##### Table of Contents



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 26, 2006  Commission file number 1-08395
 MORGANS FOODS, INC.
 
  Ohio
    
    34-0562210(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
  
  Registrants telephone number, including area code:
    
    (216) 360-7500
  Name of each exchange onTitle of each class
    
    which registeredCommon Shares, Without Par Value
Securities registered pursuant to Section 12 (g) of the Act: None
    
    American Stock Exchange
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



TABLE OF CONTENTS  PART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for the Companys Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesItem 15 (a) 1Item 15 (a) 2INDEX TO EXHIBITSSIGNATURESEX-21EX-23EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  MORGANS FOODS, INC.
 
 PART I
 Explanatory Note
  
 Item 1. Business.
 General.
 Restaurant Operations.
  2




---



##### Table of Contents



MORGANS FOODS, INC.
 PART I (contd)
  Franchise Agreements.
  Competition.
 3




---



##### Table of Contents



MORGANS FOODS, INC.
 PART I (contd)
   Government Regulation.
   Suppliers.
 Growth.
 Employees.
 
 Item 1A. Risk Factors.
  4




---



##### Table of Contents



MORGANS FOODS, INC.
 PART I (contd)
   
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
    5




---



##### Table of Contents



MORGANS FOODS, INC.
 PART I (contd)
 
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  Executive Officers of the Company
  Name
    
    Age
    
    Position with Registrant
    
    Officer SinceExecutive Officers:Leonard R. Stein-Sapir
    
    
    67
    
    
    Chairman of the Board
and Chief Executive
Officer
    
    April 1989James J. Liguori
    
    
    57
    
    
    President and Chief
Operating Officer
    
    June 1979Kenneth L. Hignett
    
    
    59
    
    
    Senior Vice President-
Chief Financial Officer
& Secretary
    
    May 1989Other Officers:Barton J. Craig
    
    
    57
    
    
    Senior Vice President-
General Counsel
    
    January 1994Vincent J. Oddi
    
    
    63
    
    
    Vice President-
Restaurant Development
    
    September 1979Ramesh J. Gursahaney
    
    
    57
    
    
    Vice President-
Operations
    
    January 1991
  6




---



##### Table of Contents



MORGANS FOODS, INC.
 
 PART II
 
 Item 5. Market for the Companys Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities
  Price RangeHigh
    
    
    LowYear ended February 26, 2006:1st Quarter
    
    $
    1.60
    
    
    $
    .902nd Quarter
    
    
    4.25
    
    
    
    1.603rd Quarter
    
    
    6.30
    
    
    
    4.504th Quarter
    
    
    8.00
    
    
    
    4.50Year ended February 27, 2005:1st Quarter
    
    $
    2.20
    
    
    $
    1.902nd Quarter
    
    
    1.90
    
    
    
    .953rd Quarter
    
    
    1.01
    
    
    
    .604th Quarter
    
    
    1.05
    
    
    
    .75
  7




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
 
 Item 6. Selected Financial Data.
   Years EndedFebruary 26,
    
    
    February 27,
    
    
    February 29,
    
    
    March 2,
    
    
    March 3,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(as restated)(2)
    
    
    (as restated)(2)
    
    
    (as restated)(2)Revenues
    
    $
    87,457
    
    
    $
    80,960
    
    
    $
    81,738
    
    
    $
    82,326
    
    
    $
    84,930Cost of sales:Food, paper and beverage
    
    
    27,146
    
    
    
    25,222
    
    
    
    24,712
    
    
    
    25,645
    
    
    
    25,987Labor and benefits
    
    
    23,186
    
    
    
    22,803
    
    
    
    22,816
    
    
    
    22,329
    
    
    
    22,155Restaurant operating expenses
    
    
    22,190
    
    
    
    21,015
    
    
    
    21,320
    
    
    
    21,018
    
    
    
    21,805Depreciation and amortization
    
    
    3,254
    
    
    
    3,419
    
    
    
    3,518
    
    
    
    3,499
    
    
    
    3,866General and administrative expenses
    
    
    5,133
    
    
    
    4,870
    
    
    
    5,574
    
    
    
    5,749
    
    
    
    5,209Loss (gain) on restaurant assets
    
    
    (715
    )
    
    
    574
    
    
    
    567
    
    
    
    551
    
    
    
    215Operating income
    
    
    7,263
    
    
    
    3,057
    
    
    
    3,231
    
    
    
    3,535
    
    
    
    5,693Net income (loss)
    
    
    3,437
    
    
    
    (2,141
    )
    
    
    (1,579
    )
    
    
    (1,673
    )
    
    
    602Basic net income (loss) per common share (1)
    
    $
    1.26
    
    
    $
    (.79
    )
    
    $
    (.58
    )
    
    $
    (.62
    )
    
    $
    .21Diluted net income (loss) per common share (1)
    
    $
    1.24
    
    
    $
    (.79
    )
    
    $
    (.58
    )
    
    $
    (.62
    )
    
    $
    .21Working capital (deficiency)
    
