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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended November 10, 1996
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Commission file number 0-3833
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Morgan's Foods, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0562210
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
24200 Chagrin Boulevard, Suite 126, Beachwood, Ohio 44122
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 360-7500
---------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
As of December 20, 1996, the issuer had 17,766,430 shares of common stock
outstanding.
1
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Morgan's Foods, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
Quarter Ended
-----------------------------------
November 10, 1996 November 5, 1995
----------------- ----------------
<S> <C> <C>
REVENUES ................................ $ 9,024,000 $ 9,543,000
COST OF SALES:
FOOD, PAPER AND BEVERAGE ............... 2,908,000 3,135,000
LABOR AND BENEFITS ..................... 2,339,000 2,428,000
RESTAURANT OPERATING EXPENSES ........... 2,588,000 2,680,000
DEPRECIATION AND AMORTIZATION ........... 445,000 467,000
GENERAL AND ADMINISTRATIVE EXPENSES ..... 641,000 680,000
----------- -----------
OPERATING INCOME ........................ 103,000 153,000
INTEREST EXPENSE:
BANK DEBT AND NOTES PAYABLE ............ (149,000) (112,000)
CAPITAL LEASES ......................... (129,000) (140,000)
OTHER INCOME ............................ 27,000 28,000
----------- -----------
LOSS BEFORE INCOME TAXES ................ (148,000) (71,000)
PROVISION FOR INCOME TAXES .............. - 3,000
----------- -----------
NET LOSS ................................ $ (148,000) $ (74,000)
=========== ===========
NET LOSS PER COMMON SHARE ............... $ (.01) $ (.00)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .................. 17,816,430 17,816,430
</TABLE>
See notes to consolidated financial statements
2
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Morgan's Foods, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
Thirty-Six Weeks Ended
----------------------------------
November 10, 1996 November 5, 1995
----------------- ----------------
<S> <C> <C>
REVENUES ................................ $27,583,000 $31,063,000
COST OF SALES:
FOOD, PAPER AND BEVERAGE ............... 8,782,000 10,015,000
LABOR AND BENEFITS ..................... 7,148,000 8,096,000
RESTAURANT OPERATING EXPENSES ........... 7,846,000 8,792,000
DEPRECIATION AND AMORTIZATION ........... 1,349,000 1,443,000
GENERAL AND ADMINISTRATIVE EXPENSES ..... 1,900,000 2,053,000
LOSS FROM DISPOSAL OF LEASEHOLDS (NOTE 3) 95,000 -
----------- -----------
OPERATING INCOME ........................ 463,000 664,000
INTEREST EXPENSE:
BANK DEBT AND NOTES PAYABLE ............ (426,000) (523,000)
CAPITAL LEASES ......................... (387,000) (384,000)
GAIN ON SALE OF RESTAURANTS (NOTE 2) .... - 1,681,000
OTHER INCOME ............................ 79,000 133,000
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES ....... (271,000) 1,571,000
PROVISION FOR INCOME TAXES .............. - 9,000
----------- -----------
NET INCOME (LOSS) ....................... $ (271,000) $ 1,562,000
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE ...... $ (.02) $ .09
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .................. 17,816,430 17,816,413
See notes to consolidated financial statements
</TABLE>
3
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MORGAN'S FOODS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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<TABLE>
<CAPTION>
NOVEMBER 10, 1996 MARCH 3, 1996
----------------- -------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
CASH AND EQUIVALENTS ................................. $ 3,235,000 $ 2,666,000
MARKETABLE SECURITIES ................................ 219,000 285,000
RECEIVABLES .......................................... 52,000 78,000
INVENTORIES .......................................... 342,000 347,000
PREPAID EXPENSES ..................................... 180,000 208,000
----------- -----------
4,028,000 3,584,000
----------- -----------
PROPERTY AND EQUIPMENT:
LAND ................................................. 1,739,000 1,464,000
BUILDINGS AND IMPROVEMENTS ........................... 5,805,000 5,280,000
PROPERTY UNDER CAPITAL LEASES ........................ 6,152,000 6,152,000
LEASEHOLD IMPROVEMENTS ............................... 3,815,000 3,974,000
EQUIPMENT, FURNITURE AND FIXTURES .................... 8,125,000 8,059,000
CONSTRUCTION IN PROGRESS.............................. 95,000 52,000
----------- -----------
25,731,000 24,981,000
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION ....... 10,417,000 9,472,000
----------- -----------
15,314,000 15,509,000
OTHER ASSETS .......................................... 1,086,000 1,061,000
DEFERRED TAXES ........................................ 600,000 600,000
