The following Management's Discussion and Analysis should be read in conjunction with the unaudited condensed consolidated financial statements, and the notes thereto, presented elsewhere in this report and the Company's audited consolidated financial statements and Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2008. Comparability of periods may be affected by the closure of restaurants or the implementation of the Company's acquisition and strategic alliance strategies. The costs associated with integrating new restaurants or under performing or unprofitable restaurants, if any, acquired or otherwise operated by the Company may have a material adverse effect on the Company's results of operations in any individual period.

This Quarterly Report on Form 10-Q contains forward looking statements, which are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; success of integrating newly acquired under performing or unprofitable restaurants; the impact of competitive products and pricing; success of operating initiatives; advertising and promotional efforts; adverse publicity; changes in business strategy or development plans; quality of management; availability, terms and deployment of capital; changes in prevailing interest rates and the availability of financing; food, labor, and employee benefits costs; changes in, or the failure to comply with, government regulations; weather conditions; construction schedules; implementation of the Company's acquisition and strategic alliance strategy; the effect of the Company's accounting polices and other risks detailed in the Company's Form 10-K for the fiscal year ended January 28, 2008, and other filings with the Securities and Exchange Commission.

Overview

The consolidated net loss for the 12-week period ended November 3, 2008 improved approximately $993,000 to a loss of $(18,000) or $(0.01) per diluted share as compared with a net loss of $(1,011,000) or $(0.32) per diluted share for the comparable prior year period. The decrease in the net loss is due to an improvement in income from operations of approximately $1,677,000 primarily from new acquisitions and lower general and administrative expenses partially offset by higher interest expense and a lower income tax benefit. Total revenues increased $5,750,000 or 38.1% from $15.1 million in the 12 weeks ended November 5, 2007 to $20.8 million in the 12 weeks ended November 3, 2008. The increase in revenues was primarily attributable to 24 new store openings that resulted in sales of approximately $8.5 million, partially offset by declines in comparable same store sales of approximately $1.1 million primarily in the HomeTown Buffet restaurants and the closure of 12 restaurants. The decline in sales from the 12 closed stores was approximately $1.7 million.

Consolidated net income for the 40-week period ended November 3, 2008 improved approximately $1,452,000 to net income of $909,000 or $0.28 per diluted share as compared with a net loss of $(543,000) or $(0.17) per diluted share for the comparable prior year period. The improvement in net income is due to an increase in income from operations of approximately $2,650,000 primarily from new acquisitions and partially offset by higher interest expense and an increase in income taxes of approximately $856,000. Total revenues increased approximately $24.8 million or 46.4% from $53.4 million in the 40 weeks ended November 5, 2007 to $78.2 million in the 40 weeks ended November 3, 2008. The increase in revenues was primarily attributable to 30 new store openings that resulted in additional sales of approximately $31.9 million, partially offset by declines in comparable same store sales of approximately $2.4 million primarily in the HomeTown Buffet restaurants and the closure of 14 restaurants. The decline in sales from the 14 closed stores was approximately $4.7 million. The Company believes the decline in same store sales is a result of weaker economic conditions and due to new restaurant competition in certain markets. The decline in sales on a same store basis

significantly impacts consolidated net income because occupancy, salaries, benefits, and other expenses are primarily fixed in nature and generally do not vary significantly with restaurant sales volume. Occupancy and other expense includes major expenditures such as rent, insurance, property taxes, utilities, maintenance and advertising.

Recent Developments

On March 12, 2008, the Board of Directors approved the Company's fifth consecutive annual dividend. This year the dividend is $0.60 per common share and was paid on June 4, 2008 to shareholders of record on May 6, 2008.

On February 29, 2008, Starlite Holdings, Inc. ("Starlite"), a newly formed, wholly-owned, independently capitalized subsidiary of Star Buffet, Inc. acquired certain assets and assumed the facility leases for four Barnhill's Buffet restaurants from Barnhill's Buffet, Inc. ("Barnhill's") for a purchase price of approximately $1,075,000. Barnhill's was in a Chapter 11 bankruptcy proceeding in the U.S. Bankruptcy Court of the Middle District of Tennessee and the acquisition was approved by the court. The acquired restaurants are located in Florida (2) and Mississippi (2). As part of the acquisition the Company acquired perpetual rights to use the Barnhill's name and related intellectual property.

