<PAGE>

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

                                    FORM 10-K

                 Annual Report Pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934

For the fiscal year ended February 29, 2004 Commission file number 1-08395

                              MORGAN'S FOODS, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Ohio                                        34-0562210
--------------------------------                -------------------------------
 (State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                      Identification Number)

             24200 Chagrin Boulevard, Suite 126, Beachwood, OH 44122
--------------------------------------------------------------------------------
              (Address of principal executive officers)     (Zip Code)

Registrant's telephone number, including area code: (216) 360-7500

Securities registered pursuant to Section 12 (b) of the Act:

                                                 Name of each exchange on
       Title of each class                            which registered
---------------------------------                ---------------------------
Common Shares, Without Par Value                  American Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act:      None

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

      As of August 17, 2003, the aggregate market value of the common stock held
by nonaffiliates of the Registrant was $2,106,685.

      As of May 12, 2004, the Registrant had 2,718,441 shares of common stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Part III incorporates by reference certain information from the definitive
Proxy Statement to security holders for the 2004 annual meeting, to be filed
with the Securities and Exchange Commission on or before June 25, 2004.

                                       1

<PAGE>

                              MORGAN'S FOODS, INC.

                                     PART I

ITEM 1. BUSINESS.

      GENERAL. Morgan's Foods, Inc. ("the Company") operates through
wholly-owned subsidiaries KFC restaurants under franchises from KFC Corporation,
Taco Bell restaurants under franchises from Taco Bell Corporation, Pizza Hut
Express restaurants under licenses from Pizza Hut Corporation and an A&W
restaurant under a license from A&W Restaurants, Inc. As of May 28, 2004, the
Company operates 75 KFC restaurants, 7 Taco Bell restaurants, 15 KFC/Taco Bell
"2n1's" under franchises from KFC Corporation and franchises or licenses from
Taco Bell Corporation, 3 Taco Bell/Pizza Hut Express "2n1's" under franchises
from Taco Bell Corporation and licenses from Pizza Hut Corporation, 1 KFC/Pizza
Hut Express "2n1" under a franchise from KFC Corporation and a license from
Pizza Hut Corporation and 1 KFC/A&W "2n1" operated under a franchise from KFC
Corporation and a license from A&W Restaurants, Inc. The Company's fiscal year
is a 52 - 53 week year ending on the Sunday nearest the last day of February.

      RESTAURANT OPERATIONS. The Company's KFC restaurants prepare and sell the
distinctive KFC branded chicken products along with related food items. All
containers and packages bear KFC trademarks. The Company's Taco Bell restaurants
prepare and sell a full menu of quick service Mexican food items using the
appropriate Taco Bell containers and packages. The KFC/Taco Bell "2n1"
restaurants operated under franchise agreements from KFC Corporation and license
agreements from Taco Bell Corporation prepare and sell a limited menu of Taco
Bell items as well as the full KFC menu while those operated under franchise
agreements from both KFC Corporation and Taco Bell Corporation offer a full menu
of both KFC and Taco Bell items. The Taco Bell/Pizza Hut Express "2n1"
restaurants prepare and sell a full menu of Taco Bell items and a limited menu
of Pizza Hut items. The KFC/Pizza Hut Express "2n1" restaurant prepares and
sells a full menu of KFC items and a limited menu of Pizza Hut items. The
KFC/A&W "2n1" sells a limited menu of A&W items and a full menu of KFC items.

      Of the 102 KFC, Taco Bell and "2n1" restaurants operated by the Company as
of May 28, 2004, 16 are located in Ohio, 60 in Pennsylvania, 15 in Missouri, 2
in Illinois, 7 in West Virginia and 2 in New York. The Company was one of the
first KFC Corporation franchisees and has operated in excess of 20 KFC
franchises for more than 25 years. Operations relating to these units are
seasonal to a certain extent, with higher sales generally occurring in the
summer months.

      FRANCHISE AGREEMENTS. All of the Company's KFC and Taco Bell restaurants
are operated under franchise agreements with KFC Corporation and Taco Bell
Corporation, respectively. The Company's KFC/Taco Bell "2n1" restaurants are
operated under franchises from KFC Corporation and either franchises or licenses
from Taco Bell Corporation. The Taco Bell/Pizza Hut Express "2n1's" are operated
under franchises from Taco Bell Corporation and licenses from Pizza Hut
Corporation. The KFC/Pizza Hut Express "2n1" restaurant is operated under a
franchise from KFC Corporation and a license from Pizza Hut Corporation. The
KFC/A&W "2n1" is operated under a franchise from KFC Corporation and a license
from A&W Restaurants, Inc. The Company considers retention of these agreements
to be important to the success of its restaurant business and believes that its
relationships with KFC Corporation, Taco Bell Corporation, Pizza Hut Corporation
and A&W Restaurants, Inc. are satisfactory. For KFC products, the Company is
required to pay

                                       2
<PAGE>

                              MORGAN'S FOODS, INC.

                                 PART I (CONT'D)

royalties of 4% of gross revenues and to expend an additional 5.5% of gross
revenues on national and local advertising pursuant to its franchise agreements.
For Taco Bell products in KFC/Taco Bell "2n1" restaurants operated under license
agreements from Taco Bell Corporation and franchise agreements from KFC
Corporation the Company is required to pay royalties of 10% of Taco Bell gross
revenues and to make advertising fund contributions of 1/2% of Taco Bell gross
revenues. For Taco Bell product sales in restaurants operated under Taco Bell
franchises the Company is required to pay royalties of 5.5% of gross revenues
and to expend an additional 4.5% of gross revenues on national and local
advertising. For Pizza Hut products in "2n1" restaurants the Company is required
to pay royalties of 5.5% of Pizza Hut gross revenues and to expend an additional
4.5% of Pizza Hut gross revenues on national and local advertising. For A&W
products in "2n1" restaurants the Company is required to pay royalties of 7% of
A&W gross revenues and to expend an additional 4% of A&W gross revenues on
national and local advertising.

      In May 1997, the Company renewed substantially all of its existing
franchise agreements for twenty years. New 20 year franchise agreements were
obtained for all 54 restaurants acquired in July 1999. Subject to satisfying KFC
and Taco Bell requirements for restaurant image and other matters, franchise
agreements are renewable at the Company's option for successive ten year
periods. The franchise and license agreements provide that each KFC, Taco Bell,
Pizza Hut Express and A&W unit is to be inspected by KFC Corporation, Taco Bell
Corporation, Pizza Hut Corporation and A&W Restaurants, Inc., respectively,
approximately three or four times per year. These inspections cover product
preparation and quality, customer service, restaurant appearance and operation.

      COMPETITION. The quick service restaurant business is highly competitive
and is often affected by changes in consumer tastes; national, regional, or
local economic conditions, demographic trends, traffic patterns; the type,
number and locations of competing restaurants and disposable purchasing power.
Each of the Company's KFC, Taco Bell and "2n1" restaurants competes directly or
indirectly with a large number of national and regional restaurant operations,
as well as with locally owned restaurants, drive-ins, diners and numerous other
establishments which offer low- and medium-priced chicken, Mexican food, pizza,
hamburgers and hot dogs to the public.

      The Company's KFC, Taco Bell and "2n1" restaurants rely on innovative
marketing techniques and promotions to compete with other restaurants in the
areas in which they are located. The Company's competitive position is also
enhanced by the national advertising programs sponsored by KFC Corporation, Taco
Bell Corporation, Pizza Hut Corporation, A&W Restaurants, Inc. and their
franchisees. Emphasis is placed by the Company on its control systems and the
training of personnel to maintain high food quality and good service. The
Company believes that its KFC, Taco Bell and "2n1" restaurants are competitive
with other quick service restaurants on the basis of the important competitive
factors in the restaurant business which include, primarily, restaurant
location, product price, quality and differentiation, and also restaurant and
employee appearance.

      GOVERNMENT REGULATION. The Company is subject to various federal, state
and local laws affecting its business. Each of the Company's restaurants must
comply with licensing and regulation by a number of governmental authorities,
which include health, sanitation, safety and fire agencies in the state or
municipality

                                       3
<PAGE>

                              MORGAN'S FOODS, INC.

                                 PART I (CONT'D)

in which the restaurant is located. To date, the Company has not been
significantly affected by any difficulty, delay or failure to obtain required
licenses or approvals.

      The Company is also subject to federal and state laws governing such
matters as employment and pay practices, overtime and working conditions. The
bulk of the Company's employees are paid on an hourly basis at rates not less
than the federal and state minimum wages.

      The Company is also subject to federal and state child labor laws which,
among other things, prohibit the use of certain "hazardous equipment" by
employees 18 years of age or younger. To date, the Company has not been
materially adversely affected by such laws.

      SUPPLIERS. The Company has been able to obtain sufficient supplies to
carry on its business and believes it will be able to do so in the future.

      GROWTH. The Company added no new restaurants in fiscal 2004. During fiscal
2003, the Company purchased a KFC restaurant in Niles, OH which was previously
leased and added the A&W concept to the restaurant. During fiscal 2002 the
Company added a Pizza Hut Express each to an existing KFC restaurant and an
existing Taco Bell restaurant.

      EMPLOYEES. As of May 12, 2004, the Company employed approximately 1,900
persons, including 55 administrative and 210 managerial employees. The balance
are hourly employees, most of whom are part-time. None of the restaurant
employees are represented by a labor union. The Company considers its employee
relations to be satisfactory.

ITEM 2. PROPERTIES.

      The Company leases approximately 6,000 square feet of space for its
headquarters in Cleveland, OH. The lease expires February 28, 2005 and the rent
under the current term is $8,530 per month. The lease also contains three, 1
year renewal options, which may be exercised by the Company. The Company also
leases space for a regional office in Youngstown, OH, which is used to assist in
the operation of the KFC, Taco Bell and "2n1" restaurants.

      Of the 102 KFC, Taco Bell and "2n1" restaurants, the Company owns the land
and building for 58 locations, owns the building and leases the land for 24
locations and leases the land and building for 20 locations. 56 of the owned
properties are subject to mortgages. Additionally, the Company leases the land
and building for one closed location. Remaining lease terms (including renewal
options) range from 1 to 25 years and average approximately 14 years. These
leases generally require the Company to pay taxes and utilities, to maintain
casualty and liability insurance, and to keep the property in good repair. The
Company pays annual rent for each leased KFC, Taco Bell or "2n1" restaurant in
amounts ranging from $17,000 to $86,000. In addition, 16 of these leases require
payment of additional rentals based on a percentage of gross

                                       4
<PAGE>

                              MORGAN'S FOODS, INC.

                                 PART I (CONT'D)

sales in excess of certain base amounts. Sales for 8 KFC, Taco Bell and "2n1"
restaurants exceeded the respective base amounts in fiscal 2004.

      The Company believes that its restaurants are generally efficient, well
equipped and maintained and in good condition.

ITEM 3.  LEGAL PROCEEDINGS.

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      There were no matters submitted to security holders for a vote during the
last quarter of the Company's fiscal year ended February 29, 2004.

EXECUTIVE OFFICERS OF THE COMPANY

      The Executive Officers and other Officers of the Company are as follows:

<TABLE>
<CAPTION>
         NAME              AGE     POSITION WITH REGISTRANT        OFFICER SINCE
         ----              ---     ------------------------        -------------
<S>                        <C>     <C>                             <C>
EXECUTIVE OFFICERS:

Leonard R. Stein-Sapir      65      Chairman of the Board          April 1989
                                    and Chief Executive
                                    Officer

James J. Liguori            55      President and Chief            June 1979
                                    Operating Officer

Kenneth L. Hignett          57      Senior Vice President-         May 1989
                                    Chief Financial Officer
                                    & Secretary

OTHER OFFICERS:

Barton J. Craig             55      Senior Vice President -        January 1994
                                    General Counsel

Vincent J. Oddi             61      Vice President-                September 1979
                                    Restaurant Development

Ramesh J. Gursahaney        55      Vice President-                January 1991
                                    Operations Services
</TABLE>

      Executive Officers of the Company serve for a term of one year and until
their successors are elected and qualified, unless otherwise specified by the
Board of Directors. Any officer is subject to removal with or without cause, at
any time, by a vote of a majority of the Board of Directors.

