Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K
______________

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 28, 2019

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-6054

STAR BUFFET, INC.

(Exact Name of Registrant as Specified in its Charter)

_______________

Delaware	84-1430786
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

2501 N. Hayden R oa d , Suite 103	8 5257
Scottsdale, Arizona	(Zip Code)
(Address of Principal Executive Offices)

Registrant's Telephone Number, Including Area Code: ( 480 ) 425 - 0 454

_______________

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

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

(Title of Each Class):

Common Stock

$.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [ ] No [X]

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 [ ]

Indicate by check mark whether the registrant has submitted every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revise financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes [ ] No[X]

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ]

At August 13, 2018, the last business day of the registrant’s second fiscal quarter for Registrant’s 2019 fiscal year, there were outstanding 3,213,075 shares of the registrant’s common stock, $.001 par value. The aggregate market value of common stock held by non-affiliates of the registrant based on the last reported sale price of the common stock as reported on the OTC Pink Sheets on August 13, 2018, ($0.65 per share) was approximately $969,000. For purposes of this computation, all executive officers, directors, and 10% beneficial owners of the registrant were deemed to be affiliates. Such determination should not be deemed an admission that such executive officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant.

As of April 19, 2019, the registrant had 3,213,075 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated by reference in Part III of this Report: the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders scheduled for June 26, 2019.

STAR BUFFET, INC., AND SUBSIDIARIES

Index to Annual Report on Form 10-K

For the Fiscal Year Ended January 28, 2019

		Page
	PART I
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	5
ITEM 1B.	UNRESOLVED STAFF COMMENTS	10
ITEM 2.	PROPERTIES	11
ITEM 3.	LEGAL PROCEEDINGS	12
ITEM 4.	MINE SAFETY DISCLOSURES	12
	PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	13
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	21
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	21
ITEM 9A.	CONTROLS AND PROCEDURES	21
ITEM 9B.	OTHER INFORMATION	22
	PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	23
ITEM 11.	EXECUTIVE COMPENSATION	23
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	23
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR	23
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	23
	PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	24

	SIGNATURES	25

	EXHIBIT INDEX	E-1
	FINANCIAL STATEMENTS	F-1

Cautionary Statements Regarding Forward-Looking Statements

This Annual Report on Form 10-K,including documents incorporated by reference, (this “Report”) contains forward-looking statements, within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of 1933, as amended (the “Securities Act”) which are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Star Buffet, Inc. (the “Company” or forms of “we”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In some cases, forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “seek,” “estimate,” “future,” “likely” and similar expressions. These statements are likely to relate to, among other things, the Company’s goals, plans and projections regarding its financial position, statements indicating that the Company has cash and cash equivalents sufficient to fund our operations in the future, results of operations, cash flows, market position, product development, product approvals, sales efforts, expenses, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings, acquisitions, and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All these forward-looking statements are based on information available to the Company at this time, and the Company assumes no obligation to update any of these statements. Actual results may differ, and may differ materially, from those projected in these forward-looking statements as a result of many factors, including those identified in the section titled “Risk Factors” under Item 1A of this Report and elsewhere. You should review and consider the various disclosures made by the Company in this report, and those detailed from time to time in the Company’s filings with the Securities and Exchange Commission, that attempt to advise you of the risks and factors that may affect the Company’s future results.

PART I

Item 1. Business

Overview

Star Buffet, Inc., a Delaware corporation (the “Company,” “we” or “us”), is a multi-concept restaurant holding company. The Company was incorporated on July 28, 1997. As of January 28, 2019, the Company operated 26 full-service restaurants. Additionally, during the 52-week period ended January 28, 2019 (“Fiscal 2019”), the Company also had five closed restaurants, three closed for remodeling and repositioning, one leased to a third-party operator and one used as a warehouse. One of five closed restaurants held for remodeling and repositioning was sold on December 31, 2018. The Company’s restaurants operate under trade names which, with one exception, are owned by the Company. Certain of the restaurant brands owned and operated by the Company include 4B’s Restaurants®, BuddyFreddys®, Barnhill’s Salads Buffet Desserts®, Casa Bonita®, Pecos Diamond Steakhouse and Frosty Freez. The Company's restaurants are located in Arkansas, Arizona, Colorado, Florida, Idaho, Mississippi, Montana, New Mexico, Texas, Utah and Wyoming. The Company has an executive office in Scottsdale, Arizona and management information systems in Salt Lake City, Utah.

The Company plans to continue to operate as a multi-concept restaurant holdings company, adding restaurants to its portfolio as proceeds become available to do so. Management believes the Company will generate sufficient cash flows from operations to support its operations and, together with the proceeds from the sale or refinancing of certain of its properties, to pay its scheduled debt repayments and grow its business.

Recent Developments

None.

Business Strategy

The Company’s business strategy is to operate a broadly diversified portfolio of well-established, family-oriented restaurant brands throughout the southeastern and western United States. The Company believes that a broadly diversified business base combined with owned brands, low facility costs and modest corporate overhead can result in consistently positive cash flows .

Growth Strategy

The Company’s strategy is to grow primarily through the acquisition of existing restaurants that operate in the family dining, steakhouse or buffet market segments. Depending on the circumstances, these restaurants may be converted to the Company’s existing brands or may remain branded as currently positioned in the market. The Company plans to supplement its acquisitions by purchasing or leasing restaurant real estate that can be converted to the Company’s existing brands. Additionally, the Company may make minority investments in, or enter into strategic alliances with other restaurant chains.

●

Acquisitions. The Company believes that a number of acquisition opportunities exist in the family dining, steakhouses and buffet market segments. The Company believes that many restaurants in these segments are privately owned and may be available for acquisition, particularly when an owner decides to retire. Other restaurants may become available for purchase when corporate owners decide to convert from a company store to a franchisor business model or when a company is faced with a financial reorganization.

●

Restaurant Conversions. In recent years, a number of chains in the family dining and budget steakhouse segments of the restaurant industry have experienced operational difficulties and declining performance. The Company believes that these difficulties are the result of increasing competition from national casual dining and steakhouse chains which offer superior product quality and service at competitive prices. Many of these restaurants and steakhouses occupy desirable locations that the Company believes can be acquired and converted to one of its concepts at lower investment costs or leased at lower investment rates when compared to the cost of new construction.

●

Minority Investments and Strategic Alliances. The Company intends to seek minority investments in, or strategic alliances with other restaurant chains. The Company believes that these investments can provide an attractive opportunity for the Company and may facilitate in the acquisition of restaurants at a later date.

Licenses, Trademarks and Service Marks

The Company owns one or more trademarks and service marks for the following brands; BuddyFreddys ®, Casa Bonita®, Holiday House®, Pecos Diamond Steakhouse®, Bar-H Steakhouse®, 4B’S Restaurants® Barnhill’s Buffet® and Whistle Junction®. The Company also has a perpetual, royalty-free, fully transferable license for the use of the intangible property of JJ North’s Country Buffet. The Company has a license agreement for the use of the JB’s trademark which is owned by a third party.

Restaurant Concepts

As of January 28, 2019, the Company operated eleven 4B’s restaurants, five JB’s restaurants, two Pecos Diamond Steakhouses, one Rancher’s Grill Steakhouse, one Frosty Freez restaurant operated under the 4B’s brand, one Antler’s restaurant operated under the 4B’s brand, one Barnhill’s Buffet restaurant, one BuddyFreddys restaurant, one Casa Bonita Mexican theme restaurant and one Bar-H Steakhouse. In addition, the Company operated one seasonal 4Bs’ restaurant scheduled to reopen in May 2019. During Fiscal 2019, the Company also had five closed restaurants; three closed for remodeling and repositioning; one leased to a third-party operator; and one used as a warehouse. One of five closed restaurants held for remodeling and repositioning was sold on December 31, 2018.

The Company, through its wholly-owned Southern Barns, Inc. (“Southern Barns”) subsidiary operated as of January 28, 2019 one Barnhill’s Buffet restaurant located in Arkansas. The restaurant is approximately 10,000 square feet and seat approximately 375 customers.

The Company, through its wholly-owned 4B’s Holdings, Inc. (“4B’s”) subsidiary operated as of January 28, 2019 eleven 4B’S restaurants, one Frosty Freez restaurant and one Antler’s restaurant all of which are located in Montana except for one located in Wyoming. In addition, the Company operated one seasonal 4Bs’ restaurant scheduled to reopen in May 2019. The 4B’s branded restaurants are approximately 3,500 to 5,500 square feet in size and seat approximately 110 to 175 customers.

The Company, through its wholly-owned JB’s Star Holdings, Inc. (“JB’s Star”) subsidiary, operated as of January 28, 2019 five JB’s restaurants with one each located in Arizona, Montana, Utah and two located in Idaho. The JB’s restaurants are approximately 4,000 to 5,500 square feet in size and seat approximately 110 to 175 customers.

The Company, through its wholly-owned StarTexas Restaurants, Inc. (“StarTexas”) subsidiary, operated as of January 28, 2019 one Pecos Diamond Steakhouse in Dumas, Texas and one Pecos Diamond Steakhouse in Artesia, New Mexico, one Rancher’s Grill Steakhouse in Deming, New Mexico and a Bar-H Steakhouse in Dalhart, Texas. The Pecos Diamond Steakhouses, Rancher’s Grill Steakhouse and Bar-H Steakhouse are each approximately 5,000 square feet with seating capacity for 150 customers.

The Company, through its wholly-owned Summit Family Restaurants Inc. (“Summit”) subsidiary, operated as of January 28, 2019 one Casa Bonita restaurant located in Colorado. The Casa Bonita facility is approximately 52,000 square feet with seating capacity for approximately 1,400 customers.

The Company, through its wholly-owned Florida Buffet Holdings, Inc. (“Florida Buffet”) subsidiary, operated as of January 28, 2019 one restaurant in located Florida under the brand name BuddyFreddys. The BuddyFreddys is approximately 9,000 square feet and seats approximately 300 customers.

Competition

The Company competes on the basis of the quality and value of food products offered, price, service, location, ambiance and overall dining experience. The Company’s competitors include a large and diverse group of restaurant chains and individually owned restaurants. The number of restaurants with operations similar to those of the Company has grown considerably in recent years. As the Company and its principal competitors expand operations in various geographic areas, competition can be expected to increase.

Government Regulation

The restaurant industry is subject to extensive federal, state and local laws and regulations. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to building, zoning, land use, environmental, traffic and other regulations and requirements. We are subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards and the sale of alcoholic beverages. We are subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. We are subject to certain federal and state laws governing minimum wages, unionization, healthcare and other labor issues. These include the Fair Labor Standards Act of 1938 and requirements concerning overtime, paid or family leave, tip credits, working conditions and safety standards. They also include the Immigration Reform and Control Act of 1986, which requires among other things the preparation of Form I-9 to verify that employees are authorized to accept employment in the United States. Future changes to U.S. immigration laws may result in increased costs of compliance in the solicitation, hiring, and ongoing employment of employees, and correspondingly increase our operating costs.

We also are subject to federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans with Disabilities Act. Compliance with these laws and regulations can be costly and increase our exposure to litigation and governmental proceedings. Failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation. New or changing laws and regulations relating to union organizing rights and activities may impact our operations at the restaurant level and increase our labor costs.

