**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





**QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





**For
      the quarterly period ended September 19, 2007**





**Commission
      file number: 333-116897**





**BUFFETS
      HOLDINGS, INC.**


(Exact
      name of registrant as specified in its charter)





Delaware
            
            22-3754018(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                Number)1460
                Buffet WayEagan,
                Minnesota
            
            55121(Address
                of principal executive offices)
            
            (Zip
                Code)





Registrant’s
      telephone number, including area code: (651) 994-8608





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports) and (2) has been subject to such filing requirements
      for
      the past 90 days. YES R NO £





Indicate
      by checkmark whether the registrant is a large accelerated filer, an accelerated
      filer, or a non-accelerated filer. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act.




LARGE
                ACCELERATED FILER £
            ACCELERATED
                FILER £
            NON-ACCELERATED
                FILER R




Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act). YES £ NO R





The
      number of shares of Buffets Holdings, Inc. common stock outstanding as of
      November 5, 2007 was 3,104,510.









**BUFFETS
      HOLDINGS, INC.**


**TABLE
      OF CONTENTS**





**Page**Part
                  I. Financial InformationItem
                  1. Financial StatementsCondensed
                  Consolidated Balance Sheets (Unaudited) as of June 27, 2007 and
                  September
                  19, 2007
              
              
              3Condensed
                  Consolidated Statements of Operations (Unaudited) — Twelve Weeks Ended
                  September 20, 2006 and September 19, 2007
              
              
              4Condensed
                  Consolidated Statements of Cash Flows (Unaudited) — Twelve Weeks Ended
                  September 20, 2006 and September 19, 2007
              
              
              5Notes
                  to the Condensed Consolidated Financial Statements
                  (Unaudited)
              
              
              6Item
                  2. Management’s Discussion and Analysis of Financial Condition and Results
                  of Operations
              
              
              24Item
                  3. Quantitative and Qualitative Disclosures about Market
                  Risk
              
              
              35Item
                  4. Controls and Procedures
              
              
              35Part
                  II. Other InformationItem
                  1. Legal Proceedings
              
              
              36Item
                  1A. Risk Factors
              
              
              36Item
                  6. Exhibits
              
              
              37




2


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





**June
                  27,****2007**
              
              **September
                  19,****2007****(Unaudited)****(In
                  thousands, except share data)****ASSETS**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              4,645
              
              $
              11,528Receivables
              
              
              10,219
              
              
              7,985Income
                  tax receivable
              
              
              —
              
              
              19,851Inventories
              
              
              32,087
              
              
              31,869Prepaid
                  expenses and other current assets
              
              
              8,632
              
              
              8,956Deferred
                  income taxes
              
              
              3,000
              
              
              3,000Assets
                  held for sale
              
              
              34,959
              
              
              19,944Current
                  assets related to discontinued operations
              
              
              14,117
              
              
              15,054Total
                  current assets
              
              
              107,659
              
              
              118,187PROPERTY
                  AND EQUIPMENT, net
              
              
              221,092
              
              
              222,131GOODWILL
              
              
              502,046
              
              
              519,536OTHER
                  INTANGIBLE ASSETS
              
              
              83,998
              
              
              67,534OTHER
                  ASSETS, net
              
              
              37,092
              
              
              35,657NON-CURRENT
                  ASSETS RELATED TO DISCONTINUED OPERATIONS
              
              
              412
              
              
              493Total
                  assets
              
              $
              952,299
              
              $
              963,538**LIABILITIES
                  AND SHAREHOLDER’S DEFICIT**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              81,090
              
              $
              76,222Accrued
                  liabilities
              
              
              132,783
              
              
              123,971Income
                  taxes payable
              
              
              3,147
              
              
              1,019Short-term
                  debt
              
              
              13,000
              
              
              33,500Current
                  maturities of long-term debt
              
              
              6,625
              
              
              5,300Current
                  liabilities related to discontinued operations
              
              
              1,137
              
              
              1,020Total
                  current liabilities
              
              
              237,782
              
              
              241,032LONG-TERM
                  DEBT, net of current maturities
              
              
              822,050
              
              
              822,050DEFERRED
                  INCOME TAXES
              
              
              33,456
              
              
              26,765LONG-TERM
                  TAXES PAYABLE
              
              
              —
              
              
              16,838DEFERRED
                  LEASE OBLIGATIONS
              
              
              38,209
              
              
              41,011OTHER
                  LONG-TERM LIABILITIES
              
              
              9,341
              
              
              8,566Total
                  liabilities
              
              
              1,140,838
              
              
              1,156,262SHAREHOLDER’S
                  DEFICIT:Preferred
                  stock; $.01 par value, 1,100,000 shares authorized; none issued
                  and
                  outstanding as of June 27, 2007 and September 19, 2007
              
              
              —
              
              
              —Common
                  stock; $.01 par value, 3,600,000 shares authorized; 3,104,510 shares
                  issued and outstanding as of June 27, 2007 and September 19,
                  2007
              
              
              31
              
              
              31Additional
                  paid in capital
              
              
              82
              
              
              82Accumulated
                  deficit
              
              
              (188,710
              )
              
              (192,658
              )Accumulated
                  other comprehensive income (loss)
              
              
              58
              
              
              (179
              )Total
                  shareholder’s deficit
              
              
              (188,539
              )
              
              (192,724
              )Total
                  liabilities and shareholder’s deficit
              
              $
              952,299
              
              $
              963,538





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


3


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**





**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**Twelve
                  Weeks Ended****September
                  20,****2006**
              
              **September
                  19,****2007****(Unaudited)****(In
                  thousands)**RESTAURANT
                  SALES
              
              $
              213,904
              
              $
              376,539RESTAURANT
                  COSTS:Food
              
              
              74,090
              
              
              130,168Labor
              
              
              60,378
              
              
              111,147Direct
                  and occupancy
              
              
              51,872
              
              
              98,170Total
                  restaurant costs
              
              
              186,340
              
              
              339,485ADVERTISING
                  EXPENSES
              
              
              7,227
              
              
              9,867GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              9,266
              
              
              15,898CLOSED
                  RESTAURANT COSTS
              
              
              742
              
              
              69MERGER
                  INTEGRATION COSTS
              
              
              440
              
              
              1,633LOSS
                  ON LITIGATION SETTLEMENT
              
              
              —
              
              
              54OPERATING
                  INCOME
              
              
              9,889
              
              
              9,533INTEREST
                  EXPENSE
              
              
              13,228
              
              
              20,757INTEREST
                  INCOME
              
              
              (28
              )
              
              (161
              )LOSS
                  RELATED TO REFINANCING
              
              
              243
              
              
              5OTHER
                  INCOME
              
              
              (202
              )
              
              (270
              )LOSS
                  BEFORE INCOME TAXES
              
              
              (3,352
              )
              
              (10,798
              )INCOME
                  TAX BENEFIT
              
              
              (1,903
              )
              
              (5,412
              )Net
                  loss from continuing operations
              
              
              (1,449
              )
              
              (5,386
              )Net
                  income from discontinued operations, net of tax of $208 and $25,
                  respectively.
              
