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; the Company's success in integrating newly acquired under performing or unprofitable restaurants; the impact of competitive products and pricing; the 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 12-week period ended August 10, 2009 decreased approximately $308,000 to $85,000 or $0.03 per diluted share as compared with net income of $393,000 or $0.12 per diluted share for the comparable prior year period. The decrease in net income is due to a decrease in income from operations of approximately $464,000 primarily from higher impairment and depreciation costs partially offset by lower interest expense and a $306,000 gain on property disposals related to the fire in Jonesboro, Arkansas. Total revenues decreased approximately $4.7 million or 19.5% from $24.2 million in the 12 weeks ended August 11, 2008 to $19.5 million in the 12 weeks ended August 10, 2009. The decrease in revenues was primarily attributable to 10 closed stores resulting in a sales decline of approximately $2.1 million and sales declines of approximately $3.3 million in comparable same store sales. The decline in sales was partially offset by $700,000 increase attributable to new stores or stores only opened for a portion of the second quarter of last year.

Consolidated net income for the 28-week period ended August 10, 2009 increased approximately $11,000 to $939,000 or $0.29 per diluted share as compared with net income of $928,000 or $0.29 per diluted share for the comparable prior year period. The increase in net income is due to a increase in income from operations of approximately $78,000 primarily from a $306,000 gain on property disposals related to the fire in Jonesboro, Arkansas and lower general and administrative costs of approximately $399,000 offset by higher depreciation and amortization and impairment of long-lived assets. Total revenues decreased approximately $9.7 million or 16.9% from $57.4 million in the 28 weeks ended August 11, 2008 to $47.7 million in the 28 weeks ended August 10, 2009. The decrease in revenues was primarily attributable to 12 closed stores resulting in a sales decline of approximately $5.6 million and sales declines of approximately $5.6 million in comparable same store sales. The decline in sales was partially offset by $1.5 million increase attributable to new stores or stores only opened for a portion of the second quarter of last year. 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.

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 to reduce the obligation to Wells Fargo.

In May, 2009, the Company had a kitchen fire in Jonesboro, Arkansas. The Company has $800,000 worth of property coverage and $150,000 extra expense coverage subject to a $100,000 deductible. The Company will spend approximately $635,000 to replace the Barnhill's Buffet and booked a gain of $306,000 after deducting the net loss of existing assets of $229,000 and the $100,000 deductible. As part of trade receivables the Company has booked $335,000 insurance proceeds receivable as of August 10, 2009.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events ("SFAS 165"). This Statement is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date-that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. SFAS 165 is not expected to have any impact on the Company's financial position or results from operations. The Company has evaluated subsequent events through September 24, 2009 which is the date that these financial statements were filed with the Securities and Exchange Commission.

In June 2009, the Company opened a 4B's restaurant in Butte, Montana.

Subsequent to August 10, 2009, the Company financed part of the $1.1 million purchase of the land and building of its Whistle Junction restaurant in Titusville, Florida with a real estate mortgage with the Mainstreet Community Bank of Florida. The Company entered into a $750,000 twenty year fixed rate real estate mortgage with a balloon payment due August 26, 2014. The mortgage has monthly payments including interest of $6,100. The interest rate is 7.5%. The mortgage is secured by the Whistle Junction restaurant in Titusville, Florida.

Subsequent to August 10, 2009, the Company determined two restaurant leases would not be renewed. The restaurants in Chandler, Arizona and Olympia, Washington will be closed and impaired in the third quarter of fiscal 2010. A pretax impairment charge of approximately $570,000 will be taken in the third fiscal quarter.

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.

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 28 weeks ended August 10, 2009 and
August 11, 2008.