We are subject to a variety of federal, state and local laws and regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. There also has been increasing focus by United States governmental authorities on other environmental matters, such as climate change, the reduction of greenhouse gases and water consumption. This increased focus may lead to new initiatives directed at regulating a yet to be specified array of environmental matters, such as the emission of greenhouse gases, where “cap and trade” initiatives could effectively impose a tax on carbon emissions. Legislative, regulatory or other efforts to combat climate change or other environmental concerns could result in future increases in the cost of raw materials, taxes, transportation and utilities, which could decrease our operating profits and necessitate future investments in facilities and equipment.

We are subject to laws relating to information security, privacy, cashless payments and consumer credit, protection and fraud. An increasing number of governments and industry groups worldwide have established data privacy laws and standards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information. Compliance with these laws and regulations can be costly. Failure or perceived failure to comply with those laws or any breach of our systems could harm our reputation or lead to litigation, which could adversely affect our financial condition.

Seasonality

The Company's business is moderately seasonal in nature. For the majority of the Company’s restaurants, the highest volume periods are in the Company’s first and second fiscal quarters.

Segment and Related Reporting

All of the brands operated by the Company are in the U.S. within the full-service dining industry. They provide similar products to similar customers and therefore, are considered to be one segment for reporting purposes. The brands possess similar economic characteristics which are expected to achieve similar long-term financial performance. Sales to external customers are derived principally from food and beverage sales. We do not rely on any major customers as a source of sales.

Employees

As of April 19, 2019, the Company employed approximately 815 persons, of whom approximately 810 were restaurant employees. Restaurant employees include salaried management and both full-time and part-time workers paid on an hourly basis. No Company employees are covered by collective bargaining agreements. The Company believes that its relations with its employees are generally good.

Corporate History

Star Buffet, Inc. was incorporated in Delaware on July 28, 1997 to operate as a multi-concept restaurant holding company.

Item 1A. Risk Factors

You should carefully consider the following risk factors before you decide to invest in our Company and our business because these risk factors may have a significant impact on our business, operating results, financial condition, and cash flows. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.

Company Risk Factors

Our growth depends upon our ability to acquire and successfully integrate additional restaurants.

We intend to continue to pursue a strategy of moderate growth, primarily through acquisitions. The success of this strategy will depend in part on our ability to acquire additional restaurants or to convert acquired sites into restaurants. The success of our growth strategy is dependent upon numerous factors, including the availability of suitable acquisition opportunities, the availability of appropriate financing, and general economic conditions. We must compete with other restaurant operators for acquisitions and with other restaurant operators, retail companies and developers for desirable sites. Many of these entities have substantially greater financial and other resources than we do. Many of our acquired restaurants may be located in geographic markets in which we have limited or no operating experience. There is a risk that acquired restaurants or converted restaurants may not be operated profitably or successfully integrated into our operations.

We may experience higher-than-anticipated costs associated with the opening of new restaurants or with the closing, relocating and remodeling of existing restaurants, which may adversely affect our results of operations.

Our revenues and expenses can be impacted significantly by the number and timing of the opening of new restaurants and the closing, relocating and remodeling of existing restaurants. We incur substantial pre-opening expenses each time we open a new restaurant and other expenses when we close, relocate or remodel existing restaurants. The expenses of opening, closing, relocating or remodeling any of our restaurants may be higher than anticipated. An increase in such expenses could have an adverse effect on our results of operations.

We will be unable to implement our growth strategy if we cannot raise or generate sufficient capital and may be required to pay a high price for capital.

We require capital in order to operate our business and additional capital to implement the Company’s strategy to grow primarily through the acquisition of existing restaurants that currently operate in the family dining, steakhouse or buffet market segments. We have negative working capital as of January 28, 2019. We have recently been borrowing required growth capital from our principle shareholders. We have no commitment from them to provide additional capital or assurance that they will voluntarily continue to provide capital as needed. We may need to seek outside capital through the issuance of common stock, preferred stock or debt. We may be unable to raise additional capital as needed, and we will likely be required to pay a high price for capital. Factors affecting the availability and price of capital include the following:

● the availability and cost of capital generally;

● our financial results, including our liquidity situation;

● the market price of our common stock;

● the experience and reputation of our management team;

● market interest, or lack of interest, in our industry and business plan;

● the trading volume of, and volatility in, the market for our common stock;

● our ongoing success, or failure, in executing our business plan and growth strategy;

● the amount of our capital needs; and

● the amount of debt we have outstanding.

Failure to protect our service marks or other intellectual property could harm our business.

We regard our BuddyFreddys, Casa Bonita, Holiday House, Pecos Diamond Steakhouse, Bar-H Steakhouse, 4B’s Restaurants Barnhill’s Buffet and Whistle Junction service marks, and other service marks and trademarks related to our restaurant businesses, as having significant value and being important to our marketing efforts. We rely on a combination of protections provided by contracts, trademarks, service marks and common law rights, such as trade secret and unfair competition laws, to protect our restaurants from infringement. Although our policy is to aggressively oppose any such infringement, unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our brands and adversely affect our business. There can be no assurance that the steps we have taken or will take will be adequate to preserve our key intellectual property. Defending or enforcing our service marks and other intellectual property could result in the expenditures of significant resources and failure.

Operating results can be adversely impacted by the failure to renew facility leases or escalating rents .

The majority of our facilities are leased. Certain of these leases contain limited renewal options and other leases contain escalating or fair market increases for rents upon renewal. There can be no assurance that these facility leases can be renewed at lease rates that permit the restaurant to be operated profitably. Our leases expire on dates ranging from 2019 to 2042. If we close a restaurant, we may remain committed to performing our obligations under the applicable lease, which would include, among other things, payment of the base rent for the balance of the lease term. Additionally, the potential losses associated with our inability to cancel leases may result in our keeping open restaurant locations that are performing significantly below targeted levels. As a result, ongoing lease obligations at closed or underperforming restaurant locations could impair our results of operations.

Increases in wages and benefits may harm our results of operations.

Our results of operations are sensitive to increases in food, labor and other operating costs that cannot always be passed on to our guests in the form of higher prices. Minimum wage increases took effect in states where our restaurants are located in January 2016, January 2017, January 2018 and January 2019. These increases and potential future changes in federal and state minimum wage laws and other laws relating to employee benefits, including the Affordable Care Act, could cause us to incur additional wage and benefits costs and may indirectly increase other costs as higher wage costs for service and commodity suppliers are passed on to us. In connection with higher energy prices, commodity suppliers have passed on higher wholesale prices and higher transportation costs. In anticipation of these past and future increases, we periodically increase menu prices with the desire of maintaining margins. However, market conditions may limit our ability to raise menu prices and, even if we raise prices, the increase may adversely affect the volume of our sales, reducing future revenues and profitability.

Our quarterly results are likely to fluctuate.

We have in the past experienced, and expect to continue to experience, fluctuations in restaurant revenues and results of operations from quarter to quarter. In particular, our quarterly results can vary as a result of acquisitions and costs incurred to integrate newly acquired entities. Conversely, our restaurant revenues and results of operations can vary due to restaurant closures and associated costs connected with these closures. A number of our restaurants are located in areas which are susceptible to severe winter weather conditions or tropical storm patterns which may have a negative impact on customer traffic and restaurant revenues. Accordingly, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. Seasonal and quarterly fluctuations can have an adverse effect on our business, results of operation and financial condition.

We are dependent on key personnel.

We believe that our success depends in part on the services of our key executives, including Mr. Robert E. Wheaton, Chairman of the Board, Chief Executive Officer and President. We do not presently maintain key man life insurance and the loss of the services of Mr. Wheaton could have a material adverse effect upon our business, results of operation and financial condition.

We have significant indebtedness, and our various creditors have broad remedies in the event of default .

As of January 28, 2019, we had $4,730,000 in total indebtedness, the majority of which is indebtedness to our Chief Executive Officer, Mr. Wheaton. If we experience flat or negative operating results, we may be unable to service our debt. If we default on our indebtedness, our creditors have broad remedies, including foreclosure on any pledged assets.

Industry Risk Factors

The restaurant industry is highly competitive.

We compete on the basis of the quality and value of food products offered, price, service, location, ambiance and overall dining experience. As we and our principal competitors expand operations in various geographic areas, competition can be expected to intensify. Such intensified competition could increase our operating costs or adversely affect its revenues or operating margins. A number of our competitors have been in existence longer than we have and have substantially greater financial, marketing and other resources and wider geographical diversity. In addition, the restaurant industry has few non-economic barriers to entry and is affected by changes in consumer tastes, national, regional and local economic conditions and market trends. Our significant investment in, and long term commitment to, each of our restaurant sites limits our ability to respond quickly or effectively to changes in local competitive conditions or other changes that could affect our operations.

The restaurant industry is complex and volatile.

Food service businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. The performance of individual restaurants, and our operating results, may be harmed by multiple diverse factors, including the following:

●

traffic patterns, demographic considerations and the type, number and location of competing restaurants;

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publicity resulting from poor food quality, illness, injury or other health concerns or operating issues stemming from one restaurant or a limited number of restaurants;

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terrorist attacks directed toward the food supply chain or public concerns about the safety of the food supply chain;

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as a result of our dependence on frequent deliveries of fresh produce and other food, interruptions in supply, including those caused by adverse weather or other conditions;

●

increases in food, labor and other operating costs that we are unable to pass along to our customers;

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transportation costs;

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regional weather conditions;

●

the availability of experienced management and hourly employees; and

●

general adverse economic developments such as a recession or stagnant (or declining) wages or relative wages among our target customers.

Any, or a combination of several of these events may harm our business, results of operation and financial condition.

Changes in general economic and political conditions affect consumer spending and may harm our revenues and operating results.

We are dependent upon our target customers having money for discretionary spending. Adverse changes in economic conditions in our country generally, and in the markets in which our restaurants are located in particular, may harm our customers’ discretionary spending levels. A decrease in discretionary spending due to a recession or decreases in consumer confidence in the economy could affect the frequency with which our customers choose to dine at our restaurants. This would likely decrease our revenues and operating results and may lead to significant losses and/or an inability to service our debt.

The restaurant industry is subject to substantial government regulation.

The restaurant industry is subject to extensive federal, state, and local laws and regulations. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to building, zoning, land use, environmental, traffic and other regulations and requirements. We are subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards and the sale of alcoholic beverages. We are subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. We are subject to federal and state laws governing minimum wages, unionization, healthcare and other labor issues. These include the Fair Labor Standards Act of 1938 and requirements concerning overtime, paid or family leave, tip credits, working conditions and safety standards. They also include the Immigration Reform and Control Act of 1986, which requires among other things the preparation of Form I-9 to verify that employees are authorized to accept employment in the United States. Future changes to U.S. immigration laws may result in increased costs of compliance in the solicitation, hiring, and ongoing employment of employees, and correspondingly increase our operating costs.

We also are subject to federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans with Disabilities Act. Compliance with these laws and regulations can be costly and increase our exposure to litigation and governmental proceedings, and a failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation. New or changing laws and regulations relating to union organizing rights and activities may impact our operations at the restaurant level and increase our labor costs.

We are subject to laws relating to information security, privacy, cashless payments and consumer credit, protection and fraud. An increasing number of governments and industry groups worldwide have established data privacy laws and standards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information. Compliance with these laws and regulations can be costly, and any failure or perceived failure to comply with those laws or any breach of our systems could harm our reputation or lead to litigation, which could adversely affect our financial condition.

