UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~May~~August 2113, 2018

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

For the transition period from _______ to ________

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 incorporation or organization)		(IRS Employer Identification Number)

2501 N. Hayden Road, Suite 103 ~~Scottsdale, AZ 85257 (Address of principal executive offices) (Zip Code) (480) 425-0454 (Registrant's telephone number, including area code)~~

Scottsdale, AZ 85257

(Address of principal executive offices) (Zip Code)

(480) 425-0454

(Registrant's telephone number, including area code)

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 ~~electronically and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes [X] No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	[X]
		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 revised 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 Act). Yes ☐ No [X]

Indicate by check mark whether the registrant has fled all documents and reports required to be filed by Sections 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 ☐

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of ~~June~~September 2718, 2018 there were 3,213,075 shares of Common Stock, $ .001 par value, outstanding.

STAR BUFFET, INC. AND SUBSIDIARIES

INDEX

	~~Page~~	Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Item 1.	Condensed Consolidated Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of May 21, 2018 and January 29, 2018	2
	Unaudited Condensed Consolidated Balance Sheets as of August 13, 2018 and January 29, 2018	2
Unaudited Condensed Consolidated Statements of Operations for the 16 weeks ended May 21, 2018 and May 22, 2017	3
	Unaudited Condensed Consolidated Statements of Operations for the 12 weeks ended August 13, 2018 and August 14, 2017	3
Unaudited Condensed Consolidated Statements of Cash Flows for the 16 weeks ended May 21, 2018 and May 22, 2017	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the 12 weeks ended August 13, 2018 and August 14, 2017	4
~~Notes to Unaudited Condensed Consolidated Financial Statements~~	5Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3. Quantitative and Qualitative Disclosures about Market Risk	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17
Item 4. Controls and Procedures	16
Item 4.	Controls and Procedures	17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	17
Item 1.	Legal Proceedings	18
Item 1A. Risk Factors	17
Item 1A.	Risk Factors	18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3. Defaults Upon Senior Securities	17
Item 3.	Defaults Upon Senior Securities	18
Item 4. Mine Safety Disclosures	17
Item 4.	Mine Safety Disclosures	18
Item 5. Other Information	17
Item 5.	Other Information	18
Item 6. Exhibits	17
Item 6.	Exhibits	18
Signatures	18	19

PART I: FINANCIAL INFORMATION

Item 1: Condensed Consolidated Financial Statements

STAR BUFFET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	May 21, 2018			January 29, 2018
	August 13, 2018			January 29, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	~~124~~137,000		$	128,000
Receivables, net		65363,000			165,000
Inventories		~~351~~327,000			342,000
Prepaid expenses		94121,000			39,000
Total current assets		~~634~~948,000			674,000
Property, buildings and equipment, net		65,~~020~~803,000			6,035,000
Other assets, net		259,000			256,000
Intangible assets, net		33,000			33,000
Total assets	$	67,~~946~~043,000		$	6,998,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable-trade	$	1,~~150~~144,000		$	869,000
Checks written in excess of bank balance		10108,000			238,000
Payroll and related taxes		1,~~514~~610,000			1,400,000
Sales and property taxes		~~506~~484,000			516,000
Rent, licenses and other		1719,~~104,~~000			980,000
Income tax payable		1121,000			32,000
Current maturities of obligations under long-term debt		~~579~~576,000			338,000
Total current liabilities		4,~~874~~662,000			4,373,000
Deferred Rent Payable		~~339~~359,000			317,000
Other long-term liabilities		~~432~~403,000			510,000
Note payable to officer		1,992,000			1,992,000
Long-term debt, net of current maturities		2,~~355~~284,000			2,718,000
Total liabilities		9,~~992~~700,000			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 and 3,213,075 shares		3,000			3,000
Additional paid-in capital		17,743,000			17,743,000
Accumulated deficit		(20,~~792~~403,000	)		(20,658,000	)
Total stockholders’ equity		(32,~~046~~657,000	)		(2,912,000	)
Total liabilities and stockholders’ equity	$	67,~~946~~043,000		$	6,998,000

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

STAR BUFFET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Sixteen Weeks Ended
	Twelve Weeks Ended						Twenty-eight Weeks Ended
	May 21, 2018			May 22, 2017
	August 13,			August 14,			August 13,			August 14,
Total revenues	$	7,595,000		$	8,263,000
	2018			2017			2018			2017
Costs, expenses and other
Total revenues	$	7,251,000		$	7,412,000		$	14,846,000		$	15,675,000
Food costs		2,508,000			2,664,000
Costs, expenses and other
Labor costs		2,939,000			3,069,000
Food costs		2,259,000			2,317,000			4,767,000			4,981,000
Occupancy and other expenses		1,616,000			1,662,000
Labor costs		2,692,000			2,669,000			5,631,000			5,738,000
General and administrative expenses		348,000			458,000
Occupancy and other expenses		1,355,000			1,441,000			2,971,000			3,103,000
Depreciation and amortization		183,000			175,000
General and administrative expenses		320,000			283,000			668,000			741,000
Total costs, expenses and other		7,594,000			8,028,000
Depreciation and amortization		133,000			131,000			316,000			306,000
Income from operations		1,000			235,000
Total costs, expenses and other		6,759,000			6,841,000			14,353,000			14,869,000
Interest expense		152,000			157,000
Income from operations		492,000			571,000			493,000			806,000
Other income		27,000			48,000
Interest expense		115,000			120,000			267,000			277,000
(Loss) income before income taxes		(124,000	)		126,000
Other income		22,000			34,000			49,000			82,000
Income tax provision		(10,000	)		(10,000	)
Income before income taxes		399,000			485,000			275,000			611,000
Net (loss) income	$	(134,000	)	$	116,000
Income tax provision		(10,000	)		(20,000	)		(20,000	)		(30,000	)
Net (loss) income per common share – basic and diluted	$	(0.04	)	$	0.04
Net income	$	389,000		$	465,000		$	255,000		$	581,000
Weighted average shares outstanding – basic and diluted		3,213,075			3,213,075
Net income per common share – basic and diluted	$	0.12		$	0.14		$	0.08		$	0.18
Weighted average shares outstanding – basic and diluted		3,213,075			3,213,075			3,213,075			3,213,075