                                       5

<PAGE>

                              MORGAN'S FOODS, INC.

                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      The Company's Common Shares are traded on the American Stock Exchange
under the symbol "MR". The following table sets forth, for the periods
indicated, the high and low sales prices of the Common Shares as reported on the
American Stock Exchange.

<TABLE>
<CAPTION>
                                                                 PRICE RANGE
                                                             HIGH            LOW
                                                           -------------------------
<S>                                                        <C>             <C>
YEAR ENDED FEBRUARY 29, 2004:

                    1st Quarter ................           $   2.74        $   1.53
                    2nd Quarter ................               2.46            1.78
                    3rd Quarter ................               1.92            1.45
                    4th Quarter ................               2.40            1.30

YEAR ENDED MARCH 2, 2003:

                    1st Quarter ................           $   4.89        $   2.15
                    2nd Quarter ................               5.00            2.82
                    3rd Quarter ................               3.15            1.42
                    4th Quarter ................               1.70            1.29
</TABLE>

         As of May 12, 2004, the Company had approximately 958 shareholders of
record. The Company has paid no dividends since fiscal 1975.

                                        6
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART II (CONT'D)

ITEM 6.  SELECTED FINANCIAL DATA.

         The following selected financial information for each of the five
fiscal years in the period ended February 29, 2004, is derived from, and
qualified in its entirety by, the consolidated financial statements of the
Company. The following selected financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes thereto included elsewhere in this report.

                 Dollars in thousands except per share amounts.

<TABLE>
<CAPTION>
                                                                     YEARS ENDED
                                       --------------------------------------------------------------------
                                       FEBRUARY 29,    MARCH 2,      MARCH 3,    FEBRUARY 25,  FEBRUARY 27,
                                          2004           2003          2002          2001          2000
                                       ----------      --------      --------    -----------   ------------
<S>                                    <C>             <C>           <C>         <C>           <C>
Revenues ...........................     $ 81,738      $ 82,326      $ 84,930      $ 78,140      $ 63,606
Cost of sales:
  Food, paper and beverage .........       24,712        25,645        25,987        24,378        19,955
  Labor and benefits ...............       22,816        22,329        22,155        20,702        16,978
Restaurant operating expenses ......       21,320        21,018        21,805        19,795        15,523
Depreciation and amortization ......        3,518         3,499         3,866         3,817         2,672
General and administrative
 expenses ..........................        5,574         5,749         5,209         5,516         4,420
Loss on restaurant assets ..........          567           551           215           597           213
                                         --------      --------      --------      --------      --------
Operating income ...................        3,231         3,535         5,693         3,335         3,845
Income (loss) from
 continuing operations .............       (1,294)       (1,192)          602        (1,693)          283
Gain (loss) from discontinued
 operations (2) ....................            -             -             -           150          (629)
                                         --------      --------      --------      --------      --------
Net income (loss) ..................     $ (1,294)     $ (1,192)     $    602      $ (1,543)     $   (346)
                                         ========      ========      ========      ========      ========
Basic and diluted income (loss)
 per common share (1):
  Income (loss) from
    continuing operations ..........     $   (.48)     $   (.44)     $    .21      $   (.58)     $    .10
  Gain (loss) from
    discontinued operations ........            -             -             -           .05          (.22)
                                         --------      --------      --------      --------      --------
 Net income (loss) .................     $   (.48)     $   (.44)     $    .21      $   (.53)     $   (.12)
                                         ========      ========      ========      ========      ========
Working capital (deficiency) .......     $ (3,999)     $ (3,111)     $ (1,312)     $ (2,454)     $ (4,228)
Total assets .......................       52,672        56,025        60,253        61,554        62,188
Long-term debt .....................       43,370        46,113        48,563        51,046        49,968
Long-term capital lease
 obligations .......................          379           436           544           651           745

Shareholders' equity (deficiency) ..       (2,716)       (1,422)         (197)         (578)          930
</TABLE>

      (1) Computed based upon the basic weighted average number of common shares
outstanding during each year, which were 2,718,441 in 2004, 2,720,182 in 2003,
2,851,160 in 2002, 2,931,227 in 2001 and 2,912,894 in 2000 and the diluted
weighted average number of common and common equivalent shares outstanding
during each year which were 2,718,441 in 2004, 2,720,182 in 2003, 2,853,789 in
2002, 2,931,227 in 2001 and 2,912,894 in 2000.

      (2) The results of operations and gain/loss on disposals of the former
East Side Mario's restaurant segment.

                                       7
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART II (CONT'D)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

         RESULTS OF OPERATIONS. During fiscal 2002 through 2004 the Company
operated KFC franchised restaurants, Taco Bell franchised restaurants and
various "2n1" restaurants which include the KFC, Taco Bell, Pizza Hut and A&W
concepts in the states of Illinois, Missouri, Ohio, Pennsylvania, West Virginia
and New York. The average number of restaurants in operation during fiscal 2004,
2003 and 2002 was 103. During fiscal 2003, the Company added a concept to one
restaurant. During fiscal year 2002, the Company added a concept to two
restaurants.

      SUMMARY OF EXPENSES AND OPERATING INCOME AS A PERCENTAGE OF REVENUES

<TABLE>
<CAPTION>
                                          2004      2003      2002
                                          ----      ----      ----
<S>                                       <C>       <C>       <C>
Cost of sales:
  Food, paper and beverage ............   30.2%     31.2%     30.6%
  Labor and benefits ..................   27.9%     27.1%     26.1%
Restaurant operating expenses .........   26.1%     25.5%     25.7%
Depreciation and amortization .........    4.3%      4.3%      4.6%
General and administrative expenses ...    6.8%      7.0%      6.1%
Operating income ......................    4.0%      4.3%      6.7%
</TABLE>

      REVENUES. Revenue was $81,738,000 in fiscal 2004, a decrease of $588,000
or 0.7% compared to a decrease of $2,604,000 or 3.1% in fiscal 2003. The
$588,000 decrease in restaurant revenues during fiscal year 2004 was primarily
the result of ineffective product promotions by the KFC franchisor during the
year as well as severe winter weather conditions in the Company's market areas.
Revenue was $82,326,000 in fiscal 2003, a decrease of $2,604,000 or 3.1%
compared to an increase of $6,790,000 or 8.7% in fiscal 2002. The $2,604,000
decrease in restaurant revenues during fiscal year 2003 was primarily the result
of a 1.2% decrease in comparable restaurant revenues which was due to franchisor
product promotions which were ineffective in the face of increased competition
in the chicken segment of the quick service industry and $1,641,000 in revenues
generated from the extra week that occurred in fiscal 2002. Furthermore, the
fourth quarter of fiscal year 2003 revenues were reduced as a result of a
prolonged winter with near record snowfall in the Company's market areas.

      Revenues for the 16 weeks ended February 29, 2004 were $22,865,000, a
decrease of $337,000 due to a 1.5% decrease in comparable restaurant revenues
for the reasons discussed above. Revenues for the 16 weeks ended March 2, 2003
were $23,202,000, a decrease of $2,764,000 due to a 4.6% decrease in comparable
restaurant revenues due to the factors discussed above and $1,641,000 in
revenues generated from the extra week that occurred during fiscal 2002.

      COST OF SALES - FOOD, PAPER AND BEVERAGE. Food, paper and beverage costs
were $24,712,000 or 30.2% in fiscal 2004 compared to $25,645,000 or 31.2% of
revenues in fiscal 2003. Food, paper and beverage costs as a percentage of
revenue decreased by 0.8% as a result of the development and implementation of
tools that assist management of food costs and 0.2% resulting from the receipt,
during the second quarter of fiscal 2004, of a $156,000 settlement negotiated by
FRANMAC, the Taco Bell franchisee association, with certain

                                       8
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART II (CONT'D)

system food suppliers. Food, paper and beverage costs were $25,645,000 or 31.2%
of revenues in fiscal 2003 compared to $25,987,000 or 30.6% in fiscal 2002.
Food, paper and beverage costs as a percentage of revenue increased by 0.6% as a
result of several factors, including product promotions such as popcorn chicken
and chicken strips having a higher food cost than those promoted during fiscal
2002 and inefficiencies resulting from lower average restaurant volumes. Food,
paper and beverage costs were also reduced by $259,000 during fiscal year 2002
as a result of a settlement negotiated by FRANMAC with certain system food
suppliers.

      For the fourth quarter of fiscal 2004, food, paper and beverage costs
decreased as a percentage of revenues to 30.0% from 31.1% in the fourth quarter
fiscal 2003. The decrease of 1.1% of revenues was primarily due to the reason
discussed above as part of the fiscal 2004 comparison.

      COST OF SALES - LABOR AND BENEFITS. Labor and benefits increased to 27.9%
of revenues or $22,816,000 in fiscal 2004 from 27.1% of revenues or $22,329,000
in fiscal 2003. The increase was primarily due to increased health care costs of
$566,000 and increased workers compensation costs of $254,000 which were
partially offset by improved operating efficiencies. Labor and benefits
increased to 27.1% of revenues or $22,329,000 in fiscal 2003 from 26.1% of
revenues or $22,155,000 in fiscal 2002. The increase was primarily due to lower
average restaurant volumes, increased health care costs and higher average
wages.

      Labor and benefit costs for the fourth quarter of fiscal 2004 increased to
28.9% of revenues or $6,616,000 compared to 28.1% of revenues or $6,518,000 in
fiscal 2003. This increase was primarily the result of the reasons discussed
above in the fiscal 2004 comparison.

      RESTAURANT OPERATING EXPENSES. Restaurant operating expenses increased to
26.1% of revenues or $21,320,000 in fiscal 2004 from 25.5% of revenues or
$21,018,000 in fiscal 2003 primarily as a result of increased general insurance
costs, the increased cost of the toys included with kids meals and the increased
volume of kids meals sold as a result of promotional efforts. Restaurant
operating expenses were relatively unchanged as a percentage of revenues at
$21,018,000 or 25.5% and $21,805,000 or 25.7% in fiscal 2003 and 2002,
respectively.

      Restaurant operating expenses for the fourth quarter of fiscal 2004
increased to 27.3% of revenues or $6,254,000 from 26.2% of revenues or
$6,072,000 in the year earlier quarter. This increase was primarily the result
of the reasons discussed above in the fiscal 2004 comparison as well as the
increased utility costs associated with the severe winter.

      DEPRECIATION AND AMORTIZATION. Depreciation and amortization was
relatively unchanged at $3,518,000 and $3,499,000 in fiscal 2004 and 2003,
respectively. Depreciation and amortization in fiscal 2003 decreased to
$3,499,000 from $3,866,000 in fiscal 2002 as a result of the implementation of
FASB 142 whereby goodwill is no longer amortized.

                                       9
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART II (CONT'D)

      GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased to $5,574,000 or 6.8% of revenues from $5,749,000 or 7.0% percent of
revenues as a result of decreased legal and professional, office supply and
telephone expenses which was partially offset by increased healthcare and
workers compensation costs. These decreases were a result of negotiated price
decreases as well as reduced usage. General and administrative expenses
increased to $5,749,000 or 7.0% of revenues in fiscal 2003 from $5,209,000 or
6.1% of revenues in fiscal 2002 as a result of increased health care, workers
compensation, occupancy costs and payroll costs.

