Note 2

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 lower of the Company’s cost to acquire the inventory plus refurbishment costs incurred to date to bring the inventory to a more saleable state, or market value.

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

Inventories were as follows:


	August 3, 2013			November 3, 2012

Raw materials	$	523,286		$	505,122
Work-in-process		99,589			90,444
Finished homes		4,594,507			5,140,200
Model home furniture and others		25,201			46,114

Inventories, net	$	5,242,583		$	5,781,880


Pre-owned homes	$	9,740,463		$	10,335,524
Inventory impairment reserve		(2,833,222	)		(3,401,527	)

		6,907,241			6,933,997
Less homes expected to sell in 12 months		(2,037,428	)		(2,503,164	)

Pre-owned homes, long-term	$	4,869,813		$	4,430,833

Finance Revenue Sharing Agreement – During fiscal 2004, the Company entered into a finance revenue sharing agreement (FRSA) between 21^st Mortgage Corporation (“21^st Mortgage”), Prestige Home Centers, Inc., and Majestic Homes, Inc. without forming a separate entity. In connection with this FRSA, mortgage financing is provided on manufactured homes sold through the Company’s retail centers to customers who qualify for such mortgage financing. Under the FRSA, prior to the execution of the Seventh Amendment as described below, the Company had agreed to repurchase any repossessed homes and related collateral from 21^st Mortgage that was financed under the agreement. Prior to the Seventh Amendment, the FRSA contained certain provisions that would reimburse the Company for a portion of any repossessed homes and related collateral sold.

In October 2011, the Company entered into the Seventh Amendment to the FRSA. As a result, the Company’s obligation to buyback contracts on repossessed homes ceased and any homes that had not yet been re-sold are to be liquidated by the Company and there will be no reimbursement from the FRSA escrow for any expenses or losses upon sale of the home.

The following table summarizes certain key statistics regarding repurchased homes and subsequent sale of those homes under the FRSA. These homes and land are reflected as pre-owned homes in the consolidated balance sheets.


	Three Months Ended				Nine Months Ended
	August 3, 2013		August 4, 2012		August 3, 2013		August 4, 2012

Homes repurchased		0		0		0		3
Cost of repurchased homes	$	0	$	0	$	0	$	192,417

Number of repurchased homes sold		8		9		17		25
Cost of repurchased homes sold	$	541,682	$	748,175	$	1,101,407	$	1,756,087

Liquidation costs of repurchased homes sold	$	263,558	$	116,965	$	424,972	$	196,330

Impact upon results of operations*	$	0	$	0	$	0	$	0