<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A
CURRENT REPORT
----------
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 30, 1997
--------------------------------
STAR BUFFET, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 000-23099 84-14307896
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
440 Lawndale Drive, Salt Lake City, Utah 84115-2917
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (801) 463-5500
-----------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Business Acquired. The following financial
statements of the JJ North's Grand Buffet Restaurants (the "North Restaurants")
operated by Star Buffet, Inc. (the "Company") are incorporated by reference
herein from pages F-21 through F-30 of the Company's Prospectus, dated September
24, 1997 (the "Prospectus"), a copy of which was filed with the Commission
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on
September 25, 1997.
<TABLE>
<S> <C>
Independent Auditors' Report.........................................................
Balance Sheets as of June 30, 1996 and 1997..........................................
Statements of Operations and Division's Deficit for Each of the Years in the
Three-year Period Ended June 30, 1997..............................................
Statements of Cash Flows for Each of the Years in the Three-year Period Ended
June 30, 1997......................................................................
Notes to Financial Statements .......................................................
</TABLE>
(b) Pro Forma Financial Information. The pro forma financial information
relative to the North Restaurants is incorporated by reference herein from pages
19 through 23 of the Prospectus, a copy of which was filed with the Commission
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on
September 25, 1997.
<PAGE> 3
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<C> <S>
99.2 Financial Statements of North's Restaurants listed in Item 7(a) above.
99.3 Selected Pro Forma Financial Data described in Item 7(b) above.
</TABLE>
<PAGE> 4
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 hereunto duly authorized.
STAR BUFFET, INC.
Date: December 12, 1997 By: /s/ THEODORE ABAJIAN
------------------------------
Theodore Abajian
Chief Financial Officer
<PAGE> 5
EXHIBIT INDEX
The following exhibits are attached hereto and incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<C> <S> <C>
99.2 Financial Statements of North's Restaurants listed in Item 7(a) above.
99.3 Selected Pro Forma Financial Data described in Item 7(b) above.
</TABLE>
<PAGE> 1
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Summit Family Restaurants Inc.:
We have audited the accompanying balance sheets of North's Restaurants (a
Division of North's Restaurants, Inc.) as of June 30, 1996 and 1997, and the
related statements of operations and division's deficit and cash flows for each
of the years in the three-year period ended June 30, 1997. These financial
statements are the responsibility of North's Restaurants, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North's Restaurants (a
Division of North's Restaurants, Inc.) as of June 30, 1996 and 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended June 30, 1997 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
September 9, 1997
<PAGE> 2
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
----------- ------------
<S> <C> <C>
Cash and cash equivalents........................................ $ 40,910 $ 17,683
Trade accounts receivable........................................ 3,414 18,108
Inventories...................................................... 73,111 68,707
Preopening costs, net............................................ 33,761 --
------------ ------------
Total current assets................................... 151,196 104,498
Property and equipment, net (note 2)............................. 4,727,210 4,365,870
Other assets..................................................... 16,106 16,939
------------ ------------
$ 4,894,512 $ 4,487,307
============ ============
LIABILITIES AND DIVISION'S DEFICIT
Current portion of North's Restaurants, Inc. company debt for
which Division is jointly and severally liable (note 3)........ $ 3,892,082 $ 12,416,558
Accounts payable................................................. 354,557 389,673
Other accrued expenses........................................... 293,205 318,345
------------ ------------
Total current liabilities.............................. 4,539,844 13,124,576
North's Restaurants, Inc. company debt for which Division is
jointly and severally liable, net of debt issuance costs, less
current portion (note 3)....................................... 8,553,302 1,300,000
------------ ------------
Total liabilities...................................... 13,093,146 14,424,576
------------ ------------
Division's deficit:
Division's equity.............................................. 4,246,750 3,779,289
North's Restaurants, Inc. company debt for which Division is
