Meritage Hospitality (MHGU) 8-K/A Financial Statements and Exhibits

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K/A
AMENDMENT NO. 1
TO

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934

Date of report (date of earliest event reported): May 31, 2006

MERITAGE HOSPITALITY GROUP INC.
(Exact Name of Registrant as Specified in Charter)

Michigan
(State or Other Jurisdiction
of Incorporation)

001-12319	38-2730460
(Commission File Number)	(IRS Employer Identification Number)

3210 Eagle Run Drive, N.E., Suite 100
Grand Rapids, Michigan 49525
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code:                                     (616) 776-2600

        Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (seeGeneral Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 9.01.    Financial Statements and Exhibits.

(b) Pro Forma Financial Information.

        Meritage completed a sale and leaseback transaction on May 31, 2006, involving one of its Wendy’s restaurants. This was the fourth sale and leaseback of a Wendy’s restaurant to unrelated third parties since November 11, 2005 (the “Sale and Leaseback Transactions”), and is part of an ongoing effort that Meritage previously announced to sell and leaseback a certain number of its Wendy’s restaurants to pay down long-term debt and increase cash on hand to support the Company’s strategic objectives. A Form 8-K was initially filed on June 2, 2006 as the proceeds received from the Sale and Leaseback Transactions, in the aggregate, exceeded 10% of the Company’s total assets. This amendment is being timely filed to report the required pro forma financial information related to the Sale and Leaseback Transactions.

        The Company collected $4,969,000 in net proceeds from the Sale and Leaseback Transactions, used $2,336,000 to pay down long-term indebtedness, and deposited $2,568,000 into treasury. The sales resulted in deferred gains of $2,024,000 which will be amortized over the 20-year lease terms. The early pay down of long-term indebtedness resulted in finance charges of approximately $87,000.

        Subject to market conditions, the Company may enter into additional sale and leaseback transactions containing similar terms, with related charges and deferred gains. These transactions could result in additional net proceeds of approximately $24.6 million. The Company anticipates that it would use approximately 60% of the pre-tax proceeds to pay off long-term debt, with remaining net proceeds being deposited into treasury and available for general corporate purposes.

        The following schedule demonstrates minimum lease obligations for the leases involved in the Sale and Leaseback Transactions computed in accordance with SFAS No. 13.

	Payments due by period
Contractual Obligations	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Operating Lease Obligations*	$7,471,340	$373,567	$747,134	$747,134	$5,603,505

* The lease agreements are triple net operating leases. Accordingly, the Company is responsible for other obligations including, but not limited to, taxes, insurance, utilities and maintenance as incurred.

        Pro Forma financial statements of Meritage Hospitality Group Inc. and Subsidiaries are attached beginning on Page F-1.

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: August 11, 2006 MERITAGE HOSPITALITY GROUP INC.


BY: /s/ Robert E. Schermer, Jr.
      ——————————————
      Robert E. Schermer, Jr.
      Chief Executive Officer & President

MERITAGE HOSPITALITY GROUP INC. & SUBSIDIARIES

INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

FINANCIAL STATEMENTS	PAGE NUMBER
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
- AS OF MAY 28, 2006	F-2
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS - FOR THE YEAR ENDED NOVEMBER 27, 2005	F-4
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS - FOR THE SIX MONTHS ENDED MAY 28, 2006	F-5
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS	F-6

F-1

Meritage Hospitality Group Inc. & Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
As of May 28, 2006

	Meritage Hospitality Group Inc. & Subsidiaries		Pro Forma Adjustments			Pro Forma Ref.			Consolidated Pro Forma
ASSETS
Current Assets
Cash and cash equivalents	$	1,022,947	$	327,028			(1	)	$	1,349,975
Receivables		346,116								346,116
Inventories		366,874								366,874
Prepaid expenses and other current assets		141,045								141,045
Total Current Assets		1,876,982		327,028						2,204,010
Property and Equipment, net		34,330,597		(832,145	)		(2	)		33,498,452
Other Assets
Notes Receivable		927,281								927,281
Goodwill		4,429,849								4,429,849
Franchise costs, net		1,224,824								1,224,824
Financing costs, net		349,930		(12,122	)		(3	)		337,808
Deposits and other assets		267,306								267,306
Total Other Assets		7,199,190		(12,122	)					7,187,068
Total Assets	$	43,406,769	$	(517,239	)				$	42,889,530
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term obligations	$	835,560	$	(20,071	)		(4	)	$	815,489
Line of credit - short term		768,750								768,750
Trade accounts payable		1,568,215								1,568,215
Accrued liabilities		2,348,546		136,730			(5	)		2,485,276
Total Current Liabilities		5,521,071		116,659						5,637,730
Unearned Vendor Allowances		1,777,900								1,777,900
Deferred Gain - Sale and Leaseback Transactions		10,823,850		414,269			(6	)		11,238,119
Accrued Rent and Other Liabilities		257,414								257,414
Long-Term Obligations		20,882,097		(899,315	)		(7	)		19,982,782

See notes to unaudited pro forma consolidated financial statements.