              
              309
              
              
              37Net
                  loss
              
              $
              (1,140
              )
              $
              (5,349
              )




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


4


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**Twelve
                    Weeks Ended****September
                    20,**
                  **2006**
                
                **September
                    19,**
                  **2007****(Unaudited)****(In
                    thousands)**OPERATING
                    ACTIVITIES:Net
                    loss
                
                $
                (1,140
                )
                $
                (5,349
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                7,384
                
                
                10,041Amortization
                    of debt issuance cost
                
                
                413
                
                
                1,180Accretion
                    of original issue discount
                
                
                3,748
                
                
                —Loss
                    on disposal of assets
                
                
                249
                
                
                45Deferred
                    income taxes
                
                
                —
                
                
                (1,493
                )Changes
                    in assets and liabilities:Receivables
                
                
                394
                
                
                2,236Inventories
                
                
                172
                
                
                107Prepaid
                    expenses and other current assets
                
                
                190
                
                
                (890
                )Accounts
                    payable
                
                
                (4,786
                )
                
                (3,764
                )Accrued
                    and other liabilities
                
                
                (6,335
                )
                
                (7,892
                )Income
                    taxes payable
                
                
                (4,963
                )
                
                (3,740
                )Net
                    cash used in operating activities
                
                
                (4,674
                )
                
                (9,519
                )INVESTING
                    ACTIVITIES:Proceeds
                    from sale of assets held for sale
                
                
                —
                
                
                8,813Acquisitions,
                    net of liabilities assumed
                
                
                (3,468
                )
                
                (1
                )Purchase
                    of property and equipment
                
                
                (6,836
                )
                
                (11,383
                )Collections
                    on notes receivable
                
                
                697
                
                
                501Purchase
                    of other assets
                
                
                (3,411
                )
                
                (685
                )Net
                    cash used in investing activities
                
                
                (13,018
                )
                
                (2,755
                )FINANCING
                    ACTIVITIES:Repayment
                    of previous term loan facility
                
                
                (466
                )
                
                —Proceeds
                    from previous revolver facility
                
                
                6,000
                
                
                —Repayment
                    of term loan funding
                
                
                —
                
                
                (1,325
                )Proceeds
                    from revolver facility
                
                
                —
                
                
                20,500Debt
                    issuance costs
                
                
                —
                
                
                (15
                )Net
                    cash provided by financing activities
                
                
                5,534
                
                
                19,160NET
                    CHANGE IN CASH RELATED TO DISCONTINUEDOPERATIONS
                
                
                —
                
                
                (3
                )NET
                    CHANGE IN CASH AND CASH EQUIVALENTS
                
                
                (12,158
                )
                
                6,883CASH
                    AND CASH EQUIVALENTS, beginning of period
                
                
                20,194
                
                
                4,645CASH
                    AND CASH EQUIVALENTS, end of period
                
                $
                8,036
                
                $
                11,528SUPPLEMENTAL
                    CASH FLOW INFORMATION:Cash
                    paid during the period for —Interest
                    (net of capitalized interest of $77 and $98)
                
                $
                14,769
                
                $
                30,830Income
                    taxes
                
                $
                3,268
                
                $
                473




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


5





**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**1.
      Nature of Organization**





*Company
      Background*





Buffets
      Holdings, Inc., a Delaware corporation, was formed to acquire 100 percent of
      the
      common stock of Buffets, Inc. and its subsidiaries in a buyout from public
      shareholders on October 2, 2000 (the “Acquisition”). Buffets Holdings, Inc. and
      subsidiaries (“Buffets Holdings”) and Buffets, Inc. and subsidiaries (“Buffets”)
      are collectively referred to as “the Company” in these Notes to Condensed
      Consolidated Financial Statements. Buffets, a Minnesota corporation, is the
      principal operating subsidiary of Buffets Holdings.





On
        December 29, 2005, Buffets Holdings announced that its stockholders formed
        Buffets Restaurant Holdings, Inc. (“Buffets Restaurant Holdings”) and entered
        into a contribution agreement with Caxton-Iseman Investments, L.P., Sentinel
        Capital Partners, L.P., members of Buffets Holdings senior management and
        Buffets Restaurant Holdings (the “Contribution Agreement”). Pursuant to the
        terms of the Contribution Agreement, holders of 100% of Buffets Holdings’
outstanding common stock contributed their shares of common stock of Buffets
        Holdings to Buffets Restaurant Holdings in exchange for proportional amounts
        of
        Buffets Restaurant Holdings' common stock. As a result of the share exchange,
        Buffets Holdings is majority-owned by Buffets Restaurant
        Holdings.





*Description
      of Business*





The
      Company owns and operates a chain of restaurants in the United States under
      the
      names of Ryan’s®, Fire Mountain®, North’s®, Old Country Buffet®, Country
      Buffet®, HomeTown Buffet®, Granny’s Buffet SM and
      Tahoe Joe’s Famous Steakhouse®. The Company, operating principally in the family
      dining segment, owned and operated 643 restaurants, including 632 family
      steak-buffet restaurants and eleven Tahoe Joe’s Famous Steakhouse® restaurants,
      and franchised seventeen restaurants as of September 19, 2007.





*Buffets
      Franchise Holdings, LLC*





Buffets
      Franchise Holdings, LLC, a Minnesota corporation, was formed on March 12, 2007
      to franchise buffet-style restaurants, primarily operating under the HomeTown
      Buffet® tradename. The Company will not directly own or operate any of these
      restaurants, and through September 19, 2007, has not entered into any franchise
      arrangements.





The
      Company has completed the documentation required to franchise the HomeTown
      Buffet® brand and has filed the required registration forms with appropriate
      state and federal agencies. Filing these documents allows the HomeTown Buffet®
brand to be offered to franchise candidates in 39 states and the District of
      Columbia. The Company’s primary focus for the near term will be identifying
      highly qualified multi-unit restaurant operators in the states of Florida,
      Nevada, Arizona, New Mexico, Utah, and once registered, California.





*Ryan’s
      Restaurant Group, Inc.*





On
      November 1, 2006, Buffets and Ryan’s Restaurant Group, Inc. (“Ryan’s”), a South
      Carolina corporation, announced that they had completed the previously announced
      merger of Buffets Southeast, Inc., a South Carolina corporation and wholly-owned
      subsidiary of Buffets, and Ryan’s. Pursuant to the Agreement and Plan of Merger,
      dated as of July 24, 2006, by and among Buffets, Ryan’s and Buffets Southeast,
      Inc. (the “Merger Agreement”), Buffets Southeast, Inc. merged with and into
      Ryan’s, with Ryan’s remaining as the surviving corporation (the “Merger”). As a
      result of the Merger, Ryan’s became a wholly-owned subsidiary of
      Buffets.


6


*Tahoe
      Joe’s Famous Steakhouse®.*





In
      June
      2007, the Company developed a plan to sell its Tahoe Joe’s Famous Steakhouse®
restaurants. The restaurants are being actively marketed and management expects
      a sale to occur within the current fiscal year. As a result, the Company has
      revised the accompanying condensed consolidated financial statements for all
      periods presented to show certain account balances and activity related to
      the
      Tahoe Joe’s restaurants as discontinued operations. See Note 8 - “Discontinued
      Operations” for additional information on the account balances and related
      activity reclassified.





*Interim
      Financial Information*





In
      the
      opinion of management, the accompanying unaudited condensed consolidated
      financial statements contain all necessary adjustments, which are of a normal
      recurring nature, to present fairly the Company’s financial position and the
      results of its operations and cash flows for the periods presented, in
      conformity with accounting principles generally accepted in the United States
      of
      America and with the regulations of the Securities and Exchange Commission
      (“SEC”). Certain information and footnote disclosures normally included in
      accordance with accounting principles generally accepted in the United States
      of
      America, have been condensed or omitted pursuant to SEC rules and regulations.
      Operating results for the twelve week period ended September 19, 2007 are not
      necessarily indicative of results that may be achieved for the fiscal year
      ending July 2, 2008. Historical results will not be indicative of future results
      due to the consummation of the merger transaction with Ryan’s.