                                              Twelve Weeks Ended               Twenty-eight Weeks Ended
                                         August 10,         August 11,       August 10,         August 11,
                                            2009               2008             2009               2008

Total revenues                                  100.0 %           100.0 %          100.0 %            100.0 %

Costs, expenses and other
  Food costs                                     38.3              39.0             38.4               38.6
  Labor costs                                    32.6              32.6             31.5               32.2
  Occupancy and other expenses                   20.1              19.5             19.6               20.1
  General and administrative expenses             2.5               2.9              2.6                2.9
  Depreciation and amortization                   3.7               2.3              3.3                2.5
  Impairment of long-lived assets                 2.2               0.2              0.9                0.4
Gain on property disposal                        (1.6 )               -             (0.7 )                -
  Total costs and expenses                       97.9              96.4             95.7               96.6

Income from operations                            2.1               3.6              4.3                3.4

  Interest expense                               (1.2 )            (1.3 )           (1.1 )             (1.1 )
  Interest income                                 0.0               0.0              0.2                0.0
  Other income                                    0.1               0.1              0.0                0.1
   Income before income taxes                     1.0               2.5              3.4                2.4

Income taxes                                      0.6               0.9              1.4                0.8

Net income                                        0.4 %             1.6 %            2.0 %              1.6 %

Effective income tax rate                        56.4 %            34.3 %           41.6 %             33.3 %

                             (Dollars in Thousands)
     28 weeks Ended             Buffet           Non-Buffet
     August 10, 2009         Division (1)       Division(2)           Other             Total
Revenues                    $       31,292     $       16,372     $           -     $      47,664
Food cost                           13,286              5,011                 -            18,297
Labor cost                           9,497              5,538                 -            15,035
Interest income                          -                  -                75                75
Interest expense                        (1 )                -              (517 )            (518 )
Depreciation &
amortization                         1,076                483                20             1,579
Impairment of long-lived
assets                                 290                146                 -               436
Income (loss) before
income taxes                           724              2,393            (1,508 )           1,609

     28 weeks Ended             Buffet           Non-Buffet
     August 11, 2008         Division (1)       Division(2)           Other             Total
Revenues                    $       42,648     $       14,741     $           -     $      57,389
Food cost                           17,345              4,826                 -            22,171
Labor cost                          13,172              5,315                 -            18,487
Interest income                          -                  -                12                12
Interest expense                        (3 )                -              (623 )            (626 )
Depreciation &
amortization                         1,076                304                25             1,405
Impairment of long-lived
assets                                 198                 14                 -               212
Income (loss) before
income taxes                         1,822              1,547            (1,976 )           1,393

(1) The sales decrease was primarily from declines in comparable same store sales and nine 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 as a result of the decline in revenue and increases in food and impairment expense.

(2) The sales increased due to the addition of four Non-Buffet restaurants with sales of approximately $1.9 million partially offset by the closure of four Non-Buffet restaurants with net loss of sales of approximately $900,000. 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 end of 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 $4.7 million or 19.5% from $24.2 million in the 12 weeks ended August 11, 2008 to $19.5 million in the 12 weeks ended August 10, 2009. The decrease in revenues was primarily attributable to 10 closed stores resulting in a sales decline of approximately $2.1 million and sales declines of approximately $3.3 million in comparable same store sales. The decline in sales was partially offset by $700,000 increase in new stores or stores only opened for a portion of the second quarter of last year. Total revenues decreased approximately $9.7 million or 16.9% from $57.4 million in the 28 weeks ended August 11, 2008 to $47.7 million in the 28 weeks ended August 10, 2009. The decrease in revenues was primarily attributable to 12 closed stores resulting in a sales decline of approximately $5.6 million and sales declines of approximately $5.6 million in comparable same store sales. The decline in sales was partially offset by $1.5 million increase in new stores or stores only opened for a portion of the second quarter of last year. 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.

Labor costs as a percentage of total revenues remained flat from 32.6% during the 12-week period ended August 11, 2008 and during the 12-week period ended August 10, 2009, and decreased from 32.2% during the 28-week period ended August 11, 2008 to 31.5% during the 28-week period ended August 10, 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 $1.5 million and $3.4 million, respectively, 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 in July 2009 and January 2010 the labor percentage may increase in the future.