    $
    (3,178
    )
    
    $
    (46,048
    )
    
    $
    (3,999
    )
    
    $
    (3,111
    )
    
    $
    (1,312
    )Total assets
    
    
    50,751
    
    
    
    48,790
    
    
    
    52,672
    
    
    
    56,025
    
    
    
    60,253Long-term debt
    
    
    37,357
    
    
    
    
    
    
    
    43,370
    
    
    
    46,113
    
    
    
    48,563Long-term capital lease obligations
    
    
    1,194
    
    
    
    368
    
    
    
    379
    
    
    
    436
    
    
    
    544Shareholders deficiency
    
    
    (2,186
    )
    
    
    (5,623
    )
    
    
    (3,482
    )
    
    
    (1,903
    )
    
    
    (197
    )
 
 (1)
    
    Computed based upon the basic weighted average number of common shares outstanding
during each year, which were 2,718,495 in 2006, 2,718,495 in 2005, 2,718,441 in 2004,
2,720,182 in 2003 and 2,851,160 in 2002 and the diluted weighted average number of
common and common equivalent shares outstanding during each year, which were 2,778,524
in 2006, 2,718,495 in 2005, 2,718,441 in 2004, 2,720,182 in 2003 and 2,853,789 in 2002.(2)
    
    The Company has restated its consolidated financial statements for the fiscal
years ended February 27, 2005, February 29, 2004 and March 2, 2003 to correct an error
in computing the deferred tax asset valuation allowance. See note 2 to the financial
statements included elsewhere herein. 8




---



##### Table of Contents



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.
 Summary of Expenses and Operating Income as a Percentage of Revenues
 2006
    
    
    2005
    
    
    2004Cost of sales:Food, paper and beverage
    
    
    31.0
    %
    
    
    31.2
    %
    
    
    30.2
    %Labor and benefits
    
    
    26.5
    %
    
    
    28.2
    %
    
    
    27.9
    %Restaurant operating expenses
    
    
    25.4
    %
    
    
    26.0
    %
    
    
    26.1
    %Depreciation and amortization
    
    
    3.7
    %
    
    
    4.2
    %
    
    
    4.3
    %General and administrative expenses
    
    
    5.9
    %
    
    
    6.0
    %
    
    
    6.8
    %Operating income
    
    
    8.3
    %
    
    
    3.8
    %
    
    
    4.0
    %
 Revenues.
  9




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
 Cost of Sales  Food, Paper and Beverage.
  Cost of Sales  Labor and Benefits.
  Restaurant Operating Expenses.
  Depreciation and Amortization.
 General and Administrative Expenses.
 10




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
   Loss (gain) on Restaurant Assets.
  Operating Income.
 Interest Expense.
 11




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
  Other Income.
 Provision for Income Taxes.
 Liquidity and Capital Resources.
  12




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
  Organizational and Operational Restructuring.
 Financial Restructuring
 Market Risk Exposure.
 13




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
   Contractual Obligations
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalLong-term debt,
including current
    
    $
    3,116
    
    
    $
    2,913
    
    
    $
    3,046
    
    
    $
    3,313
    
    
    $
    3,606
    
    
    $
    24,479
    
    
    $
    40,473Interest expense on
long-term debt
    
    
    3,662
    
    
    
    3,368
    
    
    
    3,105
    
    
    
    2,801
    
    
    
    2,363
    
    
    
    8,381
    
    
    
    23,680Capital leases (1)
    
    
    24
    
    
    
    28
    
    
    
    33
    
    
    
    38
    
    
    
    42
    
    
    
    1,054
    
    
    
    1,219Operating leases (1)
    
    
    1,934
    
    
    
    1,605
    
    
    
    1,554
    
    
    
    1,184
    
    
    
    909
    
    
    
    2,804
    
    
    
    9,990
 
 (1)
    
    These amounts do not include contingent rentals based on sales performance. Other Contractual Obligations and Commitments.
   14




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
   NumberFiscal Year
    
    of Units
    
    
    Obligation (1)2007 image enhancements
    
    
    6
    
    
    $
    1,884,0002008 image enhancements
    
    
    10
    
    
    
    2,300,0002008 relocations
    
    
    1
    (2)
    
    
    1,400,0002009 image enhancements
    
    
    10
    
    
    
    2,725,0002010 image enhancements
    
    
    14
    
    
    
    3,650,0002011 image enhancements
    
    
    10
    
    
    
    2,650,0002011 relocations
    
    
    1
    (2)
    
    
    750,0002014 image enhancements
    
    
    1
    
    
    
    800,0002015 relocations
    
    
    4
    (2)
    
    
    5,000,0002016 relocations
    
    
    1
    (2)
    
    
    1,400,0002020 image enhancements
    
    
    3
    
    
    
    2,900,0002020 relocations
    
    
    4
    (2)
    
    
    5,700,000Total
    
    
    65
    
    
    $
    31,159,000
 
 (1)
    
    These amounts are based on current construction cost estimates and actual costs may vary.(2)
    
    Generally at the time relocation of an existing restaurant 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.  Seasonality.
 15




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
 Critical Accounting Policies.
 