The
      balance sheet as of June 27, 2007 has been derived from the audited consolidated
      financial statements at that date but does not include all of the information
      and footnotes required by accounting principles generally accepted in the United
      States of America for complete financial statements.





These
      unaudited condensed consolidated financial statements should be read in
      conjunction with the consolidated financial statements and the related notes
      contained in the Company’s Form 10-K filed with the Securities and Exchange
      Commission on September 25, 2007 and with Management’s Discussion and Analysis
      of Financial Condition and Results of Operations appearing on pages 24 through
      35 of this report.





*Principles
      of Consolidation*





The
      condensed consolidated financial statements include the accounts of the Company
      and its subsidiaries. All significant intercompany transactions have been
      eliminated in consolidation.





*Fiscal
      Year*





The
      Company’s fiscal year is comprised of 52 or 53 weeks divided into four fiscal
      quarters of twelve, twelve, sixteen, and twelve or thirteen weeks, respectively.
      The current fiscal year consists of 53 weeks and will end on July 2,
      2008.





**2.
      Summary of Significant Accounting Policies**





*Segment
      Reporting*





The
      Company operates principally in the family dining segment in the United States,
      providing similar products to similar customers. The Company’s restaurants
      possess similar economic characteristics resulting in similar long-term expected
      financial results. Revenues are derived principally from food and nonalcoholic
      beverage sales. The Company does not rely on any major customers as a source
      of
      revenue. Management believes that the Company meets the criteria for aggregating
      its operations into a single reporting segment.





*Goodwill
      and Other Intangible Assets*





The
      Company tests the recoverability of goodwill and other intangible assets
      annually or whenever events or circumstances indicate that the carrying amount
      may not be recoverable. Goodwill and other intangible assets are deemed to
      be
      impaired if the fair value of a reporting unit is less than its carrying value.
      If goodwill or other intangible assets are determined to be impaired, the loss
      is measured as the amount by which the carrying amounts of a reporting unit’s
      goodwill or other intangible assets exceeds their implied fair value. The fair
      value of a reporting unit is an estimate based on assumptions regarding its
      future cash flows. In the event that these assumptions change in the future,
      the
      Company may be required to record impairment charges related to its goodwill
      or
      other intangible assets. No impairment charges were recorded during the first
      twelve weeks of fiscal years 2007 and 2008.





7




Goodwill
      and other intangible assets increased due to the merger with Ryan’s, which was
      accounted for as a purchase business combination. See Note 7 - “Acquisitions”
for further discussion regarding the goodwill and other intangible assets
      associated with this transaction.





*Derivative
      Instruments and Hedging Activities*





The
      Company uses financial derivatives to manage interest rate risks in accordance
      with its Credit Agreement, as amended and restated on March 13, 2007. Use of
      the
      Company’s derivative instruments is currently limited to a single interest rate
      swap. This instrument is structured as an effective hedge of the variability
      of
      cash flows to be paid on a portion of the Company’s outstanding debt. The
      derivative is recognized on the accompanying condensed consolidated balance
      sheets at fair value. On the date the derivative contract was entered into,
      the
      Company documented the relationship between the hedging instrument and the
      hedged item, as well as its risk-management objective and strategy for
      undertaking the hedge transaction. This process included linking the derivative
      to a specific liability on the condensed consolidated balance sheets, as well
      as
      formally assessing, both at the hedge’s inception and on an ongoing basis,
      whether the derivative used in the hedging transaction is highly effective
      in
      offsetting changes in cash flows of the hedged item.





Changes
      in the fair value of the derivative that is highly effective and designated
      as a
      cash flow hedge are recorded in other comprehensive income until earnings are
      affected by the variability in cash flows of the designated hedged item. See
      Note 6 — “Debt” for further discussion of the interest rate swap.





*Use
      of Estimates*





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and the 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.





**3.
      Recent Accounting Pronouncements**





In
        September 2006, the FASB issued Statement of Financial Accounting Standard
        (“SFAS”) No. 157, *Fair
        Value Measurements* .
        This
        statement defines fair value, establishes a framework for using fair value
        to
        measure assets and liabilities, and expands disclosures about fair value
        measurements. The statement applies whenever other statements require or
        permit
        assets or liabilities to be measured at fair value. SFAS No. 157 is effective
        for fiscal years beginning after November 15, 2007, which is the Company’s
        fiscal year 2009. The Company does not expect this standard to have a
        material impact on its consolidated results of operations and financial
        condition.





In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value*  *Option
        for Financial Assets and Liabilities* .
        This
        statement permits entities to choose to measure many financial instruments
        and
        certain other items at fair value. If the fair value option is elected,
        unrealized gains and losses will be recognized in earnings at each subsequent
        reporting date. SFAS No. 159 is effective for fiscal years beginning after
        November 15, 2007, which is the Company’s fiscal year 2009. The Company
        is currently evaluating the effect that the adoption of SFAS 159 will have
        on its consolidated results of operations and financial
        condition.


8


**4.
      Property and Equipment**





Property
      and equipment was as follows (in thousands):





**June
                27,****2007**
            
            **September
                19,****2007**Land
            
            $
            16,829
            
            $
            20,362Buildings
            
            
            16,213
            
            
            14,838Equipment
            
            
            221,767
            
            
            227,623Leasehold
                improvements
            
            
            157,150
            
            
            159,946Accumulated
                depreciation and amortization
            
            
            (190,867
            )
            
            (200,638
            )$
            221,092
            
            $
            222,131





As
      of
      September 19, 2007, the Land value above includes approximately $6.6 million
      in
      assets the Company intends to sell, but are not expected to be sold within
      the
      next twelve months.





See
      Note
      7 - “Acquisitions” for discussion of the impact of the merger with Ryan’s on the
      Company’s property and equipment balances.





**5.
      Accrued Liabilities**





Accrued
      liabilities consisted of the following (in thousands):


**June
                  27,**
                **2007**
              
              **September
                  19,**
                **2007**Accrued
                  compensation
              
              $
              32,710
              
              $
              28,823Accrued
                  workers’ compensation
              
              
              21,427
              
              
              21,356Accrued
                  sales, use and property taxes
              
              
              16,856
              
              
              24,249Accrued
                  insurance
              
              
              17,350
              
              
              17,291Accrued
                  interest
              
              
              22,603
              
              
              11,367Accrued
                  litigation reserve
              
              
              9,926
              
              
              9,910Unearned
                  revenue (gift cards/certificates)
              
              
              4,290
              
              
              3,489Closed
                  restaurant reserve, current portion
              
              
              1,196
              
              
              914Accrued
                  percentage rent
              
              
              992
              
              
              1,397Accrued
                  other
              
              
              5,433
              
              
              5,175$
              132,783
              
              $
              123,971





See
      Note
      7 - “Acquisitions” for further discussion of the impact of the merger with
      Ryan’s on the Company’s accrued liability balances.


