STAR BUFFET INC - Annual Report: 2013 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K
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For the fiscal year ended January 28, 2013

OR

Commission file number: 0-6054

STAR BUFFET, INC.

(Exact Name of Registrant as Specified in its Charter)

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Registrant's Telephone Number, Including Area Code: (480) 425-0397

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

Securities registered pursuant to Section 12(g) of the Act:

(Title of Each Class):

Common Stock

$.001 par value

At August 13, 2012, the last business day of the registrant’s second fiscal quarter for Registrant’s 2013 fiscal year, there were outstanding 3,213,075 shares of the registrant’s common stock, $.001 par value. The aggregate market value of common stock held by non-affiliates of the registrant based on the last reported sale price of the common stock as reported on the NASDAQ Capital Market on August 13, 2012, ($1.03 per share) was $1,590,000. 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.

As of August 08, 2016, the registrant had 3,213,075 shares of common stock outstanding. 

STAR BUFFET, INC., AND SUBSIDIARIES

Index to Annual Report on Form 10-K

For the Fiscal Year Ended January 28, 2013

EXPLANATORY NOTE

Star Buffet, Inc. and its subsidiaries (the “Company”) own and operate 23 full-service restaurants located throughout the United States as of August 8, 2016. As a consequence of its bankruptcy filing and proceedings described in this report and a lack of available resources, the Company has not previously filed this report on Form 10-K with the Securities and Exchange Commission. In an attempt to bring it reporting obligations current, the Company is in the process of filing a number of historical reports.

Cautionary Statements Regarding Forward-Looking Statements

PART I

Item 1. Business

Chapter 11 Reorganization

On September 28, 2011, Star Buffet, Inc. (the “Company” or “Star”) filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code”) in the United States Bankruptcy Court for the District of Arizona (the “Bankruptcy Court”), in the proceeding titled In re: Star Buffet, Inc., Case No.2:11-bk-27518-GBN (the “Chapter 11 Case”). Star’s wholly owned subsidiary, Summit Family Restaurants Inc. (“Summit”), also filed a voluntary petition for reorganization under Chapter 11 on September 29, 2011 in the Bankruptcy Court, in the proceeding titled In re: Summit Family Restaurants Inc., Case No. 2:11-bk-27713-GBN. The cases for Star Buffet, Inc. and Summit Family Restaurants Inc. (collectively the “Debtors”) were consolidated and jointly administered. None of the Company’s other subsidiaries were included in the bankruptcy filings. The Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.  Under the Bankruptcy Code, certain claims against the Debtors that were in existence prior to the filing of the bankruptcy petition were stayed during the pendency of the Chapter 11 Reorganization.  The balance of the unresolved claims are reflected in the January 28, 2013 balance sheet as “Liabilities subject to compromise.”

On December 17, 2012, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Company’s plan of reorganization (the “Plan”), which provided for the payment in full of all approved claims. A copy of the Confirmation Order and the Plan as confirmed are attached as Exhibits 2.1 and 2.2, to the Company’s Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2012. The Plan became effective on January 17, 2013 and the Company emerged from bankruptcy. The payment obligations under the Plan were estimated to be in excess of $10 million.  The Plan provided for these obligations to be discharged from operating income derived from the restaurants operated by its affiliates, an exit loan of $300,000 from Suzanne H. Wheaton, the wife of CEO Robert E. Wheaton, and proceeds from sale of certain restaurant properties.

Since filing for reorganization, the Debtors have sold fifteen properties, $5.8 million of the proceeds were used to pay off the obligation to Wells Fargo, the Company’s primary secured creditor in full, $1.9 million was used to pay the other secured creditors and $801,000 was used to pay unsecured creditors, pursuant to the Plan. As of January 26, 2015, the Company has reduced its liabilities subject to compromise to $800,000 and has made all payments required under the Plan. Resolution and payment of the remaining liabilities subject to compromise will result of payment in full of all of the Company’s creditors at the time of the bankruptcy filing and a complete discharge of the Company.

Overview

Star Buffet, Inc., a Delaware corporation (“Star” and collectively with its subsidiaries, the “Company”), is a multi-concept restaurant holding company. As of January 28, 2013, the Company, through eight independently capitalized subsidiaries operated seven 4B’s restaurants, five JB’s restaurants, three Barnhill’s Buffet restaurants, three K-BOB’S Steakhouses, two JJ North’s Country Buffets, two Pecos Diamond Steakhouses, two Western Sizzlin restaurants, one BuddyFreddys restaurant, one Casa Bonita Mexican theme restaurant and one Bar-H Steakhouse. The Company also had eight restaurants closed for remodeling and repositioning of which two were used as warehouses and five restaurants were leased to third-party operators. The Company's restaurants are located in Arkansas, Arizona, Colorado, Florida, Idaho, Mississippi, Montana, New Mexico, Tennessee, Texas and Utah. The Company has an executive and an accounting office in Scottsdale, Arizona and an accounting office in Salt Lake City, Utah. As a result of the significant developments identified below, the Company’s holdings have changed significantly. The Company was incorporated on July 28, 1997 in Delaware.

Recent Developments

On March 28, 2013, the Company sold the former JB’s Restaurant property in Sierra Vista, Arizona resulting in net sales proceeds of $571,000. All of the sales proceeds were paid to Wells Fargo pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On April 4, 2013, the Company settled all outstanding claims with the Tinsley Group. As part of the settlement the three K-BOB’s stores in Tucumcari, New Mexico, Lamesa, Texas and Beeville, Texas were closed on April 30, 2013 and returned to the Tinsley group and Tinsley $215,000 note receivable was forgiven. The transaction was approved by the Bankruptcy Court.

On May 18, 2013, the Company opened a Big Rock Café in Marysvale, Utah.

On May 31, 2013 the Company closed and sold the JJ North’s Country Buffet in Yuma, Arizona for net sales proceeds of $1,247,000 with all of the sales proceeds paid to Wells Fargo pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On June 28, 2013, the Company closed the JJ North’s Country Buffet in Scottsdale, Arizona.

On July 29, 2013, the Company closed the Barnhill’s Buffet in Tupelo, Mississippi. The Company accrued for all anticipated lease termination expenses.

On September 4, 2013, the Company sold the former Hometown Buffet building in Layton, Utah and restructured its loan from the Bank of Utah. Net proceeds of $998,000 from this sale were paid to Bank of Utah in connection with restructuring the loan agreement.

On September 21, 2013, the Company closed the JB’s Restaurant in Billings, Montana. The Company accrued for all anticipated lease termination expenses.

On September 30, 2013, the Company closed the Big Rock Café in Marysvale, Utah. The Company accrued for all anticipated lease termination expenses.

On November 3, 2013, the Company closed the 4B’s Restaurant in Butte, Montana. The Company accrued for all anticipated lease termination expenses.

On January 5, 2014 the Company closed the 4B’s Restaurant in Missoula, Montana. The Company accrued for all anticipated lease termination expenses.

On March 20, 2014, the Company sold the 4B’s Restaurant in Great Falls, Montana. Net proceeds of $157,000 from this sale were paid to Wells Fargo pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On March 28, 2014 the Company sold the property in South Daytona, Florida for net proceeds of $916,000 with all of the sales proceeds paid to Wells Fargo pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On April 28, 2014, the Company sold the Pecos Diamond Steakhouse in Artesia, New Mexico. Net proceeds of $367,000 from this sale were paid to Wells Fargo pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On July 14, 2014, the Company sold the former BuddyFreddys Restaurant in Kissimmee, Florida. Net proceeds of $449,000 from this sale were paid to Wells Fargo pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On August 4, 2014, the Company sold the JB’s Restaurant in Rexburg, Idaho. Net proceeds of $307,000 from this sale were paid pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On August 5, 2014 the Company closed the Barnhill’s Restaurant in Jackson, Tennessee. The Company accrued for all anticipated lease termination expenses.

On August 8, 2014, the Company sold the former BuddyFreddys Restaurant in Ocala, Florida. Net proceeds of $279,000 from this sale were paid pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On October 14, 2014, the Company sold the former Hometown Buffet building in Scottsdale, Arizona using seller financing of $1,550,000. The Company collected the mortgage in April 2015.

On October 31, 2014, the Company sold the JB’s Restaurant in Great Falls, Montana. Net proceeds of $232,000 from this sale were paid pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On November 1, 2014 the Company opened a 4B’s Restaurant in Dillon, Montana.

On November 19, 2014, the Company sold the JB’s Restaurant in Vernal, Utah. Net proceeds of $203,000 from this sale were paid pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On March 2, 2015, the Company sold the former Whistle Junction Restaurant in Titusville, Florida. Net proceeds of $1,044,000 from this sale were paid pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On April 24, 2015, the Company sold the BuddyFreddys Restaurant in Plant City, Florida. Net proceeds of $669,000 from this sale were paid pursuant to the Company’s reorganization plan that was approved by the Bankruptcy Court.

On June 1, 2015 the Company opened a JB’s Restaurant in Evanston, Wyoming.

On June 15, 2015 the Company opened a 4 Aces in Lewistown, Montana.

On August 1, 2015 the Company opened a JB’s Restaurant in Kingman, Arizona.

On November 18, 2015 the Company opened the Original 4B’s Café in Deer Lodge, Montana.

On April 18, 2016 the Company purchased property in Missoula, Montana. The Company intends to open a 4B’s restaurant.

On May 3, 2016 the Company opened a Whistle Junction restaurant in Keystone, South Dakota.

On May 16, 2016 the Company opened a Finnegan’s Restaurant in Kalispell, Montana.

On June 1, 2016 the Company leased property in Billings, Montana. The Company intends to open a 4B’s restaurant.

