Harbor Acquisition, LLC

 

Financial Statements

 

For the Years Ending October 31, 2007 and October 31, 2006

 

C ontents

 

 

Gary E. Rowe Certified Public Accountant

 

22534 Wayside Drive

 

Watertown, N.Y. 13601 

315-782-5510

 

Independent Auditor’s Report

 

 

To the Board of Directors and Stockholders 

Harbor Acquisitions, LLC 24685 NYS Route #37

Watertown, NY 13601

 

 

I have audited the accompanying consolidated balance sheet of Harbor Acquisitions, LLC as of October 31, 2007 and October 31, 2006 and the related consolidated statements of operations, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company ’s management. My responsibility is to express an opinion on these financial statements based on my audit.

 

I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.

 

In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Harbor Acquisitions, LLC as of October 31, 2007 and October 31, 2006 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.

 

 

Gary E. Rowe, CPA

 

Watertown, NY

 

May 1, 2008

Harbor Acquisition, LLC

 

Balance Sheets

 

As of October 31, 2007 and October 31, 2006

 

 

The accompanying notes are an integral part of the financial statements.

 

Harbor Acquisition, LLC

 

Statements of Operations

 

For the Years Ending October 31, 2007 and October 31, 2006

 

The accompanying notes are an integral part of the financial statements.

Harbor Acquisition, LLC

 

Statement of Retained Earnings

 

For the Year Ending October 31, 2007

 

The accompanying notes are an integral part of the financial statements.

 

Harbor Acquisition, LLC

 

Statements of Cash Flows

 

For the Years Ending October 31, 2007 and October 31, 2006

      SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

The accompanying notes are an integral part of the financial statements.

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Years Ending October 31, 2007 and October 31, 2006

 

NOTE A - ORGANIZATION AND NATURE OF BUSINESS

 

 

Harbor Acquisition, LLC (the “Company”) was organized in the State of Florida on November 2, 2002 and is headquartered in Watertown, NY. The Company was also registered as a foreign business corporation in the State of New York on April 1, 2005. As a foreign business corporation, the Company will be able to conduct operations in New York State. Through an exchange of stock, the Company was acquired by North Country Hospitality, Inc. Since November 1, 2004, through a series of purchase agreements, Harbor Acquisition, Inc. had acquired the assets of the following entities:

 

 

On January 8, 2007 the Company purchased the former Harbor Master Restaurant from Christopher Swartz for $800,000 by assuming a $500,000 mortgage with Leo Coleman and $300,000 work of stock. On July 15, 2007, the Company purchased the assets of Alteri’s Bakery from Christopher Swartz for assumption of debt in the amount of $802,837 plus $448,000 of stock. The Company consolidated its bakery on Route 37 in Watertown, NY with the Alteri’s Bakery and ceased bakery operations at the Route 37 facility.. The Company’s corporate offices remain at this Route 37 location.

 

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Years Ending October 31, 2007 and October 31, 2006

 

NOTE B - SUMMARY OF SIGNFICANT ACCOUNTING POLICIES

 

The significant accounting policies of the Company are as follows:

 

Accounting Method

 

These financial statements are prepared in accordance with the accrual method of accounting, which recognizes income when earned and expenses when incurred. For presentation purposes some accounts have been reclassed.

 

Accounts Receivable

 

The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts should become uncollectible, they will be charged to operations when that determination is made.

 

Inventory

Inventories are valued at the lower of cost or market with cost being computed on the First-In First-Out Method (FIFO).

 

Property and Equipment

 

Property and equipment are recorded at cost. Maintenance and repairs are charged to operations as incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and the related accumulated depreciation accounts are relieved, and any gain or loss is included in operations. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, generally ranging from 5 to 40 years. For income tax purposes, the Company uses accelerated methods of depreciation for certain assets. For the years ending October 31, 2007 and October 31, 2006, depreciation expense amounted to $353,719 and $311,957 respectively. Property and equipment is evaluated annually for impairment in value. As of October 31, 2007 and 2006, no property or equipment was determined to have an impaired value.

 

Revenue Recognition

 

Revenues from bakery products are recognized upon the sale of the products. The Company extends credit to its various customers based on the customer’s ability to pay. Revenues from the restaurants and the Jreck Subs Franchisee are recognized when the customer pays the guest check with the cashier.

