Use these links to rapidly review the documentSTAR BUFFET, INC., AND SUBSIDIARIES Index to Annual Report on Form 10-K For the Fiscal Year Ended January 31, 2005



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

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|ý                                          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------ | ----------------------------------------------------------------------------------------
|For the fiscal year ended January 31, 2005
|OR                                        
|o                                          | 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)

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Delaware

84-1430786(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)420 Lawndale Drive
Salt Lake City, Utah

84115(Address of Principal Executive Offices)

(Zip Code)


Registrant's
Telephone Number, Including Area Code:(801) 463-5500

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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 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 ý    No o

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. ý

Indicate by check mark whether registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes o    No ý

At August 9, 2004, the last business day of the registrant's second fiscal quarter, there were outstanding 2,950,000 shares of the registrant's common
stock, $.001 par value. The aggregate market value of common stock held by nonaffiliates of the registrant (1,338,240 shares) based on the last reported sale price of the common stock as reported on
the Nasdaq Small Cap Market on August 9, 2004, ($6.18 per share) was $8,270,323. 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.

The
number of shares outstanding of the registrant's common stock was 2,950,000 shares as of April 15, 2005.

Documents
incorporated by reference: Portions of the registrant's Proxy Statement for the 2005 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days after January 31, 2005, are incorporated by reference into Part III of this Form 10-K.

The
Exhibit Index is contained in Part IV herein on Page E-1.



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STAR BUFFET, INC., AND SUBSIDIARIES        Index to Annual Report on Form 10-K        For the Fiscal Year Ended January 31, 2005



|         |  |                                                                                               
|-------- |  | ----------------------------------------------------------------------------------------------
|         |  | PART I                                                                                        
|ITEM 1.  |  | BUSINESS                                                                                      
|ITEM 2.  |  | PROPERTIES                                                                                    
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                             
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                           
|         |  | PART II                                                                                       
|ITEM 5.  |  | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                         
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                       
|ITEM 7.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS         
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                    
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                   
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE          
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                       
|         |  | PART III                                                                                      
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                            
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                        
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                        
|         |  | PART IV                                                                                       
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                              
|         |  | SIGNATURES                                                                                    
|         |  | EXHIBIT INDEX                                                                                 
|         |  | FINANCIAL STATEMENTS                                                                          

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Cautionary Statements Regarding Forward-Looking Statements

This annual report on Form 10-K contains forward-looking statements, within the meaning of the Securities Exchange Act of 1934 and the
Securities Act of 1933, 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. In some cases, forward-looking statements are identified by words such as
"believe," "anticipate," "expect," "intend," "plan," "will," "may" and similar expressions. You should not place undue reliance on these forward-looking statements, which speak only as of the date of
this annual report on Form 10-K. 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 could differ from those projected in these forward-looking statements as a result of many factors, including those identified in the section titled
"Risks" under Item 1, Business 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 ("Star" and collectively with its subsidiaries, the "Company"), is engaged in the restaurant industry. As of
January 31, 2005, the Company owned and operated 14 franchised HomeTown Buffet restaurants, seven JB's Restaurants, five BuddyFreddys restaurants, two JJ North's Country Buffet restaurants, two
Holiday House restaurants and two Mexican-themed restaurants operated under the Casa Bonita name. The Company also had three restaurants currently closed for remodeling and repositioning, four
restaurants leased to third-party operators and the net assets of another closed restaurant reported as property held for sale. The Company's restaurants are located in nine western states, Oklahoma
and Florida.

Recent Developments

As a result of a review of its accounting records during the normal course of the fiscal 2005 independent audit, the Company determined rent expense for the
fiscal years 1997 through 2004 had been under-recognized. The determination was based on an internal review in consultation with its independent auditors and considering the opinions expressed
in the letter of February 7, 2005 from the Office of the Chief Accountant of the Securities and Exchange Commission ("SEC") issued to the American Institute of Certified Public Accountants
regarding certain operating lease accounting issues and their application under generally accepted accounting principles in the United States of America ("GAAP"). On March 28, 2005, the Audit
Committee of Star Buffet, Inc. determined that it needed to change its calculation and presentation of straight-line rent expense and related deferred rent liability which were not
in accordance with GAAP. The Company has restated its previously reported audited financial statements for the fiscal years ended January 26, 2004 and January 27, 2003 and the
related unaudited quarterly financial statements for those periods, as well as the unaudited financial statements for the quarters ended May 17, 2004, August 9, 2004 and
November 1, 2004. Previously, the Company recorded rent expense on a straight-line basis over the initial non-cancelable lease term. The Company depreciated its
leasehold improvements over a period that included both the initial non-cancelable term of the lease and certain option periods. The Company restated its financial statements to recognize
rent expense on a straight-line basis which conforms to the term used to depreciate leasehold improvements

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on
the leased property. See Note 2 to the Consolidated Financial Statements included in this report for the restated amounts for each respective annual and quarterly period.

On
February 25, 2005, the Board of Directors approved the Company's second annual dividend of $0.50 per common share, an increase of $0.25 per share from the prior year, and a
special dividend of $0.25 per common share. Both are payable on June 8, 2005 to shareholders of record on May 12, 2005.

On
February 1, 2005, the Company announced in a press release that it had entered into a strategic alliance with K-BOB'S USA Inc. and related affiliates. In
accordance with the terms of the strategic alliance, Star Buffet will lend K-BOB'S $1.5 million on a long-term basis. In exchange, K-BOB'S granted Star
Buffet an option to purchase as many as five corporate owned and operated K-BOB'S restaurants located in New Mexico and Texas, as well as rights to develop K-BOB'S in other
areas in the United States.

On
February 1, 2005, the Company increased its Revolving Line of Credit with M&I Marshall & Ilsley Bank from $1.0 million to $2.0 million and modified the
covenants to permit annual dividends of $2.5 million with no other changes in terms or covenants.

Business

The Company's objective is to become a leading operator of regional buffet restaurant brands through the acquisition of established regional concepts and
subsequent development of additional restaurants within existing or new markets. The Company believes that certain uniformly applied business practices can be used successfully to improve the
financial performance of its past and future acquisitions. Key elements of the Company's business practices are as follows:

Customer Focus.The Company believes that its ability to deliver high quality food to customers with superior service in
clean and friendly environments has been central to its success at improving customer perceptions and sales at its buffet restaurants. Management's focus includes the following key elements:



Management Practices.The Company's management team utilizes a series of uniform management practices to operate the acquired
restaurants. The key elements of these management practices are:



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Brand Management.The Company's strategy is to separately manage each of its restaurant brands to create a unique presence in
the marketplace. Although each subsidiary and its brands are positioned somewhat differently in the market, the Company utilizes many of the same marketing techniques such as local store marketing,
radio advertising and promotional mailers to increase customer awareness and loyalty.

Segment and Related Reporting

The Company has five reporting segments: HomeTown Buffet, Casa Bonita, North's Star, Florida Buffets Division and JB's Restaurants. The Company's reportable
segments are based on brand similarities. The HomeTown Buffet segment includes the Company's 14 franchised HomeTown Buffet restaurants. The Casa Bonita segment includes two Casa Bonita restaurants.
The North's Star segment includes three JJ North's Country Buffet restaurants and one North's Star Buffet restaurant, of which one JJ North's Country Buffet and one North's Star Buffet are
non-operating units. The Florida Buffets Division includes two BuddyFreddys restaurants, three BuddyFreddys Country Buffet restaurants and two Holiday House restaurants. The Florida Buffet
Division also includes four non-operating units. The JB's Restaurants segment includes the Company's seven JB's Restaurants, which includes two non-operating JB's Restaurants.
Segment reporting results include 30, 34 and 52 weeks for three JJ North's Country Buffet restaurants closed during the fiscal year 2005. Segment reporting results include 35 and 51 weeks for two
HomeTown Buffet restaurants. Results for 2005 also include 34 weeks of operations for one North's Star Buffet restaurant and 39 weeks of operations for one JB's Restaurant. (See Item 15, Financial
Statements, Note 7.)

Growth Strategy

The Company's objective is to become a leading operator of regional buffet restaurant brands through (1) acquisitions of existing buffet restaurant chains
which management believes can benefit from the Company's management practices, (2) the acquisitions of existing restaurant properties that can be converted to buffet brands operated or under
development by the Company and (3) minority investments in or strategic alliances with other restaurant chains. The Company's growth strategy is designed to capitalize on the opportunities
management perceives in the fragmented buffet segment of the restaurant industry.

Acquisition Strategy.The Company believes that it will be able to capitalize on the successful attributes of acquired buffet
chains while increasing their focus on operations, customer service and quality. The Company believes that a number of acquisition opportunities exist due to the fragmentation of the buffet, cafeteria
and grill-buffet segments of the restaurant industry, which are comprised of a substantial number of regional chains. The Company believes that many of these regional chains are privately owned and
may be available for acquisition because they lack the financial and operational structure to compete with larger regional and national chains.

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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 casual dining chains and casual steakhouses which offer superior product quality and service at
only moderately higher prices. Many of these family dining restaurants and budget steakhouses occupy desirable locations and provide opportunities to acquire desirable restaurant locations at
attractive prices. The Company believes that these locations can be acquired and converted at lower prices or leased at rates lower than those available 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 minority investments can provide an attractive investment opportunity for the Company and may lower the acquisition cost of such chains should
the Company ultimately seek to acquire those chains. The Company believes that strategic alliances can be an excellent corporate arrangement to facilitate (1) more productive use of
under-performing restaurant properties at lower cost and less risk than outright acquisition and (2) reduce corporate overhead or improve purchasing economies.

Restaurant Concepts



General.The Company, through its subsidiary HTB Restaurants, Inc. ("HTB"), has a franchise agreement with HomeTown
Buffet, Inc., a wholly-owned subsidiary of Buffets, Inc., under which HTB operates 14 HomeTown Buffet restaurants in Arizona, Colorado, New Mexico, Utah and Wyoming.

HTB
entered into a franchise agreement for each location which requires among other items, the payment of a continuing royalty fee paid to HomeTown Buffet, Inc. The royalty fee is
based on 2% of the aggregate gross sales of all the Company's HomeTown Buffet restaurants. Each of the franchise agreements has a 20-year term (with two five-year renewal
options). HTB provides weekly sales reports to the HomeTown franchisor as well as periodic and annual financial statements. HTB is obligated to operate its Hometown Buffet restaurants in compliance
with the franchisor's requirements. The franchisor requires HTB to operate each restaurant in conformity with Franchise Operating Manuals, Recipe Manuals and Menus and HTB is to use it best effort to
achieve the highest practicable level of sales and promptly make royalty payments. The franchise agreement restricts the Company from operating restaurants within a geographic radius of the
franchisor's restaurants.

The
HomeTown franchisor may terminate a franchise agreement for a number of reasons, including HTB's failure to pay royalty fees when due, failure to comply with applicable laws or
repeated failure to comply with one or more requirements of the franchise agreement. Many state franchise laws limit the ability of a franchisor to terminate or refuse to renew a franchise. Generally,
a franchisor may terminate a franchise agreement only if the franchisee violates a material and substantial provision of the agreement and fails to remedy the violation within a specified period.

Concept and Menu.HomeTown Buffet restaurants are located both in shopping "strip centers" and as freestanding restaurants.
HTB's typical restaurant format is approximately 10,200 square feet with seating for approximately 375 customers. The restaurant design is based upon standardized construction plans, with
modifications made for each particular site. The restaurants offer fixed price lunch, dinner and breakfast menus that entitle each customer to unlimited servings of all menu items and beverages. The
average check price is approximately $6.51 per person. The restaurants offer reduced prices to children under age 12 and to senior citizens.

Operations.The HomeTown Buffet restaurants are supervised directly by a vice president of operations, who reports to the
Company's President. Each HomeTown Buffet restaurant has a general manager and at least three co-managers or assistant managers. Managers are required to attend formal

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training
sessions in management and operations of the restaurant. In addition, each restaurant manager is required to comply with specific franchisor-provided guidelines to assure uniformity of
operations and consistent high quality of products. The Company has a performance-based incentive program covering its general and assistant managers in addition to a competitive base salary. Our
managers are compensated under a cash incentive plan based on a bonus pool calculated on unit volume. The bonus pool is based on four categories (food cost, labor cost, controllable cost and unit
profit). Each bonus category has a target. The manager earns a bonus for each category if he or she meets or exceeds the target. The four possible categories are totaled and adjusted for any cash
shortages. The total bonus is split among each salaried manager based on predetermined allocation. The bonus is calculated and paid for each 28-day period. We account for the plan on the
accrual basis of accounting.

Individual
restaurants typically employ between 40 and 80 non-management hourly employees, made up of a mix of part-time and full-time workers,
depending on restaurant size and traffic.



Concept and Menu.The Company's two Casa Bonita restaurants are located in Denver, Colorado and Tulsa, Oklahoma. The Denver
restaurant is approximately 52,000 square feet, and the Tulsa restaurant is approximately 26,000 square feet. The restaurants are designed to recreate the atmosphere of a Mexican village at night. The
restaurants also feature entertainment daily, including strolling mariachis, authentic Mexican dancers, magicians, games and cliff divers. The restaurants' entertainment, combined with high quality,
authentic Mexican food, is designed to attract a diverse customer base, including tourists and local customers. In addition to typical Mexican menu offerings, these restaurants feature
all-you-can-eat dinners which offer customers unlimited servings of selected menu items.

The
Company focuses on three primary target audiences in its advertising and promotional programs for its Casa Bonita restaurants: (1) local customers, (2) tourists and
(3) groups and parties. The Company markets over a broad regional territory to attract tourists by placing advertisements in tourist and special event guides and by otherwise promoting each
Casa Bonita restaurant as a major destination attraction. With its large dining areas and private rooms, the Company also promotes Casa Bonita as an ideal setting for banquets, private parties and
other group events. The average check for the Casa Bonita restaurant in Denver, Colorado is approximately $11.59 per person. The average check for the Casa Bonita restaurant in Tulsa, Oklahoma is
approximately $9.37 per person.

Operations.The two Casa Bonita restaurants are supervised by a vice president of operations who reports directly to the
Company's President. Each Casa Bonita restaurant has a general manager and at least three assistant managers. Each restaurant employs between 150 and 270 hourly employees, made up of a mix of
part-time and full-time workers, depending on restaurant size and traffic. The Company has a performance-based incentive program covering its general and assistant managers in
addition to a competitive base salary. Our managers are compensated under a cash incentive plan based on a bonus pool calculated on unit volume. The bonus pool is based on four categories (food cost,
labor cost, controllable cost and unit profit). Each bonus category has a target. The manager earns a bonus for each category if he or she meets or exceeds the target. The four possible categories are
totaled and adjusted for any cash shortages. The total bonus is split among each salaried manager based on predetermined allocation. The bonus is calculated and paid for each 28-day
period. We account for the plan on the accrual basis of accounting.



General.The North's Star Division consists of three JJ North's Country Buffet restaurants and one North's Star Buffet
restaurant. The Company's three JJ North's Country Buffet restaurants are located in Idaho (1), Washington (1) and Oregon (1). One JJ North's Country Buffet restaurant is closed for remodeling
and repositioning. The restaurants are approximately 6,500 to 9,000 square feet

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and
seat approximately 210 to 320 customers. The Company's North's Star Buffet restaurant is located in Arizona and is closed for remodeling and repositioning.

Concept and Menu.The JJ North's Country Buffet restaurants offer fixed price lunch, dinner and weekend breakfast menus that
entitle each customer to unlimited servings of all menu items and beverages. Prices are approximately $5.59 for lunch and approximately $7.99 for dinner, and may vary depending on restaurant location.
The average check for JJ North's Country Buffet is approximately $6.91 per person. The restaurants offer reduced prices to children under age 12 and to senior citizens.

The
JJ North's Country Buffet restaurants seek to differentiate themselves from other buffet and cafeteria restaurants by the quality and variety of their food offerings. The restaurants
feature a "scatter bar" buffet system with separate food islands in an "all-you-can-eat" format. Menus emphasize traditional American "home cooking" and include
soups, salads, entrees, vegetables, non-alcoholic beverages and desserts. Customers can choose from multiple entree choices, including fried and baked chicken and fish, roast beef, turkey
and ham. Additional entrees, such as lasagna, barbecued ribs and other regional or seasonal dishes, are featured on particular days of the week. In addition to entrees, each meal period
includes freshly-prepared soups, assorted vegetable and potato dishes, hot bread and an extensive salad bar. Dessert selections include pudding, assorted cobblers, cakes, cookies and
soft-serve frozen dairy desserts with various sundae toppings.

Operations.The two JJ North's Country Buffet restaurants are supervised by the President of the Company. Each JJ North's
restaurant has a general manager and at least two assistant managers. Each restaurant employs between 25 and 50 hourly employees, made up of a mix of part-time and
full-time workers, depending on restaurant size and traffic. The Company has a performance-based incentive program covering its general and assistant managers in addition to a competitive
base salary. Our managers are compensated under a cash incentive plan based on a bonus pool calculated on unit volume. The bonus pool is based on four categories (food cost, labor cost, controllable
cost and unit profit). Each bonus category has a target. The manager earns a bonus for each category if he or she meets or exceeds the target. The four possible categories are totaled and adjusted for
any cash shortages. The total bonus is split among each salaried manager based on predetermined allocation. The bonus is calculated and paid for each 28-day period. We account for the plan
on the accrual basis of accounting.



General.The Company, through several transactions, has acquired 11 properties in Florida which currently operate under the
brand names BuddyFreddys Country Buffet (7), BuddyFreddys (2) and Holiday House (2). Four of the seven BuddyFreddys Country Buffet restaurants have been closed for repositioning. Three of these
closed restaurants have been leased to third-party operators and the net assets of the other closed restaurant is property held for sale. BuddyFreddys restaurants average approximately 10,000 square
feet with seating for approximately 350 guests. Holiday House restaurants average approximately 5,500 square feet with seating for approximately 170 guests.

Concept and Menu.The BuddyFreddys Country Buffet restaurants offer a buffet menu specializing in local dishes and
southern-style cooking. Each location also offers a small gift shop selling a variety of BuddyFreddys apparel, snacks and specialty merchandise. The two BuddyFreddys differ from BuddyFreddys Country
Buffets in that they offer a full a la carte menu in addition to the "all-you-can-eat" buffet. The two Holiday House restaurants also operate in a buffet format and
specialize in offering the customer a wide variety of meat entrees including ham, roast beef, turkey and its signature leg of lamb. The average check price for BuddyFreddys and Holiday House is
approximately $6.83 per person.

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Operations.The Florida restaurants are supervised by a vice president of operations who reports directly to the Company's
President. Each Florida restaurant has a general manager and at least two assistant managers. Each restaurant employs between 25 and 60 hourly employees, made up of a mix of
part-time and full-time workers, depending on restaurant size and traffic. The Company has a performance-based incentive program covering its general and assistant managers in
addition to a competitive base salary. Our managers are compensated under a cash incentive plan based on a bonus pool calculated on unit volume. The bonus pool is based on four categories (food cost,
labor cost, controllable cost and unit profit). Each bonus category has a target. The manager earns a bonus for each category if he or she meets or exceeds the target. The four possible categories are
totaled and adjusted for any cash shortages. The total bonus is split among each salaried manager based on predetermined allocation. The bonus is calculated and paid for each 28-day
period. We account for the plan on the accrual basis of accounting.



General.The Company, through its subsidiary Summit Family Restaurants, Inc. ("Summit"), operates nine JB's
Restaurants in Arizona, Montana, New Mexico, Utah and Wyoming. The restaurants are approximately 4,300 to 5,600 square feet and seat approximately 110 to 180 customers. Two of the nine JB's
restaurants have been closed for repositioning, with one of the two being leased to a third-party operator and the other held for repositioning.

In
connection with the acquisition of certain JB's Restaurants in 1998 from JB's Family Restaurants, Inc., a subsidiary of CKE Restaurants, Inc., the Company entered into a
one-year franchise agreement for each location requiring among other items, the payment of royalty fees. After the acquisition of certain JB's Restaurants, the Company negotiated a
ten-year option for annual renewable franchise agreements for each of the JB's Restaurants the Company operates. In February 2000, the Company elected not to renew these franchise
agreements. The Company entered into a License Agreement with the JB's Licensor for each JB's Restaurant in November 2002. The license agreement is being amortized as an intangible asset and
allows the Company to use the JB's trademarks through August 31, 2012 with an option for an additional ten years. The Company acquired the JB's license agreement in November 2002
for $773,000. Amortization expenses for fiscal 2005, 2004 and 2003 were $78,000, $78,000 and $21,000, respectively.

Concept and Menu.JB's Restaurants offer a variety of breakfast, lunch and dinner selections at moderate prices. The
breakfast menu features an "all-you-can-eat" breakfast buffet along with other traditional breakfast fare. The lunch and dinner menus have a variety of sandwiches
as well as steak, chicken, pasta and seafood entrees. All JB's Restaurants offer an "all-you-can-eat" soup and salad bar during lunch and dinner. With the exception
of the breakfast buffet and the "all-you-can-eat" soup and salad bar, all entrees are cooked to order and are served by a wait staff. The average check is
approximately $6.44 per person.

Operations.The JB's Restaurants are supervised by a vice president of operations who reports to the Company's President.
Each restaurant has a general manager and at least two assistant managers. Each restaurant employs between 25 and 50 hourly employees, made up of a mix of part-time and
full-time workers depending on restaurant size and traffic. The Company has a performance-based incentive program covering its general and assistant managers in addition to a competitive
base salary. Our managers are compensated under a cash incentive plan based on a bonus pool calculated on unit volume. The bonus pool is based on four categories (food cost, labor cost, controllable
cost and unit profit). Each bonus category has a target. The manager earns a bonus for each category if he or she meets or exceeds the target. The four possible categories are totaled and adjusted for
any cash shortages. The total bonus is split among each salaried manager based on predetermined allocation. The bonus is calculated and paid for each 28-day period. We account for the plan
on the accrual basis of accounting.

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Licenses, Trademarks and Service Marks

The Company owns the trademarks and service marks for Casa Bonita, BuddyFreddys and Holiday House and has a license agreement with CKE Restaurants, Inc.
for use of the "Star" name and design. The Company has an agreement with North's Restaurants, Inc. for a royalty-free, transferable license to use the intangible property of JJ
North's. The Company utilizes the HomeTown Buffet mark pursuant to various franchise agreements. The Company has a transferable license agreement to use the JB's trademark through August 31,
2012 with an option for an additional ten years.

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, including chains and individually owned restaurants that use a buffet format. The
number of buffet restaurants with operations generally similar to the Company's has grown considerably in the last several years and the Company believes competition among buffet-style
restaurants is increasing. As the Company and its principal competitors expand operations in various geographic areas, competition, including competition among buffet-style restaurants, can be
expected to intensify. Such intensified competition could increase the Company's operating costs or adversely affect its revenues or operating margins. A number of competitors have been in existence
longer than the Company and have substantially greater financial, marketing and other resources and wider geographical diversity than does the Company. In addition, the restaurant industry has few
noneconomic barriers to entry and is affected by changes in consumer tastes, national, regional and local economic conditions and market trends. The Company's significant investment in, and long term
commitment to, each of its restaurant sites limits its ability to respond quickly or
effectively to changes in local competitive conditions or other changes that could affect the Company's operations.

Seasonality

The Company's business is moderately seasonal in nature based on locations in the northern and southern states. For the majority of the Company's restaurants, the
highest volume periods are in the first and second fiscal quarters and lowest volume periods typically occur during the third and fourth fiscal quarters.

Employees

As of April 15, 2005, the Company employed approximately 1,700 persons, of whom approximately 1,610 were restaurant employees, and approximately 90 were
restaurant management, supervisory and corporate personnel. Restaurant employees include 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.

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Directors and Executive Officers

The following table sets forth certain information regarding the Company's directors and executive officers:

|Name                    |  | Age |  | Position                                       
|----------------------- |  | --- |  | -----------------------------------------------
|Robert E. Wheaton       |  | 53  |  | Chief Executive Officer, President and Chairman
|Ronald E. Dowdy         |  | 48  |  | Group Controller, Treasurer and Secretary      
|Thomas G. Schadt        |  | 63  |  | Director                                       
|Phillip "Buddy" Johnson |  | 53  |  | Director                                       
|Craig B. Wheaton        |  | 47  |  | Director                                       
|B. Thomas M. Smith, Jr. |  | 70  |  | Director                                       
|Todd S. Brown           |  | 48  |  | Director                                       

Robert E. Wheatonhas served as the Chief Executive Officer and President and as a director of the Company since its formation in
July 1997. Mr. Wheaton has been Chairman of the Board since September 1998. Mr. Wheaton served as Executive Vice President of CKE Restaurants, Inc. from
January 1996 through January 1999. From April 1995 to January 1996, he served as Vice President and Chief Financial Officer of Denny's Inc., a subsidiary of Flagstar
Corporation. From 1991 to 1995, Mr. Wheaton served as President and Chief Executive Officer, and from 1989 to 1991 as Vice President and Chief Financial Officer of The Bekins Company.
Mr. Wheaton is the brother of Craig B. Wheaton, a director of the Company.

Ronald E. Dowdyhas served as the Group Controller since June 1998 and as Treasurer and Secretary since February 1999.
Mr. Dowdy served as Controller to Holiday House Corporation for 19 years prior to joining the Company.

Thomas G. Schadthas served as a director of the Company since the completion of the Company's initial public offering in
September 1997. Mr. Schadt has been the Chief Executive Officer of a privately-held beverage distribution company, Bear Creek, L.L.C., since 1995. From 1976 to 1994, he held
several positions with PepsiCo, Inc., most recently, Vice President of Food Service.

Phillip "Buddy" Johnsonhas served as a director of the Company since February 1999. Mr. Johnson has served as the
Supervisor of Elections of Hillsborough County since March 2003. From March 2001 until March 2003, he served as the Director of the Division of Real Estate in the Florida
Department of Business and Professional Regulations. Mr. Johnson served as President of the BuddyFreddys Division from April 1998 until March 2001. From 1980 until 1998, he was
the founding Chairman and CEO of BuddyFreddys Enterprises. From 1991 to 1996, Mr. Johnson served as Republican floor leader in the Florida House of Representatives. Mr. Johnson also
served on the executive committee of The Foundation for Florida's Future, a non-profit corporation established in 1995 by now governor, Jeb Bush.