9


**6.
      Debt**





As
      of
      September 19, 2007, debt outstanding was as follows (in thousands):





Short-Term
                borrowings consist of the following:Revolving
                credit facility, interest at Prime plus 2.25%, due September 25,
                2007
            
            $
            18,500Letter
                of credit facility at 2.85% plus borrowings at LIBOR, due September
                28,
                2007 (interest at 8.09% as of September 19, 2007)
            
            
            15,000Current
                maturities of long-term debt
            
            
            5,300Total
                short-term borrowings
            
            $
            38,800Long-Term
                borrowings consist of the following:Term
                loan, interest at LIBOR plus 2.75%, due quarterly through March 31,
                2013
                with remaining balance due November 1, 2013 (interest rate at 7.99%
                as of
                September 19, 2007)
            
            
            527,350Senior
                notes, interest at 12.50%, due November 1, 2014
            
            
            300,000827,350Less
                — Current maturities of long-term debt
            
            
            (5,300
            )Total
                long-term debt
            
            $
            822,050





*Credit
      Facility*





On
      November 1, 2006, Buffets secured a new $640.0 million senior secured credit
      facility (the “Credit Facility”) comprised of (i) a senior secured term loan
      facility in an aggregate principal amount of $530.0 million which matures on
      November 1, 2013 (the “Term Facility”), (ii) a senior secured revolving credit
      facility in an aggregate principal amount of up to $40.0 million which matures
      on November 1, 2011 (the “Revolving Facility”), of which up to $20.0 million is
      available through a sub facility in the form of letters of credit and (iii)
      a
      senior secured pre-funded synthetic letter of credit facility in an aggregate
      principal amount of $70.0 million which matures on May 1, 2013 (the “Synthetic
      Letter of Credit Facility”).





Effective
      as of March 13, 2007 (the “Restatement Date”), the Company entered into an
      amendment to its Credit Facility. The amendment added a revolving loan feature
      to the Synthetic Letter of Credit Facility (cumulatively referred to as the
      “Synthetic Revolving Facility”), whereby the Company may secure letters of
      credit and/or revolving loans in an aggregate principal amount of $70 million.
      The amendment also relaxed the interest rate margins applicable to the Term
      Facility and Synthetic Revolving Facility, subject to a leverage-based pricing
      grid. In addition, the amendment added a repricing protection clause relating
      to
      the prepayment of term loans or synthetic revolving loans borrowed under the
      Credit Facility. The repricing protection provides that Buffets must pay a
      1%
      prepayment premium on all such prepayments prior to March 13, 2008. No such
      prepayments have occurred as of September 19, 2007.





Borrowings
      under the Term Facility bear interest at an adjusted LIBOR rate plus a margin
      of
      either 2.50%, 2.75% or 3.00% in the case of Eurodollar borrowings and at a
      certain alternate base rate plus a margin of either 1.50%, 1.75% or 2.00% in
      the
      case of alternate base rate borrowings, depending on Buffets’ leverage ratio,
      and borrowings under the Revolving Facility bear interest at an adjusted LIBOR
      rate plus a margin of 3.25% or at an alternate base rate plus a margin of 2.25%.
      Borrowings under the Synthetic Revolving Facility bear interest at an adjusted
      LIBOR rate plus a margin of 2.85%.





The
        borrowings due under the Term Facility are payable in equal quarterly
        installments in an annual amount equal to 1% of the term loan during each
        of the
        first six and a half years of the loan, with the remaining balance payable
        due
        on November 1, 2013. The Revolving Facility and the Synthetic Revolving Facility
        are not subject to interim scheduled principal payments. The Credit Facility
        is
        fully and unconditionally guaranteed by Buffets Holdings, which has no
        independent assets or operations except for the capital stock of Buffets,
        and
        its existing and future domestic subsidiaries and is secured by substantially
        all of the Company’s assets. The Credit Facility contains customary restrictive
        covenants, including limitations on dividends on, and redemptions and
        repurchases of, capital stock, liens and sale leaseback transactions, loans
        and
        investments, the incurrence of additional indebtedness and mergers, acquisitions
        and asset sales. In addition, the Credit Facility contains financial covenants,
        which require that we maintain a minimum interest coverage ratio and a maximum
        leverage ratio. These financial covenants become increasingly restrictive
        over
        time. Specifically, on September 20, 2007, our leverage ratio requirement
        becomes more restrictive as the then current leverage ratio of 6.00 to 1.00
        drops to 5.75 to 1.00. As of September 19, 2007, the Company was in compliance
        with all covenants and there were no events of default. The Credit Facility
        also
        contains customary events of default. Borrowing availability under the Credit
        Facility and our ability to issue letters of credit depends on there being
        no
        default or event of default under the Credit Facility and upon the Company’s
        continued compliance with the restrictive and financial covenants contained
        in
        the Credit Facility. As
        of the
        end of the first quarter of fiscal 2008 the Company’s actual leverage ratio was
        5.98 against a maximum leverage ratio of 6.00. The maximum leverage ratio
        drops
        to 5.75 at the next measurement date which is at the end of the Company’s second
        quarter of fiscal 2008. The Company continuously monitors compliance with
        the
        financial covenants in our Credit Facility and, as of September 19, 2007,
        was in
        compliance with these covenants. Depending on the Company's future results
        the
        Company may breach these covenants at the end of its next fiscal quarter
        or in
        subsequent quarters. The Company has initiated discussions with the lenders
        under the Credit Facility to amend or waive the financial covenants. However,
        there are no assurances that the Company will be successful in obtaining
        amendments or waivers to the financial covenants on acceptable terms. Failure
        to obtain a waiver on acceptable terms could have a material adverse effect
        on
        the Company. If the Company were unsuccessful in obtaining a waiver of or
        an
        amendment to its financial covenants and an event of default were to occur
        under
        the Credit Facility, the lenders under the Credit Facility may be able to
        terminate any commitments they had made to supply the Company with further
        funds, including not permitting the Company to borrow under the existing
        revolving Credit Facility and not permitting the Company to issue letters
        of
        credit, which would adversely affect its liquidity. In addition, subject
        to
        certain cure periods, the occurrence of an event of default may allow the
        lenders to accelerate the repayment of amounts outstanding under the Credit
        Facility. Also, if the lenders were to accelerate indebtedness under the
        Company’s Credit Facility and such payment were not made, it would cause an
        event of default to occur under the indenture governing our 12 1⁄2% Senior
        Notes.


10




On
      April
      12, 2007, the Company entered into an interest rate swap (“Swap”) agreement to
      manage its exposure on debt instruments to interest rate fluctuation. The Swap,
      which became effective May 31, 2007 and had a $32.0 million notional amount
      of
      indebtedness, was used to hedge a portion of the interest payments associated
      with the variable rate $530.0 million term loan by fixing the interest rate
      at
      5.10% (represents LIBOR on April 12, 2007 when the agreement was entered into).
      The swap agreement called for 90-day settlements beginning August 31, 2007.
      This
      instrument is structured as an effective hedge of the variability of cash flows
      to be paid on a portion of the Company’s outstanding debt. The derivative is
      recognized in the accompanying condensed consolidated balance sheets at fair
      value. On the date the derivative contract was entered into, the Company
      documented the relationship between the hedging instrument and the hedged item,
      as well as its risk-management objective and strategy for undertaking the hedge
      transaction. This process included linking the derivative to a specific
      liability on the condensed consolidated balance sheet, as well as formally
      assessing, both at the hedge’s inception and on an ongoing basis, whether the
      derivative used in the hedging transaction is highly effective in offsetting
      changes in cash flows of the hedged item. As of September 19, 2007, the Company
      recorded a loss on the swap of approximately $395,000,
      net of approximately $144,000 in tax benefit, to accumulated other comprehensive
      income (loss) and amortized $21,262 into earnings as an adjustment to interest
      expense, representing the realized portion of gains on the
      swap.





As
      of
      September 19, 2007, Buffets had $53.1 million in outstanding letters of credit,
      which expire through August 30, 2008, and $15.0 million in outstanding loans
      under the Synthetic Revolving Facility. As of September 19, 2007, total letter
      of credit borrowing availability was $21.9 million, which is comprised of
      additional availability of $1.9 million under our Synthetic Revolving Facility
      and $20.0 million available through a sub facility to the Company’s Revolving
      Facility in the form of letters of credit.