    
    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 9 to the consolidated financial statements for a
discussion of income taxes.
    
    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 7 to the consolidated financial statements
for a discussion of lease accounting.
 New Accounting Standards.
   16




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
    Safe Harbor Statements.
  17




---



##### Table of Contents



MORGANS FOODS, INC.
 PART II (contd)
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures
   
 Item 9B. Other Information
  18




---



##### Table of Contents



MORGANS FOODS, INC.
 
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
   
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
  19




---



##### Table of Contents



MORGANS FOODS, INC.
 
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (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.
 20




---



##### Table of Contents



MORGANS FOODS, INC.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ITEM 15 (a) 1 and 2
 
 Item 15 (a) 1
 PageReferenceReport of Independent Registered Public Accounting Firm
    
    22Consolidated Balance Sheets
at February 26, 2006 and February 27, 2005 (as restated)
    
    23Consolidated Statements of Operations
for the years ended February 26, 2006, February 27, 2005 (as restated)
and February 29, 2004 (as restated)
    
    24Consolidated Statements of Shareholders Equity (Deficiency)
for the years ended February 26, 2006, February 27, 2005 (as restated)
and February 29, 2004 (as restated)
    
    25Consolidated Statements of Cash Flows
for the years ended February 26, 2006, February 27, 2005 (as restated)
and February 29, 2004 (as restated)
    
    26Notes to Consolidated Financial Statements
    
    27
 
 Item 15 (a) 2
  21




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 22




---



##### Table of Contents



MORGANS FOODS, INC.
Consolidated Balance Sheets
February 26, 2006 and February 27, 2005 (as restated)
 2006
    
    
    2005(as restatedsee Note 2)ASSETSCurrent assets:Cash and equivalents
    
    $
    6,415,000
    
    
    $
    3,654,000Receivables
    
    
    332,000
    
    
    
    392,000Inventories
    
    
    643,000
    
    
    
    588,000Prepaid expenses
    
    
    856,000
    
    
    
    589,0008,246,000
    
    
    
    5,223,000Property and equipment (Notes 6 and 7):Land
    
    
    10,462,000
    
    
    
    10,662,000Buildings and improvements
    
    
    19,688,000
    
    
    
    19,423,000Property under capital leases
    
    
    1,298,000
    
    
    
    435,000Leasehold improvements
    
    
    7,436,000
    
    
    
    7,210,000Equipment, furniture and fixtures
    
    
    19,964,000
    
    
    
    19,428,000Construction in progress
    
    
    55,000
    
    
    
    189,00058,903,000
    
    
    
    57,347,000Less accumulated depreciation and amortization
    
    
    28,678,000
    
    
    
    25,740,00030,225,000
    
    
    
    31,607,000Other assets
    
    
    925,000
    
    
    
    1,040,000Deferred tax assets (Note 9)
    
    
    550,000
    
    
    
    Franchise agreements
    
    
    1,578,000
    
    
    
    1,693,000Goodwill
    
    
    9,227,000
    
    
    
    9,227,000$
    50,751,000
    
    
    $
    48,790,000LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY)Current liabilities:Long-term debt, current (Note 6)
    
    $
    3,116,000
    
    
    $
    43,682,000Current maturities of capital lease obligations (Note 7)
    
    
    24,000
    
    
    
    13,000Accounts payable
    
    
    4,308,000
    
    
    
    4,034,000Accrued liabilities (Note 5)
    
    
    3,976,000
    
    
    
    3,542,00011,424,000
    
    
    
    51,271,000Long-term debt (Note 6)
    
    
    37,357,000
    
    
    
    Long-term capital lease obligations (Note 7)
    
    
    1,194,000
    
    
    
    368,000Other long-term liabilities
    
    
    1,631,000
    
    
    
    1,725,000Deferred tax liabilities (Note 9)
    
    
    1,331,000
    
    
    
    1,049,000Commitments and contingencies (Notes 6 and 7)SHAREHOLDERS EQUITY (DEFICIENCY)Preferred shares, 1,000,000 shares authorized,
no shares outstandingCommon Stock:Authorized shares - 25,000,000Issued shares - 2,969,405
    
    
    30,000
    
    
    
    30,000Treasury shares - 250,910 in 2006 and 2005
    
    
    (284,000
    )
    
    
    (284,000
    )Capital in excess of stated value
    
    
    28,829,000
    
    
    
    28,829,000Accumulated deficit
    
    
    (30,761,000
    )
    
    
    (34,198,000
    )Total shareholders deficiency
    
    
    (2,186,000
    )
    
    
    (5,623,000
    )$
    50,751,000
    
    
    $
    48,790,000
  23




---



##### Table of Contents



MORGANS FOODS, INC.
Consolidated Statements of Operations
Years Ended February 26, 2006, February 27, 2005 (as restated) and February 29, 2004 (as restated)
 2006
    