Craig B. Wheatonhas served as a director of the Company since February 1999. Mr. Wheaton is a partner in the law firm
Kilpatrick Stockton LLP. His main areas of practice include employee benefits, executive compensation and general corporate law. Mr. Wheaton received his B.A. degree, with honors, from the
University of Virginia and his J.D. degree from Wake Forest University. From 1993 to 1998, Mr. Wheaton was a member of the Tax Council of the North Carolina Bar Association Section on
Taxation and chair of its Employee Benefits Committee from 1995 to 1997. He is a member and former president of the Triangle Benefits Forum. He is a member of the Southern Employee Benefits
Conference, the Employee Benefits Committee of the American Bar Association's Section of Taxation, the National Pension Assistance Project's National Lawyers Network, and the National
Association of Stock Plan Professionals. Mr. Wheaton is the brother of Robert E. Wheaton, the Company's Chairman of the Board, Chief Executive Officer and President.

9

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B. Thomas M. Smith, Jr.has served as a director of the Company since June 2002. Mr. Smith was a consultant with ITT Corp.
from January 1996 to December 1996 and is now retired. From 1988 until 1995, he was Vice President and Director of Corporate Purchasing for ITT Corp. Mr. Smith served as director
of Republic Bancorp from June 1999 until April 2005.

Todd S. Brownhas served as a director of the Company since June 2004. Mr. Brown has served Brown Capital
Advisors, Inc. as the President since November 1999. From 1994 to November 1999, Mr. Brown served as Senior Vice President, Chief Financial Officer and Director of Phoenix
Restaurant Group, Inc. (formerly DenAmerica Corp.). Mr. Brown served as Senior Manager in Audit and Consulting at Deloitte Touche LLP from 1980 to 1994. Mr. Brown received an MBA
from the University of Missouri in 1980 and a BA from Southern Methodist University in 1978.

The
audit committee is comprised of Todd S. Brown, Thomas G. Schadt and B. Thomas M. Smith, Jr., of which Todd S. Brown is the audit committee financial expert. All three members of the
audit committee are "independent" as contemplated by Item 401(h)(iii) to Regulation S-K.

Risks

Growth Strategy Depends Upon Ability to Acquire and Successfully Integrate Additional Restaurants Through Acquisitions.The
Company intends to pursue a strategy of moderate growth, primarily through acquisitions. The success of this strategy will depend in part on the ability of the Company to acquire additional buffet
restaurants or to convert acquired sites into buffet restaurants, within both existing and new markets. The success of the Company's growth strategy is dependent upon numerous factors, many of which
are beyond the Company's control, including the availability of suitable acquisition opportunities, the availability of appropriate financing and general economic conditions. The Company must compete
with other restaurant operators for acquisition opportunities and with other restaurant operators, retail stores, companies and developers for desirable site locations. Many of these entities have
substantially greater financial and other resources than the Company. Many of its acquired restaurants may be located in geographic markets in which the Company has limited or no operating experience.
There can be no assurance that the Company will be able to identify, negotiate and consummate acquisitions of additional buffet restaurants or that acquired restaurants or converted restaurants can be
operated profitably and successfully integrated into the Company's operations.

Acquisitions
involve a number of special risks that could adversely affect the Company's business, results of operations and financial condition, including the diversion of management's
attention, the assimilation of the operations and personnel of the acquired restaurants and the potential loss of key employees. In particular, the failure to maintain adequate operating and financial
control systems or unexpected difficulties encountered during expansion could materially and adversely affect the Company's business, financial condition and results of operations. There can be no
assurance that any acquisition will not materially and adversely affect the Company or that any such acquisition will enhance the Company's business. Furthermore, the Company is unable to predict the
likelihood of any additional acquisitions being proposed or completed in the near future.

A
strategy of growth through acquisitions requires access to significant capital resources. If the Company determines to make a sizeable acquisition, the Company may be required to sell
additional equity or debt securities or obtain additional credit facilities. The sale of additional equity or convertible debt securities could result in additional dilution to the Company's
stockholders. At present, the Company has only limited availability under its credit facility which expires on October 31, 2005. There can be no assurance that this credit facility will be
replaced or a new credit facility will be established to the Company for any such acquisition.

From
February 1998 to January 2001, the Company acquired 27 restaurants in seven states, including 15 restaurants in Florida. The Company has only acquired one new
restaurant from January 2001 to January 2005. On February 1, 2005, the Company entered into a strategic alliance with

10

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the
option to purchase as many as five restaurants. As a result of these acquisitions, the Company is complex and diverse, and the integration of the acquisitions has presented difficult challenges
for the Company requiring increased management time and resources. In order to improve profitability, the Company needs to continue successfully integrating and streamlining restaurant functions. The
difficulties of such integration have been increased by the necessity of coordinating geographically separate organizations. The integration of certain operations following the acquisitions required
the dedication of management resources resulting in a temporary distraction from the day-to-day business of the Company. The Company continues to reduce costs and integrate
functions. The failure to continue effectively integrating the operations of the Company or improving the results of operations of the acquired restaurants could have a material adverse effect on the
Company's business, financial condition and results of operations.

Dependence Upon and Restrictions Resulting from Franchisors.The Company operates its 14 HomeTown Buffet Restaurants through
its wholly-owned subsidiary, HTB Restaurants, Inc., which is a party to a Franchise Agreement with the HomeTown Franchisor for each such restaurant.

The
performance of the Company's HomeTown Buffet restaurant operations is directly related to the success of the HomeTown Buffet restaurant system, including the management and financial
condition of HomeTown as well as restaurants operated by HomeTown and their other franchisees. The inability of such restaurants to compete effectively could have a material adverse effect on the
Company's operations. The success of the Company's HomeTown Buffet restaurants depends in part on the effectiveness of the HomeTown franchisor's marketing efforts, new product development programs,
quality assurance and other operational systems over which the Company has little or no control. For example, adverse publicity involving HomeTown restaurants operated by the franchisor or their other
franchisees could have a material adverse effect on the Company's business, financial condition and results of operations.

The
Company's operations with respect to its HomeTown restaurants are subject to certain restrictions imposed by policies and procedures of HomeTown currently in effect and which, from
time to time, change. These restrictions limit the Company's ability to modify the menu items and decor of its restaurants and may have the effect of limiting the Company's ability to pursue its
business plan. Furthermore, the franchise agreement with the HomeTown franchisor imposes substantial restrictions on the Company's ability to operate certain restaurant formats and to open additional
restaurants in certain geographical areas.

Dependence Upon and Restrictions Resulting from Licensors.The Company, through its subsidiary Summit, operates seven JB's
Restaurants in Arizona, Montana, New Mexico, Utah and Wyoming. In connection with the acquisition of certain JB's Restaurants in 1998 from JB's Family Restaurants, Inc., a
subsidiary of CKE Restaurants, Inc., the Company entered into a one-year franchise agreement for each location which required among other items, the payment of royalty fees. After
the acquisition of certain JB's Restaurants, the Company negotiated a ten-year option for annual renewable franchise agreements for each of the JB's Restaurants the Company operates. In
February 2000, the Company elected not to renew these franchise agreements. The Company entered into a License Agreement with the JB's Licensor for each such restaurant in November 2002.
The license agreement allows the Company to use the JB's trademarks through August 31, 2012 with an option for an additional ten years.

The
performance of the Company's JB's Restaurant operations is directly related to the success of the JB's Restaurant system, including the management and financial condition of the JB's
Licensor as well as the number of restaurants operated by the JB's Licensor and their other licensees or franchisees. The inability of such restaurants to compete effectively could have a material
adverse effect on the Company's operations as well as the number of restaurants. The success of the Company's JB's Restaurants depends in part on the effectiveness of the JB's Licensor's marketing
efforts, new product

11

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development
programs, quality assurance and other operational systems over which the Company has little or no control. For example, adverse publicity involving JB's Restaurants operated by the
licensor or their other licensees or franchisees could have a material adverse effect on the Company's business, financial condition and results of operations.

The
Company's operations with respect to its JB's Restaurants are subject to certain restrictions imposed by policies and procedures of JB's currently in effect and which, from time to
time, change. The licensor, JB's Family Restaurants, Inc. filed for bankruptcy on March 20, 2002. The licensor's bankruptcy has had no significant impact on the Company's restaurant
operations to date.

The Company's Quarterly Results are Likely to Fluctuate.The Company has in the past experienced, and expects to continue to
experience, significant fluctuations in restaurant revenues and results of operations from quarter to quarter. In particular, the Company's quarterly results can vary as a result of acquisitions,
costs incurred to integrate newly acquired entities and seasonal patterns. A large number of the Company's 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, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance. There can be no assurance that future seasonal and quarterly
fluctuations will not have a material adverse effect on the Company's business, results of operation and financial condition.

The Restaurant Industry is Highly Competitive.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, including chains and individually owned restaurants that use a buffet format. The number of buffet restaurants with operations generally similar to the Company's has grown considerably in
the last several years and the Company believes competition among buffet-style restaurants is increasing. As the Company and its principal competitors expand operations in various geographic
areas, competition, including competition among buffet-style restaurants, can be expected to intensify. Such intensified competition could increase the Company's operating costs or adversely affect
its revenues or operating margins. A number of competitors have been in existence longer than the Company and have substantially greater financial, marketing and other resources and wider geographical
diversity than does the Company. In addition, the restaurant industry has few noneconomic barriers to entry and is affected by changes in consumer tastes, national, regional and local economic
conditions and market trends. The Company's significant investment in, and long term commitment to, each of its restaurant sites limits its ability to respond quickly or effectively to changes in
local competitive conditions or other changes that could affect the Company's 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 may be adversely affected by factors such as traffic patterns, demographic
considerations and the type, number and location of competing restaurants. Multi-unit food service businesses such as the Company's can also be materially and adversely affected by
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. The Company's business could
be adversely affected by terrorist attacks directed toward the food supply chain or public concerns about the safety of the food supply chain. Dependence on frequent deliveries of fresh produce and
groceries subjects food service businesses such as the Company's to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the
availability, quality and cost of ingredients. The Company's profitability is highly sensitive to increases in food, labor and other operating costs that cannot always be passed on to its guests in
the form of higher prices or otherwise

12

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compensated
for. In addition, unfavorable trends or developments concerning factors such as inflation, increased food, labor, employee benefits, including increases in hourly wage and unemployment tax
rates and utility costs, increases in the number and locations of competing buffet-style restaurants, regional weather conditions and the availability of experienced management and hourly employees
may also adversely affect the food service industry in general and the Company's business, financial condition and results of operations in particular. Changes in economic conditions affecting the
Company's guests could reduce traffic in some or all of the Company's restaurants or impose practical limits on pricing, either of which could have a material adverse effect on the Company's business,
financial condition and results of operations. The success of the Company will depend in part on the ability of the Company's management to anticipate, identify and respond to changing conditions.
There can be no assurance that management will be successful in this regard.

The Company is Dependent on Its Key Personnel.The Company believes that its success will depend in part on the services of
its key executives, including Robert E. Wheaton, Chairman of the Board, Chief Executive Officer and President. The Company does not maintain key man life insurance. The loss of the services of
Mr. Wheaton could have a material adverse effect upon the Company's business, financial condition and results of operations, as there can be no assurances that a qualified replacement
would be available in a timely manner if at all. The Company's continued growth will also depend in part on its ability to attract and retain additional skilled management personnel.

The Restaurant Industry is Subject to Substantial Government Regulation.The restaurant industry is subject to federal, state
and local government regulations, including those relating to the preparation and sale of food as well as building and zoning requirements. In addition, the Company is subject to laws governing its
relationship with employees, including minimum wage requirements, overtime, working and safety conditions and citizenship requirements. The failure to obtain or retain food licenses or an increase in
the minimum wage rate, employee benefit costs or other costs associated with employees, could have a material adverse effect on the Company's business, financial condition and results of operations.
Many of the Company's employees are paid hourly rates based upon the federal and state minimum wage laws. Changes in federal, state or local requirements increasing the minimum wage may result in
higher labor costs to the Company.

Effect of Certain Charter and Bylaw Provisions.Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or of discouraging 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 the Company's Common Stock. The Company's 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 unissued 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 eliminates the ability of stockholders to call special meetings. The
Company's 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, the Company has 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.

Possible Volatility of Stock Price.The stock market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular companies. The volume of trading in the market for the Company's common stock is limited, which may make it

13

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difficult
to liquidate your investment and can increase price volatility. Due to changes in the balance of buy and sell orders and other factors, the price of the Company's common stock can change for
reasons unrelated to the performance of the business of the Company. Fluctuations in the Company's operating results, failure of such operating results to meet the expectations of stock market
analysts and investors, changes in stock market analyst recommendation regarding the Company, the success or perceived success of competitors of the Company, as well as changes in general economic or
market conditions and changes in the restaurant industry may also have a significant adverse affect on the market price of the Common Stock.

Sale of a Substantial Number of Shares of Our Common Stock Could Cause the Market Price to Decline.Sales 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 15, 2005, 2,950,000 shares of common stock were
outstanding and 750,000 shares were issuable upon exercise of outstanding options at exercise prices ranging from $5.00 to $12.00. The Company cannot predict the effect, if any, that sales of shares
of the Company's common stock or the availability of such shares for sale will have on prevailing market prices. However, substantial amounts of the Company's common stock could be sold in the public
market, which may adversely affect prevailing market prices for the common stock.

Control by One Principal Stockholder.Robert E. Wheaton, Chairman of the Board, Chief Executive Officer and President,
currently beneficially owns approximately 49% of our total equity securities, assuming exercise of vested employee stock options, and possesses approximately 49% 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. Sales of a substantial number
of shares of our common stock by Mr. Wheaton or other principal shareholders in the public market could substantially reduce the prevailing market price of our common stock.

Item 2.Properties

The Company's corporate headquarters are located in Salt Lake City, Utah, and other executive offices are located in Scottsdale, Arizona.

The
Company's restaurants are primarily freestanding locations. As of January 31, 2005 most of the Company's restaurant facilities were leased. The leases expire on dates ranging
from 2004 to 2013 with the majority of the leases providing for renewal options. All leases provide for specified periodic rental payments including periodic rent escalation terms in certain
instances, and most call for additional rent based upon revenue volume. Most leases require the Company to maintain the property and pay taxes and other related expenses.

The
following is a summary of the Company's restaurant properties as of January 31, 2005:

|       |       | HomeTown
Buffet |    | Casa
Bonita |   | North's
Star |   | Florida
Buffets |    | JB's |   | Total
|------ | ----- | --------------- | -- | ----------- | - | ------------ | - | --------------- | -- | ---- | - | -----
|Owned  |       | 3               |    |            |   | 1            |   | 5               |    | 4    |   | 13   
|Leased |       | 11              |    | 2           |   | 3            |   | 6               |    | 5    |   | 27   
|       |       |                 |    |             |   |              |   |                 |    |      |   |      
|       | Total |                 | 14 |             | 2 |              | 4 |                 | 11 |      | 9 |      
|       |       |                 |    |             |   |              |   |                 |    |      |   |      

14

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As
of January 31, 2005, the Company's restaurants are located in the following states:

|           |       | Number of Restaurants
|---------- | ----- | ---------------------
|
|Arizona    |       | 8                    
|Colorado   |       | 1                    
|Florida    |       |                     
|Idaho      |       |                     
|Montana    |       |                     
|New Mexico |       | 2                    
|Oklahoma   |       |                     
|Oregon     |       |                     
|Utah       |       | 2                    
|Washington |       |                     
|Wyoming    |       | 1                    
|           |       |                      
|           | Total |                      
|           |       |                      

As
of January 31, 2005, the Company's non-operating restaurants are located in the following states:

|        |       | Number of Non-Operating Restaurants
|------- | ----- | -----------------------------------
|
|Arizona |       |                                   
|Florida |       |                                   
|Idaho   |       |                                   
|Utah    |       |                                   
|Wyoming |       |                                   
|        |       |                                    
|        | Total |                                    
|        |       |                                    

Four
of the non-operating restaurants have been leased to third-party operators, three remain closed for remodeling and repositioning and the net assets of one closed
restaurant are classified as property held for sale.

Item 3.Legal Proceedings

On November 25, 1998, the Company filed an action against North's in the United States District Court, District of Utah, Case
No. 2-98-CV-893, seeking damages for breach of a promissory note and an Amended and Restated Credit Agreement (collectively, the "Credit Agreements") in the
amount of $3,570,935. On December 31, 1998, North's filed an answer to the Company's Complaint, denying generally the allegations, and filed counterclaims against the Company. On
January 26, 2001, the parties entered into a Settlement Agreement (the "Settlement Agreement"). The Company and North's agreed to reduce the debt to a total amount of $3,500,000 and that such
reduced obligation be payable by North's pursuant to the terms of the Amended and Restated Promissory Note ("Star Buffet Promissory Note"). The Company recorded no gain or loss on the
settlement as the recorded balance of the note was approximately $3.5 million at the time of the settlement. The Company and North's agreed that the Company's existing liens encumbering certain
property of North's remain in place and continue to secure North's obligations to the Company, and the Company and North's reserved all rights, claims and defenses with respect to the extent and
validity of such existing liens.

15

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On
March 2, 2004, the Company filed a second action against North's Restaurants, Inc. ("North's") in the United States District Court, District of Utah, Central Division,
Case No. 2:04CV00211, demanding judgment against North's for failure to repay obligations under the Star Buffet Promissory Note in a
total amount not less than $2,934,453 plus interest at the default rate as set forth in the Star Buffet Promissory Note. A trial date has not been set. Since January 26, 2004, the note
receivable has been recorded as a long-term receivable. The Company has not recorded interest income due from North's since August 2003. Subsequent to year end, in
March 2005, North's made a $9,000 interest payment. Since October 2004, the business of North's has been operated under a receivership. The Company's note, together with the obligation
to another significant creditor of North's, is secured by the real and personal property, landlord leases, trademarks and all other intellectual property associated with seven restaurants. The Company
believes current and future cash flows are adequate for recovery of the principal amount of the note receivable. The Company therefore has not provided an allowance for bad debts for the note as of
January 31, 2005.

The
Company is from time to time the subject of complaints or litigation from customers alleging injury on properties operated by the Company, illness or other food quality, health or
operational concerns. Adverse publicity resulting from such allegations may materially adversely affect the Company and its restaurants, regardless of whether such allegations are valid or whether the
Company is liable. The Company also is the subject of complaints or allegations from employees from time to time. The Company believes that the lawsuits, claims and other legal matters to which it has
become subject in the course of its business are not material to the Company's business, financial condition or results of operations, but an existing or future lawsuit or claim could result in an
adverse decision against the Company that could have a material adverse effect on the Company's business, financial condition and results of operations.

Item 4.Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5.Market for the Registrant's Common Equity and Related Stockholder Matters

Market Information and Holders.The Company's Common Stock is listed on the NASDAQ smallcap market under the symbol "STRZ".
As of April 15, 2005, there were approximately 545 record holders of the Company's Common Stock. The following table sets forth the high and low bid quotations for the Common Stock, as reported
by NASDAQ.

2005

2004Fiscal YearHigh

Low

High

LowFirst Quarter

$
7.70

$
5.25

$
2.45

$
1.71Second Quarter


6.95


5.30


3.10


1.72Third Quarter


6.50


5.41


4.40


2.49Fourth Quarter


6.51


5.22


5.95


3.58


Dividends.On February 25, 2005, the Board of Directors approved the Company's second annual dividend of $0.50 per
common share, an increase of $0.25 per share from the prior year, and a special dividend of $0.25 per common share. Both are payable on June 8, 2005 to shareholders of record on May 12,
2005.



The following table gives information about our shares of Common Stock that may be issued under our equity compensation plans.

|                                                           |       | (a)     |         | (b) |      | (c) 
|---------------------------------------------------------- | ----- | ------- | ------- | --- | ---- | ----
|
|Equity compensation plans approved by security holders     |       | 701,000 |         | $   | 9.88 |     
|Equity compensation plans not approved by security holders |       |        |         |     |     |     
|                                                           |       |         |         |     |      |     
|                                                           | Total |         | 701,000 |     | $    | 9.88

The
exercise price of the options granted and exercisable at January 31, 2005 is $5.00 for 212,000 options and $12.00 for 489,000 options.

Item 6.Selected Financial Data

The following paragraphs set forth selected consolidated financial data for our Company for the periods indicated. The selected consolidated financial data for
each of the five fiscal years ended January 31, 2005, has been derived from our consolidated financial statements, as restated, which have been audited by (1) KPMG LLP, our former
independent accountants, for the first fiscal year in the period ended January 29, 2001 (not included herein) (2) Grant Thornton LLP, our former independent accountants, for the fiscal
year ended January 28, 2002 (not included herein), and (3) Mayer Hoffman McCann P.C., our independent accountants, for each of the three fiscal years ended January 31, 2005
(included herein).

The
selected financial information and other data presented below should be read in conjunction with the "Consolidated Financial Statements", and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Form 10-K.

17

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The
operating results for the 53-week period ended January 31, 2005 included 53 weeks of operations for the Company's 14 franchised HomeTown Buffet restaurants, seven
JB's restaurants,
five BuddyFreddys restaurants (three of the five BuddyFreddys restaurants are BuddyFreddys Country Buffet restaurants), two JJ North's Country Buffet restaurants, two Casa Bonita restaurants, and two
Holiday House restaurants. In addition, operating results include 30, 34 and 52 weeks for three JJ North's Country Buffet restaurants closed during the fiscal year 2005. Results also include 35 and 51
weeks for two HomeTown Buffet restaurants. Results for 2005 also include 34 weeks of operations for one North's Star Buffet restaurant and 39 weeks of operations for one JB's Restaurant. Eight
restaurants were closed at the end of the 2005 fiscal year for repositioning. Four of the eight closed restaurants have been leased to third-property operators, three restaurants remain closed for
remodeling and repositioning and one closed restaurant is property held for sale.

The
operating results for the 52-week period ended January 26, 2004 included 52 weeks of operations for 16 franchised HomeTown Buffet restaurants, eight JB's
restaurants, five BuddyFreddys restaurants (three of the five BuddyFreddys restaurants are BuddyFreddys Country Buffet restaurants), five JJ North's Country Buffet restaurants, two Casa Bonita
restaurants, two Holiday House restaurants and one North's Star Buffet restaurant. In addition, operating results include 19 and 2 weeks for two BuddyFreddys Country Buffet restaurants closed during
the fiscal year 2004. Results also include 12 weeks of operations for one JJ North's Country Buffet restaurant and 5 weeks of operations for one JB's Restaurant. Five restaurants were closed at the
end of the 2004 fiscal year for repositioning. Three of the five closed restaurants were leased to third-property operators and one closed restaurant was property held for sale. Additionally, another
property was sold during fiscal 2004.

The
operating results for the 52-week period ended January 27, 2003 included 52 weeks of operations for 16 franchised HomeTown Buffet restaurants, nine JB's
restaurants, seven BuddyFreddys restaurants (five of the seven BuddyFreddys restaurants are BuddyFreddys Country Buffet restaurants), six JJ North's Country Buffet restaurants, two Casa Bonita
restaurants, two Holiday House restaurants and one North's Star Buffet restaurant. In addition, operating results include 23 and 9 weeks for two BuddyFreddys Country Buffet restaurants closed during
the fiscal year 2003. Results also include 19 weeks of operations for one JJ North's Country Buffet restaurant and 30 weeks of operations for one JJ North's Family Restaurant opened July 2002.
Seven restaurants were closed at the end of the 2003 fiscal year for repositioning. Two of the seven closed restaurants were leased and the property of another one was under contract to be sold and
was reported as property held for sale. During the first quarter of fiscal 2004, three restaurants were closed that resulted in an impairment of leasehold improvements of $188,000 included in the
fourth quarter of 2003.

The
operating results for the 52-week period ended January 28, 2002 included 52 weeks of operations for 16 franchised HomeTown Buffet restaurants, ten JB's
restaurants, nine BuddyFreddys restaurants, seven of which are BuddyFreddys Country Buffet restaurants, six JJ North's Country Buffet restaurants, two Casa Bonita restaurants, two Holiday House
restaurants and one North's Star Buffet restaurant. In addition, the results include 36, 35, 24, 19 and 3 weeks respectively for five BuddyFreddys Country Buffet restaurants. Results also include 30
weeks of operations for one JJ North's Country Buffet restaurant which reopened in July 2001. Four restaurants were closed at the end of the 2002 fiscal year for remodeling and repositioning.
The fiscal year 2002 included impairment charges for a restaurant closed in the first quarter of 2003.

The
operating results for the 52-week period ended January 29, 2001 included 52 weeks of operations for 16 franchised HomeTown Buffet restaurants, ten JB's
restaurants, ten BuddyFreddys
Country Buffet restaurants, six JJ North's Country Buffet restaurants, two BuddyFreddys restaurants, two Casa Bonita restaurants, two Holiday House restaurants and one North's Star Buffet restaurant.
The results also include 14 weeks for one North's Star Buffet restaurant which was closed for remodeling and 15 weeks for one JB's restaurant which closed when the lease terminated. In addition,
results include 49, 31, 18, 12 and 12 weeks respectively for five BuddyFreddys Country Buffet restaurants. Two restaurants were closed at the end of the 2001 fiscal year for remodeling and
repositioning. The fiscal year 2001 included impairment charges for a restaurant closed in the first quarter of 2002.

