##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period ended August 14, 2005
 Commission
file number 1-08395
 Morgans Foods, Inc.
  Ohio
    
    34-0562210(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)24200 Chagrin Boulevard, Suite 126, Beachwood, Ohio
    
    44122(Address of principal executive offices)
    
    (Zip Code)
 Registrants
telephone number, including area code: (216) 360-7500
 
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TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresINDEX TO EXHIBITSSIGNATURESEX-31.1 Certification of Chairman and CEOEX-31.2 Certification of Vice President and CFOEX-32.1 Certification of Chairman and CEOEX-32.2 Certification of Vice President and CFO    Table of Contents  
 PART I   FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 Morgans Foods, Inc.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Quarter EndedAugust 14, 2005
    
    
    August 15, 2004Revenues
    
    $
    21,558,000
    
    
    $
    19,791,000Cost of sales:Food, paper and beverage
    
    
    6,621,000
    
    
    
    6,303,000Labor and benefits
    
    
    5,511,000
    
    
    
    5,359,000Restaurant operating expenses
    
    
    5,451,000
    
    
    
    5,109,000Depreciation and amortization
    
    
    762,000
    
    
    
    777,000General and administrative expenses
    
    
    1,316,000
    
    
    
    1,122,000(Gain) loss on restaurant assets
    
    
    (142,000
    )
    
    
    22,000Operating income
    
    
    2,039,000
    
    
    
    1,099,000Interest Expense:Bank debt and notes payable
    
    
    (946,000
    )
    
    
    (1,010,000
    )Capital leases
    
    
    (20,000
    )
    
    
    (11,000
    )Other income and expense, net
    
    
    13,000
    
    
    
    22,000Income before income taxes
    
    
    1,086,000
    
    
    
    100,000Provision for income taxes
    
    
    2,000
    
    
    
    1,000Net income
    
    $
    1,084,000
    
    
    $
    99,000Basic and diluted net income
per common share
    
    $
    .40
    
    
    $
    .04Basic weighted average number of
shares outstanding
    
    
    2,718,495
    
    
    
    2,718,441Diluted weighted average number of
shares outstanding
    
    
    2,725,865
    
    
    
    2,722,928
 See notes to consolidated financial statements.
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PART I   FINANCIAL INFORMATION
 Item 1. Financial Statements.
 Morgans Foods, Inc.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Twenty-Four Weeks EndedAugust 14, 2005
    
    
    August 15, 2004Revenues
    
    $
    42,318,000
    
    
    $
    38,134,000Cost of sales:Food, paper and beverage
    
    
    13,042,000
    
    
    
    11,875,000Labor and benefits
    
    
    10,855,000
    
    
    
    10,839,000Restaurant operating expenses
    
    
    10,566,000
    
    
    
    9,891,000Depreciation and amortization
    
    
    1,512,000
    
    
    
    1,560,000General and administrative expenses
    
    
    2,467,000
    
    
    
    2,395,000(Gain) loss on restaurant assets
    
    
    (397,000
    )
    
    
    292,000Operating income
    
    
    4,273,000
    
    
    
    1,282,000Interest Expense:Bank debt and notes payable
    
    
    (1,941,000
    )
    
    
    (2,046,000
    )Capital leases
    
    
    (31,000
    )
    
    
    (22,000
    )Other income and expense, net
    
    
    42,000
    
    
    
    39,000Income (loss) before income taxes
    
    
    2,343,000
    
    
    
    (747,000
    )Provision for income taxes
    
    
    2,000
    
    
    
    1,000Net income (loss)
    
    $
    2,341,000
    
    
    $
    (748,000
    )Basic and diluted net income (loss)
per common share
    
    $
    .86
    
    
    $
    (.28
    )Basic weighted average number of
shares outstanding
    
    
    2,718,495
    
    
    
    2,718,441Diluted weighted average number of
shares outstanding
    
    
    2,724,505
    
    
    
    2,718,441
 See notes to consolidated financial statements.
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Morgans Foods, Inc.
 CONSOLIDATED BALANCE SHEETS
 (unaudited)
 August 14, 2005
    
    
    February 27, 2005ASSETSCurrent assets:Cash and equivalents
    
    $
    6,420,000
    
    
    $
    3,654,000Receivables
    
    
    288,000
    
    
    