    
    2005
    
    
    2004(as restated
    
    
    (as restatedSee Note 2)
    
    
    see Note 2)Revenues
    
    $
    87,457,000
    
    
    $
    80,960,000
    
    
    $
    81,738,000Cost of sales:Food, paper and beverage
    
    
    27,146,000
    
    
    
    25,222,000
    
    
    
    24,712,000Labor and benefits
    
    
    23,186,000
    
    
    
    22,803,000
    
    
    
    22,816,000Restaurant operating expenses
    
    
    22,190,000
    
    
    
    21,015,000
    
    
    
    21,320,000Depreciation and amortization
    
    
    3,254,000
    
    
    
    3,419,000
    
    
    
    3,518,000General and administrative expenses
    
    
    5,133,000
    
    
    
    4,870,000
    
    
    
    5,574,000Loss (gain) on restaurant assets (Note 3)
    
    
    (715,000
    )
    
    
    574,000
    
    
    
    567,000Operating income
    
    
    7,263,000
    
    
    
    3,057,000
    
    
    
    3,231,000Interest expense:Bank debt and notes payable
    
    
    (4,078,000
    )
    
    
    (4,341,000
    )
    
    
    (4,578,000
    )Capital leases
    
    
    (89,000
    )
    
    
    (45,000
    )
    
    
    (49,000
    )Other income and expense, net
    
    
    154,000
    
    
    
    78,000
    
    
    
    106,000Income (loss) before income taxes
    
    
    3,250,000
    
    
    
    (1,251,000
    )
    
    
    (1,290,000
    )Provision (credit) for income taxes (Note 9)
    
    
    (187,000
    )
    
    
    890,000
    
    
    
    289,000Net income (loss)
    
    $
    3,437,000
    
    
    $
    (2,141,000
    )
    
    $
    (1,579,000Basic net income (loss) per common share:
    
    $
    1.26
    
    
    $
    (.79
    )
    
    $
    (.58
    )Diluted net income (loss) per common share:
    
    $
    1.24
    
    
    $
    (.79
    )
    
    $
    (.58
    )
  24




---



##### Table of Contents



MORGANS FOODS, INC.
Consolidated Statements of Shareholders Equity (Deficiency)
Years Ended February 26, 2006, February 27, 2005 (as restated) and February 29, 2004
 TotalCapital in
    
    
    
    
    
    
    ShareholdersCommon Shares
    
    
    Treasury Shares
    
    
    excess of
    
    
    Accumulated
    
    
    EquityShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    stated value
    
    
    Deficit
    
    
    (Deficiency)Balance, March 2, 2003
(as originally reported)
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    (250,964
    )
    
    $
    (284,000
    )
    
    $
    28,829,000
    
    
    $
    (29,997,000
    )
    
    $
    (1,422,000
    )Adjustment, March 2, 2003
(see Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (481,000
    )
    
    $
    (481,000
    )Balance, March 2, 2003
(as restated see Note 2)
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    (250,964
    )
    
    $
    (284,000
    )
    
    $
    28,829,000
    
    
    $
    (30,478,000
    )
    
    $
    (1,903,000
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,579,000
    )
    
    $
    (1,579,000
    )Balance, February 29, 2004
(as restated see Note 2)
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    (250,964
    )
    
    $
    (284,000
    )
    
    $
    28,829,000
    
    
    $
    (32,057,000
    )
    
    
    (3,482,000
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,141,000
    )
    
    
    (2,141,000
    )Adjustment of treasury
shares (Note 10)
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, February 27, 2005
(as restated see Note 2)
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    (250,910
    )
    
    $
    (284,000
    )
    
    $
    28,829,000
    
    
    $
    (34,198,000
    )
    
    $
    (5,623,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,437,000
    
    
    
    3,437,000Balance February 26, 2006
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    (250,910
    )
    
    $
    (284,000
    )
    
    $
    28,829,000
    
    
    $
    (30,761,000
    )
    
    $
    (2,186,000
    )
  25




---



##### Table of Contents



MORGANS FOODS, INC.
Consolidated Statements of Cash Flows
Years Ended February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
 2006
    
    
    2005
    
    
    2004(as restated
    
    
    (as restatedsee Note 2)
    
    
    see Note 2)Cash flows from operating activities:Net income (loss)
    
    $
    3,437,000
    
    
    $
    (2,141,000
    )
    
    $
    (1,579,000
    )Adjustments to reconcile to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,254,000
    
    
    
    3,419,000
    
    
    
    3,518,000Amortization of deferred
financing costs
    
    
    115,000
    
    
    
    121,000
    
    
    
    134,000Amortization of supply agreement
advances (Note 1)
    
    
    (712,000
    )
    
    
    (709,000
    )
    
    
    (845,000
    )Funding from supply agreements (Note 1)
    
    
    626,000
    
    
    
    641,000
    
    
    
    1,200,000Decrease (increase) in tax assets
    
    
    (550,000
    )
    
    
    600,000
    
    
    
    Increase in tax liabilities
    
    
    282,000
    
    
    
    283,000
    
    
    