      For the fourth quarter of fiscal 2004 and 2003, general and administrative
expenses were relatively unchanged at 7.5% and 7.3% of revenues or $1,715,000
and $1,695,000, respectively.

      LOSS ON RESTAURANT ASSETS. In fiscal 2004, the Company recorded losses of
$313,000 as a result of the disposal of assets during the image enhancement of
two restaurants, an increase of $81,000 in the reserve for one previously closed
restaurant and the $135,000 loss associated with the unanticipated closing of
another restaurant as a result of the landlord terminating the lease in order to
use the property for another project. In fiscal 2004, the Company also recorded
impairment losses of $254,000 on two operating restaurants to reduce their
carrying values to their estimated fair values. In fiscal 2003, the Company
recorded losses of $218,000 as a result of the disposal of assets during the
image enhancement and expansion of several restaurants and the increase in the
reserve for disposal of previously closed restaurants. In fiscal 2003, the
Company also recorded impairment losses of $333,000 on three operating
restaurants to reduce their carrying values to their estimated fair values.

      In the fourth quarter of fiscal 2004 the Company recorded a loss on
restaurant assets of $493,000 which included the $254,000 asset impairment
write-down due to trade area deterioration which became apparent during the
fourth quarter and the $135,000 loss associated with the unanticipated closing
of another restaurant at the end of the fiscal year as mentioned above. This
compared to a loss of $358,000 in the prior year fourth quarter which included
the $333,000 asset impairment writedown mentioned above. The fiscal 2004 and
2003 impairment write-downs resulted from deterioration of the operating results
and trade areas of the locations during the fourth quarter.

      OPERATING INCOME. Operating income in fiscal 2004 decreased to $3,231,000
from $3,535,000 in fiscal 2003 primarily as a result of lower average restaurant
volumes and increased benefit costs which were partially offset by improved
operating efficiencies and the receipt of the settlement with certain Taco Bell
system food suppliers mentioned earlier. Operating income in fiscal 2003
decreased to $3,535,000 from $5,693,000 in fiscal 2002 primarily as a result of
lower average restaurant volumes, higher food cost product promotions and
increased payroll and benefit costs.

      INTEREST EXPENSE. Interest expense from bank debt and notes payable
decreased to $4,578,000 in fiscal 2004 from $4,802,000 in fiscal 2003. Interest
expense from bank debt and notes payable decreased to $4,802,000 in fiscal 2003
from $5,174,000 in fiscal 2002. The decreases in interest expense for fiscal
2004 and 2003 were a result of regular principal payments made on debt and notes
payable balances. Interest

                                       10
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART II (CONT'D)

expense from capitalized lease debt decreased $13,000 to $49,000 in fiscal 2004
from $62,000 in fiscal 2003. Interest expense from capitalized lease debt
decreased $10,000 to $62,000 in fiscal 2003 from $72,000 in fiscal 2002. Both of
these decreases were due to lower principal balances during the years discussed.

      OTHER INCOME. Other income decreased to $106,000 in fiscal 2004 from
$147,000 in fiscal 2003 as a result of lower interest income due to decreases in
both the interest rate earned and the amount of average cash investments. Other
income was relatively unchanged at $147,000 in fiscal 2003 compared to $159,000
in fiscal 2002.

      PROVISION FOR INCOME TAXES. The provision for income taxes was
substantially unchanged at $4,000, $10,000 and $4,000 in fiscal years 2004, 2003
and 2002, respectively.

      LIQUIDITY AND CAPITAL RESOURCES. The Company, like others in the
restaurant industry, operates on minimal working capital and relies on cash flow
from operations, debt borrowings and lease financing for the construction and
refurbishment of restaurant properties and repayment of debt. Cash flow activity
for fiscal 2004, 2003 and 2002 is presented in the Consolidated Statements of
Cash Flows.

      Net cash provided by operating activities increased to $3,667,000 in
fiscal 2004 from $1,829,000 in fiscal 2003 due to higher funding from supply
agreements and as a result of cash provided by changes in operating assets and
liabilities.

      Capital expenditures for fiscal 2004 were $1,170,000, which related to the
image enhancement of two restaurants and normal capital expenditures to maintain
other restaurants. In fiscal 2004 the Company made principal payments on
long-term debt of $2,603,000 and on capital lease obligations of $107,000.

      The quick service restaurant operations of the Company have historically
provided sufficient cash flow to service the Company's debt, refurbish and
upgrade restaurant properties and cover administrative overhead. Management
believes that operating cash flow will provide sufficient capital to continue to
operate and maintain the restaurants, service the Company's debt and support
required corporate expenses.

      Certain of the Company's debt arrangements require the maintenance of a
consolidated fixed charge coverage ratio of 1.2 to 1 regarding all of its
mortgage loans and individual restaurant coverage ratios between 1.2 and 1.5 to
1 on certain of its loans. As of February 29, 2004, the Company was not in
compliance with the consolidated ratio of 1.2 to 1 or the unit level ratios
relating to $31,933,000 of its debt. The Company has obtained waivers of these
violations from the applicable lenders. As these waivers continue through the
end of fiscal year 2005, the Company has classified its debt as long term as of
February 29, 2004. All payments on the Company's debt have been, and continue to
be, current and management believes that the Company will continue to be able to
service the debt. If the Company does not comply with debt covenants in the
future, and if future waivers are not obtained, the lenders will have certain
remedies available to them which could include calling of the debt or
acceleration of payments. Noncompliance with the requirements of the Company's
mortgage debt, if not waived, could also trigger cross-default provisions of
other debt agreements.

                                       11
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART II (CONT'D)

      The Company continues to be out of compliance with certain of the
continued listing standards of the American Stock Exchange and was required to
submit a revised business plan to the Exchange indicating how the Company would
achieve compliance with those standards. Specifically, the Company fell under
the guidelines in Section 1003(a)(i) with shareholders' equity of less than
$2,000,000 and has sustained losses from continuing operations and/or net losses
in two of its three most recent fiscal years and Section 1003(a)(ii) with
shareholder's equity of less than $4,000,000 and has sustained losses from
continuing operations and/or net losses in three out of its four most recent
fiscal years.

      During fiscal 2004 the Company provided to staff at the Exchange its
quarterly financial results, projected results for fiscal 2004 and a plan for
how the Company would regain compliance with the continued listing standard. On
December 24, 2003, the Company provided updated information to the Exchange
including third quarter fiscal 2004 financial results which did not meet the
previously accepted operating plan but which were profitable. On April 23, 2004,
the Company provided updated information to the Exchange including projected
fiscal 2004 results which did not meet the previously accepted operating plan.
The Company cannot predict the Exchange's response, but the failure to meet the
previously accepted operating plan could result in the commencement of delisting
proceedings. If the Company were delisted, or if its common shares were
suspended from trading, the liquidity of its common shares would likely be
adversely affected.

      The Company has been financing the expansion and image enhancement of its
restaurants primarily through the use of long-term debt on which the rate is
fixed at the time of funding. At February 29, 2004 there was $46,113,000 of such
debt outstanding at rates ranging from 8.0% to 11.1%. The Company's market risk
exposure is primarily due to possible fluctuations in interest rates as they
relate to future borrowings. The Company has evaluated the potential effect of a
1.0% increase in these rates on future capital spending plans and believes that
there would be no material effect. The Company does not enter into derivative
financial investments for trading or speculation purposes. As a result, the
Company believes that its market risk exposure is not material to the Company's
financial position, liquidity or results of operations.

The Company's contractual obligations and commitments as of February 29, 2004
were as follows:

                                 (In thousands)

<TABLE>
<CAPTION>
 CONTRACTUAL OBLIGATIONS       2005         2006        2007       2008        2009     THEREAFTER     TOTAL
 -----------------------       ----         ----        ----       ----        ----     ----------     -----
<S>                           <C>         <C>         <C>         <C>         <C>       <C>           <C>
Long-term debt, including
  current maturities          $ 2,743     $ 2,930     $ 3,101     $ 2,908     $ 3,045     $31,386     $46,113
Interest expense on
  long-term debt                4,232       3,960       3,674       3,370       3,103      13,669      32,008
Capital leases                     58          13          14          16          17         319         437
Operating leases                2,027       1,700       1,424       1,151       1,101       4,513      11,916
</TABLE>

                                       12
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART II (CONT'D)

Other Contractual Obligations and Commitments

      At February 29, 2004 the Company had a letter of credit for $300,000
outstanding in favor of a vendor. The letter of credit which expires June 18,
2004 was secured by a $300,000 certificate of deposit.

      For KFC products, the Company is required to pay royalties of 4% of gross
revenues and to expend an additional 5.5% of gross revenues on national and
local advertising pursuant to its franchise agreements. For Taco Bell products
in KFC/Taco "2n1" restaurants operated under license agreements from Taco Bell
Corporation and franchise agreements from KFC Corporation, the Company is
required to pay royalties of 10% of Taco Bell gross revenues and to make
advertising fund contributions of 1/2% of Taco Bell gross revenues. For Taco
Bell product sales in restaurants operated under Taco Bell franchises the
Company is required to pay royalties of 5.5% of gross revenues and to expend an
additional 4.5% of gross revenues on national and local advertising. For Pizza
Hut products in Taco Bell/Pizza Hut Express "2n1" restaurants the Company is
required to pay royalties of 5.5% of Pizza Hut gross revenues and to expend an
additional 4.5% of Pizza Hut gross revenues on national and local advertising.
For A&W products in "2n1" restaurants the Company is required to pay royalties
of 7% of A&W gross revenues and to expend an additional 4% of A&W gross revenues
on national and local advertising. Total royalties and advertising, which are
included in the Consolidated Statements of Operations as part of restaurant
operating expenses, were $8,083,000, $8,141,000 and $8,514,000 in fiscal 2004,
2003 and 2002, respectively.

      In fiscal year 2000 the Company signed an agreement and prepaid franchise
fees of $170,000 which granted it the rights to develop 20 KFC, Taco Bell or KFC
"2n1" restaurants in specific geographic areas. Under the agreement five
restaurants are required to be developed each year over a four year period. As
of February 29, 2004 the Company has developed only five restaurants under this
agreement. The status of the development agreements has been discussed with the
franchisors and the Company has not been declared in default of the KFC
agreement. If the Company should default on the KFC agreement, it could lose the
rights to develop certain KFC restaurants and could forfeit the remaining
balance of prepaid franchise fees, which was $60,000 at February 29, 2004. The
Company has been declared in default under the terms of its Taco Bell
development agreement and is required to forfeit the related deposits of
$30,000. The Taco Bell franchisor is in the process of assessing the Company's
request to use $25,000 of the deposits towards other franchise/license agreement
extension fees and that amount remains as an asset at February 29, 2004. The
Company believes that noncompliance with the development agreement will not have
a material impact on its financial position, results of operations or cash
flows.

      The franchise agreements with KFC and Taco Bell Corporation require the
Company to upgrade and remodel its restaurants to comply with the franchisors'
current standards within agreed upon timeframes. The Company does not expect to
commit funds to image enhancements or expansions during fiscal 2005. In order to
meet the terms and conditions of the franchise agreements, the Company has the
following obligations:

                                       13
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART II (CONT'D)

<TABLE>
<CAPTION>
                              NUMBER
                             OF UNITS        OBLIGATION (1)
-----------                  --------        --------------
<S>                          <C>             <C>
FISCAL YEAR
    2006                           12(2)       $ 2,800,000
    2007                            9(2)         1,525,000
    2008                            7(2)         1,075,000
    2009                            3(2)           600,000

THEREAFTER TO 2021

Image Enhancements                 29           5,800,000
Relocation of
 existing restaurants              10(3)       10,000,000
                              -------         -----------
Total                              70         $21,800,000
                              =======         ===========
</TABLE>

(1)   These amounts are based on current construction cost estimates and actual
      costs may vary.