On February 29, 2008 the Company amended its Senior Secured Credit Facility ("Credit Facility") dated January 31, 2008 with Wells Fargo Bank N.A., increasing the term loan principal from $7,000,000 to $8,000,000 with no change to the $2,000,000 revolving line of credit. The increase in the Credit Facility was used to fund the acquisition of the four Barnhill's Buffet restaurants as described above. The Credit Facility is guaranteed by Star Buffet, Inc. and its subsidiaries and bears interest, at the Company's option, at Wells Fargo's base rate plus 0.25% or at LIBOR plus 2.00%. The Credit Facility is secured by a first priority perfected lien on all of the Company's assets, except for those assets that were previously pledged as security for existing obligations, in which case Wells Fargo will have a second lien. The term loan matures on January 31, 2012 and provides for principal to be amortized at $175,000 per quarter for the initial six quarters; $225,000 for the next nine quarters; with any remaining balance due at maturity. Interest is payable monthly. The $2,000,000 revolving line of credit also matures on January 31, 2012. Interest on the revolving line of credit is payable monthly. The balance on the revolving line of credit was $900,000 on November 3, 2008 and December 10, 2008. There is a 0.50% fee for the unused portion of the revolving line of credit. In connection with the Credit Facility, Wells Fargo was granted 42,400 shares of the Company's restricted common stock. The shares were valued at $251,856 and that amount is being amortizied as interest over the life of the loan. The Credit Facility can be prepaid in whole or part without penalty.

The Credit Facility contains a number of covenants and restrictions, including requirements to meet certain financial ratios and limitations with respect to the Company's use of cash. The Company is also required to obtain interest rate protection through an interest rate swap or cap arrangement with respect to not less than 50% of the term loan amount. With Wells Fargo's permission, the Company did not enter into any interest rate swap or cap because the Company had plans to substantially reduce the term loan in the current year through cash flow from operations, asset sales and mortgage refinancing. Given the current financial market disruptions, the Company does not believe that the term loan will be substantially reduced in the current fiscal year and plans to meet its requirement for the interest rate swap or cap in December 2008. Furthermore, certain provisions of the Credit Facility require the Company to remit proceeds from asset dispositions, issuance of debt or equity, insurance proceeds, tax refunds and fifty percent (50%) of excess cash flow (as defined) to reduce the principal amount of the term loan and, thereafter, the revolving line of credit. Under terms of the Credit Facility, the Company is permitted to pay an annual dividend. However, restrictions imposed under terms of the Credit Facility may adversely impact the Company's ability to pay an annual dividend as the Company has historically relied on

multiple sources of cash to fund the dividend. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which is contingent upon, among other things, the Company's ability to comply with all debt covenants under its existing senior secured credit facility. As of the end of the third quarter the Company failed one of the covenant calculations. The Company requested and was granted a written waiver by its senior secured lender for the third fiscal quarter only.

On January 31, 2008, Star Buffet Management, Inc., a wholly-owned, independently capitalized subsidiary of Star Buffet, Inc. acquired the assets and facility leases for sixteen (16) Barnhill's Buffet restaurants from Barnhill's for a purchase price of approximately $5 million. The acquisition was approved by the bankruptcy court. The acquired restaurants are located in the following states:
Alabama (1), Arkansas (1), Florida (4), Louisiana (3), Mississippi (4), and Tennessee (3). As part of the acquisition the Company acquired perpetual rights to the use of the Barnhill's name and related intellectual property. This acquisition was funded through the Company's Credit Facility dated January 31, 2008.

Components of Income from Operations

Total revenues include a combination of food, beverage, merchandise and vending sales and are net of applicable state and city sales taxes.

Food costs primarily consist of the cost of food and beverage items. Various factors beyond the Company's control, including adverse weather and natural disasters, may affect food costs. Accordingly, the Company may incur periodic fluctuations in food costs. Generally, these temporary increases are absorbed by the Company and not passed on to customers; however, management may adjust menu prices to compensate for increased costs of a more permanent nature.

Labor costs include restaurant management salaries, bonuses, hourly wages for unit level employees, various health, life and dental insurance programs, vacations and sick pay and payroll taxes.