jointly and severally liable, net of debt issuance costs
(note 3).................................................... (12,445,384) (13,716,558)
------------ ------------
Net Division's deficit................................. (8,198,634) (9,937,269)
Commitments and contingencies (note 5)
------------ ------------
$ 4,894,512 $ 4,487,307
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
STATEMENTS OF OPERATIONS AND DIVISION'S DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Total revenues..................................... $ 7,762,322 $10,533,999 $ 10,460,347
----------- ------------ ------------
Costs and expenses:
Food costs....................................... (2,710,982) (3,792,056) (3,902,672)
Labor costs...................................... (2,317,741) (3,203,674) (3,137,537)
Occupancy and other expenses..................... (1,301,373) (1,786,573) (1,901,602)
General and administrative expenses.............. (810,362) (1,022,339) (1,012,619)
Depreciation and amortization.................... (346,650) (613,260) (530,059)
----------- ------------ ------------
Total costs and expenses................. (7,487,108) (10,417,902) (10,484,489)
----------- ------------ ------------
Income (loss) from operations...................... 275,214 116,097 (24,142)
Interest expense................................... (212,842) (459,407) (591,889)
----------- ------------ ------------
Income (loss) before income tax expense benefit
(provision)...................................... 62,372 (343,310) (616,031)
Income tax expense benefit (provision) (note 4).... (24,013) 128,558 59,396
----------- ------------ ------------
Net income (loss).................................. 38,359 (214,752) (556,635)
Division's deficit at beginning of year............ (2,434,748) (5,422,526) (8,198,634)
Contributions...................................... 2,345,244 1,091,886 89,174
Net additions in North's Restaurants, Inc. company
debt for which Division is jointly and severally
liable........................................... (5,371,381) (3,653,242) (1,271,174)
----------- ------------ ------------
Division's deficit at end of year.................. $(5,422,526) $(8,198,634) $ (9,937,269)
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1995 1996 1997
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ 38,359 $ (214,752) $(556,635)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 346,650 613,260 530,059
Changes in operating assets and liabilities:
Trade accounts receivable..................... (48,633) 49,314 (14,694)
Inventories................................... (9,265) (27,680) 4,404
Preopening costs.............................. (99,909) (169,093) --
Other assets.................................. 28,379 40 (833)
Accounts payable and accrued expenses......... 368,059 (17,419) 60,256
----------- ----------- ---------
Net cash provided by operations............ 623,640 233,670 22,557
----------- ----------- ---------
Cash flows from investing activities:
Capital expenditures............................... (2,937,638) (1,321,025) (134,958)
----------- ----------- ---------
Cash flows from financing activities:
Contributions...................................... 2,345,244 1,091,886 89,174
----------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents.............................. 31,246 4,531 (23,227)
Cash and cash equivalents at beginning of year....... 5,133 36,379 40,910
----------- ----------- ---------
Cash and cash equivalents at end of year............. $ 36,379 $ 40,910 $ 17,683
=========== =========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 184,698 $ 242,252 $ --
=========== =========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The financial statements present the financial position and operations of
North's Restaurants (the Division), a division of North's Restaurants, Inc.
(NRI). The Division consists of seven of NRI's twenty buffet style restaurants
located in California, Idaho, Oregon, Utah and Washington. The Division has no
separate legal status or existence.
As of June 30, 1995 the Division operated six restaurants and operated
seven restaurants at June 30, 1996 and 1997.
The Division's corporate administrative and financing functions, including
accounting, data processing and other corporate services, were combined with the
administrative and financing functions of NRI. The cost of these administrative
and financing functions was allocated to the Division in proportion to the
revenues of the Division in relation to the total revenues of NRI. Management
believes this allocation method is reasonable; however, such allocated costs may
not necessarily be indicative of the cost of obtaining such services if the
Division operated on a stand-alone basis. Included in general and administrative
expenses is approximately $787,000, $974,000 and $966,000 in fiscal years 1995,
1996 and 1997, respectively, of allocated administrative costs. Interest expense
represents the allocated financing costs.
