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 2, 2008 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
  Title of each class
    
    Name of each exchange on
which registeredCommon Shares, Without Par Value 
Securities registered pursuant to Section 12(g) of the Act: None
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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PART I
 ITEM 1. BUSINESS
 General
  Restaurant Operations
   Franchise Agreements
  2




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Competition
   3




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Government Regulation
    Suppliers
  Growth
  Employees
  ITEM 1A. RISK FACTORS
  Outbreak of Avian Flu or Mad Cow Disease
  4




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Image Enhancement and Capital Expenditure Requirements
  Contamination of the Food Supply
  Litigation
  Environmental Liabilities
  Food and Labor Cost Increases
  Product and Marketing Success of Franchisors
  Governmental Laws and Regulations
  5




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Quick Service Restaurant Competition
  ITEM 1B. UNRESOLVED STAFF COMMENTS
  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
    
    
    69
    
    
    Chairman of the Board
and Chief Executive
Officer
    
    April 1989James J. Liguori
    
    
    59
    
    
    President and Chief
Operating Officer
    
    June 1979Kenneth L. Hignett
    
    
    61
    
    
    Senior Vice President-
Chief Financial Officer
& Secretary
    
    May 1989Other Officers:Barton J. Craig
    
    
    59
    
    
    Senior Vice President-
General Counsel
    
    January 1994Vincent J. Oddi
    
    
    65
    
    
    Vice President-
Restaurant Development
    
    September 1979Ramesh J. Gursahaney
    
    
    59
    
    
    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 2, 2008:1st Quarter
    
    $
    12.90
    
    
    $
    11.402nd Quarter
    
    
    12.40
    
    
    
    10.953rd Quarter
    
    
    10.99
    
    
    
    9.454th Quarter
    
    
    10.95
    
    
    
    6.55Year ended February 25, 2007:1st Quarter
    
    $
    5.50
    
    
    $
    4.502nd Quarter
    
    
    6.15
    
    
    
    4.553rd Quarter
    
    
    7.95
    
    
    
    4.554th Quarter
    
    
    12.89
    
    
    
    7.67
 
  Equity Compensation Plan Information as of March 2, 2008Number of
    
    Weighted
    
    Number of sharessecurities to be
    
    average exercise
    
    remaining forissued upon
    
    price of
    
    future issuanceexercise of
    
    outstanding
    
    under equityPlan Category
    
    outstanding options
    
    options
    
    compensation plansEquity
Compensation plans
approved by
security holders
    
    
    7,500
    
    
    $
    4.125
    
    
    
    149,650Equity
Compensation plans
not approved by
security holders
    
    
    62,500
    
    
    $
    3.00
    
    
    
    350Total
    
    
    70,000
    
    
    $
    3.121
    
    
    
    150,000
 8




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##### 



Shareholder Return Performance Graph
  Comparison
of Cumulative Five Year Total Return
 
 2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008MORGANS FOODS INC
    
    
    100
    
    
    
    118
    
    
    
    54
    
    
    
    294
    
    
    
    744
    
    
    
    385S&P
MIDCAP 400 INDEX
    
    
    100
    
    
    
    150
    
    
    
    169
    
    
    
    199
    
    
    
    224
    
    
    
    206RESTAURANT PEER
GROUP
    
    
    100
    
    
    
    135
    
    
    
    148
    
    
    
    264
    
    
    
    382
    
    
    
    378
  9




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##### 



ITEM 6. SELECTED FINANCIAL DATA
  Years EndedMarch 2,
    
    
    February 25,
    
    
    February 26,
    
    
    February 27,
    
    
    February 29,$ in thousands
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Revenues
    
    $
    96,318
    
    
    $
    91,248
    
    
    $
    87,457
    
    
    $
    80,960
    
    
    $
    81,738Cost of sales:Food, paper and beverage
    
    
    29,524
    
    
    
    27,981
    
    
    
    27,146
    
    
    
    25,222
    
    
    
    24,712Labor and benefits
    
    
    27,404
    
    
    
    24,798
    
    
    
    23,186
    
    
    
    22,803
    
    
    
    22,816Restaurant operating expenses
    
    
    24,415
    
    
    
    22,765
    
    
    
    22,190
    
    
    
    21,015
    
    
    