Related Party Transactions

 

Christopher Swartz is a major stockholder and CEO of Harbor Acquisition, LLC and also a stockholder and CEO of Ultimate Franchise Systems, Inc., Obee’s Franchise Systems, Inc., All American Coffee & Beverage, Inc. and President of Jreck Subs. Harbor Acquisition, LLC is a franchisee of Jreck Subs and Ultimate Franchise Systems, Inc. is a significant shareholder of Harbor Acquisition, LLC Harbor Acquisition, LLC has purchased Alteri’s Bakery and the real estate in Sackets Harbor, NY that housed the former Harbor Master Restaurant from Christopher Swartz.

 

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Years Ending October 31, 2007 and October 31, 2006

 

Income Taxes

 

The company has no income tax expense for 2007 and 2006. When the company becomes profitable income tax expense will include federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting purposes and income tax purposes. These differences consist primarily of the excess of deprecation for tax purposes over the amount for financial reporting purposes.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.   Actual results could differ from those estimates.

 

Goodwill

 

Goodwill represents the excess of cost over fair market value of net assets acquired and is being regularly examined for impairment using the discounted future cash flows method. Upon its inception, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142 goodwill and intangible assets with indefinite lives are not to be amortized but are tested for impairment at least annually. Intangible assets with definite useful lives are to be amortized over the respective estimated useful lives or anticipated future cash flow streams when appropriate.   At least annually the Company tests for possible impairment of all intangible assets and more often whenever events or changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the manner that the asset is intended to be used indicate that the carrying amount of the asset is not recoverable. If indicators exist, the Company compares the discounted cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the discounted cash flow amount, an impairment charge is recorded in the operating expense section in the statement of operations for amounts necessary to reduce the carrying value of the asset to fair market value. The Company has chosen the fourth quarter of its fiscal year to conduct its annual impairment test. If any such impairment exists, the related assets are written down to fair market value. Management has determined that there is no such impairment for the years ending October 31, 2007 and October 31, 2006.

 

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Years Ending October 31, 2007 and October 31, 2006

 

 

NOTE C - PROPERTY AND EQUIPMENT

 

Property and equipment are comprised of the following at October 31, 2007   and October 31, 2006:

 

 

NOTE D – NOTES PAYABLE

 

Notes and mortgages payable consist of the following at October 31, 2007 and October 31, 2006:

 

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Years Ending October 31, 2007 and October 31, 2006

 

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Years Ending October 31, 2007 and October 31, 2006

 

 

The  annual   maturities   of   long-term debt  for  the   five  years  subsequent   to  October  31,  2007  are  as follows:

 

 

NOTE E -NEW ACCOUNTING PRONOUNCEMENTS

 

In February 2006, the FASB issued Statement No. 155, “ Accounting for Certain Hybrid Financial Instruments”   (“SFAS No. 155”), which amends FASB Statements No. 133 and 140. This Statement permits fair value remeasurement for any hybrid financial instrument containing an embedded derivative that would otherwise require bifurcation, and broadens a Qualified Special Purpose Entity’s (“QSPE”) permitted holdings to include passive derivative financial instruments that pertain to other derivative financial instruments. This Statement is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after the beginning of an entity’s first fiscal year beginning after September 15, 2006. This Statement has no current applicability to the Company’s financial statements. It is anticipated that the adoption of this Statement will not have a material impact on the Company’s financial position, results of operations, or cash flows.

 

In June 2006, the FASB issued Interpretation 48, “ Accounting for Uncertainty in Income Taxes”   (“FIN 48”), an interpretation of FASB Statement No. 109, “ Accounting for Income Taxes.”   FIN 48 clarifies the accounting and reporting for income taxes where interpretation of the law is uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2007. This Statement has no current applicability to the Company’s financial statements. Management plans to adopt this Statement on November 1, 2008 and it is anticipated that the initial adoption of FIN 48 will not have a material impact on the Company’s financial position, results of operations, or cash flows.

 

In September 2006, the FASB issued Statement No. 157, “ Fair Value Measurements”   (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. Management is assessing the impact of the adoption of this Statement.

 

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Years Ending October 31, 2007 and October 31, 2006

 

In September 2006, the FASB issued Statement No. 158, “ Employers ’ Accounting for Defined   Benefit Pension and Other Postretirement Plans”   (“SFAS No. 158”), an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires (a) recognition of the funded status (measured as the difference between the fair value of the plan assets and the benefit obligation) of a benefit plan as an asset or liability in the employer’s statement of financial position, (b) measurement of the funded status as of the employer’s fiscal year-end with limited exceptions, and (c) recognition of changes in the funded status in the year in which the changes occur through comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The requirement to measure the plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. This Statement has no current applicability to the Company’s financial statements. Management plans to adopt this Statement on December 31, 2007 and it is anticipated the adoption of SFAS No. 158 will not have a material impact to the Company’s financial position, results of operations, or cash flows.