(2)   Required image enhancements.

(3)   Generally at the time relocation is required, the related assets have been
      depreciated or amortized to a low net book value. If an economically
      suitable new location cannot be obtained, the Company may choose to close
      the restaurant and abandon the remaining assets.

      There can be no assurance that the Company will be able to accomplish the
development required in the franchise and development agreements on terms
acceptable to the Company. If the Company is unable to meet the requirements of
a franchise agreement, the franchisor may choose to extend the time allowed for
compliance or may terminate the franchise agreement.

      SEASONALITY. The operations of the Company are affected by seasonal
fluctuations. Historically, the Company's revenues and income have been highest
during the summer months with the fourth fiscal quarter representing the slowest
period. This seasonality is primarily attributable to weather conditions in the
Company's marketplace which consists of portions of Ohio, Pennsylvania,
Missouri, Illinois, West Virginia and New York.

      CRITICAL ACCOUNTING POLICIES. The Company's reported results are impacted
by the application of certain accounting policies that require it to make
subjective or complex judgments or to apply complex accounting requirements.
These judgments include estimations about the effect of matters that are
inherently uncertain and may significantly impact its quarterly or annual
results of operations, financial condition or cash flows. Changes in the
estimates and judgments could significantly affect results of operations,
financial condition and cash flows in future years. The Company believes that
its critical accounting policies include:

  -   Estimating future cash flows and fair value of assets associated with
      assessing potential impairment of long-lived and intangible assets and
      projected compliance with debt covenants.

  -   Determining the appropriate valuation allowances for deferred tax assets
      and reserves for potential tax exposures. See Note 8 to the consolidated
      financial statements for a discussion of income taxes.

                                       14
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART II (CONT'D)

  -   Applying complex lease accounting requirements to the Company's capital
      and operating leases of property and equipment. The Company leases the
      building or land, or both, for nearly one-half of its restaurants. See
      Note 6 to the consolidated financial statements for a discussion of lease
      accounting.

      NEW ACCOUNTING STANDARDS. In fiscal 2004, the Company adopted the
provisions of SFAS No. 143 Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for legal obligations associated
with the retirement of tangible long-lived assets and associated asset
retirement costs. The adoption of SFAS No. 143 did not have a material impact on
the Company's consolidated financial position or results of operations.

      SAFE HARBOR STATEMENTS. This document contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
statements include those identified by such words as "may," "will," "expect"
"anticipate," "believe," "plan" and other similar terminology. The
"forward-looking statements" reflect the Company's current expectations and are
based upon data available at the time of the statements. Actual results involve
risks and uncertainties, including both those specific to the Company and
general economic and industry factors. Factors specific to the Company include,
but are not limited to, its debt covenant compliance and its ability to obtain
waivers of any debt covenant violations as well as the listing status of its
common shares with the American Stock Exchange.

      Economic and industry risks and uncertainties include, but are not
limited, to, franchisor promotions, business and economic conditions,
legislation and governmental regulation, competition, success of operating
initiatives and advertising and promotional efforts, volatility of commodity
costs and increases in minimum wage and other operating costs, availability and
cost of land and construction, consumer preferences, spending patterns and
demographic trends.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      Information required by this item is included under "Liquidity and Capital
Resources".

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      The Consolidated Financial Statements of the Company are set forth in Item
14 of this Report.

                                       15
<PAGE>

                              MORGAN'S FOODS, INC.

                                    PART III

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

      None.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      Information on Directors of the Company is incorporated herein by
reference to the definitive Proxy Statement to security holders for the 2004
annual meeting to be filed with the Securities and Exchange Commission on or
before June 25, 2004.

      Information regarding the Executive Officers of the Company is reported in
a separate section captioned "Executive Officers of the Company" included in
Part I hereof.

ITEM 11.  EXECUTIVE COMPENSATION.

      Information on executive compensation is incorporated herein by reference
to the definitive Proxy Statement to security holders for the 2004 annual
meeting to be filed with the Securities and Exchange Commission on or before
June 25, 2004.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      Information on security ownership of certain beneficial owners, officers
and directors is incorporated herein by reference to the definitive Proxy
Statement to security holders for the 2004 annual meeting to be filed with the
Securities and Exchange Commission on or before June 25, 2004.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      Information on certain relationships and related transactions is
incorporated herein by reference to the definitive Proxy Statement to security
holders for the 2004 annual meeting to be filed with the Securities and Exchange
Commission on or before June 25, 2004.

ITEM 14.  CONTROLS AND PROCEDURES.

      Management is responsible for the preparation, integrity and objectivity
of the consolidated financial statements and other information presented in this
report. The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
reflect certain estimates and adjustments by management. In preparing financial
statements in conformity with accounting principles generally accepted in the
United States of America, we must make a variety of decisions that affect the
reported amounts and the related disclosures. Such decisions include the
selection of accounting principles that reflect the economic substance of the
underlying transactions and the assumptions

                                       16
<PAGE>

                              MORGAN'S FOODS, INC.

                                PART III (CONT'D)

on which to base accounting estimates. In reaching such decisions, we apply
judgment based on our understanding and analysis of the relevant circumstances,
including our historical experience, actuarial studies and other assumptions. We
re-evaluate our estimates and assumptions on an ongoing basis. While actual
results could, in fact, differ from those estimated at the time of preparation
of the financial statements, we are committed to preparing financial statements
incorporating accounting principles, assumptions and estimates that promote the
representational faithfulness, verifiability, neutrality and transparency of the
accounting information included in the financial statements.

      We maintain a system of internal accounting controls and procedures, which
management believes provide reasonable assurance that transactions are properly
recorded and that assets are protected from loss or unauthorized use.

      We maintain a system of disclosure controls and procedures to ensure
timely collection and evaluation of information subject to disclosure, to ensure
the selection of appropriate accounting policies, and to ensure compliance with
our accounting policies and procedures. Our disclosure control systems and
procedures include the certification of financial information provided from each
of our key management personnel.

      The integrity of our disclosure control systems are based on written
policies and procedures, the careful selection and training of qualified
financial personnel and direct management review. Our disclosure control
committee meets periodically to review our systems and procedures and to review
our financial statements and related disclosures.

      Our independent auditors have direct and private access to the Audit
Committee.

      The effectiveness of the design and operation of our disclosure controls
and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act
of 1934) was evaluated as of the date of the financial statements. This
evaluation was carried out under the supervision of and with the participation
of management, including the Chief Executive Officer and the Chief Financial
Officer. Based upon that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that the design and operation of these disclosure
controls and procedures are effective. There were no significant changes in
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the most recent evaluation.

                                       17
<PAGE>

                              MORGAN'S FOODS, INC.

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

      (a)   1 and 2. Financial Statements and Financial Statement Schedules.

            The Financial Statements and Financial Statement Schedules listed on
            the accompanying Index to Financial Statements and Financial
            Statement Schedules are filed as part of this Annual Report on Form
            10-K.

      (a)   3. Exhibits.

            The Exhibits listed on the accompanying Index to Exhibits are filed
            as part of this Annual Report on Form 10-K.

                                       18
<PAGE>

                              MORGAN'S FOODS, INC.
                        INDEX TO FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULES
                               ITEM 15 (A) 1 AND 2

<TABLE>
<CAPTION>
                                                                                                  PAGE
ITEM 15 (a) 1                                                                                   REFERENCE
-------------                                                                                   ---------
<S>                                                                                             <C>
Report of Independent Registered Public Accounting Firm...................................           20

Consolidated Balance Sheets
  at February 29, 2004 and March 2, 2003..................................................           21

Consolidated Statements of Operations
  for the years ended February 29, 2004, March 2, 2003
   and March 3, 2002......................................................................           22

Consolidated Statements of Shareholders' Equity (Deficiency)
  for the years ended February 29, 2004, March 2, 2003
   and March 3, 2002......................................................................           23

Consolidated Statements of Cash Flows
  for the years ended February 29, 2004, March 2, 2003
   and March 3, 2002......................................................................           24

Notes to Consolidated Financial Statements................................................           25
</TABLE>

ITEM 15 (a) 2

      All schedules normally required by Form 10-K are not required under the
related instructions or are inapplicable, and therefore are not presented.

                                       19
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Morgan's Foods, Inc.
Cleveland, Ohio

We have audited the accompanying consolidated balance sheets of Morgan's Foods,
Inc. and subsidiaries (the "Company") as of February 29, 2004 and March 2, 2003
and the related consolidated statements of operations, shareholders' equity
(deficiency), and cash flows for each of the three years in the period ended
February 29, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we 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 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. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Morgan's Foods, Inc. and
subsidiaries at February 29, 2004 and March 2, 2003 and the results of their
operations and their cash flows for each of the three years in the period ended
February 29, 2004 in conformity with accounting principles generally accepted in
the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective March
4, 2002, the Company adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets.

/s/ Deloitte & Touche LLP
-------------------------
DELOITTE & TOUCHE LLP
Cleveland, Ohio
June 1, 2004

                                       20
<PAGE>

                              MORGAN'S FOODS, INC.
                           CONSOLIDATED BALANCE SHEETS
                       FEBRUARY 29, 2004 AND MARCH 2, 2003

<TABLE>
<CAPTION>
                                                                   2004              2003
                                                               ------------      ------------
<S>                                                            <C>               <C>
ASSETS

 Current assets:
  Cash and equivalents ......................................  $  4,353,000      $  4,901,000
  Short term investment - restricted ........................       300,000                 -
  Receivables ...............................................       242,000           300,000
  Inventories ...............................................       573,000           492,000
  Prepaid expenses ..........................................       324,000           562,000
                                                               ------------      ------------
                                                                  5,792,000         6,255,000

 Property and equipment (Notes 5 and 6):
  Land ......................................................    10,971,000        10,970,000
  Buildings and improvements ................................    19,246,000        18,781,000
  Property under capital leases .............................       776,000         1,006,000
  Leasehold improvements ....................................     7,353,000         7,380,000
  Equipment, furniture and fixtures .........................    18,864,000        18,618,000
  Construction in progress ..................................        58,000            54,000
                                                               ------------      ------------
                                                                 57,268,000        56,809,000
 Less accumulated depreciation and amortization .............    23,377,000        20,357,000
                                                               ------------      ------------
                                                                 33,891,000        36,452,000
 Other assets ...............................................     1,186,000         1,331,000
 Franchise agreements .......................................     1,876,000         1,982,000
 Deferred taxes (Note 8) ....................................       600,000           600,000
 Goodwill ...................................................     9,327,000         9,405,000
                                                               ------------      ------------
                                                               $ 52,672,000      $ 56,025,000
                                                               ============      ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

 Current liabilities:
  Current maturities of long-term debt (Note 5) .............  $  2,743,000      $  2,603,000
  Current maturities of capital lease obligations (Note 6) ..        58,000           108,000
  Accounts payable ..........................................     3,642,000         3,193,000
  Accrued liabilities (Note 4) ..............................     3,348,000         3,462,000
                                                               ------------      ------------
                                                                  9,791,000         9,366,000

 Long-term debt (Note 5) ....................................    43,370,000        46,113,000
 Long-term capital lease obligations (Note 6) ...............       379,000           436,000
 Other long-term liabilities ................................     1,848,000         1,532,000

 Commitments and contingencies (Notes 5 and 6)

SHAREHOLDERS' EQUITY (DEFICIENCY)

 Preferred shares, 1,000,000 shares authorized,
  no shares outstanding
 Common Stock:
  Authorized shares - 25,000,000
  Issued shares - 2,969,405 .................................        30,000            30,000
  Treasury shares - 250,964 in 2004 and 2003 ................      (284,000)         (284,000)
 Capital in excess of stated value ..........................    28,829,000        28,829,000
 Accumulated deficit ........................................   (31,291,000)      (29,997,000)
                                                               ------------      ------------
 Total shareholders' deficiency .............................    (2,716,000)       (1,422,000)
                                                               ------------      ------------
                                                               $ 52,672,000      $ 56,025,000
                                                               ============      ============
</TABLE>

                 See notes to consolidated financial statements.