18

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SELECTED FINANCIAL DATA  (In thousands except per share amounts and restaurant unit data)

|                                                                                                    |                                     | Fifty-Three
Weeks
Ended
Jan. 31, 2005 |        | (Restated(1))
Fifty-Two
Weeks
Ended
Jan. 26, 2004 |        | (Restated(1))
Fifty-Two
Weeks
Ended
Jan. 27, 2003 |        | (Restated(1))
Fifty-Two
Weeks
Ended
Jan. 28, 2002 |        | (Restated(1))
Fifty-Two
Weeks
Ended
Jan. 29, 2001 |       
|--------------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------------------- | ------ | ------------------------------------------------- | ------ | ------------------------------------------------- | ------ | ------------------------------------------------- | ------ | ------------------------------------------------- | ------
|Consolidated Statements of Operations Data:                                                         |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Total revenues                                                                                      |                                     | $                                     | 64,856 |                                                   | $      | 68,090                                            |        | $                                                 | 74,798 |                                                   | $     
|Costs and expenses                                                                                  |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|                                                                                                    | Food costs                          |                                       |        | 22,336                                            |        |                                                   | 23,275 |                                                   |        | 25,867                                            |       
|                                                                                                    | Labor costs                         |                                       |        | 21,712                                            |        |                                                   | 23,015 |                                                   |        | 25,695                                            |       
|                                                                                                    | Occupancy and other expenses        |                                       |        | 12,963                                            |        |                                                   | 14,042 |                                                   |        | 15,960                                            |       
|                                                                                                    | General and administrative expenses |                                       |        | 2,694                                             |        |                                                   | 2,433  |                                                   |        | 3,739                                             |       
|                                                                                                    | Depreciation and amortization       |                                       |        | 2,440                                             |        |                                                   | 2,670  |                                                   |        | 3,485                                             |       
|                                                                                                    | Impairment of long-lived assets     |                                       |        | 2,838                                             |        |                                                   | 1,083  |                                                   |        | 1,831                                             |       
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|                                                                                                    |                                     | Total costs and expenses              |        |                                                   | 64,983 |                                                   |        | 66,518                                            |        |                                                   | 76,577
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Income (loss) from operations                                                                       |                                     |                                       | (127   | )                                                 |        | 1,572                                             |        |                                                   | (1,779 | )                                                 |       
|Interest expense                                                                                    |                                     |                                       | (640   | )                                                 |        | (569                                              | )      |                                                   | (614   | )                                                 |       
|Reversal of litigation accrual                                                                      |                                     |                                       |       |                                                   |        | 400                                               |        |                                                   |       |                                                   |       
|Other income, net                                                                                   |                                     |                                       | 427    |                                                   |        | 319                                               |        |                                                   | 272    |                                                   |       
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Income (loss) before income taxes (benefit)                                                         |                                     |                                       | (340   | )                                                 |        | 1,722                                             |        |                                                   | (2,121 | )                                                 |       
|Income taxes (benefit)                                                                              |                                     |                                       | (168   | )                                                 |        | 609                                               |        |                                                   | (815   | )                                                 |       
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Income (loss) before cumulative effect of a change in accounting principle                          |                                     |                                       | (172   | )                                                 |        | 1,113                                             |        |                                                   | (1,306 | )                                                 |       
|Cumulative effect of a change in accounting principlenet of tax benefit                            |                                     |                                       |       |                                                   |        |                                                  |        |                                                   | (560   | )                                                 |       
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Net income (loss)                                                                                   |                                     | $                                     | (172   | )                                                 | $      | 1,113                                             |        | $                                                 | (1,866 | )                                                 | $     
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Income (loss) per common share before cumulative effect of a change in accounting principlebasic   |                                     | $                                     | (0.06  | )                                                 | $      | 0.38                                              |        | $                                                 | (0.44  | )                                                 | $     
|Income (loss) per common share before cumulative effect of a change in accounting principlediluted |                                     | $                                     | (0.06  | )                                                 | $      | 0.35                                              |        | $                                                 | (0.44  | )                                                 | $     
|Cumulative effect of a change in accounting principlenet of tax benefit                            |                                     |                                       |       |                                                   |        |                                                  |        |                                                   | (0.19  | )                                                 |       
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Net income (loss) per common sharebasic                                                            |                                     | $                                     | (0.06  | )                                                 | $      | 0.38                                              |        | $                                                 | (0.63  | )                                                 | $     
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Net income (loss) per common sharediluted                                                          |                                     | $                                     | (0.06  | )                                                 | $      | 0.35                                              |        | $                                                 | (0.63  | )                                                 | $     
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Weighted average shares outstandingbasic                                                           |                                     |                                       | 2,950  |                                                   |        | 2,950                                             |        |                                                   | 2,950  |                                                   |       
|Weighted average shares outstandingdiluted                                                         |                                     |                                       | 2,950  |                                                   |        | 3,185                                             |        |                                                   | 2,950  |                                                   |       
|Balance sheet data:                                                                                 |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Total assets                                                                                        |                                     | $                                     | 34,880 |                                                   | $      | 35,954                                            |        | $                                                 | 39,446 |                                                   | $     
|Total debt and capital lease obligations including current portion                                  |                                     |                                       | 8,207  |                                                   |        | 7,967                                             |        |                                                   | 9,134  |                                                   |       
|Stockholders' equity                                                                                |                                     | $                                     | 19,775 |                                                   | $      | 20,790                                            |        | $                                                 | 19,677 |                                                   | $     
|Other data:                                                                                         |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Operating units(2)                                                                                  |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|                                                                                                    | HomeTown Buffet                     |                                       |        | 14                                                |        |                                                   | 16     |                                                   |        | 16                                                |       
|                                                                                                    | Casa Bonita                         |                                       |        | 2                                                 |        |                                                   | 2      |                                                   |        | 2                                                 |       
|                                                                                                    | North's Star                        |                                       |        | 2                                                 |        |                                                   | 6      |                                                   |        | 7                                                 |       
|                                                                                                    | Florida Buffets                     |                                       |        | 7                                                 |        |                                                   | 7      |                                                   |        | 9                                                 |       
|                                                                                                    | JB's Restaurants                    |                                       |        | 7                                                 |        |                                                   | 8      |                                                   |        | 10                                                |       
|Non-Operating                                                                                       |                                     |                                       | 8      |                                                   |        | 5                                                 |        |                                                   | 7      |                                                   |       
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       
|Total                                                                                               |                                     |                                       | 40     |                                                   |        | 44                                                |        |                                                   | 51     |                                                   |       
|                                                                                                    |                                     |                                       |        |                                                   |        |                                                   |        |                                                   |        |                                                   |       

---

19

---



Supplemental Quarterly Financial Data (Unaudited).Quarterly financial results for the 53 weeks ended
January 31, 2005, and the 52 weeks ended January 26, 2004 and January 27, 2003, are summarized below. Each quarter except fourth quarter fiscal 2005 has been restated to reflect
the adjustments as described in Note 2 of the notes to the Consolidated Financial Statements.

|                                  |         | For the 53 Weeks Ended January 31, 2005 |       
|--------------------------------- | ------- | --------------------------------------- | ------
|
|
|Revenues                          |         | $                                       | 21,551
|                                  |         |                                         |       
|Income (loss) from operations     |         |                                         | 1,043 
|                                  |         |                                         |       
|Income (loss) before income taxes |         |                                         | 940   
|Income taxes (benefit)            |         |                                         | 329   
|                                  |         |                                         |       
|Net income (loss)                 |         | $                                       | 611   
|                                  |         |                                         |       
|Earnings (loss) per share:        |         |                                         |       
|                                  | Basic   |                                         | $     
|                                  | Diluted |                                         | $     

|                                  |         | For the 52 Weeks Ended January 26, 2004
|--------------------------------- | ------- | ---------------------------------------
|
|
|Revenues                          |         | $                                      
|                                  |         |                                        
|Income (loss) from operations     |         |                                        
|                                  |         |                                        
|Income (loss) before income taxes |         |                                        
|Income taxes (benefit)            |         |                                        
|                                  |         |                                        
|Net income (loss)                 |         | $                                      
|                                  |         |                                        
|Earnings (loss) per share:        |         |                                        
|                                  | Basic   |                                        
|                                  | Diluted |                                        

20

---



|                                                                                                              |  | For the 52 Weeks Ended January 27, 2003 |       
|------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------
|
|
|Revenues                                                                                                      |  | $                                       | 25,192
|                                                                                                              |  |                                         |       
|Income (loss) from operations                                                                                 |  |                                         | 545   
|                                                                                                              |  |                                         |       
|Income (loss) before income taxes (benefit)                                                                   |  |                                         | 428   
|Income taxes (benefit)                                                                                        |  |                                         | 148   
|                                                                                                              |  |                                         |       
|Income (loss) before cumulative effect of a change in accounting principle                                    |  |                                         | 280   
|Cumulative effect of a change in accounting principlenet of tax benefit                                      |  |                                         | (560  
|                                                                                                              |  |                                         |       
|Net income (loss)                                                                                             |  | $                                       | (280  
|                                                                                                              |  |                                         |       
|Income (loss) per common share before cumulative effect of a change in accounting principlebasic and diluted |  | $                                       | 0.09  
|Cumulative effect of a change in accounting principlenet of tax benefit                                      |  | $                                       | (0.19 
|Net income (loss) per common sharebasic and diluted                                                          |  | $                                       | (0.10 

Amounts
indicated may not foot due to quarterly rounding.

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 Form 10-K. The operating results for the 53-week period ended January 31, 2005 and for the
52-week periods ended January 26, 2004 and January 27, 2003 are based on the composition of restaurant operations as discussed in Item 6Selected Financial Data.

Star
Buffet, Inc., a Delaware corporation ("Star" and collectively with its subsidiaries, the "Company"), is engaged in the restaurant industry. As of January 31, 2005, the
Company owned and operated 14 franchised HomeTown Buffet restaurants, seven JB's Restaurants, five BuddyFreddys restaurants, two JJ North's Country Buffet restaurants, two Holiday House restaurants
and two Mexican-themed restaurants operated under the Casa Bonita name. The Company also had three restaurants currently closed for remodeling and repositioning, four restaurants leased to third-party
operators and the net assets of another closed restaurant reported as property held for sale. The Company's restaurants are located in nine western states, Oklahoma and Florida.

The
Company's sales were $64.9 million in fiscal 2005 and $68.1 million in fiscal 2004, a 4.8 percent decrease. On a 52-week basis, after adjusting for
the $1.1 million of sales contributed by the additional 53rd week in fiscal 2005, total sales would have been $63.7 million for fiscal 2005, a 6.5 percent decrease from fiscal
2004. Sales from closed stores were approximately $3.0 million of the decrease. Same store sales decreased approximately two percent adjusted for 52-weeks in both years. The
net loss for fiscal 2005 was $172,000 (($0.06) per diluted share) compared with net income of for fiscal 2004 of $1,113,000 ($0.35 per diluted share). Fiscal 2005 was impacted by non-cash
charges of $2.8 million for impairment of long-lived assets compared to $1.1 million of impairment in fiscal 2004.

As
a result of a review of its accounting records during the normal course of the fiscal 2005 independent audit, the Company determined rent expense for the fiscal years 1997
through 2004 had

21

---



been
under-recognized. The determination was based on an internal review in consultation with its independent auditors and considering the opinions expressed in the letter of February 7, 2005
from the Office of the Chief Accountant of the Securities and Exchange Commission ("SEC") issued to the American Institute of Certified Public Accountants regarding certain operating lease accounting
issues and their application under generally accepted accounting principles in the United States of America ("GAAP"). On March 28, 2005, the Audit Committee of Star Buffet, Inc.
determined that it needed to change its calculation and presentation of straight-line rent expense and related deferred rent liability which were not in accordance with GAAP. The Company
has restated its previously reported audited financial statements for the fiscal years ended January 26, 2004 and January 27, 2003 and the related unaudited quarterly financial
statements for those periods, as well as the unaudited financial statements for the quarters ended May 17, 2004, August 9, 2004 and November 1, 2004. Previously, the Company
recorded rent expense on a straight-line basis over the initial non-cancelable lease term. The Company depreciated its leasehold improvements over a period that included both
the initial non-cancelable term of the lease and certain option periods. The Company restated its financial statements to recognize rent expense on a straight-line basis to
conform to the term used to depreciate leasehold improvements on the leased property. See Note 2 to the Consolidated Financial Statements included in this report for the restated amounts for
each respective annual and quarterly period. Management's discussion and analysis of financial condition and results of operations incorporates the restated amounts for fiscal years 2004 and
2003.

The
implementation of the Company's acquisition and strategic alliance strategies, and the costs associated with integrating new, under performing or unprofitable restaurants, acquired
or otherwise operated by the Company may affect the comparability of future periods and have a material adverse effect on the Company's results of operations.

We
conduct business in the buffet segment of the restaurant industry and the operating performance of our restaurants is directly and heavily influenced by the overall state of the
national and local economies where our restaurants are located. When overall economic conditions negatively impact the financial performance of an individual restaurant, we periodically consider all
the factors influencing that restaurant, such as operational efficiencies, local demographic changes, local construction activity, competition and other related factors. We then assess the prospect
that we can improve both the short-term and long-term financial results, at least to a level sufficient to recover our investment in the leasehold improvements and equipment
assets. There have been and likely will continue to be situations where we will make the decision that an asset is impaired and a write-down in required.

22

---



Results of Operations

The following table summarizes the Company's results of operations as a percentage of total revenues for the fifty-three weeks ended January 31, 2005
("fiscal 2005"), and for the fifty-two weeks ended January 26, 2004 ("fiscal 2004") and January 27, 2003 ("fiscal 2003").

|                                                                                                      |                                     | Fifty-Three
Weeks Ended
January 31, 2005 |      | (Restated)
Fifty-Two
Weeks Ended
January 26, 2004 |      | (Restated)
Fifty-Two
Weeks Ended
January 27, 2003 |     
|----------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------------- | ---- | ------------------------------------------------- | ---- | ------------------------------------------------- | ----
|Total revenues                                                                                        |                                     | 100.0                                    | %    | 100.0                                             | %    | 100.0                                             | %   
|                                                                                                      |                                     |                                          |      |                                                   |      |                                                   |     
|Costs and expenses:                                                                                   |                                     |                                          |      |                                                   |      |                                                   |     
|                                                                                                      | Food costs                          |                                          | 34.4 |                                                   | 34.2 |                                                   | 34.6
|                                                                                                      | Labor costs                         |                                          | 33.5 |                                                   | 33.8 |                                                   | 34.4
|                                                                                                      | Occupancy and other expenses        |                                          | 20.0 |                                                   | 20.6 |                                                   | 21.3
|                                                                                                      | General and administrative expenses |                                          | 4.1  |                                                   | 3.6  |                                                   | 5.0 
|                                                                                                      | Depreciation and amortization       |                                          | 3.8  |                                                   | 3.9  |                                                   | 4.7 
|                                                                                                      | Impairment of long-lived assets     |                                          | 4.4  |                                                   | 1.6  |                                                   | 2.4 
|                                                                                                      |                                     |                                          |      |                                                   |      |                                                   |     
|Total costs and expenses                                                                              |                                     | 100.2                                    |      | 97.7                                              |      | 102.4                                             |     
|                                                                                                      |                                     |                                          |      |                                                   |      |                                                   |     
|Income (loss) from operations                                                                         |                                     | (0.2                                     | )    | 2.3                                               |      | (2.4                                              | )   
|                                                                                                      | Interest expense                    |                                          | (1.0 | )                                                 | (0.8 | )                                                 | (0.8
|                                                                                                      | Reversal of litigation accrual      |                                          |     |                                                   | 0.6  |                                                   |    
|                                                                                                      | Other income, net                   |                                          | 0.7  |                                                   | 0.5  |                                                   | 0.4 
|                                                                                                      |                                     |                                          |      |                                                   |      |                                                   |     
|Income (loss) before income taxes (benefit) and cumulative effect of a change in accounting principle |                                     | (0.5                                     | )    | 2.6                                               |      | (2.8                                              | )   
|Income taxes (benefit)                                                                                |                                     | (0.2                                     | )    | 0.9                                               |      | (1.1                                              | )   
|                                                                                                      |                                     |                                          |      |                                                   |      |                                                   |     
|Income (loss) before cumulative effect of a change in accounting principle                            |                                     | (0.3                                     | )    | 1.7                                               |      | (1.7                                              | )   
|Cumulative effect of a change in accounting principlenet of tax benefit                              |                                     |                                         |      |                                                  |      | (0.7                                              | )   
|                                                                                                      |                                     |                                          |      |                                                   |      |                                                   |     
|Net income (loss)                                                                                     |                                     | (0.3                                     | )%   | 1.7                                               | %    | (2.4                                              | )%  
|                                                                                                      |                                     |                                          |      |                                                   |      |                                                   |     

Summarized
financial information concerning the Company's reportable segments is shown in the following table. The other assets presented in the consolidated balance sheet and not in the
reportable segments relate to the Company as a whole, and not individual segments. Also certain corporate overhead income and expenses in the consolidated statements of operations are not included in
the reportable segments.

|                                  |  | HomeTown
Buffet(1) |        | Casa
Bonita(2) |   | North's
Star(3) |  | Florida
Buffets(4) |        | JB's(5) |   | Other  |   | Total |      
|--------------------------------- |  | ------------------ | ------ | -------------- | - | --------------- |  | ------------------ | ------ | ------- | - | ------ | - | ----- | -----
|
|53 Weeks Ended January 31, 2005   |  |                    |        |                |   |                 |  |                    |        |         |   |        |   |       |      
|Revenues                          |  | $                  | 32,282 |                | $ | 9,852           |  | $                  | 4,290  |         | $ | 10,785 |   | $     | 7,647
|Food cost                         |  |                    | 11,752 |                |   | 2,325           |  |                    | 1,828  |         |   | 3,892  |   |       | 2,539
|Labor cost                        |  |                    | 10,117 |                |   | 3,294           |  |                    | 1,684  |         |   | 3,644  |   |       | 2,973
|Interest income                   |  |                    |       |                |   |                |  |                    |       |         |   |       |   |       |     
|Interest expense                  |  |                    | (192   | )              |   |                |  |                    |       |         |   |       |   |       |     
|Depreciation & amortization       |  |                    | 1,084  |                |   | 232             |  |                    | 210    |         |   | 625    |   |       | 225  
|Impairment of long-lived assets   |  |                    | 798    |                |   |                |  |                    | 1,040  |         |   | 754    |   |       | 246  
|Income (loss) before income taxes |  |                    | 1,142  |                |   | 2,079           |  |                    | (1,667 | )       |   | (24    | ) |       | 332  
|                                  |  |                    |        |                |   |                 |  |                    |        |         |   |        |   |       |      

23

---



|52 Weeks Ended January 26, 2004   |  |   |        |   |   |       |  |   |        |   |   |        |  |   |       |  |   |        |   |   |        |  
|--------------------------------- |  | - | ------ | - | - | ----- |  | - | ------ | - | - | ------ |  | - | ----- |  | - | ------ | - | - | ------ | -
|Revenues                          |  | $ | 33,773 |   | $ | 9,437 |  | $ | 6,045  |   | $ | 10,592 |  | $ | 8,243 |  | $ |       |   | $ | 68,090 |  
|Food cost                         |  |   | 12,177 |   |   | 2,212 |  |   | 2,423  |   |   | 3,768  |  |   | 2,695 |  |   |       |   |   | 23,275 |  
|Labor cost                        |  |   | 10,645 |   |   | 3,236 |  |   | 2,320  |   |   | 3,715  |  |   | 3,099 |  |   |       |   |   | 23,015 |  
|Interest income                   |  |   |       |   |   |      |  |   |       |   |   |       |  |   |      |  |   | 107    |   |   | 107    |  
|Interest expense                  |  |   | (202   | ) |   |      |  |   |       |   |   |       |  |   |      |  |   | (367   | ) |   | (569   | )
|Depreciation & amortization       |  |   | 1,211  |   |   | 248   |  |   | 319    |   |   | 507    |  |   | 249   |  |   | 136    |   |   | 2,670  |  
|Impairment of long-lived assets   |  |   | 114    |   |   |      |  |   | 490    |   |   | 466    |  |   | 13    |  |   |       |   |   | 1,083  |  
|Income (loss) before income taxes |  |   | 1,987  |   |   | 1,818 |  |   | (1,129 | ) |   | 71     |  |   | 468   |  |   | (1,493 | ) |   | 1,722  |  

---

Comparison of Fiscal 2005 to Fiscal 2004

Total revenues decreased $3.2 million or 4.8% from $68.1 million in fiscal 2004 to $64.9 million in fiscal 2005. On a 52-week
basis, after adjusting for the $1.1 million of sales contributed by the additional 53rd week in fiscal 2005, total sales would have been $63.7 million for fiscal 2005, a
6.5 percent decrease from fiscal 2004. Sales from closed stores were approximately $3.0 million of the decrease. Same store sales decreased approximately two percent adjusted for
52-weeks in both years.

Food
costs as a percent of total revenues increased from 34.2% in fiscal 2004 to 34.4% in fiscal 2005. The increase as a percentage of total revenues was primarily attributable to higher
wholesale food prices in most major food categories as compared to the same period last year.

Labor
costs as a percent of total revenues decreased from 33.8% in fiscal 2004 to 33.5% in fiscal 2005. The decrease as a percentage of revenue resulted from the elimination of labor
inefficiencies in locations that were closed. The Company closed seven stores during fiscal 2005 and closed five stores during fiscal 2004.

Occupancy
and other expenses as a percent of total revenues decreased from 20.6% in fiscal 2004 to 20.0% in fiscal 2005. The decrease as a percentage of revenue is primarily attributable
to lower property rental costs of approximately $332,000 resulting from operating fewer stores, lower insurance costs of $135,000, lower other controllable costs consisting primarily of janitorial and
supply costs of $161,000 and lower advertising of $100,000 due primarily to fewer locations and lower utilities of $111,000. The fixed portion of occupancy costs is primarily fixed costs for property
leases and related common area maintenance and property taxes.

General
and administrative expenses as a percentage of total revenues increased from 3.6% in fiscal 2004 to 4.1% in fiscal 2005. The increase as a percentage of revenue is primarily
attributable to

24

---



higher
corporate insurance costs of $471,000 partially offset by lower corporate payroll of $80,000 and lower public fees expenses of $39,000 and lower royalty expense of $30,000.

Depreciation
and amortization as a percent of total revenues decreased from 3.9% in fiscal 2004 to 3.8% in fiscal 2005. The decrease as a percentage of revenue is primarily attributable
to certain equipment and impaired assets being fully depreciated for the 53-week period ended January 31, 2005 as compared to the 52-week period ended January 26,
2004.

Impairment
of long-lived assets increased from 1.6% in fiscal 2004 to 4.4% in fiscal 2005. The impairment in fiscal 2005 was a result of the closure of one JJ North's Country
Buffet restaurant in the third quarter, the closure of one JJ North's Country Buffet restaurant in the fourth quarter, the closure of one HomeTown Buffet restaurant in the third quarter, the closure
of one HomeTown Buffet restaurant in the fourth quarter and the impairment of four restaurants' leasehold improvements where projected undiscounted cash flow is less than the net book value of the
assets. Fiscal 2005 also included the goodwill impairment of $1,230,000 related to five restaurants. The impairment in fiscal 2004 was a result of the lease termination of one restaurant in Idaho and
two leased restaurants where projected undiscounted cash flow was less than the net book value of assets.

Interest
expense as a percent of total revenues increased from 0.8% in fiscal 2004 to 1.0% in fiscal 2005. The increase is primarily attributable to higher interest rates increasing from
3.2% in fiscal 2004 to 4.0% in fiscal 2005 on the Term Loan Facility and Revolving Credit Facility financed by M&I Marshall and Ilsley Bank as discussed in Note 5 of the notes to the
consolidated financial statements and offset by lower outstanding balances on those facilities.

Income
taxes decreased to a benefit of 49.4% of earnings before taxes due to the loss for fiscal 2005 from 35.4% of earnings before taxes in fiscal 2004. General business credits in
fiscal 2005 increased the Company's benefit.

Comparison of Fiscal 2004 to Fiscal 2003

Total revenues decreased $6.7 million or 9.0% from $74.8 million in fiscal 2003 to $68.1 million in fiscal 2004. The decrease was primarily
attributable to lower same store sales due to the sluggish economic conditions and increased competition in certain areas in fiscal 2004 as compared to fiscal 2003.

Food
costs as a percent of total revenues decreased from 34.6% in fiscal 2003 to 34.2% in fiscal 2004. The decrease as a percentage of total revenues was primarily attributable to the
successful transition to new food suppliers after a former food supplier cancelled a food contract with the Company in the first quarter of fiscal 2003. Additional improvements in food contracts
compared to last year were offset by higher beef and dairy prices in the third and fourth quarters of fiscal 2004.

Labor
costs as a percent of total revenues decreased from 34.4% in fiscal 2003 to 33.8% in fiscal 2004. The decrease as a percentage of revenue resulted from the elimination of labor
inefficiencies in locations that were closed. The Company closed five stores during fiscal 2004 and closed four stores during fiscal 2003.

Occupancy
and other expenses as a percent of total revenues decreased from 21.3% in fiscal 2003 to 20.6% in fiscal 2004. The decrease as a percentage of revenue is primarily attributable
to the termination of seven leases resulting in a savings of approximately $439,000. The fixed portion of occupancy costs is primarily fixed costs for property leases and related common area
maintenance and property taxes.

General
and administrative expenses as a percentage of total revenues decreased from 5.0% in fiscal 2003 to 3.6% in fiscal 2004. The decrease as a percentage of revenue is primarily
attributable to lower field overhead expenses of $260,000, lower corporate insurance costs of $690,000 and lower

25

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corporate
legal expenses of $198,000 as compared to the same period of the prior year. The lower field expense is primarily attributed to fewer field personnel and an increase in costs charged
directly to the restaurants. Lower corporate insurance costs are attributed to a change to self-insurance for general liability coverage and a worker's compensation insurance refund. Lower
corporate legal expenses are attributed to a reduction in legal activity.

Depreciation
and amortization as a percent of total revenues decreased from 4.7% in fiscal 2003 to 3.9% in fiscal 2004. The decrease as a percentage of revenue is primarily attributable
to decreased revenues while depreciation and amortization expense decreased approximately $800,000. The decrease in depreciation and amortization expense was primarily in HomeTown Buffet due to
certain assets being fully depreciated in fiscal 2003.

Impairment
of long-lived assets decreased from 2.4% in fiscal 2003 to 1.6% in fiscal 2004. The impairment in fiscal 2004 was a result of the lease termination of one
restaurant in Idaho and two leased restaurants where projected undiscounted cash flow is less than the net book value of assets. The impairment in fiscal 2003 was a result of the lease termination of
two restaurants in Florida, the pending sale of one owned restaurant and two leased restaurants where projected undiscounted cash flow is less than the net book value of assets. The impairment also
included consideration for one leased JJ North's Country Buffet for leasehold improvements and projected shortfalls in rental income should the Company decide to sub-lease the facility.
Also included in fiscal 2003 impairments are two JB's Restaurants in which the lease agreements were terminated subsequent to year-end and the write-down of one closed
restaurant's assets to fair market value.

Interest
expense as a percent of total revenues remained at 0.8% in fiscal 2003 and fiscal 2004. This is primarily attributable to lower interest rates decreasing from 3.5% in fiscal
2003 to 3.2% in fiscal 2004 on the Term Loan Facility and Revolving Credit Facility financed by Fleet National Bank as discussed in Note 5 of the notes to the consolidated financial statements
and lower outstanding balances on those facilities.

Income
taxes increased to 35.4% of earnings before taxes in fiscal 2004 from a benefit of 38.5% of earnings before taxes in fiscal 2003 due to the loss for fiscal 2003.

Liquidity and Capital Resources

The Company has historically financed operations through a combination of cash on hand, cash provided from operations and available borrowings under bank lines of
credit. As of January 31, 2005, the Company had $692,000 in cash as compared to $445,000 in cash and cash equivalents at January 26, 2004. The net working capital deficit was
$(4,296,000) and $(5,490,000) at January 31, 2005 and January 26, 2004, respectively. During fiscal 2005, the Company used approximately $576,000 on capital expenditures. In addition,
the Company used approximately $2,371,000 for property acquisitions in Yuma, Arizona and Great Falls, Montana.