 

In February 2007, the FASB issued Statement No. 159 “ The Fair Value Option for Financial Assets and Financial Liabilities”   (SFAS 159). This statement permits companies to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its financial statements.

 

In December 2007, the FASB issued SFAS No. 160, “ Non-controlling Interests in Consolidated Financial Statements – an amendment of AR B No. 5 .” This Statement changes the accounting and reporting for non-controlling interests in consolidated financial statements. A non-controlling interest, sometimes referred to as a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. Specifically, SFAS No. 160 establishes accounting and reporting standards that require (i) the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent’s equity; (ii) the equity amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated income statement (consolidated net income and comprehensive income will be determined without deducting minority interest, however, earnings-per-share information will continue to be calculated on the basis of the net income attributable to the parent’s shareholders); and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently and similarly—as equity transactions. This Statement is effective for fiscal years, and interim period within those fiscal years, beginning on or after December 15, 2008. Early adoption is not permitted. SFAS No. 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for its presentation and disclosure requirements, which shall be applied retrospectively for all periods presented.

 

In December 2007, the FASB issued SFAS No. 141R, “ Business Combinations” , which is a revision of SFAS No. 141, “Business Combinations.” SFAS No. 141R will apply to all business combinations and will require most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at “full fair value” At the acquisition date, SFAS No 141R will also require transaction-related costs to be expensed in the period incurred, rather than capitalizing these costs as a component of the respective purchase price. SFAS No. 141R is effective for acquisitions completed after January 1, 2009 and early adoption is prohibited. The adoption will have a significant impact on the accounting treatment for acquisitions occurring after the effective date.

 

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Years Ending October 31, 2007 and October 31, 2006

 

 

In March 2008, the FASB issued Statement No. 161, “ Disclosures about Derivative Instruments and Hedging Activities”   (SFAS 161). This Statement will require enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.   Statement No. 161 has no impact on the Company.

 

Financial Statements

 

Harbor Acquisition, LLC

 

For the Three Months ending January 31, 2008 and January 31, 2007

 

(Unaudited)

Harbor Acquisition, LLC

 

Financial Statements

 

For the Three Months ending January 31, 2008 and January 31, 2007

 

(Unaudited)

 

Contents

 

Financial Statements:

 

Harbor Acquisition, LLC

 

Balance Sheets

 

For the Three Months ending January 31, 2008 and January 31, 2007

 

(Unaudited)

 

 

 

 

 

 

The accompanying notes are an integral part of the financial statements.

Harbor Acquisition, LLC

 

Statements of Operations

 

For the Three Months ending January 31, 2008 and January 31, 2007

 

(Unaudited)

 

 

 

 

 

 

The accompanying notes are an integral part of the financial statements.

Harbor Acquisition, LLC

 

Statement of Member’s Equity (Unaudited)

 

 

 

 

 

 

The accompanying notes are an integral part of the financial statements.

Harbor Acquisition, LLC

 

Statements of Cash Flows

 

For the Three Months ending January 31, 2008 and January 31, 2007 (Unaudited)

 

 

 

 

 

 

The accompanying notes are an integral part of the financial statements.

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Three Months ending January 31, 2008 and January 31, 2007 (Unaudited)

NOTE A - ORGANIZATION AND NATURE OF BUSINESS

 

Harbor Acquisition, LLC (the “Company”) was organized in the State of Florida on November 2, 2002 and is headquartered in Watertown, NY. The Company was also registered as a foreign business corporation in the State of New York on April 1, 2005. As a foreign business corporation, the Company will be able to conduct operations in New York State. Through an exchange of stock, the Company was acquired by North Country Hospitality, Inc. Since November 1, 2004, through a series of purchase agreements, Harbor Acquisition, Inc. had acquired the assets of the following entities:

 

On January 8, 2007 the Company purchased the former Harbor Master Restaurant from Christopher Swartz for $800,000 by assuming a $500,000 mortgage with Leo Coleman and $300,000 worth of stock. On July 15, 2007, the Company purchased the assets of Alteri’s Bakery from Christopher Swartz for assumption of debt in the amount of $802,837 plus $448,000 of stock. The Company consolidated its bakery on Route 37 in Watertown, NY with the Alteri’s Bakery and ceased bakery operations at the Route 37 facility. The Company’s corporate offices remain at this Route 37 location.