    21,320Depreciation and amortization
    
    
    2,953
    
    
    
    2,950
    
    
    
    3,254
    
    
    
    3,419
    
    
    
    3,518General and administrative expenses
    
    
    6,111
    
    
    
    5,428
    
    
    
    5,133
    
    
    
    4,870
    
    
    
    5,574Loss (gain) on restaurant assets
    
    
    112
    
    
    
    5
    
    
    
    (715
    )
    
    
    574
    
    
    
    567Operating income
    
    
    5,799
    
    
    
    7,321
    
    
    
    7,263
    
    
    
    3,057
    
    
    
    3,231Net income (loss)
    
    
    414
    
    
    
    3,527
    
    
    
    3,437
    
    
    
    (2,141
    )
    
    
    (1,579
    )Basic net income (loss) per comm. sh. (1)
    
    
    0.14
    
    
    
    1.29
    
    
    
    1.26
    
    
    
    (0.79
    )
    
    
    (0.58
    )Diluted net income (loss) per comm. sh.
(1)
    
    
    0.14
    
    
    
    1.27
    
    
    
    1.24
    
    
    
    (0.79
    )
    
    
    (0.58
    )Working capital (deficiency)
    
    
    (5,335
    )
    
    
    (2,403
    )
    
    
    (3,178
    )
    
    
    (46,048
    )
    
    
    (3,999
    )Total assets
    
    
    55,962
    
    
    
    52,323
    
    
    
    50,751
    
    
    
    48,790
    
    
    
    52,672Long-term debt (less current maturities)
    
    
    35,789
    
    
    
    34,445
    
    
    
    37,357
    
    
    
    
    
    
    
    43,370Long-term capital lease obligations
    
    
    1,144
    
    
    
    1,299
    
    
    
    1,194
    
    
    
    368
    
    
    
    379Shareholders equity (deficiency)
    
    
    2,473
    
    
    
    1,839
    
    
    
    (2,186
    )
    
    
    (5,623
    )
    
    
    (3,482
    )
 
 (1)
    
    Computed based upon the basic weighted average number of common shares
outstanding during each year, which were 2,911,448 in 2008, 2,738,982 in 2007, 2,718,495
in 2006, 2,718,495 in 2005 and 2,718,441 in 2004 and the diluted weighted average number
of common and common equivalent shares outstanding during each year, which were
2,968,654 in 2008, 2,767,478 in 2007, 2,778,524 in 2006, 2,718,495 in 2005and 2,718,441
in 2004. ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Results of Operations
  10




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2008
    
    2007Cost of sales:Food, paper and beverage
    
    
    30.7
    %
    
    
    30.7
    %Labor and benefits
    
    
    28.5
    %
    
    
    27.2
    %Restaurant operating expenses
    
    
    25.3
    %
    
    
    24.9
    %Depreciation and amortization
    
    
    3.1
    %
    
    
    3.2
    %General and administrative expenses
    
    
    6.3
    %
    
    
    5.9
    %Operating income
    
    
    6.0
    %
    
    
    8.0
    %
 Revenues
   Cost of Sales  Food, Paper and Beverage
   11




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Cost of Sales  Labor and Benefits
   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
  Other Income
  Provision for Income Taxes
  Liquidity and Capital Resources
  13




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Subsequent Events
  Market Risk Exposure
  Required Capital Expenditures
  14




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##### 



Number of Units
    
    Period
    
    Type
    
    Total (1)
    
    Required (2)
    
    Additional (3)5
    
    
    Fiscal 2009
    
    IE
    
    
    1,760,000
    
    
    
    1,560,000
    
    
    
    200,0001
    
    
    Fiscal 2009
    
    Rebuild
    
    
    450,000
    
    
    
    450,000
    
    
    
    1
    
    
    Fiscal 2009
    
    Relo (4)
    
    
    400,000
    
    
    
    400,000
    
    
    
    1
    
    
    Fiscal 2010
    
    IE
    
    
    750,000
    
    
    
    750,000
    
    
    
    18
    
    
    Fiscal 2011
    
    IE
    
    
    6,400,000
    
    
    
    5,680,000
    
    
    
    720,0001
    
    
    Fiscal 2011
    
    Relo (4)
    
    
    1,400,000
    
    
    
    1,400,000
    
    
    
