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 26, 2009. 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 26, 2009, and other filings with the Securities and Exchange Commission.

Overview

Consolidated net income for the 16-week period ended May 18, 2009 increased $320,000 to $854,000 or $0.27 per diluted share as compared with net income of $534,000 or $0.17 per diluted share for the comparable prior year period. The increase in net income is due to an increase in income from operations of approximately $542,000 primarily from lower labor and occupancy costs offset by higher income tax expense. Total revenues decreased approximately $5.0 million or 15.1% from $33.2 million in the 16 weeks ended May 19, 2008 to $28.2 million in the 16 weeks ended May 18, 2009. The decrease in revenues was primarily attributable to 9 closed stores resulting in a sales decline of approximately $3.4 million and sales declines of approximately $2.9 million in comparable same store sales. The decline in sales was partially offset by $1.2 million increase in new stores or stores only opened for a portion of the first quarter of last year.

Recent Developments

In April 2009, the Company refinanced an existing real estate mortgage with the Bank of Utah. The Company entered into a $1,194,000 five year fixed rate real estate mortgage with the Bank of Utah. The mortgage has monthly payments including interest of $10,972. The interest rate is 7.25%.The mortgage is secured by the HomeTown Buffet in Layton, Utah and the JB's restaurant in Vernal, Utah. The Company used the funds to payoff the previous loan with the Bank of Utah of $696,000 and the additional funds were used to reduce the obligation to Wells Fargo.

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 16 weeks ended May 18, 2009 and May 19,
2008.

                                                     Sixteen Weeks Ended
                                                     May 18,       May 19,
                                                      2009          2008
            Total revenues                             100.0 %      100.0 %

            Costs and expenses
            Food costs                                  38.4         38.3
            Labor costs                                 30.8         32.0
            Occupancy and other expenses                19.3         20.5
            General and administrative expenses          2.7          2.9
            Depreciation and amortization                3.0          2.6
            Impairment of long-lived assets              0.0          0.5
              Total costs and expenses                  94.3         96.8

            Income from operations                       5.7          3.2

            Interest expense                            (1.0 )       (0.9 )
            Interest income                              0.3          0.0
            Other income                                 0.0          0.1
            Income before income taxes                   5.0          2.4

            Income taxes                                 2.0          0.8

            Net income                                   3.0 %        1.6 %

            Effective income tax rate                   39.6 %       32.7 %

                             (Dollars in Thousands)
      16 Weeks Ended        Buffet          Non-Buffet
       May 18, 2009      Division (1)       Division(2)         Other           Total
     Revenues           $       19,409     $       8,746     $         -     $    28,155
     Food cost                   8,086             2,732               -          10,818
     Labor cost                  5,664             3,019               -           8,683
     Interest income                 -                 -              75              75
     Interest expense               (1 )               -            (288 )          (289 )
     Depreciation &
     amortization                  584               259              11             854
     Impairment of
     long-lived
     assets                          -                 -               -               -
     Income (loss)
     before income
     taxes                       1,074             1,179            (839 )         1,414
      16 Weeks Ended        Buffet          Non-Buffet
       May 19, 2008      Division (1)       Division(2)         Other           Total
     Revenues           $       24,851     $       8,309     $         -     $    33,160
     Food cost                   9,862             2,862               -          12,724
     Labor cost                  7,540             3,054               -          10,594
     Interest income                 -                 -              11              11
     Interest expense               (2 )               -            (317 )          (319 )
     Depreciation &
     amortization                  608               186              51             845
     Impairment of
     long-lived
     assets                        154                14               -             168
     Income (loss)
     before income
     taxes                       1,379               548          (1,133 )           794

(1) The sales decrease was primarily from declines in comparable same store sales and six closed restaurants. The food cost as a percentage of revenue increased this year primarily due to increases in wholesale food prices as compared to the prior year. Labor cost decreased as a percentage of revenue this year primarily due to lower management labor costs compared to the prior year. Income (loss) before income taxes decreased primarily from the decline in revenue.

(2) The sales increased due to the acquisition of three Non-Buffet restaurants with sales of approximately $1.1 million partially offset by the closure of three Non-Buffet restaurants with net loss of sales of approximately $600,000. The food cost as a percentage of revenue decreased this year primarily due to lower food costs in the Casa Bonita in Tulsa which was not opened until the second quarter of fiscal 2009. Labor cost decreased as a percentage of revenue this year primarily due to lower management labor costs compared to the prior year. Income (loss) before income taxes increased primarily as a result of lower food and labor costs.

Total revenues decreased approximately $5.0 million or 15.1% from $33.2 million in the 16 weeks ended May 19, 2008 to $28.2 million in the 16 weeks ended May 18, 2009. The decrease in revenues was primarily attributable to 9 closed stores resulting in a sales decline of approximately $3.4 million and sales declines of approximately $2.9 million in comparable same store sales. The decline in sales was partially offset by $1.2 million increase in new stores or stores only opened for a portion of the first quarter of last year.