    285,000Loss (gain) on restaurant assets
    
    
    (715,000
    )
    
    
    574,000
    
    
    
    567,000Business interruption insurance proceeds
    
    
    30,000
    
    
    
    152,000
    
    
    
    Changes in assets and liabilities:Decrease (Increase) in receivables
    
    
    60,000
    
    
    
    (150,000
    )
    
    
    58,000Increase in inventories
    
    
    (46,000
    )
    
    
    (15,000
    )
    
    
    (81,000
    )Decrease (Increase) in prepaid expenses
    
    
    (267,000
    )
    
    
    (265,000
    )
    
    
    238,000Decrease in other assets
    
    
    
    
    
    
    25,000
    
    
    
    6,000Increase in accounts payable
    
    
    274,000
    
    
    
    392,000
    
    
    
    449,000Increase (Decrease) in
accrued liabilities
    
    
    134,000
    
    
    
    139,000
    
    
    
    (283,000
    )Net cash provided by operating activities
    
    
    5,922,000
    
    
    
    3,066,000
    
    
    
    3,667,000Cash flows from investing activities:Capital expenditures
    
    
    (1,502,000
    )
    
    
    (2,141,000
    )
    
    
    (1,170,000
    )Insurance proceeds
    
    
    694,000
    
    
    
    588,000
    
    
    
    Purchase of franchise agreement
    
    
    (30,000
    )
    
    
    (25,000
    )
    
    
    (35,000
    )Redemption (purchase) of short
term investment
    
    
    
    
    
    
    300,000
    
    
    
    (300,000
    )Net cash used in investing activities
    
    
    (838,000
    )
    
    
    (1,278,000
    )
    
    
    (1,505,000
    )Cash flows from financing activities:Proceeds from issuance of long-term debt,
net of financing costs
    
    
    12,000
    
    
    
    414,000
    
    
    
    Principal payments on long-term debt
    
    
    (3,221,000
    )
    
    
    (2,845,000
    )
    
    
    (2,603,000
    )Proceeds from sale leaseback
    
    
    912,000
    
    
    
    
    
    
    
    Principal payments on capital
lease obligations
    
    
    (26,000
    )
    
    
    (56,000
    )
    
    
    (107,000
    )Net cash used in financing activities
    
    
    (2,323,000
    )
    
    
    (2,487,000
    )
    
    
    (2,710,000
    )Net change in cash and equivalents
    
    
    2,761,000
    
    
    
    (699,000
    )
    
    
    (548,000
    )Cash and equivalents, beginning balance
    
    
    3,654,000
    
    
    
    4,353,000
    
    
    
    4,901,000Cash and equivalents, ending balance
    
    $
    6,415,000
    
    
    $
    3,654,000
    
    
    $
    4,353,000
  26




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
 Note 1. Description of Business and Summary of Significant Accounting Policies.
 Description of Business.
 Use of Estimates.
 Principles of Consolidation.
 Revenue Recognition.
 Advertising Costs.
 Cash and Investments.
 Inventories.
 Property and Equipment.
 27




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
  Deferred Financing Costs.
 Franchise Agreements.
 Goodwill. Goodwill and Other Intangible Assets,
 Advance on Supply Agreements
 Lease Accounting.
 Income Taxes.
 28




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
  Stock-Based Compensation. Accounting for Stock-Based Compensation
 Note 2. Restatement of Fiscal Year 2005 and 2004 Financial Statements.
    As of February 27, 2005As PreviouslyReported
    
    Adjustment
    
    As RestatedConsolidated Balance SheetDeferred income tax liability
    
    $
    0
    
    
    $
    1,049,000
    
    
    $
    1,049,000Accumulated deficit
    
    
    (33,149,000
    )
    
    
    (1,049,000
    )
    
    
    (34,198,000
    )Total shareholders deficiency
    
    
    (4,574,000
    )
    
    
    (1,049,000
    )
    
    
    (5,623,000
    )
 29




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
 For the Year Ended February 27, 2005As PreviouslyReported
    
    Adjustment
    
    As RestatedConsolidated Statement of OperationsIncome tax expense
    
    $
    607,000
    
    
    $
    283,000
    
    
    $
    890,000Net loss
    
    
    (1,858,000
    )
    
    
    (283,000
    )
    
    
    (2,141,000
    )Net loss per share to common stockholders
 basic and diluted
    
    
    (0.68
    )
    
    
    (0.11
    )
    
    
    (0.79
    )
 For the Year Ended February 29, 2004As PreviouslyReported
    
    
    Adjustment
    
    
    As RestatedConsolidated Statement of OperationsIncome tax expense
    
    $
    4,000
    
    
    $
    285,000
    
    
    $
    289,000Net loss
    
    
    (1,294,000
    )
    
    
    (285,000
    )
    
    
    (1,579,000
    )Net loss per share  basic and diluted
    
    
    (0.48
    )
    
    
    (0.10
    )
    
    
    (0.58
    )
 For the Year Ended February 27, 2005As PreviouslyReported
    
    Adjustment
    
    As RestatedConsolidated Statement of Cash FlowsNet loss
    
    $
    (1,858,000
    )
    