Business Strategy

The Company’s business strategy is to operate a broadly diversified portfolio of well-established, family-oriented restaurants throughout the southeastern and western United States. The Company believes that a broad, diversified business base combined with a low field and corporate overhead cost structure will result in consistently positive cash flows.

Segment and Related Reporting

All of the brands the Company operates are in the U.S. within the full-service dining industry and provide similar products to similar customers and therefore, are considered to be one segment for reporting purposes. The brands also possess similar economic characteristics, resulting in similar long-term expected financial performance characteristics. Sales to external customers are derived principally from food and beverage sales. We do not rely on any major customers as a source of sales. We believe we meet the criteria for aggregating our operating segments into a single reporting segment.

Growth Strategy

The Company has indicated that it plans moderate growth based primarily through acquisitions or re-opening existing closed stores. The Company supplements its program of acquisitions with the purchase of restaurant properties that can be converted to the Company’s existing brands and minority investments in, or strategic alliances with, other restaurant chains.

Restaurant Concepts

As of January 28, 2013, the Company, operated seven 4B’s restaurants, five JB’s restaurants, three Barnhill’s Buffet restaurants, three K-BOB’S Steakhouses, two JJ North’s Country Buffets, two Pecos Diamond Steakhouses, two Western Sizzlin restaurants, one BuddyFreddys restaurant, one Casa Bonita Mexican theme restaurant and one Bar-H Steakhouse. The Company also had eight restaurants closed for remodeling and repositioning of which two were used as warehouses and five restaurants were leased to third-party operators.

The Company, through its wholly-owned Barn Restaurants, Inc. (“Barn Rest”) subsidiary operated as of January 28, 2013 three Barnhill’s Buffets with a perpetual right to utilize the Barnhill’s name and related intellectual property. The restaurants are located in, Arkansas, Mississippi and Tennessee. The restaurants are approximately 10,000 square feet and seat approximately 375 customers. The Company closed the Barnhill’s Buffet in Mississippi in fiscal 2014.

The Company, through its HTAF, Inc. (“HTAF”) subsidiary, had a franchise agreement with HomeTown Buffet, Inc., a wholly-owned subsidiary of Buffets Holdings, Inc. HTAF entered into a franchise agreement for each location which requires among other items, the payment of a continuing royalty fee to HomeTown Buffet, Inc. In fiscal 2013 the franchise agreement was terminated and the HomeTown Buffets were converted to JJ North’s County Buffets. HTAF operated as of January 28, 2013 two JJ North’s County Buffets in Arizona. The restaurants are approximately 10,000 square feet and seat approximately 375 customers. Both restaurants were closed in fiscal 2014.

The Company, through its wholly-owned 4B’s Holdings, Inc., (“4B’s”) subsidiary operated as of January 28, 2013 seven 4B’S restaurants located in Montana. The 4B’s restaurants are approximately 4,000 to 5,500 square feet in size and seat approximately 110 to 175 customers. The Company closed one 4B’s restaurant in fiscal 2014.

The Company, through its wholly-owned JB’s Star Holdings, Inc., (“JB’s Star”) subsidiary, operated as of January 28, 2013 five JB’s restaurants in Montana (2), Idaho (2) and Utah (1). The JB’s restaurants are approximately 4,000 to 5,500 square feet in size and seat approximately 110 to 175 customers. The Company closed one JB’s in Montana in fiscal 2014.

The Company, through its wholly-owned KB’s Star Holdings, Inc., (“KB’s Star”) subsidiary, operated as of January 28, 2013 two K-BOB’S Steakhouses located in New Mexico and Texas. Both restaurants were closed in fiscal 2014 as part of a legal settlement.

The Company, through its wholly-owned StarTexas Restaurants, Inc., (“StarTexas”) subsidiary, operated as of January 28, 2013 one Pecos Diamond Steakhouse in Dumas, Texas and one in Artesia, New Mexico, a Bar-H Steakhouse in Dalhart, Texas and a K-BOB’S Steakhouse in Beeville, Texas. The K-BOB’S Steakhouse, Pecos Diamond Steakhouse and Bar-H Steakhouse are approximately 5,000 square feet with seating capacity for 150 customers. The K-BOB’S restaurant in Beeville closed in fiscal 2014 as part of a legal settlement.

The Company, through its wholly-owned Casa Bonita Denver, Inc., (“Casa Denver”) subsidiary, operated as of January 28, 2013 a Casa Bonita restaurant located in Colorado. The Casa Bonita facility is approximately 52,000 square feet with seating capacity for approximately 1,400 customers.

The Company also operated as of January 28, 2013 of one restaurant in Florida under the brand name BuddyFreddys. The BuddyFreddys is approximately 9,000 square feet and seat approximately 300 customers. In addition the Company has one Western Sizzlin restaurant located in Arkansas and one in Mississippi. These restaurants range from 5,000 to 7,000 square feet and seat approximately 150 to 250 customers.

Licenses, Trademarks and Service marks

The Company owns the trademarks and service marks for BuddyFreddys, Casa Bonita, Holiday House, Pecos Diamond Steakhouse, Bar-H Steakhouse, 4B’S Restaurants and Whistle Junction. The Company has agreements with North’s Restaurants, Inc. and Barnhill’s Buffets, Inc. for a perpetual, royalty-free, fully transferable license to use the intangible property of JJ North’s Country Buffet and Barnhill’s Buffet, respectively. The Company utilizes the Western Sizzlin’ marks pursuant to various franchise and license agreements. The Company has a license agreement and, if exercised, one ten year option to use the JB’S trademark through August 31, 2022. The Company did not exercise its option in August 2012 and has impaired the goodwill of $551,000 associated with the brand as a triggering event. The Company formerly had license agreement to utilize, under certain circumstances, the K-BOB’S Steakhouse brand. In April 2013 the Company terminated its agreement with K-BOB’S as part of a legal settlement. Additionally, the Company has a license agreement with CKE Restaurants, Inc. for use of the “Star” name and design.

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. The number of restaurants with operations similar to those of the Company has grown considerably in recent years. As the Company and its principal competitors expand operations in various geographic areas, competition can be expected to increase.

Seasonality

The Company's business is moderately seasonal in nature. For the majority of the Company’s restaurants, the highest volume periods are in the first and second fiscal quarters.

Employees

As of August 08, 2016 the Company employed approximately 862 persons, of whom approximately 857 were restaurant employees. Restaurant employees include salaried management and 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.

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. Robert E. Wheaton has been Chairman of the Board since September 1998. Mr. Robert E. 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. Robert E. 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. Robert E. 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.

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.

Craig B. Wheaton has served as a director of the Company since February 1999. Mr. Wheaton is a partner in the law firm Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. 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.

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.

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 and chairman. All three members of the audit committee are “independent” as determined in accordance with Rule 5605(a)(2) of the NASDAQ Listing Standards.

Item 1A. Risk Factors

Item 2. Properties

The Company’s operating restaurants are primarily freestanding locations. As of January 28, 2013, 16 of 35 of the Company’s restaurant facilities were leased. The leases expire on dates ranging from 2013 to 2035. The majority of the leases contain renewal options. All leases provide for specified periodic rental payments and many call for additional rent based upon revenue volume. Most leases provide for periodic rent increases and require the Company to maintain the property, carry property and general liability insurance and pay associated taxes and expenses. The Company has an executive and accounting office in Scottsdale, Arizona and an accounting office in Salt Lake City, Utah.

The following is a summary of the Company's restaurant properties as of January 28, 2013:

As of January 28, 2013, the Company’s restaurants are located in the following states: 

As of January 28, 2013, the Company’s non-operating restaurants are located in the following states: 

One of the eight non-operating restaurants was closed for remodeling and repositioning, five non-operating restaurants have been leased to a third-party operators and two non-operating restaurants were used as warehouses.

Item 3. Legal Proceedings

Prior to the Company’s bankruptcy filings, on August 4, 2010 Spirit Master Funding, LLC (‘Spirit”) , a landlord of a Company subsidiary, filed case number CV-2010-022169 in the Superior Court of the State of Arizona for the failure of the subsidiary to pay $3.7 million in rent and accelerated rent for four restaurants leased to the subsidiary. During the bankruptcy, Spirit filed a proof of claim as an unsecured creditor for approximately $1.5 million. The Company believes they owe Spirit less than their claim amount and has filed an objection to this claim with the bankruptcy court. The objection calculates the claim at approximately $500,000. The outcome of this matter is still pending.

On September 2, 2010 Flying W Diamond Ranch, Inc. et al (“the Tinsley group”) filed for alleged damages from the Company’s alleged breaches of Lease and License Agreements in the 106^th District Court of Dawson County, Texas. On January 12, 2012 the Company filed paperwork with the Bankruptcy Court to terminate the license agreements with K-BOB’S USA for the K-BOB’S restaurants in Tucumcari, NM, Beeville, TX, Lamesa, TX and Dumas, TX. On April 4, 2013, the Company settled all outstanding claims with the Tinsley group. As part of the settlement the three K-BOB’s stores in Tucumcari, New Mexico, Lamesa, Texas and Beeville, Texas were closed on April 30, 2013 and returned to the Tinsley group. The transaction was approved by the Bankruptcy Court.

The Company is from time to time the subject of litigation regarding landlord disputes. The Company believes that the lawsuits, claims and other legal matters to which it has become subject in the course of its business are adequately reserved 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.

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.

The Company has filed various objections with the bankruptcy court regarding proof of claims filed by various unsecured creditors to dispute amounts owed. In certain cases, these objections have not been resolved. The Company is working with its legal counsel to resolve these disputes and negotiate settlements of these matters.

