You will need to write this memo as if you were the auditor reviewing this information before the next audit for the president of ZsaZsa Emporium.

Zsazsas Bike Emporium Closes

Zsazsas Bike Emporium, Inc. (Bike Emporium), a calendar year-end SEC registrant, is a leading bike retail and service chain. Bike Emporium is engaged principally in the retail sale of bike parts, tires, and accessories, bike repairs and maintenance, and the installation of parts. Bike Emporium has two primary operating unit formats: (1) Buzzys Bike Centers and (2) Belles Bike Repair Centers. As of April 15, 2010, Bike Emporium operated 240 stores consisting of 180 Buzzys Bike Centers and 60 Belles Bike Repair Centers. Bike Emporium operates approximately 1,500,000 gross square feet of retail space. The Buzzys Bike Centers average approximately 30,000 square feet per store. The 60 Belles Bike Repair Centers offer service labor, installed merchandise, and tires. Bike Emporium maintains distinct advertising and branding policies for each format. The Buzzys Bike Centers are usually placed in high-traffic areas within major metropolitan cities.

Bike Emporium invests heavily in marketing and advertising for the Buzzys Bike Centers. For example, Bike Emporium purchases commercial airtime on local and national television stations and relies heavily on local newspaper advertising frequently including discount coupons and promotions in newspaper distributions. Bike Emporium typically places the Belles Bike Repair Centers within 15 miles of the Buzzys Bike Centers primarily to facilitate a close supply line of parts, if needed. Bike Emporium also relies on television and newspaper advertising for the Belles Bike Repair Centers.

During the second quarter (on April 15, 2010), Bike Emporium announced a decision to close all 60 freestanding Belles Bike Repair Centers by June 30, 2010, under a new restructuring plan.

The following is a copy of the press release issued by Bike Emporium.

FOR IMMEDIATE RELEASE

FROM: Tab Melton, Investor Relations

DATE: April 15, 2010

Zsazsas Bike Emporium, Inc. announced that it recently completed an exhaustive study of its current operating structure and determined that the most efficient delivery of retail products and bike services to its customers would be under a one-stop shopping approach. As a result, Bike Emporium plans to close its 60 freestanding Belles Bike Repair Centers and begin providing these services out of its existing Buzzys Bike Centers. Randy Katz, chairman and chief executive officer, said, Overall, we have made considerable progress in the last three years in strengthening our portfolio of businesses at Bike Emporium. The actions we are announcing today will increase our ability to grow market share and improve sales and earnings at our company by providing our customers with one stop shopping for our do-it-yourself bike repair customers and our do-it-for-me bike repair customers. The 60 facilities are expected to be closed on or before June 30, 2010. It is also expected that Buzzys Bike Centers will be prepared to take over all of the bike service currently handled by the Belles Bike Repair Centers by June 30, 2010, and that there will be minimal loss of customers during this transition. These actions are expected to generate significant cash flow in 2010 and to increase free cash flow in 2011 and further in the future. In addition, these actions are expected to yield improvements in operating earnings of approximately $58 million in 2011 and approximately $67 million annually thereafter.

In conjunction with these actions, Bike Emporium currently estimates it will incur restructuring and other charges totaling $52 million pre-tax. The majority of these charges are associated with the termination of operating leases. The amount of this charge is preliminary and remains subject to change, pending the outcome of negotiations with landlords and other third parties. The company intends to record the charges in the second quarter of the current fiscal year. Mr. Katz continued, We have worked hard over the past few years to expand our bike parts and service business, and these efforts have been successful. However, our efforts to reverse significant performance drops within the Belles Bike Repair Centers have not been successful. The accelerating weakening in the financial performance of these stores has convinced us that it is in the best interest of our company and of our shareholders to cease operations in these stores. This will enable us to refocus our efforts to ensure that our most productive divisions and formats are best positioned to deliver the returns that we and our shareholders want. We are keenly aware of the effects of this decision, and we applaud all our associates for their efforts and determination in recent years. We are working hard to make sure that, where possible, we place these associates in other positions within the company. Mr. Katz also commented, In this regard, we remain committed to the bike business and we expect to deliver significant additional profitable growth. After the closure of the Belles Bike Repair Centers, Bike Emporium estimates that there will be continuing cash flows from the sale of bike services by the ongoing Buzzys Bike Centers of approximately $600 million. Bike Emporium estimates that the Belles Bike Repair Centers would have created approximately $700 million of sales absent the disposal transaction. Bike Emporium undertook a marketing plan to notify the existing Belles Bike Repair Centers customers via direct mail of the changes and of the location of the nearest Buzzys Bike Centers. In addition, Bike Emporium offered bounce -back coupon promotions that would allow a customer to get a coupon redeemable at any Buzzys Bike Centers once the Belles Bike Repair Centers close. Bike Emporium also provided its Internet address to enable customers to schedule bike service and order tires online at the nearest Buzzys Bike Centers.

Other Relevant Facts

For financial reporting purposes, Bike Emporium has two operating and reportable segments in accordance with ASC 280, Segment Reporting. The segments are Buzzys Bike Centers and Belles Bike Repair Centers.

Segment Information (in millions):

2006 2005

NET SALES

Buzzys Bike Centers $1,158 $902

Belles Bike Repair Centers 701 689

Total net sales $1,859 $1,591

OPERATING EARNINGS

Buzzys Bike Centers $279 $208

Belles Bike Repair Centers (172) (88)

Total operating earnings $107 $120

For Q2 2010, Bike Emporium determined that it meets the criteria in ASC 420-10, Exit or Disposal Cost Obligations: Overall, for recognizing an accrual related to this event.

Bike Emporium determined that the Belles Bike Repair Centers meet the definition of a component of an entity as that term is defined in ASC 205-20-20, Presentation of Financial Statements: Discontinued Operations, for reporting discontinued operations.

Required:

1) Should the Belles Bike Repair Centers store closures be reported as a discontinued operation in Bike Worlds second quarter financial statements?

(As part of your response, include a calculation of the level of significance of any continuing cash flows after the disposal transaction.)

2) Discuss any additional issues you have identified and the professional literature you relied on in developing your recommendations and conclusions for resolving the issues.