(b) Fiscal Year
The accompanying financial statements cover the fifty-two/fifty-three-week
periods ended July 3, 1995, July 1, 1996 and June 30, 1997. For clarity of
presentation, all periods are presented as if the period ended on the last day
of the month-end.
(c) Cash and Cash Equivalents
Cash and cash equivalents include amounts on hand at restaurant locations.
(d) Inventories
Inventories consist of food and beverages and are stated at the lower of
cost or market, determined on the first-in, first-out method.
(e) Pre-opening costs
Certain costs associated with hiring, training, and other direct costs as
incurred in connection with opening new restaurants are capitalized and
amortized over the first year of the restaurants' operations. Accumulated
amortization at June 30, 1996 and 1997, was approximately $42,000 and $-0-,
respectively.
(f) Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are being accounted for primarily on the straight-line method over the estimated
useful lives of the assets for financial reporting purposes. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the term of the related lease. Depreciation begins on construction in
progress at the time the related asset is placed in service.
Maintenance and repairs, including replacement of minor items, are expensed
as incurred.
<PAGE> 6
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(g) Advertising Costs
Advertising costs are expensed when incurred. Advertising expense, included
in general and administrative expenses, was approximately $186,000, $169,000 and
$194,000 for the years ended June 30, 1995, 1996 and 1997, respectively.
(h) Income Taxes
The Division, or any restaurant individually contained therein, presented
in the accompanying financial statements is not a separate legal or taxable
entity. The taxable income or loss from the Division is included in the federal
and state tax returns of NRI. Income tax expense is calculated on a separate
basis as if the Division were a stand alone entity. Any current or deferred
assets and liabilities have been recorded through net divisional equity.
(i) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) Financial Instruments
The carrying amounts of cash equivalents, trade accounts receivable, and
accounts payable approximate fair value because of the short-term nature of
these instruments. The fair value of long-term debt was estimated by discounting
the future cash flows using market interest rates and does not differ
significantly from the carrying value reflected in the accompanying balance
sheets.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(k) Impairment of Long-Lived Assets
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", was issued. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used or disposed of by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. During the year
ended June 30, 1997, the Division adopted this statement and determined that no
impairment loss need be recognized for property and equipment.
<PAGE> 7
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1996 1997
---------- ----------
<S> <C> <C>
Equipment......................................... $3,526,944 $3,519,614
Leasehold improvements............................ 2,529,255 2,547,429
---------- ----------
6,056,199 6,067,043
Less accumulated depreciation..................... 1,338,477 1,765,860
---------- ----------
4,717,722 4,301,183
Construction in progress.......................... 9,488 64,687
---------- ----------
$4,727,210 4,365,870
========== ==========
</TABLE>
(3) LONG-TERM DEBT
NRI and the Division are jointly and severally liable for the outstanding
balance of certain debt of NRI. As such, the Division has reported the
outstanding balance for this debt in its financial statements, as a liability
and reduction of the Division's equity. NRI debt for which the Division is
jointly and severally liable, net of debt issuance costs, is comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
Note payable, interest due monthly at 2% over the
bank's prime rate, collateralized by all
tangible and intangible, real and personal
property and stock of NRI, guaranteed
unconditionally by two shareholders of NRI,
principal payable on October 15, 1997. NRI is in
violation of certain financial covenants as of
June 30, 1997................................... $ 2,913,757 $ 2,913,757
Note payable, interest due monthly at 2% over the
bank's prime rate, collateralized by all
tangible and intangible, real and personal
property and stock of NRI, guaranteed
unconditionally by two shareholders of NRI,
principal payable on October 15, 1997. NRI is in
violation of certain financial covenants as of
June 30, 1997................................... 5,030,264 4,950,264
Note payable to Pacific Mezzanine Fund, interest
due quarterly at 13%, collateralized by all
tangible and intangible, real and personal
property and stock of NRI, principal payable on
October 15, 1997. NRI is in violation of certain