Item 4. Mine Safety Disclosures

There are no reportable events required pursuant to this item.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders. The Company’s Common Stock is listed on the OTC PINK marketplace under the symbol “STRZPK”. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. As of August 8, 2016, there were less than 300 holders of record. The following table sets forth the range of high and low bid information for the Common Stock for the fiscal years 2013 and 2012.

Dividends. The Company is prevented from paying any dividends so long as it has a negative stockholders’ equity or the payment of the dividend would result in a negative stockholders’ equity. The Reorganization does not allow payment of dividends until all creditors are paid in full.

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 28, 2013 is $6.70 for 22,000 options.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

As noted above, the Chapter 11 Reorganization was filed on September 28 and September 29, 2011; the Plan was confirmed on December 17, 2012 and became effective on January 17, 2013.  The Company’s payment obligations under the Plan are estimated to be in excess of $10.0 million.   The Company intends to discharge all plan obligations from operating income derived from the restaurants operated by the Company’s subsidiaries, an exit loan from Suzanne H. Wheaton, wife of CEO Robert E. Wheaton, and proceeds from liquidation of restaurant properties. Since filing for reorganization, the Debtors have sold fifteen properties, $5.8 million of the proceeds were used to pay off the obligation to Wells Fargo, the Company’s primary secured creditor in full, $1.9 million was used to pay the other secured creditors and $801,000 was used to pay unsecured creditors, pursuant to the Plan. As of January 26, 2015, the Company has reduced its liabilities subject to compromise to $800,000 and has made all payments required under the Plan. Resolution and payment of the remaining liabilities subject to compromise will result of payment in full of all of the Company’s creditors at the time of the bankruptcy filing and a complete discharge of the Company.

Operations

The operating results for the 52-week period ended January 28, 2013 and for the 53-week period ended January 30, 2012 are as follows:

The operating results for the 52-week period ended January 28, 2013 included 52 weeks of operations for the Company’s seven 4B’s restaurants, five JB’s restaurants, three Barnhill’s Buffet restaurants, two K-BOB’S Steakhouses, two franchised HomeTown Buffet restaurants converted in JJ North’s Country Buffets in the fourth quarter of fiscal 2013, one BuddyFreddys restaurant, one Casa Bonita Mexican theme restaurant, one Pecos Diamond Steakhouse for the full year and one that was converted in the fourth quarter of fiscal 2013, one Bar-H Steakhouse and one Western Sizzlin restaurant. The results also included the following restaurants that were closed at some point during the year, one JB’s restaurant for 28 weeks and one for 13 weeks, one Holiday House restaurant for 20 weeks, one Barnhill’s Buffet for 17 weeks, one JJ North’s restaurant for 19 weeks and one Whistle Junction restaurant for 24 weeks. The results also included one K-BOB’S Steakhouse for 49 weeks and one Western Sizzlin restaurant for 14 weeks that were opened during fiscal 2013. The Company also had eight restaurants closed for remodeling and repositioning of which two were used as warehouses and five restaurants were leased to third-party operators.

The operating results for the 52-week period ended January 30, 2012 included 52 weeks of operations for the Company’s seven 4B’s restaurants, five JB’s restaurants, four Barnhill’s Buffet restaurants, three K-BOB’S Steakhouses, two franchised HomeTown Buffet restaurants, one Whistle Junction restaurant, one BuddyFreddys restaurant, one Casa Bonita Mexican theme restaurant, one Holiday House restaurant, one JJ North’s Grand Buffet restaurant, one Pecos Diamond Steakhouse, one Bar-H Steakhouse and one Western Sizzlin restaurant. The results also included the following restaurants that were closed at some point during the year, one HomeTown Buffet restaurant for 21 weeks, and one Whistle Junction restaurant for 12 weeks. The results also included one JB’s restaurant for 49 weeks and one JB’s restaurant for 48 weeks that were opened during fiscal 2012. The Company had seven restaurants closed for remodeling and repositioning and three restaurants leased to third-party operators at January 30, 2012.

The consolidated net loss of $(2,948,000) of (0.92) per diluted share for fiscal 2013 was approximately $2.1 more than the net loss of $(811,000) or $(0.25) per diluted share for the prior year. The increase in the net loss is due primarily to $1.8 million increase in impairment expense and approximately $358,000 increase in bankruptcy fees in comparison with the prior fiscal year. In addition the food cost and labor were higher in the current year as a percent of revenue as compared to the prior year due to costs for wholesale food and minimum wage increasing at a faster pace than revenues. Total revenues decreased approximately $4.4 million or 11.2% from $39.4 million in fiscal 2012 to $35.0 million in fiscal 2013. The decrease in revenues was primarily attributable to six store closings during the year and two stores closed in the prior year resulting in a decrease of approximately $4.0 million and declines in comparable same store sales of approximately $1.5 million or 4.6%, partially offset by two new store openings resulting $1.1 million in sales. The Company believes the decline in same store sales is a result of weaker economic conditions and 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, especially in the near term. It is sometimes possible to lower occupancy, salaries and other expenses if given a longer period of time to adjust. For example, rent may be negotiated lower and the restaurant staff may be reduced if the decline in sales is more permanent. Occupancy and other expense include major expenditures such as rent, insurance, property taxes, utilities, maintenance and advertising.

Results of Operations

The following table summarizes the Company’s results of operations as a percentage of total revenues for the fifty-two weeks ended January 28, 2013 (“fiscal 2013”), and for the fifty-two weeks ended January 30, 2012 (“fiscal 2012”).

Comparison of Fiscal 2013 to Fiscal 2012

Total revenues decreased approximately $4.4 million or 11.2% from $39.4 million in fiscal 2012 to $35.0 million in fiscal 2013. The decrease in revenues was primarily attributable to six store closings during the year and two stores closed in the prior year resulting in a decrease of approximately $4.0 million and declines in comparable same store sales of approximately $1.5 million or 4.6%, partially offset by two new openings resulting $1.1 million in sales.

Food costs as a percentage of total revenues increased from 36.9% during in fiscal 2012 to 38.1% in fiscal 2013. Food costs decreased by approximately $1.2 million in fiscal 2013 primarily due to the closure of six stores in the current year. The increase in percentage for the fiscal year ending January 28, 2013 was primarily attributable to higher wholesale food prices in the current year compared to the prior year.

Labor costs as a percentage of total revenues increased from 34.1% during fiscal 2012 to 35.5% in fiscal 2013. Labor costs decreased by approximately $1.0 million in fiscal 2013 primarily due to the closure of six stores in the current year. The labor cost as a percentage of total revenues increased primarily due to higher minimum wages and lower same store sales.

Occupancy and other expenses as a percent of total revenues decreased from 19.9% in fiscal 2012 to 17.4% in fiscal 2013. Occupancy and other expenses decreased in fiscal 2013 by approximately $1.8 million primarily due to the closure of six stores in the current year. The decrease in actual occupancy and other expenses in the fiscal year ending January 28, 2013 were primarily from the closure of poor performing stores.

General and administrative expenses as a percentage of total revenues increased from 3.8% in fiscal 2012 to 4.5% in fiscal 2013. The increase as a percentage of revenue was primarily attributable to higher penalty expense and insurance costs in fiscal 2013.

Depreciation and amortization expense decreased from $1,250,000 in fiscal 2012 to $1,209,000 in fiscal 2013. The decrease was primarily attributable to fewer stores in the current year coupled with less depreciation resulting from the impairment charges taken by the Company on its underperforming assets.

Goodwill expense increased from 0.0% in fiscal 2012 to 1.6% in fiscal 2013. On August 31, 2012, the Company recorded $551,000 of impairments relating to the expiration of our JB’s license agreement. The triggering event required the write-off of goodwill on three JB’s restaurants. Goodwill expense charged to operations was $551,000 and $0 for the years ended January 28, 2013 and January 30, 2012, respectively.

Impairment expense increased from 0.9% in fiscal 2012 to 4.7% in fiscal 2013. The impairment expense in fiscal 2013 relates to stores where the carrying amount of the assets exceeded the estimated fair values of the related property and equipment. In addition to the above, the Company also had impairment expense of franchise and license $230,000 in the current year with none in the prior year, Total impairment expense related to property, building, equipment and franchise, license and other charged to operations was $1,661,000 and $368,000 for the years ended January 28, 2013 and January 30, 2012, respectively is as follows:

Interest expense as a percent of total revenues decreased from 2.7% in fiscal 2012 to 1.6% in fiscal 2013 primarily as the result of lower amortization of loan costs and due to lower interest charges during the Company’s bankruptcy on certain related party loans. Actual interest expense decreased from $1,058,000 in fiscal 2012 to $579,000 in fiscal 2013.

Reorganization items expense increased from 0.9% in fiscal 2012 to 2.0% in fiscal 2013. Star and Summit both filed for bankruptcy in September 2011. For the years ended January 28, 2013 and January 30, 2012, the Company incurred bankruptcy costs and professional fees related to the bankruptcy totaling $703,000 and $345,000, respectively.

The income tax provision totaled $33,000 or 0.1% of pre-tax income in fiscal 2013 as compared to $22,000 or 0.1 % of pre-tax income in fiscal 2012. The Company has deferred income tax assets of $0 on January 28, 2013 and January 30, 2012, respectively. Income taxes for fiscal 2013 and fiscal 2012 are:

Liquidity and Capital Resources

In recent years, the Company has financed operations through a combination of cash on hand, cash provided from operations and loans from our principal shareholder.

As of January 28, 2013, the Company had $243,000 in cash.  Cash and cash equivalents decreased by $469,000 during the fiscal year ended January 28, 2013. The net working capital deficit was $7.0 million and $13.7 million at January 28, 2013 and January 30, 2012, respectively. The Company generates cash flow daily from sales in its restaurants and manages its cash balances to meet its current operating obligations. The Company spent approximately $644,000 on capital expenditures in fiscal 2013. In the second quarter of fiscal 2013 the Company sold one property in Jacksonville, Florida netting approximately $454,000 in proceeds all which was used to pay Wells Fargo.