                                       21
<PAGE>

                              MORGAN'S FOODS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
         YEARS ENDED FEBRUARY 29, 2004, MARCH 2, 2003 AND MARCH 3, 2002

<TABLE>
<CAPTION>
                                            2004              2003              2002
                                        ------------      ------------      ------------
<S>                                     <C>               <C>               <C>
Revenues .............................  $ 81,738,000      $ 82,326,000      $ 84,930,000

Cost of sales:
  Food, paper and beverage ...........    24,712,000        25,645,000        25,987,000
  Labor and benefits .................    22,816,000        22,329,000        22,155,000
Restaurant operating expenses ........    21,320,000        21,018,000        21,805,000
Depreciation and amortization ........     3,518,000         3,499,000         3,866,000
General and administrative expenses ..     5,574,000         5,749,000         5,209,000
Loss on restaurant assets (Note 2) ...       567,000           551,000           215,000
                                        ------------      ------------      ------------
Operating income .....................     3,231,000         3,535,000         5,693,000
Interest expense:
  Bank debt and notes payable ........    (4,578,000)       (4,802,000)       (5,174,000)
  Capital leases .....................       (49,000)          (62,000)          (72,000)
Other income and expense, net ........       106,000           147,000           159,000
                                        ------------      ------------      ------------
Income (loss) from continuing
 operations before income taxes ......    (1,290,000)       (1,182,000)          606,000
Provision for income taxes (Note 8) ..         4,000            10,000             4,000
                                        ------------      ------------      ------------
Net income (loss) ....................  $ (1,294,000)     $ (1,192,000)     $    602,000
                                        ============      ============      ============
Basic and diluted net income (loss) ..
 per common share: ...................  $       (.48)     $       (.44)     $        .21
                                        ============      ============      ============
</TABLE>

                 See notes to consolidated financial statements.

                                       22
<PAGE>

                              MORGAN'S FOODS, INC.
          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
         YEARS ENDED FEBRUARY 29, 2004, MARCH 2, 2003, AND MARCH 3, 2002

<TABLE>
<CAPTION>
                                                                                                                         TOTAL
                                     COMMON SHARES               TREASURY SHARES          CAPITAL IN                  SHAREHOLDERS'
                               -------------------------  ----------------------------    EXCESS OF      ACCUMULATED     EQUITY
                                  SHARES       AMOUNT        SHARES          AMOUNT      STATED VALUE      DEFICIT    (DEFICIENCY)
                               ------------ ------------  ------------    ------------   ------------   ------------  ------------
<S>                            <C>          <C>           <C>             <C>            <C>            <C>           <C>
Balance, February 25, 2001...     2,969,405 $     30,000       (31,833)   $    (76,000)  $ 28,875,000   $(29,407,000) $   (578,000)
Net income...................             -            -             -               -              -        602,000       602,000
Issue of treasury shares for
 401(k) contributions........             -            -        31,833          76,000        (46,000)             -        30,000
Purchase of common shares....             -            -      (241,564)       (251,000)             -              -      (251,000)
                               ------------ ------------  ------------    ------------   ------------   ------------  ------------
Balance, March 3, 2002.......     2,969,405       30,000      (241,564)       (251,000)    28,829,000    (28,805,000)     (197,000)
Net loss.....................             -            -             -               -              -     (1,192,000)   (1,192,000)
Purchase of common shares....             -            -        (9,400)        (33,000)             -              -       (33,000)
                               ------------ ------------  ------------    ------------   ------------   ------------  ------------
Balance, March 2, 2003.......     2,969,405       30,000      (250,964)       (284,000)    28,829,000    (29,997,000)   (1,422,000)
Net loss.....................             -            -             -               -              -     (1,294,000)   (1,294,000)
                               ------------ ------------  ------------    ------------   ------------   ------------  ------------
Balance, February 29, 2004...     2,969,405 $     30,000      (250,964)   $   (284,000)  $ 28,829,000   $(31,291,000) $ (2,716,000)
                               ============ ============  ============    ============   ============   ============  ============
</TABLE>

                 See notes to consolidated financial statements.

                                       23

<PAGE>

                              MORGAN'S FOODS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        YEARS ENDED FEBRUARY 29, 2004, MARCH 2, 2003, AND MARCH 3, 2002

<TABLE>
<CAPTION>
                                                       2004             2003             2002
                                                    -----------      ------------     -----------
<S>                                                 <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)............................     $(1,294,000)     $(1,192,000)     $   602,000
  Adjustments to reconcile to net cash
   provided by operating activities:
    Depreciation and amortization..............       3,518,000        3,499,000        3,866,000
    Amortization of deferred
     financing costs...........................         134,000          139,000          143,000
    Amortization of supply agreement
     advances (Note 1).........................        (845,000)        (771,000)        (697,000)
    Funding from supply agreements (Note 1)....       1,200,000          719,000          756,000
    Loss on restaurant assets..................         567,000          551,000          215,000
    Changes in assets and liabilities:
     Decrease (Increase) in receivables........          58,000          (68,000)        (154,000)
     Decrease (Increase) in inventories........         (81,000)          28,000          (32,000)
     Decrease (Increase) in prepaid expenses ..         238,000         (261,000)         (79,000)
     Decrease (Increase) in other assets.......           6,000           36,000          (44,000)
     Increase (Decrease) in accounts payable...         449,000         (568,000)         171,000
     Increase (Decrease) in
              accrued liabilities..............        (283,000)        (283,000)         322,000
                                                    -----------      -----------      -----------
  Net cash provided by operating activities....       3,667,000        1,829,000        5,069,000
                                                    -----------      -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures.........................      (1,170,000)      (2,053,000)        (883,000)
  Purchase of franchise agreement..............         (35,000)               -          (10,000)
  Purchase of short term investment............        (300,000)               -                -
                                                    -----------      -----------      -----------
  Net cash used in investing activities........      (1,505,000)      (2,053,000)        (893,000)
                                                    -----------      -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt,
   net of financing costs......................               -                -           36,000
  Principal payments on long-term debt.........      (2,603,000)      (2,178,000)      (2,264,000)
  Principal payments on capital
   lease obligations...........................        (107,000)        (105,000)         (96,000)
  Purchase of treasury shares..................               -          (33,000)        (251,000)
                                                    -----------      -----------      -----------
  Net cash used in financing activities........      (2,710,000)      (2,316,000)      (2,575,000)
                                                    -----------      -----------      -----------
  Net change in cash and equivalents...........        (548,000)      (2,540,000)       1,601,000
  Cash and equivalents, beginning balance......       4,901,000        7,441,000        5,840,000
                                                    -----------      -----------      -----------
  Cash and equivalents, ending balance.........     $ 4,353,000      $ 4,901,000      $ 7,441,000
                                                    ===========      ===========      ===========
</TABLE>

                 See notes to consolidated financial statements.

                                       24

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

      DESCRIPTION OF BUSINESS. Morgan's Foods, Inc. and its subsidiaries ("the
Company") operate 75 KFC restaurants, 7 Taco Bell restaurants, 15 KFC/Taco Bell
"2n1" restaurants, 3 Taco Bell/Pizza Hut Express "2n1" restaurants, 1 KFC/Pizza
Hut Express "2n1" and 1 KFC/A&W "2n1", in the states of Illinois, Missouri,
Ohio, Pennsylvania, West Virginia and New York. The Company's fiscal year is a
52-53 week year ending on the Sunday nearest the last day of February.

      USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions pending completion of
related events. These estimates and assumptions include the recoverability of
tangible and intangible asset values, projected compliance with covenants of
financing agreements and the realization of the net deferred tax asset. These
estimates and assumptions affect the amounts reported at the date of the
financial statements for assets, liabilities, revenues and expenses and the
disclosure of contingencies. Actual results could differ from those estimates.

      PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company. All significant intercompany transactions and
balances have been eliminated. Certain prior year amounts have been reclassified
to conform to their current year presentation.

      REVENUE RECOGNITION. The Company recognizes revenue as customers pay for
products at the time of sale.

      ADVERTISING COSTS. The Company expenses advertising costs as incurred.
Advertising expense was $4,645,000, $4,697,000 and $4,944,000 for fiscal years
2004, 2003 and 2002, respectively.

      CASH AND INVESTMENTS. The Company considers all highly liquid debt
instruments purchased with an initial maturity of three months or less to be
cash equivalents. At February 29, 2004 the Company held a $300,000 certificate
of deposit as a restricted short-term investment to secure a letter of credit
that expires June 18, 2004.

      INVENTORIES. Inventories, principally food, beverages and paper products,
are stated at the lower of aggregate cost (first-in, first-out basis) or market.

      PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets as follows: buildings and improvements - 3 to
20 years; equipment, furniture and fixtures - 3 to 10 years. Leasehold
improvements are amortized over 3 to 15 years, which is the shorter of the life
of the asset or the life of the lease. The asset values of the capitalized
leases are amortized using the straight-line method over the lives of the
respective leases which range from 15 to 20 years.

                                       25

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

      Management assesses the carrying value of property and equipment whenever
there is an indication of potential impairment, including quarterly assessments
of any restaurant with negative cash flows. If the property and equipment of a
restaurant on a held and used basis are not recoverable based upon forecasted,
undiscounted cash flows, the assets are written down to their fair value.
Management uses a valuation methodology (believed to be consistent with
methodologies commonly used in the industry) to determine fair value, which is
the sum of the restaurant's business value and real estate value. Business value
is determined using a cash flow multiplier based upon market conditions and
estimated cash flows of the restaurant. Real estate value is generally
determined based upon the discounted market value of implied rent of the owned
assets. Management believes the carrying value of property and equipment, after
impairment write-downs (see Note 2), will be recovered from future cash flows.

      DEFERRED FINANCING COSTS. Costs related to the acquisition of long-term
debt are capitalized and expensed as interest over the term of the related debt.
Amortization expense was $134,000, $139,000 and $143,000 for fiscal years 2004,
2003 and 2002, respectively. The balance of deferred financing costs was
$988,000 at February 28, 2004 and $1,122,000 at March 2, 2003 and is included in
other assets in the consolidated balance sheets.

      FRANCHISE AGREEMENTS. Franchise agreements are recorded at cost.
Amortization is computed on the straight-line method over the term of the
franchise agreement. The Company's franchise agreements are predominantly 20
years in length.

      GOODWILL. Goodwill represents the cost of acquisitions in excess of the
fair value of identifiable assets. Prior to fiscal year 2003, goodwill was
amortized over the life of the franchise agreement on a straight-line basis.
Amortization expense was $539,000 for fiscal 2002. Effective March 4, 2002, the
Company ceased amortizing goodwill in accordance with SFAS No. 142, Goodwill and
Other Intangible Assets.

      ADVANCE ON SUPPLY AGREEMENTS. In conjunction with entering into contracts
that require the Company to sell exclusively the specified beverage products for
the term of the contract, the Company has received advances from the supplier.
The Company amortizes advances on supply agreements as a reduction of food,
paper and beverage cost of sales over the term of the related contract using the
straight-line method. These advances of $1,412,000 and $1,134,000 at February
29, 2004 and March 2, 2003, respectively, are included in other long-term
liabilities in the Consolidated Balance Sheets.

      LEASE ACCOUNTING. Operating lease expense is recognized on the
straight-line basis over the term of the lease for those leases with fixed
escalations. These accruals of $436,000 and $398,000 at February 29, 2004 and
March 2, 2003, respectively, are included in other long-term liabilities in the
Consolidated Balance Sheets.