    392,000Inventories
    
    
    642,000
    
    
    
    588,000Prepaid expenses
    
    
    356,000
    
    
    
    589,0007,706,000
    
    
    
    5,223,000Property and equipment:Land
    
    
    10,462,000
    
    
    
    10,662,000Buildings and improvements
    
    
    19,415,000
    
    
    
    19,423,000Property under capital leases
    
    
    1,298,000
    
    
    
    435,000Leasehold improvements
    
    
    7,343,000
    
    
    
    7,210,000Equipment, furniture and fixtures
    
    
    19,761,000
    
    
    
    19,428,000Construction in progress
    
    
    50,000
    
    
    
    189,00058,329,000
    
    
    
    57,347,000Less accumulated depreciation and amortization
    
    
    27,106,000
    
    
    
    25,740,00031,223,000
    
    
    
    31,607,000Other assets
    
    
    986,000
    
    
    
    1,040,000Franchise agreements
    
    
    1,623,000
    
    
    
    1,693,000Goodwill
    
    
    9,227,000
    
    
    
    9,227,000$
    50,765,000
    
    
    $
    48,790,000LIABILITIES AND SHAREHOLDERS DEFICIENCYCurrent liabilities:Current maturities of long-term debt
    
    $
    3,134,000
    
    
    $
    43,682,000Current maturities of capital lease obligations
    
    
    23,000
    
    
    
    13,000Accounts payable
    
    
    4,193,000
    
    
    
    4,034,000Accrued liabilities
    
    
    4,074,000
    
    
    
    3,542,00011,424,000
    
    
    
    51,271,000Long-term debt
    
    
    38,899,000
    
    
    
    Long-term capital lease obligations
    
    
    1,212,000
    
    
    
    368,000Other long-term liabilities
    
    
    1,463,000
    
    
    
    1,725,000SHAREHOLDERS DEFICIENCYPreferred shares, 1,000,000 shares authorized,
no shares outstandingCommon StockAuthorized
shares  25,000,000Issued
shares  2,969,405
    
    
    30,000
    
    
    
    30,000Treasury
stock  250,910
    
    
    (284,000
    )
    
    
    (284,000
    )Capital in excess of stated value
    
    
    28,829,000
    
    
    
    28,829,000Accumulated deficit
    
    
    (30,808,000
    )
    
    
    (33,149,000
    )Total shareholders deficiency
    
    
    (2,233,000
    )
    
    
    (4,574,000
    )$
    50,765,000
    
    
    $
    48,790,000
 See notes to consolidated financial statements.
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Morgans Foods, Inc.
 CONSOLIDATED STATEMENT OF SHAREHOLDERS DEFICIENCY
 (unaudited)
 Capital in
    
    
    
    
    
    
    TotalCommon Shares
    
    
    Treasury Shares
    
    
    excess of
    
    
    Accumulated
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    stated value
    
    
    Deficit
    
    
    DeficiencyBalance February 27, 2005
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    (250,910
    )
    
    $
    (284,000
    )
    
    $
    28,829,000
    
    
    $
    (33,149,000
    )
    
    $
    (4,574,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,341,000
    
    
    
    2,341,000Balance August 14, 2005
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    250,910
    
    
    $
    (284,000
    )
    
    $
    28,829,000
    
    
    $
    (30,808,000
    )
    
    $
    (2,233,000
    )
 See notes to consolidated financial statements
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Morgans Foods, Inc.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Twenty-Four Weeks EndedAugust 14, 2005
    
    
    August 15, 2004Cash flows from operating activities:Net income (loss)
    
    $
    2,341,000
    
    
    $
    (748,000
    )Adjustments to reconcile to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,512,000
    
    
    
    1,560,000Amortization of deferred financing costs
    
    
    54,000
    
    
    
    57,000Amortization of supply agreement advances
    
    
    (327,000
    )
    
    
    (365,000
    )Funding from supply agreements
    
    
    52,000
    
    
    
    63,000(Gain) loss on restaurant assets
    
    
    (397,000
    )
    
    
    292,000Change in assets and liabilities:Decrease in receivables
    
    
    104,000
    
    
    
    9,000Increase in inventories
    
    
    (54,000
    )
    