    $
    (283,000
    )
    
    $
    (2,141,000
    )Increase in tax liability
    
    
    
    
    
    
    283,000
    
    
    
    283,000Insurance proceeds, operating activities
    
    
    
    
    
    
    152,000
    
    
    
    152,000Net cash provided from operating activities
    
    
    2,914,000
    
    
    
    152,000
    
    
    
    3,066,000Insurance proceeds, investing activities
    
    
    740,000
    
    
    
    (152,000
    )
    
    
    588,000Net cash used in investing activities
    
    
    (1,126,000
    )
    
    
    (152,000
    )
    
    
    (1,278,000
    )
 For the Year Ended February 29, 2004As PreviouslyReported
    
    Adjustment
    
    As RestatedConsolidated Statement of Cash FlowsNet loss
    
    $
    (1,294,000
    )
    
    $
    (285,000
    )
    
    $
    (1,579,000
    )Increase in tax liability
    
    
    
    
    
    
    285,000
    
    
    
    285,000Net cash provided from operating activities
    
    
    3,667,000
    
    
    
    
    
    
    
    3,667,000
 Note 3. (Gain) Loss on Restaurant Assets.
  30




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
  Note 4. Intangible Assets.
 Goodwill and Other Intangible Assets,
 Intangible AssetsAs of February 26, 2006
    
    
    As of February 27, 2005Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationFranchise Agreements
    
    $
    2,420,000
    
    
    $
    (842,000
    )
    
    $
    2,441,000
    
    
    $
    (748,000
    )Goodwill
    
    
    10,593,000
    
    
    
    (1,366,000
    )
    
    
    10,593,000
    
    
    
    (1,366,000
    )Total
    
    $
    13,013,000
    
    
    $
    (2,208,000
    )
    
    $
    13,034,000
    
    
    $
    (2,114,000
    )
   Note 5. Accrued Liabilities.
  2006
    
    
    2005Accrued compensation
    
    $
    1,742,000
    
    
    $
    1,817,000Accrued taxes other than income taxes
    
    
    762,000
    
    
    
    820,000Accrued liabilities related to closed restaurants
    
    
    221,000
    
    
    
    268,000Deferred gain on sale/leaseback
    
    
    346,000
    
    
    
    Other accrued expenses
    
    
    905,000
    
    
    
    637,000$
    3,976,000
    
    
    $
    3,542,000
 31




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
 Note 6. Debt.
  2006
    
    
    2005Mortgage debt, including
interest at 8.3% to 10.6%, through 2021,
collateralized by seventy-five restaurants having a
net book value at February 26, 2006 of $22,484,000
    
    $
    39,731,000
    
    
    $
    42,127,000Equipment loans, including
interest at 9.9% to 11.1% through October 2007
collateralized by equipment at several KFC restaurants
    
    
    742,000
    
    
    
    1,518,000Note payable at 8%,
including interest through July 2005
    
    
    
    
    
    
    37,00040,473,000
    
    
    
    43,682,000Less long term debt, current
    
    
    3,116,000
    
    
    
    43,682,000$
    37,357,000
    
    
    $
    
  2007
    
    $
    3,116,0002008
    
    
    2,913,0002009
    
    
    3,046,0002010
    
    
    3,313,0002011
    
    
    3,606,000Later years
    
    
    24,479,000$
    40,473,000
   32




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
  Note 7. Lease Obligations and Other Commitments.
  2006
    
    
    2005Leased property:Buildings and Land
    
    $
    1,298,000
    
    
    $
    435,000Equipment, furniture and fixtures
    
    
    
    
    
    
    Total
    
    
    1,298,000
    
    
    
    435,000Less accumulated amortization
    
    
    187,000
    
    
    
    127,000$
    1,111,000
    
    
    $
    308,000
    2006
    
    
    2005Capital lease obligations
    
    $
    1,218,000
    
    
    $
    381,000Less current maturities
    
    
    24,000
    
    
    
    13,000Long-term capital lease obligations
    
    $
    1,194,000
    
    
    $
    368,000
   2007
    
    $
    141,0002008
    
    
    142,0002009
    
    
    143,0002010
    
    
    143,0002011
    
    
    144,000Later years
    
    
    1,857,0002,570,000Less amount representing
interest at 10.0%
    
    
    1,352,000Total obligations under
capital leases
    
    $
    1,218,000
 33




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
     34




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
  NumberFiscal Year
    
    of Units
    
    
    Obligation (1)2007 image enhancements
    
    
    6
    
    
    $
    1,884,0002008 image enhancements
    
    
    10
    
    
    
    2,300,0002008 relocations
    
    
    1
    (2)
    
    
    1,400,0002009 image enhancements
    
    
    10
    
    
    
    2,725,0002010 image enhancements
    
    
    14
    
    
    
    3,650,0002011 image enhancements
    
    
    10
    
    
    
    2,650,0002011 relocations
    
    
    1
    (2)
    