Cash provided by operations was $454,000 for fiscal 2013 and $2,002,000 for fiscal 2012.

Cash used by financing activities was approximately $733,000. The Company made net debt payments of approximately $1.0 million and had loan costs of $17,000. The Company had proceeds from the issuance of long-term debt of $307,000. As part of the Reorganization Plan, Suzanne H. Wheaton, the wife of Robert E. Wheaton, loaned the Company $300,000 as an exit loan which is secured by real estate in Artesia, New Mexico.

The following table is a summary of the Company’s outstanding debt obligations.

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 was subordinated to the obligation to Wells Fargo Bank, N.A. which was subsequently paid in full. The loan originally bore interest at 8.5%. In June 2008, the Company borrowed an additional $592,000 from Mr. Robert E. Wheaton under the same terms. This resulted in an increase in the note balance from $1,400,000 to $1,992,000, the balance as of January 28, 2013 and January 30, 2012. The Company expensed $0 and $114,000 to Mr. Robert E. Wheaton for interest during fiscal 2013 and fiscal 2012, respectively. The principal balance and any unpaid interest was due and payable in full on June 5, 2012. The loan was subsequently modified as a result of the Company’s bankruptcy filing and pursuant to the approved Plan of Reorganization is not eligible to be repaid until all obligations owed to other creditors have been fully satisfied. Interest accrued on the principal amount of $1,991,936 and the interest of $196,957 from September 28, 2011 to January 16, 2013 at the bankruptcy plan rate. Interest will accrue on the principal amount of $1,991,936 and the interest of $196,957 from the January 17, 2013 until paid at the rate of 3.25%. The interest rate of 3.25% will increase 1% each year in January until paid per the Plan of Reorganization. Quarterly interest-only payments on the principal portion will commence when the principal amount owing on the Wells Fargo Loan has been reduced to $1.5 million and continue until paid, provided that Debtors are current on all payments required by the Plan. If Debtors are not current on all payments required by the Plan, the quarterly interest-only payments will not begin until Company bring such payments current. The Wells Fargo Loan has been paid in full and the Debtors are current all payments required by the Plan. The Company used the funds borrowed from Mr. Robert E. Wheaton for working capital requirements.

The Company filed Chapter 11 Reorganization on September 28 and September 29, 2011; the Plan was confirmed on December 17, 2012; and became effective on January 17, 2013.  The Company’s payment obligations under the Plan are estimated to be in excess of $10.0 million.   The Company intends to discharge all Plan obligations from income derived from the restaurants operated by the Company’s subsidiaries, an exit loan from Suzanne H. Wheaton, wife of CEO Robert E. Wheaton, and proceeds from sale of restaurant properties. Since filing for reorganization, the Debtors have sold fifteen properties, $5.8 million of the proceeds were used to pay off the obligation to Wells Fargo, the Company’s primary secured creditor in full, $1.9 million was used to pay the other secured creditors and $801,000 was used to pay unsecured creditors, pursuant to the Plan. As of January 26, 2015, the Company has reduced its liabilities subject to compromise to $800,000 and has made all payments required under the Plan. Resolution and payment of the remaining liabilities subject to compromise will result of payment in full of all of the Company’s creditors at the time of the bankruptcy filing and a complete discharge of the Company.

Off-balance Sheet Arrangements

As of January 28, 2013, the Company did not have any off-balance sheet arrangements as defined in Item 303(a) (4) (ii) of Regulation S-K.

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 6 to the consolidated financial statements for additional information.

(2) Long-term debt includes note payable to officer.

(3) See Note 7 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 certain increased costs due to these inflationary factors along to its customers because those factors have impacted nearly all restaurant companies.

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 to the audited consolidated financial statements for the year ended January 28, 2013, included in this report on Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or may be subject to variations and may significantly affect the Company’s reported results and financial position for the current period or future periods. Changes in the 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 since the judgments effect a significant portion of the financial statements.

Receivables

Receivables are stated at an amount management expects to collect and provides for an adequate reserve for probable uncollectible amounts.  Amounts deemed to be uncollectible are written off through a charge to earnings and a credit to a valuation allowance based on management’s assessment of the current status of individual balances.  A receivable is written off when it is determined that all collection efforts have been exhausted.  The Company did not have a valuation allowance as of January 28, 2013 and January 30, 2012.

Notes Receivable

Notes receivable are stated at an amount management expects to collect and provides for an adequate reserve for probable uncollectible amounts.  Amounts deemed to be uncollectible are written off through a charge to earnings and a credit to a valuation allowance based on management’s assessment of the current status of individual balances.  A note receivable is written off when it is determined that all collection efforts have been exhausted.  Currently, the Company has two loans receivable outstanding and both are in default. The Company has provided a full reserve of $489,000 for the North’s Restaurant, Inc. note receivable based on a decline in value of the note’s collateral. The Company has provided a full reserve of $215,000 on the second note as part of the April 4, 2013 settlement with the Tinsley group. As part of the settlement the note was forgiven. All expenses associated with the Tinsley settlement were accrued at January 28, 2013.

Income Taxes

Our current provision for income taxes is based on our estimated taxable income in each of the jurisdictions in which we operate, after considering the impact on our taxable income of temporary differences resulting from disparate treatment of items, such as depreciation, estimated liability for closed restaurants, estimated liabilities for self-insurance, tax credits and net operating losses (“NOL”) for tax and financial reporting purposes. Deferred income taxes are provided for the estimated future income tax effect of temporary differences between the financial and tax bases of assets and liabilities using the asset and liability method. Deferred tax assets are also provided for NOL and income tax credit carryforwards. A valuation allowance to reduce the carrying amount of deferred income tax assets is established when it is more likely than not that we will not realize some portion or all of the tax benefit of our deferred income tax assets. We evaluate, on a quarterly basis, whether it is more likely than not that our deferred income tax assets are realizable based upon recent past financial performance, tax reporting positions, and expectations of future taxable income. The determination of deferred tax assets is subject to estimates and assumptions. We periodically evaluate our deferred tax assets to determine if our assumptions and estimates should change. Currently, because there can be no assurance that the Company will generate any specific level of earnings in the future years to realize the benefit of the deferred tax assets existing as of January 28, 2013 and January 30, 2012 the Company has a full valuation allowance against its deferred tax assets, net of expected reversals of existing deferred tax liabilities, as it believes it is more likely than not that these benefits will not be realized. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 requires recognition in the consolidated financial statements of the impact of an uncertain tax position, if it is more likely than not the tax position will be sustained upon examination based on the technical merits of the position. The Company does not have any uncertain tax positions that require recognition under ASC 740 as of January 28, 2013 and January 30, 2012. The continuing practice of the Company is to recognize interest and penalties related to income tax matters in the provision for income taxes.

Property, Buildings and Equipment

Property, building and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the following useful lives:

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 held for remodeling or repositioning is depreciated and is recorded 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 recorded on the balance sheet as property held for sale and recorded at the lower of cost or market. Repairs and maintenance are charged to operations as incurred. Major equipment refurbishments and 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.

Impairment of Goodwill

Goodwill primarily 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 the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350. ASC 350 requires goodwill to be tested for impairment at the reporting unit level, or one level below a reporting segment. The Company considers each asset group 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, and 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 performs its annual impairment analysis in February of each year. The Company does not have a carrying value for goodwill at January 28, 2013 related to our purchase of two JB’s restaurants in Montana and one in Utah. On August 31, 2012, the Company recorded $551,000 of impairments relating to the expiration of our JB’s license agreement. The triggering event required the write-off of goodwill on three JB’s restaurants. The Company reviews estimates the value of this reporting unit separately from that of the Company as a whole. The determination of a reporting unit’s “implied fair value” of goodwill requires us to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. In estimating the fair value of the reporting unit, the Company considered the two traditional approaches to valuation, the market approach and the income (discounted cash flow “DCF”) approach.  The market approach compares the subject company with guideline publicly-traded companies.  Valuation multiples are calculated from the selected companies to provide an indication of how much a current investor in the marketplace would be willing to pay for a company with similar characteristics.  The income approach measures the projected cash flows expected to be realized from the asset.  The value of a business is the expected cash flows discounted to a present value at a discount rate that considers the degree of risk associated with the realization of the projected monetary benefits.  The cash flow analysis relies upon estimates of the entity’s future revenue and expenses to ultimately project the future cash flows resulting from the business activity of each entity. An appropriate discount rate is reached by calculating the weighted average cost of capital, or “WACC,” which is determined by the assumptions underlying the Capital Asset Pricing Model, or “CAPM,” and is considered to reflect the view of “Market Participants,” as required under ASC 825.

Impairment of Long-Lived Assets

The Company evaluates impairment of long-lived assets in accordance with ASC 360, “Property, Plant and Equipment”. The Company assesses whether an impairment write-down is necessary 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. Any impairment is recognized as a charge to earnings, 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 net 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 net cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge and could adversely affect operating results in any period.

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. 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.

Other Long-Term Liabilities

The Company has installments agreements with the Internal Revenue Service for past due taxes. The long-term portion is $2,144,000 and $0 for January 28, 2013 and January 30, 2012, respectively.