      INCOME TAXES. The provision for income taxes is based upon income or loss
before tax for financial reporting purposes. Deferred tax assets or liabilities
are recognized for the expected future tax consequences

                                       26

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

of temporary differences between the tax basis of assets and liabilities and
their carrying values for financial reporting purposes. A deferred tax asset is
recorded for the benefits of future deductible temporary differences and
operating loss and tax credit carryforwards. A valuation allowance is recorded
to reduce deferred tax assets to the amount more likely than not to be realized
in the future, based on an evaluation of historical and projected profitability.

      STOCK-BASED COMPENSATION. The Company's outstanding stock options are
accounted for using the intrinsic value method, under which compensation cost is
measured as the excess, if any, of the quoted market price of the stock at the
grant date over the amount an employee must pay to acquire the stock. Had
compensation cost for the options granted been determined based on their fair
values at the grant dates in accordance with the fair value method of Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, the Company's net income (loss) and earnings (loss) per share
would have been presented at the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                    Years Ended
                                               --------------------------------------------------
                                               February 29, 2004    March 2, 2003   March 3, 2002
                                               -----------------    -------------   -------------
<S>                                            <C>                  <C>             <C>
Net Income (loss) as reported................     $(1,294,000)       $(1,192,000)     $ 602,000
Add (Subtract) stock-based compensation
  expense, net of tax:
   - As reported (intrinsic value method)....               -                  -              -
   - Pro forma (fair value method)...........               -                  -         (6,000)
                                                  -----------        -----------      ---------
Net income (loss) - pro forma................     $(1,294,000)       $(1,192,000)     $ 596,000
                                                  ===========        ===========      =========
Basic and diluted income (loss)
  per common share:
   As reported...............................     $      (.48)       $      (.44)     $     .21
   Pro forma.................................     $      (.48)       $      (.44)     $     .21
</TABLE>

NOTE 2. LOSS ON RESTAURANT ASSETS.

      During fiscal 2004, 2003 and 2002, the Company recognized losses totaling
$567,000, $551,000 and $215,000, respectively, from the sale or disposal of
restaurant assets, the closing of unprofitable restaurants and the impairment of
restaurant assets. The 2004 amounts include impairment losses of $254,000 on two
restaurants to reduce their carrying values to their estimated fair values. The
2003 amounts include impairment losses of $333,000 on three restaurants to
reduce their carrying values to their estimated fair values. Due to the weak
financial performance of these restaurants, management determined that future
operating cash flows would not fully recover the carrying value of the
restaurants' property and equipment. One restaurant was closed during fiscal
2004. No restaurants were closed during fiscal years 2003 or 2002. At February
29, 2004 the accrual for closed restaurants consisted of remaining exit costs
for one restaurant and was almost entirely lease termination costs. This
restaurant did not have a material effect upon the Company's consolidated
results of operations or financial position.

                                       27

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

NOTE 3. INTANGIBLE ASSETS.

      In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 changes the accounting for goodwill and certain intangible
assets from an amortization method to an impairment only approach. Goodwill and
intangibles with indefinite lives are no longer subject to amortization, but are
subject to assessment for impairment upon adoption of SFAS No. 142 and at least
annually thereafter as of its fiscal year end by applying a fair value based
test. The Company implemented SFAS No. 142 for its fiscal 2003 year beginning
March 4, 2002 and determined that it has five reporting units for the purpose of
evaluating goodwill impairment which are based on the geographic market areas of
its restaurants. These five reporting units are Youngstown, OH, West Virginia,
Pittsburgh, PA, St Louis, MO and Erie, PA. The Company performed the
transitional goodwill impairment test as well as the annual goodwill impairment
tests and determined that the fair value of each reporting unit was greater than
its carrying value at each date.

<TABLE>
<CAPTION>
                                             INTANGIBLE ASSETS
                        --------------------------------------------------------------
                           As of February 29, 2004            As of March 2, 2003
                        -----------------------------   ------------------------------
                        Gross Carrying   Accumulated    Gross Carrying    Accumulated
                            Amount       Amortization        Amount       Amortization
                        --------------   ------------   --------------    ------------
<S>                     <C>              <C>            <C>               <C>
Franchise Agreements..   $ 2,502,000     $  (626,000)     $ 2,492,000     $  (510,000)
Goodwill..............    10,707,000      (1,380,000)      10,797,000      (1,392,000)
                         -----------     -----------      -----------     -----------
Total.................   $13,209,000     $(2,007,000)     $13,289,000     $(1,902,000)
                         ===========     ===========      ===========     ===========
</TABLE>

      The Company's intangible asset amortization expense relating to its
franchise agreements was $123,000, $115,000 and $132,000 for fiscal 2004, 2003
and 2002, respectively. The estimated intangible amortization expense for each
of the next five years is $125,000.

      The increase in franchise agreements was due to the $35,000 purchase of a
Taco Bell franchise agreement required as part of a restaurant image enhancement
partially offset by a $25,000 reduction associated with the closing of one
restaurant. The decrease in goodwill was due to the $90,000 reduction in
goodwill associated with the closing of one restaurant.

      The following table reports the comparative pro forma impact of the
adoption of SFAS No. 142 on the reported results of operations.

<TABLE>
<CAPTION>
                                                                   Years Ended
                                           ------------------------------------------------------------
                                           February 29, 2004       March 2, 2003         March 3, 2002
                                           -----------------       -------------         --------------
<S>                                        <C>                     <C>                   <C>
Reported net income (loss)............       $  (1,294,000)        $  (1,192,000)        $     602,000
  Add Back: Goodwill amortization.....                   -                     -               539,000
                                             -------------         -------------         -------------
  Pro forma net income (loss).........       $  (1,294,000         $  (1,192,000)        $   1,141,000
                                             =============         =============         =============
Basic and diluted earnings per share:
  Reported net income (loss)..........       $        (.48)        $        (.44)        $         .21
  Goodwill amortization...............                   -                     -                   .19
                                             -------------         -------------         -------------
  Pro forma net income (loss).........       $        (.48)        $        (.44)        $         .40
                                             =============         =============         =============
</TABLE>

                                       28

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

NOTE 4. ACCRUED LIABILITIES.

      Accrued liabilities consist of the following at February 29, 2004 and
March 2, 2003:

<TABLE>
<CAPTION>
                                                               2004             2003
                                                           -------------    -------------
<S>                                                        <C>              <C>
Accrued compensation................................       $   1,747,000    $   1,579,000
Accrued taxes other than income taxes...............             700,000          797,000
Accrued liabilities related to closed restaurants...             310,000          325,000
Other accrued expenses..............................             591,000          761,000
                                                           -------------    -------------
                                                           $   3,348,000    $   3,462,000
                                                           =============    =============
</TABLE>

NOTE 5. LONG-TERM DEBT.

      Long-term debt consists of the following at February 29, 2004 and March 2,
2003:

<TABLE>
<CAPTION>
                                                                             2004                2003
                                                                          -----------        -----------
<S>                                                                       <C>                <C>
Mortgage debt, including interest at 8.3% to 10.6%, through 2021,
 collateralized by seventy-five restaurants having a
 net book value at February 29, 2004 of $24,559,000....................   $44,140,000        $46,102,000
Equipment loans, including interest at 9.9% to 11.1% through
 February 2007 collateralized by equipment at several KFC restaurants..     1,851,000          2,411,000
Note payable at 8%, including interest through July 2005...............       122,000            200,000
Note payable,
 including interest at 9.0%, through October 2003......................             -              3,000
                                                                          -----------        -----------
                                                                           46,113,000         48,716,000
Less current maturities................................................     2,743,000          2,603,000
                                                                          -----------        -----------
                                                                          $43,370,000        $46,113,000
                                                                          ===========        ===========
</TABLE>

      The combined aggregate amounts of future maturities for all long-term
debt, including current maturities, as of February 29, 2004 are as follows:

<TABLE>
<S>                                                           <C>
2005.....................................................     $   2,743,000
2006.....................................................         2,930,000
2007.....................................................         3,101,000
2008.....................................................         2,908,000
2009.....................................................         3,045,000
Later years..............................................        31,386,000
                                                              -------------
                                                              $  46,113,000
                                                              =============
</TABLE>

      The Company paid interest relating to long-term debt of approximately
$4,476,000, $4,324,000 and $5,334,000 in fiscal 2004, 2003 and 2002,
respectively.

                                       29

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

      The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As noted above the Company has
significant borrowings which require compliance with various terms and
conditions including compliance with certain financial ratios, specifically a
consolidated fixed charge coverage ratio of 1.2 to 1 regarding all of its
mortgage loans and individual restaurant coverage ratios between 1.2 and 1.5 to
1 on certain of its loans. As of February 29, 2004 the Company was not in
compliance with the consolidated ratio of 1.2 to 1 or the unit level ratios
relating to $31,933,000 of its debt but has obtained waivers of these violations
from the applicable lenders. As these waivers continue through the end of fiscal
year 2005, the Company has classified its debt as long term as of February 29,
2004. All payments on the Company's debt have been, and continue to be, current
and management believes that the Company will continue to be able to service the
debt. If the Company does not comply with debt covenants in the future, and if
future waivers are not obtained, the lenders will have certain remedies
available to them which could include calling of the debt or acceleration of
payments. Noncompliance with the requirements of the Company's mortgage debt, if
not waived, could also trigger cross-default provisions of other debt
agreements. Management believes that operating cash flow will provide sufficient
capital to continue to operate and maintain the restaurants, service the
Company's debt and support required corporate expenses.

NOTE 6. LEASE OBLIGATIONS AND OTHER COMMITMENTS.

      Property under capital leases at February 29, 2004 and March 2, 2003 are
as follows:

<TABLE>
<CAPTION>
                                                            2004              2003
                                                         ----------        ----------
<S>                                                      <C>               <C>
Leased property:
Buildings........................................        $  435,000        $  435,000
Equipment, furniture and fixtures................           341,000           571,000
                                                         ----------        ----------
Total............................................           776,000         1,006,000
Less accumulated amortization....................           410,000           509,000
                                                         ----------        ----------
                                                         $  366,000        $  497,000
                                                         ==========        ==========
</TABLE>

      Amortization of leased property under capital leases was $131,000,
$103,000 and $105,000 in fiscal 2004, 2003 and 2002, respectively.

      Related obligations under capital leases at February 29, 2004 and March 2,
2003 are as follows:

<TABLE>
<CAPTION>
                                                2004             2003
                                             ----------        --------
<S>                                          <C>               <C>
Capital lease obligations.............       $  437,000        $544,000
Less current maturities...............           58,000         108,000
                                             ----------        --------
Long-term capital lease obligations...       $  379,000        $436,000
                                             ==========        ========
</TABLE>

      The Company paid interest of approximately $49,000, $62,000 and $72,000
relating to capital lease obligations in fiscal 2004, 2003 and 2002,
respectively.

                                       30

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

      Future minimum rental payments to be made under capital leases at February
29, 2004 are as follows:

<TABLE>
<S>                                                       <C>
2005.................................................     $ 98,000
2006.................................................       50,000
2007.................................................       50,000
2008.................................................       50,000
2009.................................................       50,000
Later years .........................................      512,000
                                                          --------
                                                           810,000

Less amount representing interest at 9.4% to 10.0%...      373,000
                                                          --------
Total obligations under capital leases...............     $437,000
                                                          ========
</TABLE>

      The Company's operating leases for restaurant land and buildings are
noncancellable and expire on various dates through 2019. The leases have renewal
options ranging from 1 to 17 years. Certain restaurant land and building leases
require the payment of additional rent equal to an amount by which a percentage
of annual sales exceeds annual minimum rentals. Total contingent rentals were
$64,000, $71,000 and $64,000 in fiscal 2004, 2003 and 2002, respectively. Future
noncancellable minimum rental payments under operating leases at February 29,
2004 are as follows: 2005 - $2,027,000; 2006 - $1,700,000; 2007 - $1,424,000;
2008 - $1,151,000; 2009 - $1,101,000 and an aggregate $4,513,000 for the years
thereafter. Rental expense for all operating leases was $2,191,000, $2,214,000
and $2,188,000 for fiscal 2004, 2003 and 2002, respectively.