 

NOTE B - SUMMARY OF SIGNFICANT ACCOUNTING POLICIES

 

The significant accounting policies of the Company are as follows:

 

Accounting Method

 

These financial statements are prepared in accordance with the accrual method of accounting, which recognizes income when earned and expenses when incurred. For presentation purposes some accounts have been reclassed.

 

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Three Months ending January 31, 2008 and January 31, 2007 (Unaudited)

 

Accounts Receivable

 

The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts should become uncollectible, they will be charged to operations when that determination is made.

 

Inventory

 

Inventories are valued at the lower of cost or market with cost being computed on the First-In First-Out Method (FIFO).

 

Property and Equipment

 

Property and equipment are recorded at cost. Maintenance and repairs are charged to operations as incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and the related accumulated depreciation accounts are relieved, and any gain or loss is included in operations. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, generally ranging from 5 to 40 years. For income tax purposes, the Company uses accelerated methods of depreciation for certain assets. For the three months ending January 31, 2008 and January 31, 2007, depreciation expense amounted to $134,079 and $77,989 respectively. Property and equipment is evaluated annually for impairment in value. As of January 31, 2008 and 2007, no property or equipment was determined to have an impaired value.

 

Revenue Recognition

 

Revenues from bakery products are recognized upon the sale of the products. The Company extends credit to its various customers based on the customer’s ability to pay. Revenues from the restaurants and the Jreck Subs Franchisee are recognized when the customer pays the guest check with the cashier.

 

Related Party Transactions

 

Christopher Swartz is a major stockholder and CEO of North Country Hospitality, Inc. and also a stockholder and CEO of Ultimate Franchise Systems, Inc., Obee’s Franchise Systems, Inc., All American Coffee & Beverage, Inc. and President of Jreck Subs. North Country Hospitality is a franchisee of Jreck Subs and Ultimate Franchise Systems, Inc. is a significant shareholder of North Country Hospitality, Inc. North Country Hospitality, Inc. has purchased Alteri’s Bakery and the real estate in Sackets Harbor, NY that housed the former Harbor Master Restaurant from Christopher Swartz.

 

Income Taxes

 

The company has no income tax expense for 2008 and 2007. When the company becomes profitable income tax expense will include federal and state taxes currently payable and deferred taxes arising from  temporary  differences between income for  financial reporting  purposes  and income tax  purposes.

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Three Months ending January 31, 2008 and January 31, 2007 (Unaudited)

 

These differences consist primarily of the excess of deprecation for tax purposes over the amount for financial reporting purposes.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.   Actual results could differ from those estimates.

 

Goodwill

Goodwill represents the excess of cost over fair market value of net assets acquired and is being regularly examined for impairment using the discounted future cash flows method. Upon its inception, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142 goodwill and intangible assets with indefinite lives are not to be amortized but are tested for impairment at least annually. Intangible assets with definite useful lives are to be amortized over the respective estimated useful lives or anticipated future cash flow streams when appropriate.   At least annually the Company tests for possible impairment of all intangible assets and more often whenever events or changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the manner that the asset is intended to be used indicate that the carrying amount of the asset is not recoverable. If indicators exist, the Company compares the discounted cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the discounted cash flow amount, an impairment charge is recorded in the operating expense section in the statement of operations for amounts necessary to reduce the carrying value of the asset to fair market value. The Company has chosen the fourth quarter of its fiscal year to conduct its annual impairment test. If any such impairment exists, the related assets are written down to fair market value. Management has determined that there is no such impairment for the three months ending January 31, 2008 and January 31, 2007.