EXCESS OF COST OVER AMOUNTS ASSIGNED
TO NET ASSETS OF ACQUIRED BUSINESSES ................. 1,252,000 1,280,000
----------- -----------
$22,280,000 $22,034,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG-TERM DEBT ................. $ 309,000 $ 263,000
CURRENT MATURITIES OF CAPITAL LEASE OBLIGATIONS....... 392,000 337,000
ACCOUNTS PAYABLE ..................................... 1,833,000 1,884,000
ACCRUED LIABILITIES .................................. 1,740,000 1,662,000
----------- -----------
4,274,000 4,146,000
----------- -----------
LONG-TERM DEBT ........................................ 6,145,000 5,448,000
LONG-TERM CAPITAL LEASE OBLIGATIONS ................... 4,754,000 5,062,000
SHAREHOLDERS' EQUITY
PREFERRED SHARES, 1,000,000 SHARES AUTHORIZED,
NO SHARES OUTSTANDING
COMMON STOCK
AUTHORIZED SHARES - 25,000,000
ISSUED SHARES - 17,816,430 ............................ 178,000 17,817,000
CAPITAL IN EXCESS OF STATED VALUE ...................... 28,727,000 11,088,000
ACCUMULATED DEFICIT .................................... (21,798,000) (21,527,000)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ............................. 7,107,000 7,378,000
----------- -----------
$22,280,000 $22,034,000
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
4
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<TABLE>
Morgan's Foods, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
<CAPTION>
COMMON SHARES TREASURY SHARES CAPITAL IN TOTAL
----------------------- ------------------ EXCESS OF ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT STATED VALUE DEFICIT EQUITY
-------- --------- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 26, 1995 ..... 17,816,430 $17,817,000 (1,502) $(3,000) $11,088,000 $(22,653,000) $6,249,000
Net income ..................... - - - - - 1,126,000 1,126,000
Issuance of treasury stock
for 401(k) contributions ...... 1,502 3,000 - - 3,000
---------- ----------- ------ ------- ----------- ------------ ----------
Balance, March 3, 1996 ......... 17,816,430 17,817,000 - - 11,088,000 (21,527,000) 7,378,000
Change in stated value of common
shares (Note 4) ............... (17,639,000) 17,639,000
Net loss ....................... (271,000) (271,000)
----------- ------------ ---------- ----------
Balance November 10, 1996, ..... 17,816,430 $178,000 - $ - $28,727,000 $(21,798,000) $7,107,000
========== =========== ======= ======= ============ ============ ==========
</TABLE>
See notes to consolidated financial statements
5
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Morgan's Foods, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Thirty-Six Weeks Ended
------------------------------------
November 10, 1996 November 5, 1995
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) .............................. $ (271,000) $ 1,562,000
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION ................. 1,349,000 1,443,000
LOSS (GAIN) ON SALE OF RESTAURANTS AND
OTHER PROPERTY AND EQUIPMENT ................. 95,000 (1,681,000)
CHANGE IN ASSETS AND LIABILITIES:
DECREASE IN RECEIVABLES .................... 26,000 113,000
DECREASE (INCREASE) IN INVENTORIES ......... 5,000 (42,000)
DECREASE IN PREPAID EXPENSES ............... 28,000 84,000
(INCREASE) IN OTHER ASSETS .................. (130,000) (109,000)
(DECREASE) IN ACCOUNTS PAYABLE .............. (51,000) (1,017,000)
INCREASE (DECREASE) IN ACCRUED EXPENSES .... 78,000 (205,000)
---------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES .......................... 1,129,000 148,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
SALE OF RESTAURANTS AND LEASEHOLDS,
NET OF EXPENSES OF SALE ....................... 21,000 10,257,000
CAPITAL EXPENDITURES ........................... (1,137,000) (681,000)
PROCEEDS FROM SALE AND MATURITY
OF MARKETABLE SECURITIES ...................... 66,000 46,000
---------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES .......................... (1,050,000) 9,622,000
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
BANK DEBT REPAYMENT IN ADVANCE OF
SCHEDULED MATURITY ............................ - (13,913,000)
PRINCIPAL PAYMENTS ON LONG-TERM DEBT ........... (182,000) (554,000)
PRINCIPAL PAYMENTS ON CAPITAL LEASE OBLIGATIONS. (253,000) (222,000)
PROCEEDS FROM PROPERTY AND EQUIPMENT FINANCING.. 925,000 287,000
---------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES .......................... 490,000 (9,059,000)
---------- -----------
NET CHANGE IN CASH AND EQUIVALENTS .............. 569,000 710,000
CASH AND EQUIVALENTS, BEGINNING BALANCE ......... 2,666,000 1,993,000
---------- -----------
CASH AND EQUIVALENTS, ENDING BALANCE ............ $3,235,000 $ 2,703,000
========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
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Morgan's Foods, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED NOVEMBER 10, 1996 AND NOVEMBER 5, 1995
Note 1.Summary of Significant Accounting Policies
The interim consolidated financial statements of Morgan's Foods, Inc.