    1
    
    
    Fiscal 2012
    
    Relo (4)
    
    
    1,400,000
    
    
    
    1,400,000
    
    
    
    0
    
    
    Fiscal 2013
    
    IE
    
    
    
    
    
    
    
    
    
    
    1
    
    
    Fiscal 2014
    
    Rebuild
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    4
    
    
    Fiscal 2015
    
    Relo (4)
    
    
    4,000,000
    
    
    
    4,000,000
    
    
    
    1
    
    
    Fiscal 2016
    
    Relo (4)
    
    
    500,000
    
    
    
    500,000
    
    
    
    0
    
    
    Fiscal 2017-2019
    
    IE
    
    
    
    
    
    
    
    
    
    
    5
    
    
    Fiscal 2020
    
    Relo (4)
    
    
    7,000,000
    
    
    
    7,000,000
    
    
    
    2
    
    
    Fiscal 2020
    
    Rebuild
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    41
    
    
    Total
    
    
    
    
    
    $
    27,060,000
    
    
    $
    26,140,000
    
    
    $
    920,000
 
 (1)
    
    These amounts are based on 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.  15




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##### 



Seasonality
  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
  16




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Safe Harbor Statements
   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  17




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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
    
    
    19Consolidated Balance Sheets at March 2, 2008 and February 25, 2007
    
    
    20Consolidated Statements of Operations for the years ended
March 2, 2008 and February 25, 2007
    
    
    21Consolidated Statements of Shareholders Equity for the years ended
March 2, 2008 and February 25, 2007
    
    
    22Consolidated Statements of Cash Flows for the years ended
March 2, 2008 and February 25, 2007
    
    
    23Notes to Consolidated Financial Statements
    
    
    24
  18




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 19




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MORGANS FOODS, INC.
 2008
    
    
    2007ASSETSCurrent assets:Cash and equivalents
    
    $
    6,428,000
    
    
    $
    7,829,000Receivables
    
    
    423,000
    
    
    
    345,000Inventories
    
    
    755,000
    
    
    
    684,000Prepaid expenses
    
    
    679,000
    
    
    
    600,0008,285,000
    
    
    
    9,458,000Property and equipment:Land
    
    
    10,798,000
    
    
    
    10,462,000Buildings and improvements
    
    
    22,588,000
    
    
    
    20,200,000Property under capital leases
    
    
    1,314,000
    
    
    
    1,433,000Leasehold improvements
    
    
    10,110,000
    
    
    
    7,841,000Equipment, furniture and fixtures
    
    
    21,047,000
    
    
    
    20,531,000Construction in progress
    
    
    1,193,000
    
    
    
    1,107,00067,050,000
    
    
    
    61,574,000Less accumulated depreciation and amortization
    
    
    31,620,000
    
    
    
    31,104,00035,430,000
    
    
    
    30,470,000Other assets
    
    
    837,000
    
    
    
    824,000Franchise agreements, net
    
    
    1,417,000
    
    
    
    1,519,000Deferred tax asset
    
    
    766,000
    
    
    
    825,000Goodwill
    
    
    9,227,000
    
    
    
    9,227,000$
    55,962,000
    
    
    $
    52,323,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Long-term debt, current
    
    $
    3,190,000
    
    
    $
    2,913,000Current maturities of capital lease obligations
    
    
    34,000
    
    
    
    28,000Accounts payable
    
    
    5,718,000
    
    
    
    4,291,000Accrued liabilities
    
    
    4,678,000
    
    
    
    4,629,00013,620,000
    
    
    
    11,861,000Long-term debt (Note 4)
    
    
    35,789,000
    
    
    
    34,445,000Long-term capital lease obligations
    
    
    1,144,000
    
    
    
    1,299,000Other long-term liabilities
    
    
    1,083,000
    
    
    
    1,302,000Deferred tax liabilities
    
    
    1,853,000
    
    
    
    1,577,000SHAREHOLDERS EQUITYPreferred shares, 1,000,000 shares authorized,
no shares outstandingCommon stock, no par valueAuthorized shares  25,000,000Issued shares  2,969,405
    
    
    30,000
    
    
    
    30,000Treasury shares  34,410 and 88,410
    
    
    (81,000
    )
    
    
    (131,000
    )Capital in excess of stated value
    
    
    29,344,000
    
    
    