Application of New Accounting Standards

During 2014, the FASB issued Accounting Standards Update 2014-09 and 2015-14, Revenue from Contract with Customers (Topic 606), respectively, which revises previous revenue recognition standards to improve guidance on revenue recognition requirements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides additional disclosure requirements. This new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted. The Company has not yet selected a transition date nor have we determined the effect of the standard on our ongoing financial reporting.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This update, which is part of the FASB's larger Simplification Initiative project aimed at reducing the cost and complexity of certain areas of the accounting codification, requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position, which eliminates the requirement that an entity separate deferred tax liabilities and assets into current and non-current amounts. This update does not affect the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount on the balance sheet. This amendment applies to all entities with a classified statement of financial position. For public business entities, this update is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. The Company notes this guidance will apply to its reporting requirements and will implement the new guidance accordingly.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires a lessee to recognize on the balance sheet a liability to make lease payments and a corresponding right-of-use asset. The guidance also requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. This update is effective for annual and interim periods beginning after December 15, 2018, which will require us to adopt these provisions in the first quarter of fiscal 2020 using a modified retrospective approach. Early adoption is permitted. The Company has not yet selected a transition date nor have we determined the effect of the standard on our ongoing financial reporting.

Item 8. Financial Statements and Supplementary Data

See the Index to Consolidated Financial Statements included at "Item 15. Exhibits and Financial Statement Schedules"

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

None.

Item 9A. Controls and Procedures

The Company’s disclosure controls and procedures are 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 such evaluation, the Chief Executive Officer and the Principal Accounting Officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report. The filing of this Annual Report on Form 10-K for the year ended January 28, 2013 (“the fiscal 2013”) has been delayed primarily as a result of the voluntary filing for reorganization under Chapter 11 of the United Bankruptcy Code as described below under the heading “Chapter 11 Reorganization” and the Company’s lack of resources to address the regulatory requirements.

Management's Report on Internal Control over Financial Reporting 

Management is responsible for the preparation, integrity and fair presentation of the consolidated financial statements and Notes to the consolidated financial statements. The financial statements were prepared in accordance with the accounting principles generally accepted in the U.S. and include certain amounts based on management’s judgment and best estimates. Other financial information presented is consistent with the financial statements.

Management is also responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed under the supervision of the Company’s principal executive and accounting officers in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our principal executive officer and principal accounting officer assessed the effectiveness of the Company’s internal control over financial reporting as of January 28, 2013. In making this assessment, management used the criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our principal executive officer and principal accounting officer have concluded that the internal control over financial reporting was not effective as of January 28, 2013 and that two material weaknesses and one significant deficiency existed for the periods covered. The material weaknesses and significant deficiency identified included:

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Changes in Internal Control Over Financial Reporting

We have undertaken certain measures to remediate the material weakness involving untimely account reconciliations and inadequate record retention that are discussed above.

We have been working to ensure that account reconciliations are completed earlier in the accounting cycle.  The Company has dedicated staff to prepare account reconciliations prior to each quarter end. This measure is being implemented during fiscal year 2016, and is expected to materially affect, or is reasonably likely to materially affect, our internal control over financial reporting.  

The Company is also going to seek to eliminate its material weakness with regard to record retention by implementing a decentralized document management system to alleviate some of the challenges of retaining and locating paper documents. Given that the Company is decentralized with each of its restaurant locations generating source documents that are core to our accounting function, management believes that having the accounting documents stored at each restaurant location will provide the Company with better ability to properly manage, account, and provide appropriate support for its business activities.

The Company is a small public company. Effective internal control contemplates segregation of duties so that no one individual handles a transaction from inception to completion. Currently, there are not enough accounting personnel to permit an adequate segregation of duties in all respects and thus a significant deficiency in our internal control exists. The Company is developing more controls to mitigate segregation of duties issues. Management continues an evaluation of staffing levels and responsibilities so as to comply with the segregation of duties requirements.

Other than as described above, there have been no changes in our internal control over financial reporting during the fiscal year 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.  Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.  

Item 9B. Other Information

None.

PART III

Item 10. Director, Executive Officers and Corporate Governance

Directors

The board of directors currently consists of five members. Directors are elected at each annual stockholders' meeting to hold office until the next annual meeting or until their successors are elected and have qualified. The names and other information concerning the five directors are set forth in Item 1, Directors and Executive Officers, above.

CORPORATE GOVERNANCE

Board of Directors

Todd S. Brown, Thomas G. Schadt and B. Thomas M. Smith, Jr., a majority of the Board of Directors, have been determined by the board of directors to be independent as that term is defined in Rule 5605(a)(2) of the NASDAQ Listing Standards. Thomas G. Schadt and B. Thomas M. Smith, Jr. serve on the Compensation Committee. Todd S. Brown, Thomas G. Schadt and B. Thomas M. Smith, Jr. serve on the Audit Committee, on which Todd S. Brown serves as the audit committee financial expert. Mr. Brown’s relevant experience is included with his biographical information set forth above. Todd S. Brown, Thomas G. Schadt and B. Thomas M. Smith, Jr. serve on the Nominating Committee. The board of directors held one meeting during the fiscal year ended January 28, 2013.

Risk Oversight

The Board and each of its committees are involved in overseeing risk associated with the Company and its operations. The Board and the Audit Committee monitor the Company's credit risk, liquidity risk, regulatory risk, operational risk and enterprise risk by regular reviews with management and external auditors and other advisors. In its periodic meetings with the management and the Company's independent accountants, the Audit Committee discusses the scope and plan of its review of accounting and financial controls, assessment of business risks and legal and ethical compliance programs. The Board and the Nominating Committee monitor the Company's succession risk by regular review with management. The Board and the Compensation Committee monitor the Company's compensation policies and related risks by regular reviews with management. The Company has adopted the “Star Buffet, Inc. Code of Ethics” (the “Code of Ethics”), which constitutes a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as defined in Item 406 of Regulation S-K under the Exchange Act.  The Code of Ethics has been filed as Exhibit 14.1.

Executive Officers

The Company does not have any executive officers other than Mr. Robert E. Wheaton, Chairman of the Board and our Chief Executive Officer and President.

Committees of the Board of Directors

The board of directors has established an audit committee, a compensation committee and a nominating committee.

Audit Committee

The audit committee is currently comprised of Todd S. Brown, Thomas G. Schadt and B. Thomas M. Smith, Jr., of whom Todd S. Brown is the audit committee financial expert and is established in accordance with Section 3(a)(58)(B) of the Securities Exchange Act of 1934, as amended. All such persons are financially literate and are "independent" as contemplated by Item 401(h)(iii) to Regulation S-K and by applicable listing standards. The audit committee held one meeting during the fiscal year ended January 28, 2013.

The audit committee oversees our financial reporting processes and the audits of our financial statements. The audit committee monitors the independence, performance and qualifications of our independent auditors and also reviews any related party transaction. Our audit committee has a charter which is annually reviewed and reassessed for adequacy by the audit committee. The audit committee charter is available on our website, www.starbuffet.com.

Compensation Committee

The compensation committee (“Compensation Committee”) is comprised of Thomas G. Schadt and B. Thomas M. Smith, Jr., each of whom is “independent” as contemplated by applicable listing standards. The Compensation Committee considers the hiring and retention of corporate officers, salary and incentive compensation policies for officers and directors, and the granting of stock options to employees. The Compensation Committee met one time during the fiscal year ending January 28, 2013. Additional information regarding the functions, procedures and authority of the Compensation Committee is provided in Item 11, Executive Compensation below. The Compensation Committee does not have a charter.

Nominating Committee

The nominating committee is comprised of Todd S. Brown, Thomas G. Schadt and B. Thomas M. Smith, Jr., each of whom is “independent” as contemplated by applicable listing standards. The nominating committee assists our board of directors by identifying individuals qualified to become board members, by recommending director nominees for election at the annual meeting of stockholders or for appointment to fill vacancies on the board of directors, and by developing and recommending corporate governance guidelines. The nominating committee held zero meeting during the fiscal year ended January 28, 2013. Our board of directors has adopted a charter for the nominating committee. The nominating committee charter is available on our website, www.starbuffet.com.

The nominating committee will consider candidates recommended by stockholders. Any such suggestions must be sent in writing and addressed to the Company at its principal executive offices shown on the cover page to this proxy statement, attention: Secretary, and must be accompanied by:

The nominating committee considers the following minimum criteria when reviewing a nominee for director:

The Nominating Committee is responsible for reviewing the requisite skills and characteristics of new Board members as well as the composition of the Board as a whole.  Nominees for director will include individuals who, taking into account their diversity, skills, and experience in the context of the needs of the Board, as well as other relevant factors such as conflicts of interest and other commitments, would enhance the Board’s ability to manage and direct our affairs and business.  Diversity relates to diversity of experience and background in an effort to ensure that the composition of our directors provides a strong and well balanced foundation of skill and experience.

The nominating committee, as necessary, will seek candidates qualified to serve on the board of directors or committees of the board of directors. The nominating committee, as necessary, will also review, investigate and screen candidates recommended by stockholders. The nominating committee and Robert E. Wheaton, our President and Chief Executive Officer, will select nominees that best suit the Company’s requirements and make recommendations to the full board of directors. Each of the nominees proposed for election at the annual meeting are currently directors of the Company.

Director Independence

The board of directors has determined that all of the nominees for director, except for Robert E. Wheaton and Craig B. Wheaton, are “independent” as contemplated by Rule 5605(a)(2) of the NASDAQ Listing Standards.

Item 11. Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

The following discussion and analysis provides information regarding the Company's executive compensation objectives and principles, procedures, practices and decisions, and is provided to help give perspective to the numbers and narratives that follow in the tables in this section. This discussion focuses on the Company's objectives, principles, practices and decisions with regards to the compensation of Robert E. Wheaton, Chief Executive Officer, Chief Financial Officer, President and Chairman of the Company (the “CEO”). The Company has no other executive officers.