have been prepared without audit. In the opinion of Company Management, all
adjustments have been included. Unless otherwise disclosed, all adjustments
consist only of normal recurring adjustments necessary for a fair statement of
results of operations for the interim periods. These unaudited financial
statements have been prepared using the same accounting principles that were
used in preparation of the Company's annual report on Form 10-K for the year
ended March 3, 1996. Certain prior period amounts have been reclassified to
conform with the current period presentation.
Note 2. Disposition of Assets
On May 5, 1995 Morgan's Restaurants of Pennsylvania, Inc., and Morgan's
Restaurants of New Jersey, Inc., both wholly owned subsidiaries of Morgan's
Foods, Inc., completed the sale to Kazi Foods of New Jersey, Inc. of the assets
of twenty-four KFC restaurants located in Central Pennsylvania and New Jersey.
Kazi acquired all of the assets, properties and leases of the twenty-four KFC
restaurants for a cash purchase price of $10,625,000. The Company used the
proceeds primarily to pay down $9,750,000 of floating rate bank debt in advance
of scheduled maturities. The Company received net cash proceeds from the sale of
$294,000, after repayment of debt, payment of various closing costs and buyouts
of previously leased equipment at certain retained restaurants. The Company
recorded a gain on the sale of the restaurants of $1,681,000 which represents
the excess of the sale price and lease liabilities assigned to the buyer, net of
estimated expenses related to the transaction, over the carrying value of the
assets sold. The twenty-four KFC restaurants which were sold had revenues prior
to the sale of $3,106,000 in the quarter ended May 21, 1995.
Note 3. Closing of Restaurants
During the second quarter of fiscal 1997, the Company closed two
unprofitable KFC restaurants in the St. Louis market. One of the restaurants was
at the end of the lease term and was closed. The second restaurant was closed
and the Company recognized a loss of $95,000 on the sale of the leasehold
interest to an independent restaurant operator for $21,000.
Note 4. Change in stated value of common shares
On June 28, 1996 the Board of Directors of the Company approved a
change in the stated value of the Company's common shares from $1.00 per share
to $.01 per share.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
DESCRIPTION OF BUSINESS. Morgan's Foods, Inc. ("the Company") operates
through wholly-owned subsidiaries Kentucky Fried Chicken ("KFC") restaurants
under franchises from KFC Corporation and has rights to operate, as a
franchisee, East Side Mario's restaurants in the Cleveland/Akron and Columbus,
Ohio areas. As of December 20, 1996, the Company operates 40 KFC restaurants and
six East Side Mario's restaurants. The Company's fiscal year is a 52 - 53 week
year ending on the Sunday nearest the last day of February.
REVENUES. Revenues for the quarter ended November 10, 1996 were
$9,024,000 compared to $9,543,000 for the quarter ended November 5, 1995. The
decrease of $519,000 was primarily due to three factors. The first was the
increase of $193,000 in comparable restaurant KFC revenue in the quarter ended
November 10, 1996 compared to the same quarter a year earlier. Secondly, closed
KFC restaurants accounted for $219,000 of sales in the quarter ended November 5,
1995 which were not present in the quarter ended November 10, 1996. Third, sales
at the East Side Mario's restaurants declined by $493,000 comparing the same
time periods. These changes represent a 3% comparable restaurant sales increase
in the KFC restaurants and a 19% comparable restaurant sales decrease in the
East Side Mario's. The KFC restaurants had comparable restaurant sales increases
due to new products such as the Chunky Chicken Pot Pie and Tender Roast Chicken
as well as more effective advertising. The East Side Mario's restaurants, the
oldest of which opened three and one-half years ago, have exhibited significant
declines from their opening sales levels due to increased competition.
