8-K/A 1 form8ka082506.htm FORM 8-K/A Form 8-K/A
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):                          August 25, 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 (see General Instruction A.2. below):


 o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 o
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 August 25, 2006, involving one of its Wendy’s restaurants. This was the third sale and leaseback of a Wendy’s restaurant to unrelated third parties since May 31, 2006 (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 August 25, 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 $4,929,000 in net proceeds from the Sale and Leaseback Transactions, used $2,020,000 to pay down long-term indebtedness, and deposited $2,871,000 into the Company’s treasury. The sales resulted in deferred gains of $1,695,000 which will be amortized over the 20-year lease terms. The early pay down of long-term indebtedness resulted in finance charges of approximately $53,000.

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 $21.0 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 *
$7,630,660
$381,533
$763,066
$763,066
$5,722,995

* 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.

    MERITAGE HOSPITALITY GROUP INC.


Dated: November 8, 2006                       By: /s/ Robert E. Schermer, Jr. 
  Robert E. Schermer, Jr.
  Chief Executive Officer & President


 

2


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 AUGUST 27, 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 NINE MONTHS ENDED AUGUST 27, 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 August 27, 2006

   
Meritage
Hospitality
Group Inc. &
Subsidiaries
  
Pro Forma
Adjustments
  
Pro
Forma
Ref.
  
Consolidated
Pro Forma
  
ASSETS
                          
Current Assets
                          
Cash and cash equivalents
  
$
4,179,364
              
$
4,179,364
  
Receivables
    
360,812
                
360,812
  
Inventories
    
352,994
                
352,994
  
Prepaid expenses and other current assets
    
80,428
                
80,428
  
Total Current Assets
    
4,973,598
                
4,973,598
 
                           
Property and Equipment, net
    
29,662,113
                
29,662,113
  
 
Other Assets
                          
Notes Receivable
    
927,281
                
927,281
  
Goodwill
    
4,429,849
                
4,429,849
  
Franchise costs, net
    
1,212,509
                
1,212,509
  
Financing costs, net
    
299,072
                
299,072
  
Deposits and other assets
    
366,596
                
366,596
  
Total Other Assets
    
7,235,307
                
7,235,307
  
Total Assets
  
$
41,871,018
              
$
41,871,018
  
                           
LIABILITIES AND STOCKHOLDERS’ EQUITY
                          
Current Liabilities
                          
Current portion of long-term obligations
  
$
808,423
              
$
808,423
  
Line of credit - short term
    
768,750
                
768,750
  
Trade accounts payable
    
1,420,862
                
1,420,862
  
Accrued liabilities
    
2,891,167
                
2,891,167
  
Total Current Liabilities
    
5,889,202
                
5,889,202
  
                           
Unearned Vendor Allowances
    
1,630,300
                
1,630,300
  
Deferred Gain - Sale and Leaseback Transactions
    
12,772,510
                
12,772,510
  
Accrued Rent and Other Liabilities
    
319,217
                
319,217
  
Long-Term Obligations
    
17,762,382
                
17,762,382
  
 

 

 

 

 
See notes to unaudited pro forma consolidated financial statements.

 
F-2
Meritage Hospitality Group Inc. & Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
As of August 27, 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
    
54,372
                
54,372
  
Additional paid in capital
    
16,615,954
                
16,615,954
  
Accumulated deficit
    
(13,178,214
)
              
(13,178,214
)
Total Stockholders’ Equity
    
3,497,407
                
3,497,407
  
Total Liabilities and Stockholders’ Equity
  
$
41,871,018
              
$
41,871,018
  










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
  
$
381,533
    
(1)
 
  
35,426,632
  
           
(84,744
)
  
(2)
 
      
General and administrative expenses
    
4,040,904
                
4,040,904
  
Depreciation and amortization
    
2,685,957
    
(72,320
)
  
(3)
 
  
2,613,637
  
Total cost and expenses
    
57,640,320
    
224,469
          
57,864,789
  
Loss from operations
    
(1,603,116
)
  
(224,469
)
        
(1,827,585
)
                           
Other income (expense)
                          
Interest expense
    
(2,073,018
)
  
3,775
    
(4)
 
  
(1,949,329
)
           
119,915
    
(5)
 
      
Debt extinguishment charges
    
(874,682
)
  
0
    
(6)
 
  
(874,682
)
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
)
  
123,689
          
(2,322,045
)
Loss before income taxes
    
(4,048,850
)
  
(100,780
)
        
(4,149,630
)
                           
Income taxes
    
(808,705
)
  
34,265
    
(7)
 
  
(774,440
)
Net loss
    
(4,857,555
)
  
(66,515
)
        
(4,924,070
)
                           
Preferred stock dividends
    
426,568
                
426,568
  
Net loss on common shares
  
$
(5,284,123
)
$
(66,515
)
      
$
(5,350,638
)
                           
Loss per common share - basic and diluted
  
$
(0.98
)
$
(0.01
)
      
$
(0.99
)
                           
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. & Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended August 27, 2006



   
Meritage
Hospitality
Group Inc. &
Subsidiaries
  
Pro Forma
Adjustments
  
Pro
Forma
Ref.
  
Consolidated
Pro Forma
  
Food and beverage revenue
  
$
44,377,292
              
$
44,377,292
  
                           
Cost and expenses
                          
Cost of food and beverages
    
12,490,948
                
12,490,948
  
Operating expenses
    
28,175,557
  
$
273,467
    
(1)
 
  
28,388,520
  
           
(60,504
)
  
(2)
 
      
General and administrative expenses
    
2,700,314
                
2,700,314
  
Depreciation and amortization
    
2,038,346
    
(59,823
)
  
(3)
 
  
1,978,523
  
Total cost and expenses
    
45,405,165
    
153,140
          
45,558,305
  
                           
Loss from operations
    
(1,027,873
)
  
(153,140
)
        
(1,181,013
)
                           
Other income (expense)
                          
Interest expense
    
(1,306,851
)
  
2,734
    
(4)
 
  
(1,193,524
)
           
110,593
    
(5)
 
      
Debt extinguishment charges
    
(102,403
)
  
53,322
    
(6)
 
  
(49,081
)
Interest income
    
79,580
                
79,580
  
Other income, net
    
253,311
                
253,311
  
Total other expense
    
(1,076,363
)
  
166,648
          
(909,715
)
Loss before income taxes
    
(2,104,236
)
  
13,508
          
(2,090,728
)
                           
Income taxes
    
(412,149
)
  
(4,593
)
  
(7)
 
  
(416,742
)
Net loss
    
(2,516,385
)
  
8,915
          
(2,507,470
)
                           
Preferred stock dividends
    
426,568
                
426,568
  
Net loss on common shares
  
$
(2,942,953
)
$
8,915
        
$
(2,934,038
)
                           
                           
Loss per common share - basic and diluted
  
$
(0.54
)
$
0.00
        
$
(0.54
)
                           
Weighted average shares outstanding - basic and
                         
diluted
    
5,427,388
                
5,427,388
  





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 August 25, 2006, involving one of its Wendy’s restaurants. This was the third sale and leaseback of a Wendy’s restaurant to unrelated third parties since May 31, 2006, 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 August 27, 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 nine months ended August 27, 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 August 27, 2006.

The pro forma adjustments are as follows:

Balance Sheet:

All restaurant property sales were consummated prior to August 27, 2006 and, accordingly, there are no pro forma adjustments necessary to restate the balance sheet.

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

 

F-6

 

(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-7