RoomStore, Inc.

Since the Petition Date, subsequent to November 30, 2011, the Company has operated its business as a debtor-in-possession under the Bankruptcy Code. The American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) provides guidance for financial reporting by entities that have filed petitions with the Bankruptcy Court and expect to reorganize under Chapter 11. Under SOP 90-7, the financial statements of an entity in a Chapter 11 reorganization proceeding should distinguish transactions and events that are directly associated with the reorganization from those of operations of the ongoing business as it evolves. Accordingly, SOP 90-7 requires that the balance sheet separately classify pre-petition liabilities as those subject to compromise. Pre-petition liabilities are reported on the basis of the expected amount of such allowed claims, as opposed to the amount for which those allowed claims may be settled. Revenues and expenses, realized gains and losses, and provisions for losses resulting from the reorganization and restructuring of the business are reported in the Consolidated Statement of Operations separately as reorganization items. SOP 90-7 accounting and presentation will be applied in future financial statement filings while the Company is still a debtor-in-possession under the Bankruptcy Code.

Upon emergence from bankruptcy, the amounts reported in the Company’s subsequent financial statements may change materially. As of the effective date of a plan of reorganization, the Company anticipates being required to apply the “fresh start” provisions of SOP 90-7, which requires that all assets and liabilities be restated to their fair values as of such effective date. Certain of these fair values will differ materially from the values recorded on the Company’s Condensed Consolidated Balance Sheet as of November 30, 2011. Additionally, the results of operations after the application of fresh start accounting will not be comparable to previous periods. Changes in accounting principles required under generally accepted accounting principles within 12 months of emerging from bankruptcy are required to be adopted at the date of emergence. Additionally, the Company may opt to make other changes in accounting practices and policies as of the plan’s effective date. For all of these reasons, the Company’s financial statements for periods subsequent to emergence from Chapter 11 will not be comparable with those of prior periods.

On January 20, 2012, Wells Fargo assigned all of its interests and obligations under the Revolver and DIP Facility to Salus Capital Partners, LLC (“Salus”). Subsequent to this assignment, the Company and Salus have agreed to revise certain terms of the DIP Facility (the revised DIP Facility hereinafter referred to as the “New DIP Facility”). The Bankruptcy Court approved these revisions by court order entered on February 8, 2012. The New DIP Facility increased the maximum amount of the facility to $15,000. The Company paid financing fees of $150 on February 8, 2012 for the New DIP Facility and, upon the assignment of the DIP Facility to Salus, received a waiver from Wells Fargo of an additional $130 fee due to Wells Fargo. The Company entered into the New DIP Facility because the borrowing base formula in the New DIP Facility initially provided substantial incremental liquidity, including (i) up to $3,000 of borrowing availability in respect of certain pledged equity, and (ii) increased advance rates on eligible inventory and real estate. The Company has missed certain performance targets of the New DIP Facility and has entered into subsequent amendments with Salus to obtain waivers of these events of default. The Company and Salus entered into a Fourth Amendment to the Revolver (the “Fourth Amendment”) on April 11, 2012, pursuant to which Salus waived certain technical events of default under the New DIP Facility and decreased the revolving credit loan ceiling to $10,000 from $15,000, which was offset in part by amending the formula for funds available under the New DIP Facility such that the funds available to the Company decreased by an aggregate of $3,850 rather than $5,000. In consideration for entering into the Fourth Amendment, the Company paid Salus a portion of the termination fee for the New DIP Facility in the amount of $38. The Bankruptcy Court entered an order approving the Fourth Amendment on April 19, 2012. The Company and Salus entered into a Fifth Amendment to the Revolver (the “Fifth Amendment”) on April 19, 2012 to replace line item expense budget variance covenants with less rigorous liquidity and aggregate disbursement covenants and to extend the time for the Company to file a plan of reorganization from April 15, 2012 to June 15, 2012. The Fifth Amendment also added a more stringent minimum sales requirement, whereby the Company will be required to achieve sales (a) for each week ending during the first three weeks after the Bankruptcy Court issues an order approving the Fifth Amendment of not less than 80% of the projected sales for such week as set forth in a budget agreed to by the Company and Salus, and (b) for each test period thereafter, of not less than 85% of the projected sales for such period. The Fifth Amendment also resulted in the base margin interest rate charged to the Company increasing from 3.0% to 3.5% and requires that the Company begin closing by June 4, 2012 the retail stores for which the Company has not received landlord consents by that date to extend the Company’s time to assume or reject such leases, as permitted by the Bankruptcy Code. In consideration for entering into the Fifth Amendment, the Company paid Salus a fee of $75 on May 4, 2012.

On December 12, 2011, RoomStore, Inc. (the “Company” or “we”) filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court of the Eastern District of Virginia (the “Bankruptcy Court”), Case No.11-37790-DOT (the “Chapter 11 Case”). Without limitation, our risks and uncertainties include the difficult current retail environment and changing economic conditions that may further adversely affect consumer demand and spending and adversely affect our financial condition, competition in the home furnishings industry that limits our ability to adjust our product prices, changes in foreign countries from which we obtain 70% of our merchandise that may affect our operations, as well as risks and uncertainties pertaining to our Chapter 11 Case, including (i) potential adverse impact of the bankruptcy case on our business, financial condition or results of operations, including our ability to maintain contracts and other customary and vendor relationships that are critical to our business and the actions and decisions of our creditors and other third parties with interests in our bankruptcy case; (ii) our ability to maintain adequate liquidity to fund our operations during the bankruptcy case and to fund a plan of reorganization and thereafter, including maintaining normal terms with our vendors and service providers during the bankruptcy case and complying with the covenants and other terms of our financing agreements; (iii) our ability to obtain court approval with respect to motions in the bankruptcy case prosecuted from time to time and to develop, prosecute, confirm and consummate a plan of reorganization with respect to the bankruptcy case and to consummate all of the transactions contemplated by such plan of reorganization; (iv) risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusivity period for the Company to propose and confirm a plan of reorganization, for the appointment of a Chapter 11 trustee or to convert the Chapter 11 Case to a Chapter 7 case; and (v) those factors identified in our filings with the Securities and Exchange Commission as may be accessed at www.sec.gov.

Our liquidity position imposes significant risks to our operations.

The New DIP Facility provides for a loan in the aggregate amount of $10.0 million, which is intended to be used for the financing of ordinary working capital and general corporate needs of the Company, including certain fees and expenses of retained professionals, and for payment of certain pre-petition expenses. There can be no assurance that the amounts of cash from operations together with amounts available under the New DIP Facility will be sufficient to fund operations. As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” above, RoomStore sales have been negatively affected by the lack of availability of inventory to fill customer orders due to the decrease in funds available to purchase inventory. This negative impact has been exacerbated during the Company’s Chapter 11 proceeding, as fees of professionals and other costs incurred in the Chapter 11 Case have made it increasingly more difficult for the Company to have sufficient inventory on hand to fulfill customers’ orders. The Company continues to pursue additional sources of capital to cover this shortfall. Without additional capital, the Company will continue to struggle with meeting customer sales needs. There can be no assurance that such additional financing will be available, or, if available, will be available on acceptable terms. Failure to secure any necessary additional financing would have a material adverse affect on our operations and ability to continue as a going concern.