    29,174,000Accumulated deficit
    
    
    (26,820,000
    )
    
    
    (27,234,000
    )Total shareholders equity
    
    
    2,473,000
    
    
    
    1,839,000$
    55,962,000
    
    
    $
    52,323,000
 20




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##### 



MORGANS FOODS, INC.
 2008
    
    
    2007Revenues
    
    $
    96,318,000
    
    
    $
    91,248,000Cost of sales:Food, paper and beverage
    
    
    29,524,000
    
    
    
    27,981,000Labor and benefits
    
    
    27,404,000
    
    
    
    24,798,000Restaurant operating expenses
    
    
    24,415,000
    
    
    
    22,765,000Depreciation and amortization
    
    
    2,953,000
    
    
    
    2,950,000General and administrative expenses
    
    
    6,111,000
    
    
    
    5,428,000Loss on restaurant assets (Note 2)
    
    
    112,000
    
    
    
    5,000Operating income
    
    
    5,799,000
    
    
    
    7,321,000Interest expense:Prepayment
and deferred financing costs
    
    
    (1,872,000
    )
    
    
    Bank debt and notes payable
    
    
    (3,472,000
    )
    
    
    (3,762,000
    )Capital leases
    
    
    (125,000
    )
    
    
    (117,000
    )Other income and expense, net
    
    
    433,000
    
    
    
    221,000Income before income taxes
    
    
    763,000
    
    
    
    3,663,000Provision for income taxes (Note 8)
    
    
    349,000
    
    
    
    136,000Net income
    
    
    414,000
    
    
    
    3,527,000Basic net income per common share:
    
    $
    0.14
    
    
    $
    1.29Diluted net income per common share:
    
    $
    0.14
    
    
    $
    1.27
 21




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##### 



MORGANS FOODS, INC.
 Capital in
    
    
    
    
    
    
    TotalCommon Shares
    
    
    Treasury Shares
    
    
    excess of
    
    
    Accumulated
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    stated value
    
    
    Deficit
    
    
    EquityBalance February 26,2006
    
    
    2,969,405
    
    
    $
    30,000
    
    
    
    (250,910
    )
    
    $
    (284,000
    )
    
    $
    28,829,000
    
    
    $
    (30,761,000
    )
    
    $
    (2,186,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,527,000
    
    
    
    3,527,000Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    162,500
    
    
    
    153,000
    
    
    
    345,000
    
    
    
    
    
    
    
    498,000Balance 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
    )
    
    $
    2,473,000
 22




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##### 



MORGANS FOODS, INC.
 2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    414,000
    
    
    $
    3,527,000Adjustments to reconcile to net cash
provided by operating activities:Depreciation and amortization
    
    
    2,953,000
    
    
    
    2,950,000Amortization of deferred
financing costs
    
    
    100,000
    
    
    
    108,000Amortization of supply agreement
advances (Note 1)
    
    
    (1,071,000
    )
    
    
    (783,000
    )Funding from supply agreements (Note 1)
    
    
    951,000
    
    
    
    793,000Decrease (increase) in deferred tax assets
    
    
    59,000
    
    
    
    (275,000
    )Increase in deferred tax liabilities
    
    
    276,000
    
    
    
    246,000Loss on restaurant assets
    
    
    112,000
    
    
    
    5,000Changes in assets and liabilities:Increase in receivables
    
    
    (78,000
    )
    
    
    (13,000
    )Increase in inventories
    
    
    (68,000
    )
    
    
    (41,000
    )Decrease (increase) in prepaid expenses
    
    
    (79,000
    )
    
    
    256,000Increase in other assets
    
    
    (138,000
    )
    
    
    (7,000
    )Increase (decrease) in accounts payable
    
    
    1,427,000
    
    
    
    (17,000
    )Increase (decrease) in accrued liabilities
    
    
    (2,000
    )
    
    
    365,000Net cash provided by operating activities
    
    
    4,856,000
    
    
    
    7,114,000Cash flows from investing activities:Capital expenditures
    
    
    (8,215,000
    )
    
    
    (2,970,000
    )Purchase of franchise agreement, net of disposals
    
    
    (24,000
    )
    
    
    (87,000
    )Proceeds from sale of fixed assets
    
    
    178,000
    
    
    