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

STAR BUFFET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Sixteen Weeks Ended
	Twenty-eight Weeks Ended
	May 21, 2018			May 22, 2017
	August 13, 2018			August 14, 2017
Cash flows from operating activities:
Net (loss) income	$	(134,000	)	$	116,000
Net income	$	255,000		$	581,000
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		~~183~~316,000			~~175~~306,000
Amortization of franchise, loan cost, licenses and other		23,000			23,000
Change in operating assets and liabilities:
Receivables, net		~~100~~(198,000	)		~~148~~140,000
Inventories		(915,000	)		(3044,000	)
Prepaid expenses		(5582,000	)		(3257,000	)
Deposits and other		(3,000	)		(862,000	)
Deferred rent payable		2242,000			217,000
Accounts payable-trade		~~281~~275,000			(522,000	)
Income taxes payable		(2111,000	)		(212,000	)
Other accrued liabilities		~~148~~(79,000	)		(~~287~~332,000	)
Net cash provided by operating activities		~~514~~533,000			79542,000
Cash flows from investing activities:
Acquisition of property, buildings and equipment		(~~168~~198,000	)		(~~368~~576,000	)
Net cash (used) in investing activities		(~~168~~198,000	)		(~~368~~576,000	)
Cash flows from financing activities:
Checks written in excess of bank balance		(~~228~~130,000	)		(4100,000	)
Proceeds from the issuance of long-term debt		-			~~235~~285,000
Payments on long term debt		(~~122~~196,000	)		(~~121~~190,000	)
Capitalized loan costs		-			(7,000	)
Net cash (used) provided in financing activities		(350,000	)		103,000
Net cash (used) in financing activities		(326,000	)		(12,000	)
Net change in cash and cash equivalents		(49,000	)		(~~186~~46,000	)
Cash and cash equivalents at beginning of period		128,000			339,000
Cash and cash equivalents at end of period	$	~~124~~137,000		$	~~153~~293,000
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	73128,000		$	78140,000
Income taxes	$	31,000		$	1218,000

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

Note 1 – Description of Business and Nature of Operations

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. At August ~~May 21~~13, 2018, the Company operated 2627 full-service restaurants. The Company’s restaurant located in Kalispell, Montana isthat was temporarily closed due to fire damage ~~and~~reopened ison June ~~scheduled~~29, ~~to reopen in July~~ 2018. During the ~~first~~second quarter of fiscal year ending January 28, 2019 (“Fiscal 2019”), the Company also had an additional five restaurants that were not in operation. Three restaurants were closed for remodeling and repositioning, one was leased to a third-party operator and one was used as a warehouse. The Company’s restaurants operate under trade names which, ~~with~~are ~~only~~owned ~~one~~or ~~exception,~~licensed ~~are~~from others. Certain of the restaurant brands owned and operated by the Company ~~and~~ include 4B’s Restaurants®, BuddyFreddys®, Barnhill’s Salads Buffet Desserts®, Casa Bonita®, Pecos Diamond Steakhouse and ~~JB’s~~Frosty ~~Restaurant~~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 an accounting office in Salt Lake City, Utah.

Note 2 – Significant Accounting Policies

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with United States generally accepted accounting principles (“US GAAP”), the instructions to Form 10-Q and Article 10 of Regulation S-X. These financial statements should be read in conjunction with the audited consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2018 (the “2018 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the 2018 Form 10-K. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates. In the opinion of the Company’s management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation of the interim financial statements have been included.

a) Principles of Consolidation

The condensed consolidated financial statements include the consolidated operations of the Company and its subsidiaries through August ~~May 21~~13, 2018. 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 the fourth quarter has 13 weeks if the fiscal year has 53 weeks. All significant intercompany balances and transactions have been eliminated in consolidation.

b) Earnings or Loss Per Common Share

Basic earnings or loss per common share is computed on the basis of the weighted average number of shares outstanding during the periods. Diluted earnings or loss per common share is calculated based on the weighted-average number of common shares outstanding during the period plus the effect of dilutive common stock equivalents, if any, outstanding during the period. Dilutive stock options are considered to be common stock equivalents and are included in the diluted calculation using the treasury stock method. The Company did not have any dilutive stock options as of August ~~May 21~~13, 2018 or August ~~May 22~~14, 2017.

c) 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 valuations 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 approximate 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 its Chief Executive Officer because of the related party nature of the transaction.

d) Inventories

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

e) 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. The Company did not record impairment expense associated with restaurant facilities for the sixteen weeks ended August ~~May 21~~13, 2018 and August ~~May 22~~14, 2017.

f) ~~Building~~Buildings and Equipment

~~Building~~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
Building		40
Buildings		40
Leasehold improvements	15	-	20(1)	~~(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 may 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.