    
    750,0002014 image enhancements
    
    
    1
    
    
    
    800,0002015 relocations
    
    
    4
    (2)
    
    
    5,000,0002016 relocations
    
    
    1
    (2)
    
    
    1,400,0002020 image enhancements
    
    
    3
    
    
    
    2,900,0002020 relocations
    
    
    4
    (2)
    
    
    5,700,000Total
    
    
    65
    
    
    $
    31,159,000
 
 (1)
    
    These amounts are based on current construction cost estimates and actual costs may vary.(2)
    
    Generally at the time relocation of an existing restaurant 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.  Note 8. Net Income (Loss) Per Common Share.
  35




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
 Note 9. Income Taxes.
   2006
    
    
    2005
    
    
    2004Tax provision (benefit) at statutory rate
    
    $
    1,138,000
    
    
    $
    (438,000
    )
    
    $
    (451,000
    )State and local taxes, net of federal
benefit
    
    
    9,000
    
    
    
    5,000
    
    
    
    3,000Deferred tax provision-change in
valuation allowance
    
    
    (1,515,000
    )
    
    
    1,296,000
    
    
    
    683,000Other
    
    
    181,000
    
    
    
    27,000
    
    
    
    54,000$
    (187,000
    )
    
    $
    890,000
    
    
    $
    289,000
 36




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
  2006
    
    
    2005Operating loss carryforwards
    
    $
    1,981,000
    
    
    $
    3,054,000Tax credit carryforwards
    
    
    125,000
    
    
    
    56,000Property and equipment
    
    
    2,662,000
    
    
    
    2,691,000Deferred gain on sale/leaseback
    
    
    145,000
    
    
    
    -0-Accrued expenses not currently
deductible
    
    
    894,000
    
    
    
    915,000Inventory valuation
    
    
    5,000
    
    
    
    5,000Advance payments
    
    
    284,000
    
    
    
    333,000Intangible assets
    
    
    (75,000
    )
    
    
    (68,000
    )Deferred tax asset valuation allowance
    
    
    (5,471,000
    )
    
    
    (6,986,000
    )Net deferred tax asset
    
    $
    550,000
    
    
    $
    -0-Deferred tax liabilities associated with
indefinite lived assets
    
    
    (1,331,000
    )
    
    
    (1,049,000
    )Net total deferred taxes
    
    $
    (781,000
    )
    
    $
    (1,049,000
    )
   2020
    
    $
    388,0002021
    
    
    863,0002022
    
    
    1,085,0002023
    
    
    753,0002024
    
    
    383,0002025
    
    
    1,481,000Total
    
    $
    4,953,000
 37




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
  Note 10. Stock Options and Shareholders Equity.
      Number
    
    Average
    
    NumberOutstanding
    
    Remaining
    
    ExercisableExercise Prices
    
    at 2/26/06
    
    Life
    
    at 2/26/06$
    0.85
    
    
    
    11,500
    
    
    
    4.9
    
    
    
    11,500$
    3.00
    
    
    
    129,850
    
    
    
    3.9
    
    
    
    129,850$
    4.13
    
    
    
    145,150
    
    
    
    3.1
    
    
    
    145,150286,500
    
    
    
    3.5
    
    
    
    286,500
 38




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
      39




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
 Note 11. 401(k) Retirement Plan.
  Note 12. Fair Value of Financial Instruments.
  Note 13. New Accounting Standards.
    40




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
    Note 14. Selected Quarterly Financial Data (Unaudited).
 Fiscal 2006 Quarter EndedMay 22,
    
    August 14,
    
    November 6,
    
    February 26,2005
    
    2005
    
    2005
    
    2006(as previously
    
    (as previously
    
    (as previouslyreported)
    
    reported)
    
    reported)Revenues
    
    $
    20,760,000
    
    
    $
    21,558,000
    
    
    $
    20,006,000
    
    
    $
    25,133,000Operating costs and expenses, net
    
    
    18,526,000
    
    
    
    19,519,000
    
    
    
    18,386,000
    
    
    
    23,763,000Operating income
    
    
    2,234,000
    
    
    
    2,039,000
    
    
    
    1,620,000
    
    
    
    1,370,000Net income
    
    
    1,257,000
    
    
    
    1,084,000
    
    
    
    694,000
    
    
    
    597,000Basic net income per share
    
    
    .46
    
    
    
    .40
    
    
    
    .26
    
    
    
    .22Fully diluted net
income per share
    
    
    .46
    
    
    
    .40
    
    
    
    .25
    
    
    
    .21
 41




---



##### Table of Contents



MORGANS FOODS, INC.
Notes to Consolidated Financial Statements
February 26, 2006, February 27, 2005 (as restated), and February 29, 2004 (as restated)
 Fiscal 2006 Quarter EndedMay 22,
    
    August 14,
    
    November 6,
    
    February 26,2005
    
    2005
    
    2005
    
    2006(as restated)
    
    (as restated)
    