    Net cash used in investing activities
    
    
    (8,061,000
    )
    
    
    (3,057,000
    )Cash flows from financing activities:Proceeds from issuance of long-term debt,
net of financing costs
    
    
    15,312,000
    
    
    
    Principal payments on long-term debt
    
    
    (13,691,000
    )
    
    
    (3,115,000
    )Principal payments on capital
lease obligations
    
    
    (37,000
    )
    
    
    (26,000
    )Cash received for exercise of stock options
    
    
    220,000
    
    
    
    498,000Net cash provided by (used in) financing activities
    
    
    1,804,000
    
    
    
    (2,643,000
    )Net change in cash and equivalents
    
    
    (1,401,000
    )
    
    
    1,414,000Cash and equivalents, beginning balance
    
    
    7,829,000
    
    
    
    6,415,000Cash and equivalents, ending balance
    
    $
    6,428,000
    
    
    $
    7,829,000
 23




---



##### 



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 
  24




---



##### 



Deferred Financing Costs 
 Franchise Agreements 
 Goodwill 
 Advance on Supply Agreements 
 Lease Accounting 
 Income
Taxes
 25




---



##### 



Stock-Based Compensation 
 NOTE 2. LOSS ON RESTAURANT ASSETS
  NOTE 3. INTANGIBLE ASSETS
  Intangible AssetsAs of March 2, 2008
    
    
    As of February 25, 2007Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationFranchise Agreements
    
    $
    2,489,000
    
    
    $
    (1,072,000
    )
    
    $
    2,472,000
    
    
    $
    (953,000
    )Goodwill
    
    
    10,593,000
    
    
    
    (1,366,000
    )
    
    
    10,593,000
    
    
    
    (1,366,000
    )Total
    
    $
    13,082,000
    
    
    $
    (2,438,000
    )
    
    $
    13,065,000
    
    
    $
    (2,319,000
    )
 26




---



##### 



NOTE 4. ACCRUED LIABILITIES
  2008
    
    
    2007Accrued compensation
    
    $
    2,277,000
    
    
    $
    1,939,000Accrued taxes other than income taxes
    
    
    873,000
    
    
    
    874,000Accrued liabilities related to closed restaurants
    
    
    57,000
    
    
    
    53,000Deferred gain on sale/leaseback
    
    
    18,000
    
    
    
    18,000Current portion of supply agreement
    
    
    787,000
    
    
    
    613,000Current portion rent smoothing
    
    
    55,000
    
    
    
    33,000Other accrued expenses
    
    
    611,000
    
    
    
    1,099,000$
    4,678,000
    
    
    $
    4,629,000
 27




---



##### 



NOTE 5. DEBT
  2008
    
    
    2007Mortgage debt, interest at 8.3-10.6%, through
2019, collateralized by fifty-eight
restaurants having a net book value at March
2, 2008 of $17,326,000
    
    $
    23,678,000
    
    
    $
    37,210,000Mortgage debt, interest at 7.2-7.3% fixed
through 2018 and variable thereafter,
collateralized by two restaurants having a
net book value at March 2, 2008 of $1,136,000
    
    
    2,205,000
    
    
    
    Equipment loan, interest at 7.1% fixed
through 2017, collateralized by equipment at
one restaurant
    
    
    428,000
    
    
    
    Mortgage debt, variable interest of 5.7% at
March 2, 2008, amortization to 2028 with a
term to 2013 collateralized by ten
restaurants having a net book value at March
2, 2008 of $5,371,000
    
    
    6,250,000
    
    
    
    Equipment loan, variable interest of 6.5% at
March 2, 2008, amortization to 2018 with a
term to 2013 collateralized by the equipment
at seventeen restaurants
    
    
    6,350,000
    
    
    
    Equipment loan from franchisor for
proprietary equipment, variable interest of
5.69% at March 2, 2008 through 2010
    
    
    68,000
    
    
    
    Equipment loans, interest at 9.9-11.1%
through October 2007 collateralized by
equipment at several restaurants
    
    
    
    
    
    
    148,00038,979,000
    
    
    
    37,358,000Less long term debt, current
    
    
    3,190,000
    
    
    