Occupancy and other expenses are primarily fixed in nature and generally do not vary with restaurant sales volume. Rent, insurance, property taxes, utilities, maintenance and advertising account for the major expenditures in this category.

General and administrative expenses include all corporate and administrative functions that serve to support the existing restaurant base and provide the infrastructure for future growth. Management, supervisory and staff salaries, employee benefits, data processing, training and office supplies are the major items of expense in this category.

Results of Operations

The following table summarizes the Company's results of operations as a percentage of total revenues for the 12 and 40 weeks ended November 3, 2008 and November 5, 2007.

                                              Twelve Weeks Ended            Forty Weeks Ended
                                          November 3,    November 5,    November 3,    November 5,
                                             2008           2007           2008           2007
Total revenues                                  100.0 %        100.0 %        100.0 %        100.0 %

Costs and expenses
Food costs                                       39.4           38.2           38.8           36.4
Labor costs                                      33.9           36.0           32.7           34.7
Occupancy and other expenses                     19.7           24.5           20.0           22.2
General and administrative expenses               3.1            7.7            2.9            4.7
Depreciation and amortization                     3.0            3.4            2.6            3.0
Impairment of long-lived assets                     -              -            0.3              -
Total costs and expenses                         99.1          109.8           97.3          101.0

Income from operations                            0.9           (9.8 )          2.7           (1.0 )

Interest expense                                 (1.2 )         (1.5 )         (1.1 )         (1.2 )
Interest income                                   0.0            0.0            0.0            0.0
Other income                                      0.1            0.2            0.1            0.3
Gain on sale of assets                            0.0            0.2            0.0            0.1
Income (loss) before income taxes                (0.2 )        (10.9 )          1.7           (1.8 )

Income taxes (benefit)                           (0.1 )         (4.2 )          0.5           (0.8 )

Net income                                       (0.1 )%        (6.7 )%         1.2 %         (1.0 )%

Effective income tax rate                       (60.9 )%       (38.6 )%        32.5 %        (43.6 )%

Summarized financial information concerning the Company's reportable segments is shown in the following table. The other assets presented in the condensed 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 condensed consolidated statements of operations are not included in the reportable segments.

                                        Buffet        Non-Buffet
                                     Division (1)     Division(2)     Other     Total

 40 weeks Ended November 3, 2008
Revenues                            $       57,773   $      20,453   $     -   $ 78,226
Food cost                                   23,771           6,615         -     30,386
Labor cost                                  18,056           7,498         -     25,554
Interest income                                  -               -        13         13
Interest expense                                (5 )             -      (832 )     (837 )
Depreciation & amortization                  1,543             442        89      2,074
Impairment of long-lived assets                198              14         -        212
Income (loss) before income taxes            2,116           2,019    (2,789 )    1,346




                                        Buffet        Non-Buffet
                                     Division (1)     Division(2)     Other     Total

 40 weeks Ended November 5, 2007
Revenues                            $       33,339   $      20,093   $     -   $ 53,432
Food cost                                   12,982           6,568         -     19,450
Labor cost                                  11,407           7,126         -     18,533
Interest income                                  -               -        20         20
Interest expense                              (117 )             -      (528 )     (645 )
Depreciation & amortization                  1,065             492        54      1,611
Impairment of long-lived assets                  -               -         -          -
Income (loss) before income taxes             (938 )         2,250    (2,274 )     (962 )

(2) The sales increased due to the acquisition of nine Non-Buffet restaurants partially offset by the closure of five Non-Buffet restaurants. The food cost as a percentage of revenue decreased this year primarily due to the addition of one Casa Bonita restaurant which has lower food cost than the other Non-Buffet restaurants offset by increases in wholesale food prices as compared to the prior year. Labor cost increased as a percentage of revenue this year primarily due to minimum wage increases in the applicable markets. Income (loss) before income taxes decreased primarily as a result of higher labor costs.