Executive Compensation Objectives

The Company’s philosophy is that compensation paid to executive and other officers should be closely aligned with the values, objectives and performance of the Company on both a short- and long-term basis. The Company’s executive compensation program is designed to achieve the following objectives:

Executive Compensation Procedures

In an effort to attain the Company’s executive compensation objectives, the Company has established and implemented the following procedures.

Role of the Compensation Committee.

The Compensation Committee has responsibility for establishing and monitoring the executive compensation programs of the Company and for making decisions regarding the compensation of the CEO and other officers. The agenda for meetings of the Compensation Committee is determined by the Chairman of the Compensation Committee, in consultation with the CEO. Compensation Committee meetings are often attended by the CEO, although he does not attend meetings when his compensation is fixed. The Compensation Committee also meets in executive session. In determining compensation of the CEO, the Compensation Committee reviews data which it believes is representative of the restaurant industry, primarily by reviewing public disclosure of other public companies, as filed with the U.S. Securities and Exchange Commission, and from data published by compensation surveys. The Compensation Committee considers, among other factors, the Company’s performance and relative shareholder return, the value of similar incentive awards to executive officers at comparable companies, the awards given to the CEO in past years, and other factors considered relevant by the Committee.

The Compensation Committee also monitors, administers and approves awards under the Company’s incentive compensation plans for all levels within the Company, including awards under the Company’s 1997 Stock Incentive Plan (the “Stock Plan”).

The Compensation Committee typically meets toward the end or shortly after the end of the Company’s fiscal year to approve base salaries and annual bonus targets of the CEO for the coming year and to consider annual incentive bonus awards for the previous year for the CEO. At that meeting, the Compensation Committee also reviews the status of long-term incentives available to the CEO (historically limited to options to purchase shares of Common Stock) and considers whether any additional long-term incentive awards are appropriate.

The Compensation Committee relies on its experience and judgment in making executive compensation decisions after reviewing the performance of the Company for the applicable fiscal year and evaluating the executive’s performance and responsibilities with the Company, and current compensation arrangements. The compensation program for the CEO and the Compensation Committee assessment process are designed to be flexible so as to better respond to the evolving business environment and individual circumstances.

Role of Consultants.

The Company and the Compensation Committee has not engaged the services of compensation consultants, but either or both may do so upon a case-by-case basis as circumstances warrant. No compensation consultants were involved in settling the compensation of the CEO or other officers of the Company during the fiscal year ending January 28, 2013.

Executive Compensation Program 

The following components of the Company’s executive compensation program and the policies that govern their implementation are outlined briefly below:

• Base Salary

• Annual Bonus

• Long-Term Equity Awards

• Other Personal Benefits

Base Salary. Pursuant to an Employment Agreement dated as of March 1, 1999 between the Company and the CEO (the “Employment Agreement”), the CEO is entitled to a base salary of not less than $250,000 a year, subject to such annual increases as the Company, acting through the Compensation Committee, deems appropriate. The base salary for the CEO is set at a level that the Compensation Committee believes is generally competitive with levels of compensation paid to chief executive officers of other comparably-sized restaurant operating companies. The overall performance of the Company, shareholder return, and the Company’s progress toward achieving specific objectives are also important factors in setting base salary for the CEO. The Compensation Committee also considers, among other factors, the value of similar incentive awards to chief executive officers at comparable restaurant companies, the awards given to the CEO in past years, and other factors considered relevant by the Committee.

Annual Bonus. The annual bonus component of the CEO’s compensation is intended to reward short-term performance and help the Company retain the CEO. The CEO’s annual bonus consists of two parts: (i) a fixed minimum annual bonus payable bi-weekly at the rate of $25,000 a year; plus (ii) a variable performance-based bonus amount payable after the conclusion of each year. The aggregate amount of the variable annual bonus payable to the CEO for each fiscal year is set at levels which the Compensation Committee believes are competitive with the Company’s peers such that the combination of base salary and bonuses results in an aggregate rate of cash salary and bonus compensation within competitive market standards when the Company meets the performance objectives set by the Compensation Committee. The Compensation Committee is authorized to approve a discretionary bonus when it is determined the total compensation of the CEO is not consistent with competitive market standards.

The amount of the performance-based annual bonus payable to the CEO each year is contingent on the degree to which the Company attains certain pre-established performance goals based on Company annual EBITDA established by the Compensation Committee for the year in question, and is offset dollar-for dollar by the $25,000 minimum bonus paid. For each fiscal year, the Compensation Committee establishes in writing shortly after the beginning of the year an annual range of Company EBITDA targets and corresponding performance bonus amounts which the CEO can earn for the year if the Company performs within or above the targeted range of net income. The CEO is eligible for a performance-based bonus ranging from $1 at the minimum established range of annual Company net income performance to 100% of his base salary in effect at the beginning of the year at or above the maximum established range of annual Company EBITDA performance, reduced in all cases by the $25,000 minimum bonus paid. If the Company fails to meet the minimum targeted level of net income performance set by the Compensation Committee, the performance-based bonus component is zero and the CEO only receives the guaranteed minimum $25,000 bonus. The Compensation Committee determines the actual amount of performance-based bonus payable to the CEO shortly after the close of the fiscal year to which the bonus relates, once financial results for the year are known. The performance-based bonus amount, if any, is paid within 60 days after year-end results are audited.   

For the fiscal year ending January 28, 2013, the CEO earned the $25,000 minimum bonus plus an additional $0 in performance-based bonus based on the Company’s decision to temporarily suspend certain components of the executive bonus program for the fiscal year. The decision on the executive bonus was made in order to conserve cash, better ensure compliance with loan covenants, to ensure compliance with the Plan and to align the executive bonus program with modifications made in store level bonus programs. The minimum annual bonus is reported in column (d) and the additional performance-based bonus is reported in column (e) in the Summary Compensation Table below.     

Long-Term Equity Awards. Discretionary long-term equity awards, in the form of stock options are granted at the Compensation Committee’s discretion to the CEO and other officers from time to time in an effort to provide long-term performance-based compensation, to encourage the CEO and other officers to continue their engagement with the Company throughout the applicable option vesting periods and to align management and shareholder interests. In making awards under the Company’s Stock Plan, the Compensation Committee considers grant size and the appropriate combination of equity-based awards. In years in which stock options are granted, such options are granted with an exercise price equal to the closing price per share on the date of grant, (or if the market is closed, with the most immediately available recent closing price). Options vest upon grant or incrementally over time, as determined by the Compensation Committee at the time of grant. The Company does not grant options with an exercise price below 100% of the trading price of the underlying shares of common stock on the date of grant or grant options that are priced on a date other than the grant date (unless granted on a Saturday or day when the market is closed). Stock options only have a value to the extent the value of the underlying shares of common stock on the exercise date exceeds the exercise price. Accordingly, stock options provide compensation only if the underlying share price increases over the option term and the option holder’s employment continues with the Company until the vesting date, if any. In granting stock options to the CEO and other officers, the Company also considers the impact of the grant on the Company’s financial performance, as determined in accordance with the requirements of Accounting Standards Codification (“ASC” or “Codification”) 718. For long-term equity awards, the Company records expense in accordance with ASC 718. The amount of expense the Company records pursuant to ASC 718 may vary from the corresponding compensation value used by the Company in determining the amount of the awards.

In the fiscal year ending January 28, 2013, the Compensation Committee did not grant any stock options or other equity awards to the CEO or other officers or directors of the Company under the Stock Plan.    

Other Personal Benefits. The Company also provides benefits, in the form of medical expense reimbursement, and limited perquisites, in the form of a $1,000 per month automobile allowance, to the CEO in order to achieve a competitive pay package.   The Compensation Committee believes that those benefits are reasonable, competitive and consistent with the Company’s overall executive compensation objectives. The Company does not maintain any pension, retirement, deferred compensation, life insurance or other welfare benefit plans or programs for the CEO.

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), imposes a $1 million annual limit on the amount that a public company may deduct for compensation paid to the company’s chief executive officer during a tax year or to any of the company’s four other most highly compensated executive officers who are still employed at the end of the tax year. The limit does not apply to compensation that meets the requirements of Code Section 162(m) for “qualified performance-based” compensation (i.e., compensation paid only if the executive meets pre-established, objective goals based upon performance criteria approved by the Company’s shareholders). The Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Code. In certain situations, the Compensation Committee may approve compensation that will not meet the requirements of Code Section 162(m) in order to ensure competitive levels of total compensation for its executive officer. The CEO’s compensation in the fiscal year ending January 28, 2013 did not exceed the $1 million deduction limit.

EXECUTIVE COMPENSATION TABLES AND DISCUSSION

Summary Compensation Table

The following Summary Compensation Table summarizes the total compensation paid or earned by the CEO of the Company for the three fiscal years ended January 28, 2013.

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Grants of Plan-Based Awards

The following table sets forth information concerning plan-based compensation awards granted to the CEO during the fiscal year ended January 28, 2013.

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Outstanding Equity Awards at Year-End 

The following table sets forth information concerning plan-based compensation awards granted to the CEO during the fiscal year ended January 28, 2013.

The CEO did not exercise any Company stock options in the fiscal year ending January 28, 2013. As of January 28, 2013, the CEO held no compensatory stock or equity awards in the Company.

Potential Payments Upon Termination or Change Of Control

Subject to earlier termination as described below, the CEO Employment Agreement continues for a rolling term of 80 months from November 1, 2006, with an automatic addition each November 1 of a further 12 months unless notice of non-extension is given by either party prior to the November 1 annual extension date. Notwithstanding the otherwise applicable term of the Employment Agreement, the Company may terminate the CEO for “cause” (as defined below) at any time or without “cause” upon 30 days advance written notice to the CEO. “Cause” is generally defined as (i) a material breach of the Employment Agreement by the CEO, (ii) habitual and material neglect of duties, (iii) fraud that substantially harms the Company, and (iv) commission of a felony that results in material harm to the Company.