    2,913,000$
    35,789,000
    
    
    $
    34,445,000
 28




---



##### 



2009
    
    $
    3,190,0002010
    
    
    3,354,0002011
    
    
    3,590,0002012
    
    
    3,789,0002013
    
    
    11,539,000Later years
    
    
    13,517,000$
    38,979,000
     29




---



##### 



NOTE 6. LEASE OBLIGATIONS AND OTHER COMMITMENTS
  2008
    
    
    2007Leased property:Buildings and land
    
    $
    1,298,000
    
    
    $
    1,417,000Equipment, furniture and fixtures
    
    
    16,000
    
    
    
    16,000Total
    
    
    1,314,000
    
    
    
    1,433,000Less accumulated amortization
    
    
    351,000
    
    
    
    269,000$
    963,000
    
    
    $
    1,164,000
    2008
    
    
    2007Capital lease obligations
    
    $
    1,178,000
    
    
    $
    1,327,000Less current maturities
    
    
    34,000
    
    
    
    28,000Long-term capital lease obligations
    
    $
    1,144,000
    
    
    $
    1,299,000
  30




---



##### 



2009
    
    $
    146,0002010
    
    
    147,0002011
    
    
    148,0002012
    
    
    147,0002013
    
    
    144,000Later years
    
    
    1,569,0002,301,000Less amount representing interest at 10%
    
    
    1,123,000Total obligations under capital leases
    
    $
    1,178,000
    31




---



##### 



Number of Units
    
    Period
    
    Type
    
    Total (1)
    
    
    Required (2)
    
    
    Additional (3)5
    
    Fiscal 2009
    
    IE
    
    
    1,760,000
    
    
    
    1,560,000
    
    
    
    200,0001
    
    Fiscal 2009
    
    Rebuild
    
    
    450,000
    
    
    
    450,000
    
    
    
    1
    
    Fiscal 2009
    
    Relo (4)
    
    
    400,000
    
    
    
    400,000
    
    
    
    1
    
    Fiscal 2010
    
    IE
    
    
    750,000
    
    
    
    750,000
    
    
    
    18
    
    Fiscal 2011
    
    IE
    
    
    6,400,000
    
    
    
    5,680,000
    
    
    
    720,0001
    
    Fiscal 2011
    
    Relo (4)
    
    
    1,400,000
    
    
    
    1,400,000
    
    
    
    1
    
    Fiscal 2012
    
    Relo (4)
    
    
    1,400,000
    
    
    
    1,400,000
    
    
    
    0
    
    Fiscal 2013
    
    IE
    
    
    
    
    
    
    
    
    
    
    1
    
    Fiscal 2014
    
    Rebuild
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    4
    
    Fiscal 2015
    
    Relo (4)
    
    
    4,000,000
    
    
    
    4,000,000
    
    
    
    1
    
    Fiscal 2016
    
    Relo (4)
    
    
    500,000
    
    
    
    500,000
    
    
    
    0
    
    Fiscal 2017-2019
    
    IE
    
    
    
    
    
    
    
    
    
    
    5
    
    Fiscal 2020
    
    Relo (4)
    
    
    7,000,000
    
    
    
    7,000,000
    
    
    
    2
    
    Fiscal 2020
    
    Rebuild
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    41
    
    Total
    
    
    
    $
    27,060,000
    
    
    $
    26,140,000
    
    
    $
    920,000
      32




---



##### 



NOTE 7. NET INCOME PER COMMON SHARE
  NOTE 8. INCOME TAXES
   2008
    
    
    2007Tax provision at statutory rate
    
    $
    260,000
    
    
    $
    1,237,000State and local taxes, net of federal benefit
    
    
    9,000
    
    
    
    80,000Deferred tax provision-change in valuation
allowance
    
    
    11,000
    
    
    
    (1,451,000
    )Deferred tax provision-change in deferred state
and local income taxes
    
    
    42,000
    
    
    
    191,000Other
    
    
    27,000
    
    
    
    79,000$
    349,000
    
    
    $
    136,000
  2008
    
    
    2007Operating loss carryforwards
    
    $
    1,113,000
    
    
    $
    974,000Tax credit carryforwards
    
    
    171,000
    
    
    
    173,000Property and equipment
    
    
    2,595,000
    
    
    
    2,683,000Deferred gain on sale/leaseback
    
    
    121,000
    
    
    
    128,000Accrued expenses not currently deductible
    
    
    868,000
    
    
    