Total revenues increased $5,750,000 or 38.1% from $15.1 million in the 12 weeks ended November 5, 2007 to $20.8 million in the 12 weeks ended November 3, 2008. The increase in revenues was primarily attributable to 24 new store openings that resulted in additional sales of approximately $8.5 million, partially offset by declines in comparable same store sales of approximately $1.1 million primarily in the HomeTown Buffet restaurants and the closure of 12 restaurants. The decline in sales from the 12 closed stores was approximately $1.7 million. Total revenues increased approximately $24,794,000 or 46.4% from $53.4 million in the 40 weeks ended November 5, 2007 to $78.2 million in the 40 weeks ended November 3, 2008. The increase in revenues was primarily attributable to 30 new store openings that resulted in additional sales of approximately $31.9 million, partially offset by declines in comparable same store sales of approximately $2.4 million primarily in the HomeTown Buffet restaurants and the closure of 14 restaurants. The decline in sales from the 14 closed stores was approximately $4.7 million.

Food costs as a percentage of total revenues increased from 38.2% during the 12-week period ended November 5, 2007 to 39.4% during the 12-week period ended November 3, 2008, and from 36.4% during the 40-week period ended November 5, 2007 to 38.8% during the 40-week period ended November 3, 2008. The increase for the 12 and 40 weeks as a percentage of total revenues was primarily attributable to higher wholesale prices for chicken, pork and beef in the current year.

Labor costs as a percentage of total revenues decreased from 36.0% during the 12-week period ended November 5, 2007 to 33.9% during the 12-week period ended November 3, 2008, and from 34.7% during the 40-week period ended November 5, 2007 to 32.7% during the 40-week period ended November 3, 2008. The decrease as a percentage of total revenues was primarily attributable to lower labor costs in the new Barnhill restaurants as compared to the existing restaurants. Labor costs decreased as a percentage of total revenues despite minimum wage increases in every state in which the Company operated in the first three quarters of fiscal 2009 and fiscal 2008. In response to the increased costs, the Company has and will continue toattempt to increase menu pricing in fiscal 2009 with the goal of maintaining a labor cost as a percentage of sales consistent with prior results, although there can be no assurance that expected results will actually occur (see the discussion under "Risk Factors").

Occupancy and other expenses as a percentage of total revenues decreased from 24.5% during the 12-week period ended November 5, 2007 to 19.7% during the 12-week period ended November 3, 2008, and from 22.2% during the 40-week period ended November 5, 2007 to 20.0% during the 40-week period ended November 3, 2008. The decrease as a percentage of total revenues was primarily attributable to a decrease in facility costs as a percentage of revenues in the current year compared to the prior year.

General and administrative expense as a percentage of total revenues decreased from 7.7% during the 12-week period ended November 5, 2007 to 3.1% during the 12-week period ended November 3, 2008, and from 4.7%

during the 40-week period ended November 5, 2007 to 2.9% during the 40-week period ended November 3, 2008. The decrease as a percentage of total revenues was primarily attributable to higher revenues for the 12 and 40 weeks ended November 3, 2008 as compared to the same period of the prior year. While the Company has added 30 new stores and closed 14 stores, there has been no significant increase in administrative costs or personnel.

Depreciation and amortization expense increased from $507,000 during the 12-week period ended November 5, 2007 to $615,000 during the 12-week period ended November 3, 2008, and from $1,611,000 during the 40-week period ended November 5, 2007 to $2,074,000 during the 40-week period ended November 3, 2008. The increase was primarily attributable to 30 new store openings since last year partially offset by the closure of 14 stores.

Interest expense increased from $227,000 during the 12-week period ended November 5, 2007 to $265,000 during the 12-week period ended November 3, 2008, and from $645,000 during the 40-week period ended November 5, 2007 to $837,000 during the 40-week period ended November 3, 2008. The increase was primarily attributable to a higher average debt balance in the first two quarters of fiscal 2009 as compared to fiscal 2008 primarily from the debt incurred to acquire the Barnhill's Buffet restaurants.

Interest income decreased from $4,000 during the 12-week period ended November 5, 2007 to $1,000 during the 12-week period ended November 3, 2008, and from $20,000 during the 40-week period ended November 5, 2007 to $13,000 during the 40-week period ended November 3, 2008. Interest income was primarily generated by the Company's outstanding notes receivable balances.