Cash
provided by operations was approximately $3.8 million for fiscal 2005 and approximately $3.1 million for fiscal 2004.

The
Company intends to modestly expand operations through the acquisition of regional buffet chains or through the purchase of existing restaurants which would be converted to one of the
Company's existing restaurant concepts. In many instances, management believes that existing restaurant locations can be acquired and converted to the Company's prototype at a lower cost than to
construct new restaurants. Management estimates the cost of acquiring and converting one leased property to one of the existing concepts to be approximately $150,000 to $450,000. These costs consist
primarily of exterior and interior appearance modifications, new tables, chairs and food bars and the addition of certain kitchen and food service equipment. The Company has some of this equipment
available from stores closed in previous periods. There can be no assurance that the Company will be

26

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able
to acquire additional restaurant chains or locations or, if acquired, that these restaurants will have a positive contribution to the Company's results of operations.

On
October 31, 2004, the Company continued with a $1.0 million 1-year Revolving Line of Credit with M&I Marshall & Ilsley Bank (the "Revolving Line of
Credit"). The Revolving Line of Credit refinanced a revolving credit facility the Company previously had with FleetBoston Financial Corporation and provides working capital for the Company. The
Revolving Line of Credit bears interest at LIBOR plus two percent per annum. The Revolving Line of Credit requires the Company to maintain specified minimum levels of net worth, limit the amount of
capital expenditures, maintain certain fixed charge coverage ratios, and to meet other financial covenants. The Company is currently in compliance with these covenants. All outstanding amounts under
the Revolving Line of Credit become due October 31, 2005. The Company increased the Revolving Line of Credit on February 1, 2005 to $2.0 million and modified the covenants to
permit annual dividends of $2.5 million with no other changes in terms or covenants. The Company will seek to renew or replace the Revolving Line of Credit by October 2005. There can be
no assurance the Revolving Line of Credit can be refinanced on acceptable terms or at all. The Revolving Line of Credit balance was $0 on January 31, 2005 and April 15, 2005. The
Revolving Line of Credit had $2,000,000 available for borrowing on April 15, 2005.

On
February 1, 2001, the Company entered into a promissory note secured by a first mortgage with Victorium Corporation for $460,000 to purchase the real estate of the BuddyFreddys
Country Buffet in Ocala, Florida. The fixed rate (7.5%) mortgage requires monthly payments of $4,264 including interest and matures in 15 years. The balance at January 31, 2005 and
January 26, 2004 was $384,000 and $406,000, respectively.

On
October 9, 2001, the Company entered into a $773,000 15 year first real estate mortgage with First National Bank of Wyoming. The mortgage has monthly payments including
interest of $7,253 and has an October 1, 2016 maturity date with a fixed interest rate of 7.625%. The mortgage requires the Company to maintain specified minimum levels of net worth, limits the
amount of capital expenditures, requires the maintenance of certain fixed charge coverage ratios and requires a minimum shareholder ownership percentage. The proceeds were used to pay the FleetBoston
Term Loan Facility as required by the Company's agreement with FleetBoston. The mortgage is secured by the Company's JB's
Restaurant in Laramie, Wyoming. The balance at January 31, 2005 and January 26, 2004 was $663,000 and $698,000, respectively.

On
May 2, 2002, the Company entered into a $1,500,000 ten year first real estate mortgage with M&I Marshall & Ilsley Bank. The mortgage has monthly payments including
interest of $17,894 and matures on May 2, 2012 with a fixed interest rate of 7.5% for the first five years with interest for years six to ten calculated at the five year LIBOR
rate plus 250 basis points with a floor of 7.5%. The proceeds were used to pay the FleetBoston Term Loan Facility as required by the Company's agreement with FleetBoston. The mortgage is secured by
the Company's HomeTown Buffet restaurant in Scottsdale, Arizona. The balance at January 31, 2005 and January 26, 2004 was $1,205,000 and $1,319,000, respectively.

On
December 19, 2003, the Company entered into a $1,470,000 six year first real estate mortgage with Platinum Bank. The mortgage has monthly payments including interest of $12,678
through November 19, 2009 with a balloon payment of $475,000 due on December 19, 2009. The mortgage bears interest at a fixed rate of 6.25% for the first three years with interest
for years four to six calculated at the three year Atlanta Federal Home Loan Bank advance rate for fixed rate credits plus 325 basis points with a floor of 6.0%. The mortgage is secured by the
Company's BuddyFreddys restaurant in Plant City, Florida and a $500,000 personal guarantee of a shareholder. The balance at January 31, 2005 and January 26, 2004 was $1,404,000 and
$1,465,000, respectively.

On
February 25, 2004, the Company entered into a $1,250,000 seven year first real estate mortgage with M&I Marshall & Ilsley Bank. The mortgage has monthly payments
including interest of $18,396

27

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and
matures on February 25, 2011 with a fixed interest rate of 6.1%. The proceeds were used to reduce the Revolving Line of Credit with M&I Marshall & Ilsley Bank. The mortgage is
secured by the Company's HomeTown Buffet restaurant in Yuma, Arizona. The balance at January 31, 2005 was $1,115,000.

On
July 29, 2004, the Company entered into a $550,000 ten year first real estate mortgage with Heritage Bank. The mortgage has monthly payments including interest of $6,319 and
matures on August 1, 2014 with a fixed interest rate of 6.75%. The mortgage is secured by the Company's JB's Restaurant in Great Falls, Montana. The balance at January 31, 2005 was
$531,000.

On
October 27, 2004, the Company entered into a $1,275,000 five year first real estate mortgage with Bank of Utah. The mortgage has monthly payments including interest of $14,371
and matures on October 26, 2009 with a balloon payment of $752,000 due on October 26, 2009. The mortgage bears interest at a fixed interest rate of 6.25%. The mortgage requires the
Company to maintain specified minimum levels of net worth, limits the amount of capital expenditures and requires the maintenance of certain fixed charge coverage ratios. The proceeds were used to pay
Naisco Investments, L.C., the
previous lien holder and to reduce the Revolving Line of Credit with M&I Marshall & Ilsley Bank. The mortgage is secured by the Company's HomeTown Buffet restaurant in Layton, Utah. The balance
at January 31, 2005 was $1,251,000.

The
Company believes that available cash and cash flow from operations will be sufficient to satisfy its working capital and capital expenditure requirements during the next
12 months. Management does not believe the net working capital deficit will have any effect on the Company's ability to operate the business and meet obligations as they come due in the next
12 months. Further, the Company believes that it will spend less than $3 million a year on capital expenditures for the next few years. The Company believes that the combination
of capital spending and an acquisition strategy that is not projected to require significant amounts of capital suggests that the Company may generate operating cash flow in excess of expected needs.
In such event, the Company plans to consider the return of some capital to its stockholders through a stock repurchase program or a cash dividend or both. There can be no assurance that cash and cash
flow from operations will be sufficient to satisfy its working capital and capital requirements for the next 12 months or beyond.

If
the Company requires additional funds to support its working capital requirements or for other purposes, it may seek to raise such additional funds through public or private equity
and/or debt financing or from other sources. There can be no assurance, however, that changes in the Company's operating plans, the unavailability of a credit facility, the acceleration of the
Company's expansion plans, lower than anticipated revenues, increased expenses or potential acquisitions or other events will not cause the Company to seek additional financing sooner than
anticipated. There can be no assurance that additional financing will be available on acceptable terms or at all.

Off-balance Sheet Arrangements

As of January 31, 2005, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K.

28

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Commitments and Contractual Obligations

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

|Contractual Obligations:           |  | Total |        | Less than
one year |   | One to
three years |  | Three to
five years |       | Greater than
five years
|---------------------------------- |  | ----- | ------ | ------------------ | - | ------------------ |  | ------------------- | ----- | -----------------------
|
|Long-term debt(1)                  |  | $     | 6,553  |                    | $ | 543                |  | $                   | 1,211 |                        
|Operating leases(2)                |  |       | 13,178 |                    |   | 2,746              |  |                     | 4,600 |                        
|Capital leases(2)                  |  |       | 2,596  |                    |   | 298                |  |                     | 618   |                        
|Purchase commitments               |  |       |       |                    |   |                   |  |                     |      |                        
|                                   |  |       |        |                    |   |                    |  |                     |       |                        
|Total contractual cash obligations |  | $     | 22,327 |                    | $ | 3,587              |  | $                   | 6,429 |                        
|                                   |  |       |        |                    |   |                    |  |                     |       |                        

---

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 any associated higher costs due to these inflationary factors along to its customers because those factors have impacted nearly all restaurant
companies. However, management has emphasized cost controls rather than price increases given the competitive pressure within the quick-service 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. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect the
Company's reported results and financial position for the 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. The Company considers the following policies to be the most critical in understanding the judgments that are involved in preparing its
consolidated financial statements.



Property and equipment and real property under capitalized leases are carried at cost less accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over the following useful lives:

YearsBuildings

40Building improvements

15 - 20Furniture, fixtures and equipment

5 - 8


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Leasehold
improvements are amortized over the lesser of the life of the lease or estimated economic life of the assets. The life of the lease includes renewal options determined by
management at lease inception for which failure to renew options would result in a substantial economic penalty. If a lease option was not exercised in the future, any remaining unamortized leasehold
improvements would be required to be recognized immediately which could result in a significant charge adversely affecting the operating results of that period.

Repairs
and maintenance are charged to operations as incurred. 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 increasing the life of existing assets. These judgments and estimates may produce materially different amounts of depreciation
and amortization expense that 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.



Goodwill and other intangible assets primarily represent the excess of the purchase price paid over the fair value of the net assets acquired in connection with
business acquisitions. As of January 29, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). In accordance with SFAS 142, the Company
has ceased amortizing goodwill recorded in past business combinations effective as of January 29, 2002. As a result, there is no charge for goodwill amortization expense contained in the
Company's statements of operations for the years ended January 31, 2005, January 26, 2004 and January 27, 2003.

SFAS 142
required that goodwill initially be tested for impairment by comparing the fair value of each reporting unit that included goodwill to the carrying amount of the
reporting unit as of January 29, 2002. The Company performed the transitional impairment test and determined that the carrying amount of relevant reporting units was in excess of the fair value
of those units. This resulted in a transitional impairment loss of $849,000 which was reported as a cumulative effect of a change in accounting principle, net of a tax benefit of $289,000 in the first
quarter of 2003. Subsequent to adoption of SFAS, the Company evaluates goodwill for impairment annually or when a triggering event occurs that indicates a potential impairment may have occurred in
accordance with SFAS 142. Future impairments of goodwill, if any, will adversely affect the results of operations in the periods recognized.



The Company determines that an impairment write-down is necessary for locations 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 assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of
the assets, 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 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 cash flows and carrying amounts of its long-lived assets, these factors could cause the

30

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Company
to realize a material impairment charge and could adversely affect operating results in any period.



The Company is self-insured for general liability claims. The Company has commercial insurance for casualty claims in excess of $2 million per
claim and $3 million per year as a risk reduction strategy. Self-insurance accruals include estimates based on historical information and expected future development factors.
Differences in estimates and assumptions could result in accrual requirements materially different from the calculated accruals.

New Accounting Pronouncements

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 ("SFAS No. 149"), "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 except
for the provisions that were cleared by the FASB in prior pronouncements. The Company does not have any derivative instruments or hedging activities as of January 31, 2005.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 clarifies
the classification and measurement of certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after
May 31, 2003, or otherwise for the first interim period beginning after June 15, 2003. The Company does not have any financial instruments with characteristics of both liabilities and
equity as of January 31, 2005.

In
December 2003, the FASB issued Statement No. 132 (revised 2003), "Employers' Disclosures About Pensions and Other Postretirement Benefits," that requires additional
financial statement disclosures for defined benefit plans. This revised standard requires more disclosure about plan assets, benefit obligations, cash flows, benefit costs and other relevant
information. The Company does not have any pensions or other post retirement benefits.

In
December 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (revised December 2003),Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46). FIN 46 replaces the earlier version of this interpretation issued in January 2003. FIN 46
addresses the consolidation by business enterprises of variable interest entities as defined. Application of FIN 46 is required in financial statements of public entities that have interests in
variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application of FIN 46 to all
other types of entities is required in financial statements for periods ending after March 15, 2004 with earlier application permitted if the original interpretation was previously adopted. The
Company adopted the original interpretation and FIN 46 as of January 26, 2004 which did not have a material effect on the Company's financial statements.

In
December 2004, the Financial Accounting Standards Board ("FASB") recently enacted Statement of Financial Accounting Standards 123-revised 2004 ("SFAS 123R"),
"Share-Based Payment" which replaces Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees." SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a
fair-value-based method and the recording of such expense in our consolidated statements of income. The accounting provisions of SFAS 123R are effective for reporting periods
beginning after December 15, 2005. The Company is

31

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required
to adopt SFAS 123R in the fourth quarter of fiscal 2007. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement
recognition. See Note 1 to the Notes to Consolidated Financial Statements for the pro forma net income and net income per share amounts, for fiscal 2002 through fiscal 2004, as if the Company
had used a fair-value-based method similar to the methods required under SFAS 123R to measure compensation expense for employee stock incentive awards. Although the Company has not
yet determined whether the adoption of SFAS 123R will result in amounts that are similar to the current pro forma disclosures under SFAS 123, the Company is evaluating the requirements
under SFAS 123R and expects the adoption to potentially have a significant impact on our consolidated statements of operations and net income per share starting in fiscal 2007.

In
December 2004, the FASB issued FASB 151, Inventory Cost, an amendment of ARB No. 43, Chapter 4. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing" to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). The Company is evaluating the requirements under FASB 151 to determine the impact, if any, on the consolidated financial
statements.

Item 7A.Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The Company's principal exposure to financial market risks is the impact that interest rate changes could have on its $2.0 million Revolving Line of
Credit, of which $0 remained outstanding as of January 31 and April 15, 2005. The Revolving Line of Credit interest rate is LIBOR plus two percent per annum (averaging approximately 4.0%
in fiscal 2005). A hypothetical increase of 100 basis points in
short-term interest rates would result in a reduction of pre-tax earnings, the amount of which would depend on the amount outstanding on the line of credit. All of our business
is transacted in U.S. dollars. Accordingly, foreign exchange rate fluctuations have never had a significant impact on the Company and are not expected to in the foreseeable future.

Commodity Price Risk

The Company purchases certain products which are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions
and other factors which are not considered predictable or within our control. Although many of the products purchased are subject to changes in commodity prices, certain purchasing contracts or
pricing arrangements contain risk management techniques designed to minimize price volatility. Typically the Company uses these types of purchasing techniques to control costs as an alternative to
directly managing financial instruments to hedge commodity prices. In many cases, the Company believes it will be able to address commodity cost increases which are significant and appear to be
long-term in nature by adjusting its menu pricing, menu mix or changing our product delivery strategy. However, increases in commodity prices could result in lower operating margins for
our restaurant concepts.

Item 8.Financial Statements and Supplementary Data

See the Index to Consolidated Financial Statements included at "Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K."

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

Our previous auditors originally audited our consolidated balance sheet as of January 27, 2003, and the related consolidated statements of operations,
stockholders' equity and cash flows for the fiscal year ended January 27, 2003. The change in auditors was disclosed in our report on Form 8-K filed

32

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January 28,
2004. As a result of the decision of the Audit Committee that a restatement was required (see Note 2 to consolidated financial statements), it was necessary to
re-audit the amounts recorded during the year ended January 27, 2003. Our previous auditors were unable to audit the restatements in a cost efficient manner. As a result, we engaged
the accounting firm of Mayer Hoffman McCann P.C., our current independent registered public accountants, to perform a re-audit of our consolidated balance sheet as of January 27,
2003, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the fiscal year ended January 27, 2003.

Item 9A.Controls and Procedures

The Company's disclosure controls and procedures 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, to allow for timely decisions regarding required disclosure.

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 the foregoing, it was determined that our internal controls were insufficient to assure the recognition of rental expense in accordance with generally accepted accounting
principles, requiring a restatement of the Company's audited financial statements for the years ended January 26, 2004 and January 27, 2003, and the unaudited interim statements
for the quarterly periods ended May 20, 2002 through November 1, 2004.

This
deficiency in our internal controls related to improper recognition of rental expense. The improper recognition of rental expense was detected in the annual review process in light
of the opinions expressed in the letter of February 7, 2005, from the Office of Chief Accountant of the SEC to the American Institute of Certified Public Accountants. The individuals
responsible for the financial reporting of the Company have been made aware of the requirements of generally accepted accounting principles and the SEC in this matter and the Company does not
anticipate taking further steps to address this matter. The matter has been disclosed to the Audit Committee and to our auditors.

Other
than as described above, there has been no change in our internal control over financial reporting during the year ended January 31, 2005, that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over financial reporting. In addition, other than as described above, since the most recent evaluation date, there have been
no significant changes in our internal control structure, policies, and procedures or in other areas that could significantly affect the Company's internal control over financial reporting.

33

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PART III

Item 10.Directors and Executive Officers of the Registrant

The information concerning the current directors and executive officers of the Company is contained in Item 1 of Part I of this Annual Report on
Form 10-K.

The
Company as adopted a code of ethics applicable to its principal executive officer, principal financial officer and principal accounting officer. A copy of this code of ethics is
filed as an exhibit to this Annual Report on Form 10-K. The Company hereby undertakes to provide to any person without charge, upon request, a copy of such code of ethics. Any such
request shall be made in writing and addressed to the Company at its principal executive offices shown on the cover page to this Annual Report on Form 10-K, attention:
Secretary.

The
information pertaining to compliance with Section 16(a) of the Exchange Act is hereby incorporated by reference to the Company's Proxy Statement to be used in
connection with the Company's 2005 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 31, 2005.

Item 11.Executive Compensation

The information pertaining to executive compensation is hereby incorporated by reference to the Company's Proxy Statement to be used in connection with the
Company's 2005 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 31, 2005.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information pertaining to security ownership of certain beneficial owners and management and equity compensation plan information is hereby incorporated by
reference to the Company's Proxy Statement to be used in connection with the Company's 2005 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 31,
2005.

Item 13.Certain Relationships and Related Transactions

The information pertaining to certain relationships and related transactions is hereby incorporated by reference to the Company's Proxy Statement to be used in
connection with the Company's 2005 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 31, 2005.

Item 14.Principal Accountant Fees and Services

The information with respect to principal accountant fees and services is hereby incorporated by reference to the Company's Proxy Statement to be used in
connection with the Company's 2005 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 31, 2005.

34

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PART IV

Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K

|                                                                                                                                                                           |  | Page Number
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|Report of Management Responsibilities                                                                                                                                      |  | F-1        
|Report of Mayer Hoffman McCann P.C., Independent Registered Public Accountants                                                                                             |  | F-2        
|Consolidated Balance Sheetsas of January 31, 2005 and January 26, 2004 (Restated)                                                                                         |  | F-3        
|Consolidated Statements of Operationsfor the 53-weeks ended January 31, 2005 and the 52-weeks ended January 26, 2004 (Restated) and January 27, 2003 (Restated)           |  | F-5        
|Consolidated Statements of Stockholders' Equityfor the 53-weeks ended January 31, 2005 and the 52-weeks ended January 26, 2004 (Restated) and January 27, 2003 (Restated) |  | F-6        
|Consolidated Statements of Cash Flowsfor the 53-weeks ended January 31, 2005 and the 52-weeks ended January 26, 2004 (Restated) and January 27, 2003 (Restated)           |  | F-7        
|Notes to Consolidated Financial Statements                                                                                                                                 |  | F-8        

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.

An "Exhibit Index" has been filed as a part of this Form 10-K beginning on Page E-1 hereof and is incorporated herein
by reference.

A Current Report on Form 8-K dated April 1, 2005 was filed to report the Company's press release announcing that it needed to change its
calculation and presentation of straight-line rent expense and related deferred rent liability. As a result, the Company's Audit Committee concluded that the Company's previously filed
financial statements for fiscal years 1998 through 2004 and the first three quarters of fiscal 2005 should be restated.

A
Current Report on Form 8-K dated February 25, 2005 was filed to report the Company's press release announcing that its Board of Directors declared the
Company's second annual dividend and also declared a special dividend. Both the annual and special dividends are payable on June 8, 2005 to stockholders of record on May 12, 2005.

A
Current Report on Form 8-K dated February 1, 2005 was filed to report the Company's press release announcing that it entered into a strategic alliance with
K-BOB'S USA Inc. and related affiliates. In accordance with the terms of the strategic alliance, Star Buffet will lend K-BOB'S $1.5 million on a
long-term basis. In exchange, K-BOB'S granted Star Buffet an option to purchase as many as five corporate owned and operated K-BOB'S restaurants located in New
Mexico and Texas, as well as rights to develop K-BOB'S in other areas in the United States.

35

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SIGNATURES

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

|               |  | STAR BUFFET, INC.
(Registrant)
|-------------- |  | ------------------------------
|April 29, 2005 |  | By:                           
|April 29, 2005 |  | By:                           

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. WHEATONRobert E. Wheaton             |  | Chief Executive Officer, President and Director |  | April 29, 2005
|/s/RONALD E. DOWDYRonald E. Dowdy                 |  | Group Controller, Treasurer and Secretary       |  | April 29, 2005
|/s/THOMAS G. SCHADTThomas G. Schadt               |  | Director                                        |  | April 27, 2005
|/s/PHILLIP BUDDY JOHNSONPhillip "Buddy" Johnson |  | Director                                        |  | April 27, 2005
|/s/CRAIG B. WHEATONCraig B. Wheaton               |  | Director                                        |  | April 25, 2005
|/s/B. THOMAS M. SMITH, JR.B. Thomas M. Smith, Jr. |  | Director                                        |  | April 25, 2005
|/s/TODD S. BROWNTodd S. Brown                     |  | Director                                        |  | April 26, 2005

36

---





REPORT OF MANAGEMENT RESPONSIBILITIES

The management of Star Buffet, Inc. is responsible for the fairness and accuracy of the consolidated financial statements. The consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America, using management's best estimates and judgments where appropriate. The
financial information throughout this report is consistent with our consolidated financial statements.

Management
has established a system of internal controls that provides reasonable assurance that assets are adequately safeguarded, and transactions are recorded accurately, in all
material respects, in accordance with management's authorization. We maintain a strong audit program that independently evaluates the adequacy and effectiveness of internal controls. Our internal
controls provide for appropriate separation of duties and responsibilities, and there are documented policies regarding utilization of Company assets and proper financial reporting. These formally
stated and regularly communicated policies set high standards of ethical conduct for all employees.

The
Audit Committee of the Board of Directors meets regularly to determine that management and independent auditors are properly discharging their duties regarding internal control and
financial reporting. The independent auditors and employees have full and free access to the Audit Committee at any time.

Mayer
Hoffman McCann P.C., independent registered public accountants, are retained to audit the Company's consolidated financial statements. Their report follows.

/s/
Robert E. Wheaton
Robert E. Wheaton, Chairman of the Board and Chief Executive Officer

F-1

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors
Star Buffet, Inc.:

We
have audited the accompanying consolidated balance sheets of Star Buffet, Inc. and subsidiaries (a Delaware Corporation) as of January 31, 2005 and January 26,
2004, and the related consolidated statements of operations, stockholders' equity and cash flows for the 53-week period ended January 31, 2005 and the 52-week periods
ended January 26, 2004 and January 27, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). 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. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Star Buffet, Inc. and subsidiaries as
of January 31, 2005 and January 26, 2004, and the results of their operations and their cash flows for the 53-week period ended January 31, 2005 and the
52-week periods ended January 26, 2004 and January 27, 2003, in conformity with U.S. generally accepted accounting principles.

As
discussed in Note 2 of the consolidated financial statements, the January 26, 2004 and January 27, 2003 consolidated financial statements have been restated.

/s/
Mayer Hoffman McCann P.C.