The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or an insufficient or ineffective response to significant regulatory or public policy issues, could increase our cost structure, operational efficiencies and talent availability, and therefore have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Compliance with these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.

Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a material adverse impact on our business.

There has been a marked increase in the use of social media platforms and similar devices which allow individual access to a broad audience of consumers and other interested persons. Many social media platforms immediately publish the content their subscribers and participants can post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects, or business. The harm may be immediate without affording us an opportunity for redress or correction. The dissemination of information online could harm our business, prospects, financial condition, and results of operations, regardless of the information's accuracy.

Many of our competitors are expanding their use of social media and new social media platforms are rapidly being developed, potentially making more traditional social media platforms obsolete. As a result, we need to continuously innovate and develop our social media strategies in order to maintain broad appeal with guests and brand relevance. In addition, a variety of risks are associated with the use of social media, including the improper disclosure of proprietary information, negative comments about us, exposure of personally identifiable information, fraud, or out-of-date information. The inappropriate use of social media vehicles by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.

Securities Risk Factors

Provisions in our certificate and bylaws could have the effect of preventing a change of control .

Certain provisions of our Certificate of Incorporation and Bylaws may have the effect of making it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our Common Stock. Our Certificate of Incorporation allows the Company to issue up to 1,500,000 shares of currently undesignated preferred stock, to determine the powers, preferences, rights, qualifications and limitations or restrictions granted to or imposed on any un-issued series of that preferred stock, and to fix the number of shares constituting any such series and the designation of such series, without any vote or future action by the stockholders. The preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of the common stock. The Certificate of Incorporation also prohibits the ability of stockholders to call special meetings. Our Bylaws require advance notice to nominate a director or take certain other actions. Such provisions may make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company. In addition, we have not elected to be excluded from the provisions of Section 203 of the Delaware General Corporation Law, which imposes certain limitations on transactions between a corporation and "interested" stockholders, as defined in such provisions.

The market price of our shares of common stock is volatile and may increase or decrease dramatically at any time.

The market price of our shares of common stock is volatile. Our stock price may change as the result of announcements of new products or innovations by us or our competitors, uncertainty regarding the viability of our business or our industry, significant litigation, our liquidity situation, revenues or losses, or other factors or events that would be expected to affect our business, financial condition, results of operations and future prospects.

The market price for our shares of common stock may be affected by various factors not directly related to our business or future prospects, including the following:

●

intentional manipulation of our stock price by existing or future shareholders or a reaction by investors to trends in our stock rather than the fundamentals of our business;

●

a single acquisition or disposition, or several related acquisitions or dispositions, of a large number of our shares, including by short sellers covering their position;

●

the interest, or lack of interests, of the market in our business sector, without regard to our financial condition, results of operations or business prospects;

●

positive or negative statements or projections about our company or our industry, by analysts, stock gurus and other persons;

●

the adoption of governmental regulations or government grant programs and similar developments in the United States or abroad that may enhance or detract from our ability to offer our products and services or affect our cost structure; and

●

economic and other external market factors, such as a general decline in market prices due to poor economic conditions, investor distrust or a financial crisis.

Sale of a substantial number of shares of our common stock could cause the market price to decline.

Sale of a substantial number of shares of our common stock in the public market could substantially reduce the prevailing market price of our common stock. As of April 19, 2019, 3,213,075 shares of common stock were outstanding. We cannot predict the effect, if any, that sales of shares of our common stock or the availability of such shares for sale will have on prevailing market prices. However, substantial amounts of our common stock could be sold in the public market, which may adversely affect prevailing market prices for the common stock.

There is a public market for our stock, but it is thin and subject to manipulation.

The volume of trading in our common stock is limited and can be dominated by a few individuals. The limited volume can make the price of our common stock subject to manipulation by one or more stockholders and will significantly limit the number of shares that one can purchase or sell in a short period of time. An investor may find it difficult to dispose of shares of our common stock or obtain a fair price for our common stock in the market.

The market price of our common stock may be harmed by our need to raise capital.

We need to raise additional capital to grow our business and expect to raise such capital through the issuance of common stock, preferred stock or debt. Because securities in private placements and other transactions by a company are often sold at a discount to market prices, this need to raise additional capital may harm the market price of our common stock. In addition, the re-sale of securities issued in such capital-raising transactions, whether under Rule 144 or a re-sale registration statement, may harm the market price of our common stock .

A single stockholder, who is also Chairman and CEO, effectively controls our company.

Mr. Robert E. Wheaton, Chairman of the Board, Chief Executive Officer and President, currently beneficially owns approximately 46.7% of our total equity securities and possesses approximately 46.7% of the total voting power. Thus, Mr. Wheaton has the ability to control or significantly influence all matters requiring the approval of our stockholders, including the election of our directors. The control that Mr. Wheaton has over all matters affecting the Company may limit the willingness of certain investors to invest in our common stock and the market price of our common stock.

We have not paid a cash dividend since 2008 .

Although we have retained earnings for use in our business in our recent past, we reserve the right to resume dividend payments in the future.

We are subject to various regulatory regimes, and may be adversely affected by inquiries, investigations and allegations that we have not complied with governing rules and laws.

In light of our status as a public company and our lines of business, we are subject to a variety of laws and regulatory regimes in addition to those applicable to all businesses generally. For example, we are subject to the reporting requirements applicable to United States reporting issuers, such as the Sarbanes-Oxley Act of 2002, the rules of the applicable stock markets and certain other securities laws. We are also subject to state and federal environmental, health, safety and similar laws. Such laws and rules change frequently and are often complex. In connection with such laws, we are subject to periodic audits, inquiries and investigations. Any such audits, inquiries and investigations may divert considerable financial and human resources and adversely affect the execution of our business plan.

Through such audits, inquiries and investigations, we or a regulator may determine that we are out of compliance with one or more governing rules or laws. Remedying such non-compliance would divert additional financial and human resources. In addition, in the future, we may be subject to a formal charge or determination that we have materially violated a governing law, rule or regulation. We may also be subject to lawsuits as a result of alleged violation of the securities laws or governing corporate laws. Any charge or allegation, and particularly any determination, that we had materially violated a governing law would harm our ability to enter into business relationships, recruit qualified officers and employees and raise capital.

Item 1B . Unresolved Staff Comments.

None.

Item 2. Properties

The Company’s restaurants are primarily freestanding locations. As of January 28, 2019, 24 of 30 of the Company’s restaurant facilities were leased. The leases expire at various date through 2042. Many restaurant leases have renewal options to extend for terms of 2 to 16 years from the terms of the original agreement. Substantially all require payment of real estate taxes, insurance and certain maintenance expenses. Certain leases require the rent to be the greater of a stipulated minimum rent or a specified percentage of sales. Certain operating lease agreements contain scheduled rent escalation clauses which are being amortized over the terms of the lease, ranging from 5 to 11 years using the straight line method. The Company also has a leased administrative office in Scottsdale, Arizona.

The following is a summary of the Company's restaurant properties as of January 28, 2019:

	Total
Owned		6
Leased		24
Total		30

As of January 28, 2019, the Company’s restaurants are located in the following states:

State	Total
Arkansas		2
Arizona		1
Colorado		1
Florida		1
Idaho		2
Mississippi		1
Montana		14
New Mexico		2
Texas		2
Utah		2
Wyoming		2
Total		30

The Company’s restaurant located in Kalispell, Montana that was temporarily closed in August 2017 due to fire damage reopened in June 2018.

As of January 28, 2019, the Company’s non-operating restaurants are located in the following states:

State	Total
Arkansas		1
Mississippi		1
Utah		1
Wyoming		1
Total		4

During Fiscal 2019, one of the five non-operating restaurants had been leased to a third-party operator, one was used as warehouse and two were closed for remodeling and repositioning. In addition, one was sold on December 31, 2018.

Item 3. Legal Proceedings

Prior to the Company’s bankruptcy filings, on August 4, 2010, Spirit Master Funding, LLC (‘Spirit”), a landlord of a Company subsidiary, filed case number CV-2010-022169 in the Superior Court of the State of Arizona for the failure of the subsidiary to pay $3.7 million in rent and accelerated rent for four restaurants leased to the subsidiary. During the bankruptcy, Spirit filed a proof of claim as an unsecured creditor for approximately $1.5 million. On October 14, 2016, the Company settled the unsecured creditor claim for $900,000 and the current balance is $525,000.

In addition to the matter set forth above, from time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the results of our operations or financial position.

Item 4. Mine Safety Disclosures

There are no reportable events required pursuant to this item.

PART II

Item 5. Market for Registrant's Common Equity , Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders

The Company’s Common Stock is quoted on the OTC Pink Sheets under the symbol “STRZ”. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The following table sets forth the range of high and low bid information for the Common Stock for the fiscal years 2019 and 2018.

Fiscal Year	2019				2018
	High		Low		High		Low
First Quarter	$	1.00	$	0.82	$	1.45	$	0.90
Second Quarter		1.36		0.65		1.30		0.90
Third Quarter		0.90		0.30		1.05		0.82
Fourth Quarter		0.65		0.25		0.92		0.70

Dividends

Although we have retained earnings for use in our business in our recent past, we reserve the right to resume dividend payments in the future.

Outstanding Shares and Number of Shareholders

As of April 19, 2019, the number of shares of common stock outstanding was 3,213,075 held by approximately 250 holders of record.

Recent Sales of Unregistered Securities

We did not sell any securities in transactions that were not registered under the Securities Act in the quarter ended January 28, 2019.

Transfer Agent and Registrar

The Company is the Transfer Agent and Registrar for our shares of common stock.

Item 6. Selected Financial Data

Smaller reporting companies are not required to provide the information required by this item.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements, and the notes thereto, presented elsewhere in this Report.

This discussion and analysis may contain “forward-looking statements”. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements about the Company’s market opportunities, strategies, competition, and expected activities and expenditures and at times may be identified by the use of words such as “may,” “could,” “should,” “would,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue,” “seek,” “estimate,” “future,” “likely” and variations of these words or comparable words. Forward-looking statements inherently involve risks and uncertainties, including, but not limited to, uncertainties regarding our ability to comply with our remaining obligations under the Bankruptcy Plan, our ability to maintain costs, the timing and receipt of revenues, future acquisitions and expansions of restaurants, the future success of our existing restaurants, our ability to raise additional financing to sustain our operations, and other risks described below as well as elsewhere in this Report, documents incorporated by reference and other documents and reports that we file periodically with the Securities and Exchange Commission. Accordingly, actual results may differ, and may differ materially, from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the risks described under “Risk Factors” in Item 1A. The Company undertakes no obligation to update any forward-looking statements for revisions or changes after the filing date of this Report.

Operations

The operating results for the 52-week period ended January 28, 2019 (“Fiscal 2019”) and for the 52-week period ended January 29, 2018 (“Fiscal 2018”) are as follows:

The operating results for Fiscal 2019 included 52 weeks of operations for the Company’s nine 4B’s restaurants, five JB’s restaurants, two Pecos Diamond Steakhouses, one BuddyFreddys restaurant, one Barnhill’s Buffet restaurant, one Casa Bonita Mexican theme restaurant, one Rancher’s Grill Steakhouse, one Antler’s restaurant and one Bar-H Steakhouse. The results included one 4B’s restaurant for 37 weeks and one Frosty Freez restaurant for 34 weeks. The results also included one 4B’s restaurant for 30 weeks that had operated under the Finnegan’s brand prior to being closed in August 2017 due to fire damage. The results included one seasonal 4B’s restaurant for 22 weeks scheduled to reopen in May 2019. The results also included one 4B’s restaurant for 49 weeks that was closed. The Company also had four non-operating restaurants at year end. One of the four non-operating restaurants has been leased to a third-party operator, one was used as warehouse and two were closed for remodeling and repositioning.

