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 March 1, 2009 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)
 
 (216) 359-9000
  Name of each exchange onTitle of each class
    
    which registeredCommon Shares, Without Par Value
  o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller Reporting Company þ o þ




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DOCUMENTS INCORPORATED BY REFERENCE
  PART I
 ITEM 1. BUSINESS
 General
  Restaurant Operations
   Franchise Agreements
  2




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Competition
   Government Regulation
   3




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Suppliers
  Growth
  Employees
  ITEM 1A. RISK FACTORS
  Outbreak of Avian Flu or Mad Cow Disease
  Image Enhancement and Capital Expenditure Requirements
  Contamination of the Food Supply
 4




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Litigation
  Environmental Liabilities
  Food and Labor Cost Increases
  Product and Marketing Success of Franchisors
  Governmental Laws and Regulations
  Quick Service Restaurant Competition
  ITEM 1B. UNRESOLVED STAFF COMMENTS
  5




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ITEM 2. PROPERTIES
    ITEM 3. LEGAL PROCEEDINGS
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  6




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##### 



Executive Officers of the Company
  Name
    
    Age
    
    Position with Registrant
    
    Officer SinceExecutive Officers:Leonard R. Stein-Sapir
    
    
    70
    
    
    Chairman of the Board
and Chief Executive
Officer
    
    April 1989James J. Liguori
    
    
    60
    
    
    President and Chief
Operating Officer
    
    June 1979Kenneth L. Hignett
    
    
    62
    
    
    Senior Vice President-
Chief Financial Officer
& Secretary
    
    May 1989Other Officers:Barton J. Craig
    
    
    60
    
    
    Senior Vice President-
General Counsel
    
    January 1994Vincent J. Oddi
    
    
    66
    
    
    Vice President-
Restaurant Development
    
    September 1979Ramesh J. Gursahaney
    
    
    60
    
    
    Vice President-
Operations
    
    January 1991
  7




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##### 



PART II
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  Price RangeHigh
    
    LowYear ended March 1, 2009:1st Quarter
    
    $
    6.55
    
    
    $
    5.302nd Quarter
    
    
    5.51
    
    
    
    4.103rd Quarter
    
    
    5.00
    
    
    
    1.504th Quarter
    
    
    2.00
    
    
    
    0.52Year ended March 2, 2008:1st Quarter
    
    $
    12.90
    
    
    $
    11.402nd Quarter
    
    
    12.40
    
    
    
    10.953rd Quarter
    
    
    10.99
    
    
    
    9.454th Quarter
    
    
    10.95
    
    
    
    6.55
   Equity Compensation Plan Information as of March 1, 2009Weighted
    
    Number of sharesNumber of securities
    
    average exercise
    
    remaining forto be issued upon
    
    price of
    
    future issuanceexercise of
    
    outstanding
    
    under equityPlan Category
    
    outstanding options
    
    options
    
    compensation plansEquity Compensation
plans approved by
security holders
    
    
    157,150
    
    
    $
    1.63
    
    
    
    Equity
Compensation plans
not approved by
security holders
    
    
    62,850
    
    
    $
    2.99
    
    
    
    Total
    
    
    220,000
    
    
    $
    2.016
    
    
    
    
 8




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##### 



Shareholder Return Performance Graph
  Comparison of Cumulative Five Year Total Return
 
 2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009MORGANS FOODS INC
    
    
    100
    
    
    
    46
    
    
    
    250
    
    
    
    633
    
    
    
    328
    
    
    
    100S&P
MIDCAP 400 INDEX
    
    
    100
    
    
    
    113
    
    
    
    133
    
    
    
    149
    
    
    
    137
    
    
    
    80RESTAURANT PEER
GROUP
    
    
    100
    
    
    
    110
    
    
    
    156
    
    
    
    200
    
    
    
    197
    
    
    
    60
  9




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##### 



ITEM 6. SELECTED FINANCIAL DATA
  Years EndedMarch 1,
    
    March 2,
    
    February 25,
    
    February 26,
    
    February 27,2009
    
    2008
    
    2007
    
    2006
    
    2005$ in thousands, except per share amountsRevenues
    
    $
    92,485
    
    
    $
    96,318
    
    
    $
    91,248
    
    
    $
    87,457
    
    
    $
    80,960Cost of sales:Food, paper and beverage
    
    
    29,695
    
    
    
    29,524
    
    
    
    27,981
    
    
    
    27,146
    
    
    
    25,222Labor and benefits
    
    
    26,850
    
    
    