F-2

Meritage Hospitality Group Inc. & Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
As of May 28, 2006
(Continued)

	Meritage Hospitality Group Inc. & Subsidiaries			Pro Forma Adjustments			Pro Forma Ref.			Consolidated Pro Forma
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' Equity
Preferred stock - $.01 par value
shares authorized: 5,000,000;
200,000 shares designated as Series A
convertible cumulative preferred stock
shares issued and outstanding: 29,520
(liquidation value - $295,200)		295									295
500,000 shares designated as Series B
convertible cumulative preferred stock
shares issued and outstanding: 500,000
(liquidation value - $5,000,000)		5,000									5,000
Common stock - $0.01 par value
shares authorized: 30,000,000;
shares issued and outstanding: 5,441,881		54,419									54,419
Additional paid in capital		16,715,766									16,715,766
Accumulated deficit		(12,631,043	)		(148,852	)		(8	)		(12,779,895	)
Total Stockholders' Equity		4,144,437			(148,852	)					3,995,585
Total Liabilities and Stockholders' Equity	$	43,406,769		$	(517,239	)				$	42,889,530

See notes to unaudited pro forma consolidated financial statements.

F-3

Meritage Hospitality Group Inc. & Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended November 27, 2005

	Meritage Hospitality Group Inc. & Subsidiaries			Pro Forma Adjustments			Pro Forma Ref.			Consolidated Pro Forma
Food and beverage revenue	$	56,037,204								$	56,037,204
Cost and expenses
Cost of food and beverages		15,783,616									15,783,616
Operating expenses		35,129,843		$	370,728			(1	)		35,400,286
					(100,285	)		(2	)
General and administrative expenses		4,040,904									4,040,904
Depreciation and amortization		2,685,957			(86,785	)		(3	)		2,599,172
Total cost and expenses		57,640,320			183,658						57,823,978
Loss from operations		(1,603,116	)		(183,658	)					(1,786,774	)
Other income (expense)
Interest expense		(2,073,018	)		5,093			(4	)		(1,837,870	)
					230,055			(5	)
Debt extinguishment charges		(874,682	)		37,859			(6	)		(836,823	)
Interest income		147,563									147,563
Other income, net		9,373									9,373
Gain on sale of non-operating property		345,030									345,030
Total other expense		(2,445,734	)		273,007						(2,172,727	)
Loss before income taxes		(4,048,850	)		89,349						(3,959,501	)
Income taxes		(808,705	)		(30,379	)		(7	)		(839,084	)
Net loss		(4,857,555	)		58,970						(4,798,585	)
Preferred stock dividends		426,568									426,568
Net loss on common shares	$	(5,284,123	)	$	58,970					$	(5,225,153	)
Loss per common share - basic and diluted	$	(0.98	)	$	0.01					$	(0.97	)
Weighted average shares outstanding - basic and
diluted		5,380,828									5,380,828

See notes to unaudited pro forma consolidated financial statements.

F-4

Meritage Hospitality Group Inc. & SubsidiariesUnaudited
Pro Forma Consolidated Statement of Operations
For the Six Months Ended May 28, 2006

	Meritage Hospitality Group Inc. & Subsidiaries			Pro Forma Adjustments			Pro Forma Ref.			Consolidated Pro Forma
Food and beverage revenue	$	28,739,747								$	28,739,747
Cost and expenses
Cost of food and beverages		8,131,657									8,131,657
Operating expenses		18,674,399		$	85,555			(1	)		18,740,021
					(19,933	)		(2	)
General and administrative expenses		1,870,173									1,870,173
Depreciation and amortization		1,365,844			(20,044	)		(3	)		1,345,800
Total cost and expenses		30,042,073			45,578						30,087,651
Loss from operations		(1,302,326	)		(45,578	)					(1,347,904	)
Other income (expense)
Interest expense		(881,937	)		1,352			(4	)		(825,389	)
					55,196			(5	)
Debt extinguishment charges		(36,959	)		36,959			(6	)		0
Interest income		39,286									39,286
Other income, net		255,073									255,073
Total other expense		(624,537	)		93,507						(531,030	)
Loss before income taxes		(1,926,863	)		47,929						(1,878,934	)
Income taxes		(42,351	)		(16,296	)		(7	)		(58,647	)
Net loss		(1,969,214	)		31,633						(1,937,581	)
Preferred stock dividends		319,926									319,926
Net loss on common shares	$	(2,289,140	)	$	31,633					$	(2,257,507	)
Loss per common share - basic and diluted	$	(0.42	)	$	0.00					$	(0.42	)
Weighted average shares outstanding -
basic and diluted		5,421,633									5,421,633

See notes to unaudited pro forma consolidated financial statements.