The operating results for Fiscal 2018 included 52 weeks of operations for the Company’s eight 4B’s restaurants, five JB’s restaurants, two Pecos Diamond Steakhouses, one BuddyFreddys restaurant, one Barnhill’s Buffet restaurant, one Casa Bonita Mexican theme restaurant, one 4 Aces restaurant and one Bar-H Steakhouse. The results included one Rancher’s Grill Steakhouse for 43 weeks, one Antler’s restaurant for 34 weeks and one 4B’s restaurant for 16 weeks. The results also included one Finnegan’s restaurant for 29 weeks which closed due to fire damage and reopened in June 2018. The results included one seasonal 4B’s restaurant for 39 weeks which reopened in May 2018. The results also included one JB’s restaurant for 36 weeks that was closed and one Western Sizzlin restaurant for 30 weeks that was closed. The Company also had five non-operating restaurants at year end. One of the three non-operating restaurants has been leased to a third-party operator, one was used as warehouse and three were closed for remodeling and repositioning as warehouse and one was closed for remodeling and repositioning.

Fiscal 2019

The consolidated net loss of $541,000 or $(0.17) per diluted share for Fiscal 2019 was approximately $670,000 less than the net income of $129,000 or $0.04 per diluted share for Fiscal 2018. The decrease in the results is due primarily as a result of higher food and labor costs. Total revenues decreased approximately $489,000 or 1.8% from $26.5 million for the 52-weeks in Fiscal 2018 to $26.0 million for the 52-weeks in Fiscal 2019. The decrease in revenues was primarily the result of an approximately $600,000 decrease in revenue from the closure of two restaurants of which one restaurant is temporarily closed and an approximately $1.4 million or 5.6% decrease in comparable same store sales. The decrease in revenues was partially offset by approximately $1.5 million attributable to the opening of two restaurants in Fiscal 2019, three restaurants in Fiscal 2018 and from the opening of one store previously closed due to a kitchen fire.

Results of Operations

The following table summarizes the Company’s results of operations as a percentage of total revenues for Fiscal 2019 and Fiscal 2018.

	Fifty-Two Weeks		Fifty-Two Weeks
	Ended		Ended
	January 2 8 , 201 9		January 29, 201 8
Total revenues		100.0%		100.0%
Costs, expenses and other:
Food costs		32.8		32.0
Labor costs		39.5		37.7
Occupancy and other expenses		20.7		21.3
General and administrative expenses		5.5		4.8
Depreciation and amortization		2.3		2.2
Impairment expense		-		-
Total costs and expenses		100.8		98.0
Income from operations		(0.8)		1.9
Interest expense		1.9		1.9
Gain on sale of assets		0.4		-
Other income, net		0.3		0.6
Net income before income taxes		(2.0)		0.6
Income taxes		0.1		0.1
Net income		(2.1)%		0.5%

Comparison of Fiscal 2019 to Fiscal 2018

Food costs as a percentage of total revenues increased from 32.0% during in Fiscal 2018 to 32.8% in Fiscal 2019. The increase in percentage for Fiscal 2019 was primarily attributable to an increase in promotions in selected markets compared to Fiscal 2018.

Labor costs as a percentage of total revenues increased from 37.7% during in Fiscal 2018 to 39.5% in Fiscal 2019. Labor costs increased by approximately $285,000 in Fiscal 2019 despite a net decrease in revenue of $489,000 in Fiscal 2019 compared to Fiscal 2018. The labor cost as a percentage of total revenues increased as a percentage of revenue primarily due to increases in minimum wages in many of the states in which we operate. The states with increased minimum wages included Arkansas, Colorado, Florida and Montana.

Occupancy and other expenses as a percent of total revenues decreased from 21.3% in Fiscal 2018 to 20.7% in Fiscal 2019. Occupancy and other expenses decreased in Fiscal 2019 by approximately $252,000 primarily due to the net decrease in revenue of $489,000 in Fiscal 2019 compared to Fiscal 2018. The occupancy and other expenses as a percentage of total revenues decreased primarily as a decrease in repair expense in Fiscal 2019 compared to Fiscal 2018.

General and administrative expenses as a percentage of total revenues increased from 4.8% in Fiscal 2018 to 5.5% in Fiscal 2019. General and administrative expenses increased from $1,282,000 in Fiscal 2018 to $1,429,000 in Fiscal 2019, an increase of approximately $147,000, which was primarily due to higher legal costs in Fiscal 2019 compared to Fiscal 2018.

Depreciation and amortization expense increased from $595,000 in Fiscal 2018 to $612,000 in Fiscal 2019, an increase of approximately $17,000. The increase was primarily attributable new assets acquired in Fiscal 2019.

Interest expense as a percentage of total revenues remained the same at 1.9% in Fiscal 2018 and in Fiscal 2019 primarily as the result of the Company having lower outstanding debt balance in Fiscal 2019 as compared to Fiscal 2018 offset by lower revenue of $489,000 in Fiscal 2019 compared to Fiscal 2018. Actual interest expense decreased from $501,000 in Fiscal 2018 to $494,000 in Fiscal 2019, a decrease of approximately $7,000.

The income tax provision totaled $30,000 or 0.1% of pre-tax income, in Fiscal 2018 as compared to a $33,000 or, 0.1% of pre-tax income, in Fiscal 2019, a net increase of approximately $3,000. As of January 28, 2019, the Company has $4.7 in deferred tax assets primarily from federal and state net operating loss carryforwards of $3.5 million and tax credit carryforwards of $1.2 million. A valuation allowance of $4.7 million has been recorded against the carryforwards that are not likely to be realized. These losses are being carried forward in jurisdictions where we are permitted to use tax losses from prior periods to reduce future taxable income and will expire primarily in 2030 and 2031. The Company has deferred income tax assets of $0 million and $0 for Fiscal 2019 and Fiscal 2018, respectively. Income taxes for Fiscal 2019 and Fiscal 2018 are:

	Fiscal 2019		Fiscal 2018
Current provision	$	33,000	$	30,000
Deferred provision		-		—
Total	$	33,000	$	30,000

Liquidity and Capital Resources

In recent years, the Company has financed operations through a combination of cash on hand, cash provided from operations and loans from our principal shareholders.

As of January 28, 2019, the Company had $163,000 in cash. Cash and cash equivalents increased by $35,000 during Fiscal 2019. The net working capital deficit was $4.4 million and $3.7 million at January 28, 2019 and January 29, 2018, respectively. We will need to raise additional capital to grow our business and anticipate raising such capital through the issuance of common stock, preferred stock or debt. We have recently been borrowing required capital to grow our business from our principal shareholders. We have no commitment from them to provide additional capital or assurance that they will voluntarily continue to provide capital as needed. We may be unable to raise additional capital as needed, and we will likely be required to pay a high price for capital.

The Company generates cash flow daily from sales in its restaurants and manages its cash balances to meet its current operating obligations. The Company spent approximately $289,000 on capital expenditures in Fiscal 2019 and approximately $928,000 on capital expenditures in Fiscal 2018. The Company had approximately $294,000 on proceeds from the sale of assets in Fiscal 2019 and $0 on proceeds from the sale of assets in Fiscal 2018.

Cash provided by operations was approximately $591,000 and $626,000 for Fiscal 2019 and Fiscal 2018, respectively. Cash provided by operations decreased by approximately $35,000 in Fiscal 2019 compared to Fiscal 2018.

Cash used by financing activities was approximately $561,000 in Fiscal 2019. The Company made net debt payments of approximately $323,000 and had checks written in excess of bank balance of $0, a change of $238,000. In Fiscal 2018, cash provided by financing activities was approximately $91,000. The Company made net debt payments of approximately $325,000, had loan costs of $7,000 and had checks written in excess of bank balance of $238,000. The Company also had loan proceeds of approximately $285,000 in Fiscal 2019.

The following table is a summary of the Company’s outstanding debt obligations.

	Total Debt
	January 2 8 ,		January 2 8 ,		January 29 ,		January 29,
	201 9		201 9		201 8		201 8
Type of Debt	Total Debt		Current Portion		Total Debt		Current Portion
Real Estate Mortgages	$	2,485,000	$	560,000	$	2,787,000	$	315,000
Other - Miscellaneous		253,000		10,000		269,000		23,000
Note Payable to Officer		1,992,000		-		1,992,000		-
Total Debt	$	4,730,000	$	570,000	$	5,048,000	$	338,000

The Company finances certain restaurant properties with real estate mortgages. As of January 28, 2019, the Company had six properties mortgaged for total of $2.5 million. As of January 29, 2018, the Company had six properties mortgaged for a total of $2.8 million.

During the fiscal year ended January 25, 2008, the Company borrowed approximately $1,400,000 from Mr. Wheaton, a principal shareholder, officer and director of the Company, for working capital requirements. The loan originally bore interest at 8.5%. In June 2008, the Company borrowed an additional $592,000 from Mr. Wheaton under the same terms. This resulted in an increase in the note balance from $1,400,000 to $1,992,000, the balance as of January 28, 2019 and January 29, 2018, respectively. The Company expensed $195,000 to Mr. Wheaton for interest during Fiscal 2019 and Fiscal 2018. The principal balance and any unpaid interest under the Wheaton note was due and payable in full on June 5, 2012. The loan was subsequently modified as a result of the Bankruptcy Plan and the principal balance was not eligible to be repaid until all obligations owed to other creditors have been fully satisfied. Interest accrued on the principal amount of $1,992,000 and the interest of $197,000 from September 28, 2011 to December 7, 2016 at the Bankruptcy Plan rate. When the Bankruptcy Court entered into a Final Decree and Order Closing the Bankruptcy Case of Star Buffet, Inc. on December 7, 2016, the Company reverted back to the original interest rate of 8.5%.

On November 9, 2016, the Company borrowed $450,000 from Mr. Wheaton to remodel the 4B’ Restaurant in Missoula, Montana. This obligation is included in the Real Estate Mortgages in the table above. The three year fully amortized secured loan has monthly payments of $14,839 and interest rate of 11.5%. The Company paid Mr. Wheaton approximately $152,000 and $121,000 in principal in Fiscal 2019 and Fiscal 2018, respectively, under this mortgage. In addition, the Company paid approximately $26,000 and $42,000 in interest in Fiscal 2019 and Fiscal 2018, respectively, under this mortgage.

Off-Balance Sheet Arrangements

As of January 28, 2019, the Company did not have any off-balance sheet arrangements as defined in Item 303(a) (4) (ii) of Regulation S-K.

Commitments and Contractual Obligations

The Company’s commitments and contractual obligations include obligations associated with our outstanding indebtedness and future minimum operating and capital lease obligations, as set forth in the following table:

	(Dollars in thousands)
Contractual Obligations:	Total		Less than one year		One to three years		Three to five years		Greater than five years

Long-term debt (1)(2)	$	4,730	$	570	$	352	$	301	$	3,507
Operating leases (3)		23,149		1,343		2,552		2,477		16,777
Total contractual cash obligations	$	27,879	$	1,913	$	2,904	$	2,778	$	20,284

(1) See Note 6 to the consolidated financial statements for additional information.