    27,404
    
    
    
    24,798
    
    
    
    23,186
    
    
    
    22,803Restaurant operating expenses
    
    
    24,068
    
    
    
    24,415
    
    
    
    22,765
    
    
    
    22,190
    
    
    
    21,015Depreciation and amortization
    
    
    3,224
    
    
    
    2,953
    
    
    
    2,950
    
    
    
    3,254
    
    
    
    3,419General and administrative expenses
    
    
    5,740
    
    
    
    6,111
    
    
    
    5,428
    
    
    
    5,133
    
    
    
    4,870Loss (gain) on restaurant assets
    
    
    417
    
    
    
    112
    
    
    
    5
    
    
    
    (715
    )
    
    
    574Operating income
    
    
    2,491
    
    
    
    5,799
    
    
    
    7,321
    
    
    
    7,263
    
    
    
    3,057Net income (loss)
    
    
    (1,390
    )
    
    
    414
    
    
    
    3,527
    
    
    
    3,437
    
    
    
    (2,141
    )Basic net income (loss) per comm. sh. (1)
    
    
    (0.47
    )
    
    
    0.14
    
    
    
    1.29
    
    
    
    1.26
    
    
    
    (0.79
    )Diluted net income (loss) per comm. sh. (1)
    
    
    (0.47
    )
    
    
    0.14
    
    
    
    1.27
    
    
    
    1.24
    
    
    
    (0.79
    )Working capital (deficiency)
    
    
    (2,667
    )
    
    
    (5,335
    )
    
    
    (2,403
    )
    
    
    (3,178
    )
    
    
    (46,048
    )Total assets
    
    
    52,562
    
    
    
    55,962
    
    
    
    52,323
    
    
    
    50,751
    
    
    
    48,790LT debt and capital lease (current portion)
    
    
    3,070
    
    
    
    3,224
    
    
    
    2,941
    
    
    
    3,140
    
    
    
    43,695Long-term debt (less current maturities)
    
    
    33,182
    
    
    
    35,789
    
    
    
    34,445
    
    
    
    37,357
    
    
    
    Long-term capital lease obligations
    
    
    1,105
    
    
    
    1,144
    
    
    
    1,299
    
    
    
    1,194
    
    
    
    368Shareholders equity (deficiency)
    
    
    1,171
    
    
    
    2,473
    
    
    
    1,839
    
    
    
    (2,186
    )
    
    
    (5,623
    )
 
 (1)
    
    Computed based upon the basic weighted average number of common shares
outstanding during each year, which were 2,934,995 in 2009, 2,911,448 in 2008, 2,738,982
in 2007, 2,718,495 in 2006 and 2,718,495 in 2005 and the diluted weighted average number
of common and common equivalent shares outstanding during each year, which were
2,943,415 in 2009, 2,968,654 in 2008, 2,767,478 in 2007, 2,778,524 in 2006 an 2,718,495
in 2005. ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Results of Operations
  10




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##### 



2009
    
    2008Cost of sales:Food, paper and beverage
    
    
    32.1
    %
    
    
    30.7
    %Labor and benefits
    
    
    29.0
    %
    
    
    28.5
    %Restaurant operating expenses
    
    
    26.0
    %
    
    
    25.3
    %Depreciation and amortization
    
    
    3.5
    %
    
    
    3.1
    %General and administrative expenses
    
    
    6.2
    %
    
    
    6.3
    %Operating income
    
    
    2.7
    %
    
    
    6.0
    %
 Revenues
   Cost of Sales  Food, Paper and Beverage
   Cost of Sales  Labor and Benefits
  11




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##### 



Restaurant Operating Expenses
   Depreciation and Amortization
   General and Administrative Expenses
   Loss on Restaurant Assets
  12




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##### 



Operating Income
  Interest Expense
 Prepayment and Deferred Financing Costs
   Bank and Capitalized Lease Interest Expense
  13




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##### 



Other Income
  Provision for Income Taxes
  Liquidity and Capital Resources
   14




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Market Risk Exposure
  Other Contractual Obligations and Commitments
  Contractual Obligations
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014
    
    ThereafterLong-term debt,
including current
    
    $
    3,031
    
    
    $
    3,188
    
    
    $
    3,388
    
    
    $
    12,087
    
    
    $
    4,070
    
    
    $
    10,449Interest expense on
long-term debt
    
    $
    2,582
    
    
    $
    2,347
    
    
    $
    2,089
    
    
    $
    1,780
    
    
    $
    1,084
    
    
    $
    2,695Capital leases (1)
    
