Liquidation Basis of Accounting

On March 24, 2013, the beginning of the fiscal month following the filing of the Certificate of Dissolution, the Company began reporting on a liquidation basis of accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts. Recorded liabilities include estimates of expected costs associated with carrying out the Plan of Dissolution. These estimates will be reviewed periodically and adjusted as appropriate.

The valuation of assets at their net realizable value and liabilities at their anticipated settlement amounts represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan of Dissolution. The actual values and costs associated with carrying out the Plan of Dissolution may differ from amounts reflected in the financial statements because of the inherent uncertainty in estimating future events. These differences may be material. In particular, the estimates of costs will vary with the length of time necessary to complete the Dissolution process and to resolve any claims. Accordingly, it is not possible to predict the timing or aggregate amount of any additional liquidating distributions to stockholders, and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the accompanying Consolidated Statement of Net Assets.

For the three months ended April 26, 2014, the Company adjusted its estimate of the net realizable value of assets and its estimated settlement amounts of liabilities. The result of these changes was a net increase to net assets of $0.39 million. The net realizable value of assets increased by $0.3 million as a result of the sale of the IQstream Patents, which was consummated on May 22, 2014. The Company also decreased its reserve for estimated costs during the Dissolution period by $0.09 million. The decrease was primarily related to lower than expected costs for professional fees associated with wind down activities.

For the nine months ended April 26, 2014, the Company adjusted its estimate of the net realizable value of assets and its estimated settlement amounts of liabilities. The result of these changes was a net increase to net assets of $3.36 million. The net realizable value of assets increased by $3.46 million as a result of the sale of the IBM Patents for $2.0 million, the sale of the IQstream Patents for $0.3 million, the determination by a neutral accountant that certain disputed amounts were for the account of the Company under the Asset Sale Agreement for $1.11 million, and a $0.05 million increase in other assets.

For the nine months ended April 26, 2014, the Company also increased its reserve for estimated costs during the Dissolution period by $0.1 million. The increase was primarily related to additional compensation and consulting costs expected to be incurred as a result of certain wind down activities taking longer to complete than originally anticipated. The increase to compensation costs was offset in part by a reduction in estimated professional fees and other expenses associated with wind down activities.

The Company accrued estimated costs expected to be incurred in carrying out the Plan of Dissolution. Under Delaware law, the Dissolution period will last for a minimum of three years from the filing of the Certificate of Dissolution. The Company was required to make certain estimates and exercise judgment in determining the accrued costs of liquidation as of April 26, 2014 and July 31, 2013.

The table below summarizes the reserve for estimated costs during the Dissolution period as of April 26, 2014 and July 31, 2013 (in thousands):


	April 26, 2014		July 31, 2013
Compensation	$	1,262	$	2,396
Professional fees		1,062		2,637
Other expenses associated with wind down activities		1,314		1,970
Insurance		165		1,333

	$	3,803	$	8,336

These estimated costs will continue to be reviewed periodically and adjusted as appropriate.

On January 31, 2014, all surviving representations and warranties under the Asset Sale Agreement expired without Buyer asserting any indemnification claims against the Company. Accordingly, the Company has not recorded, nor does it expect to record, any liability in connection with those obligations.