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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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number: 0-6054

STAR BUFFET, INC.
(Exact Name of Registrant as Specified in its Charter)

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

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

        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.

STAR BUFFET, INC., AND SUBSIDIARIES

Index to Annual Report on Form 10-K

For the Fiscal Year Ended January 31, 2005

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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:

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High Quality Food. The Company seeks to differentiate itself by providing higher quality and better tasting food than its competitors. In addition, each brand maintains its own unique recipes that cater to regional taste profiles of its customers. Management limits the number of items prepared each day and frequently rotates selected specialty items to maintain customer interest while ensuring that the Company's signature items are offered at the highest possible quality.



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Superior Service. The Company provides a level of customer service which it believes has helped it establish a higher level of customer satisfaction than its competitors. Restaurant managers are encouraged to visit each customer's table during meal periods to ensure guest satisfaction. To help assure superior service levels, the Company utilizes a number of methods to monitor guest satisfaction, including an independent mystery shopper survey and a formalized customer comment card program.



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Clean and Friendly Environment. The Company strives to offer a pleasant, customer friendly environment at its restaurants by providing attractive, updated restaurant decors and by emphasizing cleanliness in all areas of its operations.

        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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Performance Measurements. The Company has developed food, labor and customer service management practices and reporting mechanisms that allow management to effectively monitor restaurant-level operations, benchmark restaurant performance statistics and communicate best-practices across its restaurant operations. Through the use of its restaurant-level incentive

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and bonus programs oriented toward motivating employees, as well as its traditional recognition programs, the Company seeks to motivate its employees and foster an environment where employees are encouraged to share their ideas and cost saving suggestions with management.

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Cost Control. The Company has been able to maintain a lean corporate management structure by expanding the number of restaurants supervised by field managers, having corporate personnel oversee multiple administrative functions and appropriate outsourcing of certain functions when cost effective. The Company's corporate infrastructure provides purchasing, information systems, finance, accounting and payroll so that restaurant managers can focus on restaurant operations and guest satisfaction.

        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

HomeTown Buffet Restaurants

        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.

Casa Bonita Restaurants

        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.

North's Star Division

        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.

Florida Buffets Division

        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.

JB's Restaurants Division

        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:

        Robert E. Wheaton has 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. Dowdy has 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. Schadt has 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" Johnson has 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. Wheaton has 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.

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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. Brown has 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

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

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

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

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:

14

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

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

        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

        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.

        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.

Equity Compensation Plan Information.

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

        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

        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.

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

(1)

The financial statements for each of the periods indicated have been restated to reflect the adjustments described in Note 2 to the Consolidated Financial Statements.

(2)

At the end of the respective periods.

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.

20

        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.

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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").

        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.

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(1)

The same store sales declined this year together with higher wholesale food cost resulted in higher food costs for HomeTown Buffet as a percentage of sales.

(2)

Significant sales increases resulted in much lower labor as percent of sales in Casa Bonita this year.

(3)

The same store sales declined and with fewer stores operating the sales were significantly lower. With lower sales this year, the food and labor costs increased as a percentage of sales in North's Star.

(4)

Same store sales increased and the Florida Division had lower labor costs as a percentage of sales this year.

(5)

Same store sales for JB's decreased resulting in higher food and labor costs as a percentage of sales this year.

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

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

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

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.

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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:

(1)

See Note 5 to the consolidated financial statements for additional information.

(2)

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

Impact of Inflation

        Management recognizes that inflation has an impact on food, construction, labor and benefit costs, all of which can significantly affect the Company's operations. Historically, the Company has been able to pass 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, 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:

29

        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.

Impairment of 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.

        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.

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 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

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

Insurance Programs

        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

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

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.

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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.

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PART IV

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

(a)

(1)  Index to Consolidated Financial Statements:

(a)

(2)  Index to Financial Statement Schedules:

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

(a)

(3)  Exhibits:

        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.

(b)

Current Reports on Form 8-K:

        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

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.

        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.