrow is $751,622 at August 6, 2011 and $529,397 at November 6, 2010.