financial covenants as of June 30, 1997......... 3,403,813 3,552,212
Subordinated debentures, interest due quarterly at
10%............................................. 1,400,000 1,400,000
Accrued interest.................................. 298,550 1,143,897
Debt issuance costs............................... (601,000) (243,572)
----------- -----------
Total long-term debt.................... 12,445,384 13,716,558
Less current portion.............................. 3,892,082 12,416,558
----------- -----------
Total long-term debt, less current
portion............................... $ 8,553,302 $ 1,300,000
=========== ===========
</TABLE>
<PAGE> 8
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(4) INCOME TAXES
The (provision) benefit for income taxes consists of the following for the
year ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal...................................... $ 21,834 $ -- $ --
State........................................ -- -- --
-------- -------- -------
Total current........................ 21,834 -- --
-------- -------- -------
Deferred:
Federal...................................... (43,090) 108,259 50,018
State........................................ (2,757) 20,299 9,378
-------- -------- -------
Total deferred....................... (45,847) 128,558 59,396
-------- -------- -------
Total................................ $(24,013) $128,558 $59,396
======== ======== =======
</TABLE>
The (provision) benefit for income taxes vary from the amounts computed by
applying the federal statutory rate to income before pro forma taxes as follows
for the year ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal income tax (provision) benefit computed
at statutory rates............................. (34.0)% 34.0% 34.0%
State taxes, net of federal benefit.............. (4.0) 4.0 4.0
Increase in valuation allowance.................. -- -- (27.9)
Other............................................ (.5) (.5) (.5)
----- ----- -----
Effective tax rate............................... (38.5)% 37.5% 9.6%
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 214,596 $ 520,622
--------- ---------
Total gross deferred tax assets.................. 214,596 520,622
Valuation allowance................................. -- 171,580
--------- ---------
Total deferred tax assets........................ 214,596 349,042
--------- ---------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation...................... (273,992) (349,042)
--------- ---------
Total gross deferred tax liabilities............. (273,992) (349,042)
--------- ---------
Net deferred tax liability....................... $ (59,396) $ --
========= =========
</TABLE>
At June 30, 1997, the Division has net operating carryforwards, to be
utilized by NRI, for federal and state purposes of approximately $1,360,000 and
$1,428,000, respectively, which are available to offset future taxable income,
through 2011.
<PAGE> 9
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(5) COMMITMENTS AND CONTINGENCIES
The Division leases restaurant facilities and equipment under several
operating leases, expiring through 2010. Most leases contain renewal options.
Minimum rentals under operating leases are as follows:
<TABLE>
<S> <C>
Year ending June 30:
1998.............................................. $ 568,988
1999.............................................. 562,858
2000.............................................. 567,971
2001.............................................. 579,032
2002.............................................. 550,609
Thereafter........................................ 2,739,671
----------
$5,569,129
==========
</TABLE>
Each restaurant facility lease contains a percentage rent clause which
requires additional rent based on a percentage of gross sales in excess of
specified amounts. Total rent expense for all operating leases is comprised of
the following for the year ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Minimum rent....................... $326,732 $512,485 $514,204
Contingent rent.................... 98,253 81,466 79,268
-------- -------- --------
$424,985 $593,951 $593,472
======== ======== ========
</TABLE>
NRI's corporate office facility is leased from a partnership in which NRI
shareholders are partners. Rent paid to the partnership amounted to
approximately $100,500, $108,000 and $106,800 for the years 1995, 1996 and 1997,
respectively. Said amounts are included in the general and administrative
expense allocated to the Division.
The Division is subject to various legal proceedings and certain unresolved
claims pending of NRI. The ultimate liability, if any, for the aggregate amounts
claimed against NRI cannot be determined at this time. Management of NRI and the
Division, based on consultation with legal counsel, is of the opinion that there
are no matters pending or threatened which are expected to have a material
adverse effect on the Division's financial condition or results of operations.