Labor costs as a percentage of total revenues decreased from 32.0% during the 16-week period ended May 19, 2008 to 30.8% during the 16-week period ended May 18, 2009. The decrease as a percentage of total revenues was primarily attributable to lower management labor costs as compared to the prior year. The decrease in total dollars of approximately $1.9 million was primarily from the decrease in total revenues. The lower management labor costs were primarily attributable the Company temporarily suspending its manager bonus program. With minimum wage increases scheduled for July 2009 and January 2010 the labor percentage may increase in the future.

Occupancy and other expenses as a percentage of total revenues decreased from 20.5% during the 16-week period ended May 19, 2008 to 19.3% during the 16-week period ended May 18, 2009. 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. The facility cost decrease is primarily from certain renegotiated leases and the subsequent lower rents.

General and administrative expense as a percentage of total revenues decreased from 2.9% during the 16-week period ended May 19, 2008 to 2.7% during the 16-week period ended May 18, 2009. The decrease as a percentage of total revenues was primarily attributable to lower field labor costs for the 16 weeks ended May 18, 2009 as compared to the same period of the prior year.

Depreciation and amortization expense a percentage of total revenues increased from 2.6% during the 16-week period ended May 19, 2008 to 3.0% during the 16-week period ended May 18, 2009. The increase as a percentage of total revenues was primarily attributable to lower revenue for the 16 weeks ended May 18, 2009 as compared to the same period of the prior year.

Interest expense decreased from $319,000 during the 16-week period ended May 19, 2008 to $289,000 during the 16-week period ended May 18, 2009. The decrease was primarily attributable to a lower interest rate on the average debt balance with Wells Fargo in the first quarter of fiscal 2010 as compared to fiscal 2009.

Interest income increased from $11,000 for the 16-week periods ended May 19, 2008 to $75,000 during the 16-week period ended May 18, 2009. Interest income was primarily generated by the Company's outstanding Federal income tax receivable.

Other income is primarily rental income from the Company's leased properties. Rental income was $11,000 for one property leased for the entire 16-week period ended May 18, 2009. Rental income was $27,000 for two properties leased for the entire 16-week period ended May 19, 2008.

The income tax provision totaled $560,000 or 39.6% of pre-tax income for the 16-week period ended May 18, 2009 as compared to $260,000 or 32.7% of pre-tax income for the 16-week period ended May 19, 2008. The difference in the tax provision as a percentage of pre-tax income was primarily from the utilization of tax credits.

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 commodities utilized by the Company is subject to market supply and demand pressures. Shifts in these costs may have an impact on the Company's food costs. The Company anticipates that modest increases in these costs can be offset through pricing and other cost control efforts; however, there is no assurance that the Company would be able to pass more significant costs on to its customers or if it were able to do so, it could do so in a short period of time.

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 May 18, 2009, the Company had $1,154,000 in cash. Cash and cash equivalents increased by $36,000 during the 16 weeks ended May 18, 2009. The net working capital deficit was $(8,042,000) and $(9,041,000) at May 18, 2009 and January 26, 2009, respectively. Total cash provided by operations for the 16 weeks ended May 18, 2009 was approximately $1,887,000 as compared to approximately $1,743,000 in the 16 weeks ended May 19, 2008. The Company spent approximately $165,000 on capital expenditures in the first quarter of fiscal 2010.

The Company has Credit Facility with Wells Fargo Bank N.A. consisting of $8,000,000 term loan and a $2,000,000 revolving line of credit. The Credit Facility is guaranteed by Star Buffet's 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 are currently pledged as security for existing obligations as of January 31, 2008, 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; and $225,000 for the next nine quarters; with any remaining balance due at maturity. Interest is payable monthly. The term loan balance was $4,900,000 on June 24, 2009. The $2,000,000 revolving line of credit matures on January 31, 2012. Interest on the revolver is payable monthly. As of June 24, 2009, the revolving line of credit balance was $575,000.

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 borrowed an additional $592,000 from Mr. Wheaton under the same terms. This resulted in an increase in the subordinated note balance from $1,400,000 to $1,992,000. The Company expensed and paid $52,000 to Mr. Wheaton for interest during the first quarter of fiscal 2010. The principal balance and any unpaid interest is due and payable in full on June 5, 2012. The Company used the funds borrowed from Mr. Wheaton for working capital requirements.

In April 2009, the Company refinanced an existing real estate mortgage with the Bank of Utah. The Company entered into a $1,194,000 five year fixed rate real estate mortgage with the Bank of Utah. The mortgage has monthly payments including interest of $10,972. The interest rate is 7.25%. The mortgage is secured by the HomeTown Buffet in Layton, Utah and the JB's restaurant in Vernal, Utah. The Company used the funds to payoff the previous loan with the Bank of Utah of $696,000 and the additional funds were used to reduce the Company's obligation on the term loan to Wells Fargo.