F-5

MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Meritage completed a sale and leaseback transaction on May 31, 2006, involving one of its Wendy’s restaurants. This was the fourth sale and leaseback of a Wendy’s restaurant to unrelated third parties since November 11, 2005, and is part of an ongoing effort that Meritage previously announced to sell and leaseback a certain number of its Wendy’s restaurants to pay down long-term debt and increase cash on hand to support the Company’s strategic objectives.

The unaudited pro forma consolidated balance sheet as of May 28, 2006 reflects these transactions as if all had occurred as of this date or prior. The unaudited pro forma statements of operations for the fiscal year ended November 27, 2005, and for the six months ended May 28, 2006 reflect these transactions as if they occurred on November 28, 2004. Based on the Company’s best judgment, all deferred tax assets created from these transactions have been treated as being fully reserved.

In management’s opinion, all material adjustments necessary to reflect the transactions are presented in the pro forma adjustments. The pro forma financial statements do not purport to project the Company’s financial position or results of operations at any future date or for any future period, and should be read in conjunction with the Company’s consolidated historical financial statements, and notes thereto contained in the Company’s Form 10-K for the fiscal year ended November 27, 2005, and the quarterly report on Form 10-Q for the fiscal quarter ended May 28, 2006.

The pro forma adjustments are as follows:

Balance Sheet:

Below is a summary of the balance sheet transactions involving the sale and leaseback transaction that occurred after May 28, 2006. The pro forma adjustments reflect the sale of the restaurant property and the associated debt reduction paid from the cash proceeds, as if the sale had been consummated on May 28, 2006.

				Pro Forma Ref.
Calculation of deferred gain on sale:
Proceeds from sale - net of selling costs	$	1,246,414
Net book value of assets sold		(832,145	)		(2	)
Deferred gain on sale leaseback transaction	$	414,269			(6	)
Calculation of net cash proceeds after retirement of debt:
Proceeds from sale - net of selling costs	$	1,246,414
Reduction in long-term obligations		(899,315	)		(7	)
Reduction in current portion of long-term obligations		(20,071	)		(4	)
Net cash after retirement of debt	$	327,028			(1	)

F-6

MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

				Pro Forma Ref.
	Current Tax Payable
Tax impact of the sale and leaseback transaction:
Gain on sale and leaseback transaction	$	414,269
Write-off of unamortized financing costs		(12,122	)		(3	)
Taxable income	$	402,147
Statutory income tax rate		34%
	$	136,730			(5	)

	Deferred Tax Asset
Impact on Deferred Tax Asset:
Deferred gain on sale and leaseback transaction	$	414,269
Statutory income tax rate		34%
Gross deferred tax asset at May 28, 2006	$	140,851
Valuation allowance		(140,851	)
Net deferred tax asset	$	0

For purposes of these pro forma financial statements, the tax effects have been computed using the statutory income tax rates in effect. Based on the Company’s best judgment, the net deferred tax asset resulting from these transactions has been fully reserved.

Pro forma adjustment (8) – the ($148,852) pro forma adjustment to accumulated deficit is the total of the balance sheet pro forma adjustments (3) and (5).

Statements of Operations:

Below is a summary of the transactions affecting the statements of operations as a result of the sale and leaseback of the Wendy’s restaurant properties described above. The pro forma adjustments reflect the sales of the restaurant properties as if the sales had been consummated on November 28, 2004.

Pro forma
Reference

(1) Rent expense under the operating leases entered into by the Company relating to the sale and leaseback transactions.

(2) Amortization of the deferred gain over the lease terms under the operating leases entered into by the Company relating to the sale and leaseback transactions (accounted for as a reduction in rent expense).

(3) Reduction in depreciation expense related to the assets sold in the sale and leaseback transactions.

F-7

(4) Reduction in amortization expense of capitalized financing costs related to the loans retired in connection with the sale and leaseback transactions.

(5) Reduction in interest expense related to the debt retired in connection with the sale and leaseback transactions.

(6) Remove non-recurring debt extinguishment charges from sale and leaseback transactions that occurred during the period shown.

(7) Income tax effect of the above transactions at a statutory income tax rate of 34%.

F-8