    $
    147
    
    
    $
    148
    
    
    $
    148
    
    
    $
    146
    
    
    $
    147
    
    
    $
    1,419Operating leases (1)
    
    $
    2,434
    
    
    $
    2,237
    
    
    $
    2,107
    
    
    $
    1,867
    
    
    $
    1,506
    
    
    $
    12,155
 
 (1)
    
    does not include contingent rental obligations based on sales performance 15




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Required Capital Expenditures
   16




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##### 



Number of Units
    
    Period
    
    Type
    
    Total (1)
    
    Required (2)
    
    Additional (3)1
    
    
    Fiscal 2010
    
    IE
    
    $
    390,000
    
    
    
    350,000
    
    
    $
    40,0001
    
    
    Fiscal 2011
    
    Relo (4)
    
    
    1,400,000
    
    
    
    1,400,000
    
    
    
    8
    
    
    Fiscal 2011
    
    IE
    
    
    2,560,000
    
    
    
    2,240,000
    
    
    
    320,0001
    
    
    Fiscal 2012
    
    Relo (4)
    
    
    750,000
    
    
    
    750,000
    
    
    
    8
    
    
    Fiscal 2012
    
    IE
    
    
    2,560,000
    
    
    
    2,240,000
    
    
    
    320,0005
    
    
    Fiscal 2013
    
    IE
    
    
    1,600,000
    
    
    
    1,400,000
    
    
    
    200,0001
    
    
    Fiscal 2015
    
    Rebuild
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    4
    
    
    Fiscal 2015
    
    Relo (4)
    
    
    5,600,000
    
    
    
    5,600,000
    
    
    
    1
    
    
    Fiscal 2016
    
    Relo (4)
    
    
    1,400,000
    
    
    
    1,400,000
    
    
    
    4
    
    
    Fiscal 2020
    
    Relo (4)
    
    
    5,600,000
    
    
    
    5,600,000
    
    
    
    2
    
    
    Fiscal 2020
    
    Rebuild
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    36
    
    
    Total
    
    
    
    
    
    $
    24,860,000
    
    
    $
    23,980,000
    
    
    $
    880,000
 
 (1)
    
    These amounts are based on estimates of current construction costs and actual costs may vary.(2)
    
    These amounts include only the items required to meet the franchisors image requirements.(3)
    
    These amounts are for capital upgrades performed on or which may be performed on the image enhanced restaurants which were or
may be deemed by the Company to be advantageous to the operation of the units and which may be done at the time of the image
enhancement.(4)
    
    Relocation of fee owned properties are shown net of expected recovery of capital from the sale of the former location.
Relocation of leased properties assumes the capital cost of only equipment because it is not known until each lease is finalized
whether the lease will be a capital or operating lease.   Seasonality
  17




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Critical Accounting Policies
  
    
    Estimating future cash flows and fair value of assets associated with assessing potential
impairment of long-lived tangible 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.
 
    
    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
    18




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Safe Harbor Statements
   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  19




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 MORGANS FOODS, INC.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
 PageReferenceReport of Independent Registered Public Accounting Firm
    
    
    21Consolidated Balance Sheets at March 1, 2009 and March 2, 2008
    
    
    22Consolidated Statements of Operations for the years ended
March 1, 2009 and March 2, 2008
    
    
    23Consolidated Statements of Shareholders Equity for the years ended
March 1, 2009 and March 2, 2008
    
    
    24Consolidated Statements of Cash Flows for the years ended
March 1, 2009 and March 2, 2008
    
    
    25Notes to Consolidated Financial Statements
    
    
    26
  20




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 21




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##### 



MORGANS FOODS, INC.
 2009
    
    
    2008ASSETSCurrent assets:Cash and equivalents
    
    $
    5,257,000
    
    
    $
    6,428,000Receivables
    
    
    806,000
    
    
    
    423,000Inventories
    
    
    731,000
    
    
    
    755,000Prepaid expenses
    
    
    624,000
    
    
    
    679,000Assets held for sale
    
    
    828,000
    
    
    
    8,246,000
    
    
    
    8,285,000Property and equipment:Land
    
    
    9,558,000
    
    
    
    10,798,000Buildings and improvements
    
    
    20,692,000
    
    
    
    22,588,000Property under capital leases
    
    
    1,314,000
    
    
    
    1,314,000Leasehold improvements
    
    
    10,615,000
    
    
    
    10,110,000Equipment, furniture and fixtures
    
    
    19,891,000
    
    
    
