SIGNIFICANT ACCOUNTING POLICIES

Reclassifications

Certain 2013 amounts have been reclassified to conform to the 2014 financial statement presentation. During 2013, the Company completed a conversion to a new accounting system which provides more detailed reporting and greater visibility. As a result of this conversion, we identified various changes in the classifications of certain previously reported income statement amounts and segment information. While these changes had no impact on net loss or basic and diluted net loss per share, there were certain significant reclassifications in the consolidated statement of operations which are summarized below:


•	During the year ended December 31, 2013, we combined the revenues of our various operating properties into a single line entitled Operating Property Revenue. Accordingly, we reclassified the related 2013 activity to conform to the 2014 presentation;

•

Similarly, during the year ended December 31, 2013, we created a line item entitled Operating Property Direct Expenses (exclusive of Interest and Depreciation) and reclassified appropriate amounts primarily from Other Operating Expenses for Real Estate Owned to capture those expenses directly attributable to operating properties, thereby segregating incidental costs of ownership of non-operating REO properties with the creation of a line item entitled Expenses for Non-Operating Real Estate Owned.


•	In addition, we reclassified the presentation of certain other 2013 amounts previously reported in property taxes, professional fees, and general and administrative expenses to conform to the 2014 presentation.

The effects of these reclassifications are presented in the table below:



	Three Months Ended September 30, 2013
Reclassifications - Statement of Operations - 2013	As Previously Reported		Reclassification Adjustment			As Reclassified
Rental Income	$	394	$	(394	)	$	—
Hospitality and Entertainment Income	5,266		(5,266		)	—
Operating Property Revenue	—		5,660			5,660
Operating Property Direct Expenses (exclusive of Interest and Depreciation)	4,575		329			4,904
Property Taxes for REO	284		(284		)	—
Other Operating Expenses for REO	259		(259		)	—
Expenses for Non-Operating Real Estate Owned	—		410			410
Professional Fees	2,173		(181		)	1,992
General and Administrative Expenses	1,500		(15		)	1,485



	Nine Months Ended September 30, 2013
Reclassifications - Statement of Operations - 2013	As Previously Reported		Reclassification Adjustment			As Reclassified
Rental Income	$	1,205	$	(1,205	)	$	—
Hospitality and Entertainment Income	9,860		(9,860		)	—
Operating Property Revenue	—		11,065			11,065
Operating Property Direct Expenses (exclusive of Interest and Depreciation)	8,570		832			9,402
Property Taxes for REO	998		(998		)	—
Other Operating Expenses for REO	647		(647		)	—
Expenses for Non-Operating Real Estate Owned	—		1,336			1,336
Professional Fees	5,968		(490		)	5,478
General and Administrative Expenses	4,234		(33		)	4,201

Restatement of Previously Issued Consolidated Financial Statements

Segment Information

As a result of the accounting system conversion described above, we identified misstatements in the classifications of certain previously reported segment information. For income statement items, the adjustments primarily related to the allocation of certain professional fees, interest and general and administrative costs into the proper segments. We have adjusted our segment disclosures for the three and nine months ended September 30, 2013 to reflect the proper comparative amounts in each segment as shown in the table below.

Assessment of Restatements

These corrections had no impact on net loss or basic and diluted loss per share for the period ended September 30, 2013. The Company has assessed these misstatements in financial statement presentation and has determined that, on both a qualitative and quantitative basis, the adjustments are immaterial, both individually and in the aggregate, to the consolidated financial statements, and thus, the Company did not and will not amend any of its prior quarterly and annual reports on Form 10-Q and 10-K, and it has adjusted its presentation on a prospective basis. In order to provide consistency in the Company's financial reporting, the September 30, 2013 segment information presented herein has been restated to appropriately reflect the corrections described above. The following tables summarizes the effects of these corrections and reclassifications on the previously filed consolidated financial statements for the three and nine months ended September 30, 2013, which was restated for comparative purposes only (in thousands):