*12
      1/2% Senior Notes*





On
      November 1, 2006, Buffets issued $300.0 million aggregate principal amount
      of
      its 12 1/2% senior notes. The issuance was consummated solely by means of a
      private placement either to qualified institutional buyers pursuant to Rule
      144A
      under the Securities Act of 1933, as amended (the “Securities Act”). Buffets
      filed a registration statement with the Securities and Exchange Commission
      to
      exchange its $300.0 million 12 1/2% Senior Notes due 2014 for notes registered
      under the Securities Act. The exchange offer was consummated on January 31,
      2007. The 12 1/2% Senior Notes mature on November 1, 2014. Buffets pays
      semi-annual interest on the 12 1/2% Senior Notes on January 1 and July
      1.





Buffets
      has the option to redeem all or a portion of the 12 1/2% Senior Notes on or
      after November 1, 2010 at fixed prices that decline over time. Buffets also
      has
      the option to redeem up to 35% of the aggregate principal amount of the 12
      1/2%
      Senior Notes on or prior to November 1, 2009 with the proceeds of one or more
      equity offerings at a redemption price of 112.50% of the principal amount of
      the
      12 1/2% Senior Notes, if at least 65% of the aggregate principal amount of
      the
      12 1/2% Senior Notes are outstanding after each such redemption and such
      redemption is made not more than 90 days after the consummation of certain
      equity offerings. Upon certain change of control and asset disposition events
      as
      described in the Indenture, Buffets may be required to redeem the 12 1/2% Senior
      Notes at a purchase price equal to 101% in the case of change of control events,
      or 100% in the case of asset disposition events, of the principal amount of
      the
      12 1/2% Senior Notes. The 12 1/2% Senior Notes are unsecured senior obligations
      of Buffets and are jointly and severally guaranteed on a senior unsecured basis
      by each of its current and future domestic subsidiaries and Buffets Holdings,
      which has no independent assets or operations except for the capital stock
      of
      Buffets.





The
      Indenture contains customary covenants relating to restrictions on indebtedness,
      dividends on, and redemptions and repurchases of, capital stock, liens, loans
      and investments, debt and hedging arrangements, mergers, acquisitions and asset
      sales, transactions with affiliates and changes in business activities conducted
      by Buffets and certain subsidiaries. The Indenture also contains customary
      events of default. As of September 19, 2007, the Company was in compliance
      with
      all covenants and there were no events of default.


11


**7.
      Acquisitions**





*Ryan’s
      Restaurant Group, Inc.*





On
      November 1, 2006, Buffets completed the merger with Ryan’s. As a result of the
      merger, Ryan’s became a wholly-owned subsidiary of Buffets. The Merger was
      accounted for as a purchase business combination and for accounting purposes,
      Buffets was the acquiring enterprise. Accordingly, the results of Ryan’s
      operations are included in the Company’s results of operations for the twelve
      weeks ended September 19, 2007, but not for the twelve weeks ended September
      20,
      2006. The aggregate purchase price was approximately $165.4 million (net of
      cash
      acquired of $559.4 million), including approximately $18.1 million of
      capitalized acquisition related expenses. The excess of the purchase
      consideration plus acquisition costs over the fair value of assets acquired
      and
      liabilities assumed of approximately $209.7 million was allocated to goodwill.
      Substantially all the goodwill is not deductible for tax purposes. The Company
      is in the process of finalizing restructuring actions related to this
      acquisition, which may result in adjustment to the purchase price or incremental
      restructuring charges or both. In certain cases, the allocations of the excess
      purchase price are based upon preliminary estimates and assumptions.
      Accordingly, the allocations are subject to revision when the Company receives
      final information, including appraisals and other analyses. Revisions to the
      fair values, which may be significant, will be recorded by the Company as
      further adjustments to the purchase price allocations.





The
      following table summarizes the allocation of the purchase price to the estimated
      fair market values of the assets acquired and liabilities assumed at the date
      of
      the acquisition:


**November
                  1,**
                **2006****(in
                  thousands)**Cash
              
              $
              559,406Assets
                  held for sale
              
              
              46,869Deferred
                  tax assets
              
              
              —Other
                  current assets
              
              
              43,134Property,
                  plant & equipment
              
              
              100,063Goodwill
              
              
              209,678Other
                  intangible assets (1)
              
              
              66,735Other
                  assets
              
              
              3,749Total
                  assets acquired
              
              
              1,029,634Accounts
                  payable
              
              
              15,735Current
                  portion of long-term debt
              
              
              33,036Income
                  taxes payable
              
              
              15,109Accrued
                  liabilities
              
              
              70,529Deferred
                  tax liability
              
              
              56,565Long-term
                  debt
              
              
              111,964Other
                  long-term liabilities
              
              
              1,859Total
                  liabilities assumed
              
              
              304,797Net
                  assets acquired
              
              
              724,837Less
                  cash acquired
              
              
              559,406Net
                  cash paid
              
              $
              165,431







(1)
            In
                connection with the Merger, the Company acquired approximately $63.4
                million in trademarks, $2.5 million in recipes and $0.8 million in
                leasehold interests.





In
      connection with the Merger, the Company executed a headcount reduction
      initiative at the former corporate headquarters of Ryan’s and has closed 22 of
      the acquired restaurants. As a result, the Company recorded a liability for
      employee termination costs of $6.0 million. At September 19, 2007, the Company
      had notified 961 employees of the acquired entities of their impending
      termination. As of the end of the first quarter of fiscal 2008, 955 employees
      had actually been terminated and employee termination costs of $5.9 million
      had
      been paid. The remaining employee termination costs of approximately $0.1
      million are expected to be paid during the second quarter of fiscal 2008.
      Charges related to employee termination costs and the restaurant closures were
      charged to goodwill pursuant to EITF 95-3, *Recognition
      of Liabilities in*  *Connection
      with a Purchase Business Combination.* The
      Company is in the process of finalizing restructuring actions related to this
      acquisition, which may result in adjustments to the purchase price or
      incremental restructuring charges or both.


12


The
      Company acquired certain properties which have been identified as “Assets Held
      for Sale” in the accompanying condensed consolidated balance sheet, pursuant to
      FASB Statement No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* .
      The
      Company wrote down the carrying values of such assets to estimated net selling
      price as part of the purchase price allocation. Depreciation is no longer
      recorded on assets held for sale. Net selling price is estimated as the amount
      at which the asset could be bought or sold at fair value, less costs to sell.
      Fair value is determined at prevailing market conditions, appraisals or current
      estimated net sales proceeds from pending offers, if appropriate. The fair
      value
      of the Company’s assets held for sale primarily relates to land values. The
      Company expects to dispose of these assets within twelve months.





The
      Company continually evaluates the assets in its portfolio in order to pursue
      an
      orderly disposition of its assets held for sale. There can be no assurance
      if or
      when sales will be completed or whether such sales will be completed on terms
      that will enable the Company to realize the full carrying value of such
      assets.





The
      Company incurred approximately $30.6 million in acquisition and merger
      integration costs as of September 19, 2007. Acquisition costs of approximately
      $18.1 million are recorded as a component of the purchase price in the condensed
      consolidated balance sheets pursuant to FASB Statement No. 141, *Business
      Combinations* .
      Merger
      integration costs of approximately $12.5 million have been expensed as incurred
      since the date of acquisition, of which approximately $1.6 million were expensed
      in the first quarter of fiscal 2008 and are recorded in “Merger Integration
      Costs” in the accompanying condensed consolidated statements of
      operations.