(2) Long-term debt includes note payable to officer.

(3) See Note 7 to the consolidated financial statements for additional information.

Impact of Inflation

Management recognizes that inflation has an impact on food, construction, labor and benefit costs, all of which can significantly affect the Company’s operations. Historically, the Company has been able to pass certain increased costs due to these inflationary factors along to its customers because those factors have impacted nearly all companies in the restaurant industry.

Critical Accounting Policies and Judgments

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The Company’s consolidated financial statements are based on the application of certain accounting policies, the most significant of which are described in Note 1—Summary of Significant Accounting Policies to the audited consolidated financial statements for the year ended January 28, 2019, included in this Annual Report on Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or may be subject to variations and may significantly affect the Company’s reported results and financial position for the current period or future periods. Changes in the underlying factors, assumptions or estimates in any of these areas could have a material impact on the Company’s future financial condition and results of operations. The Company considers the following policies to be the most critical in understanding the judgments that are involved in preparing its consolidated financial statements since the judgments effect a significant portion of the financial statements.

Receivables

Receivables are stated at an amount management expects to collect and provides for an adequate reserve for probable uncollectible amounts. Amounts deemed to be uncollectible are written off through a charge to earnings and a credit to a valuation allowance based on management’s assessment of the current status of individual balances. A receivable is written off when it is determined that all collection efforts have been exhausted. The Company did not have a valuation allowance as of January 28, 2019 and January 29, 2018.

Income Tax es

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted on December 22, 2017, and includes, among other items, a reduction in the federal corporate income tax rate from 35.0 percent to 21.0 percent effective January 1, 2018. For Fiscal 2019, our federal statutory rate will be 21.0 percent.

Our current provision for income taxes is based on our estimated taxable income in each of the jurisdictions in which we operate, after considering the impact on our taxable income of temporary differences resulting from disparate treatment of items, such as depreciation, estimated liability for closed restaurants, estimated liabilities for self-insurance, tax credits and net operating losses (“NOL”) for tax and financial reporting purposes. Deferred income taxes are provided for the estimated future income tax effect of temporary differences between the financial and tax bases of assets and liabilities using the asset and liability method. Deferred tax assets are also provided for NOL and income tax credit carryforwards. A valuation allowance to reduce the carrying amount of deferred income tax assets is established when it is more likely than not that we will not realize some portion or all of the tax benefit of our deferred income tax assets. We evaluate, on a quarterly basis, whether it is more likely than not that our deferred income tax assets are realizable based upon recent past financial performance, tax reporting positions, and expectations of future taxable income. The determination of deferred tax assets is subject to estimates and assumptions. We periodically evaluate our deferred tax assets to determine if our assumptions and estimates should change. As of January 28, 2019, the Company has $4.1 million in deferred tax assets primarily from federal and state net operating loss carryforwards of $3.5 million and tax credit carryforwards of $600,000. A valuation allowance of $4.1 million has been recorded against the carryforwards that are not likely to be realized. These losses are being carried forward in jurisdictions where we are permitted to use tax losses from prior periods to reduce future taxable income and will expire primarily in 2030 and 2031. The Company in Fiscal 2018 had a full valuation allowance of $3.9 million against its deferred tax assets, net of expected reversals of existing deferred tax liabilities, as it believed it was more likely than not that these benefits will not have been realized. Accounting Standards Codification 740 (“ASC 740”) prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 requires recognition in the consolidated financial statements of the impact of an uncertain tax position, if it is more likely than not the tax position will be sustained upon examination based on the technical merits of the position. The Company does not have any uncertain tax positions that require recognition under ASC 740 as of January 28, 2019 and January 29, 2018. The continuing practice of the Company is to recognize interest and penalties related to income tax matters in the provision for income taxes.

Buildings and Equipment

Buildings and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the following useful lives:

	Years
Buildings	40
Leasehold improvements	15	-	20 ⁽¹⁾
Furniture, fixtures and equipment	5	-	8

(1)

Leasehold improvements are amortized over the lesser of the life of the lease or the estimated economic life of the assets. The life of the lease includes renewal options determined by management at lease inception as reasonably likely to be exercised. If a previously scheduled lease option is not exercised, any remaining unamortized leasehold improvements would be required to be expensed immediately, which could result in a significant charge to operating results in that period.

Equipment in non-operating units or stored in warehouses, which is held for remodeling or repositioning, is depreciated and is recorded on the balance sheet as property, building and equipment held for future use.

Buildings and equipment placed on the market for sale is not depreciated and is recorded on the balance sheet as property held for sale and recorded at the lower of cost or market.

Repairs and maintenance are charged to operations as incurred. Major equipment refurbishments and remodeling costs are generally capitalized.

The Company's accounting policies regarding buildings and equipment include certain management judgments regarding the estimated useful lives of such assets and the residual values of such assets. These judgments and estimates may produce materially different amounts of depreciation and amortization expense than would be reported if different assumptions were used. As discussed further below, these judgments may also impact the Company's need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized.

Impairment of Long-Lived Assets

The Company evaluates impairment of long-lived assets in accordance with Accounting Standards Codification 360, “Property, Plant and Equipment”. The Company assesses whether an impairment write-down is necessary whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Any impairment is recognized as a charge to earnings, which would adversely affect operating results in the affected period.

Judgments made by the Company related to the expected useful lives of long-lived assets and the ability of the Company to realize undiscounted net cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, and changes in operating performance. As the Company assesses the ongoing expected net cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge and could adversely affect operating results in any period.

Insurance Programs

Historically, the Company has purchased first dollar insurance for workers’ compensation claims; high-deductible primary property coverage; and excess policies for casualty losses. Accruals for self-insured casualty losses include estimates of expected claims payments. Because of large, self-insured retention levels, actual liabilities could be materially different from calculated accruals.

Other L ong- T erm L iabilities

The Company has settled Spirit’s unsecured creditor claim for $900,000. The payment terms are for level payments to be made over five years at five percent interest. The payments started October 1, 2016. The Company has booked the liability in Other Long-Term Liabilities as of January 28, 2019 except for the current portion. The long-term portion was $308,000 and $510,000 as of January 28, 2019 and January 29, 2018, respectively.

Application of New Accounting Standards

During 2014 and 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2014-09 and 2015-14, Revenue from Contract with Customers (Topic 606), which revises previous revenue recognition standards to improve guidance on revenue recognition requirements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides additional disclosure requirements. This new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. During the first quarter of fiscal 2019, we retrospectively adopted ASU 2014-09 “Revenue from Contracts with Customers (Topic 606),” which requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption did not have an impact on our consolidated balance sheets, statements of income, or cash flows. The primary impact of adoption was the enhancement of our disclosures related to revenue recognition as mentioned previously.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842). This update requires a lessee to recognize on the balance sheet a liability to make lease payments and a corresponding right-of-use asset. The guidance also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. This update is effective for annual and interim periods beginning after December 15, 2018, which will require us to adopt these provisions in the first quarter of fiscal 2020 using a modified retrospective approach. We are evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures.

In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230). This update provides clarification regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This update is effective for annual and interim periods beginning after December 15, 2017, which required us to adopt these provisions in the first quarter of fiscal 2019 using a retrospective approach. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In July 2018, the FASB issued Accounting Standards Update 2018-11, Leases (Topic 842). This update provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s financials will remain the same as those previously presented. Entities that elect this optional transition method must provide the disclosures that were previously required. The Company will adopt this transition method in the first quarter of fiscal 2020.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Smaller reporting companies are not required to provide the information required by this item.

Item 8. Financial Statements and Supplementary Data

See the Index to Consolidated Financial Statements included at "Item 15. Exhibits and Financial Statement Schedules."

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate.

As required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Principal Accounting Officer, of the effectiveness and the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and the Principal Accounting Officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report for the reasons described in “Management’s Report on Internal Control over Financial Reporting” below.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for the preparation, integrity and fair presentation of the consolidated financial statements and Notes to the consolidated financial statements. The financial statements were prepared in accordance with the accounting principles generally accepted in the U.S. and include certain amounts based on management’s judgment and best estimates. Other financial information presented is consistent with the financial statements.

Management is also responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed under the supervision of the Company’s principal executive and accounting officers in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

(i)	Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company;

(ii)

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with United States generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii)

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our principal executive officer and principal accounting officer assessed the effectiveness of the Company’s internal control over financial reporting as of January 28, 2019. In making this assessment, management used the criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our principal executive officer and principal accounting officers have concluded that the internal control over financial reporting was not effective as of January 28, 2019 and that one significant deficiency existed for the period covered. The significant deficiency identified was as follows:

●

Inadequate segregation of duties (significant deficiency).

A significant deficiency is a deficiency, or combination of deficiencies in internal control over financial reporting, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with United States generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s consolidated financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the last quarter of Fiscal 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9 B . Other Information

None.

PART III

Items 10, 11, 12, 13 and 14.

The information required by these items is incorporated by reference to our definitive proxy statement relating to our Annual Meeting of Shareholders scheduled for January 28, 2019. We anticipate that our definitive proxy statement will be filed with the SEC not later than 120 days after January 28, 2019, the end of our fiscal year, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) Index to Consolidated Financial Statements:

	Page Number
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets — as of January 28, 2019 and January 29, 2018	F-2
Consolidated Statements of Operations — for the 52-weeks ended January 28, 2019 and 52-weeks ended January 29, 2018	F-3
Consolidated Statements of Stockholders' Equity — for the 52-weeks ended January 28, 2019 and 52-weeks ended January 29, 2018	F-4
Consolidated Statements of Cash Flows — for the 52-weeks ended January 28, 2019 and 52-weeks ended January 29, 2018	F-5
Notes to Consolidated Financial Statements	F-6

(a)(2) Index to Financial Statement Schedules:

All schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.

(a)(3) Exhibits:

EXHIBIT INDEX

Exhibit No.		Description
2.1		Order Confirming Second Amended Joint Plan of Reorganization Dated October 17, 2012 (6)
2.2		Debtor’s Second Amended Joint Plan Of Reorganization Dated October 17, 2012 (6)
3.1		Certificate of Incorporation (1)
3.2		Bylaws, as amended on September 22, 1997(2)
4.1		Form of Common Stock Certificate (3)
10.1		Form of Indemnification Agreement (1)**
10.2		Management Services Agreement with CKE Restaurants, Inc. (1)
10.3		Form of Franchise Agreement with HomeTown Buffet, Inc. (2)
10.4		License Agreement with CKE Restaurants, Inc. (7)
10.5		Loan Agreement dated June 15, 2007 with Robert E. Wheaton (8)
10.6		Loan Agreement dated November 9, 2016 with Robert E. Wheaton (5)
14.1		Star Buffet, Inc. Code of Ethics (4)
23.1		Consent of Larson & Company PC, Certified Public Accountants*
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002*
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002*
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002*
32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002*
101		The following documents in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of January 28, 2019 and January 29, 2018 (ii) Consolidated Statements of Operations for the years ended January 28, 2019 and January 29, 2018, (iii) Consolidated Statements of Cash Flows for the years ended January 28, 2019 and January 25, 2015 and (iv) Consolidated Statements of Stockholders’ Equity for the period from January 28, 2019 and January 29, 2018, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purpose of Sections 11 and 12 of the Securities Act and Section 18 of the Exchange Act.