    889,000Prepaid expenses
    
    
    (168,000
    )
    
    
    (158,000
    )Inventory valuation
    
    
    7,000
    
    
    
    6,000
 33




---



##### 



2008
    
    
    2007Advance payments
    
    
    182,000
    
    
    
    230,000Intangible assets
    
    
    (92,000
    )
    
    
    (80,000
    )Deferred tax asset valuation allowance
    
    
    (4,031,000
    )
    
    
    (4,020,000
    )Net deferred tax asset
    
    $
    766,000
    
    
    $
    825,000Deferred tax liabilities associated with
indefinite lived assets
    
    
    (1,853,000
    )
    
    
    (1,577,000
    )Net total deferred taxes
    
    $
    (1,087,000
    )
    
    $
    (752,000
    )
   2023
    
    $
    720,0002024
    
    
    383,0002025
    
    
    1,481,0002028
    
    
    699,000Total
    
    $
    3,283,000
     34




---



##### 



NOTE 9. STOCK OPTIONS AND SHAREHOLDERS EQUITY
      Number
    
    Average
    
    Number of SharesOutstanding at
    
    Remaining
    
    Exercisable atExercise Prices
    
    March 2, 2008
    
    Life
    
    March 2, 2008$3.000
    
    
    7,500
    
    
    
    1.9
    
    
    
    7,500$4.125
    
    
    62,500
    
    
    
    1.1
    
    
    
    62,50070,000
    
    
    
    1.2
    
    
    
    70,000
  35




---



##### 



NOTE 10. 401(k) RETIREMENT PLAN
  NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
  NOTE 12. NEW ACCOUNTING STANDARDS
  36




---



##### 



37




---



##### 



NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 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 per share
    
    
    0.29
    
    
    
    0.30
    
    
    
    0.05
    
    
    
    (0.50
    )Fully diluted net income per share
    
    
    0.28
    
    
    
    0.29
    
    
    
    0.05
    
    
    
    (0.49
    )
 Fiscal 2007 Quarter EndedMay 21,
    
    August 13,
    
    November 5,
    
    February 25,2006
    
    2006
    
    2006
    
    2007Revenues
    
    $
    21,101,000
    
    
    $
    22,543,000
    
    
    $
    21,782,000
    
    
    $
    25,822,000Operating costs and expenses, net
    
    
    19,198,000
    
    
    
    20,272,000
    
    
    
    19,792,000
    
    
    
    24,665,000Operating income
    
    
    1,903,000
    
    
    
    2,271,000
    
    
    
    1,990,000
    
    
    
    1,157,000Net income
    
    
    899,000
    
    
    
    1,289,000
    
    
    
    1,002,000
    
    
    
    337,000Basic net income per share
    
    
    0.33
    
    
    
    0.47
    
    
    
    0.37
    
    
    
    0.12Fully diluted net income per share
    
    
    0.32
    
    
    
    0.46
    
    
    
    0.35
    
    
    
    0.12
 NOTE 14. SUBSEQUENT EVENTS
  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  38




---



##### 



Changes in Internal Control Over Financial Reporting
  Managements Report on Internal Control Over Financial Reporting
    ITEM 9B. OTHER INFORMATION
  39




---



##### 



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
  40




---



##### 



PART IV
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
      41




---



##### 



SIGNATURES
  Morgans Foods, Inc.Dated: June 2, 2008
    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 2, 2008Dated: June 2, 2008By:
    
    /s/ James J. Liguori
    
    
    
    By:
    
    /s/ Bahman GuyuronJames J. Liguori
    
    
    
    
    
    Bahman GuyuronDirector, President &
    
    
    
    
    
    DirectorChief Operating Officer
    
    
    
    
    
    Dated: June 2, 2008Dated: June 2, 2008By:
    
    /s/ Kenneth L. Hignett
    
    
    
    By:
    
    /s/ Steven S. KaufmanKenneth L. Hignett
    
    
    
    
    
    Steven S. KaufmanDirector, Senior Vice President,
    
    
    
    
    
    DirectorChief Financial Officer & Secretary
    
    
    
    
    
    Dated: June 2, 2008Dated: June 2, 2008By:
    
    /s/ Bernard LernerBernard LernerDirectorDated: June 2, 2008
 42




---



##### 



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 43