(6) PROFIT-SHARING PLAN
NRI had a 401(k) profit-sharing plan (the Plan) which covered substantially
all of its employees. NRI's annual contribution to the Plan was fixed by a
resolution of its Board of Directors. No contributions were made to the Plan for
the years 1995 or 1996. The Plan was terminated as of December 29, 1995. Upon
termination, all participants became 100% vested. Net plan assets were
distributed to participants, according to Plan provisions.
<PAGE> 10
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(7) SELECTED FINANCIAL INFORMATION (UNAUDITED)
The following statements of operations are provided for informational
purposes and are unaudited:
<TABLE>
<CAPTION>
TWELVE MONTHS TWENTY-EIGHT WEEKS ENDED
ENDED ------------------------------
DECEMBER 31, 1996 JULY 1, 1996 JUNE 30, 1997
----------------- ------------ -------------
<S> <C> <C> <C>
Total revenues............................ $10,830,045 $ 5,986,355 $ 5,616,657
----------- ----------- -----------
Costs and expenses:
Food costs.............................. 4,013,395 2,196,355 2,149,852
Labor costs............................. 3,289,756 1,839,275 1,699,028
Occupancy and other expenses............ 1,885,141 1,012,928 1,005,968
General and administrative expenses..... 970,170 577,076 621,040
Depreciation and amortization........... 634,965 353,258 264,821
----------- ----------- -----------
Total costs and expenses........ 10,793,427 5,978,892 5,740,709
----------- ----------- -----------
Income (loss) from operations........ 36,618 7,463 (124,052)
Interest expense.......................... (554,299) 281,101 318,709
----------- ----------- -----------
Loss before income tax benefit....... (517,681) (273,638) (442,761)
Income tax benefit........................ 174,000 102,614 42,505
----------- ----------- -----------
Net loss............................. $ (343,681) $ (171,024) $ (400,256)
=========== =========== ===========
</TABLE>
(8) SUBSEQUENT EVENT
On July 24, 1997, NRI signed a definitive agreement to sell certain assets
and liabilities of the Division to CKE Restaurants, Inc. for $4,500,000, subject
to adjustment. The transaction is subject to normal closing conditions and
events.
<PAGE> 1
EXHIBIT 99.3
SELECTED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined condensed financial information
is based upon the historical combined financial statements of the Predecessor
Company and Successor Company and has been prepared to illustrate the effects of
this offering and the North Acquisition.
The unaudited pro forma combined condensed balance sheet as of August 11,
1997 gives effect to the North Acquisition and application of the estimated net
proceeds from this offering as if such transactions had been completed on August
11, 1997 and was prepared based upon the combined balance sheet of the Successor
Company as of August 11, 1997 and the balance sheet of North's Restaurants as of
June 30, 1997. The historical combined condensed statement of operations for the
period ended January 27, 1997 is comprised of the results of operations of the
Predecessor Company for the 24-week period ended July 15, 1996 and the results
of operations of the Successor Company for the 28-week period ended January 27,
1997 (the "Combined Results") and gives effect to the transactions described
above as if such transactions had been completed on January 30, 1996. The
unaudited pro forma combined condensed statement of operations for the period
ended January 27, 1997 was prepared based upon the Combined Results and the
statement of operations of North's Restaurants for the 52-week period ended
December 31, 1996. The unaudited pro forma combined condensed statement of
operations for the twenty-eight weeks ended August 11, 1997 was prepared based
upon the combined results of the Successor Company for the twenty-eight weeks
ended August 11, 1997 and the statement of operations of North's Restaurants for
the twenty-eight weeks ended June 30, 1997. See Note 7 of Notes to Financial
Statements of North's Restaurants.
The unaudited pro forma combined condensed financial information has been
provided for comparative purposes only and does not purport to be indicative of
results which would actually have been obtained had the North Acquisition been
effected on the date indicated or of results which may be obtained in the
future. These unaudited pro forma combined condensed financial statements should
be read in conjunction with the combined financial statements, including the
notes thereto, which appear elsewhere in this Prospectus.
