STAR BUFFET INC

NOTE

— INCOME TAXES

Income tax provision (benefit) is comprised of the following:

	Fifty-Three		Fifty-Two
	Weeks Ended		Weeks Ended
	January 30, 2017		January 25, 2016
Current:
Federal	$	15,000	$	35,000

State	$	7,000	$	16,000

	$	22,000	$	51,000
Deferred:
Federal		—		—
State		—		—
		—		—
	$	22,000	$	51,000

A reconciliation of income tax provision (benefit) at the federal statutory rate of

34%

to the Company's provision (benefit) for taxes on income is as follows:

	Fifty-T hree Weeks Ended January 30, 2017			Fifty- T wo Weeks Ended January 25, 2016
Income tax provision (benefit) at statutory rate	$	(61,000	)	$	282,000
Increase (decrease) in valuation allowance		115,000			(381,000	)
State income taxes		4,000			4,000

All other, net		(36,000	)		146,000
	$	22,000		$	51,000

Temporary differences give rise to a significant amount of deferred tax assets and liabilities as set forth below:

	January 30, 2017			January 25, 2016
Current deferred tax assets:
Accrued vacation	$	31,000		$	61,000
Accrued expenses and reserves		58,000			58,000
Total deferred tax assets		89,000			119,000
Valuation allowance		(89,000	)		(119,000	)
Total current tax asset		—			—
Long-term deferred tax assets:
Net operating losses		5,081,000			4,959,000
Depreciation, amortization and impairments		(43,000	)		31,000
Federal tax credits		590,000			590,000
Other		207,000			119,000
Total deferred tax assets		5,835,000			5,699,000
Valuation allowance		(5,835,000	)		(5,699,000	)
Total long term tax asset		—			—
Deferred tax assets	$	—		$	—

While there can be no assurance that the Company will generate any earnings or any specific level of earnings in the future years, accounting policies dictate until it is more likely than not that the Company will be able to realize the benefit of the deferred tax assets existing at

January

30,

2017,

the Company must provide a fully valuation allowance for the deferred tax assets. 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.