Occupancy and other expenses as a percentage of total revenues increased from 19.5% during the 12-week period ended August 11, 2008 to 20.1% during the 12-week period ended August 10, 2009, and decreased from 20.1% during the 28-week period ended August 11, 2008 to 19.6% during the 28-week period ended August 10, 2009. The increase in the 12-week period ending August 10, 2009 was primarily attributable to higher utility costs as a percentage of revenue. The decrease for the 28-week period ending August 10, 2009 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 2.9% during the 12-week period ended August 11, 2008 to 2.5% during the 12-week period ended August 10, 2009, and from 2.9% during the 28-week period ended August 11, 2008 to 2.6% during the 28-week period ended August 10, 2009. The decrease for the 12 and 28-week periods ending August 10, 2009 as a percentage of total revenues was primarily attributable to lower field costs as compared to the same periods of the prior year.

Depreciation and amortization expense increased from $560,000 during the 12-week period ended August 11, 2008 to $725,000 during the 12-week period ended August 10, 2009, and increased from $1,405,000 during the 28-week period ended August 11, 2008 to $1,579,000 during the 28-week period ended August 10, 2009. The increase was primarily attributable increases in property acquired.

Interest expense decreased from $308,000 during the 12-week period ended August 11, 2008 to $229,000 during the 12-week period ended August 10, 2009, and from $626,000 during the 28-week period ended August 11, 2008 to $518,000 during the 28-week period ended August 10, 2009. The decrease was attributable to a lower average debt balances and lower interest rates in the first two quarters of fiscal 2010 as compared to fiscal 2009.

Interest income decreased from $1,000 during the 12-week period ended August 11, 2008 to $0 during the 12-week period ended August 10, 2009, and increased from $12,000 during the 28-week period ended August 11, 2008 to $75,000 during the 28-week period ended August 10, 2009. Interest income was primarily generated by the Company's tax refund in the first quarter of fiscal 2010.

The income tax provision totaled $110,000 or 56.4% of pre-tax income for the 12-week period ended August 10, 2009 as compared to $205,000 or 34.3% of pre-tax income for the 12-week period ended August 11, 2008. The income tax provision totaled $670,000 or 41.6% of pre-tax income for the 28-week period ended August 10, 2009 as compared to $465,000 or 33.3% of pre-tax income for the 28-week period ended August 11, 2008. The increases were primarily attributable the Company being unable to currently utilize all of its 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.

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 August 10, 2009, the Company had $1,123,000 in cash. Cash and cash equivalents increased by $5,000 during the 28 weeks ended August 10, 2009. The net working capital deficit was $(7,386,000) and $(9,041,000) at August 10, 2009 and January 26, 2009, respectively. Total cash provided by operations for the 28 weeks ended August 10, 2009 was approximately $2,761,000 as compared to approximately $4,231,000 in the 28 weeks ended August 11, 2008. The Company spent approximately $1,199,000 on capital expenditures in the first two quarters 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 were pledged as security for obligations existing 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; and any remaining balance to be paid at maturity. Interest is payable monthly. The term loan balance was $4,675,000 on September 18, 2009. The $2,000,000 revolving line of credit matures on January 31, 2012. Interest on the revolver is payable monthly. As of September 18, 2009, the revolving line of credit balance was $550,000.

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 to reduce the Company's obligation on the term loan to Wells Fargo.

In August 2009, the Company financed part of the $1.1 million purchase of the land and building of its Whistle Junction restaurant in Titusville, Florida with a real estate mortgage with the Mainstreet Community Bank of Florida. The Company entered into a $750,000 twenty year fixed rate real estate mortgage with a balloon payment due August 26, 2014. The mortgage has monthly payments including interest of $6,100. The interest rate is 7.5%. The mortgage is secured by the Whistle Junction restaurant in Titusville, Florida.

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.

Critical Accounting Policies and Judgments

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 . . .