The Company believes that cash on hand, availability under the revolving line of credit and cash flow from operations will be sufficient to satisfy working capital, capital expenditure and refinancing requirements during the next 12 months. Additionally, management does not believe that the net working capital deficit will have any material effect on the Company's ability to operate the business or meet obligations as they come due. However, there can be no assurance that cash on hand, availability under the revolving line of credit and cash flow from operations will be sufficient to satisfy its working capital, capital expenditure and refinancing requirements. Furthermore, given uncertain financial market conditions, on February 20, 2009, the Board of Directors voted to indefinitely suspend the annual dividend on the outstanding common stock of the Company.

The Company prepares its condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles. The Company's condensed consolidated financial statements are based on the application of certain accounting policies, the most significant of which are described in Note 1-Summary of Significant Accounting Policies included in the Company's Annual Report filed on Form 10-K. 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, 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:

Years Buildings 40 Building and leasehold improvements 15 - 20 Furniture, fixtures and equipment 5 - 8

Building and 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 as reasonably likely to be exercised. If a previously scheduled lease option is not exercised, any remaining unamortized leasehold improvements may be required to be expensed immediately which could result in a significant charge to operating results in that period.

Property and equipment in non-operating units or stored in warehouses held for remodeling or repositioning is not depreciated and is classified on the balance sheet as property, building and equipment held for future use.

Property and equipment placed on the market for sale is not depreciated and is classified on the balance sheet as property held for sale.

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 than would be reported if different assumptions were used. As discussed further below, these judgments may also impact the Company's need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized.

Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in connection with business acquisitions. The Company reviews goodwill for possible impairment on an annual basis or when triggering events occur in accordance with SFAS 142. SFAS 142 requires goodwill to be tested for impairment at the reporting unit level, which is an operating segment or one level below an operating segment. The Company considers each individual restaurant to be a reporting unit and therefore reviews goodwill for possible impairment by restaurant.

The Company utilizes a two-part impairment test. First, the fair value of the reporting unit is compared to carrying value (including goodwill). If the carrying value is greater than the fair value, the second step is performed. In the second step, the implied fair value of the reporting unit goodwill is compared to the carrying amount of goodwill. If the carrying value is greater, a loss is recognized. The goodwill impairment test considers the impact of current conditions and the economic outlook for the restaurant industry, the general overall economic outlook including market data, governmental and environmental factors, in establishing the assumptions used to compute the fair value of each reporting unit. We also take into account the historical, current and future (based on probability) operating results of each reporting unit and any other facts and data pertinent to valuing the reporting units in our impairment test.

The Company has an independent evaluation of goodwill conducted every three years. The most recent independent valuation was conducted as of February 1, 2008.

Impairment of Long-Lived Assets

The Company evaluates impairment of long-lived assets for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company assesses whether 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 asset is considered to be impaired, the impairment loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

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 Company to realize a material impairment charge.

Insurance Programs

Historically, the Company has purchased first dollar insurance for workers' compensation claims; high-deductible primary property coverage; and excess policies for casualty losses. Effective January 1, 2008, the Company modified its program for insuring casualty losses by lowering the self-insured retention levels from $2 million per occurrence to $100,000 per occurrence. Accruals for self-insured casualty losses include estimates of expected claims payments. Because of large, self-insured retention levels, actual liabilities could be materially different from calculated accruals.

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 of its wholly-owned direct and indirect
independently capitalized subsidiaries as set forth in the following table:

  Contractual                      Less than         One to           Three to       Greater than
  Obligations:       Total         one year        three years       five years       five years
                                               (Dollars in thousands)
Long-term debt     $   13,881     $     2,543     $       3,143     $      7,027     $       1,168
Operating leases       12,901           2,551             3,764            2,671             3,915
Capital leases             38              38                 -                -                 -
Purchase
commitments             1,100           1,100                 -                -                 -
Total
contractual cash
obligations        $   27,920     $     6,232     $       6,907     $      9,698     $       5,083

Off Balance Sheet Arrangements

Under the terms of the current financing with Wells Fargo, the Company was required to obtain interest rate protection through an interest rate swap or cap with respect to not less than 50% of the term loan amount. Wells Fargo has agreed to permanently waive the requirement for an interest rate swap or cap agreement.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157, Fair Value Measurements (SFAS 157). In February 2008, FASB issued FSP No. FAS 157-2 which delayed the applicability of SFAS 157's fair-value measurements of certain nonfinancial assets and liabilities that are measured at fair value on a non-recurring basis. In October 2008, the FASB issued FSP No. FAS 157-3, . . .