      For KFC products, the Company is required to pay royalties of 4% of gross
revenues and to expend an additional 5.5% of gross revenues on national and
local advertising pursuant to its franchise agreements. For Taco Bell products
in KFC/Taco "2n1" restaurants operated under license agreements from Taco Bell
Corporation and franchise agreements from KFC Corporation, the Company is
required to pay royalties of 10% of Taco Bell gross revenues and to make
advertising fund contributions of 1/2% of Taco Bell gross revenues. For Taco
Bell product sales in restaurants operated under Taco Bell franchises the
Company is required to pay royalties of 5.5% of gross revenues and to expend an
additional 4.5% of gross revenues on national and local advertising. For Pizza
Hut products in Taco Bell/Pizza Hut Express "2n1" restaurants the Company is
required to pay royalties of 5.5% of Pizza Hut gross revenues and to expend an
additional 4.5% of Pizza Hut gross revenues on national and local advertising.
For A&W products in "2n1" restaurants the Company is required to pay royalties
of 7% of A&W gross revenues and to expend an additional 4% of A&W gross revenues
on national and local advertising. Total royalties and advertising, which are
included in the Consolidated Statements of Operations as part of restaurant
operating expenses, were $8,083,000, $8,141,000 and $8,514,000 in fiscal 2004,
2003 and 2002, respectively.

      In fiscal year 2000 the Company signed an agreement and prepaid franchise
fees of $170,000 which granted it the rights to develop 20 KFC, Taco Bell or KFC
"2n1" restaurants in specific geographic areas. Under the agreement five
restaurants are required to be developed each year over a four year period. As
of February 29, 2004 the Company has developed only five restaurants under this
agreement. The status of the development agreements has been discussed with the
franchisors and the Company has not been declared in

                                       31

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

default of the KFC agreement. If the Company should default on the KFC
agreement, it could lose the rights to develop certain KFC, restaurants and
could forfeit the remaining balance of prepaid franchise fees, which was $60,000
at February 29, 2004. The Company has been declared in default under the terms
of its Taco Bell development agreement and is required to forfeit the related
deposits of $30,000. The Taco Bell franchisor is in the process of assessing the
Company's request to use $25,000 of the deposits towards other franchise/license
agreement extension fees and that amount remains as an asset at February 29,
2004. The Company believes that noncompliance with the development agreement
will not have a material impact on its financial position, results of operations
or cash flows.

      The franchise agreements with KFC and Taco Bell Corporation require the
Company to upgrade and remodel its restaurants to comply with the franchisors'
current standards within agreed upon timeframes. The Company does not expect to
commit funds to image enhancements and expansions during fiscal 2005. In order
to meet the terms and conditions of the franchise agreements, the Company has
the following obligations:

<TABLE>
<CAPTION>
                                        NUMBER
FISCAL YEAR                            OF UNITS       OBLIGATION (1)
-----------                            --------       --------------
<S>                                    <C>            <C>
   2006                                  12(2)        $ 2,800,000
   2007                                   9(2)          1,525,000
   2008                                   7(2)          1,075,000
   2009                                   3(2)            600,000

THEREAFTER TO 2021

Image Enhancements                       29             5,800,000
Relocation of existing restaurants       10(3)         10,000,000
                                       ----           -----------
Total                                    70           $21,800,000
                                       ====           ===========
</TABLE>

(1)   These amounts are based on current construction cost estimates and actual
      costs may vary.

(2)   Required image enhancements.

(3)   Generally at the time relocation is required the related assets have been
      depreciated or amortized to a low net book value. If an economically
      suitable new location cannot be obtained, the Company may choose to close
      the restaurant and abandon the remaining assets.

      There can be no assurance that the Company will be able to accomplish the
development required in the franchise and development agreements on terms
acceptable to the Company. If the Company is unable to meet the requirements of
a franchise agreement, the franchisor may choose to extend the time allowed for
compliance or may terminate the franchise agreement.

                                       32

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

NOTE 7. NET INCOME (LOSS) PER COMMON SHARE.

      Basic net income (loss) per common share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period which totaled 2,718,441, 2,720,182 and 2,851,160 for fiscal 2004,
2003 and 2002, respectively. Diluted net income (loss) per common share is based
on the combined weighted average number of shares outstanding during the period
which totaled 2,718,441, 2,720,182 and 2,853,789 for fiscal 2004, 2003 and 2002,
respectively, which includes the assumed exercise, or conversion of 11,500
options for fiscal year 2002. For fiscal years 2004, 2003 and 2002, 286,500,
286,500 and 275,000 options were excluded from the computation of diluted
earnings per share due to their antidulutive effect. In computing diluted net
income (loss) per common share, the Company has utilized the treasury stock
method.

NOTE 8. INCOME TAXES.

      The current tax provision consists of state and local taxes for fiscal
2004, 2003 and 2002 of $4,000, $10,000 and $4,000, respectively. There was no
deferred provision for income taxes during each of the fiscal years 2004, 2003
and 2002.

      A reconciliation between the provision for income taxes and income taxes
calculated at the statutory tax rate of 35% is as follows:

<TABLE>
<CAPTION>
                                                                          2004              2003               2002
                                                                        ---------         ---------         ---------
<S>                                                                     <C>               <C>               <C>
Tax provision (benefit) at statutory rate.........................      $(451,000)        $(414,000)        $ 212,000
State and local taxes, net of federal benefit.....................          3,000             7,000             2,000
Utilization of net operating loss carryforwards...................                                           (212,000)
Losses and temporary differences with no tax benefit..............        442,000           412,000            (3,000)
Other.............................................................         10,000             5,000             5,000
                                                                        ---------         ---------         ---------
                                                                        $   4,000         $  10,000         $   4,000
                                                                        =========         =========         =========
</TABLE>

The components of deferred tax assets (liabilities) at February 29, 2004 and
March 2, 2003 are as follows:

<TABLE>
<CAPTION>
                                                    2004                2003
                                                 -----------         -----------
<S>                                              <C>                 <C>
Operating loss carryforwards................     $ 2,899,000         $ 2,912,000
Tax credit carryforwards....................          56,000              56,000
Property and equipment......................       2,336,000           1,752,000
Accrued expenses not currently deductible...         676,000             502,000
Inventory valuation.........................           5,000               5,000
Advance payments............................         382,000             431,000
Intangible assets...........................        (830,000)           (532,000)
Deferred tax asset valuation allowance......      (4,924,000)         (4,526,000)
                                                 -----------         -----------
Net deferred tax asset......................     $   600,000         $   600,000
                                                 ===========         ===========
</TABLE>

                                       33

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

      The valuation allowance increased $398,000 during fiscal year 2004
principally due to the timing difference attributable to the depreciation of
property and accrued expenses not currently deductible which were offset by the
difference attributable to the amortization of intangible assets for tax
purposes. The valuation allowance increased $116,000 during fiscal year 2003
principally due to the timing difference attributable to the depreciation of
property, the increase in accrued expenses not deductible for tax purposes and
the receipt of income which has been recognized for tax purposes but not yet for
financial statement purposes. The valuation allowance increased $227,000 during
fiscal year 2002 principally due to the receipt of income which has been
recognized for tax purposes but not yet for financial statement purposes offset
by the utilization and expiration of operating loss carryforwards.

      At February 29, 2004, the Company has net operating loss carryforwards
which, if not utilized, will expire as follows:

<TABLE>
<S>                              <C>
2005....................         $  509,000
2008....................             90,000
2009....................            752,000
2012....................            744,000
2013....................            690,000
2019....................            235,000
2020....................          1,312,000
2021....................            863,000
2022....................          1,085,000
2023....................            753,000
2024....................            212,000
                                 ----------
Total ..................         $7,245,000
                                 ==========
</TABLE>

      The Company also has alternative minimum tax net operating loss
carryforwards of $5,346,000 which will expire, if not utilized, in varying
amounts through fiscal 2024. These carryforwards are available to offset up to
90% of any alternative minimum taxable income which would otherwise be taxable.
As of February 29, 2004, the Company has alternative minimum tax credit
carryforwards of $56,000.

NOTE 9. STOCK OPTIONS AND SHAREHOLDERS' EQUITY.

      On April 2, 1999, the Board of Directors of the Company approved a Stock
Option Plan for Executives and Managers. Under the plan 145,500 shares were
reserved for the grant of options. The Stock Option Plan for Executives and
Managers provides for grants to eligible participants of nonqualified stock
options only. The exercise price for any option awarded under the Plan is
required to be not less than 100% of the fair market value of the shares on the
date that the option is granted. Options are granted by the Stock Option
Committee of the Company. Options for the 145,500 shares were granted to
executives and managers of the Company on April 2, 1999 at an exercise price of
$4 1/8. The plan provides that the options are exercisable after a waiting
period of 6 months and that each option expires 10 years after its date of
issue.

      At the Company's annual meeting on June 25, 1999 the shareholders approved
the Key Employees Stock Option Plan. This plan allows the granting of options
covering 291,000 shares of stock and has

                                       34

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

essentially the same provisions as the Stock Option Plan for Executives and
Managers which was discussed above. Options for 129,850 shares were granted to
executives and managers of the Company on January 7, 2000 at an exercise price
of $3.00. Options for 11,500 shares were granted to executives on April 27, 2001
at an exercise price of $.85.

      The Company applies APB No. 25 and related interpretations in accounting
for its option grants for employees. Accordingly, no compensation cost has been
recognized for options granted as the options were granted at fair market value
at the date of grant. See Note 1 for pro forma disclosures of compensation cost
for the options granted determined based on their fair values at the grant dates
in accordance with SFAS No. 123, Accounting for Stock-Based Compensation.

      In determining the pro forma amount of stock-based compensation on a basis
consistent with SFAS No. 123, the fair value of each grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in fiscal 2002: no dividend yield;
expected volatility of 251%; risk free interest rate of 5.34%; and expected life
of 10 years.

      A summary of the status of the Company's options as of February 29, 2004,
March 2, 2003, and March 3, 2002, respectively; and changes during the years
then ended is presented below:

<TABLE>
<CAPTION>
                                               2004                   2003                   2002
                                      ---------------------   ---------------------   ---------------------
                                                   Weighted                Weighted                Weighted
                                                    Average                 Average                 Average
                                                   Exercise                Exercise                Exercise
                                       Shares        Price     Shares        Price    Shares         Price
                                      -------      --------   -------      --------   -------      --------
<S>                                   <C>          <C>        <C>          <C>        <C>          <C>
Outstanding at beginning of year...   286,500      $   3.48   286,500      $   3.48   275,000      $   3.59
Granted............................         -                       -                  11,500      $   0.85
Forfeited..........................         -                       -                       -
                                      -------                 -------                 -------
Outstanding at year-end............   286,500      $   3.48   286,500      $   3.48   286,500      $   3.48
                                      =======                 =======                 =======
Options exercisable at year-end....   286,500      $   3.48   286,500      $   3.48   286,500      $   3.48
                                      =======                 =======                 =======
</TABLE>

The following table summarizes information about stock options outstanding at
February 29, 2004.