    (as restated)Revenues
    
    $
    20,760,000
    
    
    $
    21,558,000
    
    
    $
    20,006,000
    
    
    $
    25,133,000Operating costs and expenses, net
    
    
    18,526,000
    
    
    
    19,519,000
    
    
    
    18,386,000
    
    
    
    23,763,000Operating income
    
    
    2,234,000
    
    
    
    2,039,000
    
    
    
    1,620,000
    
    
    
    1,370,000Net income
    
    
    1,192,000
    
    
    
    1,019,000
    
    
    
    629,000
    
    
    
    597,000Basic net income per share
    
    
    .44
    
    
    
    .37
    
    
    
    .23
    
    
    
    .22Fully diluted net
income per share
    
    
    .43
    
    
    
    .37
    
    
    
    .23
    
    
    
    .21
 Fiscal 2005 Quarter EndedMay 23,
    
    August 15,
    
    November 7,
    
    February 27,2004
    
    2004
    
    2004
    
    2005(as previously
    
    (as previously
    
    (as previously
    
    (as previouslyreported)
    
    reported)
    
    reported)
    
    reported)Revenues
    
    $
    18,343,000
    
    
    $
    19,791,000
    
    
    $
    19,190,000
    
    
    $
    23,636,000Operating costs and expenses, net
    
    
    18,160,000
    
    
    
    18,692,000
    
    
    
    18,887,000
    
    
    
    22,164,000Operating income
    
    
    183,000
    
    
    
    1,099,000
    
    
    
    303,000
    
    
    
    1,472,000Net income (loss)
    
    
    (847,000
    )
    
    
    99,000
    
    
    
    (1,277,000
    )
    
    
    167,000Basic and diluted net
income (loss) per share
    
    
    (.31
    )
    
    
    .04
    
    
    
    (.47
    )
    
    
    .06
 Fiscal 2005 Quarter EndedMay 23,
    
    August 15,
    
    November 7,
    February 27,2004
    
    2004
    
    2004
    
    2005(as restated)
    
    (as restated)
    
    (as restated)
    
    (as restated)Revenues
    
    $
    18,343,000
    
    
    $
    19,791,000
    
    
    $
    19,190,000
    
    
    $
    23,636,000Operating costs and expenses, net
    
    
    18,160,000
    
    
    
    18,692,000
    
    
    
    18,887,000
    
    
    
    22,164,000Operating income
    
    
    183,000
    
    
    
    1,099,000
    
    
    
    303,000
    
    
    
    1,472,000Net income (loss)
    
    
    (912,000
    )
    
    
    34,000
    
    
    
    (1,343,000
    )
    
    
    80,000Basic and diluted net
income (loss) per share
    
    
    (.33
    )
    
    
    .01
    
    
    
    (.49
    )
    
    
    .02
  42




---



##### Table of Contents



MORGANS FOODS, INC.
 
 INDEX TO EXHIBITS
Item 14 (a) (3)
 ExhibitNumber
    
    Exhibit Description3.1
    
    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)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 (9)19
    
    Form of Indemnification Contract between Registrant and its Officers and Directors (6)21
    
    Subsidiaries23
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    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 200231.2
    
    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 200232.1
    
    Certification of the Chairman of the Board and Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Senior Vice President, Chief Financial Officer and
Secretary pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (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.(9)
    
    Filed as an exhibit to the Registrants Form 10-K for the 2004 fiscal year and incorporated
herein by reference.(10)
    
    Filed as an exhibit to the Registrants Form 8-A/A filed June 9, 2003 and incorporated
herein by reference. 43




---



##### Table of Contents



SIGNATURES
  Morgans Foods, Inc.Dated: June 14, 2006
    
    /s/
    
    Leonard R. Stein-SapirBy:
    
    Leonard R. Stein-SapirChairman of the Board,Chief Executive Officer & Director
  /s/
    
    Leonard R. Stein-Sapir
    
    
    
    /s/
    
    Lawrence S. DolinBy:
    
    Leonard R. Stein-Sapir
    
    
    
    By:
    
    Lawrence S. DolinChairman of the Board,
    
    
    
    
    
    DirectorChief Executive Officer & Director
    
    
    
    
    
    Dated: June 14, 2006Dated: June 14, 2006/s/
    
    James J. Liguori
    
    
    
    /s/
    
    Bahman GuyuronBy:
    
    James J. Liguori
    
    
    
    By:
    
    Bahman GuyuronDirector, President &
    
    
    
    
    
    DirectorChief Operating Officer
    
    
    
    
    
    Dated: June 14, 2006Dated: June 14, 2006/s/
    
    Kenneth L. Hignett
    
    
    
    /s/
    
    Steven S. KaufmanBy:
    
    Kenneth L. Hignett
    
    
    
    By:
    
    Steven S. KaufmanDirector, Senior Vice President,
    
    
    
    
    
    DirectorChief Financial Officer & Secretary
    
    
    
    
    
    Dated: June 14, 2006Dated: June 14, 2006/s/
    
    Bernard LernerBy:
    
    Bernard Lerner
Director

Dated: June 14, 2006
 44