The unaudited pro forma adjustments are based upon information set forth in
this Prospectus and certain assumptions included in the notes to the unaudited
pro forma combined condensed financial statements. The Company is performing an
ongoing evaluation regarding the nature and scope of its restaurant operations
and various short- and long-term strategic considerations, including whether,
and to what extent, integration, consolidation or other modification of its
restaurant operations is appropriate following the North Acquisition. The
Company believes the pro forma assumptions are reasonable under the
circumstances.
The unaudited pro forma combined condensed financial statements do not give
effect to the transactions with Stacey's contemplated by the LOI and,
accordingly, do not include net fee revenues and interest income, if any, which
may be generated from the Company's strategic alliance with Stacey's. In
addition, the unaudited pro forma combined condensed statements of operations do
not include interest income, if any, which may arise from notes receivable from
North's.
The North Acquisition will be accounted for by the purchase method of
accounting. Accordingly, the Company's cost to acquire the North's Restaurants
(the "Purchase Consideration"), calculated to be $4.5 million (subject to
adjustment), will be allocated to the assets acquired and liabilities assumed
according to their estimated fair values. The final allocation of the Purchase
Consideration is dependent upon certain valuations and other studies that have
not progressed to a stage where there is sufficient information to make such an
allocation in the accompanying unaudited pro forma combined condensed financial
statements.
<PAGE> 2
STAR BUFFET, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF AUGUST 11, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
SUCCESSOR
COMPANY NORTH'S
AUGUST RESTAURANTS
11, JUNE 30, PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS COMBINED
--------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Current assets:
Cash....................................................... $ 725 $ 17 $ 15,644A,D,K $ 16,386
Short-term investments..................................... 180 -- 180
Trade receivables.......................................... 29 18 47
Inventories................................................ 385 69 454
Prepaid expenses........................................... 79 -- 55E 134
Deferred taxes, net........................................ 193 -- 193
------- ------- -------- -------
Total current assets.................................... 1,591 104 15,699 17,394
Notes receivable............................................. -- -- 3,000A 3,000
Property and equipment, net.................................. 12,982 4,366 1,700K 19,048
Capitalized leases, net...................................... 2,435 -- 2,435
Deposits and other assets.................................... 225 17 242
Organizational costs......................................... 305 -- 305
Franchise fees............................................... 207 -- 207
Costs in excess of net assets of business acquired, net...... -- -- 721J 721
------- ------- -------- -------
Total assets....................................... $17,745 $ 4,487 $ 21,120 $ 43,352
======= ======= ======== =======
Current liabilities:
Accounts payable........................................... $ 2,139 $ 390 $ $ 2,529
Accrued liabilities........................................ 2,379 318 55E 2,752
Current portion of notes payable........................... -- -- 1,400A 1,400
Current portion of North's debt for which North's
Restaurants, Inc. is jointly and severally liable....... -- 12,417 (12,417)B --
Current maturities of capital lease obligations............ 248 -- 248
------- ------- -------- -------
Total current liabilities............................... 4,766 13,125 (10,962) 6,929
Notes payable................................................ -- -- 5,600A 5,600
North's debt for which North's Restaurants, Inc. is jointly
and severally liable....................................... -- 1,300 (1,300)B --
Capital lease obligations.................................... 2,231 -- 2,231
Other long-term liabilities.................................. 159 -- 159
------- ------- -------- -------
Total liabilities.................................. 7,156 14,425 (6,662) 14,919
------- ------- -------- -------
Total stockholders' equity................................... 10,589 (9,938) 27,782C,D 28,433