<TABLE>
<CAPTION>
                          Number       Average       Number
                       Outstanding    Remaining    Exercisable
Exercise Prices        at 2/29/04       Life        at 2/29/04
---------------        -----------    ---------    -----------
<S>                    <C>            <C>          <C>
$0.85                     11,500         6.9          11,500
$3.00                    129,850         5.9         129,850
$4.13                    145,150         5.1         145,150
                         -------         ---         -------
                         286,500         5.5         286,500
                         =======         ===         =======
</TABLE>

                                       35

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

      On April 8, 1999, the Company adopted a Shareholder Rights Plan in which
the Board of Directors declared a distribution of one Right for each of the
Company's outstanding Common Shares. Each Right entitles the holder to purchase
from the Company one one-thousandth of a Series A Preferred Share (a "Preferred
Share") at a purchase price of $30.00 per Right, subject to adjustment. One
one-thousandth of a Preferred Share is intended to be approximately the economic
equivalent of one Common Share. The Rights will expire on April 7, 2009, unless
redeemed by the Company as described below.

      The Rights are neither exercisable nor traded separately from the Common
Shares. The Rights will become exercisable and begin to trade separately from
the Common Shares if a person or group, unless approved in advance by the
Company Board of Directors, becomes the beneficial owner of 21% or more of the
then-outstanding Common Shares or announces an offer to acquire 21% or more of
the then-outstanding Common Shares.

      If a person or group acquires 21% or more of the outstanding Common
Shares, then each Right not owned by the acquiring person or its affiliates will
entitle its holder to purchase, at the Right's then-current exercise price,
fractional Preferred Shares that are approximately the economic equivalent of
Common Shares (or, in certain circumstances, Common Shares, cash, property or
other securities of the Company) having a market value equal to twice the
then-current exercise price. In addition, if, after the Rights become
exercisable, the Company is acquired in a merger or other business combination
transaction with an acquiring person or its affiliates or sells 50% or more of
its assets or earnings power to an acquiring person or its affiliates, each
Right will entitle its holder to purchase, at the Right's then-current exercise
price, a number of shares of the acquiring person's common stock having a market
value of twice the Right's exercise price. The Board of Directors may redeem the
Rights in whole, but not in part, at a price of $.01 per Right, subject to
certain limitations.

      Effective April 14, 2003 the Company amended its Shareholder Rights Plan
to exempt Mr. Stein-Sapir and his affiliates and associates (including Mortgage
Information Services, Inc., a privately-held company controlled by Mr.
Stein-Sapir, who also serves as its chief executive officer) from the definition
of "Acquiring Person" under the Shareholder Rights Plan unless Mr. Stein-Sapir
and his affiliates and associates collectively own 38% or more of the Company's
outstanding Common Shares. As of May 12, 2004, Mr. Stein-Sapir and his
affiliates and associates beneficially owned 33.9% of the Company's outstanding
Common Shares.

      The Company continues to be out of compliance with certain of the
continued listing standards of the American Stock Exchange, as has been reported
previously in the Company's SEC filings, and was required to submit a revised
business plan to the Exchange indicating how the Company would achieve
compliance with those standards. Specifically, the Company fell under the
guidelines in Section 1003(a)(i) with shareholders' equity of less than
$2,000,000 and has sustained losses from continuing operations and/or net losses
in two of its three most recent fiscal years and Section 1003(a)(ii) with
shareholder's equity of less than $4,000,000 and has sustained losses from
continuing operations and/or net losses in three out of its four most recent
fiscal years.

                                       36

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

      During fiscal 2004 the Company provided to staff at the Exchange its
quarterly financial results, projected results for fiscal 2004 and a plan for
how the Company would regain compliance with the continued listing standard. On
December 24, 2003, the Company provided updated information to the Exchange
including third quarter fiscal 2004 financial results which did not meet the
previously accepted operating plan but which were profitable. On April 23, 2004,
the Company provided updated information to the Exchange including projected
fiscal 2004 results which did not meet the previously accepted operating plan.
The Company cannot predict the Exchange's response, but the failure to meet the
previously accepted operating plan could result in the commencement of delisting
proceedings. If the Company were delisted, or if its common shares were
suspended from trading, the liquidity of its common shares would likely be
adversely affected.

NOTE 10. 401(K) RETIREMENT PLAN.

      The Company has a 401(k) Retirement Plan in which employees age 21 or
older are eligible to participate. The Company matches a percentage of employee
contributions. During fiscal 2004, 2003 and 2002, the Company incurred $82,000,
$91,000 and $73,000, respectively, in expenses for matching contributions to the
plan.

NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS.

      The Company's debt is reported at historical cost, based upon stated
interest rates which represented market rates at the time of borrowing. Due to
subsequent declines in credit quality throughout the restaurant industry
resulting from weak and volatile operating performance and related declines in
restaurant values, the market for fixed rate mortgage debt for restaurant
financing is currently extremely limited. The Company's debt is not publicly
traded and there are very few, if any, lenders or financing transactions for
similar debt in the marketplace at this time. Consequently, management has not
been able to identify a market for fixed rate restaurant mortgage debt with a
similar risk profile, and has concluded that it is not practicable to estimate
the fair value of the Company's debt as of February 29, 2004.

NOTE 12. NEW ACCOUNTING STANDARDS.

      In fiscal 2004, the Company adopted the provisions of SFAS No. 143 which
addresses financial accounting and reporting for legal obligations associated
with the retirement of tangible long-lived assets and associated asset
retirement costs. The adoption of SFAS No. 143 did not have a material impact on
the Company's consolidated financial position or results of operations.

                                       37

<PAGE>

                              MORGAN'S FOODS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FEBRUARY 27, 2004, MARCH 2, 2003, AND MARCH 3, 2002

NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED).

<TABLE>
<CAPTION>
                                                               FISCAL 2004 QUARTER ENDED
                                          ----------------------------------------------------------------
                                             MAY 25,       AUGUST 17,      NOVEMBER 9,        FEBRUARY 29,
                                              2003           2003             2003                2004
                                          -------------   ------------     ------------       -------------
<S>                                       <C>             <C>              <C>                <C>
Revenues..............................    $  19,828,000   $ 19,663,000     $ 19,382,000       $ 22,865,000
Operating costs and expenses, net.....       18,545,000     18,653,000       18,253,000         23,056,000
Operating income (loss)...............        1,283,000      1,010,000        1,129,000           (191,000)
Net income (loss).....................          180,000        (26,000)          90,000         (1,538,000)
Basic and diluted net
 income (loss) per share..............              .07           (.01)             .03               (.57)
</TABLE>

<TABLE>
<CAPTION>
                                                               FISCAL 2003 QUARTER ENDED
                                          ----------------------------------------------------------------
                                             MAY 26,       AUGUST 18,      NOVEMBER 10,         MARCH 2,
                                              2002            2002             2002               2003
                                          -------------   ------------     ------------       ------------
<S>                                       <C>             <C>              <C>                <C>
Revenues..............................    $  19,159,000   $ 20,348,000     $ 19,617,000       $ 23,202,000
Operating costs and expenses, net.....       17,914,000     19,109,000       18,774,000         22,994,000
Operating income......................        1,245,000      1,239,000          843,000            208,000
Net income (loss).....................          142,000        148,000         (284,000)        (1,198,000)
Basic and diluted net
 income (loss) per share..............              .05            .05             (.10)              (.44)
</TABLE>

      Results for the fourth quarter of fiscal 2004 include impairment losses of
$254,000 on two operating restaurants to reduce their carrying values to their
estimated fair values. Results for the fourth quarter of fiscal 2003 include
impairment losses of $333,000 on three operating restaurants to reduce their
carrying values to their estimated fair values. Although asset impairment
calculations prepared in prior quarters did not require a write down,
acceleration in the deterioration of the operating results and trade areas of
these restaurants during the fourth quarters of fiscal 2004 and 2003
necessitated the recording of the write downs during those periods.

                                       38

<PAGE>

                              MORGAN'S FOODS, INC.
                               INDEX TO EXHIBITS
                                ITEM 14 (a) (3)

<TABLE>
<CAPTION>
Exhibit
 Number                          Exhibit Description
-------     --------------------------------------------------------------------
<S>         <C>
3.1         Amended Articles of Incorporation, as amended (1)

3.2         Amended Code of Regulations (1)

4.1         Specimen Certificate for Common Shares (2)

4.2         Shareholder Rights Plan (3)

4.3         Amendment to Shareholder Rights Agreement

10.1        Specimen KFC Franchise Agreements (4)

10.2        Specimen Taco Bell Franchise Agreement (5)

10.3        Executive and Manager Nonqualified Stock Option Plan (6)

10.4        Key Employee Nonqualified Stock Option Plan (6)

10.5        Asset Purchase Agreements with Taco Bell Corp. and KFC Corporation
            and their Various Affiliated Companies (7)

10.6        Form of Mortgage Loan Agreement with Captec Financial Group, Inc.
            (8)

14          Code of Ethics for Senior Financial Officers

19          Form of Indemnification Contract between Registrant and its Officers
            and Directors (6)

21          Subsidiaries

23          Consent of Independent Registered Public Accounting Firm

31.1        Certification of the Chairman and Chief Executive Officer pursuant
            to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted
            pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2        Certification of the Senior Vice President, Chief Financial Officer
            & Secretary pursuant to Rule 13a-14(a) of Securities Exchange Act of
            1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
            of 2002

32.1        Certification of the Chairman of the Board and Chief Executive
            Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2        Certification of the Senior Vice President, Chief Financial Officer
            and Secretary pursuant to Section 906 of the Sarbanes-Oxley Act of
            2002
</TABLE>

(1)   Filed as an exhibit to Registrant's Form 10-K for the 1992 fiscal year and
      incorporated herein by reference.

(2)   Filed as an exhibit to the Registrant's Registration Statement (No.
      33-35772) on Form S-2 and incorporated herein by reference.

(3)   Filed as an exhibit to the Registrant's Form 8-A dated May 7, 1999 and
      incorporated herein by reference.

(4)   Filed as an exhibit to the Registrant's Registration Statement (No.
      2-78035) on Form S-1 and incorporated herein by reference.

(5)   Filed as an exhibit to Registrant's Form 10-K for the 2000 fiscal year and
      incorporated herein by reference.

(6)   Filed as an exhibit to the Registrant's Form S-8 filed November 17, 1999
      and incorporated herein by reference.

(7)   Filed as an exhibit to Registrant's Form 8-KA filed September 27, 1999 and
      incorporated herein by reference.

(8)   Filed as an exhibit to the Registrant's Form 10-K for the 1996 fiscal year
      and incorporated herein by reference.

                                       39

<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       Morgan's Foods, Inc.

Dated: June 1, 2004                    /s/ Leonard R. Stein-Sapir
                                       ---------------------------------------
                                       By: Leonard R. Stein-Sapir
                                           Chairman of the Board,
                                           Chief Executive Officer & Director

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

/s/ Leonard R. Stein-Sapir                 /s/ Lawrence S. Dolin
---------------------------------------    ------------------------------------
By: Leonard R. Stein-Sapir                 By: Lawrence S. Dolin
    Chairman of the Board,                     Director
    Chief Executive Officer & Director         Dated: June 1, 2004
    Dated: June 1, 2004

/s/ James J. Liguori                       /s/ Bahman Guyuron
---------------------------------------    ------------------------------------
By: James J. Liguori                       By: Bahman Guyuron
    Director, President &                      Director
    Chief Operating Officer                    Dated: June 1, 2004
    Dated: June 1, 2004

/s/ Kenneth L. Hignett                     /s/ Steven S. Kaufman
---------------------------------------    ------------------------------------
By: Kenneth L. Hignett                     By: Steven S. Kaufman
    Director, Senior Vice President,           Director
    Chief Financial Officer & Secretary        Dated: June 1, 2004
    Dated: June 1, 2004

                                           /s/ Bernard Lerner
                                           ------------------------------------
                                           By: Bernard Lerner
                                               Director
                                               Dated: June 1, 2004

                                       40