Liquidation Basis of Accounting

In response to the Chapter 11 filing the Company adopted the liquidation basis of accounting effective on October 30, 2011, which was the beginning of the fiscal month closest to the petition date. Under the liquidation basis of accounting, assets are stated at their net realizable value, liabilities are stated at their net settlement amount and estimated costs over the period of liquidation are accrued to the extent reasonably determinable.

The Company does not believe it would qualify for fresh start accounting if it were to emerge from liquidation. Under fresh-start accounting, assets and liabilities are adjusted to fair value. Since fresh-start accounting would likely not apply if the Company were to emerge from liquidation, the Company’s accounting basis could revert back to the going concern basis of accounting, resulting in all remaining assets and liabilities at that date being adjusted to their net book value less an adjustment for depreciation and/or amortization calculated from the date the Company entered liquidation through the date it emerged from liquidation. Accordingly, if a change in accounting basis were to occur, it would likely result in a decrease in the reporting basis of the respective assets and liabilities. The Company can provide no guarantee that it will emerge from liquidation as a going concern entity, nor can it guarantee the method of accounting that would be adopted upon emergence from liquidation.

The preparation of the accompanying consolidated financial statements in conformity with the liquidation basis of accounting requires management to make significant estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities. These estimates include, among others, realizable value of real estate and other assets, accrued liquidation costs, lease settlement costs, and deferred tax assets. Actual results could differ from those estimates.

Estimated Costs of Liquidation

Significant estimates and judgment are required to determine the accrued costs of liquidation, which reflects all other remaining operating expenses and contractual commitments such as payroll and related expenses, lease termination costs, professional fees and other outside services to be incurred during the liquidation period. The company’s accrued costs expected to be incurred in liquidation and recorded payments made related to the accrued liquidation costs are as follows (in thousands):

	Balance						Balance
	May 31,		Adjustments				March 1,
Estimated Costs of Liquidation	2014		to Reserves		Payments		2014

Real estate related carrying costs	$	8,658	$	271	$	(2,574)	$	10,961
Professional fees		2,954		205		(917)		3,666
Payroll related costs		2,056		(176)		(485)		2,717
Other		942		374		-		568
	$	14,610	$	674	$	(3,976)	$	17,912

The assumptions underlying the estimated accrued costs of liquidation of $14.6 million as of May 31, 2014 contemplated all changes in estimates resulting from the Plan.

The Company reviewed all of its operating expenses and contractual commitments such as payroll and related expenses, lease termination costs, property carrying costs and professional fees to determine the estimated costs to be incurred during the liquidation period. The liquidation period, is anticipated to conclude in July 2015 based on expectations that substantially all of its real estate properties are likely to be monetized prior to the end of 2014, with a short period thereafter to conclude the liquidation.

The following discussion explains the adjustments to the costs of liquidation reserves as recorded during the thirteen week period ended May 31, 2014:

Adjustments to increase the reserve for real estate carrying costs of approximately $0.3 million were recorded during the thirteen weeks ended May 31, 2014. The adjustments were mainly the result of a slight increase in selling expenses through the liquidation period.

Adjustments to increase the reserve for professional fees of approximately $0.2 million were recorded during the thirteen week period ended May 31, 2014. The majority of the increase reflects the increased costs resulting from the complexities of litigating the bankruptcy cases.

Adjustments to decrease the reserve for payroll related costs of $0.2 million are due to decreased payroll related to the overall staffing of the Company.