    21,047,000Construction in progress
    
    
    316,000
    
    
    
    1,193,00062,386,000
    
    
    
    67,050,000Less accumulated depreciation and amortization
    
    
    29,827,000
    
    
    
    31,620,00032,559,000
    
    
    
    35,430,000Other assets
    
    
    676,000
    
    
    
    837,000Franchise agreements, net
    
    
    1,260,000
    
    
    
    1,417,000Deferred tax asset
    
    
    594,000
    
    
    
    766,000Goodwill
    
    
    9,227,000
    
    
    
    9,227,000$
    52,562,000
    
    
    $
    55,962,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Long-term debt, current
    
    $
    3,031,000
    
    
    $
    3,190,000Current maturities of capital lease obligations
    
    
    39,000
    
    
    
    34,000Accounts payable
    
    
    3,909,000
    
    
    
    5,718,000Accrued liabilities
    
    
    3,934,000
    
    
    
    4,678,00010,913,000
    
    
    
    13,620,000Long-term debt
    
    
    33,182,000
    
    
    
    35,789,000Long-term capital lease obligations
    
    
    1,105,000
    
    
    
    1,144,000Other long-term liabilities
    
    
    4,061,000
    
    
    
    1,083,000Deferred tax liabilities
    
    
    2,130,000
    
    
    
    1,853,000SHAREHOLDERS EQUITYPreferred shares, 1,000,000 shares authorized,
no shares outstanding
    
    
    
    
    
    
    Common stock, no par value
Authorized shares - 25,000,000Issued shares  2,969,405
    
    
    30,000
    
    
    
    30,000Treasury shares  34,410
    
    
    (81,000
    )
    
    
    (81,000
    )Capital in excess of stated value
    
    
    29,432,000
    
    
    
    29,344,000Accumulated deficit
    
    
    (28,210,000
    )
    
    
    (26,820,000
    )Total shareholders equity
    
    
    1,171,000
    
    
    
    2,473,000$
    52,562,000
    
    
    $
    55,962,000
  22




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##### 



MORGANS FOODS, INC.
 2009
    
    2008Revenues
    
    $
    92,485,000
    
    
    $
    96,318,000Cost of sales:Food, paper and beverage
    
    
    29,695,000
    
    
    
    29,524,000Labor and benefits
    
    
    26,850,000
    
    
    
    27,404,000Restaurant operating expenses
    
    
    24,068,000
    
    
    
    24,415,000Depreciation and amortization
    
    
    3,224,000
    
    
    
    2,953,000General and administrative expenses
    
    
    5,740,000
    
    
    
    6,111,000Loss on restaurant assets
    
    
    417,000
    
    
    
    112,000Operating income
    
    
    2,491,000
    
    
    
    5,799,000Interest expense:Prepayment and deferred financing costs
    
    
    (525,000
    )
    
    
    (1,872,000
    )Bank debt and notes payable
    
    
    (3,190,000
    )
    
    
    (3,472,000
    )Capital leases
    
    
    (111,000
    )
    
    
    (125,000
    )Other income and expense, net
    
    
    336,000
    
    
    
    433,000Income (loss) before income taxes
    
    
    (999,000
    )
    
    
    763,000Provision for income taxes
    
    
    391,000
    
    
    
    349,000Net income (loss)
    
    $
    (1,390,000
    )
    
    $
    414,000Basic net income (loss) per common share:
    
    $
    (0.47
    )
    
    $
    0.14Diluted net income (loss) per common share:
    
    $
    (0.47
    )
    
    $
    0.14
  23




---



##### 



MORGANS FOODS, INC.
 Capital in
    
    
    
    
    
    TotalCommon Shares
    
    Treasury Shares
    
    excess of
    
    Accumulated
    
    ShareholdersShares
    
    Amount
    
    Shares
    
    Amount
    
    stated value
    
    Deficit
    
    EquityBalance February 25,2007
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    (88,410
    )
    
    $
    (131,000
    )
    
    $
    29,174,000
    
    
    $
    (27,234,000
    )
    
    $
    1,839,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414,000
    
    
    
    414,000Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    54,000
    
    
    
    50,000
    
    
    
    170,000
    
    
    
    
    
    
    
    220,000Balance March 2, 2008
    
    
    2,969,405
    
    
    
    30,000
    
    
    
    (34,410
    )
    
    
    (81,000
    )
    
    
    29,344,000
    
    
    
    (26,820,000
    )
    
    
    2,473,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,390,000
    )
    