__________

(1)	Previously filed as an exhibit to the Registration Statement on Form S-1, (Registration No. 333- 32249) filed with the SEC on July 28, 1997.
(2)	Previously filed as an exhibit to the Registration Statement on Form S-1, Amendment No. 1 (Registration No. 333- 32249) filed with the SEC on September 9, 1997.
(3)	Previously filed as an exhibit to the Registration Statement on Form S-1, Amendment No. 2 (Registration No. 333- 32249) filed with the SEC on September 22, 1997.
(4)	Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended January 26, 2009 filed with the SEC on April 30, 2009.
(5)	Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2018 filed with the SEC on April 28, 2017.
(6)	Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 20, 2012.
(7)	Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended January 26, 1998 filed with the SEC on April 27, 1998.
(8)	Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2008 filed with the SEC on April 25, 2008.

* Filed herewith

** Indicates management contract or compensatory plan or arrangement.

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.

	STAR BUFFET, INC. (Registrant)

April 26, 2019	By:	/s/ Robert E. Wheaton
		Robert E. Wheaton Chief Executive Officer and President ( Principal E xecutive O fficer)

April 26, 2019	By:	/s/ Ronald E. Dowdy
		Ronald E. Dowdy Group Controller, Treasurer and Secretary ( Principal A ccounting O fficer)

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

Signature	Title	Date

/s/Robert E. Wheaton	Chief Executive Officer,	April 26, 2019
Robert E. Wheaton	President and Director

/s/Ronald E. Dowdy	Group Controller, Treasurer	April 26, 2019
Ronald E. Dowdy	and Secretary

/s/Thomas G. Schadt	Director	April 26, 2019
Thomas G. Schadt

/s/Todd S. Brown	Director	April 26, 2019
Todd S. Brown

/s/Mary-Whitney Wheaton	Director	April 26, 2019
Mary-Whitney Wheaton

/s/B. Thomas M. Smith, Jr.	Director	April 26, 2019
B. Thomas M. Smith, Jr.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

STAR BUFFET, INC. AND SUBSIDIARIES

Scottsdale, Arizona

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Star Buffet, Inc. and Subsidiaries the (“Company”) as of January 28, 2019 and January 29, 2018, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the fiscal years in the 52-week periods ended January 28, 2019 and January 29, 2018 and the related note (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 28, 2019 and January 29, 2018, and the results of its operations and its cash flows for each of the fiscal years in the 52-week periods ended January 28, 2019 and January 29, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U. S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with auditing standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error of fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2013.

/s/ LARSON & COMPANY PC

Larson & Company, PC

South Jordan, Utah

April 26, 2019

F-1

STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	January 2 8 , 201 9			January 29 , 201 8
ASSETS
Current assets:
Cash and cash equivalents	$	163,000		$	128,000
Receivables		172,000			165,000
Inventories		254,000			342,000
Prepaid expenses		37,000			39,000
Total current assets		626,000			674,000
Property, buildings and equipment, net		5,560,000			6,035,000
Other assets, net		205,000			256,000
Intangible assets, net		34,000			33,000

Total assets	$	6,425,000		$	6,998,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade	$	1,014,000		$	869,000
Checks written in excess of bank balance		-			238,000
Payroll and related taxes		1,767,000			1,400,000
Sales and property taxes		593,000			516,000
Rent, licenses and other		1,045,000			980,000
Income taxes payable		35,000			32,000
Current maturities of long-term debt		570,000			338,000
Total current liabilities		5,024,000			4,373,000
Deferred rent payable		386,000			317,000
Other long-term liabilities		308,000			510,000
Note payable to officer		1,992,000			1,992,000
Long-term debt, net of current maturities		2,168,000			2,718,000
Total liabilities		9,878,000			9,910,000
Stockholders' equity:
Preferred stock, $.001 par value; authorized 1,500,000 shares; none issued or outstanding		—			—
Common stock, $.001 par value; authorized 8,000,000 shares; issued and outstanding 3,213,075		3,000			3,000
Additional paid-in capital		17,743,000			17,743,000
Accumulated deficit		(21,199,000	)		(20,658,000	)
Total stockholders' equity		(3,453,000	)		(2,912,000	)
Total liabilities and stockholders' equity	$	6,425,000		$	6,998,000

The accompanying notes are an integral part of the consolidated financial statements.

F-2

STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Fifty-Two			Fifty-Two
	Weeks			Weeks
	Ended			Ended
	January 28, 2019			January 29, 2018

Total revenues	$	26,036,000		$	26,525,000
Costs and expenses and other
Food costs		8,527,000			8,496,000
Labor costs		10,289,000			10,004,000
Occupancy and other expenses		5,388,000			5,640,000
General and administrative expenses		1,429,000			1,282,000
Depreciation and amortization		612,000			595,000
Total costs and expenses		26,245,000			26,017,000
Income from operations		(209,000	)		508,000

Interest expense		494,000			501,000
Gain on sale of assets		108,000			-
Other income		87,000			152,000
Income (loss) before income taxes		(508,000	)		159,000

Income tax provision (benefit)		33,000			30,000

Net income (loss)	$	(541,000	)	$	129,000

Net income (loss) per common share— basic and diluted	$	(0.17	)	$	0.04

Weighted average shares outstanding— basic and diluted		3,213,075			3,213,075

The accompanying notes are an integral part of the consolidated financial statements.

F-3

STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

	Common Stock				Additional Paid-In		Accumulated			Total Stockholders'
	Shares		Amount		Capital		Deficit			Equity
Balance at January 30, 2017		3,213,000	$	3,000	$	17,743,000	$	(20,787,000	)	$	(3,041,000	)
Net income		—		—		—		129,000			129,000
Balance at January 29, 2018		3,213,000	$	3,000	$	17,743,000	$	(20,658,000	)	$	(2,912,000	)
Net loss		—		—		—		(541,000	)		(541,000	)
Balance at January 28, 2019		3,213,000	$	3,000	$	17,743,000	$	(21,199,000	)	$	(3,453,000	)

The accompanying notes are an integral part of the consolidated financial statements.

F-4

STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fifty-Two			Fifty-Two
	Weeks			Weeks
	Ended			Ended
	January 28, 2019			January 29, 2018
Cash flows from operating activities:
Net income (loss)	$	(541,000	)	$	129,000
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		612,000			595,000
Gain on sale of assets		(108,000	)		-
Amortization of franchise, loan cost and licenses		5,000			5,000
Change in operating assets and liabilities:
Receivables, net		(7,000	)		21,000
Inventories		88,000			18,000
Prepaid expenses		2,000			(23,000	)
Deposits and other		15,000			(81,000	)
Deferred rent payable		69,000			52,000
Accounts payable-trade		145,000			(35,000	)
Income taxes payable		3,000			12,000
Other accrued liabilities		308,000			(67,000	)
Net cash provided by operating activities		591,000			626,000

Cash flows from investing activities:
Proceeds from the sale of assets		294,000			-
Acquisition of property, buildings and equipment		(289,000	)		(928,000	)
Net cash provided (used) in investing activities		5,000			(928,000	)

Cash flows from financing activities:
Payments on long term debt		(323,000	)		(325,000	)
Proceeds from issuance of long-term debt		-			285,000
Checks written in excess of bank balance		(238,000	)		138,000
Capitalized loan costs		-			(7,000	)
Net cash (used) provided in financing activities		(561,000	)		91,000

Net change in cash and cash equivalents		35,000			(211,000	)

Cash and cash equivalents at beginning of period		128,000			339,000

Cash and cash equivalents at end of period	$	163,000		$	128,000

The accompanying notes are an integral part of the consolidated financial statements.

F-5

STAR BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOT E 1 — A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of certain significant accounting policies not disclosed elsewhere in the footnotes to the consolidated financial statements are set forth below.

Basis of Presentation

Star Buffet, Inc., a Delaware corporation collectively with its subsidiaries, the (“Company”), is a multi-concept restaurant holding company. At January 28, 2019 it owned and operated 26 full-service restaurants. The Company’s restaurants operate under trade names which, with only one exception, are owned by the Company, and include 4B’s Restaurants, BuddyFreddys, Barnhill’s Salads Buffet Desserts, Casa Bonita and JB’s Restaurant. The Company has an executive office in Scottsdale, Arizona and management information systems in Salt Lake City, Utah.

The accompanying consolidated financial statements include the results of operations and assets and liabilities of the Company’s operations. Significant intercompany transactions and balances have been eliminated in consolidation.

Fiscal Year

The Company utilizes a 52/53-week fiscal year which ends on the last Monday in January. The first quarter of each fiscal year contains 16 weeks while the other three quarters each contain 12 weeks except in the 53-week fiscal year, when the fourth quarter has 13 weeks.

Organization and Nature of Operations

As of January 28, 2019, the Company, through seven independently capitalized subsidiaries, operated two Buffet restaurants and 24 non-Buffet restaurants. The Company also had four closed restaurants, two closed for remodeling and repositioning, one leased to a third-party operator and one used as a warehouse. The Company's restaurants are located in Arkansas, Arizona, Colorado, Florida, Idaho, Mississippi, Montana, New Mexico, Texas, Utah and Wyoming.

As of January 29, 2018, the Company, through seven independently capitalized subsidiaries, operated two Buffet restaurants and 23 non-Buffet restaurants. The Company also had five closed restaurants, three closed for remodeling and repositioning, one leased to a third-party operator and one used as a warehouse. The Company's restaurants are located in Arkansas, Arizona, Colorado, Florida, Idaho, Mississippi, Montana, New Mexico, Texas, Utah and Wyoming.

Cash Equivalents

Highly liquid investments with original maturities of three months or less when purchased are considered cash equivalents. Amounts receivable from credit card companies are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction. The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value. Checks written in excess of bank balances are recorded as a current liability on the accompanying consolidated balance sheets. The Company maintains cash in bank accounts which at times may exceed federally insured limits of $250,000 set by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in these bank accounts and believes it is not exposed to any significant risk on these balances.

F-6

Revenue Recognition

We recognize revenue, net of discounts and incentives, when payment is tendered at the point of sale. We report revenue net of sales-related taxes collected from customers and remitted to governmental taxing authorities. The Company defers all revenue on gift certificate sales until redeemed. The gift certificate liability is recorded in the Rent, licenses and other balance sheet account.

Our revenues consist of the following:

	January 28, 2019		January 29, 2018
Food & beverage	$	24,460,000	$	24,849,000
Alcohol		636,000		630,000
Gift & vending		940,000		1,046,000
Total Revenue	$	26,036,000	$	26,525,000

Our annual gift certificate activity is as follows:

	January 29, 2018							January 28, 2019
	Gift Certificate Liability		Gift Certificates Issued		Gift Certificates Redeemed			Gift Certificate Liability
Gift Certificates	$	18,700	$	33,100	$	(37,700	)	$	14,100

Receivables

Receivables are stated at an amount management expects to collect. Amounts deemed to be uncollectible are written off through a charge to earnings and a credit to a valuation allowance based on management’s assessment of the current status of individual balances. A receivable is written off when it is determined that all collection efforts have been exhausted. The Company did not have a valuation allowance as of January 28, 2019 and January 29, 2018. The account receivables balances as of January 28, 2019 and January 29, 2018 were comprised of the following:

	January 28, 2019		January 29, 2018
Trade receivables	$	66,000	$	19,000
Vendor rebates		80,000		131,000
Other		26,000		15,000
Total Receivables	$	172,000	$	165,000

Consideration Received from Vendors

The Company records vendor rebates on products purchased as a reduction of food costs. The rebates are recognized as earned in accordance with written agreements with vendors.