For the thirty-six weeks ended November 10, 1996 revenue was
$27,583,000 compared to $31,063,000 or a decrease of $3,480,000. Several factors
combined to produce this result. First, the period ended November 5, 1995
included revenues of $3,106,000 attributable to the 24 KFC restaurants which
were sold on May 5, 1995. Closed KFC restaurants accounted for a decrease of
$533,000 in the period ended November 10, 1996 compared to the year earlier
period. Further, KFC revenues increased $1,635,000 in the comparable restaurants
while revenues in the East Side Mario's declined $1,476,000 in the thirty-six
weeks ended November 10, 1996 compared to the year earlier period. These changes
were caused by the factors described above for the third quarter.
COSTS OF SALES - FOOD, PAPER AND BEVERAGES. Food, paper and beverage
costs for the quarter ended November 10, 1996 as a percentage of revenue were
32.2% compared to 32.9% in the prior year. These results were achieved through
improved efficiency at the KFC restaurants, offset by higher chicken costs in
the current quarter than in the same quarter a year earlier. Food, paper and
beverage costs for the thirty-six weeks ended November 10, 1996 decreased
slightly as a percentage of sales to 31.8% compared to 32.2% in the same period
of the prior year. This was the result of improved efficiency and favorable menu
mix in the KFC restaurants partially offset by higher chicken costs.
COST OF SALES - LABOR AND BENEFITS. Labor and benefits increased as a
percentage of revenue for the quarter ended November 10, 1996 to 25.9% compared
to 25.4% one year ago. The increase is primarily due to reduced labor efficiency
in the East Side Mario's restaurants caused by lower sales levels. For the
thirty-six weeks ended November 10, 1996 labor and benefits decreased as a
percentage of revenue to 25.9% from 26.1% in the same period a year earlier.
This was caused by improved labor efficiency and lower workers' compensation
costs in the KFC restaurants partially offset by increased labor costs in the
East Side Mario's restaurants.
8
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RESTAURANT OPERATING EXPENSES. Restaurant operating expenses increased
as a percentage of revenue from 28.1% in the third quarter of fiscal 1996 to
28.7% in fiscal 1997. The increase was primarily caused by lower revenues in the
East Side Mario's restaurants which decreased efficiency and caused fixed costs
to represent a higher percentage of sales. This increase was partially offset by
lower advertising costs in the KFC restaurants. For the thirty-six weeks ended
November 10, 1996, restaurant operating expenses were 28.4% of revenue,
essentially unchanged from 28.3% in the year earlier period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
quarter ended November 10, 1996 decreased to $445,000 from $467,000 in the same
quarter a year earlier due to the absence of pre-opening cost amortization in
the East Side Mario's restaurants during the current fiscal year. Depreciation
and amortization for the year to date fiscal 1997 declined to $1,349,000 from
$1,443,000 in fiscal 1996 due to the sale of the 24 KFC restaurants on May 5,
1995, partially offset by capital additions during fiscal 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the third quarter of fiscal 1997 of $641,000 were $39,000 or 5.7%
below the third quarter of fiscal 1996. The decrease is primarily due to the
consolidation of the management of the East Side Mario's and KFC restaurants
which resulted in the elimination of salary and related expenses of the Director
of Operations for the East Side Mario's restaurants. General and administrative
expenses for the thirty-six weeks ended November 10, 1996 were $1,900,000
compared to $2,053,000 in the thirty-six weeks ended November 5, 1995. The
decrease is due to the elimination of administrative expenses related to
operation of the 24 KFC restaurants that were sold late in the first quarter of
fiscal 1996 as well as the administrative consolidation mentioned above.
OPERATING INCOME. Operating income in the quarter ended November 10,
1996 was $103,000 compared to $153,000 for the quarter ended November 5, 1995.
Operating income for the KFC restaurants in the current quarter was greater than
the prior year due to increased sales and improved operating efficiency. This
increase was offset by operating income of the East Side Mario's in the third
quarter of fiscal 1997 which was significantly below the same period a year
earlier primarily due to high fixed occupancy costs and lower revenues.