    
    (1,390,000
    )Stock compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,000
    
    
    
    
    
    
    
    88,000Balance March 1, 2009
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    (34,410
    )
    
    $
    (81,000
    )
    
    $
    29,432,000
    
    
    $
    (28,210,000
    )
    
    $
    1,171,000
  24




---



##### 



MORGANS FOODS, INC.
 2009
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (1,390,000
    )
    
    $
    414,000Adjustments to reconcile to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,224,000
    
    
    
    2,953,000Amortization of deferred financing costs
    
    
    122,000
    
    
    
    100,000Amortization of supply agreement advances
    
    
    (1,165,000
    )
    
    
    (1,071,000
    )Funding from supply agreements
    
    
    457,000
    
    
    
    951,000Deferred income taxes
    
    
    449,000
    
    
    
    59,000Stock compensation expense
    
    
    88,000
    
    
    
    Loss on restaurant assets
    
    
    417,000
    
    
    
    112,000Changes in assets and liabilities:Receivables
    
    
    (383,000
    )
    
    
    (78,000
    )Inventories
    
    
    24,000
    
    
    
    (68,000
    )Prepaid expenses
    
    
    55,000
    
    
    
    (79,000
    )Other assets
    
    
    39,000
    
    
    
    (138,000
    )Accounts payable
    
    
    (1,809,000
    )
    
    
    1,427,000Accrued liabilities
    
    
    (226,000
    )
    
    
    (2,000
    )Net cash provided by (used in) operating activities
    
    
    (98,000
    )
    
    
    4,856,000Cash flows from investing activities:Capital expenditures
    
    
    (3,626,000
    )
    
    
    (8,215,000
    )Purchase of franchise agreement, net of disposals
    
    
    (9,000
    )
    
    
    (24,000
    )Proceeds from sale/leaseback transactions
    
    
    5,188,000
    
    
    
    Proceeds from sale of fixed assets
    
    
    174,000
    
    
    
    178,000Net cash provided by (used in) investing activities
    
    
    1,727,000
    
    
    
    (8,061,000
    )Cash flows from financing activities:Proceeds from issuance of long-term debt,
net of financing costs
    
    
    3,003,000
    
    
    
    15,312,000Principal payments on long-term debt
    
    
    (5,769,000
    )
    
    
    (13,691,000
    )Principal payments on capital lease obligations
    
    
    (34,000
    )
    
    
    (37,000
    )Cash received for exercise of stock options
    
    
    
    
    
    
    220,000Net cash provided by (used in) financing activities
    
    
    (2,800,000
    )
    
    
    1,804,000Net change in cash and equivalents
    
    
    (1,171,000
    )
    
    
    (1,401,000
    )Cash and equivalents, beginning balance
    
    
    6,428,000
    
    
    
    7,829,000Cash and equivalents, ending balance
    
    $
    5,257,000
    
    
    $
    6,428,000
    25




---



##### 



MORGANS FOODS, INC.
 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 Cash Equivalents 
 Inventories 
 Property and Equipment 
  26




---



##### 



Deferred Financing Costs 
 Franchise Agreements 
 Goodwill 
 Advance on Supply Agreements 
 Lease Accounting 
 Income Taxes
 27




---



##### 



Stock-Based Compensation 
 NOTE 2. LOSS ON RESTAURANT ASSETS
  NOTE 3. INTANGIBLE ASSETS
  Intangible AssetsAs of March 1, 2009
    
    As of March 2, 2008Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationFranchise Agreements
    
    $
    2,418,000
    
    
    $
    (1,158,000
    )
    
    $
    2,489,000
    
    
    $
    (1,072,000
    )Goodwill
    
    
    10,593,000
    
    
    
    (1,366,000
    )
    
    
    10,593,000
    
    
    
    (1,366,000
    )Total
    
    $
    13,011,000
    
    
    $
    (2,524,000
    )
    
    $
    13,082,000
    
    
    $
    (2,438,000
    )
   28




---



##### 



NOTE 4. ACCRUED LIABILITIES
  2009
    
    2008Accrued compensation
    
    $
    1,911,000
    
    
    $
    2,277,000Accrued taxes other than income taxes
    
    
    896,000
    
    
    
    873,000Accrued liabilities related to closed restaurants
    
    
    51,000
    
    
    
    57,000Deferred gain on sale/leaseback
    
    
    197,000
    
    
    
    18,000Current portion of supply agreement
    
    
    201,000
    
    
    