Additionally, the Employment Agreement permits the CEO to voluntarily resign his employment at any time for “good reason” (as defined below) or without “good reason” at any time upon 60 days advance written notice. “Good reason” includes (i) a “change of control” (as defined below) of the Company, (ii) material breach of the Employment Agreement by the Company, (iii) non-consensual relocation by the Company of the CEO’s office, (iii) reduction in the CEO’s base salary or bonus, (iv) removal of the CEO from office or assignment of the CEO to duties inconsistent with his office, and (v) failure of any successor to the Company to assume the Employment Agreement. The Employment Agreement generally defines a “change of control” as: (i) certain changes in a majority of the board of directors of the Company; (ii) consummation of a merger or reorganization of the Company in which neither the Company nor another entity controlled by the Company’s shareholders is the surviving entity; or (iii) a sale or other disposition of all or substantially all of the Company’s assets to another entity that is not controlled by the Company’s shareholders.

If during the unexpired, remaining term of the Employment Agreement, the Company terminates the CEO’s employment without “cause” or the CEO terminates his employment for “good reason,” the CEO is entitled to receive within 30 days after termination a lump sum cash payment equal the sum of: (i) his base salary and unused vacation accrued through the date of termination, (ii) any accrued automobile allowance and medical expense reimbursement owed for period through the date of termination, (iii) three times his rate of annual base salary in effect immediately prior to termination, and (iv) the maximum annual bonus that the CEO would have earned for the year of his termination had all performance goals for that year been met. The CEO would also be entitled to three years of continued coverage under the Company’s retirement, health, disability and life insurance benefit plans, programs, practices or policies, if any. If the CEO’s employment terminates for any other reason (i.e., upon death, disability, resignation without “good reason” or involuntary termination for “cause,” he is entitled to receive the sum of the amounts described in clauses (i) and (ii) above only.

If the aggregate compensatory payments to the CEO that are contingent on a change of control (including the salary and bonus continuation payments described above) exceed 2.99 times the CEO‘s average W-2 compensation with the Company for the five taxable years preceding the year of the Change of Control (the “Base Period Amount”), the acceleration would result in an “excess parachute payment” under Code Section 280G. The CEO would be subject to a 20% excise tax, and the Company would be unable to deduct the amount by which such parachute payments to the CEO exceed one times the CEO’s Base Period Amount. The Company has not agreed to provide to the CEO any gross-up or reimbursement for excise taxes imposed on excess parachute payments.

Amounts Payable upon Termination of Employment Without Cause or Resignation For Good Reason

If the Company had terminated the CEO’s employment without “cause” on January 28, 2013 or the CEO had resigned his employment for “good reason” (including a change of control) on January 28, 2013, the CEO would have been entitled to the a lump sum cash payment from the Company in the amount of $1,000,000 plus three years of continued medical expense reimbursement coverage with an estimated value of $70,485.    

Termination on Account of Death, Disability, Involuntary Termination For Cause or Voluntary Resignation Without Good Reason.

If the Company had terminated the CEO’s employment for “cause” on January 28, 2013 or the CEO had resigned his employment withhout “good reason,” or died on January 28, 2013, the CEO would have been entitled to a lump sum cash payment from the Company in the amount of $0. If CEO had become disabled on January 28, 2013, the CEO would have been entitled to a lump sum cash payment from the Company in the amount of $500,000 plus three years of continued medical expense reimbursement coverage with an estimated value of $70,485.

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

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information regarding beneficial ownership of our common stock as of August 8, 2016 by (1) each person who is known by us to beneficially own more than five percent of the outstanding shares of our common stock, (2) each of our directors, (3) each of the executive officers identified in the summary compensation table set forth elsewhere in this proxy statement and (4) all directors and executive officers of the Company as a group. To our knowledge and except as otherwise indicated, the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to community property laws where applicable. Unless we indicate otherwise, each holder’s address is c/o Star Buffet, Inc., 2501 North Hayden Road, Suite 103, Scottsdale, AZ 85257.

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Item 13. Certain Relationships and Related Transactions, and Director Independence

DIRECTOR COMPENSATION

The Company uses cash compensation and equity-based incentive compensation to attract and retain qualified candidates to serve as directors. In setting director compensation, the Company considers the significant amount of time that directors expend in fulfilling their duties to the Company as well as the skill level required by the Company of directors.

Compensation Paid to Directors in 2013

For the year ended January 28, 2013, all directors, excluding employee directors, received $2,000 for each regularly scheduled board meeting attended, $1,500 for each regularly scheduled committee meeting attended and $500 for each specially-called telephonic board or committee meeting. Directors who are also full-time employees of the Company did not receive any director fees. All directors are also reimbursed by the Company for their out-of-pocket travel and related expenses incurred in attending all Board of Directors and committee meetings. For the fiscal year ending January 28, 2013, the Company did not grant any stock options or other equity-based compensation to non-employee directors. Nor did it recognize or incur any financial accounting expense under ASC 718 related to equity compensation awards granted to non-employee directors in the 2013 fiscal year or prior years.

Director Summary Compensation Table

The following table summarizes the compensation earned by or paid to the Company’s non-employee directors from the Company for the year ended January 28, 2013. 

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Compensation Committee Interlocks and Insider Participation

During the fiscal year ended January 28, 2013, none of the persons who served on our compensation committee had any interlocking relationship as defined by the Securities and Exchange Commission.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Item 14. Principal Accountant Fees and Services

Fees Billed by Independent Auditors

The audit committee has appointed Larson and Company as our independent auditors for the fiscal year ending January 27, 2014.

Audit Fees

Audit fees consist of fees billed for professional services rendered for the audit of our annual financial statements and review of the interim financial statements included in our quarterly reports. Audit fees billed by Moss Adams were $0 for the fiscal year ended January 28, 2013, and were $27,000 for the fiscal year ended January 30, 2012. Audit fees billed by Larson and Company were $0 for the both fiscal years ended January 28, 2013 and January 30, 2012.

Audit-Related Fees

Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements that are not reported under “Audit Fees” and other services that are normally provided by our independent auditors in connection with statutory and regulatory filings or engagements. These services include accounting consultations in connection with acquisitions and consultations concerning financial accounting and reporting standards. The Company had no audit-related fees for the fiscal years ended January 28, 2013 and January 30, 2012.

Tax Fees

Tax fees consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include tax planning, assistance with the preparation of various tax returns, services rendered in connection with acquisitions and advice on other tax-related matters. Tax fees billed by CBIZ MHM, LLC were $53,000 in the fiscal year ended January 28, 2013, and were $60,000 in the fiscal year ended January 30, 2012.

All Other Fees

All other fees consist of fees billed for products and services not included above. The Company did not have any other fees for the fiscal years ended January 28, 2013 and January 30, 2012.

Audit Committee Pre-Approval

The audit committee’s policy is to pre-approve the fees and other compensation to be paid to our independent auditors, and to determine the scope of permitted non-audit services and pre-approve the provision of those services by our independent auditors. All non-audit services were pre-approved by the audit committee during fiscal 2013.

The Company expects its current auditors to have one or more representatives at annual meetings who will be able to make a statement, if they desire to do so, and are expected to be available to respond to appropriate questions.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(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.

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.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

STAR BUFFET, INC. AND SUBSIDIARIES

Scottsdale, Arizona

We have audited the accompanying consolidated balance sheets of Star Buffet, Inc. and Subsidiaries the (“Company”) as of January 28, 2013 and January 30, 2012, and the related consolidated statements of operations, stockholders' equity and cash flows for the fiscal years then ended. The Company's management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to present fairly, in all material respects, the financial position of Star Buffet, Inc. and Subsidiaries as of January 28, 2013 and January 30, 2012, and the results of their operations and their cash flows for the fiscal years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ LARSON & COMPANY PC

Larson & Company PC

Sandy, Utah

August 17, 2016 

STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

STAR BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

STAR BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — CHAPTER 11 REORGANIZATION AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Chapter 11 Reorganization

On September 28, 2011, Star Buffet, Inc. (the “Company” or “Star”) filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code”) in the United States Bankruptcy Court for the District of Arizona (the “Bankruptcy Court”), in the proceeding titled In re: Star Buffet, Inc., Case No.2:11-bk-27518-GBN (the “Chapter 11 Case”). Star’s wholly owned subsidiary, Summit Family Restaurants Inc. (“Summit”), also filed a voluntary petition for reorganization under Chapter 11 on September 29, 2011 in the Bankruptcy Court, in the proceeding titled In re: Summit Family Restaurants Inc., Case No. 2:11-bk-27713-GBN. The cases for Star Buffet, Inc. and Summit Family Restaurants Inc. (collectively the “Debtors”) were consolidated and jointly administered. None of the Company’s other subsidiaries were included in the bankruptcy filings. The Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.  Under the Bankruptcy Code, certain claims against the Debtors that were in existence prior to the filing of the bankruptcy petition were stayed during the pendency of the Chapter 11 Reorganization.  The balance of the unresolved claims are reflected in the January 28, 2013 balance sheet as “Liabilities subject to compromise.”

On December 17, 2012, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Company’s plan of reorganization (the “Plan”), which provided for the payment in full of all approved claims. A copy of the Confirmation Order and the Plan as confirmed are attached as Exhibits 2.1 and 2.2, to the Company’s Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2012. The Plan became effective on January 17, 2013 and the Company emerged from bankruptcy. The payment obligations under the Plan were estimated to be in excess of $10 million.  The Plan provided for these obligations to be discharged from operating income derived from the restaurants operated by its affiliates, an exit loan of $300,000 from Suzanne H. Wheaton, the wife of CEO Robert E. Wheaton, and proceeds from sale of certain restaurant properties.