**8.
      Discontinued Operations**





In
      June
      2007, the Company developed a plan to sell a substantial portion of the assets
      and related liabilities of it’s Tahoe Joe’s Famous Steakhouse® restaurants. The
      Company is actively marketing the restaurants and expects to complete the sale
      within the current fiscal year. In accordance with SFAS No. 144, *Accounting*  *for
      Impairment or Disposal of Long-Lived Assets,* the
      Company has reclassified those assets and related liabilities as held for sale
      and presented them as discontinued operations in the accompanying condensed
      consolidated balance sheets. In addition, certain financial results related
      to
      those assets and liabilities, including revenues, restaurant costs and related
      taxes, have been accounted for as discontinued operations in the accompanying
      condensed consolidated statements of operations for all periods
      presented.





Revenues
      and certain results of operations for the Tahoe Joe’s restaurants include the
      following (in thousands):





**Twelve
                Weeks Ended****September
                20, 2006**
            
            **Twelve
                Weeks Ended****September
                19, 2007**Revenue
            
            $
            7,372
            
            $
            8,172Income
                from discontinued operations
            
            
            309
            
            
            37





The
      balance sheet information of discontinued operations includes the following
      (in
      thousands):





**June
                27, 2007**
            
            **September
                19, 2007**Current
                assets related to discontinued operations:Assets
                held for sale
            
            $
            13,186
            
            $
            14,023Inventory
                and prepaids
            
            
            931
            
            
            1,031Total
                current assets
            
            $
            14,117
            
            $
            15,054Noncurrent
                assets related to discontinued operations:Property
                and equipment
            
            $
            —
            
            $
            —Liquor
                licenses
            
            
            412
            
            
            493Total
                noncurrent assets
            
            $
            412
            
            $
            493Current
                liabilities related to discontinued operations:Gift
                card liability
            
            $
            1,137
            
            $
            1,020Total
                current liabilities
            
            $
            1,137
            
            $
            1,020




13


**9.
      Income Taxes**





The
      Company adopted the provisions of FASB Interpretation No. 48 ("FIN48"), *Accounting
      for Uncertainty in Income Taxes* ,
      on June
      28, 2007.  As a result of the implementation of FIN48, the Company
      recognized a cumulative effect change on retained earnings of approximately
      $1.4
      million.  The Company had a liability for total unrecognized income tax
      benefits in the amount $17.2 million on June 28, 2007.  Of the total
      unrecognized tax benefits reflected in the Company's balance sheet as of June
      28, 2007, the date of adoption, $6.2 million represented interest and
      penalties.  As of September 19, 2007, there was an adjustment to the
      liability for unrecognized income tax benefits in the amount of $ 0.6
      million, all of which represented interest and penalties.  The Company
      recognizes potential accrued interest and penalties related to unrecognized
      tax
      benefits within its operations in income tax expense. In
      conjunction with the adoption of FIN48, the Company reclassified
      the liability for unrecognized income tax benefits from current
      to long-term liabilities and approximately $19.9 million in refund
      receivables to current assets in the accompanying condensed consolidated balance
      sheet as of September 19, 2007.





**10.
      Related-Party Transactions**





In
        October 2000, the Company entered into a management agreement with an affiliate
        (the “Caxton-Iseman Party”) of Caxton-Iseman Investments L.P. Caxton-Iseman
        Investments L.P. is a majority shareholder of Buffets Restaurant Holdings,
        the
        parent company of Buffets Holdings, owning approximately 77.4% of the
        outstanding common stock. Under the management agreement, the Caxton-Iseman
        Party provides various advisory services to the Company in exchange for an
        annual advisory fee equal to 2% of the Company’s annual consolidated earnings
        before interest, taxes, depreciation and amortization. The Caxton-Iseman
        Party
        receives an additional fee for advisory services relating to particular
        financial transactions equal to 1% of the transaction value.





On
      November 1, 2006, Buffets entered into the Second Amended and Restated
      Management and Fee Agreement (the “Management Agreement”) with the Caxton-Iseman
      Party. In accordance with the terms of the Management Agreement, upon the
      request of Buffets, the Caxton-Iseman Party is to provide certain acquisition
      and financial advisory services to Buffets.





In
      consideration for the services to be provided by the Caxton-Iseman Party,
      Buffets agreed to pay the Caxton-Iseman Party (i) an annual fee equal to 2%
      of
      Buffets’ EBITDA (as defined in the Management Agreement), (ii) a transaction
      fee, payable upon the completion by Buffets of any acquisition, of 2% of the
      sale price, (iii) a transaction fee, payable upon the completion of the sale
      of
      Buffets of 1% of the sale price, and (iv) a transaction fee, payable upon the
      completion of the sale by Buffets of any other divestitures, of 1% of the sale
      price. The annual fee payable in any year may not exceed the amounts permitted
      under the Company’s debt agreements, and the Caxton-Iseman Party is obligated to
      return any portion of the annual fee that has been prepaid if an event of
      default has occurred and is continuing under either the Company’s debt
      agreements. The Company prepaid the management fee in January 2007 for the
      calendar year. As of September 19, 2007, the Company had expensed approximately
      $665,000 of this prepaid management fee during the quarter.





In
        October 2000, the Company entered a management agreement with Sentinel Capital
        Partners, L.L.C., a minority shareholder of Buffets Restaurant Holdings owning
        approximately 7.0% of the outstanding common stock, under which Sentinel
        Capital
        Partners, L.L.C. provides various advisory services to the Company for an
        annual
        advisory fee of $200,000.





Roe
        H.
        Hatlen, a founder of Buffets and a current member of the Board of Directors
        of
        Buffets and Buffets Holdings, entered into an advisory arrangement with Buffets
        Holdings on September 28, 2000 (the “Advisory Agreement”), that had an original
        term expiring in December 2005. On December 13, 2005, the Advisory Agreement
        was
        amended to extend the term through June 30, 2006 at an annual compensation
        of
        $200,000. The Advisory Agreement was further amended in July 2006 to extend
        the
        term through December 31, 2006 at the same annual compensation. The Company
        is
        currently paying Mr. Hatlen an annual fee of $200,000. In addition, Mr. Hatlen
        is entitled to (1) the use of certain company-provided facilities during
        the
        term of the agreement, (2) business expense (including auto expense)
        reimbursement arrangements during the term of the agreement, and (3) health,
        welfare, disability and life insurance benefits, on the same basis provided
        to
        senior executives of Buffets until December 31, 2010. All costs are recognized
        as incurred in “General and Administrative” expenses in the accompanying
        condensed consolidated statement of operations. Mr. Hatlen owns approximately
        6.0% of the outstanding common stock of Buffets Restaurant Holdings.


14


**11.
      Commitments and Contingencies**





*Litigation*





On
      November 12, 2004, two former restaurant managers of our wholly-owned
      subsidiary, HomeTown Buffet, Inc. (“HomeTown Buffet”), individually and on
      behalf of all others similarly situated, filed a class action lawsuit against
      HomeTown Buffet in California Superior Court in San Francisco County. The
      lawsuit alleges that HomeTown Buffet violated California wage and hour laws
      by
      failing to pay all of its California managers and assistant managers overtime,
      and for making deductions from bonus compensation based on the company’s
      workers’ compensation costs. In March 2006, the plaintiffs amended the complaint
      in the lawsuit to add OCB Restaurant Company, LLC as a defendant, and to limit
      the claims to those managers below the level of restaurant General Manager.
      In
      April 2006, the defendants removed the lawsuit to the United States District
      Court for the Northern District of California. The plaintiffs seek compensatory
      damages, penalties, restitution of unpaid overtime and deductions, pre-judgment
      interest, costs of suit and reasonable attorneys’ fees. The complaint does not
      make a specific monetary demand.