    
    (126,000
    )Decrease (increase) in prepaid expenses
    
    
    233,000
    
    
    
    (286,000
    )Decrease in other assets
    
    
    
    
    
    
    25,000Increase in accounts payable
    
    
    159,000
    
    
    
    710,000Increase in accrued liabilities
    
    
    241,000
    
    
    
    196,000Net cash provided by operating activities
    
    
    3,918,000
    
    
    
    1,387,000Cash flows from investing activities:Capital expenditures
    
    
    (811,000
    )
    
    
    (492,000
    )Purchase of franchise agreement
    
    
    
    
    
    
    (25,000
    )Insurance Proceeds
    
    
    405,000
    
    
    
    Redemption of certificate of deposit
    
    
    
    
    
    
    300,000Net cash used in investing activities
    
    
    (406,000
    )
    
    
    (217,000
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (1,649,000
    )
    
    
    (1,470,000
    )Principal payments on capital lease obligations
    
    
    (9,000
    )
    
    
    (33,000
    )Proceeds from sale leaseback
    
    
    912,000
    
    
    
    -Proceeds from issuance of long-term debt,
net of financing costs
    
    
    
    
    
    
    29,000Net cash used in financing activities
    
    
    (746,000
    )
    
    
    (1,474,000
    )Net change in cash and equivalents
    
    
    2,766,000
    
    
    
    (304,000
    )Cash and equivalents, beginning balance
    
    
    3,654,000
    
    
    
    4,353,000Cash and equivalents, ending balance
    
    $
    6,420,000
    
    
    $
    4,049,000
 See notes to consolidated financial statements.
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Morgans Foods, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 QUARTERS ENDED AUGUST 14, 2005 AND AUGUST 15, 2004
 (unaudited)
 Note 1. Summary of Significant Accounting Policies.
  Note 2. Income (Loss) Per Common Share.
  Note 3. (Gain) Loss on Restaurant Assets.
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Note 4. Long-Term Debt.
  Financial Restructuring
 Note 5. Lease Obligations and Other Commitments.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Description of Business
 Summary of Expenses and Operating Income as a Percentage of Revenues
 Quarter Ended
    
    Twenty-Four Weeks EndedAug. 14, 2005
    
    Aug. 15, 2004
    
    Aug. 14, 2005
    
    Aug. 15, 2004Cost of sales:Food, paper and beverage
    
    
    30.7
    %
    
    
    31.9
    %
    
    
    30.8
    %
    
    
    31.1
    %Labor and benefits
    
    
    25.6
    %
    
    
    27.1
    %
    
    
    25.7
    %
    
    
    28.4
    %Restaurant operating expenses
    
    
    25.3
    %
    
    
    25.8
    %
    
    
    25.0
    %
    
    
    25.9
    %Depreciation and amortization
    
    
    3.5
    %
    
    
    3.9
    %
    
    
    3.6
    %
    
    
    4.1
    %General and administrative expenses
    
    
    6.1
    %
    
    
    5.7
    %
    
    
    5.8
    %
    
    
    6.3
    %Operating income
    
    
    9.5
    %
    
    
    5.6
    %
    
    
    10.1
    %
    
    
    3.4
    %
 Revenues
 Costs of Sales  Food, Paper and Beverages
 Cost of Sales  Labor and Benefits
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Restaurant Operating Expenses
 Depreciation and Amortization.
 General and Administrative Expenses
 Gain) Loss on Restaurant Assets
 Operating Income
 Interest Expense
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Other Income
 Provision for Income Taxes
 Liquidity and Capital Resources
  11




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Financial Restructuring
  Contractual Obligations and Commitments
 Seasonality
 Safe Harbor Statements
  12




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
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MORGANS FOODS, INC.
 
 INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit Description31.1
    
    Certification of the Chairman and Chief Executive Officer pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of the Senior Vice President, Chief Financial Officer & Secretary
pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chairman of the Board and Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Senior Vice President, Chief Financial Officer and Secretary
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Morgans Foods, Inc.(Registrant)Dated: September 28, 2005
    
    By:
    
    /s/ Kenneth L. HignettKenneth L. Hignett
Senior Vice President,
Chief Financial Officer & Secretary
 15