Operating income for the thirty-six weeks ended November 10, 1996 was $463,000
compared to operating income of $664,000 in the comparable period a year
earlier. Results for the current year however contain a charge of $95,000 for
the closing of two unprofitable KFC restaurants. During the thirty-six weeks
ended November 10, 1996 operating income for the KFC restaurants increased from
the same period a year earlier despite the sale of 24 KFC restaurants late in
the first quarter of fiscal 1996. Operating income of the East Side Mario's
restaurants declined significantly in the thirty-six weeks ended November 10,
1996 compared to the same period a year earlier for the reasons cited above.
INTEREST EXPENSE. Interest expense on bank debt increased to $149,000
in the quarter ended November 10, 1996 from $112,000 in the quarter ended
November 5, 1995 due to additional bank debt for the acquisition of a previously
leased KFC restaurant and rebuilding of another KFC restaurant. Interest expense
on capitalized leases in the quarter ended November 10, 1996 remained
approximately the same at $129,000 compared to $140,000 for the year earlier
period. Interest expense on bank debt for the thirty-six weeks ended November
10, 1996 declined to $426,000 from $523,000 in the same period a year earlier
due to the reduction of bank debt balances related to the sale of 24 KFC
restaurants late in the first quarter of fiscal 1996. Interest expense on
capitalized leases remained essentially unchanged at $387,000 in fiscal 1997
compared to $384,000 in fiscal 1996.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES. Cash flow activity for the first
thirty-six weeks of fiscal 1997 and fiscal 1996 is presented in the Consolidated
Statements of Cash Flows. Cash provided by operating activities was $1,129,000
in fiscal 1997 and the Company purchased property and equipment of $1,137,000.
The Company paid scheduled long-term bank and capitalized lease debt of $435,000
in fiscal 1997 and received property and equipment financing of $925,000 to
purchase and refurbish a previously leased KFC restaurant in Granite City,
Illinois and rebuild a KFC restaurant in New Kensington, Pennsylvania.
On December 7, 1996 the Company completed the purchase of two existing
KFC restaurants located in Canonsburg and Waynesburg Pennsylvania from another
KFC franchisee. The purchase is expected to add approximately $1,200,000 in
annual KFC revenues to the Company. In addition, the Company has finalized the
lease of a site in Greensburg, Pennsylvania on which it intends to build a new
KFC restaurant.
The KFC operations of the Company have historically provided sufficient
cash flow to service the Company's debt, refurbish and upgrade KFC restaurant
properties and cover administrative overhead. Management believes that operating
cash flow will provide sufficient capital to continue to operate and maintain
the KFC and East Side Mario's restaurants, service the Company's debt and
support required corporate expenses. In addition to the Company's operating cash
flow, management believes that additional financing, including long term leases
of build-to-suit restaurants and development lines of credit can be obtained for
use in the acquisition of new and refurbishment of existing KFC properties.
Item 6. Exhibits
(a) Exhibit 27 - Financial Data Schedule
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Morgan's Foods, Inc.
-------------------------
(Registrant)
Dated: December 26, 1996 By: /s/ Kenneth L. Hignett
----------------- ----------------------
Kenneth L. Hignett
Senior Vice President,
Chief Financial Officer & Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-02-1997
<PERIOD-START> AUG-19-1996
<PERIOD-END> NOV-10-1996
<CASH> 3,235,000
<SECURITIES> 219,000
<RECEIVABLES> 52,000
<ALLOWANCES> 0
<INVENTORY> 342,000
<CURRENT-ASSETS> 4,028,000
<PP&E> 25,731,000
<DEPRECIATION> 10,417,000
<TOTAL-ASSETS> 22,280,000
<CURRENT-LIABILITIES> 4,274,000
<BONDS> 10,899,000
<COMMON> 178,000
0
0
<OTHER-SE> 6,929,000
<TOTAL-LIABILITY-AND-EQUITY> 22,280,000
<SALES> 9,024,000
<TOTAL-REVENUES> 9,024,000
<CGS> 5,247,000
<TOTAL-COSTS> 8,921,000
<OTHER-EXPENSES> (27,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278,000
<INCOME-PRETAX> (148,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (148,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148,000)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