The components of property, buildings and equipment as of May 21, 2018 consist of 26 operating restaurant properties, one restaurant property that is leased to third party, three non-operating restaurants that remain closed for remodeling and repositioning and one non-operating property that is used as warehouse for equipment. The restaurant in Kalispell, Montana is temporarily closed due to fire damage and is scheduled to reopen in July 2018. The components of property, buildings and equipment as of January 29, 2018 consisted of 25 operating restaurant properties, one restaurant property that is leased to a third party, three non-operating restaurants that remain closed for remodeling and repositioning and one non-operating property that is used as warehouse for equipment. The Company recorded depreciation expense of $183,000 and $175,000 for the sixteen weeks ended May 21, 2018 and May 22, 2017, respectively. 6

	May 21, 2018						January 29, 2018
Property, building and equipment:			Accum.						Accum.
	Cost		Depr.		Net		Cost		Depr.		Net
Operating	$	11,604,000	$	6,967,000	$	4,637,000	$	11,436,000	$	6,800,000	$	4,636,000
Leased		1,174,000		761,000		413,000		1,174,000		753,000		421,000
Held for Future Use		2,526,000		1,556,000		970,000		2,526,000		1,548,000		978,000
Total	$	15,304,000	$	9,284,000	$	6,020,000	$	15,136,000	$	9,101,000	$	6,035,000

The components of property, buildings and equipment as of August 13, 2018 consist of 27 operating restaurant properties, one restaurant property that is leased to third party, three non-operating restaurants that remain closed for remodeling and repositioning and one non-operating property that is used as warehouse for equipment. The Company’s restaurant located in Kalispell, Montana that was temporarily closed due to fire damage reopened on June 29, 2018. The Company has settled with the insurance carrier regarding the Kalispell fire loss and recorded $224,000 in accounts receive as of August 13, 2018. The components of property, buildings and equipment as of January 29, 2018 consisted of 25 operating restaurant properties, one restaurant property that is leased to a third party, three non-operating restaurants that remain closed for remodeling and repositioning and one non-operating property that is used as warehouse for equipment. The Company recorded depreciation expense of $316,000 and $306,000 for the twenty-eight weeks ended August 13, 2018 and August 14, 2017, respectively.

August 13, 2018

January 29, 2018

Property, building and equipment:

Accum.

Cost

Depr.

Net

Cost

Depr.

Net

Operating

11,520,000

7,090,000

4,430,000

11,436,000

6,800,000

4,636,000

Leased

1,174,000

768,000

406,000

1,174,000

753,000

421,000

Held for Future Use

2,526,000

1,559,000

967,000

2,526,000

1,548,000

978,000

Total

15,220,000

9,417,000

5,803,000

15,136,000

9,101,000

6,035,000

g) Other Assets

Other assets consist of deposits.

h) Intangible Assets

The Company’s intangible assets consist of trademarks as of August ~~May 21~~13, 2018 and January 29, 2018. Trademark assets have an indefinite asset life. The Company assesses whether an intangible asset impairment write-down is necessary on annual basis or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

i) Segment Reporting

All of the brands the Company operates are in the U.S. within the full-service restaurant industry and provide similar products to similar customers and, therefore, are considered to be one segment for reporting purposes. 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.

j) 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 Rent, licenses and other on the balance sheet.

January 29, 2018

August 13, 2018

Gift Certificate

Liability

Gift Certificates

Issued

Gift Certificates Redeemed

Gift Certificate

Liability

Gift Certificates

18,700

13,800

(20,700

)

11,800

k) Income Taxes

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. Currently, the Company has a full valuation allowance against its deferred tax asset, net of expected reversals of existing deferred tax liabilities.

l) Recent Accounting Pronouncements

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 16-weeks ending May 21, 2018, 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. While early adoption is permitted, the Company has ~~not yet~~ selected a transition date ~~nor~~of January ~~have~~29, we2019. ~~determined~~We are evaluating the effect ofthis ~~the~~new ~~standard~~guidance will have on our ~~ongoing~~consolidated financial ~~reporting~~statements and related disclosures.

In July ~~August 2016~~2018, the FASB issued Accounting Standards Update ~~2016~~2018-1511, ~~Statement~~Leases ~~of Cash Flows~~ (Topic ~~230~~842). This update provides ~~clarification~~entities ~~regarding~~with ~~how~~an ~~certain~~additional ~~cash receipts~~ (and ~~cash~~optional) ~~payments~~transition ~~are~~method ~~presented~~to ~~and~~adopt ~~classified~~the innew ~~the~~leases ~~statement~~standard. ofUnder ~~cash~~this ~~flows.~~method, ~~This~~an ~~update~~entity ~~addresses~~initially ~~eight~~applies ~~specific~~the ~~cash~~new ~~flow~~leases ~~issues~~standard ~~with~~at the ~~objective~~adoption ofdate ~~reducing~~and ~~the~~recognizes ~~existing~~a ~~diversity~~cumulative-effect inadjustment ~~practice.~~to ~~This~~the ~~update~~opening isbalance ~~effective~~of ~~for~~retained ~~annual~~earnings ~~and~~in ~~interim~~the ~~periods~~period ~~beginning~~of ~~after~~adoption. ~~December 15~~Consequently, ~~2017,~~the ~~which~~prior comparative period’s financials will ~~require~~remain usthe tosame ~~adopt~~as ~~these~~those ~~provisions~~previously inpresented. ~~the~~Entities ~~first~~that ~~quarter~~elect ofthis ~~fiscal~~optional ~~2019~~transition ~~using~~method amust ~~retrospective~~provide ~~approach.~~the Wedisclosures dothat ~~not~~were ~~expect~~previously ~~the~~required. ~~adoption~~The ofCompany ~~this~~will ~~guidance~~adopt tothis ~~have~~transition amethod ~~material~~in ~~impact~~the onfirst ~~our~~quarter ~~consolidated~~of ~~financial~~fiscal ~~statements~~2020.

Note 3 – Related Party Transactions

Robert E. 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 August ~~May 21~~13, 2018 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 plan of reorganization approved by the Bankruptcy Court on December 17, 2012 (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 $1,991,936 and the interest of $196,957 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 $60105,000 to Mr. Wheaton for interest during the first two quarters of Fiscal 2019 and the first two quarters fiscal year ending January 29, 2018 (“Fiscal 2018”).