Salt
Lake City, Utah
April 15, 2005

F-2

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                   |                                                       | January 31,
2005 |            | (Restated-Note 2)
January 26,
2004
|---------------------------------- | ----------------------------------------------------- | ---------------- | ---------- | ----------------------------------
|ASSETS                             |                                                       |                  |            |                                   
|Current assets:                    |                                                       |                  |            |                                   
|                                   | Cash and cash equivalents                             |                  | $          | 692,000                           
|                                   | Current portion of notes receivable                   |                  |            | 18,000                            
|                                   | Receivables                                           |                  |            | 420,000                           
|                                   | Inventories                                           |                  |            | 465,000                           
|                                   | Deferred income taxes                                 |                  |            | 204,000                           
|                                   | Prepaid expenses                                      |                  |            | 74,000                            
|                                   | Property held for sale                                |                  |            |                                  
|                                   |                                                       |                  |            |                                   
|                                   | Total current assets                                  |                  |            | 1,873,000                         
|Property, buildings and equipment: |                                                       |                  |            |                                   
|                                   | Property, buildings and equipment, net                |                  |            | 16,759,000                        
|                                   | Property and equipment leased to third parties, net   |                  |            | 4,361,000                         
|                                   | Property, buildings and equipment held for future use |                  |            | 2,574,000                         
|                                   | Property and equipment under capitalized leases, net  |                  |            | 1,019,000                         
|                                   | Property held for sale                                |                  |            | 931,000                           
|                                   |                                                       |                  |            |                                   
|                                   | Total property, buildings and equipment               |                  |            | 25,644,000                        
|                                   |                                                       |                  |            |                                   
|Other Assets:                      |                                                       |                  |            |                                   
|                                   | Notes receivable, net of current portion              |                  |            | 2,860,000                         
|                                   | Deposits and other                                    |                  |            | 224,000                           
|                                   |                                                       |                  |            |                                   
|                                   | Total other assets                                    |                  |            | 3,084,000                         
|Deferred income taxes, net         |                                                       |                  | 1,805,000  |                                   
|Intangible assets:                 |                                                       |                  |            |                                   
|                                   | Goodwill                                              |                  |            | 1,677,000                         
|                                   | Other intangible assets, net                          |                  |            | 797,000                           
|                                   |                                                       |                  |            |                                   
|                                   | Total intangible assets                               |                  |            | 2,474,000                         
|Total assets                       |                                                       | $                | 34,880,000 |                                   
|                                   |                                                       |                  |            |                                   

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

F-3

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

|                                                         |                                                                                                     | January 31,
2005 |            | (Restated-Note 2)
January 26,
2004 |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------- | ---------- | ---------------------------------- | -
|LIABILITIES AND STOCKHOLDERS' EQUITY                     |                                                                                                     |                  |            |                                    |  
|Current liabilities:                                     |                                                                                                     |                  |            |                                    |  
|                                                         | Accounts payable-trade                                                                              |                  | $          | 1,737,000                          |  
|                                                         | Payroll and related taxes                                                                           |                  |            | 1,647,000                          |  
|                                                         | Sales and property taxes                                                                            |                  |            | 872,000                            |  
|                                                         | Rent, licenses and other                                                                            |                  |            | 533,000                            |  
|                                                         | Income taxes payable                                                                                |                  |            | 721,000                            |  
|                                                         | Revolving line of credit                                                                            |                  |            |                                   |  
|                                                         | Current maturities of obligations under long-term debt                                              |                  |            | 543,000                            |  
|                                                         | Current maturities of obligations under capital leases                                              |                  |            | 116,000                            |  
|                                                         |                                                                                                     |                  |            |                                    |  
|Total current liabilities                                |                                                                                                     |                  | 6,169,000  |                                    |  
|Deferred rent payable                                    |                                                                                                     |                  | 1,320,000  |                                    |  
|Other long-term liability                                |                                                                                                     |                  | 68,000     |                                    |  
|Capitalized lease obligations, net of current maturities |                                                                                                     |                  | 1,538,000  |                                    |  
|Long-term debt, net of current maturities                |                                                                                                     |                  | 6,010,000  |                                    |  
|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 2,950,000 shares |                  |            | 3,000                              |  
|                                                         | Additional paid-in capital                                                                          |                  |            | 16,351,000                         |  
|                                                         | Officer's notes receivable                                                                          |                  |            | (698,000                           | )
|                                                         | Retained earnings                                                                                   |                  |            | 4,119,000                          |  
|                                                         |                                                                                                     |                  |            |                                    |  
|Total stockholders' equity                               |                                                                                                     |                  | 19,775,000 |                                    |  
|                                                         |                                                                                                     |                  |            |                                    |  
|Total liabilities and stockholders' equity               |                                                                                                     | $                | 34,880,000 |                                    | $
|                                                         |                                                                                                     |                  |            |                                    |  

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

F-4

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                      |                                     | Fifty-Three
Weeks
Ended
January 31, 2005 |            | (Restated-Note 2)
Fifty-Two
Weeks
Ended
January 26, 2004 |   | (Restated-Note 2)
Fifty-Two
Weeks
Ended
January 27, 2003 |           
|----------------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------------- | ---------- | -------------------------------------------------------- | - | -------------------------------------------------------- | ----------
|Total revenues                                                                                        |                                     | $                                        | 64,856,000 |                                                          | $ | 68,090,000                                               |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Costs and expenses                                                                                    |                                     |                                          |            |                                                          |   |                                                          |           
|                                                                                                      | Food costs                          |                                          |            | 22,336,000                                               |   |                                                          | 23,275,000
|                                                                                                      | Labor costs                         |                                          |            | 21,712,000                                               |   |                                                          | 23,015,000
|                                                                                                      | Occupancy and other expenses        |                                          |            | 12,963,000                                               |   |                                                          | 14,042,000
|                                                                                                      | General and administrative expenses |                                          |            | 2,694,000                                                |   |                                                          | 2,433,000 
|                                                                                                      | Depreciation and amortization       |                                          |            | 2,440,000                                                |   |                                                          | 2,670,000 
|                                                                                                      | Impairment of long-lived assets     |                                          |            | 2,838,000                                                |   |                                                          | 1,083,000 
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Total costs and expenses                                                                              |                                     |                                          | 64,983,000 |                                                          |   | 66,518,000                                               |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Income (loss) from operations                                                                         |                                     |                                          | (127,000   | )                                                        |   | 1,572,000                                                |           
|Interest expense                                                                                      |                                     |                                          | (640,000   | )                                                        |   | (569,000                                                 | )         
|Interest income                                                                                       |                                     |                                          | 5,000      |                                                          |   | 107,000                                                  |           
|Reversal of litigation accrual                                                                        |                                     |                                          |           |                                                          |   | 400,000                                                  |           
|Other income                                                                                          |                                     |                                          | 422,000    |                                                          |   | 212,000                                                  |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Income (loss) before income taxes (benefit) and cumulative effect of a change in accounting principle |                                     |                                          | (340,000   | )                                                        |   | 1,722,000                                                |           
|Income taxes (benefit)                                                                                |                                     |                                          | (168,000   | )                                                        |   | 609,000                                                  |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Income (loss) before cumulative effect of a change in accounting principle                            |                                     |                                          | (172,000   | )                                                        |   | 1,113,000                                                |           
|Cumulative effect of a change in accounting principlenet of tax benefit                              |                                     |                                          |           |                                                          |   |                                                         |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Net income (loss)                                                                                     |                                     | $                                        | (172,000   | )                                                        | $ | 1,113,000                                                |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Income (loss) per common share before cumulative effect of a change in accounting principlebasic     |                                     | $                                        | (0.06      | )                                                        | $ | 0.38                                                     |           
|Income (loss) per common share before cumulative effect of a change in accounting principlediluted   |                                     | $                                        | (0.06      | )                                                        | $ | 0.35                                                     |           
|Cumulative effect of a change in accounting principlenet of tax benefit                              |                                     |                                          |           |                                                          |   |                                                         |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Net income (loss) per common sharebasic                                                              |                                     | $                                        | (0.06      | )                                                        | $ | 0.38                                                     |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Net income (loss) per common sharediluted                                                            |                                     | $                                        | (0.06      | )                                                        | $ | 0.35                                                     |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Weighted average shares outstandingbasic                                                             |                                     |                                          | 2,950,000  |                                                          |   | 2,950,000                                                |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           
|Weighted average shares outstandingdiluted                                                           |                                     |                                          | 2,950,000  |                                                          |   | 3,184,675                                                |           
|                                                                                                      |                                     |                                          |            |                                                          |   |                                                          |           

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

F-5

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

|                                                       |  | Common Stock |  |   |       |  |   |            |  |   |            |   |  
|------------------------------------------------------ |  | ------------ |  | - | ----- |  | - | ---------- |  | - | ---------- | - | -
|
|
|Balance at January 28, 2002, as previously reported    |  | 2,950,000    |  | $ | 3,000 |  | $ | 16,351,000 |  | $ | (1,338,000 | ) | $
|Cumulative effect of prior period Adjustments (Note 2) |  |             |  |   |      |  |   |           |  |   |           |   |  
|                                                       |  |              |  |   |       |  |   |            |  |   |            |   |  
|Balance at January 28, 2002, as restated               |  | 2,950,000    |  |   | 3,000 |  |   | 16,351,000 |  |   | (1,338,000 | ) |  
|Payment by officer                                     |  |             |  |   |      |  |   |           |  |   | 8,000      |   |  
|Net loss (Restated-Note 2)                             |  |             |  |   |      |  |   |           |  |   |           |   |  
|                                                       |  |              |  |   |       |  |   |            |  |   |            |   |  
|Balance at January 27, 2003, as restated               |  | 2,950,000    |  |   | 3,000 |  |   | 16,351,000 |  |   | (1,330,000 | ) |  
|Net income (Restated-Note 2)                           |  |             |  |   |      |  |   |           |  |   |           |   |  
|                                                       |  |              |  |   |       |  |   |            |  |   |            |   |  
|Balance at January 26, 2004, as restated               |  | 2,950,000    |  |   | 3,000 |  |   | 16,351,000 |  |   | (1,330,000 | ) |  
|                                                       |  |              |  |   |       |  |   |            |  |   |            |   |  
|Dividend                                               |  |             |  |   |      |  |   |           |  |   |           |   |  
|Payment by officer                                     |  |             |  |   |      |  |   |           |  |   | 632,000    |   |  
|Net loss                                               |  |             |  |   |      |  |   |           |  |   |           |   |  
|                                                       |  |              |  |   |       |  |   |            |  |   |            |   |  
|Balance at January 31, 2005                            |  | 2,950,000    |  | $ | 3,000 |  | $ | 16,351,000 |  | $ | (698,000   | ) | $
|                                                       |  |              |  |   |       |  |   |            |  |   |            |   |  

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

F-6

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                         |                                                     | Fifty-Three
Weeks Ended
January 31,
2005 |            | (Restated-Note 2)
Fifty-Two
Weeks Ended
January 26,
2004 |            | (Restated-Note 2)
Fifty-Two
Weeks Ended
January 27,
2003 |           
|---------------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------------------- | ---------- | -------------------------------------------------------- | ---------- | -------------------------------------------------------- | ----------
|Cash flows from operating activities:                                                    |                                                     |                                          |            |                                                          |            |                                                          |           
|Net income (loss)                                                                        |                                                     | $                                        | (172,000   | )                                                        | $          | 1,113,000                                                |           
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                     |                                          |            |                                                          |            |                                                          |           
|                                                                                         | Cumulative effect of change in accounting principle |                                          |            |                                                         |            |                                                          |          
|                                                                                         | Depreciation and amortization                       |                                          |            | 2,415,000                                                |            |                                                          | 2,569,000 
|                                                                                         | Provision for allowances for bad debts              |                                          |            |                                                         |            |                                                          |          
|                                                                                         | Impairment of long-lived assets                     |                                          |            | 2,838,000                                                |            |                                                          | 1,083,000 
|                                                                                         | Amortization of loan costs                          |                                          |            | 25,000                                                   |            |                                                          | 101,000   
|                                                                                         | Deferred income taxes, net                          |                                          |            | (1,087,000                                               | )          |                                                          | 126,000   
|                                                                                         | Change in operating assets and liabilities:         |                                          |            |                                                          |            |                                                          |           
|                                                                                         |                                                     | Receivables                              |            |                                                          | (43,000    | )                                                        |           
|                                                                                         |                                                     | Inventories                              |            |                                                          | 29,000     |                                                          |           
|                                                                                         |                                                     | Prepaid expenses                         |            |                                                          | 50,000     |                                                          |           
|                                                                                         |                                                     | Deposits and other                       |            |                                                          | 52,000     |                                                          |           
|                                                                                         |                                                     | Deferred rent payable                    |            |                                                          | (61,000    | )                                                        |           
|                                                                                         |                                                     | Accounts payable-trade                   |            |                                                          | (1,061,000 | )                                                        |           
|                                                                                         |                                                     | Income taxes payable                     |            |                                                          | 365,000    |                                                          |           
|                                                                                         |                                                     | Other accrued liabilities                |            |                                                          | 459,000    |                                                          |           
|                                                                                         |                                                     |                                          |            |                                                          |            |                                                          |           
|Total adjustments                                                                        |                                                     |                                          | 3,981,000  |                                                          |            | 1,955,000                                                |           
|                                                                                         |                                                     |                                          |            |                                                          |            |                                                          |           
|Net cash provided by operating activities                                                |                                                     |                                          | 3,809,000  |                                                          |            | 3,068,000                                                |           
|Cash flows from investing activities:                                                    |                                                     |                                          |            |                                                          |            |                                                          |           
|                                                                                         | Payments on notes receivable                        |                                          |            | 20,000                                                   |            |                                                          | 85,000    
|                                                                                         | Acquisition of property, buildings and equipment    |                                          |            | (2,947,000                                               | )          |                                                          | (1,283,000
|                                                                                         | Interest income                                     |                                          |            | (3,000                                                   | )          |                                                          |          
|                                                                                         | Proceeds from the sale of assets                    |                                          |            |                                                         |            |                                                          | 1,160,000 
|                                                                                         | Purchase of license agreement                       |                                          |            |                                                         |            |                                                          |          
|                                                                                         | Payments by officer                                 |                                          |            | 632,000                                                  |            |                                                          |          
|                                                                                         |                                                     |                                          |            |                                                          |            |                                                          |           
|Net cash used in investing activities                                                    |                                                     |                                          | (2,298,000 | )                                                        |            | (38,000                                                  | )         
|                                                                                         |                                                     |                                          |            |                                                          |            |                                                          |           
|Cash flows from financing activities:                                                    |                                                     |                                          |            |                                                          |            |                                                          |           
|                                                                                         | Checks written in excess of cash in bank            |                                          |            |                                                         |            |                                                          | (1,306,000
|                                                                                         | Payments on long-term debt                          |                                          |            | (838,000                                                 | )          |                                                          | (7,389,000
|                                                                                         | Proceeds from issuance of long-term debt            |                                          |            | 3,075,000                                                |            |                                                          | 3,920,000 
|                                                                                         | Proceeds from line of credit, net                   |                                          |            | (1,900,000                                               | )          |                                                          | 1,900,000 
|                                                                                         | Capitalized loan costs                              |                                          |            | (29,000                                                  | )          |                                                          | (43,000   
|                                                                                         | Principal payments on capital leases                |                                          |            | (97,000                                                  | )          |                                                          | (100,000  
|                                                                                         | Dividend paid                                       |                                          |            | (1,475,000                                               | )          |                                                          |          
|                                                                                         |                                                     |                                          |            |                                                          |            |                                                          |           
|Net cash used in financing activities                                                    |                                                     |                                          | (1,264,000 | )                                                        |            | (3,018,000                                               | )         
|                                                                                         |                                                     |                                          |            |                                                          |            |                                                          |           
|Net increase (decrease) in cash and cash equivalents                                     |                                                     |                                          | 247,000    |                                                          |            | 12,000                                                   |           
|Cash and cash equivalents at beginning of period                                         |                                                     |                                          | 445,000    |                                                          |            | 433,000                                                  |           
|                                                                                         |                                                     |                                          |            |                                                          |            |                                                          |           
|Cash and cash equivalents at end of period                                               |                                                     | $                                        | 692,000    |                                                          | $          | 445,000                                                  |           
|                                                                                         |                                                     |                                          |            |                                                          |            |                                                          |           

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

F-7

---





STAR BUFFET, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation

The accompanying consolidated financial statements include the accounts for Star Buffet, Inc., together with its direct and indirect wholly owned
subsidiaries Summit Family Restaurants Inc. ("Summit"), HTB Restaurants, Inc. ("HTB"), Northstar Buffet, Inc. ("NSBI") and Star Buffet Management, Inc. ("SBMI")
(collectively the "Company"). The accompanying consolidated financial statements include the results of operations and assets and liabilities of the Company's operations. Certain estimates,
assumptions and allocations were made in preparing such financial statements. Significant intercompany transactions and balances have been eliminated in consolidation.

Organization and Nature of Operations

The Company was formed by CKE Restaurants, Inc. ("CKE") in July 1997 in connection with the reorganization of CKE's buffet-style restaurant
business. Pursuant to a contribution agreement among the Company and CKE and certain respective subsidiaries, CKE transferred to Summit the net assets of its two Casa Bonita Mexican theme restaurants,
and Summit transferred substantially all of its assets
and liabilities (primarily those relating to the JB's Restaurant system and Galaxy Diner restaurants, but excluding 16 HomeTown Buffet restaurants operated by HTB) to a newly formed subsidiary of CKE.
All of the parties to the foregoing transactions (the "Formation Transactions") were, upon completion thereof, direct or indirect wholly owned subsidiaries of CKE, and such Formation Transactions were
accounted for as a reorganization among companies under common control.

The
operating results for the 53-week period ended January 31, 2005 included 53 weeks of operations for the Company's 14 franchised HomeTown Buffet restaurants, seven
JB's restaurants, five BuddyFreddys restaurants (three of the five BuddyFreddys restaurants are BuddyFreddys Country Buffet restaurants), two JJ North's Country Buffet restaurants, two Casa Bonita
restaurants, and two Holiday House restaurants. In addition, operating results include 30, 34 and 52 weeks for three JJ North's Country Buffet restaurants closed during the fiscal year 2005. Results
also include 35 and 51 weeks for two HomeTown Buffet restaurants. Results for 2005 also include 34 weeks of operations for one North's Star Buffet restaurant and 39 weeks of operations for one JB's
Restaurant. Eight restaurants were closed at the end of the 2005 fiscal year for repositioning. Four of the eight closed restaurants have been leased to third-property operators, three restaurants
remain closed for remodeling and repositioning and one closed restaurant is property held for sale.

The
operating results for the 52-week period ended January 26, 2004 included 52 weeks of operations for the Company's 16 franchised HomeTown Buffet restaurants, eight
JB's restaurants, five BuddyFreddys restaurants (three of the five BuddyFreddys restaurants are BuddyFreddys Country Buffet restaurants), five JJ North's Country Buffet restaurants, two Casa Bonita
restaurants, two Holiday House restaurants and one North's Star Buffet restaurant. In addition, operating results include 19 and 2 weeks, respectively, for two BuddyFreddys Country Buffet restaurants
closed during the fiscal year 2004. Results also include 12 weeks of operations for one JJ North's Country Buffet restaurant and 5 weeks of operations for one JB's Restaurant. Five restaurants remain
closed at the end of the 2004 fiscal year for repositioning. Three of the five closed restaurants have been leased to third-party operators and the property of one closed restaurant is property held
for sale.

F-8

---



The
operating results for the 52-week period ended January 27, 2003 included 52 weeks of operations for the Company's 16 franchised HomeTown Buffet restaurants, nine
JB's restaurants, seven BuddyFreddys restaurants (five of the seven BuddyFreddys restaurants are BuddyFreddys Country Buffet restaurants), six JJ North's Country Buffet restaurants, two Casa Bonita
restaurants, two Holiday House restaurants and one North's Star Buffet restaurant. In addition, operating results include 23 and 9 weeks respectively for two BuddyFreddys Country Buffet restaurants
closed during the fiscal year 2003. Results also include 19 weeks of operations for one JJ North's Country Buffet restaurant and 30 weeks of operations for one JJ North's Family Restaurant opened
July 2002. Seven restaurants were closed at the end of the 2003 fiscal year for repositioning. Two of the seven closed restaurants have been leased and the property of another one is under
contract to be sold and is reported as property held for sale. During the first quarter of fiscal 2004, three restaurants were closed, of which one was closed for repositioning that resulted in an
impairment of leasehold improvements of $188,000 included in the fourth quarter of 2003.

Fiscal Year

The Company utilizes a 52/53 week fiscal year which ends on the last Monday in January. The first quarter of each 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.

Cash Equivalents

Highly liquid investments with original maturities of three months or less when purchased are considered cash equivalents. The carrying amounts reported in
the consolidated balance sheets for these instruments approximate their fair value.

Revenue Recognition

The Company's principal source of revenue is from customer dining transactions. Revenue is recognized at the time the meal is paid for by the customer, in the
form of cash or credit card.

Receivables

The Company records an allowance for bad debts on accounts and notes receivable based on the collection history of the specific account or note receivable.

Consideration Received from Vendors

The Company records vendor rebates on products purchased as a reduction in the cost of sales as earned. The allowances are recognized as earned in accordance with
the underlying agreement with the vendor.

Inventories

Inventories consist of food, beverage, 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-9

---



Property, Buildings and Equipment

Property and equipment and real property under capitalized leases are carried at cost less accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over the following useful lives:

YearsBuildings

40Building improvements

15  20Furniture, fixtures and equipment

5  8


Leasehold
improvements are amortized over the lesser of the life of the lease or estimated economic life of the assets. The life of the lease includes renewal options determined by
management at lease inception for which failure to renew options would result in a substantial economic penalty.

Property
and equipment placed on the market for sale is not depreciated and is reclassed on the balance sheet as property held for sale. Property and equipment in
non-operating units for remodeling or repositioning is not depreciated.

Repairs
and maintenance are charged to operations as incurred. Remodeling costs are generally capitalized.

Goodwill

Goodwill and other intangible assets primarily represent the excess of the purchase price paid over the fair value of the net assets acquired in connection with
business acquisitions. As of January 29, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). In accordance with SFAS 142, the Company
has ceased amortizing goodwill recorded in past business combinations effective as of January 29, 2002. As a result, there is no charge for goodwill amortization expense contained in the
Company's statements of operations for the years ended January 31, 2005, January 26, 2004 and January 27, 2003.

The
Company reviews goodwill for possible impairment on an annual basis or when triggering events occur in accordance with SFAS 142. Goodwill is tested for impairment at the
reporting unit level. Because SFAS 142 defines reporting unit as an operating segment or one level below an operating segment, Star Buffet reviews goodwill for possible impairment by
restaurant. Six and eleven reporting units (restaurants) had recorded goodwill for 2005 and 2004, respectively.

The
Company utilizes a two-part impairment test. First, the fair value of the reporting unit is compared to carrying value (including goodwill). If the carrying value is
greater than the fair value, the second step is performed. In the second step, the implied fair value of the reporting unit goodwill is compared to the carrying amount of goodwill. If the carrying
value is greater, a loss is recognized. The goodwill impairment test considers the impact of current conditions and the economic outlook for the restaurant industry, the general overall economic
outlook including market data, governmental and environmental factors, in establishing the assumptions used to compute the fair value of each reporting unit. We also take into account the historical,
current and future (based on probability) operating results of the eleven reporting units and any other facts and data pertinent to valuing the reporting units in our impairment test. Management
determined there was no impairment after reviewing all of the data of our eleven reporting units with recorded goodwill for 2004. In fiscal 2005, the Company impaired four reporting units after
evaluating all pertinent data in its annual impairment review and impaired one additional reporting unit resulting from a triggering event (store closure). The amount of the impairment charge was
$1,230,000.

The
Company has an independent evaluation of goodwill conducted every three years. The most recent independent valuation was conducted as of February 1, 2005.

F-10

---



SFAS 142
required that goodwill initially be tested for impairment by comparing the fair value of each reporting unit that included goodwill to the carrying amount of the
reporting unit as of January 29, 2002. The Company performed the transitional impairment test and determined that the carrying amount of relevant reporting units was in excess of the fair value
of those units. This resulted in a transitional impairment loss of $849,000 which was reported as a cumulative effect of a change in accounting principle, net of a tax benefit of $289,000 in the first
quarter of 2003. Subsequent to adoption of SFAS, the Company evaluates goodwill for impairment annually or when a triggering event occurs that indicates a potential impairment may have occurred in
accordance with SFAS 142. Future impairments of goodwill, if any, will adversely affect the results of operations in the periods recognized.

Other Intangible Assets

Other intangible assets are comprised of franchise fees, loan acquisition costs, and JB's license agreement. Franchise fees are amortized using the
straight-line method over the terms of the franchise agreements, which typically range from 8 to 20 years. Loan costs are amortized using the straight-line method over
the lesser of the life of the loan or five years. The JB's license agreement is being amortized using the straight-line method over 11 years.

Gross
Carrying Amt

Accumulated
Amortization

NetFiscal 2005Franchise and license fees

$
1,123,000

$
(391,000
)
$
732,000Loan acquisition costs


110,000


(45,000
)

65,000Total

$
1,233,000

$
(436,000
)
$
797,000Fiscal 2004Franchise and license fees

$
1,173,000

$
(304,000
)
$
869,000Loan acquisition costs


81,000


(19,000
)

62,000Total

$
1,254,000

$
(323,000
)
$
931,000


The
table below shows expected amortization for purchased intangibles as of January 31, 2005 for the next five years:

Fiscal Year2006

$
113,0002007


108,0002008


103,0002009


102,0002010


99,000Thereafter


272,000Total

$
797,000


The
Company acquired the JB's license agreement in November 2002 for $773,000. Amortization expenses for fiscal 2005, 2004 and 2003 were $78,000, $78,000 and $21,000,
respectively.

Impairment of Long-Lived Assets

The Company determines that an impairment write down is necessary for locations 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

F-11

---



assets
are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Fair Value Of Financial Instruments

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, long-term debt and capital lease obligations approximate fair value and are based on discounted cash flows using
market rates at the balance sheet date. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The
derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

Pre-Opening Costs

Pre-opening costs are expensed when incurred. The Company incurred and charged to operations approximately $0, $0 and $63,000 of
pre-opening costs during fiscal 2005, 2004 and 2003, respectively.

Income Taxes

The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect during the years in which the differences are expected to reverse. An
allowance against deferred tax assets is recorded in whole or in part when it is more likely than not that such tax benefits will not be realized.

Advertising Expenses

Advertising costs are charged to operations as incurred. Amounts charged to operations totaled $687,000, $785,000 and $853,000, for the years ended
January 31, 2005, January 26, 2004 and January 27, 2003, respectively.

Insurance Programs

Effective January 14, 2003, the Company is self-insured for general liability claims. The Company has commercial insurance for casualty claims
in excess of $2 million per claim and $3 million per year as a risk reduction strategy. Self-insurance accruals include estimates based on historical information and expected
future development factors. Differences in estimates and assumptions could result in accrual requirements materially different from the calculated accruals.

Leases

The Company has various lease commitments on store locations. Expenses of operating leases with escalating payment terms are recognized on a
straight-line basis over the lives that conform to the related term used to depreciate leasehold improvements on the leased property. Contingent rental payments are triggered by surpassing
annual base revenue levels set forth in certain of our lease agreements. Contingent rental expense is recorded in each month that our revenue exceeds the monthly base revenue levels as set forth in
certain of our lease agreements. 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 probable that
we will exceed the established threshold.

F-12

---



Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and
expenses during the reporting period. Actual results could differ from those estimates.

Earnings (Loss) per Share

The Company applies Statement of Financial Accounting Standards No. 128 (SFAS No. 128), which requires the calculation of basic and diluted loss per
share. Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the fiscal year. Diluted 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. The following is a reconciliation of the denominators
used to calculate diluted earnings (loss) per share on net income (loss) for the respective fiscal years:

|                                                   |  | Fifty-Three
Weeks Ended
January 31, 2005 |   | (Restated-Note 2)
Fifty-Two
Weeks Ended
January 26, 2004 |  | (Restated-Note 2)
Fifty-Two
Weeks Ended
January 27, 2003
|-------------------------------------------------- |  | ---------------------------------------- | - | -------------------------------------------------------- |  | --------------------------------------------------------
|Weighted average common shares outstandingbasic   |  | 2,950,000                                |   | 2,950,000                                                |  | 2,950,000                                               
|Dilutive effect of stock options                   |  | 211,875                                  |   | 234,675                                                  |  |                                                        
|Anti-dilutive stock options                        |  | (211,875                                 | ) |                                                         |  |                                                        
|                                                   |  |                                          |   |                                                          |  |                                                         
|Weighted average common shares outstandingdiluted |  | 2,950,000                                |   | 3,184,675                                                |  | 2,950,000                                               
|                                                   |  |                                          |   |                                                          |  |                                                         

Weighted
average common shares used in the year ended January 31, 2005 diluted loss per share computations exclude stock options to purchase 701,000 shares of common stock as
their effect is anti-dilutive. Weighted average common shares used in the year ended January 26, 2004 diluted earnings per share computations exclude stock options to purchase
496,000 shares of common stock due to the market price of the underlying stock being less than the exercise price. Weighted average common shares used in the year ended January 27, 2003 diluted
loss per share computations exclude stock options to purchase 733,000 shares of common stock which are considered to be anti-dilutive due to the market price of the underlying stock being
less than the exercise price.

Segment Reporting

The Company's reportable segments are based on brand similarities. Business results are based on the Company's management accounting practices.