	Three Months Ended September 30, 2013
	As Previously Reported			Restatement Adjustment			Reclassification Adjustment			As Restated
Segment Information - Income Statement Items
Expenses
Expenses Mortgage and REO - Legacy Portfolio and Other Operations	$	—		$	(1	)	$	1		$	—
Mortgage and REO - Legacy Portfolio and Other Operations - Operating Property Direct Expense	1,098			—			(1,098		)	—
Mortgage and REO - Legacy Portfolio and Other Operations - Expenses for Non-Operating REO	—			—			408			408
Mortgage and REO - Legacy Portfolio and Other Operations - Professional Fees	—			—			934			934
Mortgage and REO - Legacy Portfolio and Other Operations - General and Administrative	—			—			6			6
Mortgage and REO - Legacy Portfolio and Other Operations - Interest	423			—			—			423
Mortgage and REO - Legacy Portfolio and Other Operations - Loss on Disposal of Assets	—			—			(252		)	(252		)
Mortgage and REO - Legacy Portfolio and Other Operations - Settlement and Related	—			—			1			1
Mortgage and REO - Legacy Portfolio and Other Operations - Credit Loss Recoveries	(676		)	—			—			(676		)
Total Expenses Mortgage and REO - Legacy Portfolio and Other Operations	845			(1		)	—			844

Expenses Commercial Real Estate Leasing Operations	—			(1		)	1			—
Commercial Real Estate Leasing Operations - Operating Property Direct Expense	702			—			(337		)	365
Commercial Real Estate Leasing Operations - Interest	527			—			—			527
Commercial Real Estate Leasing Operations - Depreciation and Amortization	—			—			336			336
Commercial Real Estate Leasing Operations - Credit Loss Recoveries	(3		)	—			—			(3		)
Total Expenses Commercial Real Estate Leasing Operations	1,226			(1		)	—			1,225

Expenses Hospitality and Entertainment Operations	—			2			(2		)	—
Hospitality and Entertainment Operations - Operating Property Direct Expense	5,131			—			(592		)	4,539
Hospitality and Entertainment Operations - Interest	846			—			—			846
Hospitality and Entertainment Operations - Depreciation and Amortization	—			—			594			594
Total Expenses Hospitality and Entertainment Operations	5,977			2			—			5,979

Expenses Corporate and Other	—			—			—			—
Corporate and Other - Operating Property Direct Expense	3,435			—			(3,435		)	—
Corporate and Other - Expenses for Non-Operating REO	—			—			2			2
Corporate and Other - Professional Fees	—			—			1,058			1,058
Corporate and Other - General and Administrative	—			—			1,479			1,479
Corporate and Other - Interest	3,428			—			—			3,428
Corporate and Other - Depreciation and Amortization	—			—			57			57
Corporate and Other - Settlement and related	—			—			839			839
Total Expenses Corporate and Other	$	6,863		$	—		$	—		$	6,863



	Nine Months Ended September 30, 2013
	As Previously Reported			Restatement Adjustment			Reclassification Adjustment			As Restated
Segment Information - Income Statement Items
Expenses
Expenses Mortgage and REO - Legacy Portfolio and Other Operations	$	—		$	(18	)	$	18		$	—
Mortgage and REO - Legacy Portfolio and Other Operations - Operating Property Direct Expense	2,729			—			(2,729		)	—
Mortgage and REO - Legacy Portfolio and Other Operations - Expenses for Non-Operating REO	—			—			1,328			1,328
Mortgage and REO - Legacy Portfolio and Other Operations - Professional Fees	—			—			2,305			2,305
Mortgage and REO - Legacy Portfolio and Other Operations - General and Administrative	—			—			27			27
Mortgage and REO - Legacy Portfolio and Other Operations - Interest	1,359			—			—			1,359
Mortgage and REO - Legacy Portfolio and Other Operations - Loss on Disposal of Assets	—			—			(957		)	(957		)
Mortgage and REO - Legacy Portfolio and Other Operations - Settlement and Related	—			—			8			8
Mortgage and REO - Legacy Portfolio and Other Operations - Credit Loss Recoveries	(8,242		)	—			—			(8,242		)
Total Expenses Mortgage and REO - Legacy Portfolio and Other Operations	(4,154		)	(18		)	—			(4,172		)

Expenses Commercial Real Estate Leasing Operations	—			—			—			—
Commercial Real Estate Leasing Operations - Operating Property Direct Expense	2,080			—			(997		)	1,083
Commercial Real Estate Leasing Operations - Interest	1,275			—			—			1,275
Commercial Real Estate Leasing Operations - Depreciation and Amortization	—			—			997			997
Commercial Real Estate Leasing Operations - Credit Loss Recoveries	(8		)	—			—			(8		)
Total Expenses Commercial Real Estate Leasing Operations	3,347			—			—			3,347