On November 9, 2016, the Company borrowed $450,000 from Mr. Wheaton to remodel the 4B’ Restaurant in Missoula, Montana. 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 $5181,~~400~~100 and $4366,~~500~~000 in principal during the first two quarters of Fiscal 2019 and Fiscal 2018, respectively, under this mortgage. In addition, the Company paid approximately $813,~~000~~900 and $1523,~~800~~000 in interest during the first two quarters of Fiscal 2019 and Fiscal 2018, respectively.

The Company did not lease any new restaurants from Mr. Wheaton during Fiscal 2019. 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 $258,000 and $229,000 in rent during the first quarters of Fiscal 2019 and Fiscal 2018, respectively. The Company owes Mr. Wheaton $366,000 and $224,000 primarily for interest as of May 21, 2018 and January 29, 2018, respectively.

The Company has not leased any new restaurants from Mr. Wheaton during Fiscal 2019. 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 $451,000 and $419,000 in rent during the first two quarters of Fiscal 2019 and Fiscal 2018, respectively. The Company owes Mr. Wheaton $366,000 and $225,000 primarily for interest as of August 13, 2018 and January 29, 2018, respectively.

Note 4 - Long-Term Debt

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

	May 21, 2018		May 21, 2018		January 29, 2018		January 29, 2018
	August 13, 2018		August 13, 2018		January 29, 2018		January 29, 2018
Type of Debt (1)	Total Debt		Current Portion		Total Debt		Current Portion
Real Estate Mortgages	$	2,~~673~~606,000	$	561,000	$	2,787,000	$	315,000
Other-Miscellaneous		~~261~~254,000		1815,000		269,000		23,000
Note Payable to Officer		1,992,000		-		1,992,000		-
Total Debt	$	4,~~926~~852,000	$	~~579~~576,000	$	5,048,000	$	338,000

(1) The interest rates range from 6% to 11.5%. The maturity dates of the obligations range from ~~July~~April ~~2018~~2019 to October 2035.

Note 5 - 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 three years of his salary plus bonus if he resigns related to a change of control of the Company, termination by the Company without cause or resignation for good reason.

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 claim for $900,000 payable over five years at five percent interest. The outstanding balance was $~~608~~581,000 and $683,000 as of August ~~May 21~~13, 2018 and January 29, 2018, respectively.

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.

Note 6 - Subsequent Events

~~On May 24, 2018, the Company’s 4B’s Holdings, Inc~~None. subsidiary acquired the Frosty Freez in Big Timber, Montana. The transaction included a long-term lease with an option to buy the associated restaurant facility. The restaurant opened on June 1, 2018. The Company plans to convert the property to a 4B’s-Frosty Freez Restaurant.

STAR BUFFET, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis should be read in conjunction with the unaudited condensed consolidated financial statements, and the notes thereto, presented elsewhere in this report and the audited consolidated financial statements of Star Buffet, Inc., a Delaware corporation (the “Company,” “we” or “us”), and Management’s Discussion and Analysis included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2018 (the “2018 Form 10-K”). Comparability of periods may be affected by the closure of restaurants or the implementation of the Company’s acquisition and strategic alliance strategies. The costs associated with integrating new restaurants or closing under-performing or unprofitable restaurants, if any, may have a material adverse effect on the Company’s results of operations in any individual period.

This Quarterly Report on Form 10-Q (this “Report”)contains forward looking statements, which are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the following: general economic and business conditions; success of integrating newly acquired under-performing or unprofitable restaurants; the impact of competitive products and pricing; success of operating initiatives; advertising and promotional efforts; adverse publicity; changes in business strategy or development plans; quality of management; availability, terms and deployment of capital; changes in prevailing interest rates and the availability of financing; food, labor, and employee benefits costs; changes in, or the failure to comply with, government regulations; weather and wildfire conditions; construction schedules; implementation of the Company’s acquisition and strategic alliance strategy; the effect of the Company’s accounting policies and other risks detailed in Item 1A of the 2018 Form 10-K, and other filings with the Securities and Exchange Commission. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All 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.

Executive Summary

Star Buffet, Inc. is a multi-concept restaurant holding company. The Company was incorporated on July 28, 1997. At ~~May~~August 2113, 2018 the Company operated 2627 full-service restaurants. The Company’s restaurant located in Kalispell, Montana isthat was temporarily closed due to fire damage ~~and~~reopened ison ~~scheduled~~June to29, ~~reopen in July~~ 2018. During the ~~first~~second quarter of fiscal year ending January 28, 2019 (“Fiscal 2019”), the Company also had an additional five restaurants that were not in operation. Three restaurants were closed for remodeling and repositioning, one was leased to a third-party operator and one was used as a warehouse. The Company’s restaurants operate under trade names which, ~~with~~are ~~only~~owned ~~one~~or ~~exception,~~licensed ~~are~~from others. Certain of the restaurant brands owned and operated by the Company ~~and~~ include 4B’s Restaurants®, BuddyFreddys®, Barnhill’s Salads Buffet Desserts®, Casa Bonita®, Pecos Diamond Steakhouse and ~~JB’s~~Frosty ~~Restaurant~~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 an accounting office in Salt Lake City, Utah.

Recent Developments

Please refer to Note 6 – Subsequent Events in the Company’s Notes to Unaudited Condensed Consolidated Financial Statements for recent developments.

The following table summarizes the Company’s results of operations as a percentage of total revenues for the 1612 and 28 weeks ended ~~May~~August 14, 2017 and August 14, 2017, respectively.

21, 2018 and May 22, 2017, respectively.