Comprehensive Income

The Company does not have any components of comprehensive income other than net income (loss) and, therefore, comprehensive income equaled net income (loss) for
all periods presented.

Stock-Based Compensation

The Company uses the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25 when recognizing expense for employee stock
compensation plans. As such, compensation expense is generally only recognized on the date of grant when the current market price of the stock exceeds the exercise price. Had the Company determined
compensation cost based on the

F-13

---



fair
value method at the grant date for its stock options, the Company's net income (loss) and earnings (loss) per share would have reflected the pro forma amounts indicated below:

|                                                      |                                | Fifty-Three
Weeks Ended
January 31, 2005 |   | (Restated-Note 2)
Fifty-Two
Weeks Ended
January 26, 2004 |   | (Restated-Note 2)
Fifty-Two
Weeks Ended
January 27, 2003 |      
|----------------------------------------------------- | ------------------------------ | ---------------------------------------- | - | -------------------------------------------------------- | - | -------------------------------------------------------- | -----
|
|Net income (loss) attributable to common stockholders |                                |                                          |   |                                                          |   |                                                          |      
|                                                      | As reported                    |                                          | $ | (172                                                     | ) | $                                                        | 1,113
|                                                      | Pro forma compensation expense |                                          |   |                                                         |   |                                                          |     
|                                                      | Pro forma net income (loss)    |                                          | $ | (172                                                     | ) | $                                                        | 1,113
|Per sharebasic                                       |                                |                                          |   |                                                          |   |                                                          |      
|                                                      | As reported                    |                                          | $ | (.06                                                     | ) | $                                                        | .38  
|                                                      | Pro forma compensation expense |                                          |   |                                                         |   |                                                          |     
|                                                      | Pro forma net income (loss)    |                                          | $ | (.06                                                     | ) | $                                                        | .38  
|Per sharediluted                                     |                                |                                          |   |                                                          |   |                                                          |      
|                                                      | As reported                    |                                          | $ | (.06                                                     | ) | $                                                        | .35  
|                                                      | Pro forma compensation expense |                                          |   |                                                         |   |                                                          |     
|                                                      | Pro forma net income (loss)    |                                          | $ | (.06                                                     | ) | $                                                        | .35  

For
purposes of pro forma disclosures, the fair value of stock options are estimated when applicable on the date of grant using the Black-Scholes option-pricing model with the following
assumptions: no projected annual dividends, expected volatility, a risk free interest rate and other factors.

The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that do not have vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the value of an
estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

New Accounting Pronouncements

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 ("SFAS No. 149"), "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 except for the provisions that were
cleared by the FASB in prior pronouncements. The Company does not have any derivative instruments or hedging activities as of January 31, 2005.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 clarifies
the classification and measurement of certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after
May 31, 2003, or otherwise for the first interim period beginning after June 15, 2003. The Company does not have any financial instruments with characteristics of both liabilities and
equity as of January 31, 2005.

In
December 2003, the FASB issued Statement No. 132 (revised 2003), "Employers' Disclosures About Pensions and Other Postretirement Benefits," that requires additional
financial statement disclosures for defined benefit plans. This revised standard requires more disclosure about plan assets,

F-14

---



benefit
obligations, cash flows, benefit costs and other relevant information. The Company does not have any pensions or other post retirement benefits.

In
December 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (revised December 2003),Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46). FIN 46 replaces the earlier version of this interpretation issued in January 2003. FIN 46
addresses the consolidation by business enterprises of variable interest entities as defined. Application of FIN 46 is required in financial statements of public entities that have interests in
variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application of FIN 46 to all
other types of entities is required in financial statements for periods ending after March 15, 2004 with earlier application permitted if the original interpretation was previously adopted. The
Company adopted the original interpretation and FIN 46 as of January 26, 2004 which did not have a material effect on the Company's financial statements.

In
December 2004, the Financial Accounting Standards Board ("FASB") recently enacted Statement of Financial Accounting Standards 123-revised 2004 ("SFAS 123R"),
"Share-Based Payment" which replaces Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees." SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a
fair-value-based method and the recording of such expense in our consolidated statements of income. The accounting provisions of SFAS 123R are effective for reporting periods
beginning after December 15, 2005. The Company is required to adopt SFAS 123R in the fourth quarter of fiscal 2007. The pro forma disclosures previously permitted under SFAS 123
no longer will be an alternative to financial statement recognition. See Note 1 to the Notes to Consolidated Financial Statements for the pro forma net income and net income per share amounts,
for fiscal 2002 through fiscal 2004, as if the Company had used a fair-value-based method similar to the methods required under SFAS 123R to measure compensation expense for
employee stock incentive awards. Although the Company has not yet determined whether the adoption of SFAS 123R will result in amounts that are similar to the current pro forma disclosures under
SFAS 123, the Company is evaluating the requirements under SFAS 123R and expects the adoption to potentially have a significant impact on our consolidated statements of operations and
net income per share starting in fiscal 2007.

In
December 2004, the FASB issued FASB 151, Inventory Cost, an amendment of ARB No. 43, Chapter 4. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing" to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). The Company is evaluating the requirements under FASB 151 to determine the impact, if any, on the consolidated financial
statements.

Reclassifications

Certain non-material amounts in fiscal 2003 and fiscal 2004 have been reclassed to conform with the fiscal 2005 presentation.

NOTE 2RESTATEMENT OF FINANCIAL STATEMENTS

As a result of a review of its accounting records during the normal course of the fiscal 2005 independent audit, the Company determined rent expense for the
fiscal years 1997 through 2004 had been under-recognized. The determination was based on an internal review in consultation with its independent auditors and considering the opinions expressed
in the letter of February 7, 2005 from the Office of the Chief Accountant of the Securities and Exchange Commission ("SEC") issued to the

F-15

---



American
Institute of Certified Public Accountants regarding certain operating lease accounting issues and their application under generally accepted accounting principles in the United States of
America ("GAAP"). On March 28, 2005, the Audit Committee of Star Buffet, Inc. determined that it needed to change its calculation and presentation of straight-line rent
expense and related deferred rent liability which were not in accordance with GAAP. The Company has restated its previously reported audited financial statements for the fiscal years ended
January 26, 2004 and January 27, 2003 and the related unaudited quarterly financial statements for those periods, as well as the unaudited financial statements for the quarters ended
May 17, 2004, August 9, 2004 and November 1, 2004. Previously, the Company recorded rent expense on a straight-line basis over the initial non-cancelable
lease term. The Company depreciated its leasehold improvements over a period that included both the initial non-cancelable term of the lease and certain option periods. The Company
restated its financial statements to recognize rent expense on a straight-line basis which conforms to the term used to depreciate leasehold improvements on the leased property.

The
cumulative effect of the restatement through fiscal 2004 was an increase in the deferred rent liability of approximately $485,000 and an increase of approximately $170,000 in the
deferred income tax asset. As a result, retained earnings at the end of fiscal 2004 decreased by approximately $315,000. Rent expense for fiscal years ended 2003 and 2004 increased by
approximately $42,000 and $82,000, respectively, and for the first three quarters of fiscal 2005 by approximately $26,000, $20,000 and $19,000, respectively. The restatement decreased diluted net
earnings per share by approximately $0.01 and $0.02 for fiscal years ended 2003 and 2004, respectively, and by approximately $0.01 cumulatively for the first three quarters of fiscal 2005. The
restatement did have any impact on the Company's previously reported cash flows, sales or compliance with any covenant under its credit facility or other debt instruments.

As
a result of these items, the Company has recorded a prior period adjustment to beginning retained earnings of $235,000 in fiscal 2002, reduced earnings in fiscal 2003 by $27,000 and
reduced earnings by $53,000 in fiscal 2004.

Following
are reconciliations of the Company's restatement of the Consolidated Balance Sheet for fiscal year 2004 and Consolidated Income Statements for fiscal years 2004 and
2003.

F-16

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

|                                        |                                                       | Year Ended January 26, 2004
|--------------------------------------- | ----------------------------------------------------- | ---------------------------
|
|ASSETS                                  |                                                       |                            
|Current assets:                         |                                                       |                            
|                                        | Cash and cash equivalents                             |                            
|                                        | Current portion of notes receivables                  |                            
|                                        | Receivables                                           |                            
|                                        | Inventories                                           |                            
|                                        | Deferred income taxes                                 |                            
|                                        | Prepaid expenses                                      |                            
|                                        | Property held for sale                                |                            
|                                        |                                                       |                            
|Total current assets:                   |                                                       |                            
|Property, buildings and equipment:      |                                                       |                            
|                                        | Property, buildings and equipment, net                |                            
|                                        | Property and equipment leased to third parties, net   |                            
|                                        | Property, buildings and equipment held for future use |                            
|                                        | Property and equipment under capitalized leases, net  |                            
|                                        | Property held for sale                                |                            
|                                        |                                                       |                            
|Total property, buildings and equipment |                                                       |                            
|Other Assets:                           |                                                       |                            
|                                        | Notes receivable, net of current portion              |                            
|                                        | Deposits and other                                    |                            
|                                        |                                                       |                            
|Total other assets                      |                                                       |                            
|Deferred income taxes, net              |                                                       |                            
|Intangible assets:                      |                                                       |                            
|                                        | Goodwill                                              |                            
|                                        | Other intangible assets, net                          |                            
|Total intangible assets                 |                                                       |                            
|Total assets                            |                                                       | $                          
|                                        |                                                       |                            

F-17

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

|                                                         |                                                                                                     | Year Ended January 26, 2004 |           
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | --------------------------- | ----------
|
|LIABILITIES AND STOCKHOLDERS' EQUITY                     |                                                                                                     |                             |           
|Current liabilities:                                     |                                                                                                     |                             |           
|                                                         | Accounts payable-trade                                                                              |                             | $         
|                                                         | Payroll and related taxes                                                                           |                             |           
|                                                         | Sales and property taxes                                                                            |                             |           
|                                                         | Rent, licenses and other                                                                            |                             |           
|                                                         | Income taxes payable                                                                                |                             |           
|                                                         | Revolving line of credit                                                                            |                             |           
|                                                         | Current maturities of obligations under long-term debt                                              |                             |           
|                                                         | Current maturities of obligations under capital leases                                              |                             |           
|                                                         |                                                                                                     |                             |           
|Total current liabilities                                |                                                                                                     |                             | 8,040,000 
|Deferred rent payable                                    |                                                                                                     |                             | 896,000   
|Other long-term liability                                |                                                                                                     |                             | 101,000   
|Capitalized lease obligations, net of current maturities |                                                                                                     |                             | 1,655,000 
|Long-term debt, net of current maturities                |                                                                                                     |                             | 3,987,000 
|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 2,950,000 shares |                             |           
|                                                         | Additional paid-in capital                                                                          |                             |           
|                                                         | Officer's notes receivable                                                                          |                             |           
|                                                         | Retained earnings                                                                                   |                             |           
|                                                         |                                                                                                     |                             |           
|Total stockholders' equity                               |                                                                                                     |                             | 21,105,000
|                                                         |                                                                                                     |                             |           
|Total liabilities and stockholders' equity               |                                                                                                     | $                           | 35,784,000
|                                                         |                                                                                                     |                             |           

F-18

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

|                                                                                                    |                                     | Fifty-Two Weeks Ended January 26, 2004 |           
|--------------------------------------------------------------------------------------------------- | ----------------------------------- | -------------------------------------- | ----------
|
|Total revenues                                                                                      |                                     | $                                      | 68,090,000
|                                                                                                    |                                     |                                        |           
|Costs and expenses                                                                                  |                                     |                                        |           
|                                                                                                    | Food costs                          |                                        |           
|                                                                                                    | Labor costs                         |                                        |           
|                                                                                                    | Occupancy and other expenses        |                                        |           
|                                                                                                    | General and administrative expenses |                                        |           
|                                                                                                    | Depreciation and amortization       |                                        |           
|                                                                                                    | Impairment of long-lived assets     |                                        |           
|                                                                                                    |                                     |                                        |           
|Total costs and expenses                                                                            |                                     |                                        | 66,436,000
|                                                                                                    |                                     |                                        |           
|Income from operations                                                                              |                                     |                                        | 1,654,000 
|Interest expense                                                                                    |                                     |                                        | (569,000  
|Interest income                                                                                     |                                     |                                        | 107,000   
|Reversal of litigation accrual                                                                      |                                     |                                        | 400,000   
|Other income                                                                                        |                                     |                                        | 212,000   
|                                                                                                    |                                     |                                        |           
|Income before income taxes (benefit) and cumulative effect of a change in accounting principle      |                                     |                                        | 1,804,000 
|Income taxes (benefit)                                                                              |                                     |                                        | 638,000   
|                                                                                                    |                                     |                                        |           
|Income before cumulative effect of a change in accounting principle                                 |                                     |                                        | 1,166,000 
|Cumulative effect of a change in accounting principlenet of tax benefit                            |                                     |                                        |          
|                                                                                                    |                                     |                                        |           
|Net income                                                                                          |                                     | $                                      | 1,166,000 
|                                                                                                    |                                     |                                        |           
|Income (loss) per common share before cumulative effect of a change in accounting principlebasic   |                                     | $                                      | 0.40      
|Income (loss) per common share before cumulative effect of a change in accounting principlediluted |                                     | $                                      | 0.37      
|Cumulative effect of a change in accounting principlenet of tax benefit                            |                                     |                                        |          
|                                                                                                    |                                     |                                        |           
|Net income (loss) per common sharebasic                                                            |                                     | $                                      | 0.40      
|                                                                                                    |                                     |                                        |           
|Net income (loss) per common sharediluted                                                          |                                     | $                                      | 0.37      
|                                                                                                    |                                     |                                        |           
|Weighted average shares outstandingbasic                                                           |                                     |                                        | 2,950,000 
|                                                                                                    |                                     |                                        |           
|Weighted average shares outstandingdiluted                                                         |                                     |                                        | 3,184,675 
|                                                                                                    |                                     |                                        |           

F-19

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

|                                                                                                      |                                     | Fifty-Two Weeks Ended January 27, 2003 |           
|----------------------------------------------------------------------------------------------------- | ----------------------------------- | -------------------------------------- | ----------
|
|Total revenues                                                                                        |                                     | $                                      | 74,798,000
|                                                                                                      |                                     |                                        |           
|Costs and expenses                                                                                    |                                     |                                        |           
|                                                                                                      | Food costs                          |                                        |           
|                                                                                                      | Labor costs                         |                                        |           
|                                                                                                      | Occupancy and other expenses        |                                        |           
|                                                                                                      | General and administrative expenses |                                        |           
|                                                                                                      | Depreciation and amortization       |                                        |           
|                                                                                                      | Impairment of long-lived assets     |                                        |           
|                                                                                                      |                                     |                                        |           
|Total costs and expenses                                                                              |                                     |                                        | 76,535,000
|                                                                                                      |                                     |                                        |           
|Income from operations                                                                                |                                     |                                        | (1,737,000
|Interest expense                                                                                      |                                     |                                        | (614,000  
|Interest income                                                                                       |                                     |                                        | 239,000   
|Reversal of litigation accrual                                                                        |                                     |                                        |          
|Other income                                                                                          |                                     |                                        | 33,000    
|                                                                                                      |                                     |                                        |           
|Income (loss) before income taxes (benefit) and cumulative effect of a change in accounting principle |                                     |                                        | (2,079,000
|Income taxes (benefit)                                                                                |                                     |                                        | (800,000  
|                                                                                                      |                                     |                                        |           
|Income (loss) before cumulative effect of a change in accounting principle                            |                                     |                                        | (1,279,000
|Cumulative effect of a change in accounting principlenet of tax benefit                              |                                     |                                        | (560,000  
|                                                                                                      |                                     |                                        |           
|Net income (loss)                                                                                     |                                     | $                                      | (1,839,000
|                                                                                                      |                                     |                                        |           
|Income (loss) per common share before cumulative effect of a change in accounting principlebasic     |                                     | $                                      | (0.43     
|Income (loss) per common share before cumulative effect of a change in accounting principlediluted   |                                     | $                                      | (0.43     
|Cumulative effect of a change in accounting principlenet of tax benefit                              |                                     |                                        | (0.19     
|                                                                                                      |                                     |                                        |           
|Net income (loss) per common sharebasic                                                              |                                     | $                                      | (0.62     
|                                                                                                      |                                     |                                        |           
|Net income (loss) per common sharediluted                                                            |                                     | $                                      | (0.62     
|                                                                                                      |                                     |                                        |           
|Weighted average shares outstandingbasic                                                             |                                     |                                        | 2,950,000 
|                                                                                                      |                                     |                                        |           
|Weighted average shares outstandingdiluted                                                           |                                     |                                        | 2,950,000 
|                                                                                                      |                                     |                                        |           

F-20

---





Following are the consolidated statements of income as originally reported and as restated for the quarters ended November 1, 2004, August 9, 2004, May 17, 2004 and
for each of the quarters of fiscal years 2004 and 2003.

STAR BUFFET, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENT OF INCOME

|                                            |                                     | Twelve Weeks Ended
November 1, 2004 |           
|------------------------------------------- | ----------------------------------- | ----------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                   | 13,269,000
|                                            |                                     |                                     |           
|Costs and expenses                          |                                     |                                     |           
|                                            | Food costs                          |                                     |           
|                                            | Labor costs                         |                                     |           
|                                            | Occupancy and other expenses        |                                     |           
|                                            | General and administrative expenses |                                     |           
|                                            | Depreciation and amortization       |                                     |           
|                                            | Impairment of long-lived assets     |                                     |           
|                                            |                                     |                                     |           
|Total costs and expenses                    |                                     |                                     | 13,397,000
|                                            |                                     |                                     |           
|Loss from operations                        |                                     |                                     | (128,000  
|Interest expense                            |                                     |                                     | (167,000  
|Interest income                             |                                     |                                     |          
|Reversal of litigation accrual              |                                     |                                     |          
|Other income                                |                                     |                                     | 67,000    
|                                            |                                     |                                     |           
|Loss before income taxes                    |                                     |                                     | (228,000  
|Income taxes (benefit)                      |                                     |                                     | (75,000   
|                                            |                                     |                                     |           
|Net loss                                    |                                     | $                                   | (153,000  
|                                            |                                     |                                     |           
|Net loss per common sharebasic             |                                     | $                                   | (0.05     
|                                            |                                     |                                     |           
|Net loss per common sharediluted           |                                     | $                                   | (0.05     
|                                            |                                     |                                     |           
|Weighted average shares outstandingbasic   |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           
|Weighted average shares outstandingdiluted |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           

|                                            |                                     | Twelve Weeks Ended
August 9, 2004 |           
|------------------------------------------- | ----------------------------------- | --------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                 | 15,539,000
|                                            |                                     |                                   |           
|Costs and expenses                          |                                     |                                   |           
|                                            | Food costs                          |                                   |           
|                                            | Labor costs                         |                                   |           
|                                            | Occupancy and other expenses        |                                   |           
|                                            | General and administrative expenses |                                   |           
|                                            | Depreciation and amortization       |                                   |           
|                                            | Impairment of long-lived assets     |                                   |           
|                                            |                                     |                                   |           
|Total costs and expenses                    |                                     |                                   | 14,666,000
|                                            |                                     |                                   |           
|Income from operations                      |                                     |                                   | 873,000   
|Interest expense                            |                                     |                                   | (139,000  
|Interest income                             |                                     |                                   | 1,000     
|Reversal of litigation accrual              |                                     |                                   |          
|Other income                                |                                     |                                   | 65,000    
|                                            |                                     |                                   |           
|Income before income taxes                  |                                     |                                   | 800,000   
|Income taxes                                |                                     |                                   | 274,000   
|                                            |                                     |                                   |           
|Net income                                  |                                     | $                                 | 526,000   
|                                            |                                     |                                   |           
|Net income per common sharebasic           |                                     | $                                 | 0.18      
|                                            |                                     |                                   |           
|Net income per common sharediluted         |                                     | $                                 | 0.17      
|                                            |                                     |                                   |           
|Weighted average shares outstandingbasic   |                                     |                                   | 2,950,000 
|                                            |                                     |                                   |           
|Weighted average shares outstandingdiluted |                                     |                                   | 3,184,675 
|                                            |                                     |                                   |           

F-21

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

|                                            |                                     | Sixteen Weeks Ended
May 17, 2004 |           
|------------------------------------------- | ----------------------------------- | -------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                | 21,551,000
|                                            |                                     |                                  |           
|Costs and expenses                          |                                     |                                  |           
|                                            | Food costs                          |                                  |           
|                                            | Labor costs                         |                                  |           
|                                            | Occupancy and other expenses        |                                  |           
|                                            | General and administrative expenses |                                  |           
|                                            | Depreciation and amortization       |                                  |           
|                                            | Impairment of long-lived assets     |                                  |           
|                                            |                                     |                                  |           
|Total costs and expenses                    |                                     |                                  | 20,482,000
|                                            |                                     |                                  |           
|Income from operations                      |                                     |                                  | 1,069,000 
|Interest expense                            |                                     |                                  | (187,000  
|Interest income                             |                                     |                                  | 3,000     
|Reversal of litigation accrual              |                                     |                                  |          
|Other income                                |                                     |                                  | 81,000    
|                                            |                                     |                                  |           
|Income before income taxes                  |                                     |                                  | 966,000   
|Income taxes                                |                                     |                                  | 338,000   
|                                            |                                     |                                  |           
|Net income                                  |                                     | $                                | 628,000   
|                                            |                                     |                                  |           
|Net income per common sharebasic           |                                     | $                                | 0.21      
|                                            |                                     |                                  |           
|Net income per common sharediluted         |                                     | $                                | 0.20      
|                                            |                                     |                                  |           
|Weighted average shares outstandingbasic   |                                     |                                  | 2,950,000 
|                                            |                                     |                                  |           
|Weighted average shares outstandingdiluted |                                     |                                  | 3,184,675 
|                                            |                                     |                                  |           

|                                            |                                     | Twelve Weeks Ended
January 26, 2004 |           
|------------------------------------------- | ----------------------------------- | ----------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                   | 15,016,000
|                                            |                                     |                                     |           
|Costs and expenses                          |                                     |                                     |           
|                                            | Food costs                          |                                     |           
|                                            | Labor costs                         |                                     |           
|                                            | Occupancy and other expenses        |                                     |           
|                                            | General and administrative expenses |                                     |           
|                                            | Depreciation and amortization       |                                     |           
|                                            | Impairment of long-lived assets     |                                     |           
|                                            |                                     |                                     |           
|Total costs and expenses                    |                                     |                                     | 15,301,000
|                                            |                                     |                                     |           
|Loss from operations                        |                                     |                                     | (285,000  
|Interest expense                            |                                     |                                     | (25,000   
|Interest income                             |                                     |                                     | (61,000   
|Reversal of litigation accrual              |                                     |                                     |          
|Other income                                |                                     |                                     | 47,000    
|                                            |                                     |                                     |           
|Loss before income taxes                    |                                     |                                     | (324,000  
|Income taxes (benefit)                      |                                     |                                     | (97,000   
|                                            |                                     |                                     |           
|Net loss                                    |                                     | $                                   | (227,000  
|                                            |                                     |                                     |           
|Net loss per common sharebasic             |                                     | $                                   | (0.08     
|                                            |                                     |                                     |           
|Net loss per common sharediluted           |                                     | $                                   | (0.08     
|                                            |                                     |                                     |           
|Weighted average shares outstandingbasic   |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           
|Weighted average shares outstandingdiluted |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           

F-22

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

|                                            |                                     | Twelve Weeks Ended
November 3, 2003 |           
|------------------------------------------- | ----------------------------------- | ----------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                   | 14,378,000
|                                            |                                     |                                     |           
|Costs and expenses                          |                                     |                                     |           
|                                            | Food costs                          |                                     |           
|                                            | Labor costs                         |                                     |           
|                                            | Occupancy and other expenses        |                                     |           
|                                            | General and administrative expenses |                                     |           
|                                            | Depreciation and amortization       |                                     |           
|                                            | Impairment of long-lived assets     |                                     |           
|                                            |                                     |                                     |           
|Total costs and expenses                    |                                     |                                     | 14,227,000
|                                            |                                     |                                     |           
|Income from operations                      |                                     |                                     | 151,000   
|Interest expense                            |                                     |                                     | (155,000  
|Interest income                             |                                     |                                     | 50,000    
|Reversal of litigation accrual              |                                     |                                     |          
|Other income                                |                                     |                                     | 99,000    
|                                            |                                     |                                     |           
|Income before income taxes                  |                                     |                                     | 145,000   
|Income taxes                                |                                     |                                     | 50,000    
|                                            |                                     |                                     |           
|Net income                                  |                                     | $                                   | 95,000    
|                                            |                                     |                                     |           
|Net income per common sharebasic           |                                     | $                                   | 0.03      
|                                            |                                     |                                     |           
|Net income per common sharediluted         |                                     | $                                   | 0.03      
|                                            |                                     |                                     |           
|Weighted average shares outstandingbasic   |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           
|Weighted average shares outstandingdiluted |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           

|                                            |                                     | Twelve Weeks Ended
August 11, 2003 |           
|------------------------------------------- | ----------------------------------- | ---------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                  | 16,259,000
|                                            |                                     |                                    |           
|Costs and expenses                          |                                     |                                    |           
|                                            | Food costs                          |                                    |           
|                                            | Labor costs                         |                                    |           
|                                            | Occupancy and other expenses        |                                    |           
|                                            | General and administrative expenses |                                    |           
|                                            | Depreciation and amortization       |                                    |           
|                                            | Impairment of long-lived assets     |                                    |           
|                                            |                                     |                                    |           
|Total costs and expenses                    |                                     |                                    | 15,467,000
|                                            |                                     |                                    |           
|Income from operations                      |                                     |                                    | 792,000   
|Interest expense                            |                                     |                                    | (166,000  
|Interest income                             |                                     |                                    | 48,000    
|Reversal of litigation accrual              |                                     |                                    |          
|Other income                                |                                     |                                    | 39,000    
|                                            |                                     |                                    |           
|Income before income taxes                  |                                     |                                    | 713,000   
|Income taxes                                |                                     |                                    | 244,000   
|                                            |                                     |                                    |           
|Net income                                  |                                     | $                                  | 469,000   
|                                            |                                     |                                    |           
|Net income per common sharebasic           |                                     | $                                  | 0.16      
|                                            |                                     |                                    |           
|Net income per common sharediluted         |                                     | $                                  | 0.16      
|                                            |                                     |                                    |           
|Weighted average shares outstandingbasic   |                                     |                                    | 2,950,000 
|                                            |                                     |                                    |           
|Weighted average shares outstandingdiluted |                                     |                                    | 2,950,000 
|                                            |                                     |                                    |           