Inventories

Inventories consist of food, beverages, gift shop items and restaurant supplies and are valued at the lower of cost or market, determined by the first-in, first-out method.

F-7

Buildings and Equipment

Buildings and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the following useful lives:

	Years
Buildings	40
Leasehold improvements	15	-	20 ⁽¹⁾
Furniture, fixtures and equipment	5	-	8

(1)

Leasehold improvements are amortized over the lesser of the life of the lease or the estimated economic life of the assets. The life of the lease includes renewal options determined by management at lease inception as reasonably likely to be exercised. If a previously scheduled lease option is not exercised, any remaining unamortized leasehold improvements would be expensed immediately, which could result in a significant charge to operating results in that period.

Buildings and equipment placed on the market for sale is not depreciated and is recorded on the balance sheet as property held for sale and recorded at the lower of cost or market.

Repairs and maintenance are charged to operations as incurred. Major equipment refurbishments and remodeling costs are generally capitalized.

Other Intangible Assets

Other intangible assets consist of trademarks. The Company has recorded $34,000 and $33,000 value for trademarks for the years ended January 28, 2019 and January 29, 2018, respectively. These assets have an indefinite asset life and are subject to possible impairment on an annual basis or when triggering events occur in accordance with ASC 350. We also take into account the historical, current and future operating results of each reporting unit and any other facts and data pertinent to valuing the reporting units in our impairment test. Management has conducted its annual impairment analysis and has concluded that the assets are not impaired as of January 28, 2019.

	Gross		Accumulated
Fiscal 2019	Carrying Amount		Amortization			Net
Franchise and license fees	$	10,000	$	(10,000	)	$	—
Trademarks		34,000		-			34,000
	$	44,000	$	(10,000	)	$	34,000
Fiscal 2018
Franchise and license fees	$	10,000	$	(10,000	)	$	—
Trademarks		33,000		-			33,000
	$	43,000	$	(10,000	)	$	33,000

The Company holds no finite-lived intangibles as of January 28, 2019. Amortization of franchise and license fees amounted to $0 for both the fiscal years ending January 28, 2019 and January 29, 2018.

F-8

Impairment of Long-Lived Assets

The Company evaluates impairment of long-lived assets in accordance with ASC 360, “Property, Plant and Equipment”. The Company assesses whether an impairment write-down is necessary whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Any impairment is recognized as a charge to earnings which would adversely affect operating results in the affected period.

Fair Value of Financial Instruments

The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

●

Level 1 Inputs: Quoted prices for identical instruments in active markets.

●

Level 2 Inputs: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuation in which all significant inputs and significant value drivers are observable in active markets.

●

Level 3 Inputs: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The carrying amounts of the Company’s cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value because of the short maturity of these instruments. The carrying amounts of the Company’s notes receivable and long-term debt approximate fair value and are based on discounted cash flows using market rates at the balance sheet dates. The Company does not estimate the fair value of the note payable to officer because of the related party nature of the transaction.

Pre-Opening Costs

Pre-opening costs are expensed when incurred. The Company incurred and charged to operations approximately $7,000 and $11,000 of pre-opening costs during Fiscal 2019 and 2018.

Income Taxes

F-9

Our current provision for income taxes is based on our estimated taxable income in each of the jurisdictions in which we operate, after considering the impact on our taxable income of temporary differences resulting from disparate treatment of items, such as depreciation, estimated liability for closed restaurants, estimated liabilities for self-insurance, tax credits and net operating losses (“NOL”) for tax and financial reporting purposes. Deferred income taxes are provided for the estimated future income tax effect of temporary differences between the financial and tax bases of assets and liabilities using the asset and liability method. Deferred tax assets are also provided for NOL and income tax credit carryforwards. A valuation allowance to reduce the carrying amount of deferred income tax assets is established when it is more likely than not that we will not realize some portion or all of the tax benefit of our deferred income tax assets. We evaluate, on a quarterly basis, whether it is more likely than not that our deferred income tax assets are realizable based upon recent past financial performance, tax reporting positions, and expectations of future taxable income. The determination of deferred tax assets is subject to estimates and assumptions. We periodically evaluate our deferred tax assets to determine if our assumptions and estimates should change. As of January 28, 2019, the Company has $4.1 in deferred tax assets primarily from federal and state net operating loss carryforwards of $3.5 million and tax credit carryforwards of $600,000. A valuation allowance of $4.1 million has been recorded against the carryforwards that are not likely to be realized. These losses are being carried forward in jurisdictions where we are permitted to use tax losses from prior periods to reduce future taxable income and will expire primarily in 2030 and 2031. The Company in Fiscal 2018 had a full valuation allowance of $3.9 million against its deferred tax assets, net of expected reversals of existing deferred tax liabilities, as it believed it was more likely than not that these benefits will not have been realized. Accounting Standards Codification 740 (“ASC 740”) prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 requires recognition in the consolidated financial statements of the impact of an uncertain tax position, if it is more likely than not the tax position will be sustained upon examination based on the technical merits of the position. The Company does not have any uncertain tax positions that require recognition under ASC 740 as of January 28, 2019 and January 29, 2018. The continuing practice of the Company is to recognize interest and penalties related to income tax matters in the provision for income taxes.

Advertising Expenses

Advertising costs are charged to operations as incurred. Amounts charged to operations totaled $122,000 and $164,000 for the years ended January 28, 2019 and January 29, 2018, respectively.

Deferred Financing Fees

Deferred financing fees are amortized over of the life of a loan not exceed five years. Amounts charged to operations totaled $5,000 for the years ended January 28, 2019 and January 29, 2018, respectively.

Insurance Programs

Insurance and claims reserves	Balance at Beginning of Period		Expense Recorded		Payments Made		Balance at End of Period
Year ended January 28, 2019	$	16,000	$	1,964	$	464	$	17,500
Year ended January 29, 2018	$	10,000	$	6,536	$	536	$	16,000

Leases

The Company has lease commitments on certain restaurant locations. Expenses of operating leases with escalating payment terms are recognized on a straight-line basis over the term of the arrangements. Contingent rental payments are triggered when revenues exceed contractual thresholds. Contingent rental expense is recorded each period that revenue exceeds the contractual base. In situations where the contingent rent is based on annual sales or cumulative sales to date, contingent rental expense is recorded when it is determined that revenue will exceed the contractual thresholds.

F-10

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company routinely evaluates its estimates, including those related to receivables, insurance losses, income taxes, long-lived assets, inventories and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Earnings (Loss) per Share

The Company applies ASC 260, which requires the calculation of basic and diluted income (loss) per share. Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the fiscal year. Diluted income (loss) per share is computed on the basis of the average number of common shares outstanding plus the dilutive effect of outstanding stock options and warrants using the “treasury stock” method.

There were no outstanding options at the end of Fiscal 2019 or Fiscal 2018.

Stock-Based Compensation

The Company recognizes compensation costs relating to share-based payment transactions and the pro forma effects on earnings and earnings per share are disclosed as if the fair value approach had been adopted.

NOTE 2 — A PPLICATION OF NEW ACCOUNTING STANDARDS

F-11

NOTE 3 — MANAGEMENT UPDATE - OPERATIONS

Management has added several new locations over the past few years. The Company had a net loss of $541,000 in the year ending January 28, 2019, which management believes is due to certain increases in food and labor costs, which reduced the Company’s cash flow. Management intends to focus on reducing costs and increasing prices to return to profitability in Fiscal 2020. Management believes it can lower food and occupancy and other expenses in Fiscal 2020. Management expects a modest increase in labor costs due the tight labor market and increases in the minimum wages in many of the states in which it operates. Management intends to and deemed it probable to refinance long-term debt and sell some excess assets during the current fiscal year.

NOTE 4 — NOTES RECEIVABLE

The Company does not have notes receivable as of January 28, 2019 or January 29, 2018.

F-12

NOTE 5 — PROPERTY, BUILDINGS AND EQUIPMENT

The components of property, buildings and equipment used in restaurant operations are as follows:

	January 2 8 , 201 9			January 29 , 201 8
Property, buildings and equipment:
Furniture, fixtures and equipment	$	7,256,000		$	6,833,000
Land		750,000			750,000
Buildings and leasehold improvements		3,754,000			3,83,000
		11,760,000			11,436,000
Less accumulated depreciation and amortization		(7,360,000	)		(6,800,000	)
	$	4,400,000		$	4,636,000

The Company also had four closed restaurants, two closed for remodeling and repositioning, one leased to a third-party operator and one used as a warehouse. The components are as follows:

	January 28, 2019			January 29, 2018
Property, buildings and equipment leased to third parties:
Equipment	$	279,000		$	279,000
Land		-			-
Buildings and leaseholds		895,000			895,000
		1,174,000			1,174,000

Less accumulated depreciation and amortization		(778,000	)		(753,000	)
	$	396,000		$	421,000

	January 28, 2019			January 29, 2018
Property, buildings and equipment held for future use:
Equipment	$	550,000		$	553,000
Land		200,000			317,000
Buildings and leaseholds		1,316,000			1,656000
		2,066,000			2,526,000

Less accumulated depreciation and amortization		(1,302,000	)		(1,548,000	)
	$	764,000		$	978,000

Depreciation expense for Fiscal 2019 and 2018 totaled $612,000 and $595,000, respectively.

N OTE 6 — LONG-TERM DEBT

In recent years, the Company has financed operations and property acquisitions through a combination of cash on hand, bank borrowings, real estate mortgages and loans from the principal shareholders.

Real Estate Mortgages

F-13

During the fiscal year ended January 25, 2008, the Company borrowed approximately $1,400,000 from Mr. Wheaton, a principal shareholder, officer and director of the Company, for working capital requirements. The loan originally bore interest at 8.5%. In June 2008, the Company borrowed an additional $592,000 from Mr. Wheaton under the same terms. This resulted in an increase in the note balance from $1,400,000 to $1,992,000, the balance as of January 28, 2019 and January 29, 2018, respectively. The Company expensed $195,000 to Mr. Wheaton for interest during Fiscal 2019 and Fiscal 2018. The principal balance and any unpaid interest under the Mr. Wheaton note was due and payable in full on June 5, 2012. The loan was subsequently modified as a result of the Company’s bankruptcy filing and pursuant to the approved Bankruptcy Plan the principal balance was not eligible to be repaid until all obligations owed to other creditors have been fully satisfied. Interest accrued on the principal amount of $1,992,000 and the interest of $197,000 from September 28, 2011 to December 7, 2016 at the Bankruptcy Plan rate. When the Bankruptcy Court entered into a Final Decree and Order Closing the Bankruptcy Case of Star Buffet, Inc. on December 7, 2016 the Company reverted back to the original interest rate of 8.5%.

Mortgages described in the following table are secured by underlying real estate. Certain mortgages have interest rates that will change from fixed to variable in a future year.