	Twelve Weeks Ended						Twenty-eight Weeks Ended
	August 13,			August 14,			August 13,			August 14,
	2018			2017			2018			2017
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%

Costs, expenses and other
Food costs		31.2			31.3			32.1			31.8
Labor costs		37.1			36.0			37.9			36.6
Occupancy and other expenses		18.7			19.4			20.0			19.8
General and administrative expenses		4.4			3.8			4.5			4.7
Depreciation and amortization		1.8			1.8			2.1			2.0
Total costs, expenses and other		93.2			92.3			96.6			94.9

Income from operations		6.8			7.7			3.4			5.1

Interest expense		1.6			1.6			1.8			1.7
Other income		0.3			0.5			0.3			0.5
Income before income tax		5.5			6.6			1.9			3.9


Income tax provision		0.1			0.3			0.1			0.2
Net income		5.4	%		6.3	%		1.8	%		3.7	%

	Sixteen Weeks Ended
	May 21, 2018			May 22, 2017
Total revenues		100.0	%		100.0	%
Costs, expenses and other
Food costs		33.0			32.2
Labor costs		38.7			37.1
Occupancy and other expenses		21.3			20.1
General and administrative expenses		4.6			5.5
Depreciation and amortization		2.4			2.1
Total costs, expenses and other		100.0			97.0
Income from operations		0.0			3.0
Interest expense		2.0			1.9
Other income		0.4			0.6
Income before income taxes		(1.6	)		1.7
Income tax provision		(0.1	)		(0.1	)
Net income (loss)		(1.7	)%		1.6	%

The table below outlines the number of operating and non-operating restaurants by the Company as of August 13, 2018 and January 29, 2018.

The table below outlines the number of operating and non-operating restaurants by the Company as of May 21, 2018 and January 29, 2018.

	August 13, 2018		January 29, 2018
Operating Restaurants:
4B’s ^{(1) (2)}		15		13
JB’s		5		5
Steakhouses ⁽³⁾		4		4
Buffets ⁽⁴⁾		2		2
Casa Bonita		1		1
		27		25
Non-Operating Restaurants:
Leased to Third Parties		1		1
Warehouse		1		1
Held for Future Use		3		3
		5		5
Total		32		30

	May 21, 2018		January 29, 2018
Operating Restaurants:
4B’s (1) (2)		14		13
JB’s		5		5
Steakhouses (3)		4		4
Buffets (4)		2		2
Casa Bonita		1		1
		26		25
Non-Operating Restaurants:
Leased to Third Parties		1		1
Warehouse		1		1
Held for Future Use		3		3
		5		5
Total		31		30

(1)

Includes one Frosty Freez restaurant, one Antler’s restaurant and one 4 Aces’ restaurant.

(1) Includes one Finnegan’s restaurant, one Antler’s restaurant and one 4 Aces’ restaurant.

(2)

The 4B’s Café in Deer Lodge Montana operates seasonally from approximately May to September.

(3) Includes two Pecos Diamond, one Bar H and one Rancher’s Grill restaurants.

(4)

Includes one Barnhill’s Salads Buffet Desserts restaurant and one BuddyFreddys restaurant.

~~Sixteen~~Twelve Weeks Ended ~~May~~August 2113, 2018 compared to ~~Sixteen~~Twelve Weeks Ended ~~May~~August 2214, 2017

Overview - The Company has a consolidated net ~~loss~~income for the 1612-week period ended ~~May~~August 2113, 2018 of $~~(134~~389,000) or $(0.~~04)~~12 per diluted share as compared with net income of $~~116~~465,000 or $0.0414 per diluted share for the 1612 weeks end ~~May~~August 2214, 2017, a decrease of approximately $~~250~~76,000 from the comparable prior fiscal year period. The decrease in ~~operations~~net income was primarily from the result of approximately $~~276~~79,000 decrease from income from operations due primarily to a $~~668~~160,000 decrease in revenues and higher ~~food,~~ labor ~~and occupancy~~ costs as a percentage of revenues.

Revenues - Total revenues decreased by approximately $~~668~~161,000, or 82.12%, from $87.34 million in the 1612 weeks ended ~~May~~August 2214, 2017 to $7.63 million in the 1612 weeks ended ~~May~~August 2113, 2018. The decrease in revenues was primarily the result of an approximately $~~411~~237,000 decrease in revenue ~~for~~from the closure of two restaurants plus the temporary closure of one restaurant and an approximately $~~633~~349,000 or 85.21% decrease in comparable same store sales. The decrease in revenues was partially offset by approximately $~~376~~425,000 attributable to the opening of one restaurant in Fiscal 2019 and three restaurants in the fiscal year ending January 29, 2018 (“Fiscal 2018”).

Food Costs - Food costs as a percentage of total revenues ~~increased~~decreased from 3231.23% during the 1612-week period ended ~~May~~August 2214, 2017 to 3331.02% during the 1612-week period ended ~~May~~August 2113, 2018. The food cost ~~increased~~decreased in the ~~first~~second quarter of Fiscal 2019 as compared to the same period in Fiscal 2018 as a percentage of sales primarily from slightly ~~higher~~lower wholesale costs and ~~$668,000 in~~ lower revenue in the ~~first~~second quarter of Fiscal 2019 compared to the ~~first~~second quarter of Fiscal 2018.

Labor - Labor costs as a percentage of total revenues increased from 3736.10% during the 1612-week period ended ~~May~~August 2214, 2017 to 3837.71% during the 1612-week period ended ~~May~~August 2113, 2018. The increase as a percentage of total revenues was primarily attributable to a higher minimum wages in the States of Arizona, Colorado, Florida and Montana and $~~668~~161,000 in lower revenue in the ~~first~~second quarter of Fiscal 2019 compared to the ~~first~~second quarter of Fiscal 2018.

Occupancy and Other Expenses - Occupancy and other expenses as a percentage of total revenues ~~increased~~decreased from 2019.14% during the 1612-week period ended ~~May~~August 2214, 2017 to 2118.37% during the 1612-week period ended ~~May~~August 2113, 2018. The ~~increase~~decrease as a percentage of total revenues was primarily attributable to alower ~~higher~~ rent and repair expense in ~~first~~second quarter of Fiscal 2019 compared to same period in Fiscal 2018. The lower rent was primarily attributable to a rent reimbursement regarding the fire in Kalispell. Occupancy and other expense decreased approximately $4686,000 in the ~~16-week~~second ~~period~~quarter ~~ended~~of ~~May~~Fiscal ~~21,~~ 2018 primarily due to the decrease of $~~668~~161,000 in revenues inand lower rent and repair expense in the ~~first~~second quarter of Fiscal 2019 compared the same period in Fiscal 2018.