F-23

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

|                                            |                                     | Sixteen Weeks Ended
May 19, 2003 |           
|------------------------------------------- | ----------------------------------- | -------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                | 22,437,000
|                                            |                                     |                                  |           
|Costs and expenses                          |                                     |                                  |           
|                                            | Food costs                          |                                  |           
|                                            | Labor costs                         |                                  |           
|                                            | Occupancy and other expenses        |                                  |           
|                                            | General and administrative expenses |                                  |           
|                                            | Depreciation and amortization       |                                  |           
|                                            | Impairment of long-lived assets     |                                  |           
|                                            |                                     |                                  |           
|Total costs and expenses                    |                                     |                                  | 21,441,000
|                                            |                                     |                                  |           
|Income from operations                      |                                     |                                  | 996,000   
|Interest expense                            |                                     |                                  | (222,000  
|Interest income                             |                                     |                                  | 69,000    
|Reversal of litigation accrual              |                                     |                                  | 400,000   
|Other income                                |                                     |                                  | 27,000    
|                                            |                                     |                                  |           
|Income before income taxes                  |                                     |                                  | 1,270,000 
|Income taxes                                |                                     |                                  | 441,000   
|                                            |                                     |                                  |           
|Net income                                  |                                     | $                                | 829,000   
|                                            |                                     |                                  |           
|Net income per common sharebasic           |                                     | $                                | 0.28      
|                                            |                                     |                                  |           
|Net income per common sharediluted         |                                     | $                                | 0.28      
|                                            |                                     |                                  |           
|Weighted average shares outstandingbasic   |                                     |                                  | 2,950,000 
|                                            |                                     |                                  |           
|Weighted average shares outstandingdiluted |                                     |                                  | 2,950,000 
|                                            |                                     |                                  |           

|                                            |                                     | Twelve Weeks Ended
January 27, 2003 |           
|------------------------------------------- | ----------------------------------- | ----------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                   | 16,059,000
|                                            |                                     |                                     |           
|Costs and expenses                          |                                     |                                     |           
|                                            | Food costs                          |                                     |           
|                                            | Labor costs                         |                                     |           
|                                            | Occupancy and other expenses        |                                     |           
|                                            | General and administrative expenses |                                     |           
|                                            | Depreciation and amortization       |                                     |           
|                                            | Impairment of long-lived assets     |                                     |           
|                                            |                                     |                                     |           
|Total costs and expenses                    |                                     |                                     | 16,970,000
|                                            |                                     |                                     |           
|Loss from operations                        |                                     |                                     | (911,000  
|Interest expense                            |                                     |                                     | (135,000  
|Interest income                             |                                     |                                     | 53,000    
|Reversal of litigation accrual              |                                     |                                     |          
|Other income                                |                                     |                                     | 33,000    
|                                            |                                     |                                     |           
|Loss before income taxes                    |                                     |                                     | (960,000  
|Income taxes (benefit)                      |                                     |                                     | (393,000  
|                                            |                                     |                                     |           
|Net loss                                    |                                     | $                                   | (567,000  
|                                            |                                     |                                     |           
|Net loss per common sharebasic             |                                     | $                                   | (0.19     
|                                            |                                     |                                     |           
|Net loss per common sharediluted           |                                     | $                                   | (0.19     
|                                            |                                     |                                     |           
|Weighted average shares outstandingbasic   |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           
|Weighted average shares outstandingdiluted |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           

F-24

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

|                                            |                                     | Twelve Weeks Ended
November 4, 2002 |           
|------------------------------------------- | ----------------------------------- | ----------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                   | 15,587,000
|                                            |                                     |                                     |           
|Costs and expenses                          |                                     |                                     |           
|                                            | Food costs                          |                                     |           
|                                            | Labor costs                         |                                     |           
|                                            | Occupancy and other expenses        |                                     |           
|                                            | General and administrative expenses |                                     |           
|                                            | Depreciation and amortization       |                                     |           
|                                            | Impairment of long-lived assets     |                                     |           
|                                            |                                     |                                     |           
|Total costs and expenses                    |                                     |                                     | 16,063,000
|                                            |                                     |                                     |           
|Loss from operations                        |                                     |                                     | (476,000  
|Interest expense                            |                                     |                                     | (157,000  
|Interest income                             |                                     |                                     | 50,000    
|Reversal of litigation accrual              |                                     |                                     |          
|Other income                                |                                     |                                     |          
|                                            |                                     |                                     |           
|Loss before income taxes                    |                                     |                                     | (583,000  
|Income taxes (benefit)                      |                                     |                                     | (201,000  
|                                            |                                     |                                     |           
|Net loss                                    |                                     | $                                   | (382,000  
|                                            |                                     |                                     |           
|Net loss per common sharebasic             |                                     | $                                   | (0.13     
|                                            |                                     |                                     |           
|Net loss per common sharediluted           |                                     | $                                   | (0.13     
|                                            |                                     |                                     |           
|Weighted average shares outstandingbasic   |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           
|Weighted average shares outstandingdiluted |                                     |                                     | 2,950,000 
|                                            |                                     |                                     |           

|                                            |                                     | Twelve Weeks Ended
August 12, 2002 |           
|------------------------------------------- | ----------------------------------- | ---------------------------------- | ----------
|
|
|Total revenues                              |                                     | $                                  | 17,960,000
|                                            |                                     |                                    |           
|Costs and expenses                          |                                     |                                    |           
|                                            | Food costs                          |                                    |           
|                                            | Labor costs                         |                                    |           
|                                            | Occupancy and other expenses        |                                    |           
|                                            | General and administrative expenses |                                    |           
|                                            | Depreciation and amortization       |                                    |           
|                                            | Impairment of long-lived assets     |                                    |           
|                                            |                                     |                                    |           
|Total costs and expenses                    |                                     |                                    | 18,867,000
|                                            |                                     |                                    |           
|Loss from operations                        |                                     |                                    | (907,000  
|Interest expense                            |                                     |                                    | (132,000  
|Interest income                             |                                     |                                    | 63,000    
|Reversal of litigation accrual              |                                     |                                    |          
|Other income                                |                                     |                                    |          
|                                            |                                     |                                    |           
|Loss before income taxes                    |                                     |                                    | (976,000  
|Income taxes (benefit)                      |                                     |                                    | (358,000  
|                                            |                                     |                                    |           
|Net loss                                    |                                     | $                                  | (618,000  
|                                            |                                     |                                    |           
|Net loss per common sharebasic             |                                     | $                                  | (0.21     
|                                            |                                     |                                    |           
|Net loss per common sharediluted           |                                     | $                                  | (0.21     
|                                            |                                     |                                    |           
|Weighted average shares outstandingbasic   |                                     |                                    | 2,950,000 
|                                            |                                     |                                    |           
|Weighted average shares outstandingdiluted |                                     |                                    | 2,950,000 
|                                            |                                     |                                    |           

F-25

---



STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

|                                                                                                       |                                     | Sixteen Weeks Ended
May 20, 2002 |           
|------------------------------------------------------------------------------------------------------ | ----------------------------------- | -------------------------------- | ----------
|
|
|Total revenues                                                                                         |                                     | $                                | 25,192,000
|                                                                                                       |                                     |                                  |           
|Costs and expenses                                                                                     |                                     |                                  |           
|                                                                                                       | Food costs                          |                                  |           
|                                                                                                       | Labor costs                         |                                  |           
|                                                                                                       | Occupancy and other expenses        |                                  |           
|                                                                                                       | General and administrative expenses |                                  |           
|                                                                                                       | Depreciation and amortization       |                                  |           
|                                                                                                       | Impairment of long-lived assets     |                                  |           
|                                                                                                       |                                     |                                  |           
|Total costs and expenses                                                                               |                                     |                                  | 24,635,000
|                                                                                                       |                                     |                                  |           
|Income from operations                                                                                 |                                     |                                  | 557,000   
|Interest expense                                                                                       |                                     |                                  | (190,000  
|Interest income                                                                                        |                                     |                                  | 73,000    
|Reversal of litigation accrual                                                                         |                                     |                                  |          
|Other income                                                                                           |                                     |                                  |          
|                                                                                                       |                                     |                                  |           
|Income before income taxes                                                                             |                                     |                                  | 440,000   
|Income taxes                                                                                           |                                     |                                  | 152,000   
|                                                                                                       |                                     |                                  |           
|Income before cumulative effect of a change in accounting principle                                    |                                     |                                  | 288,000   
|Cumulative effect of a change in accounting principlenet of taxes                                     |                                     |                                  | (560,000  
|Net loss                                                                                               |                                     | $                                | (272,000  
|                                                                                                       |                                     |                                  |           
|Income per common share before cumulative effect of a change in accounting principlebasic and diluted |                                     | $                                | 0.10      
|Cumulative effect of a change in accounting principlenet of taxes                                     |                                     |                                  | (0.19     
|                                                                                                       |                                     |                                  |           
|Net loss per common sharebasic and diluted                                                            |                                     | $                                | (0.09     
|                                                                                                       |                                     |                                  |           
|Weighted average shares outstandingbasic                                                              |                                     |                                  | 2,950,000 
|                                                                                                       |                                     |                                  |           
|Weighted average shares outstandingdiluted                                                            |                                     |                                  | 2,950,000 
|                                                                                                       |                                     |                                  |           

F-26

---



NOTE 3NOTES RECEIVABLE

Notes receivable consist of the following:

January 31, 2005

January 26, 2004Notes receivable from North's Restaurants, Inc.

$
2,823,000

$
2,823,000Notes receivable from landlord


55,000


72,000Total notes receivable


2,878,000


2,895,000Less current portion


18,000


17,000Notes receivable, net of current portion

$
2,860,000

$
2,878,000


The
receivable from North's Restaurants, Inc. ("North's") originally included $3,123,000 for a term note and $371,000 on a line of credit that was converted to a note receivable.
As a result of a dispute with North's, management stopped accruing interest pending resolution of the dispute with North's (Note 12). As part of a Settlement Agreement entered on
January 26, 2001, North's promised to pay the Company the principal sum of $3,500,000 with an interest rate of 8% per annum. North's paid the Company $295,000 pursuant to the terms of the
Settlement Agreement and such payment was applied to reduce the principal amount owing. The $3.5 million note receivable stipulates that monthly payments
of principal and interest be made in the amount of $39,954. The loan calls for monthly payments to start on February 26, 2001 and continue on the 26th day of each month
thereafter, with a final payment of all remaining unpaid principal, accrued interest and other sums due under the note due and payable on September 26, 2010. Our collateral includes all real
and personal property, landlord leases, trademarks and all other intellectual property associated with seven restaurants. The Company is pari passu with the only other secured creditor. The other
secured creditor is owed approximately $3,000,000 not including accrued interest.

The
Company accommodated North's request for working capital and remodeling expenditures by reducing the principal payments due from June 26, 2002 through July 26, 2003
from $303,000 to $65,000. Full principal and interest payments were to resume August 2003 through January 2011 with the final payment due in February 2011. Except as set forth
below, no payments have been received from North's subsequent to the July 2003 payment. The Company has not recorded approximately $319,000 of interest income due from North's. The Company has
not provided an allowance for bad debts for the note as of January 31, 2005. Based on financial information that has been provided to us, historic and estimated future cash flows are adequate
for recovery of the principal amount of the note receivable. Subsequent to year end, in March 2005, North's made a $9,000 interest payment.

On
March 2, 2004, the Company filed a second action against North's Restaurants, Inc. ("North's") in the United States District Court, District of Utah, Central Division,
Case No. 2:04CV00211, demanding judgment against North's for failure to repay obligations under the Star Buffet Promissory Note in a total amount not less than $2,934,453 plus interest
at the default rate as set forth in the Star Buffet Promissory Note. A trial date has not been set. Since January 26, 2004, the note receivable has been recorded as a long-term
receivable. The Company has not recorded interest income due from North's since August 2003. The Company's note, together with the obligation to another significant creditor of North's, is
secured by the real and personal property, landlord leases, trademarks and all other intellectual property associated with seven restaurants. The Company believes current and future cash flows are
adequate for recovery of the principal amount of the note receivable. The Company therefore has not provided an allowance for bad debts for the note as of January 31, 2005.

Certain
creditors have requested, and the court has approved on October 4, 2004 the appointment of a trustee to manage the affairs of North's Restaurants, Inc. Company
management has met with the

F-27

---



trustee
to discuss plans for repayment of the obligation. Company management has provided the trustee with detailed alternatives that would permit full recovery of the obligation.

NOTE 4PROPERTY, BUILDINGS AND EQUIPMENT AND REAL PROPERTY UNDER CAPITALIZED LEASES

The components of property, buildings and equipment used in restaurant operations, not including property under capitalized leases, are as follows:

January 31,
2005

January 26,
2004Property, buildings and equipment:Furniture, fixtures and equipment

$
12,033,000

$
13,842,000Land


3,085,000


2,637,000Buildings and leasehold improvements


20,653,000


22,480,00035,771,000


38,959,000Less accumulated depreciation


(19,012,000
)

(20,568,000
)$
16,759,000

$
18,391,000


The
components of property under capitalized leases are as follows:

Property and equipment under capitalized leases

$
3,193,000

$
3,193,000Less accumulated amortization


(2,174,000
)

(2,040,000
)$
1,019,000

$
1,153,000


Total
property, buildings and equipment includes the following land, equipment and buildings and leaseholds currently in eight non-operating units. Four of the eight units
are leased to third-party operators, three units are closed for remodeling and repositioning and one unit is included in property held for sale at January 31, 2005. The components are as
follows:

January 31,
2005

January 26,
2004Property and equipment leased to third parties:Equipment

$
655,000

$
517,000Land


1,787,000


1,559,000Buildings and leaseholds


3,290,000


2,353,0005,732,000


4,429,000Less accumulated depreciation


(1,371,000
)

(694,000
)$
4,361,000

$
3,735,000


January 31,
2005

January 26,
2004Property, buildings and equipment held for future use:Equipment

$
6,153,000

$
4,023,000Land


382,000


228,000Buildings and leaseholds


1,528,000


937,0008,063,000


5,188,000Less accumulated depreciation


(5,489,000
)

(2,815,000
)$
2,574,000

$
2,373,000


F-28

---



January 31,
2005

January 26,
2004Property held for sale:Land

$
567,000

$
567,000Buildings


364,000


364,000$
931,000

$
931,000


Depreciation
expenses for fiscal 2005, 2004 and 2003 were $2,316,000, $2,472,000 and $3,362,000, respectively.

NOTE 5LONG-TERM DEBT

On October 23, 1998, the Company entered into a $20 million syndicated bank financing agreement led by FleetBoston Financial Corporation (formerly
known as BankBoston, N.A.). The credit facility consisted of a $13 million, 5-year term loan (the "Term Loan Facility") and a $7 million, 5-year revolving credit
facility (the "Revolving Credit Facility"). The Company paid the Term Loan Facility in full on May 17, 2002. Borrowings under the Revolving Credit Facility bore interest at approximately 3.5%
for fiscal 2004. All outstanding amounts under the Revolving Credit Facility became due in October 2003 and were paid timely.

On
October 31, 2004, the Company continued a $1.0 million 1-year Revolving Line of Credit with M&I Marshall & Ilsley Bank (the "Revolving Line of
Credit"). The Revolving Line of Credit refinanced a revolving credit facility the Company previously had with FleetBoston Financial Corporation and provides working capital for the Company. The
Revolving Line of Credit bears interest at LIBOR plus two percent per annum. The Revolving Line of Credit requires the Company to maintain specified minimum levels of net worth, limit the amount of
capital expenditures, maintain certain fixed charge coverage ratios, and to meet other financial covenants. The Company is currently in compliance with these covenants. All outstanding amounts under
the Revolving Line of Credit become due October 31, 2005. The Company increased the Revolving Line of Credit on February 1, 2005 to $2.0 million and increased the limit on annual
dividends and purchase or redemption of capital stock to $2.5 million with no other changes in terms or covenants. The Company will seek to renew or replace the Revolving Line of Credit by
October 2005. There can be no assurance the Revolving Line of Credit can be refinanced on acceptable terms or at all. The Revolving Line of Credit balance was $0 on January 31, 2005 and
April 15, 2005. The Revolving Line of Credit had $2,000,000 available for borrowing on April 15, 2005.

On
February 1, 2001, the Company entered into a promissory note secured by a first mortgage with Victorium Corporation for $460,000 to purchase the real estate of the BuddyFreddys
Country Buffet in Ocala, Florida. The fixed rate (7.5%) mortgage requires monthly payments of $4,264 including interest and matures in 15 years. The balance at January 31, 2005 and
January 26, 2004 was $384,000 and $406,000, respectively.

On
October 9, 2001, the Company entered into a $773,000 15 year first real estate mortgage with First National Bank of Wyoming. The mortgage has monthly payments including
interest of $7,253 and has an October 1, 2016 maturity date with a fixed interest rate of 7.625%. The mortgage requires the Company to maintain specified minimum levels of net worth, limits the
amount of capital expenditures, requires the maintenance of certain fixed charge coverage ratios and requires a minimum shareholder ownership percentage. The proceeds were used to pay the FleetBoston
Term Loan Facility as required by the Company's agreement with FleetBoston. The mortgage is secured by the Company's JB's Restaurant in Laramie, Wyoming. The balance at January 31, 2005 and
January 26, 2004 was $663,000 and $698,000, respectively.

F-29

---



On
May 2, 2002, the Company entered into a $1,500,000 ten year first real estate mortgage with M&I Marshall & Ilsley Bank. The mortgage has monthly payments including
interest of $17,894 and matures on May 2, 2012 with a fixed interest rate of 7.5% for the first five years with interest for years six to ten calculated at the five year LIBOR
rate plus 250 basis points with a floor of 7.5%. The proceeds were used to pay the FleetBoston Term Loan Facility as required by the Company's agreement with FleetBoston. The mortgage is secured by
the Company's HomeTown Buffet restaurant in Scottsdale, Arizona. The balance at January 31, 2005 and January 26, 2004 was $1,205,000 and $1,319,000, respectively.

On
December 19, 2003, the Company entered into a $1,470,000 six year first real estate mortgage with Platinum Bank. The mortgage has monthly payments including interest of $12,678
through November 19, 2009 with a balloon payment of $475,000 due on December 19, 2009. The mortgage bears interest at a fixed rate of 6.25% for the first three years with interest
for years four to six calculated at the three year Atlanta Federal Home Loan Bank advance rate for fixed rate credits plus 325 basis points with a floor of 6.0%. The mortgage is secured by the
Company's BuddyFreddys restaurant in Plant City, Florida and a $500,000 personal guarantee of a shareholder. The balance at January 31, 2005 and January 26, 2004 was $1,404,000 and
$1,465,000, respectively.

On
February 25, 2004, the Company entered into a $1,250,000 seven year first real estate mortgage with M&I Marshall & Ilsley Bank. The mortgage has monthly payments
including interest of $18,396 and matures on February 25, 2011 with a fixed interest rate of 6.1%. The proceeds were used to reduce the Revolving Line of Credit with M&I Marshall &
Ilsley Bank. The mortgage is secured by the Company's HomeTown Buffet restaurant in Yuma, Arizona. The balance at January 31, 2005 was $1,115,000.

On
July 29, 2004, the Company entered into a $550,000 ten year first real estate mortgage with Heritage Bank. The mortgage has monthly payments including interest of $6,319 and
matures on August 1, 2014 with a fixed interest rate of 6.75%. The mortgage is secured by the Company's JB's Restaurant in Great Falls, Montana. The balance at January 31, 2005 was
$531,000.

On
October 27, 2004, the Company entered into a $1,275,000 five year first real estate mortgage with Bank of Utah. The mortgage has monthly payments including interest of $14,371
and matures on October 26, 2009 with a balloon payment of $752,000 due on October 26, 2009. The mortgage bears interest at a fixed interest rate of 6.25%. The mortgage requires the
Company to maintain specified minimum levels of net worth, limits the amount of capital expenditures and requires the maintenance of certain fixed charge coverage ratios. The proceeds were used to pay
Naisco Investments, L.C., the previous lien holder and to reduce the Revolving Line of Credit with M&I Marshall & Ilsley Bank. The mortgage is secured by the Company's HomeTown Buffet
restaurant in Layton, Utah. The balance at January 31, 2005 was $1,251,000.

Long
term debt matures in fiscal years ending after January 31, 2005 as follows:

Fiscal Year2006

$
543,0002007


585,0002008


626,0002009


668,0002010


1,421,000Thereafter


2,710,000Total

$
6,553,000


F-30

---



NOTE 6LEASES

The Company occupies certain restaurants under long-term capital and operating leases expiring at various dates through 2013. Most restaurant leases
have renewal options for terms of 5 to 20 years, and substantially all require payment of real estate taxes and insurance. 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
12 years using the straight line method.

Minimum
lease payments for all leases and the present value of net minimum lease payments for capital leases as of January 31, 2005 are as follows:

Fiscal year

Capital

Operating2006

$
298,000

$
2,746,0002007


309,000


2,445,0002008


309,000


2,155,0002009


319,000


1,845,0002010


332,000


1,115,000Thereafter


1,029,000


2,872,000Total minimum lease payments:


2,596,000

$
13,178,000Less amount representing interest:


942,000Present value of minimum lease payments:


1,654,000Less current portion


116,000Capital lease obligations excluding current portion

$
1,538,000


Aggregate
rent expense under noncancelable operating leases during fiscal 2005, 2004 and 2003 are as follows:

Fifty-Three
Weeks Ended
January 31, 2005

(Restated)
Fifty-Two
Weeks Ended
January 26, 2004

(Restated)
Fifty-Two
Weeks Ended
January 27, 2003Minimum rentals

$
3,137,000

$
3,350,000

$
3,729,000Straight-line rentals


(61,000
)

(101,000
)

164,000Contingent rentals


87,000


113,000


148,000$
3,163,000

$
3,362,000

$
4,041,000


In
fiscal 2005, 2004 and 2003, the Company reduced the deferred rent payable for stores that were purchased or closed. The $108,000, $176,000 and $0 decrease in rent expense in 2005,
2004 and 2003, respectively, is recognized in the straight-line rentals disclosed above.

The
Company currently leases four non-operating units to tenants under non-cancellable operating leases with terms of five to ten years. The rental income
for fiscal 2005, 2004 and 2003 was $292,000, $212,000 and $33,000, respectively. Rental income is recognized on a straight-line basis over the term of the lease.

F-31

---



Future
minimum lease payments receivable in fiscal years ending after January 31, 2005 is as follows:

Fiscal Year2006

$
321,0002007


334,0002008


344,0002009


236,0002010


159,000Thereafter


387,000Total

$
1,781,000


NOTE 7INCOME TAXES

Income taxes (benefit) are comprised of the following:

Fifty-Three
Weeks Ended
January 31, 2005

(Restated)
Fifty-Two
Weeks Ended
January 26, 2004

(Restated)
Fifty-Two
Weeks Ended
January 27, 2003Current:Federal

$
431,000

$
383,000

$
(271,000
)State


105,000


100,000


(4,000
)536,000


483,000


(275,000
)Deferred:Federal


(592,000
)

118,000


(691,000
)State


(112,000
)

8,000


(138,000
)(704,000
)

126,000


(829,000
)$
(168,000
)
$
609,000

$
(1,104,000
)


A
reconciliation of income taxes (benefit) at the federal statutory rate of 34% to the Company's provision for taxes on income is as follows:

Fifty-Three
Weeks Ended
January 31, 2005

(Restated)
Fifty-Two
Weeks Ended
January 26, 2004

(Restated)
Fifty-Two
Weeks Ended
January 27, 2003Income taxes (benefit) at statutory rate

$
(116,000
)
$
585,000

$
(1,010,000
)State income taxes


(7,000
)

68,000


(107,000
)Nondeductible expenses


46,000


55,000


15,000Federal income tax credits


(175,000
)

(295,000
)

Adjustment of estimated income tax accruals


84,000


226,000


(227,000
)(Decrease) increase in valuation allowance





(35,000
)

215,000All other, net





5,000


10,000$
(168,000
)
$
609,000

$
(1,104,000
)


F-32

---



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

January 31, 2005

(Restated)
January 26, 2004Current deferred tax assets:Accrued vacation

$
93,000

$
87,000Accrued expenses and reserves


111,000


75,000Total deferred tax assets


204,000


162,000Long-term deferred tax assets (liabilities):Leases


1,072,000


1,199,000Depreciation, amortization and impairments


720,000


(463,000
)Federal tax credit carryforward





11,000State NOL carryforwards


193,000


193,000Total deferred tax assets, net


1,985,000


940,000Valuation allowance


(180,000
)

(180,000
)Net long term asset


1,805,000


760,000Net deferred tax assets

$
2,009,000

$
922,000


While
there can be no assurance that the Company will generate any earnings or any specific level of earnings in the future years, management believes it is more likely than not
that the Company will be able to realize the benefit of the deferred tax assets existing at January 31, 2005 based on the Company's expected future pre-tax earnings. 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.

A
valuation allowance has been recognized for a state loss carryforward as cumulative losses create uncertainty about the realization of the tax benefits in future years. The
Company has state net operating loss carryforwards of approximately $7,455,000 which expire in the years 2018 through 2023 at January 31, 2005.

NOTE 8SEGMENT AND RELATED REPORTING

The Company has five reporting segments: HomeTown Buffet, Casa Bonita, North's Star, Florida Buffets Division and JB's Restaurants. The Company's reportable
segments are aggregated based on brand similarities of operating segments.

At
January 31, 2005, the HomeTown Buffet segment includes the Company's 14 franchised HomeTown Buffet restaurants. The Casa Bonita segment includes two Casa Bonita restaurants.
The North's Star segment includes two JJ North's Country Buffet restaurants. The Florida Buffets Division includes two BuddyFreddys restaurants, three BuddyFreddys Country Buffet restaurants and two
Holiday House restaurants. The JB's Restaurants segment includes the Company's seven JB's Restaurants.

The
accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its operating segments based on income
before income taxes.