------- ------- -------- -------
Total liabilities and stockholders' equity......... $17,745 $ 4,487 $ 21,120 $ 43,352
======= ======= ======== =======
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
<PAGE> 3
STAR BUFFET, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE 52-WEEK PERIOD ENDED JANUARY 27, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------------------------------
PREDECESSOR
---------------------------------- SUCCESSOR
RESULTING ------------- COMBINED
THIRTY SIX WEEK TWENTY-FOUR TWENTY-EIGHT FIFTY-TWO
WEEKS PERIOD WEEKS WEEKS WEEKS NORTH'S
ENDED ENDED ENDED ENDED ENDED RESTAURANTS
JULY 15, JAN. 29, JULY 15, JAN. 27, JAN. 27, DEC. 31, PRO FORMA PRO FORMA
1996 1996(1) 1996 1997 1997 1996 ADJUSTMENTS COMBINED
-------- --------- ----------- ------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues...... $ 23,207 $(4,351) $18,856 $23,632 $42,488 $ 10,830 $ $53,318
------- ------ ------- ------- ------- ------- ----- -------
Costs and expenses:
Food costs........ 8,569 (1,596) 6,973 8,285 15,258 4,013 19,271
Labor costs....... 6,810 (1,270) 5,540 7,565 13,105 3,290 16,395
Occupancy and
other
expenses........ 5,030 (954) 4,076 5,259 9,335 1,885 (746)K 10,474
General and
administrative
expenses........ 1,193 (196) 997 621 1,618 970 350I 2,938
Depreciation and
amortization.... 914 (169) 745 988 1,733 635 301J,K 2,669
------- ------ ------- ------- ------- ------- ----- -------
Total costs
and
expenses... 22,516 (4,185) 18,331 22,718 41,049 10,793 (95) 51,747
------- ------ ------- ------- ------- ------- ----- -------
Income from
operations........ 691 (166) 525 914 1,439 37 95 1,571
Interest (income)
expense, net...... 145 (32) 113 106 219 554 17E,F,G 790
------- ------ ------- ------- ------- ------- ----- -------
Income (loss) before
income taxes...... 546 (134) 412 808 1,220 (517) 78 781
Income tax expense
(benefit)......... 216 (54) 162 338 500 (174) (14)H 312
------- ------ ------- ------- ------- ------- ----- -------
Net income (loss)... $ 330 $ (80) $ 250 $ 470 $ 720 $ (343) $ 92 $ 469
======= ====== ======= ======= ======= ======= ===== =======
Net income per
common share...... $ 0.28 $ 0.09
======= =======
Common shares used
in computing per
share amounts..... 2,600 5,000
======= =======
</TABLE>
- ---------------
(1) Adjustments necessary to present a 24-week period ended July 15, 1996.
See accompanying notes to unaudited pro forma combined condensed financial
information.
<PAGE> 4
STAR BUFFET, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE 28-WEEK PERIOD ENDED AUGUST 11, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
SUCCESSOR
COMPANY NORTH'S
AUGUST RESTAURANTS
11, JUNE 30, PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS COMBINED
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Total revenues................................... $29,306 $ 5,617 $ $34,923
------- ------ ----- -------
Costs and expenses:
Food costs..................................... 9,283 2,150 11,433
Labor costs.................................... 9,186 1,699 10,885
Occupancy and other expenses................... 6,110 1,006 (402)K 6,714
General and administrative expenses............ 612 621 188I 1,421
Depreciation and amortization.................. 1,129 265 162J,K 1,556
------- ------ ----- -------
Total costs and expenses............... 26,320 5,741 (52) 32,009
------- ------ ----- -------
Income (loss) from operations.................... 2,986 (124) 52 2,914
Interest (income) expense, net................... 108 319 (11)E,F,G 416
------- ------ ----- -------
Income (loss) before income taxes................ 2,878 (443) 63 2,498
Income tax expense............................... 1,151 (43) (109)H 999
------- ------ ----- -------
Net income (loss)................................ $ 1,727 $ (400) $ 172 $ 1,499
======= ====== ===== =======
Net income per common share...................... $ 0.66 $ 0.30
======= =======
Common shares used in computing per share
amounts........................................ 2,600 5,000
======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
<PAGE> 5
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION
A To record the acquisition of North's Restaurants for an aggregate purchase
price of $4.5 million, subject to adjustment. The purchase price will be
paid in the form of $500,000 cash, assumption of $7.0 million of North's
debt (the current portion of which is $1.4 million), and the recording of a
$3.0 million note receivable from North's.