During
      the course of discovery, but prior to a motion for certification of a class,
      the
      parties reached a settlement of this action in mediation in late February 2007.
      The settlement received preliminary court approval on September 12, 2007. While
      the Company is currently not able to predict the outcome of this action, the
      Company estimates that, should the court provide final approval of the
      settlement, the Company will pay approximately $7.2 million to resolve this
      matter. This amount has been recorded in the Company’s accrued litigation
      reserve and is included in “Accrued Liabilities” in the accompanying condensed
      consolidated balance sheets. Included in this amount is approximately $0.4
      million in attorney fees paid to the Company’s external counsel for services
      rendered through September 19, 2007 specifically related to negotiating the
      settlement.





In
      June
      2006, a lawsuit was filed in the Berkeley County (West Virginia) circuit court
      on behalf of three plaintiffs alleging wage and hour violations similar to
      the
      Tennessee collective-action case discussed in the preceding paragraph. This
      case
      seeks class-action status, but pertains only to West Virginia employees who
      worked for Ryan’s during the five years ending July 2006. In July 2006,
      Defendants removed the lawsuit to the United States District Court for the
      Northern District of West Virginia. In February 2007, the Court denied
      Plaintiffs motion to remand the matter back to West Virginia state court. The
      plaintiffs seek compensatory damages, penalties, restitution of unpaid wages
      and
      deductions, pre-judgment interest, costs of suit and reasonable attorneys’ fees.
      The complaint does not make a specific monetary demand. This action is in a
      preliminary stage, and the Company is currently not able to predict the outcome
      of this action or reasonably estimate a range of possible loss. The Company
      is
      vigorously defending this action.





We
      are
      also involved in various legal actions arising in the ordinary course of
      business. In the opinion of management, the ultimate disposition of those
      matters will not have a material adverse effect on our consolidated financial
      position or the results of operations.


15


**12.
      Condensed Consolidating Financial Statements**





The
      following unaudited condensed consolidating financial statements are presented
      pursuant to Rule 3-10 of Regulation S-X. Buffets, Inc. is an issuer (the
“Subsidiary Issuer”) of 12 1/2% Senior Notes that are fully and unconditionally
      guaranteed by its parent, Buffets Holdings (the “Parent”), as well as each of
      its current and future domestic subsidiaries including HomeTown Buffet, Inc.,
      OCB Restaurant Company, LLC, OCB Purchasing Co., Tahoe Joe’s, Inc., Buffets
      Leasing Company, LLC, HomeTown Leasing Company, LLC, OCB Leasing Company, LLC,
      Tahoe Joe’s Leasing Company, LLC, Ryan’s Restaurant Group, Inc., Big R
      Procurement Company, LLC, Fire Mountain Restaurants, LLC, Ryan’s Restaurant
      Leasing Company, LLC, Ryan’s Restaurant Management Group, LLC, Fire Mountain
      Leasing Company, LLC, Fire Mountain Management Group, LLC, and Buffets Franchise
      Holdings, LLC (collectively, the “Subsidiary Guarantors”). All guarantees are
      joint and several and Buffets, Inc. and the subsidiary guarantors are 100%
      owned
      by Buffets Holdings.





There
      are
      certain restrictions on the ability of the Company to obtain funds from its
      subsidiaries. Pursuant to the terms of the Company’s debt agreements, the
      Company and its subsidiaries have restrictions on their ability to make certain
      payments. The types of payments that are restricted include dividends or other
      equity distributions to equity holders, payments to repurchase the Company’s
      capital stock, repayment of subordinated debt prior to scheduled repayment
      or
      maturity and certain investments (collectively referred to as “Restricted
      Payments”). The restrictions do not allow the Company and its subsidiaries,
      directly or indirectly, to make a Restricted Payment if at the time the Company
      or a subsidiary makes such Restricted Payment: (1) a default has occurred and
      is
      continuing, (2) certain debt covenant ratios of the Company exceed a specified
      threshold, or (3) the aggregate amount of such Restricted Payment and all other
      Restricted Payments exceeds certain thresholds.


16




**Condensed
      Consolidating Balance Sheet**


**As
      of June 27, 2007**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)****ASSETS**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              37
              
              $
              (1,852
              )
              $
              6,460
              
              $
              —
              
              $
              4,645Receivables
              
              
              (312
              )
              
              1,944
              
              
              338,780
              
              
              (330,193
              )
              
              10,219Inventories
              
              
              —
              
              
              858
              
              
              31,229
              
              
              —
              
              
              32,087Prepaid
                  expenses and other current assets
              
              
              —
              
              
              6,383
              
              
              2,249
              
              
              —
              
              
              8,632Deferred
                  income taxes
              
              
              —
              
              
              3,000
              
              
              —
              
              
              —
              
              
              3,000Assets
                  held for sale
              
              
              —
              
              
              —
              
              
              34,959
              
              
              —
              
              
              34,959Current
                  assets related to discontinued operations
              
              
              —
              
              
              —
              
              
              14,117
              
              
              —
              
              
              14,117Total
                  current assets
              
              
              (275
              )
              
              10,333
              
              
              427,794
              
              
              (330,193
              )
              
              107,659PROPERTY
                  AND EQUIPMENT, net
              
              
              —
              
              
              7,577
              
              
              213,515
              
              
              —
              
              
              221,092GOODWILL,
                  net
              
              
              —
              
              
              11,547
              
              
              490,499
              
              
              —
              
              
              502,046OTHER
                  INTANGIBLE ASSETS
              
              
              —
              
              
              —
              
              
              83,998
              
              
              —
              
              
              83,998OTHER
                  ASSETS, net
              
              
              38
              
              
              462,842
              
              
              5,452
              
              
              (431,240
              )
              
              37,092NON-CURRENT
                  ASSETS RELATED TO DISCONTINUED OPERATIONS
              
              
              —
              
              
              —
              
              
              412
              
              
              —
              
              
              412Total
                  assets
              
              $
              (237
              )
              $
              492,299
              
              $
              1,221,670
              
              $
              (761,433
              )
              $
              952,299**LIABILITIES
                  AND SHAREHOLDER’S EQUITY (DEFICIT)**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              —
              
              $
              399,685
              
              $
              11,598
              
              $
              (330,193
              )
              $
              81,090Accrued
                  liabilities
              
              
              —
              
              
              70,912
              
              
              61,871
              
              
              —
              
              
              132,783Income
                  taxes payable
              
              
              6,274
              
              
              (3,127
              )
              
              —
              
              
              —
              
              
              3,147Short
                  term debt
              
              
              —
              
              
              299
              
              
              12,701
              
              
              
              
              
              13,000Current
                  maturities of long-term debt
              
              
              —
              
              
              152
              
              
              6,473
              
              
              —
              
              
              6,625Current
                  liabilities related to discontinued operations
              
              
              —
              
              
              —
              
              
              1,137
              
              
              —
              
              
              1,137Total
                  current liabilities
              
              
              6,274
              
              
              467,921
              
              
              93,780
              
              
              (330,193
              )
              
              237,782LONG-TERM
                  DEBT, net of current maturities
              
              
              —
              
              
              18,907
              
              
              952,943
              
              
              (149,800
              )
              