Summarized
financial information concerning the Company's reportable segments is shown in the following table. The other assets presented in the consolidated balance sheet and not in the
reportable segments relate to the Company as a whole, and not individual segments. Also certain corporate

F-33

---



overhead
income and expenses in the consolidated statements of operations are not included in the reportable segments.

|                                                                                                      |  | HomeTown
Buffet |        | Casa
Bonita |   | North's
Star |  | Florida
Buffets |        | JB's |   | Other  |   | Total |       
|----------------------------------------------------------------------------------------------------- |  | --------------- | ------ | ----------- | - | ------------ |  | --------------- | ------ | ---- | - | ------ | - | ----- | ------
|
|53 Weeks Ended January 31, 2005                                                                       |  |                 |        |             |   |              |  |                 |        |      |   |        |   |       |       
|Revenues                                                                                              |  | $               | 32,282 |             | $ | 9,852        |  | $               | 4,290  |      | $ | 10,785 |   | $     | 7,647 
|Interest income                                                                                       |  |                 |       |             |   |             |  |                 |       |      |   |       |   |       |      
|Interest expense                                                                                      |  |                 | (192   | )           |   |             |  |                 |       |      |   |       |   |       |      
|Depreciation & amortization                                                                           |  |                 | 1,084  |             |   | 232          |  |                 | 210    |      |   | 625    |   |       | 225   
|Impairment of long-lived assets                                                                       |  |                 | 798    |             |   |             |  |                 | 1,040  |      |   | 754    |   |       | 246   
|Income (loss) before income taxes                                                                     |  |                 | 1,142  |             |   | 2,079        |  |                 | (1,667 | )    |   | (24    | ) |       | 332   
|Total assets                                                                                          |  |                 | 12,386 |             |   | 1,346        |  |                 | 4,388  |      |   | 9,314  |   |       | 5,230 
|(Restated) 52 Weeks Ended January 26, 2004                                                            |  |                 |        |             |   |              |  |                 |        |      |   |        |   |       |       
|Revenues                                                                                              |  | $               | 33,773 |             | $ | 9,437        |  | $               | 6,045  |      | $ | 10,592 |   | $     | 8,243 
|Interest income                                                                                       |  |                 |       |             |   |             |  |                 |       |      |   |       |   |       |      
|Interest expense                                                                                      |  |                 | (202   | )           |   |             |  |                 |       |      |   |       |   |       |      
|Depreciation & amortization                                                                           |  |                 | 1,211  |             |   | 248          |  |                 | 319    |      |   | 507    |   |       | 249   
|Impairment of long-lived assets                                                                       |  |                 | 114    |             |   |             |  |                 | 490    |      |   | 466    |   |       | 13    
|Income (loss) before income taxes                                                                     |  |                 | 1,987  |             |   | 1,818        |  |                 | (1,129 | )    |   | 71     |   |       | 468   
|Total assets                                                                                          |  |                 | 12,271 |             |   | 1,410        |  |                 | 5,686  |      |   | 10,960 |   |       | 4,815 
|(Restated) 52 Weeks Ended January 27, 2003                                                            |  |                 |        |             |   |              |  |                 |        |      |   |        |   |       |       
|Revenues                                                                                              |  | $               | 35,512 |             | $ | 9,780        |  | $               | 7,564  |      | $ | 11,913 |   | $     | 10,029
|Interest income                                                                                       |  |                 |       |             |   |             |  |                 |       |      |   |       |   |       |      
|Interest expense                                                                                      |  |                 | (210   | )           |   |             |  |                 |       |      |   | (33    | ) |       | (2    
|Depreciation & amortization                                                                           |  |                 | 1,520  |             |   | 241          |  |                 | 364    |      |   | 811    |   |       | 390   
|Impairment of long-lived assets                                                                       |  |                 |       |             |   |             |  |                 | 300    |      |   | 1,249  |   |       | 282   
|Income (loss) before income taxes (benefit) and cumulative effect of a change in accounting principle |  |                 | 1,487  |             |   | 1,764        |  |                 | (975   | )    |   | (1,495 | ) |       | (106  
|Cumulative effect of a change in accounting principlenet of taxes                                    |  |                 |       |             |   |             |  |                 | (367   | )    |   | (124   | ) |       | (69   
|Total assets                                                                                          |  |                 | 12,150 |             |   | 1,417        |  |                 | 6,474  |      |   | 13,207 |   |       | 4,991 

NOTE 9STOCKHOLDERS' EQUITY

Common Stock

Holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders and 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 therefor. In the event of a 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 nonassessable. 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. The
Company paid an annual cash dividend of $0.50

F-34

---



and
$0.25 for fiscal 2005 and fiscal 2004, respectively. The Company also paid a special dividend of $0.25 in both fiscal 2005 and 2004.

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
therefor. 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 the effect 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. As a result, the issuance of Preferred Stock may, under
certain circumstances, have the effect of delaying, discouraging or preventing bids for the Common Stock at a premium over the market price thereof, or a change in control of the Company, and could
have a material adverse effect on the market price for the Common Stock.

Officer's Notes Receivable

In connection with the Company's employment contract with Mr. Robert E. Wheaton, the Company's President and Chief Executive Officer, the Company agreed to
provide Mr. Wheaton with certain loans solely for the purchase of the Company's common stock prior to the enactment of Sarbanes-Oxley Act of 2002. Mr. Wheaton owns approximately 49% of
the Company's outstanding common shares and may have the effective power to elect members of the board of directors and to control the vote on substantially all other matters, without the approval of
the other stockholders. The loans are secured by the common stock and bear interest at the prevailing rate set forth in the Company's credit facility with M&I Marshall & Ilsley Bank. Repayment
terms stipulate that the president will repay principal and interest on or before the later of the fifth anniversary date of the initial advance under the loan agreement, the date he receives a lump
sum payment per a termination clause or six month's after the termination of his employment. It is anticipated that the loans will be repaid in cash from the personal assets of Mr. Wheaton.
Management has elected not to record any interest income on the loans until the interest income is paid. The current rate is approximately 4.3% for the fourth quarter of fiscal 2005.
Mr. Wheaton paid $632,000 in June 2004. At January 31, 2005, the loans totaled $698,000 ($1,330,000 at January 26, 2004).

Common Stock Repurchase

On December 7, 1999, the Company's Board of Directors authorized the repurchase of up to 500,000 shares of the Company's Common Stock to be effected in the
open market, in private transactions or through alternative repurchase transactions approved by the Board of Directors. As of January 31, 2005, no shares have been repurchased under the
December 7, 1999 authorization.

F-35

---



NOTE 10EMPLOYEE BENEFIT PLANS

401(k) Plan

In May 1998, the Company established a 401(k) plan available to certain employees who have attained age 21, work 30 hours or more per week,
and have met certain minimum service requirements. The plan allows participants to allocate up to 15% of their annual compensation before taxes for investment in several investment alternatives.
Employer contributions are at the discretion of the Company. The Company's contributions to the plan were approximately $15,000, $8,000, and $8,000 in administration costs for fiscal 2005, 2004 and
2003, respectively. The Board of Directors has authorized the termination of the Company's 401(k) plan. The plan has fewer than 50 participants as of April 15, 2005.

1997 Stock Incentive Plan

In fiscal year 1998, the Company adopted the 1997 Stock Incentive Plan (the "1997 Plan"), which authorizes the grant of options to purchase up to 750,000 shares
of Common Stock. The 1997 Plan provides for "incentive stock options," within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
non-statutory options to directors, officers, employees and consultants of the Company, except that incentive stock options may not be granted to non-employee directors or
consultants. The 1997 Plan provides participants with incentives which will encourage them to acquire a proprietary interest in, and continue to provide services to, the Company. The Board of
Directors has sole discretion and authority, consistent with the provisions of the 1997 Plan, to determine which eligible participants will receive options, time when options will be granted, terms of
options granted and number of shares which will be subject to options granted under the 1997 Plan.

A
summary of the status of the Company's stock options is presented below (shares in thousands):

|                                 |  | Fifty-Three
Weeks Ended
January 31, 2005 |  | Fifty-Two
Weeks Ended
January 26, 2004 |      | Fifty-Two
Weeks Ended
January 27, 2003
|-------------------------------- |  | ---------------------------------------- |  | -------------------------------------- | ---- | --------------------------------------
|
|Outstanding at beginning of year |  | 731                                      |  | $                                      | 9.75 |                                       
|Granted                          |  |                                         |  |                                        |     |                                       
|Cancelled                        |  | 30                                       |  | $                                      | 6.73 |                                       
|Outstanding at end of year       |  | 701                                      |  | $                                      | 9.88 |                                       
|                                 |  |                                          |  |                                        |      |                                       
|Options exercisable at year end  |  | 701                                      |  | $                                      | 9.88 |                                       
|                                 |  |                                          |  |                                        |      |                                       

The
exercise price of the options granted and exercisable at January 31, 2005 is $5.00 for 212,000 options and $12.00 for 489,000 options. On February 11, 2005, the Company
granted 49,000 options exercisable at $6.70.

F-36

---



NOTE 11SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

|                                                            |                                                                                 | Fifty-Three
Weeks Ended
January 31, 2005 |         | (Restated)
Fifty-Two
Weeks Ended
January 26, 2004 |   | (Restated)
Fifty-Two
Weeks Ended
January 27, 2003
|----------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------- | ------- | ------------------------------------------------- | - | -------------------------------------------------
|Cash paid for income taxes                                  |                                                                                 | $                                        | 554,000 |                                                   | $ | 119,000                                          
|Cash paid for interest                                      |                                                                                 |                                          | 638,000 |                                                   |   | 575,000                                          
|Non-cash investing and financing activities are as follows: |                                                                                 |                                          |         |                                                   |   |                                                  
|                                                            | Exchange of property rental for repair services                                 |                                          | $       | 2,000                                             |   | $                                                
|                                                            | Acquisition of property with debt financing                                     |                                          |         | 550,000                                           |   |                                                  
|                                                            | Exchange of property, buildings and equipment for notes receivable              |                                          |         |                                                  |   |                                                  
|                                                            | Reclassification of property held for sale to property, buildings and equipment |                                          |         |                                                  |   |                                                  
|                                                            | Reclassification of property held for sale                                      |                                          |         |                                                  |   |                                                  
|                                                            | Exchange of receivables for equipment                                           |                                          |         |                                                  |   |                                                  
|                                                            | Exchange of officer's note receivable for equipment                             |                                          |         |                                                  |   |                                                  
|                                                            | Write off of fully amortized intangibles                                        |                                          |         |                                                  |   |                                                  
|                                                            | Write off of a receivable against allowance for bad debt                        |                                          |         |                                                  |   |                                                  
|                                                            | Transitional impairment of goodwill                                             |                                          |         |                                                  |   |                                                  
|                                                            | Disposal of long-lived assets                                                   |                                          |         |                                                  |   |                                                  

During
the forty weeks ended November 3, 2003, the Company reclassified net assets totaling $931,000 from property, buildings and equipment to net assets held for sale; these
assets were classified as current prior to the third quarter of fiscal 2005. The amount reclassified included land of $567,000 and buildings of $364,000.

NOTE 12RELATED PARTY TRANSACTIONS

The Company entered into an agreement with a company whose former chief executive officer is a member of the Company's Board of Directors. Under the agreement,
the Company operated three of the related party's restaurants as BuddyFreddys Country Buffet restaurants. Revenues and expenses of the restaurants are included in the Company's financial statements.
The Company and the related party divide income and losses based on an agreed upon formula. The joint venture was terminated in the first quarter of fiscal 2001. Included in receivables is $323,000
for fiscal 2002 due from the related party as a result of the agreement and an allowance for that receivable of $323,000 for fiscal 2002. During fiscal 2003, management removed the receivable and
corresponding allowance for bad debt when the receivable was deemed uncollectible.

The
Company purchased a 1995 Volvo from Mr. Wheaton, Chairman of the Board, Chief Executive Officer and President of the Company in fiscal 2003 for $11,000.

In
connection with the Company's employment contract with Mr. Robert E. Wheaton, the Company's President and Chief Executive Officer, the Company agreed to provide
Mr. Wheaton with certain loans solely for the purchase of the Company's common stock prior to the enactment of Sarbanes-Oxley Act of 2002. Mr. Wheaton owns approximately 49% of the
Company's outstanding common shares and may have the effective power to elect members of the board of directors and to control the vote on substantially all other matters, without the approval of the
other stockholders. The loans are secured by the common stock and bear interest at the prevailing rate set forth in the Company's credit facility with M&I Marshall & Ilsley Bank. Repayment
terms stipulate that the

F-37

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president
will repay principal and interest on or before the later of the fifth anniversary date of the initial advance under the loan agreement, the date he receives a lump sum payment per a
termination clause or six month's after the termination of his employment. It is anticipated that the loans will be repaid in cash from the personal assets of Mr. Wheaton. Management has
elected not to record any interest income on the loans until the interest income is paid. The current rate is approximately 4.3% for the fourth quarter of fiscal 2005. Mr. Wheaton paid $632,000
in June 2004. At January 31, 2005, the loans totaled $698,000 ($1,330,000 at January 26, 2004).

NOTE 13COMMITMENTS AND CONTINGENCIES

The Company is engaged in ordinary and routine litigation incidental to its business. Management does not anticipate that any resolution will require payments
that will have a material effect on the Company's consolidated statements of operations or financial position or liquidity.

HTB
entered into a franchise agreement for each location which requires among other items, the payment of a continuing royalty fee paid to HomeTown Buffet, Inc. The royalty fee is
based on 2% of the aggregate gross sales of all the Company's HomeTown Buffet restaurants. Each of the franchise agreements has a 20-year term (with two five-year renewal
options). HTB provides weekly sales reports to the HomeTown franchisor as well as periodic and annual financial statements. HTB is obligated to operate its Hometown Buffet restaurants in compliance
with the franchisor's requirements. The franchisor requires HTB to operate each restaurant in conformity with Franchise Operating Manuals, Recipe Manuals and Menus and HTB is to use it best effort to
achieve the highest practicable level of sales, promptly make royalty payments and restricts operating restaurants within a geographic radius of the franchisor's restaurants. The HomeTown franchisor
may terminate a franchise agreement for a number of reasons, including HTB's failure to pay royalty fees when due, failure to comply with applicable laws or repeated failure to comply with one or more
requirements of the franchise agreement. Many state franchise laws limit the ability of a franchisor to terminate or refuse to renew a franchise. Generally, a franchisor may terminate a franchise
agreement only if the franchisee violates a material and substantial provision of the agreement and fails to remedy the violation within a specified period.

On
November 12, 1998, North's Restaurants, Inc. ("North's") filed a Demand for Arbitration against the Company with the American Arbitration Association, Irvine, California
(District No. 949-251-9840), alleging breach of contract in connection with the Company's failure to perform under a Business Services Agreement between North's and the
Company dated July 24, 1997. On June 22, 1999, the parties agreed to dismiss the Arbitration Proceeding without prejudice since the issues related to the Business Service Agreement were
being litigated in the Utah action described below.

On
November 25, 1998, the Company filed an action against North's in the United States District Court, District of Utah, Case
No. 2-98-CV-893, seeking damages for breach of a promissory note and an Amended and Restated Credit Agreement (collectively, the "Credit Agreements") in the
amount of $3,570,935. On December 31, 1998, North's filed an answer to the Company's Complaint, denying generally the allegations, and filed counterclaims against the Company alleging
(1) the Company fraudulently induced North's to enter into various agreements with the Company relating to the Company's acquisition of seven JJ North's Grand Buffet Restaurants and an option
to acquire nine additional restaurants operated by North's and (2) the Company had breached the Business Services Agreement. On January 26, 2001, the parties entered into a Settlement
Agreement (the "Settlement Agreement"). The Settlement Agreement provides, among other things, that the Credit Agreement and Revolving Note terminate concurrently with the execution of the
Settlement Agreement, that the Term Note be amended and restated, that the terms of the Term Note have no further force or effect and that the security interest transferred to the
Company pursuant to the Assignment Agreement dated September 30, 1997 between the Company and U.S. Bank National Association be amended and

F-38

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restated
pursuant to an Amended and Restated Star Buffet Security Agreement (the "Security Agreement"). The Company and North's have agreed that the Star Buffet Debt be reduced to a total amount of
$3,500,000 and that such reduced obligation be payable by North's pursuant to the terms of the Amended and Restated Promissory Note ("Star Buffet Promissory Note"). The Company recorded no gain
or loss on the settlement as the recorded balance of the note was approximately $3.5 million at the time of the settlement. The Company and North's have agreed that the Company's existing liens
encumbering certain property of North's remain in place and continue to secure North's obligations to the Company, and the Company and North's reserve all rights, claims and defenses with respect to
the extent and validity of such existing liens.

On
March 2, 2004, the Company filed an action against North's Restaurants, Inc. ("North's") in the United States District Court, District of Utah, Central Division, Case
No. 2:04CV00211, demanding judgment against North's for failure to repay obligations under the Star Buffet Promissory Note in a total amount not less than $2,934,453 plus interest at the
default rate as set forth in the Star Buffet Promissory Note. A trial date has not been set. Since January 26, 2004, the note receivable has been recorded as a long-term receivable.
The Company has not recorded interest income due from North's since August 2003. Since October 2004, the business of North's has been operated under a receivership. The Company's note,
together with the obligation to another significant creditor of North's, is secured by the real and personal property, landlord leases, trademarks and all other intellectual property associated with
seven restaurants. The Company believes current and future cash flows are adequate for recovery of the principal amount of the note receivable. The Company therefore has not provided an allowance for
bad debts for the note as of January 31, 2005.

On
March 21, 2002, Alliant Foodservice, Inc. ("Alliant") filed a breach of contract complaint against the Company in the Superior Court for the State of Arizona in and for
the County of Maricopa (No. CVZ002-005195), alleging breach of the Master Distribution Agreement ("MDA") executed between the Company and Alliant on or about December 1,
1999. Alliant sought $2,479,000 for alleged amounts owed by the Company plus attorneys' fees and costs. The Company included approximately $2,000,000 for this alleged amount owed in relation to this
litigation in accounts payable-trade at January 27, 2003 net of any amounts receivable from Alliant. The Company denied the
allegations and vigorously defended the alleged breach of contract. On April 29, 2002, the Company filed an answer and counterclaim in Superior Court for the State of Arizona in and for the
County of Maricopa citing among other things, breach of the MDA. The Company sought over $7,250,000 in damages. On February 27, 2003, the Company and Alliant entered into a Settlement Agreement
that dismissed charges against both parties and required the Company to pay Alliant $1,600,000 which resulted in a $400,000 reversal of a litigation accrual in the first quarter of fiscal 2004.

On
February 1, 2005, the Company announced in a press release that it had entered into a strategic alliance with K-BOB'S USA Inc. and related affiliates. In
accordance with the terms of the strategic alliance, Star Buffet will lend K-BOB'S $1.5 million on a long-term basis. In exchange, K-BOB'S granted Star
Buffet an option to purchase as many as five corporate owned and operated K-BOB'S restaurants located in New Mexico and Texas, as well as rights to develop K-BOB'S in other
areas in the United States.

On
February 25, 2005, the Board of Directors approved the Company's second annual dividend of $0.50 per common share and a special dividend of $0.25 per common share. Both are
payable on June 8, 2005 to shareholders of record on May 12, 2005.

In
connection with the Company's employment contract with Robert E. 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 change of control of the Company or is terminated, unless the termination is for cause. Mr. Wheaton's employment contract also
includes an annual bonus of $25,000.

F-39

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NOTE 14SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial results for the 53 weeks ended January 31, 2005 and the 52 weeks ended January 26, 2004 and January 27, 2003, are
summarized below. Each quarter except fourth quarter fiscal 2005 has been restated to reflect the adjustments as described in Note 2 of the notes to the Consolidated Financial Statements.

|                                  |         | For the 53 Weeks Ended January 31, 2005 |       
|--------------------------------- | ------- | --------------------------------------- | ------
|
|
|Revenues                          |         | $                                       | 21,551
|                                  |         |                                         |       
|Income (loss) from operations     |         |                                         | 1,043 
|                                  |         |                                         |       
|Income (loss) before income taxes |         |                                         | 940   
|Income taxes (benefit)            |         |                                         | 329   
|                                  |         |                                         |       
|Net income (loss)                 |         | $                                       | 611   
|                                  |         |                                         |       
|Earnings (loss) per share:        |         |                                         |       
|                                  | Basic   |                                         | $     
|                                  | Diluted |                                         | $     

|                                  |         | For the 52 Weeks Ended January 26, 2004
|--------------------------------- | ------- | ---------------------------------------
|
|
|Revenues                          |         | $                                      
|                                  |         |                                        
|Income (loss) from operations     |         |                                        
|                                  |         |                                        
|Income (loss) before income taxes |         |                                        
|Income taxes (benefit)            |         |                                        
|                                  |         |                                        
|Net income (loss)                 |         | $                                      
|                                  |         |                                        
|Earnings (loss) per share:        |         |                                        
|                                  | Basic   |                                        
|                                  | Diluted |                                        

F-40

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|                                                                                                              |  | For the 52 Weeks Ended January 27, 2003 |       
|------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------
|
|
|Revenues                                                                                                      |  | $                                       | 25,192
|                                                                                                              |  |                                         |       
|Income (loss) from operations                                                                                 |  |                                         | 545   
|                                                                                                              |  |                                         |       
|Income (loss) before income taxes (benefit)                                                                   |  |                                         | 428   
|Income taxes (benefit)                                                                                        |  |                                         | 148   
|                                                                                                              |  |                                         |       
|Income (loss) before cumulative effect of a change in accounting principle                                    |  |                                         | 280   
|Cumulative effect of a change in accounting principlenet of tax benefit                                      |  |                                         | (560  
|                                                                                                              |  |                                         |       
|Net income (loss)                                                                                             |  | $                                       | (280  
|                                                                                                              |  |                                         |       
|Income (loss) per common share before cumulative effect of a change in accounting principlebasic and diluted |  | $                                       | 0.09  
|Cumulative effect of a change in accounting principlenet of tax benefit                                      |  | $                                       | (0.19 
|Net income (loss) per common sharebasic and diluted                                                          |  | $                                       | (0.10 

Amounts
indicated may not foot due to quarterly rounding.

The
fiscal 2005 figures include significant fourth quarter adjustments for impairment charges totaling $2,322,000, of which $592,000 is for two store closures, $513,000 for asset
impairment to leasehold improvements where projected undiscounted cash flow is less than the net book value of the assets and impairment expense of $32,000 for assets held for future use.
Additionally, a goodwill impairment of $1,145,000 was made in four stores and $40,000 impairment charge related to franchise fees.

The
fiscal 2004 figures include a significant fourth quarter adjustment for asset impairment charges of $342,000.

The
fiscal 2003 figures include certain significant fourth quarter adjustments including asset impairment charges of $982,000 and income tax benefit of $334,000 relating to the
impairment charges and an increase in the deferred tax asset valuation.

NOTE 15SUBSEQUENT EVENTS

On February 1, 2005, the Company announced in a press release that it had entered into a strategic alliance with K-BOB'S USA Inc. and
related affiliates. In accordance with the terms of the strategic alliance, Star Buffet will lend K-BOB'S $1.5 million on a long-term basis. In exchange,
K-BOB'S granted Star Buffet an option to purchase as many as five corporate owned and operated K-BOB'S restaurants located in New Mexico and Texas, as well as rights to develop
K-BOB'S in other areas in the United States.

On
February 1, 2005, the Company increased its Revolving Line of Credit with M&I Marshall & Ilsley Bank from $1.0 million to $2.0 million and modified the
covenants to permit annual dividends of $2.5 million with no other changes in terms or covenants.

On
February 11, 2005, the Company granted 49,000 stock options exercisable at $6.70.

F-41

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On
February 25, 2005, the Board of Directors approved the Company's second annual dividend of $0.50 per common share, an increase of $0.25 per share from the prior year, and a
special dividend of $0.25 per common share. Both are payable on June 8, 2005 to shareholders of record on May 12, 2005.

On
April 12, 2005, the Company closed its JB's Restaurant in Santa Fe, New Mexico. The Company had impaired the leasehold improvements in the fourth quarter of fiscal 2005.

F-42

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EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                               
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Certificate of Incorporation*                                                                                                                                                                             
|3.2         |  | Bylaws, as amended on September 22, 1997*                                                                                                                                                                 
|4.1         |  | Form of Common Stock Certificate**                                                                                                                                                                        
|10.1        |  | Star Buffet, Inc. 1997 Stock Incentive Plan (the "1997 Plan")**                                                                                                                                           
|10.2        |  | Form of Stock Option Agreement for the 1997 Plan**                                                                                                                                                        
|10.3        |  | Form of Indemnification Agreement**                                                                                                                                                                       
|10.4        |  | Management Services Agreement with CKE Restaurants, Inc.**                                                                                                                                                
|10.5        |  | Form of Franchise Agreement with HomeTown Buffet, Inc.**                                                                                                                                                  
|10.6        |  | Asset Purchase Agreement with North's Restaurants, Inc. dated July 24, 1997**                                                                                                                             
|10.6.1      |  | Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1997 (incorporated by reference to the Company's filing on Form 8-K on October 17, 1997)                                            
|10.6.2      |  | Amended and Restated Credit Agreement dated as of September 30, 1997 between the Company and North's Restaurants, Inc. (incorporated by reference to the Company's filing on Form 8-K on October 17, 1997)
|10.7        |  | Form of Contribution Agreement among CKE Restaurants, Inc., Summit Family Restaurants Inc. and the Company*                                                                                               
|10.8        |  | Form of Bill of Sale and Assumption Agreement between Summit Family Restaurants Inc. and Taco Bueno Restaurants, Inc. (formerly known as Casa Bonita Incorporated)*                                       
|10.9        |  | Form of Bill of Sale and Assumption Agreement between Summit Family Restaurants Inc. and JB's Restaurants, Inc.*                                                                                          
|10.10       |  | License Agreement with CKE Restaurants, Inc. (incorporated by reference to the Company's filing on Form 10-K on April 24, 1998)                                                                           
|10.11       |  | Settlement Agreement with HomeTown Buffet, Inc. (incorporated by reference to the Company's filing on Form 10-K on April 24, 1998)                                                                        
|10.12       |  | Asset Purchase Agreement among Summit Family Restaurants Inc. and JB's Family Restaurants, Inc., dated February 10, 1998 (incorporated by reference to the Company's filing on Form 8-K on March 9, 1998) 
|10.13       |  | Stock Repurchase Agreement between Star Buffet, Inc. and CKE Restaurants, Inc., dated September 10, 1998 (incorporated by reference to the Company's filing on Form 10-K on September 28, 1998)           
|10.14       |  | Revolving Line of Credit with M&I Marshall & Ilsley Bank dated October 28, 2003 (incorporated by reference to the Company's filing on Form 10-Q on December 15, 2003)                                     
|10.15       |  | Amendment to Revolving Line of Credit with M&I Marshall & Ilsley Bank dated February 1, 2005                                                                                                              
|14.1        |  | Code of Ethics                                                                                                                                                                                            
|21.1        |  | List of Subsidiaries*                                                                                                                                                                                     
|23.1        |  | Consent of Mayer Hoffman McCann P.C.                                                                                                                                                                      
|            |  |                                                                                                                                                                                                           

E-1

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|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002     
|---- |  | -------------------------------------------------------------------------------------------------------
|31.2 |  | Certification of Principal Accounting 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 Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
|99.1 |  | Press Release dated April 29, 2005 reporting earnings for fiscal 2005                                  

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E-2

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