B To eliminate the North's debt of $13.717 million, which will not be assumed
by the Company, except as noted in Footnote A.
C To eliminate North's Restaurants' division deficit of $9.938 million.
D To reflect the estimated net cash proceeds of $26.224 million from the sale
of 2,400,000 shares of Common Stock offered by the Company (less the
underwriting discount and estimated offering expenses payable by the
Company), the payment of the Special Dividend of $7.885 million and the
repayment of the Casa Bonita Note in the amount of $495,000 which represents
CKE's book value of the net assets of the Casa Bonita restaurants to be
transferred to Summit in connection with the Formation Transactions. See
"Certain Transactions."
E To record debt issuance costs of $55,000 related to the assumption of $7.0
million of North's debt and related amortization of debt issue costs over
five years of $11,000 for the fiscal year ended January 27, 1997 and $6,000
for the twenty-eight weeks ended August 11, 1997.
F To record interest expense on $7.0 million of North's debt assumed in the
acquisition of North's Restaurants at a variable rate assumed to be 8% in
the amount of $560,000 for the fiscal year ended January 27, 1997 and
$302,000 for the twenty-eight weeks ended August 11, 1997. A 0.125%
increase/decrease in the estimated interest rate incrementally
increases/decreases income before taxes by $9,000 and $5,000 for the fiscal
year ended January 27, 1997 and the twenty-eight weeks ended August 11,
1997, respectively.
G To eliminate the historical interest expense recorded by North's of $554,000
and $319,000 for the twelve months ended December 31, 1996 and the
twenty-eight weeks ended June 30, 1997, respectively, for related
indebtedness which would not have been in existence at the beginning of such
periods as this debt will not be assumed by the Company.
H To record the income tax effects of the pro forma adjustments and
combination of the entities at a pro forma tax rate of 40.0%.
I To record the impact of management fees payable pursuant to the Service
Agreement with CKE. These fees amount to $350,000 and $188,000 for the year
ended January 27, 1997 and the twenty-eight weeks ended August 11, 1997,
respectively.
J To record $721,000 for the excess of consideration paid over the preliminary
estimate of the fair value of net assets acquired, to be amortized over 40
years, and to record goodwill amortization of $18,000 and $10,000 for the
fiscal year ended January 27, 1997 and the twenty-eight weeks ended August
11, 1997, respectively.
K To record the purchase and buyout of certain HTB operating equipment leases
in the amount of $1.7 million, the related depreciation expense using an
estimated useful life of six years and the reduction in rent expense in the
amount of $283,000 and ($746,000), respectively, for the fiscal year ended
January 27, 1997, and $152,000 and ($402,000), respectively, for the
twenty-eight weeks ended August 11, 1997.
L Reconciliation to Unaudited Pro Forma Combined Condensed Financial
Information Adjustments
Balance Sheet:
(1) Cash: (A) ($500,000); (D) $26,224,000, ($7,885,000), ($495,000);
(K) ($1,700,000) = $15,644,000
(2) Stockholders' Equity: (C) $9,938,000; (D)
$17,844,000 = $27,782,000
Statement of Operations (52-week period ended January 27, 1997):
(1) Depreciation and amortization: (J) $18,000; (K)
$283,000 = $301,000
(2) Interest (income) expense, net: (E) $11,000; (F) $560,000; (G)
($554,000) = $17,000
Statement of Operations (28-week period ended August 11, 1997):
(1) Depreciation and amortization: (J) $10,000; (K)
$152,000 = $162,000
(2) Interest (income) expense, net: (E) $6,000; (F) $302,000; (G)
($319,000) = ($11,000)
M There are no material adjustments necessary to convert the Predecessor
Company financial information to the new accounting basis.