 

NOTE C - PROPERTY AND EQUIPMENT

 

Property and equipment are comprised of the following at January 31, 2008 and January 31, 2007:

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Three Months ending January 31, 2008 and January 31, 2007 (Unaudited)

 

NOTE D – NOTES PAYABLE

Notes and mortgages payable consist of the following at January 31, 2008 and January 31, 2007:

Harbor Acquisition, LLC

 

Notes to Financial Statements

 

For the Three Months ending January 31, 2008 and January 31, 2007 (Unaudited)

 

NOTE E- NEW ACCOUNTING PRONOUNCEMENTS

 

In February 2006, the FASB issued Statement No. 155, “ Account ing for Certain Hybrid Financial Instruments”   (“SFAS No. 155”), which amends FASB Statements No. 133 and 140. This Statement permits fair value remeasurement for any hybrid financial instrument containing an embedded derivative that would otherwise require bifurcation, and broadens a Qualified Special Purpose Entity’s (“QSPE”) permitted holdings to include passive derivative financial instruments that pertain to other derivative financial instruments. This Statement is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after the beginning of an entity’s first fiscal year beginning after September 15, 2006. This Statement has no current applicability to the Company’s financial statements. Management plans to adopt this Statement on January 1, 2007 and it is anticipated that the initial adoption of this Statement will not have a material impact on the Company’s financial position, results of operations, or cash flows.

 

In June 2006, the FASB issued Interpretation 48, “ Accounting for Uncertainty in Income Taxes”   (“FIN 48”), an interpretation of FASB Statement No. 109, and “ Accounting for Income Taxes.”   FIN 48 clarifies the accounting and reporting for income taxes where interpretation of the law is uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2007. This Statement has no current applicability to the Company’s financial statements. Management plans to adopt this Statement on November 1, 2008 and it is anticipated that the initial adoption of FIN 48 will not have a material impact on the Company’s financial position, results of operations, or cash flows.

 

In September 2006, the FASB issued Statement No. 157, “ Fair Value Measurements”   (“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. Management is assessing the impact of the adoption of this Statement.

 

North Country Hospitality, Inc.

 

Notes to Financial Statements

 

For the Three Months ending January 31, 2008 and January 31, 2007 (Unaudited)

 

In September 2006, the FASB issued Statement No. 158, “ Employers ’ Accounting for Defined Benefit Pension and Other Postretirement Plans”   (“SFAS No. 158”), an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires (a) recognition of the funded status (measured as the difference between the fair value of the plan assets and the benefit obligation) of a benefit plan as an asset or liability in the employer’s statement of financial position, (b) measurement of the funded status as of the employer’s fiscal year-end with limited exceptions, and (c) recognition of changes in the funded status in the year in which the changes occur through comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The requirement to measure the plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. This Statement has no current applicability to the Company’s financial statements. Management plans to adopt this Statement on December 31, 2007 and it is anticipated the adoption of SFAS No. 158 will not have a material impact to the Company’s financial position, results of operations, or cash flows.

 

In February 2007, the FASB issued Statement No. 159 “ The Fair Value Option for Financial Assets and Financial Liabilities”   (SFAS 159). This statement permits companies to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its financial statements.

 

In December 2007, the FASB issued SFAS No. 160, “ Non-controlling Interests in Consolidated Financial State ments – an amendment of ARB No. 5 .” This Statement changes the accounting and reporting for non-controlling interests in consolidated financial statements. A non-controlling interest, sometimes referred to as a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. Specifically, SFAS No. 160 establishes accounting and reporting standards that require (i) the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated balance sheet within equity, but separate from the parent’s equity; (ii) the equity amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated income statement (consolidated net income and comprehensive income will be determined without deducting minority interest, however, earnings-per-share information will continue to be calculated on the basis of the net income attributable to the parent’s shareholders); and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently and similarly—as equity transactions. This Statement is effective for fiscal years, and interim period within those fiscal years, beginning on or after December 15, 2008. Early adoption is not permitted. SFAS No. 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for its presentation and disclosure requirements, which shall be applied retrospectively for all periods presented.

North Country Hospitality, Inc.

 

Notes to Financial Statements

 

For the Three Months ending January 31, 2008 and January 31, 2007 (Unaudited)

 

In December 2007, the FASB issued SFAS No. 141R, “ Business Combinations” , which is a revision of SFAS No. 141, “Business Combinations.” SFAS No. 141R will apply to all business combinations and will require most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at “full fair value” At the acquisition date, SFAS No 141R will also require transaction-related costs to be expensed in the period incurred, rather than capitalizing these costs as a component of the respective purchase price. SFAS No. 141R is effective for acquisitions completed after January 1, 2009 and early adoption is prohibited. The adoption will have a significant impact on the accounting treatment for acquisitions occurring after the effective date.

 

In March 2008, the FASB issued Statement No. 161, “ Disclosures about Derivative Instruments and Hedging Activities”   (SFAS 161). This Statement will require enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.   Statement No. 161 has no impact on the Company.