Expenses Hospitality and Entertainment Operations	—			17			(17		)	—
Hospitality and Entertainment Operations - Operating Property Direct Expense	9,212			—			(893		)	8,319
Hospitality and Entertainment Operations - Interest	1,256			—			—			1,256
Hospitality and Entertainment Operations - Depreciation and Amortization	—			—			910			910
Total Expenses Hospitality and Entertainment Operations	10,468			17			—			10,485

Expenses Corporate and Other	—			1			(1		)	—
Corporate and Other - Operating Property Direct Expense	9,467			—			(9,467		)	—
Corporate and Other - Expenses for Non-Operating REO	—			—			8			8
Corporate and Other - Professional Fees	—			—			3,173			3,173
Corporate and Other - General and Administrative	—			—			4,174			4,174
Corporate and Other - Interest	10,023			—			—			10,023
Corporate and Other - Depreciation and Amortization	—			—			155			155
Corporate and Other - Loss on disposal of Assets	—			—			4			4
Corporate and Other - Settlement and related	—			—			1,954			1,954
Total Expenses Corporate and Other	$	19,490		$	1		$	—		$	19,491

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. The Company evaluates its estimates and assumptions on a regular basis. The Company uses historical experience and various other assumptions that are believed to be reasonable under the circumstances to form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates and assumptions used in preparation of the consolidated financial statements.

Restricted Cash

At September 30, 2014 and December 31, 2013, restricted cash and cash equivalents totaled $10.0 million and $5.8 million, respectively. Restricted cash includes cash items that are legally or contractually restricted as to usage or withdrawal, which include amounts relating to: a) the Collateral Account established pursuant to the terms of NW Capital loan. While the funds in the Collateral Account are not restricted for a specified purpose and are expected to be used to fund on-going operations, capital purchases and investments, the Company's use of funds in that account is subject to NW Capital approval; b) as described in note 7, under the terms of our loan agreement with Canpartners Realty Holding Company IV LLC ("Canpartners"), we were required to maintain a minimum $5.0 million balance of cash and cash equivalents at all times during the term of the loan, which included balances in the Collateral Account, as well as other reserve accounts required under the Canpartners' loan agreement; and c) amounts maintained in escrow accounts for contractually specified purposes. During the nine months ended September 30, 2014, we repaid the CanPartners loan in full thereby removing the restriction specified in b) above. However, as described in note 11, subsequent to September 30, 2014, we secured a construction loan in the amount of $24.0 million in connection with the development of a multi-family project, which will require a minimum liquidity balance of $7.5 million upon the first draw of the construction loan (expected to occur in the first quarter of 2015).

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements.

Accounting Standard Update No 2014-04, Receivables - Troubled Debt Restructuring by Creditors Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, was created to provide conformity from when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage so that the asset would be derecognized in the receivable and recognized as real estate property. This updates specifies that an in substance repossession occurs when either the creditor has obtained the legal title to the property after a foreclosure or the borrower has transferred all interest in the property to the creditor through a deed in lieu of foreclosure or similar legal agreement so that at that time the asset should be reclassified from a loan receivable to real estate property. This update also provides that a disclosure of the amount of foreclosed residential real estate property and the recorded investment in consumer mortgage loans collateralized by residential real estate property that is the process of foreclosure must be included in both interim and annual financial reports. This amendment update is effective for periods for fiscal years beginning after December 15, 2014. The adoption of ASU 2014-04 is not expected to have a material impact on our financial condition, liquidity or results of operations.

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The standard is required to be adopted by public business entities in annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. We adopted this standard during the period ended September 30, 2014, which did not have a material impact on the Company’s financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 . This update applies to entities that enter into contracts with customers to transfer goods or services or for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. This ASU is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016 for public companies. Management is evaluating the effect, if any, on the Company’s financial position and results of operations.

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share-based award has ended, as a performance condition that affects vesting. The ASU is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. The Company does not expect the adoption of this update to have a material impact on the Company's operating results or financial position.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,. ASU 2014-15 introduces an explicit requirement for management to assess and provide certain disclosures if there is substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 is effective for the annual period ending after December 15, 2016. The Company does not expect the adoption of ASU 2014-15 to have a material impact on the Company's operating results or financial position.