Other income is primarily rental income from the Company's leased properties. Rental income was $19,000 for one property leased for the entire 12-week period ended November 3, 2008. Rental income was $28,000 for four properties leased for the entire 12-week period ended November 5, 2007. Rental income was $61,000 for one property leased for part of the first quarter and one property leased for the entire 40-week period ended November 3, 2008. The Company also had other income in the 40-week period ended November 3, 2008 of approximately $15,000 on the settlement of debt regarding purchase of the Western Sizzlin in Magnolia, Arkansas. Rental income was $185,000 for four properties leased for the entire 40-week period ended November 5, 2007.

The income tax provision totaled $(28,000) or (60.9)% of pre-tax income for the 12-week period ended November 3, 2008 as compared to $(636,000) or (38.6)% of pre-tax income for the 12-week period ended November 5, 2007. The income tax provision totaled $437,000 or 32.5% of pre-tax income for the 40-week period ended November 3, 2008 as compared to $(419,000) or (43.6)% of pre-tax income for the 40-week period ended November 5, 2007.

Impact of Inflation

The impact of inflation on the cost of food, labor, equipment and construction and remodeling of stores could affect the Company's operations. Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws so that changes in these laws can result in higher labor costs to the Company. In addition, the cost of food products purchased by the Company are subject to market supply and demand pressures which can have an impact on the Company's margins. The Company anticipates that modest increases in these costs can be offset through pricing and cost control efforts. However, there is no assurance that the Company would be able to pass more significant costs on to its customers.

Liquidity and Capital Resources

In recent years, the Company has financed operations through a combination of cash on hand, cash provided from operations, available borrowings under bank lines of credit and loans from the principal shareholder.

As of November 3, 2008, the Company had $1,237,000 in cash. Cash and cash equivalents increased by $501,000 during the 40 weeks ended November 3, 2008. The net working capital deficit was $(8,428,000) and $(8,348,000) at November 3, 2008 and January 28, 2008, respectively. Total cash provided by operations for the 40 weeks ended November 3, 2008 was approximately $3,278,000 as compared to approximately $1,431,000 in the 40 weeks ended November 5, 2007. The Company spent approximately $7.5 million on capital expenditures in the first three quarters of fiscal 2009 including approximately $5.8 million to purchase the 20 Barnhill's Buffet restaurants.

The Company previously had a $3,000,000 unsecured revolving line of credit with M&I Marshall & Ilsley Bank. The M&I revolving line of credit bore interest at LIBOR plus two percent per annum. The Company replaced the M&I revolving line of credit on January 31, 2008 with a Credit Facility with Wells Fargo Bank, N.A. The Credit Facility included a $7,000,000 term loan and a $2,000,000 revolving line of credit. The Credit Facility was utilized to retire the Company's unsecured revolving line of credit with M&I Marshall & Ilsley Bank; to fund the acquisition of assets associated with sixteen (16) Barnhill's Buffet restaurants; and to provide additional working capital. On February 29, 2008 the Company amended its Credit Facility with Wells Fargo Bank N.A., increasing the term loan principal from $7,000,000 to $8,000,000. The increase in the Credit Facility was used to fund the acquisition of four Barnhill's Buffet restaurants by its newly formed, wholly-owned, independently capitalized subsidiary, Starlite Holdings, Inc.

The Credit Facility is guaranteed by Star Buffet, Inc. and its subsidiaries and bears interest, at the Company's option, at Wells Fargo's base rate plus 0.25% or at LIBOR plus 2.00%. The Credit Facility is secured by a first priority lien on all of the Company's assets, except for those assets that were previously pledged as security for existing obligations, in which case Wells Fargo has a second lien. The term loan matures on January 31, 2012 and provides for principal to be amortized at $175,000 per quarter for the initial six quarters; $225,000 for the next nine quarters; with any remaining balance due at maturity. Interest is payable monthly. The term loan balance was $6,000,000 on November 3, 2008 and December 10, 2008. A $2,000,000 revolving line of credit matures on January 31, 2012. Interest on the revolver is payable monthly. The revolving line of credit balance was $900,000 on November 3, 2008 and December 10, 2008.

During fiscal 2008, the Company borrowed approximately $1,400,000 from Mr. Robert E. Wheaton, a principal shareholder, officer and director of the Company. This loan dated June 15, 2007 is subordinated to the obligation to Wells Fargo Bank, N.A. and bears interest at 8.5%. In June, 2008, the Company . . .