Since filing for reorganization, the Debtors have sold fifteen properties, $5.8 million of the proceeds were used to pay off the obligation to Wells Fargo, the Company’s primary secured creditor in full, $1.9 million was used to pay the other secured creditors and $801,000 was used to pay unsecured creditors, pursuant to the Plan. As of January 26, 2015, the Company has reduced its liabilities subject to compromise to $800,000 and has made all payments required under the Plan. Resolution and payment of the remaining liabilities subject to compromise will result of payment in full of all of the Company’s creditors at the time of the bankruptcy filing and a complete discharge of the Company.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation

Star Buffet, Inc., a Delaware corporation (“Star” and collectively with its subsidiaries, the “Company”), is a multi-concept restaurant holding company. As of January 28, 2013, the Company, through eight independently capitalized subsidiaries operated seven 4B’s restaurants, five JB’s restaurants, three Barnhill’s Buffet restaurants, three K-BOB’S Steakhouses, two JJ North’s Country Buffets, two Pecos Diamond Steakhouses, two Western Sizzlin restaurants, one BuddyFreddys restaurant, one Casa Bonita Mexican theme restaurant and one Bar-H Steakhouse. The Company also had eight restaurants closed for remodeling and repositioning of which two were used as warehouses and five restaurants were leased to third-party operators. The Company's restaurants are located in Arkansas, Arizona, Colorado, Florida, Idaho, Mississippi, Montana, New Mexico, Tennessee, Texas and Utah. The Company has an executive and an accounting office in Scottsdale, Arizona and an accounting office in Salt Lake City, Utah.

As of January 30, 2012, the Company, through 10 independently capitalized subsidiaries operated nine Buffet restaurants and 22 Non-Buffet restaurants. The Company also had seven restaurants closed for remodeling and repositioning of which two were used as warehouses. In addition, three restaurants were leased to third-party operators. The Company's restaurants are located in Alabama, Arkansas, Arizona, Colorado, Florida, Idaho, Mississippi, Montana, New Mexico, Oregon, Tennessee, Texas and Utah.

The accompanying consolidated financial statements include the results of operations and assets and liabilities of the Company’s operations. Significant intercompany transactions and balances have been eliminated in consolidation.

Fiscal Year

The Company utilizes a 52/53 week fiscal year which ends on the last Monday in January. The first quarter of each year contains 16 weeks while the other three quarters each contain 12 weeks except in the 53 week fiscal year, when the fourth quarter has 13 weeks. 

Cash Equivalents

Highly liquid investments with original maturities of three months or less when purchased are considered cash equivalents. Amounts receivable from credit card companies are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction. The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value. Checks written in excess of bank balances are recorded as a current liability on the accompanying consolidated balance sheets. The Company maintains cash in bank accounts which at times may exceed their federally insured limits of $250,000 set by the Federal Deposit Insurance Corporation. The accounts are held by banks that are well established and highly regarded. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant risk on these balances.

Revenue Recognition 

The Company’s principal source of revenue is from customer dining transactions. Revenue is recognized at the time the meal is purchased, primarily by cash or credit card. Sales taxes are excluded from revenue and revenue is recorded on a net basis. All of our revenue meets the four central criteria for revenue recognition per SAB 104.Those criteria are:

Receivables

Receivables are stated at an amount management expects to collect and provides for an adequate reserve for probable uncollectible amounts.  Amounts deemed to be uncollectible are written off through a charge to earnings and a credit to a valuation allowance based on management’s assessment of the current status of individual balances.  A receivable is written off when it is determined that all collection efforts have been exhausted.  The Company did not have a valuation allowance as of January 28, 2013 and January 30, 2012. The accounts receivable balances as of January 28, 2013 and January 30, 2012 were comprised of the following: 

Notes Receivable

Notes receivable are stated at an amount management expects to collect and includes a provision for an adequate reserve for probable uncollectible amounts.  Amounts deemed to be uncollectible are written off through a charge to earnings and a credit to a valuation allowance based on management’s assessment of the current status of individual balances.  A note receivable is written off when it is determined that all collection efforts have been exhausted.  Currently, the Company has two loans receivable outstanding and both are in default. The Company has provided a full reserve of $489,000 for the North’s Restaurant, Inc. note receivable based on a decline in value of the note’s collateral. The Company has provided a full reserve of $215,000 as part of the April 4, 2013 settlement with the Tinsley group.

Consideration Received from Vendors

The Company records vendor rebates on products purchased as a reduction of food costs. The vendor rebates are recognized as earned in accordance with written agreements with vendors.

Inventories

Inventories consist of food, beverage, gift shop items and restaurant supplies and are valued at the lower of cost or market, determined by the first-in, first-out method.

Property, Buildings and Equipment

Property, buildings and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the following useful lives:

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 held for remodeling or repositioning is depreciated and is recorded 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 recorded on the balance sheet as property held for sale and recorded at the lower of cost or market.

Repairs and maintenance are charged to operations as incurred. Major equipment refurbishments and remodeling costs are generally capitalized.

Goodwill

Goodwill primarily 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 the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350.  ASC 350 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 aggregates stores by concept or by geographic region when determining reporting units.

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, and 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 performs its annual impairment analysis in February.   There were no triggering events during the year ending January 30, 2012 that would have had an impact on goodwill. There were no goodwill impairment charges recorded for the fiscal year ended January 30, 2012. On August 31, 2012, the Company recorded $551,000 of impairments relating to the expiration of our JB’s license agreement. The triggering event required the write-off of goodwill on three JB’s restaurants.

Other Intangible Assets

Other intangible assets consist of franchise fees, trademarks, and the JB's license agreement. Franchise fees are amortized using the straight-line method over the terms of the franchise agreements, which typically range from 10 to 20 years. The JB's license agreement is being amortized using the straight-line method over 11 years. The Company has recorded $25,000 value for the 4B’s trademark. The Company impaired Whistle Junction trademark of $230,000 when the last Whistle Junction closed as a triggering event in fiscal 2013. These assets have an indefinite asset life and are subject to possible impairment on an annual basis or when triggering events occur in accordance with ASC 350. 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. Management has conducted it annual impairment analysis and has concluded that the assets are not impaired as of January 28, 2013. 

Amortization of franchise and license fees amounted to $48,000 and $81,000 for the fiscal years ending January 28, 2013 and January 30, 2012, respectively.

Impairment of Long-Lived Assets

The Company evaluates impairment of long-lived assets in accordance with ASC 360, “Property, Plant and Equipment”.  The Company assesses whether an impairment write-down is necessary 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. Any impairment is recognized as a charge to earnings, 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 net 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 net cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge and could adversely affect operating results in any period.  The Company recorded impairment losses associated with certain restaurant facilities of $1,431,000 and $368,000 for the years ended January 28, 2013 and January 30, 2012, respectively.

Fair Value of Financial Instruments

The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

The carrying amounts of the Company’s cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value because of the short maturity of these instruments. The carrying amounts of the Company’s notes receivable and long-term debt approximate fair value and are based on discounted cash flows using market rates at the balance sheet dates. The Company does not estimate the fair value of the note payable to officer because of the related party nature of the transaction.

Pre-Opening Costs

Pre-opening costs are expensed when incurred. The Company incurred and charged to operations approximately $251,000 and $122,000 of pre-opening costs during fiscal 2013 and 2012.

Income Taxes

Our current provision for income taxes is based on our estimated taxable income in each of the jurisdictions in which we operate, after considering the impact on our taxable income of temporary differences resulting from disparate treatment of items, such as depreciation, estimated liability for closed restaurants, estimated liabilities for self-insurance, tax credits and net operating losses (“NOL”) for tax and financial reporting purposes. Deferred income taxes are provided for the estimated future income tax effect of temporary differences between the financial and tax bases of assets and liabilities using the asset and liability method. Deferred tax assets are also provided for NOL and income tax credit carryforwards. A valuation allowance to reduce the carrying amount of deferred income tax assets is established when it is more likely than not that we will not realize some portion or all of the tax benefit of our deferred income tax assets. We evaluate, on a quarterly basis, whether it is more likely than not that our deferred income tax assets are realizable based upon recent past financial performance, tax reporting positions, and expectations of future taxable income. The determination of deferred tax assets is subject to estimates and assumptions. We periodically evaluate our deferred tax assets to determine if our assumptions and estimates should change. Currently, because there can be no assurance that the Company will generate any specific level of earnings in the future years to realize the benefit of the deferred tax assets existing as of January 28, 2013 and January 30, 2012 the Company has a full valuation allowance against its deferred tax assets, net of expected reversals of existing deferred tax liabilities, as it believes it is more likely than not that these benefits will not be realized. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 requires recognition in the consolidated financial statements of the impact of an uncertain tax position, if it is more likely than not the tax position will be sustained upon examination based on the technical merits of the position. The Company does not have any uncertain tax positions that require recognition under ASC 740 as of January 28, 2013 and January 30, 2012. The continuing practice of the Company is to recognize interest and penalties related to income tax matters in the provision for income taxes.

Advertising Expenses

Advertising costs are charged to general and administrative expenses as incurred. Amounts charged to operations totaled $138,000 and $322,000, for the years ended January 28, 2013 and January 30, 2012, respectively.

Deferred Financing Fees

Deferred financing fees are amortized over of the life of the loan not exceed five years. Amounts charged to interest expense totaled $1,000 and $251,000, for the years ended January 28, 2013 and January 30, 2012, respectively.

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. 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. Valuation reserves for the years ended January 28, 2013 and January 30, 2012, consisted of the following: