Star Buffet (STRZ)

Note (O) Subsequent Events

On November 8, 2008, the Company opened one of its non-operating units, a K-BOB’S Steakhouse located in Tucumcari, New Mexico.

On November 9, 2008, the Barnhill’s Buffet restaurant located in Tallahassee, Florida was closed when the lease expired and could not be renewed. 

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Note (O) Subsequent Events

On August 15, 2008, the Company purchased the land and building in our previously leased 4B’s restaurant in Great Falls, Montana for $475,000.  The Company entered into a $354,000 15 year fixed rate real estate mortgage with Stockton Bank.  The mortgage has monthly payments including interest of $3,134.  The interest rate is 6.75%.  In addition, the Company refinanced the JB’s restaurant in Great Falls, Montana.  The Company entered into a $655,000 15 year fixed rate real estate mortgage with Stockton Bank.  The mortgage has monthly payments including interest of $5,805.  The interest rate is 6.75%.  The Company paid its real estate mortgage with US Bank formerly Heritage Bank in full.

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Note (O) Subsequent Events

On June 2, 2008, the Company opened a new 4B’s restaurant in Deer Lodge, Montana.

On June 4, 2008, the Company paid to shareholders of record on May 6, 2008 a dividend of $0.60 per common share. The Board of Directors had approved the dividend on March 12, 2008.

In June 2008, the Company borrowed approximately $600,000 from Mr. Wheaton, see Note (C) Related Party Transactions. This resulted in an increase in the subordinated note balance from $1,400,000 to $2,000,000.

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NOTE 14 — SUBSEQUENT EVENTS

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

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

On February 29, 2008 the Company amended its Senior Secured Credit Facility (“Credit Facility”) with Wells Fargo Bank N.A., increasing the term loan principal from $7,000,000 to $8,000,000. The Credit Facility was issued on January 31, 2008.The increase in the Credit Facility was used to fund the acquisition of the four Barnhill’s Buffet restaurants as described above.  The Credit Facility is guaranteed by Star Buffet’s subsidiaries and bears interest, at the Company’s option, at Wells Fargo’s base rate plus 0.25% or at LIBOR plus 2.00%.  The Credit Facility is secured by a first priority perfected lien on all of the Company’s assets, except for those assets that are currently pledged as security for existing obligations, in which case Wells Fargo will have a second lien.  The term loan matures on January 31, 2012 and provides for principal to be amortized at $175,000 per quarter for the initial six quarters; $225,000 for the next nine quarters; with any remaining balance due at maturity.  Interest is payable monthly.  A $2,000,000 revolving line of credit matures on January 31, 2012.  Interest on the revolver is payable monthly.  As of April 11, 2008, no balance was outstanding on the revolving line of credit.  There is a 0.50% fee for the unused portion of the revolving line of credit.   In connection with the Credit Facility, Wells Fargo was granted 42,440 shares of the Company’s restricted common stock.  The shares were valued at $252,094 and will be amortized over the life of the loan.  The Credit Facility can be prepaid in whole or part without penalty.

The Credit Facility contains a number of covenants and restrictions, including requirements to meet certain financial ratios and limitations with respect to the Company’s use of cash.  The Company’s quarterly financial covenants associated with this debt start May 19, 2008, the end our first quarter in fiscal 2009. The Company is required to obtain interest rate protection through an interest rate swap or cap arrangement with respect to not less than 50% of the term loan amount.  The Company has elected to not perform the necessary procedures in order to apply hedge accounting. Therefore, changes in the fair market value of the interest rate swap will be reflected as an adjustment to interest expense within the consolidated statement of operations. Furthermore, certain provisions of the Credit Facility require the Company to remit proceeds from asset dispositions, issuance of debt or equity, insurance proceeds, tax refunds and fifty percent (50%) of excess cash  flow (as defined) to reduce the principal amount of the term loan and, thereafter, the revolving line of credit.  Under terms of the Credit Facility, the Company is permitted to pay an annual dividend.  However, restrictions imposed under terms of the Credit Facility may adversely impact the Company’s ability to pay an annual dividend as the Company has historically relied on multiple sources of cash to fund the dividend.  As of the date of this report, the Company was in compliance with all of such requirements.

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

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NOTE 14 — SUBSEQUENT EVENTS

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

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

On February 29,
2008 the Company amended its Senior Secured Credit Facility (“Credit Facility”)
with Wells Fargo Bank N.A., increasing the term loan principal from $7,000,000
to $8,000,000. The Credit Facility was issued on January 31, 2008.The increase in the Credit Facility
was used to fund the acquisition of the four Barnhill’s Buffet restaurants as
described above.  The Credit Facility is guaranteed by Star Buffet’s
subsidiaries and bears interest, at the Company’s option, at Wells Fargo’s base
rate plus 0.25% or at LIBOR plus 2.00%.  The Credit Facility is secured by
a first priority perfected lien on all of the Company’s assets, except for
those assets that are currently pledged as security for existing obligations,
in which case Wells Fargo will have a second lien.  The term loan matures on January 31,
2012 and provides for principal to be amortized at $175,000 per quarter for the
initial six quarters; $225,000 for the next nine quarters; with any remaining
balance due at maturity.  Interest is payable monthly.  A $2,000,000
revolving line of credit matures on January 31, 2012.  Interest on
the revolver is payable monthly.  As of April 11, 2008, no balance
was outstanding on the revolving line of credit.  There is a 0.50% fee for the unused portion
of the revolving line of credit.   In
connection with the Credit Facility, Wells Fargo was granted 42,440 shares of
the Company’s restricted common stock. 
The shares were valued at $252,094 and will be amortized over the life
of the loan.  The Credit Facility can be
prepaid in whole or part without penalty.

The Credit
Facility contains a number of covenants and restrictions, including
requirements to meet certain financial ratios and limitations with respect to
the Company’s use of cash.  The Company’s
quarterly financial covenants associated with this debt start May 19,
2008, the end our first quarter in fiscal 2009. The Company is required to
obtain interest rate protection through an interest rate swap or cap
arrangement with respect to not less than 50% of the term loan amount.  The Company has elected to not perform the
necessary procedures in order to apply hedge accounting. Therefore, changes in
the fair market value of the interest rate swap will be reflected as an
adjustment to interest expense within the consolidated statement of operations.
Furthermore, certain provisions of the Credit Facility require the Company to
remit proceeds from asset dispositions, issuance of debt or equity, insurance proceeds,
tax refunds and fifty percent (50%) of excess cash  flow (as defined) to reduce the principal
amount of the term loan and, thereafter, the revolving line of credit. 
Under terms of the Credit Facility, the Company is permitted to pay an annual
dividend.  However, restrictions imposed under terms of the Credit
Facility may adversely impact the Company’s ability to pay an annual dividend
as the Company has historically relied on multiple sources of cash to fund the
dividend.  As of the date of this report,
the Company was in compliance with all of such requirements.

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

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Note (M) Subsequent Events

On May 24, 2007 the US Congress’ minimum wage bill was signed into law by President Bush. The bill increases the minimum wage by $0.70 per hour on July 24, 2007, July 24, 2008 and July 24, 2009. In addition, the bill includes tax breaks for employers.

On May 29, 2007, the Company acquired the Bar H Steakhouse in Dalhart, Texas and entered into a $500,000 five year real estate mortgage with Dalhart Federal Savings and Loan Association.  The mortgage has monthly payments beginning July 1, 2007 of $5,903 per month with a balloon payment of $301,345 due on June 1, 2012.  The mortgage is secured by the acquired Bar H Steakhouse restaurant.

On June 1, 2007, the Company opened a new JB’s Family Restaurant in Rexburg, Idaho. The Company had purchased the building and land in 2005.

On June 4, 2007, the Company opened a new internally developed Oklahoma Steakhouse in Weatherford, Oklahoma.  The Company leases the facility. The facility lease is for two years with one five year option.

On June 6, 2007, the Company paid to shareholders of record on May 8, 2007 a dividend of $0.60 per common share. The Board of Directors had approved the dividend on February 23, 2007.

On June 19, 2007, the Company acquired the Western Sizzlin in Magnolia, Arkansas and entered into a $520,000 five year real estate mortgage with Farmers Bank and Trust.  The mortgage has monthly payments of $4,676

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beginning July 19, 2007 with a balloon payment of $407,313 due on June 19, 2012.  The mortgage is secured by the acquired Western Sizzlin restaurant.

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NOTE 15 — SUBSEQUENT EVENTS

On April 22, 2007 the principal of HHC notified the Company that he planned to turn control of the business and associated assets over to the Company.  On April 23, 2007 the Company began operating the business.  The Company hired HHC’s employees, notified HHC’s creditors of its intent to operate the business and commenced negotiations with HHC’s landlord to craft an acceptable facility lease.  Management believes that the total amount of the note receivable from HHC will be recovered.

On February 23, 2007, the Board of Directors approved the Company’s fourth annual dividend. The dividend was $0.60 per common share. The dividend is payable on June 6, 2007 to shareholders of record on May 8, 2007.

On January 30, 2007, the Company announced in a press release that it has completed the acquisition of a Western Sizzlin restaurant in Magee, Mississippi.  The purchase price was $1,400,000 which included the land, building and restaurant equipment.  The transaction included seller financing of $900,000.

F-30

Note (L) Subsequent Events

On June 1, 2006, the Company entered into a $564,000 five year real estate mortgage with Dalhart Federal Savings and Loan Association. The mortgage has monthly payments beginning July 1, 2006 with a balloon payment on June 1, 2011. The mortgage is secured by the Company’s K-BOB’S Restaurant in Dumas, Texas.

On February 24, 2006, the Board of Directors approved the Company’s third annual dividend of $0.60 per common share, a $0.10 increase from the prior year, and a special dividend of $0.25 per common share. Both were paid on June 7, 2006 to shareholders of record on May 11, 2006.

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NOTE 15—SUBSEQUENT EVENTS

On April 21, 2006, the Company announced in a press release that it has entered into a Strategic Alliance with Western Sizzlin Corporation. In accordance with the terms of this agreement, Star Buffet, Inc. plans to convert certain of its existing restaurants to the Western Sizzlin brand; test a newly developed Western Sizzlin buffet prototype; and seek to acquire selected Western Sizzlin franchised restaurants. Additionally, as an important element of the Strategic Alliance, Star Buffet, Inc. and Western Sizzlin will explore a number of identified opportunities to reduce operating and administrative expenses

On March 16, 2006, the Company sold it’s JB’S restaurant property in Laramie, Wyoming For $780,000 and paid off the real estate mortgage of approximately $622,000.

On February 28, 2006, the Company announced in a press release that it has completed the acquisition of K-BOB’S Steakhouse in Dumas, Texas. The Company purchased the equipment, the building and the land for approximately $700,000.

On February 24, 2006, the Board of Directors approved the Company’s third annual dividend of $0.60 per common share, an increase of $0.10 per share from the prior year, and a special dividend of $0.25 per common share. Both are payable on June 7, 2006 to shareholders of record on May 11, 2006.

On February 1, 2006, the Company announced in a press release that it has completed the acquisition of three restaurants from K-BOB’S USA, Inc. The restaurants, located in Tucumcari, New Mexico and Beeville and Lamesa, Texas, were acquired in accordance with certain provisions of a strategic alliance entered into between the Company and K-BOB’S on February 1, 2005. The Company purchased the equipment and leasehold improvements for approximately $1,285,500. The purchase reduced the Company’s K-BOB’S USA, Inc. note receivable to $214,500.

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NOTE 15—SUBSEQUENT EVENTS

        On February 1, 2005, the Company announced in a press release that it had entered into a strategic alliance with K-BOB'S USA Inc. and related affiliates. In accordance with the terms of the strategic alliance, Star Buffet will lend K-BOB'S $1.5 million on a long-term basis. In exchange, K-BOB'S granted Star Buffet an option to purchase as many as five corporate owned and operated K-BOB'S restaurants located in New Mexico and Texas, as well as rights to develop K-BOB'S in other areas in the United States.

        On February 1, 2005, the Company increased its Revolving Line of Credit with M&I Marshall & Ilsley Bank from $1.0 million to $2.0 million and modified the covenants to permit annual dividends of $2.5 million with no other changes in terms or covenants.

        On February 11, 2005, the Company granted 49,000 stock options exercisable at $6.70.

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        On February 25, 2005, the Board of Directors approved the Company's second annual dividend of $0.50 per common share, an increase of $0.25 per share from the prior year, and a special dividend of $0.25 per common share. Both are payable on June 8, 2005 to shareholders of record on May 12, 2005.

        On April 12, 2005, the Company closed its JB's Restaurant in Santa Fe, New Mexico. The Company had impaired the leasehold improvements in the fourth quarter of fiscal 2005.

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EXHIBIT INDEX

E-1

*

Previously filed as an exhibit to the Registration Statement on Form S-1, Amendment No. 1 (Registration No. 333-32249).

**

Previously filed as an exhibit to the Registration Statement on Form S-1, Amendment No. 2 (Registration No. 333-32249).

E-2