General and Administrative Expenses - General and administrative expense as a percentage of total revenues ~~decreased~~increased from 53.58% during the 1612-week period ended ~~May~~August 2214, 2017 to 4.64% during the 1612-week period ended ~~May~~August 2113, 2018. General and administrative expense ~~decreased~~increased from $~~458~~283,000 during the 1612-week period ended ~~May~~August 2214, 2017 to $~~348~~320,000 during the 1612-week period ended ~~May~~August 2113, 2018. The ~~decrease~~increase was primarily attributable to ~~lower~~higher ~~insurance~~legal costs in ~~first~~second quarter of Fiscal 2019 compared same period in Fiscal 2018.

Depreciation and Amortization - Depreciation and amortization expense increased from $~~175~~131,000 during the 1612-week period ended ~~May~~August 2214, 2017 to $~~183~~133,000 during the 1612-week period ended ~~May~~August 2113, 2018. The increase was primarily attributable to additional restaurants acquired.

Interest Expense - Interest expense decreased from $~~157~~120,000 during the 1612-week period ended ~~May~~August 2214, 2017 to $~~152~~115,000 during the 1612-week period ended ~~May~~August 2113, 2018. The decrease was attributable to lower debt balance primarily relating to loans for the purchase and remodel of the 4B’s restaurant in Missoula, Montana in the 1612-week period ended ~~May~~August 2113, 2018 as compared to the 1612-week period ended ~~May~~August 2214, 2017.

Other Income - Other income is primarily rental income from the Company’s leased properties. Rental income was $2734,000 for ~~two~~three properties leased for the 1612-week period ended ~~May~~August 2114, ~~2018~~2017. Rental income was $4822,000 for ~~three~~two properties leased for the 1612-week period ended ~~May~~August 2213, ~~2017~~2018. Rental income was adversely impacted by the loss of one tenant.

Income Taxes - The income tax provision totaled $1020,000 for the 1612-week period ended ~~May~~August 2114, ~~2018~~2017 and $10,000 for the 1612-week period ended ~~May~~August 2213, ~~2017~~2018. The Company has net deferred income tax assets of $0 on ~~May~~August 2113, 2018 and January 29, 2018. The Company has a net operating loss for tax and financial reporting purposes. The Company has full valuation against its existing deferred tax assets as of ~~May~~August 2113, 2018.

Twenty-eight Weeks Ended August 13, 2018 compared to Twenty-eight Weeks Ended August 14, 2017

Overview - The Company has a consolidated net income for the 28-week period ended August 13, 2018 of $255,000 or $0.08 per diluted share as compared with net income of $581,000 or $0.18 per diluted share for the 28-weeks ended August 14, 2017, a decrease of approximately $326,000 from the comparable prior fiscal year period. The decrease in net income was primarily from the result of approximately $313,000 decrease from income from operations due primarily to a $829,000 decrease in revenues and higher food and labor costs as a percentage of revenues.

Revenues - Total revenues decreased by approximately $829,000, or 5.3%, from $15.7 million in the 28 weeks ended August 14, 2017 to $14.8 million in the 28 weeks ended August 13, 2018. The decrease in revenues was primarily the result of an approximately $648,000 decrease in revenue from the closure of two restaurants plus the temporary closure of one restaurant and an approximately $946,000 or 6.5% decrease in comparable same store sales. The decrease in revenues was partially offset by approximately $765,000 attributable to the opening of two restaurants in Fiscal 2019 and three restaurants in Fiscal 2018.

Food Costs - Food costs as a percentage of total revenues increased from 31.8% during the 28-week period ended August 14, 2017 to 32.1% during the 28-week period ended August 13, 2018. The food cost decreased in the current fiscal year as compared to the same period in the prior year as a percentage of sales primarily from stable wholesale costs and higher guest check average in Fiscal 2018 as compared to Fiscal 2017. Food costs decreased by approximately $214,000 in the 28-week period ended August 13, 2018 compared to the same period ended August 14, 2017 primarily due a $829,000 decrease in revenues.

Labor - Labor costs as a percentage of total revenues increased from 36.6% during the 28-week period ended August 14, 2017 to 37.9% during the 28-week period ended August 13, 2018. The increase as a percentage of total revenues was primarily attributable to a higher minimum wages in the States of Arizona, Colorado, Florida and Montana and $829,000 in lower revenue in the first two quarters of Fiscal 2019 compared to the first two quarters of Fiscal 2018.

Occupancy and Other Expenses - Occupancy and other expenses as a percentage of total revenues increased from 19.8% during the 28-week period ended August 14, 2017 to 20.0% during the 28-week period ended August 13, 2018. The increase as a percentage of total revenues was primarily attributable to a higher rent expense in first two quarters of Fiscal 2019 compared to same period in Fiscal 2018. Occupancy and other expense decreased approximately $132,000 in the 28-week period ended August 13, 2018 primarily due to the decrease of $829,000 in revenues in the first two quarters of Fiscal 2019 compared the same period in Fiscal 2018.

General and Administrative Expenses - General and administrative expense as a percentage of total revenues decreased from 4.7% during the 28-week period ended August 14, 2017 to 4.5% during the 28-week period ended August 13, 2018. General and administrative expense decreased from $741,000 during the 28-week period ended August 14, 2017 to $668,000 during the 28-week period ended August 14, 2017. The decrease as a percentage of total revenues was primarily due to a decrease in insurance expense in the first two quarters of Fiscal 2019 compared the same period in Fiscal 2018.