    787,000Current portion rent smoothing
    
    
    65,000
    
    
    
    55,000Other accrued expenses
    
    
    613,000
    
    
    
    611,000$
    3,934,000
    
    
    $
    4,678,000
 29




---



##### 



NOTE 5. DEBT
  2009
    
    2008Mortgage debt, interest at 8.3-10.6%, through
2019, collateralized by 44 restaurants in
2009 and 48 restaurants in 2008 having a net
book value at March 1, 2009 of $17,287,000
and at March 2, 2008 of $17,781,000
    
    $
    19,095,000
    
    
    $
    23,678,000Mortgage debt, interest at 7.2-7.3% fixed
through 2018 and variable thereafter,
collateralized by two restaurants having a
net book value at March 1, 2009 of $1,483,000
and at March 2, 2008 of $1,136,000
    
    
    2,155,000
    
    
    
    2,205,000Equipment loan, interest at 7.1% fixed
through 2017, collateralized by equipment at
two restaurants
    
    
    397,000
    
    
    
    428,000Mortgage debt, variable interest of 4.08% at
March 1, 2009, amortization to 2028 with a
term to 2013 collateralized by 13 restaurants
in 2009 and 10 restaurants in 2008 having a
net book value at March 1, 2009 of $5,902,000
and at March 2, 2008 of $5,371,000
    
    
    8,834,000
    
    
    
    6,250,000Equipment loan, variable interest of 4.83% at
March 1, 2009, amortization to 2018 with a
term to 2013 collateralized by the equipment
at 17 restaurants
    
    
    2,910,000
    
    
    
    6,350,000Equipment loan from franchisor for
proprietary equipment, variable interest of
3.11% at March 1, 2009 through 2010
    
    
    22,000
    
    
    
    68,000Equipment loan, variable interest rate of
5.18% at March 1, 2009, amortization to 2018
with a term to 2013 collateralized by the
equipment at 10 restaurants
    
    
    2,800,000
    
    
    
    36,213,000
    
    
    
    38,979,000Less long term debt
    
    
    33,182,000
    
    
    
    35,789,000Long term debt, current portion
    
    $
    3,031,000
    
    
    $
    3,190,000
 30




---



##### 



2010
    
    $
    3,031,0002011
    
    
    3,188,0002012
    
    
    3,388,0002013
    
    
    12,087,0002014
    
    
    4,070,000Later years
    
    
    10,449,000$
    36,213,000
     31




---



##### 



NOTE 6. LEASE OBLIGATIONS AND OTHER COMMITMENTS
  2009
    
    2008Leased property:Buildings and land
    
    $
    1,298,000
    
    
    $
    1,298,000Equipment, furniture and fixtures
    
    
    16,000
    
    
    
    16,000Total
    
    
    1,314,000
    
    
    
    1,314,000Less accumulated amortization
    
    
    434,000
    
    
    
    351,000$
    880,000
    
    
    $
    963,000
   2009
    
    2008Capital lease obligations
    
    $
    1,144,000
    
    
    $
    1,178,000Less current maturities
    
    
    39,000
    
    
    
    34,000Long-term capital lease obligations
    
    $
    1,105,000
    
    
    $
    1,144,000
  32




---



##### 



2010
    
    $
    147,0002011
    
    
    148,0002012
    
    
    148,0002013
    
    
    146,0002014
    
    
    147,000Later years
    
    
    1,419,0002,155,000Less amount representing interest at 10%
    
    
    1,011,000Total obligations under capital leases
    
    $
    1,144,000
    33




---



##### 



Number of Units
    
    Period
    
    Type
    
    Total (1)
    
    Required (2)
    
    Additional (3)1
    
    Fiscal 2010
    
    IE
    
    $
    390,000
    
    
    
    350,000
    
    
    $
    40,0001
    
    Fiscal 2011
    
    Relo (4)
    
    
    1,400,000
    
    
    
    1,400,000
    
    
    
    8
    
    Fiscal 2011
    
    IE
    
    
    2,560,000
    
    
    
    2,240,000
    
    
    
    320,0001
    
    Fiscal 2012
    
    Relo (4)
    
    
    750,000
    
    
    
    750,000
    
    
    
    8
    
    Fiscal 2012
    
    IE
    
    
    2,560,000
    
    
    
    2,240,000
    
    
    
    320,0005
    
    Fiscal 2013
    
    IE
    
    
    1,600,000
    
    
    
    1,400,000
    
    
    
    200,0001
    
    Fiscal 2015
    
    Rebuild
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    4
    
    Fiscal 2015
    
    Relo (4)
    
    
    5,600,000
    
    
    
    5,600,000
    
    
    
    1
    
    Fiscal 2016
    
    Relo (4)
    
    
    1,400,000
    
    
    
    1,400,000
    
    
    
    4
    
    Fiscal 2020
    
    Relo (4)
    
    
    5,600,000
    
    
    
    5,600,000
    
    
    
    2
    
    Fiscal 2020
    
    Rebuild
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    36
    
    Total
    
    
    
    $
    24,860,000
    
    
    $
    23,980,000
    
    
    $
    880,000
 
 (1)
    
    These amounts are based on estimates of current construction costs and actual costs may vary.(2)
    
    These amounts include only the items required to meet the franchisors image requirements.(3)
    
    These amounts are for capital upgrades performed on or which may be performed on the image
enhanced restaurants which were or may be deemed by the Company to be advantageous to the
operation of the units and which may be done at the time of the image enhancement.(4)
    
    Relocation of fee owned properties are shown net of expected recovery of capital from the
sale of the former location. Relocation of leased properties assumes the capital cost of only
equipment because it is not known until each lease is finalized whether the lease will be a capital or operating lease.  34




---



##### 



NOTE 7. NET INCOME (LOSS) PER COMMON SHARE
  NOTE 8. INCOME TAXES
   2009
    
    2008Tax provision (benefit) at statutory rate
    
    $
    (340,000
    )
    
    $
    260,000State and local taxes, net of federal benefit
    
    
    4,000
    
    
    
    9,000Deferred tax provision-change in valuation allowance
    
    
    846,000
    
    
    
    11,000Deferred tax provision-change in deferred state and local income taxes
    
    
    (60,000
    )
    
    
    42,000Employment tax credits
    
    
    (86,000
    )
    
    
    Other
    
    
    27,000
    
    
    
    27,000$
    391,000
    
    
    $
    349,000
  35




---



##### 



2009
    
    2008Operating loss carryforwards
    
    $
    1,620,000
    
    
    $
    1,113,000Tax credit carryforwards
    
    
    284,000
    
    
    
    171,000Stock Options
    
    
    34,000
    
    
    
    Property and equipment
    
    
    2,049,000
    
    
    
    3,121,000Deferred gain on sale/leaseback
    
    
    1,319,000
    
    
    
    121,000Accrued expenses not currently deductible
    
    
    302,000
    
    
    
    342,000Prepaid expenses
    
    
    (176,000
    )
    
    
    (168,000
    )Inventory valuation
    
    
    6,000
    
    
    
    7,000Advance payments
    
    
    135,000
    
    
    
    182,000Intangible assets
    
    
    (102,000
    )
    
    
    (92,000
    )Deferred tax asset valuation allowance
    
    
    (4,877,000
    )
    
    
    (4,031,000
    )Net deferred tax asset
    
    $
    594,000
    
    
    $
    766,000Deferred tax liabilities associated with indefinite lived intangiable assets
    
    
    (2,130,000
    )
    
    
    (1,853,000
    )Net total deferred taxes
    
    $
    (1,536,000
    )
    
    $
    (1,087,000
    )
   2023
    
    $
    705,0002024
    
    
    383,0002025
    
    
    1,481,0002028
    
    
    1,022,0002029
    
    
    990,000Total
    
    $
    4,581,000
    36




---



##### 



NOTE 9. STOCK OPTIONS AND SHAREHOLDERS EQUITY
     37




---



##### 



Exercise
    
    Outstanding
    
    Average
    
    NumberPrices
    
    3-1-09
    
    Life
    
    Exercisable3.000
    
    7,500
    
    0.8
    
    7,5004.125
    
    62,500
    
    0.1
    
    62,5001.500
    
    150,000
    
    9.7
    
    220,000
    
    6.6
    
    70,000
    NOTE 10. 401(k) RETIREMENT PLAN
  NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
  38




---



##### 



NOTE 12. NEW ACCOUNTING STANDARDS
     39




---



##### 



NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 Fiscal 2009 Quarter EndedMay 25,
    
    
    August 17,
    
    
    November 9,
    
    
    March 1,2008
    
    
    2008
    
    
    2008
    
    
    2009Revenues
    
    $
    21,753,000
    
    
    $
    23,049,000
    
    
    $
    21,967,000
    
    
    $
    25,716,000Operating costs and expenses, net
    
    
    20,817,000
    
    
    
    22,250,000
    
    
    
