Significant Accounting Policies (Policies)

9 Months Ended

Nov. 05, 2018

Consolidation, Policy [Policy Text Block]

a) Principles of Consolidation

The condensed consolidated financial statements include the consolidated operations of the Company and its subsidiaries through

November 5, 2018.

The Company utilizes a

52/53

week fiscal year which ends on the last Monday in

January.

The

first

quarter of each fiscal year contains

weeks while the other

three

quarters each contain

weeks, except the

fourth

quarter has

weeks if the fiscal year has

weeks. All significant intercompany balances and transactions have been eliminated in consolidation.

Earnings Per Share, Policy [Policy Text Block]

b) Earnings or Loss Per Common Share

Basic earnings or loss per common share is computed on the basis of the weighted average number of shares outstanding during the periods. Diluted earnings or loss per common share is calculated based on the weighted-average number of common shares outstanding during the period plus the effect of dilutive common stock equivalents, if any, outstanding during the period. Dilutive stock options are considered to be common stock equivalents and are included in the diluted calculation using the treasury stock method. The Company did

not

have any dilutive stock options as of

November 5, 2018

November 6, 2017.

Fair Value of Financial Instruments, Policy [Policy Text Block]

c) 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:

●

Level

Inputs: Quoted prices for identical instruments in active markets.

●

Level

Inputs: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are

not

active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

●

Level

Inputs: Valuations derived from valuation techniques in which

one

or more significant inputs or significant value drivers are unobservable.

The carrying amounts of the Company’s cash and cash equivalents, receivables, accounts payable and accrued expenses approximate 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 its Chief Executive Officer because of the related party nature of the transaction.

Inventory, Policy [Policy Text Block]

d) Inventories

Inventories consist of food, beverages, gift shop items and certain restaurant supplies and are valued at the lower of cost or market, determined by the

first

-in,

first

-out method.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

e) Impairment of Long-Lived Assets

The Company evaluates impairment of long-lived assets in accordance with Accounting Standards Codification

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 did

not

record impairment expense associated with restaurant facilities for the

twelve

weeks ended

November 5, 2018

and

November 6, 2017.

Property, Plant and Equipment, Policy [Policy Text Block]

f) Buildings and Equipment

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:

	Years
Buildings		40
Leasehold improvements	15	-	20 (1)
Furniture, fixtures and equipment	5	-	8

(

)

Leasehold improvements are amortized over the lesser of the life of the lease or the 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 would be required to be expensed immediately, which could result in a significant charge to operating results in that period.

Equipment in non-operating units or stored in warehouses, which is held for remodeling or repositioning, is depreciated and is recorded on the balance sheet as property, building and equipment held for future use.

Buildings 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 and the residual values of such assets. These judgments and estimates

may

produce materially different amounts of depreciation and amortization expense than would be reported if different assumptions were used.

The components of property, buildings and equipment as of

November 5, 2018

consist of

operating restaurant properties,

one

restaurant property that is leased to

third

party,

three

non-operating restaurants that remain closed for remodeling and repositioning and

one

non-operating property that is used as warehouse for equipment. The Company’s restaurant located in Kalispell, Montana that was temporarily closed due to fire damage reopened on

June 29, 2018.

The Company has settled with the insurance carrier regarding the Kalispell fire loss and recorded

$10,000

in accounts receivable as of

November 5, 2018.

The components of property, buildings and equipment as of

January 29, 2018

consisted of

operating restaurant properties,

one

restaurant property that is leased to a

third

party,

three

non-operating restaurants that remain closed for remodeling and repositioning and

one

non-operating property that is used as warehouse for equipment. The Company recorded depreciation expense of

$451,000

and

$440,000

for the

forty

weeks ended

November 5, 2018

and

November 6, 2017,

respectively

	November 5, 2018						January 29, 2018
Property, building and equipment:			Accum.						Accum.
	Cost		Depr.		Net		Cost		Depr.		Net
Operating	$	11,671,000	$	7,210,000	$	4,461,000	$	11,436,000	$	6,800,000	$	4,636,000
Leased		1,174,000		774,000		400,000		1,174,000		753,000		421,000
Held for Future Use		2,526,000		1,567,000		959,000		2,526,000		1,548,000		978,000
Total	$	15,371,000	$	9,551,000	$	5,820,000	$	15,136,000	$	9,101,000	$	6,035,000

Deferred Charges, Policy [Policy Text Block]

g) Other Assets

Other assets consist of deposits.

Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block]

h) Intangible Assets

The Company’s intangible assets consist of trademarks as of

November 5, 2018

and

January 29, 2018.

Trademark assets have an indefinite asset life. The Company assesses whether an intangible asset impairment write-down is necessary on annual basis or whenever events or changes in circumstances indicate that the carrying amount of the asset

may

not

be recoverable.

Segment Reporting, Policy [Policy Text Block]

i) Segment Reporting

All of the brands the Company operates are in the U.S. within the full-service restaurant industry and provide similar products to similar customers and, therefore, are considered to be

one

segment for reporting purposes. 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.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

We recognize revenue, net of discounts and incentives, when payment is tendered at the point of sale. We report revenue net of sales-related taxes collected from customers and remitted to governmental taxing authorities. The Company defers all revenue on gift certificate sales until redeemed. The gift certificate liability is recorded in the Rent, licenses and other balance sheet account.

	January 29, 2018							November 5, 2018
	Gift Certificate Liability		Gift Certificates Issued		Gift Certificates Redeemed			Gift Certificate Liability
Gift Certificates	$	18,700	$	17,200	$	(26,600	)	$	9,300

Income Tax, Policy [Policy Text Block]

) 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, the Company has a full valuation allowance against its deferred tax asset, net of expected reversals of existing deferred tax liabilities.

New Accounting Pronouncements, Policy [Policy Text Block]

l) Recent Accounting Pronouncements

During

2014

and

2015,

the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update

2014

and

2015

14,

Revenue from Contract with Customers

(Topic

606

), 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.

During the

-weeks ending

May 21, 2018,

we retrospectively adopted ASU

2014

“Revenue from Contracts with Customers (Topic

606

),” which requires an entity to recognize revenue when it transfers 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 adoption did

not

have an impact on our consolidated balance sheets, statements of income, or cash flows. The primary impact of adoption was the enhancement of our disclosures related to revenue recognition as mentioned previously.

February 2016,

the FASB issued Accounting Standards Update

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. While early adoption is permitted, the Company has selected a transition date of

January 29, 2019.

We are evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures.

July 2018,

the FASB issued Accounting Standards Update

2018

11,

Leases

(Topic

842

). This update provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s financials will remain the same as those previously presented. Entities that elect this optional transition method must provide the disclosures that were previously required. The Company will adopt this transition method in the

first

quarter of fiscal

2020.

STAR BUFFET INC 10-Q