Depreciation and Amortization - Depreciation and amortization expense increased from $306,000 during the 28-week period ended August 14, 2017 to $316,000 during the 28-week period ended August 13, 2018. The increase was primarily attributable to additional restaurants acquired.

Interest Expense - Interest expense decreased from $277,000 during the 28-week period ended August 14, 2017 to $267,000 during the 28-week period ended August 13, 2018. The decrease was attributable to lower debt balance primarily relating to loans for the purchase and remodel of the 4B’s restaurant in Missoula, Montana in the 28-week period ended August 13, 2018 as compared to the 28-week period ended August 14, 2017.

Other Income - Other income consists primarily of rental income from the Company’s leased properties. Rental income was $82,000 for three properties leased for the 28-week period ended August 14, 2017. Rental income was $49,000 for two properties leased for the 28-week period ended August 13, 2018. Rental income was adversely impacted by the loss of one tenant.

Income Taxes - The income tax provision totaled $30,000 for the 28-week period ended August 14, 2017 and $20,000 for the 28-week period ended August 13, 2018. The Company has net deferred income tax assets of $0 on August 13, 2018 and January 29, 2018. The Company has a net operating loss for tax and financial reporting purposes. The Company has full valuation against its existing deferred tax assets as of August 13, 2018.

Impact of Inflation

The impact of inflation on food, labor, equipment and construction and remodeling of restaurants could affect the Company’s margins. Many of the Company’s employees are paid hourly rates related to state minimum wage laws that are tied to inflation indexes so that changes in these laws would result in higher labor costs to the Company. In addition, food items purchased by the Company are subject to market supply and demand pressures. ~~The~~Over time, the Company believes that modest increases in these costs can be offset through price changes and other cost control efforts. However, ~~there~~in isperiods noin ~~assurance~~which ~~that~~costs are increasing rapidly, such as the current period in which minimum wages have increased significantly in some states, the Company ~~would~~is begenerally not able to pass significant costs on to its customers in a short period of time.

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 ~~May~~August 2113, 2018, the Company had $~~124~~137,000 in cash. Cash and cash equivalents ~~decreased~~increased by $49,000 during the 1628-weeks ended ~~May~~August 2113, 2018. The net working capital deficit was $~~4.2 million and $~~3.7 million at ~~May~~August 2113, 2018 and January 29, 2018~~, respectively~~. To the extent that we need to raise ~~addition~~additional capital to grow our business, we anticipate raising such capital through some combination of the issuance of common stock, preferred stock or debt. We have recently been borrowing required capital to grow our business from our principal shareholder. We have no commitment from this shareholder to provide additional capital or assurance that this shareholder will voluntarily continue to provide capital as needed. We may be unable to raise additional capital as needed, or if successful, we will likely be required to pay a higher price for any 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 $~~168~~198,000 on capital expenditures during the 1628-weeks ending ~~May~~August 2113, 2018, primarily on existing restaurants. The Company spent approximately $576,000 on capital expenditures during the 28-weeks ending August 14, 2017.

Cash provided from operations was approximately $~~514~~533,000 for the 1628-weeks ending ~~May~~August 2113, 2018 and $79542,000 for the 1628-weeks ending ~~May~~August 2214, 2017, respectively. The increase in cash generated from operating activities for the 16-week period ending May 21, 2018 was primarily due to the change in the other accrued liabilities paid in the current fiscal year as compared to the prior fiscal year.

Cash used by financing activities was approximately $~~350~~326,000 for the 1628-weeks ending ~~May~~August 2113, 2018 compared to cash ~~provided~~used by financing activities of approximately $~~103~~12,000 for the 1628-weeks ending ~~May~~August 2214, 2017. In the first ~~quarter~~two quarters of Fiscal 2019, cash used by financing activities was as follows: The Company made net debt payments of approximately $~~122~~196,000 and had checks written in excess of bank balance of $10108,000, a change of $~~228~~130,000. In the first ~~quarter~~two quarters of Fiscal 2018, cash ~~provided~~used by financing activities was as follows: The Company made net debt payments of approximately $~~121~~190,000, had loan proceeds of approximately $~~235~~285,000, had loan costs of $7,000 and had checks written in excess of bank balance of $960,~~000,~~ a change of $4100,000.

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

	May 21, 2018		May 21, 2018		January 29, 2018		January 29, 2018
	August 13, 2018		August 13, 2018		January 29, 2018		January 29, 2018
Type of Debt (1)	Total Debt		Current Portion		Total Debt		Current Portion
Real Estate Mortgages	$	2,~~673~~606,000	$	561,000	$	2,787,000	$	315,000
Other-Miscellaneous		~~261~~254,000		1815,000		269,000		23,000
Note Payable to Officer		1,992,000		-		1,992,000		-
Total Debt	$	4,~~926~~852,000	$	~~579~~576,000	$	5,048,000	$	338,000

(1) The interest rates range from 6% to 11.5%. The maturity dates of the obligations range from ~~July~~April ~~2018~~2019 to October 2035.

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 ~~May~~August 2113, 2018 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 plan of reorganization approved by the Bankruptcy Court on December 17, 2012 (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 $1,991,936 and the interest of $196,957 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 $60105,000 to Robert E. Wheaton for interest during the first two quarters of Fiscal 2019 and Fiscal 2018.

1314

On November 9, 2016, the Company borrowed $450,000 from Mr. Robert E. Wheaton to remodel the 4B’s Restaurant in Missoula, Montana. 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 $5181,~~400~~100 and $4366,~~500~~000 in principal during the first two quarters of Fiscal 2019 and Fiscal 2018, respectively, under this mortgage. In addition, the Company paid approximately $813,~~000~~900 and $1523,~~800~~000 in interest during the first two quarters of Fiscal 2019 and Fiscal 2018, respectively.