    21,100,000
    
    
    
    25,827,000Operating income
    
    
    936,000
    
    
    
    799,000
    
    
    
    867,000
    
    
    
    (111,000
    )Net income (loss)
    
    
    94,000
    
    
    
    (641,000
    )
    
    
    (67,000
    )
    
    
    (776,000
    )Basic net income (loss) per share
    
    
    0.03
    
    
    
    (0.22
    )
    
    
    (0.02
    )
    
    
    (0.26
    )Fully diluted net income (loss)
per share
    
    
    0.03
    
    
    
    (0.22
    )
    
    
    (0.02
    )
    
    
    (0.26
    )
 Fiscal 2008 Quarter EndedMay 20,
    
    
    August 12,
    
    
    November 4,
    
    
    March 2,2007
    
    
    2007
    
    
    2007
    
    
    2008Revenues
    
    $
    22,650,000
    
    
    $
    22,877,000
    
    
    $
    22,282,000
    
    
    $
    28,509,000Operating costs and expenses, net
    
    
    20,581,000
    
    
    
    20,949,000
    
    
    
    21,162,000
    
    
    
    27,827,000Operating income
    
    
    2,069,000
    
    
    
    1,928,000
    
    
    
    1,120,000
    
    
    
    682,000Net income (loss)
    
    
    830,000
    
    
    
    870,000
    
    
    
    161,000
    
    
    
    (1,447,000
    )Basic net income (loss) per share
    
    
    0.29
    
    
    
    0.30
    
    
    
    0.05
    
    
    
    (0.50
    )Fully diluted net income (loss)
per share
    
    
    0.28
    
    
    
    0.29
    
    
    
    0.05
    
    
    
    (0.49
    )
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  40




---



##### 



Managements Report on Internal Control Over Financial Reporting
    ITEM 9B. OTHER INFORMATION
  41




---



##### 



PART III
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   ITEM 11. EXECUTIVE COMPENSATION
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
  ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  42




---



##### 



PART IV
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    Financial Statements and Financial Statement Schedules.All schedules normally required by Form 10-K are not required under the related instructions or
are inapplicable, and therefore are not presented.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.(b)
    
    Exhibits.The Exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual
Report on Form 10-K.
 43




---



##### 



SIGNATURES
  Morgans Foods, Inc.Dated: June 1, 2009
    By:
    /s/ Leonard R. Stein-SapirLeonard R. Stein-SapirChairman of the Board,
Chief Executive Officer & Director  By:
    
    /s/ Leonard R. Stein-Sapir
    
    
    
    By:
    
    /s/ Lawrence S. DolinLeonard R. Stein-Sapir
    
    
    
    
    
    Lawrence S. DolinChairman of the Board,
    
    
    
    
    
    DirectorChief Executive Officer & Director
    
    
    
    
    
    Dated: June 1, 2009Dated: June 1, 2009By:
    
    /s/ James J. Liguori
    
    
    
    By:
    
    /s/ Bahman GuyuronJames J. Liguori
    
    
    
    
    
    Bahman GuyuronDirector, President &
    
    
    
    
    
    DirectorChief Operating Officer
    
    
    
    
    
    Dated: June 1, 2009Dated: June 1, 2009By:
    
    /s/ Kenneth L. Hignett
    
    
    
    By:
    
    /s/ Steven S. KaufmanKenneth L. Hignett
    
    
    
    
    
    Steven S. KaufmanDirector, Senior Vice President,
    
    
    
    
    
    DirectorChief Financial Officer & Secretary
    
    
    
    
    
    Dated: June 1, 2009Dated: June 1, 2009By:
    
    /s/ Bernard LernerBernard LernerDirectorDated: June 1, 2009
 44




---



##### 



INDEX TO EXHIBITS
 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 (9)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)10.6
    
    Form Mortgage Loan Agreement with Captec Financial Group, Inc. (7)14
    
    Code of Ethics for Senior Financial Officers (8)19
    
    Form of Indemnification Contract between Registrant and its Officers and Directors (6)21
    
    Subsidiaries23.1
    
    Consent of Independent Registered Public Accounting Firm  Grant Thornton LLP31.1
    
    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 the Registrants Form 10-K for the 1996 fiscal year and incorporated
herein by reference.(8)
    
    Filed as an exhibit to the Registrants Form 10-K for the 2004 fiscal year and incorporated
herein by reference.(9)
    
    Filed as an exhibit to the Registrants Form 8-A/A filed June 9, 2003 and incorporated
herein by reference 45