Real Estate Mortgages							Current			Interest
	January 28,			January 29,			Maturity	Monthly		Rate
Lender	2019			2018			Date	Payment		(fixed)

J.I.L Kingman, LLC	$	284,000		$	345,000		7/1/22	$	5,304		6.0	%
Farmers Bank & Trust Company		515,000			530,000		4/13/33		4,274		5.5	%
Dalhart Federal Savings & Loan		355,000			367,000		8/1/35		2,866		6.25	%
Dalhart Federal Savings & Loan		399,000			412,000		11/1/35		3,201		6.25	%
Fortenberry's Beef of Magee, Inc. (1)		244,000			265,000		4/5/19		3,231		7.0	%
Hurt Development, LLC		532,000			560,000		5/1/31		5,063		6.0	%
Robert E. Wheaton		156,000			308,000		11/9/19		14,839		11.5	%
Total Real Estate Mortgages	$	2,485,000		$	2,787,000
Other Debt
Other Debt - Miscellaneous	$	253,000		$	269,000
Note Payable to Officer		1,992,000			1,992,000
Total Other Debt	$	2,245,000		$	2,261,000
TOTAL DEBT	$	4,730,000		$	5,048,000
Less Current Maturities		(570,000	)		(338,000	)
Less Note Payable to Officer		(1,992,000	)		(1,992,000	)
Long Term Debt, Net of Current Maturities and Note Payable to Officer	$	2,168,000		$	2,718,000

(1)

Refinanced for five years in April 2019.

Real estate mortgages, other debt and note payable to officer matures in fiscal years ending after January 28, 2019 as follows:

Fiscal Year
2020	$	570,000
2021		166,000
2022		186,000
2023		188,000
2024		113,000
Thereafter		3,507,000
Total	$	4,730,000

F-14

NO TE 7 — LEASES

The Company occupies certain restaurants under long-term operating leases expiring at various dates through 2042. Many leases have renewal options that extend for terms of 2 to 16 years from the terms of the original agreement. Substantially all require payment of real estate taxes, insurance and maintenance expenses. Certain leases require the rent to be the greater of a stipulated minimum rent or a specified percentage of sales. Certain operating lease agreements contain scheduled rent escalation clauses which are being amortized over the terms of the lease, ranging from 5 to 11 years using the straight line method.

Minimum lease payments for all leases as of January 28, 2019 are as follows:

Fiscal year	Operating
2020	$	1,343,000
2021		1,291,000
2022		1,261,000
2023		1,238,000
2024		1,239,000
Thereafter		16,777,000
Total minimum lease payments:	$	23,149,000

Aggregate rent expense under non-cancelable operating leases during Fiscal 2019 and 2018 were as follows:

	Fifty- T wo Weeks Ended January 2 8 , 201 9		Fifty-T wo Weeks Ended January 29 , 201 8
Minimum rentals	$	1,540,000	$	1,494,000
Straight-line rentals		69,000		52,000
Contingent rentals		14,000		71,000
	$	1,623,000	$	1,617,000

The Company will reduce the deferred rent liability for stores in the year that they were purchased or closed. There were no deferred rent expense for stores purchased or closed in 2019 and 2018.

The rental income for the property, buildings and equipment leased to third parties (Note 5) in Fiscal 2019 and Fiscal 2018 was $83,000 and $152,000, respectively. The Company leased two non-operating units and three non-operating units to tenants in Fiscal 2019 and Fiscal 2018, respectively. Rental income is recognized over the term of the lease and is included in other income in the accompanying statements of operations.

Future minimum lease payments receivable in fiscal years ending after January 28, 2019 are as follows:

Fiscal year
2020	$	78,000
2021		78,000
2022		33,000
2023		-
2024		-
Thereafter		-
Total minimum lease payments:	$	189,000

F-15

NOTE 8 — INCOME TAXES

Income tax provision (benefit) is comprised of the following:

	Fifty-T wo		Fifty-Two
	Weeks Ended		Weeks Ended
	January 28, 2019		January 29, 2018
Current:
Federal	$	—	$	20,000
State	$	33,000	$	10,000
	$	33,000	$	30,000
Deferred:
Federal	$	—	$	—
State		—		—
		—		—
	$	33,000	$	30,000

A reconciliation of income tax provision (benefit) at the federal statutory rate of 21% to the Company's provision (benefit) for taxes on income is as follows:

	Fifty-T wo			Fifty- T wo
	Weeks Ended			Weeks Ended
	January 28, 2019			January 29, 2018
Income tax provision (benefit) at statutory rate	$	(107,000	)	$	33,000
Increase (decrease) in valuation allowance		170,000			(1,987,000	)
State income taxes		6,000			2,000
All other, net	$	(36,000	)	$	1,982,000
	$	33,000		$	30,000

Temporary differences give rise to a significant amount of deferred tax assets and liabilities as set forth below:

	January 28, 2019			January 29, 2018
Deferred tax assets:
Accrued vacation	$	25,000		$	25,000
Accrued expenses and reserves		34,000			39,000
Net operating losses		3,454,000			3,166,000
Depreciation, amortization and impairments		(155,000	)		(32,000	)
Federal tax credits		595,000			590,000
Other		154,000			149,000
Total deferred tax assets		4,107,000			3,937,000
Valuation allowance		(4,107,000	)		(3,937,000	)
Deferred tax assets, net	$	—		$	—

Accounting policies dictate a valuation allowance must be provided when the Company believes it is more likely than not that the deferred tax benefit will not be utilized. Accounting policy also dictates that the determination of the value of deferred tax assets are subject to estimates and assumptions that are periodically evaluated. As of January 28, 2019, the Company has $4.1 million in deferred tax assets primarily from federal and state net operating loss carryforwards of $3.5 million and tax credit carryforwards of $600,000. A valuation allowance of $4.1 million has been recorded against the carryforwards that are not likely to be realized. The net operating losses in the amount of $12.4 million for federal and $15.3 for state are being carried forward in jurisdictions where we are permitted to use tax losses from prior periods to reduce future taxable income and will start to expire primarily in 2030 and 2031. In evaluating the need for a valuation allowance, we consider all available evidence, positive and negative, including cumulative historical earnings in recent years, future reversals of existing temporary differences, estimated future taxable income exclusive of reversing temporary differences on a jurisdictional basis and statutory expiration dates of NOL carryforwards.

F-16

NOTE 9 — STOCKHOLDERS’ EQUITY

Common Stock

Holders of Common Stock are entitled to one vote per share on all matters to be voted upon. Stockholders do not have cumulative voting rights. Subject to preferences that may be applicable to the holders of outstanding shares of Preferred Stock, if any, at the time, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefore. In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock shall be entitled to assets of the Company remaining after payment of the Company's liabilities and the liquidation preference, if any, of any outstanding Preferred Stock. All outstanding shares of Common Stock are fully paid and non-assessable. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock, which the Company may designate and issue in the future.

Preferred Stock

The Board of Directors has the authority, without further vote or action by the stockholders, to provide for the issuance of up to 1,500,000 shares of Preferred Stock from time to time in one or more series with such designations, rights, preferences and privileges and limitations as the Board of Directors may determine, including the consideration received therefore. The Board of Directors also has authority to determine the number of shares comprising each series, dividend rates, redemption provisions, liquidation preferences, sinking fund provisions, conversion rights and voting rights without approval by the holders of Common Stock. Although it is not possible to state all of the effects that any issuance of Preferred Stock might have on the rights of holders of Common Stock, the issuance of Preferred Stock may have one or more of the following effects: (i) to restrict the payment of dividends on the Common Stock, (ii) to dilute the voting power and equity interests of holders of Common Stock, (iii) to prevent holders of Common Stock from participating in any distribution of the Company's assets upon liquidation until any liquidation preferences granted to holders of Preferred Stock are satisfied, or (iv) to require approval by the holders of Preferred Stock for certain matters such as amendments to the Company's Certificate of Incorporation or any reorganization, consolidation, merger or other similar transaction involving the Company.

NOTE 1 0 — STOCK INCENTIVE PLAN

1997 Stock Incentive Plan

Our stock incentive plan expired in 2007, and there are no outstanding options or other awards under such plan.

NOTE 11 — SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

	Fifty- T wo		Fifty- T wo
	Weeks		Weeks
	Ended		Ended
	January 2 8 , 201 9		January 29 , 201 8
Cash paid for income taxes	$	31,000	$	18,000
Cash paid for interest		237,000		251,000
Non-cash investing and financing activities are as follows:
Exchange lease deposit for equipment	$	35,000	$	—

F-17

NOTE 12 — RELATED PARTY TRANSACTIONS

Mr. Wheaton currently beneficially owns approximately 46.7% of our total equity securities and possesses approximately 46.7% of the total voting power. Thus Mr. Wheaton has the ability to control or significantly influence all matters requiring the approval of our stockholders, including the election of nominees to our board of directors. During fiscal 2008, the Company borrowed approximately $1,400,000 from Mr. Wheaton. In June 2008, the Company borrowed an additional $592,000 from Mr. Wheaton under the same terms. This resulted in an increase in the note balance from $1,400,000 to $1,992,000, the balance as of January 28, 2019 and January 29, 2018. The principal balance and any unpaid interest was due and payable in full on June 5, 2012. The loan was subsequently modified as a result of the Company’s bankruptcy filing and pursuant to the Bankruptcy Plan the principal balance was not eligible to be repaid until all obligations owed to other creditors have been fully satisfied. Interest accrued on the principal amount of $1,992,000 and the interest of $197,000 from September 28, 2011 to December 7, 2016 at the Bankruptcy Plan rate. When the Bankruptcy Court entered into a Final Decree and Order Closing the Bankruptcy Case of Star Buffet, Inc. on December 7, 2016 the Company reverted back to the original interest rate of 8.5%. The Company expensed $195,000 to Mr. Wheaton for interest during both Fiscal 2019 and Fiscal 2018.

On November 9, 2016, the Company borrowed $450,000 from Mr. Wheaton to remodel the 4B’ Restaurant in Missoula, Montana. This obligation is included in the Real Estate Mortgages on a previous page. The three year fully amortized secured loan has monthly payments of $14,839 and interest rate of 11.5%. The Company paid Mr. Wheaton approximately $152,000 and $121,000 in principal in Fiscal 2019 and Fiscal 2018, respectively, under this mortgage. In addition, the Company paid approximately $26,000 and $42,000 in interest in Fiscal 2019 and Fiscal 2018, respectively.

During Fiscal 2019, Mr. Wheaton did not lease any new restaurants to the Company. During Fiscal 2018, Mr. Wheaton leased to the Company the Rancher’s Grill Steakhouse in Deming, New Mexico, the JB’s Restaurant in Coeur d’Alene, Idaho and the 4B’s Restaurant in Miles City, Montana. The Company also leases other restaurants from Mr. Wheaton. The Company paid to Mr. Wheaton $775,000 and $741,000 in rent for the Fiscal 2019 and Fiscal 2018, respectively. The Company owed to Mr. Wheaton $813,000 and $224,000 primarily for interest as of January 28, 2019 and January 29, 2018, respectively, which is included in the Rent, licenses and other and Payroll and related taxes in the accompanying balance sheet.

NOTE 13 — COMMITMENTS AND CONTINGENCIES

In connection with the Company’s employment contract with Mr. Wheaton, the Company’s Chief Executive Officer and President, the Company has agreed to pay Mr. Wheaton six years’ salary and bonus if he resigns related to a change of control of the Company or is terminated, unless the termination is for cause.

F-18

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