Critical Accounting Policies and Judgments

The Company prepares its condensed consolidated financial statements in conformity with US GAAP. The Company's condensed 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 financial statements for Fiscal 2018 included in the 2018 Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or be subject to variations and which may significantly affect the Company's results and financial position for the reported period or in future periods. Changes in 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.

Earnings or Loss Per Common Share

Net (loss) income per common share - basic is computed based on the weighted-average number of common shares outstanding during the period. Net (loss) income per common share – diluted is computed based on the weighted-average number of common shares outstanding during the period plus the effect of dilutive common stock equivalents outstanding during the period. Dilutive stock options are considered to be common stock equivalents and are included in the diluted calculation using the treasury stock method.

Basic earnings or loss per common share is computed on the basis of the weighted average number of shares outstanding during the periods. Diluted earnings or loss per common share is calculated based on the weighted-average number of common shares outstanding during the period plus the effect of dilutive common stock equivalents outstanding during the period. Dilutive stock options are considered to be common stock equivalents and are included in the diluted calculation using the treasury stock method. The Company did not have any outstanding stock options for the fiscal quarters ending ~~May~~August 2113, 2018 and ~~May~~August 2214, 2017.

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.

1415

~~Building~~Buildings and Equipment

	Years
Building		40
Buildings		40
Leasehold improvements	15	-	20(1)	~~(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 may be required to 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.

The Company's accounting policies regarding buildings and equipment include certain management judgments regarding the estimated useful lives of such assets, the residual values to which the assets are depreciated and the determination as to what constitutes the life of existing assets. These judgments and estimates may produce materially different amounts of depreciation and amortization expense than would be reported if different assumptions were used.

Income Taxes

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. Currently, the Company has a full valuation allowance against its deferred tax asset, net of expected reversals of existing deferred tax liabilities.

Adopted and Recently Issued Accounting Standards

During 2014 and 2015, 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 16-weeks ending May 21, 2018, 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. While early adoption is permitted, the Company has not yet selected a transition date nor have we determined the effect of the standard on our ongoing financial reporting.16

In ~~August~~February 2016, the FASB issued Accounting Standards Update 2016-1502, ~~Statement~~Leases ~~of Cash Flows~~ (Topic ~~230~~842). This update ~~provides~~requires ~~clarification~~a ~~regarding~~lessee ~~how~~to ~~certain~~recognize ~~cash~~on ~~receipts~~the ~~and~~balance ~~cash~~sheet ~~payments~~a ~~are~~liability ~~presented~~to ~~and~~make ~~classified~~lease inpayments ~~the~~and ~~statement~~a corresponding right-of-use ~~cash flows~~asset. ~~This~~The ~~update~~guidance ~~addresses~~also ~~eight~~requires ~~specific~~certain ~~cash~~qualitative ~~flow~~and ~~issues~~quantitative ~~with~~disclosures about the ~~objective~~amount, oftiming ~~reducing~~and ~~the~~uncertainty ~~existing~~of ~~diversity~~cash inflows ~~practice~~arising from leases. This update is effective for annual and interim periods beginning after December 15, ~~2017~~2018, which will require us to adopt these provisions in the first quarter of ~~Fiscal~~fiscal ~~2019~~2020 using a modified retrospective approach. WeWhile doearly ~~not~~adoption ~~expect~~is permitted, the ~~adoption~~Company has selected a transition date of ~~this~~January ~~guidance~~29, to2019. ~~have~~We aare ~~material~~evaluating ~~impact~~the effect this new guidance will have on our consolidated financial statements and related disclosures.

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.

Off-Balance Sheet Arrangements

As of ~~May~~August 2113, 2018, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

This is not required for small issuers.

Item 4. Controls and Procedures

Management’s Report on Disclosure 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, 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, Chief Financial 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, Chief Financial 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, the Chief Financial Officer and the Principal Accounting Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~May~~August 2113, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.

1617

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. During the fiscal quarter ended ~~May~~August 2113, 2018, there were no new, or material developments in any existing 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 1A. Risk Factors

This item is not applicable to small issuers; however, please refer to the risk factors disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 29, 2018 filed with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits listed in the accompanying Exhibit Index are filed as part of this Form 10-Q (unless noted as previously filed) and incorporated herein by reference.

1718

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Star Buffet, Inc.
Date: July 3, 2018		By:	/s/ Robert E. Wheaton
Date: September 24, 2018	By:	/s/ Robert E. Wheaton
		Robert E. Wheaton, Chief Executive Officer,	~~Robert E. Wheaton, Chief Executive Officer,~~
		President, Chief Financial Officer and Chairman	~~President, Chief Financial Officer and Chairman~~
July 3, 2018		By:	/s/ Ronald E. Dowdy
September 24, 2018	By:	/s/ Ronald E. Dowdy
		Ronald E. Dowdy	~~Ronald E. Dowdy~~
		Group Controller,	~~Group Controller,~~
		Treasurer, Secretary and	~~Treasurer, Secretary and~~
		Principal Accounting Officer	~~Principal Accounting Officer~~

1819

Exhibit Index

Exhibit		Description
Number		~~Description~~ of Exhibit
3.1		Certificate of Incorporation*
3.2		Bylaws, as amended on September 22, 1997*
4.1		Form of Common Stock Certificate**
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †
31.2		Certification of Chief 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 Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
101		The following financial information from the quarterly report on Form 10-Q of Star Buffet, Inc. for the quarter ended ~~May~~August 2113, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheet, (ii) Consolidated Statement of Operations, (iii) Consolidated Statements of Cash Flows, (iv) Notes to Consolidated Financial Statements, tagged as blocks of text. †

* Previously filed as an exhibit to the Registration Statement on Form S-1, Amendment No. 1 (Registration No. 333- 32249).

** Previously filed as an exhibit to the Registration Statement on Form S-1, Amendment No. 2 (Registration No. 333- 32249).

† Filed concurrently herewith.

1920

Filing Compare · STAR BUFFET INC