              822,050DEFERRED
                  INCOME TAXES
              
              
              —
              
              
              33,456
              
              
              —
              
              
              —
              
              
              33,456DEFERRED
                  LEASE OBLIGATIONS
              
              
              —
              
              
              2,328
              
              
              35,881
              
              
              —
              
              
              38,209OTHER
                  LONG-TERM LIABILITIES
              
              
              —
              
              
              2,842
              
              
              6,499
              
              
              —
              
              
              9,341Total
                  liabilities
              
              
              6,274
              
              
              525,454
              
              
              1,089,103
              
              
              (479,993
              )
              
              1,140,838COMMITMENTS
                  AND CONTINGENCIESSHAREHOLDER’S
                  EQUITY (DEFICIT)Common
                  stock
              
              
              31
              
              
              —
              
              
              —
              
              
              —
              
              
              31Additional
                  paid in capital
              
              
              82
              
              
              —
              
              
              —
              
              
              —
              
              
              82Retained
                  earnings (accumulated deficit)
              
              
              (6,624
              )
              
              (33,213
              )
              
              132,567
              
              
              (281,440
              )
              
              (188,710
              )Accumulated
                  comprehensive income
              
              
              —
              
              
              58
              
              
              —
              
              
              —
              
              
              58Total
                  shareholder’s equity (deficit)
              
              
              (6,511
              )
              
              (33,155
              )
              
              132,567
              
              
              (281,440
              )
              
              (188,539
              )Total
                  liabilities and shareholder’s equity (deficit)
              
              $
              (237
              )
              $
              492,299
              
              $
              1,221,670
              
              $
              (761,433
              )
              $
              952,299





17


**Condensed
      Consolidating Balance Sheet**


**As
      of September 19, 2007**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****ASSETS**
              
              **(Unaudited)**CURRENT
                  ASSETS:
              
              **(In
                  thousands)**Cash
                  and cash equivalents
              
              $
              37
              
              $
              6,438
              
              $
              5,053
              
              $
              —
              
              $
              11,528Receivables
              
              
              (6,586
              )
              
              7,921
              
              
              368,529
              
              
              (361,879
              )
              
              7,985Income
                  tax receivable
              
              
              —
              
              
              19,851
              
              
              —
              
              
              —
              
              
              19,851Inventories
              
              
              —
              
              
              856
              
              
              31,013
              
              
              —
              
              
              31,869Prepaid
                  expenses and other current assets
              
              
              —
              
              
              5,440
              
              
              3,516
              
              
              —
              
              
              8,956


Deferred
                    income taxes
                
                
                —
                
                
                1,514
                
                
                1,486
                
                
                —
                
                
                3,000


Assets
                  held for sale
              
              
              —
              
              
              —
              
              
              19,944
              
              
              —
              
              
              19,944


Current
                  assets related to discontinued operations
              
              
              —
              
              
              —
              
              
              15,054
              
              
              —
              
              
              15,054Total
                  current assets
              
              
              (6,549
              )
              
              42,020
              
              
              444,595
              
              
              (361,879
              )
              
              118,187PROPERTY
                  AND EQUIPMENT, net
              
              
              —
              
              
              7,721
              
              
              214,410
              
              
              —
              
              
              222,131GOODWILL,
                  net
              
              
              —
              
              
              11,949
              
              
              507,587
              
              
              —
              
              
              519,536OTHER
                  INTANGIBLE ASSETS
              
              
              —
              
              
              —
              
              
              67,534
              
              
              —
              
              
              67,534OTHER
                  ASSETS, net
              
              
              38
              
              
              461,280
              
              
              5,579
              
              
              (431,240
              )
              
              35,657NON-CURRENT
                  ASSETS RELATED TO DISCONTINUED OPERATIONS
              
              
              —
              
              
              —
              
              
              493
              
              
              —
              
              
              493Total
                  assets
              
              $
              (6,511
              )
              $
              522,970
              
              $
              1,240,198
              
              $
              (793,119
              )
              $
              963,538**LIABILITIES
                  AND SHAREHOLDER’S EQUITY (DEFICIT)**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              —
              
              $
              426,546
              
              $
              11,555
              
              $
              (361,879
              )
              $
              76,222Accrued
                  liabilities
              
              
              —
              
              
              58,551
              
              
              65,420
              
              
              —
              
              
              123,971Income
                  taxes payable
              
              
              —
              
              
              1,019
              
              
              —
              
              
              —
              
              
              1,019Short
                  term debt
              
              
              —
              
              
              770
              
              
              32,730
              
              
              —
              
              
              33,500Current
                  maturities of long-term debt
              
              
              —
              
              
              122
              
              
              5,178
              
              
              —
              
              
              5,300Current
                  liabilities related to discontinued operations
              
              
              —
              
              
              —
              
              
              1,020
              
              
              —
              
              
              1,020Total
                  current liabilities
              
              
              —
              
              
              487,008
              
              
              115,903
              
              
              (361,879
              )
              
              241,032LONG-TERM
                  DEBT, net of current maturities
              
              
              —
              
              
              18,907
              
              
              952,943
              
              
              (149,800
              )
              
              822,050DEFERRED
                  INCOME TAXES
              
              
              —
              
              
              26,765
              
              
              —
              
              
              —
              
              
              26,765LONG-TERM
                  TAXES PAYABLE
              
              
              —
              
              
              16,838
              
              
              —
              
              
              —
              
              
              16,838DEFERRED
                  LEASE OBLIGATIONS
              
              
              —
              
              
              2,410
              
              
              38,601
              
              
              —
              
              
              41,011OTHER
                  LONG-TERM LIABILITIES
              
              
              —
              
              
              2,792
              
              
              5,774
              
              
              —
              
              
              8,566Total
                  liabilities
              
              
              —
              
              
              554,720
              
              
              1,113,221
              
              
              (511,679
              )
              
              1,156,262COMMITMENTS
                  AND CONTINGENCIESSHAREHOLDER’S
                  EQUITY (DEFICIT)Common
                  stock
              
              
              31
              
              
              —
              
              
              —
              
              
              —
              
              
              31Additional
                  paid in capital
              
              
              82
              
              
              480,139
              
              
              (53,875
              )
              
              (426,264
              )
              
              82Retained
                  earnings (accumulated deficit)
              
              
              (6,624
              )
              
              (511,695
              )
              
              180,837
              
              
              144,824
              
              
              (192,658
              )Accumulated
                  comprehensive income (loss)
              
              
              —
              
              
              (194
              )
              
              15
              
              
              —
              
              
              (179
              )Total
                  shareholder’s equity (deficit)
              
              
              (6,511
              )
              
              (31,750
              )
              
              126,977
              
              
              (281,440
              )
              
              (192,724
              )Total
                  liabilities and shareholder’s equity (deficit)
              
              $
              (6,511
              )
              $
              522,970
              
              $
              1,240,198
              
              $
              (793,119
              )
              $
              963,538




18


**Condensed
      Consolidating Statement of Operations**


**For
      the Twelve Weeks Ended September 20, 2006**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**RESTAURANT
                  SALES
              
              $
              —
              
              $
              10,493
              
              $
              203,411
              
              $
              —
              
              $
              213,904RESTAURANT
                  COSTS:Food
              
              
              —
              
              
              3,761
              
              
              70,329
              
              
              —
              
              
              74,090Labor
              
              
              —
              
              
              3,074
              
              
              57,304
              
              
              —
              
              
              60,378Direct
                  and occupancy
              
              
              —
              
              
              1,491
              
              
              50,381
              
              
              —
              
              
              51,872Total
                  restaurant costs
              
              
              —
              
              
              8,326
              
              
              178,014
              
              
              —
              
              
              186,340ADVERTISING
                  EXPENSES
              
              
              —
              
              
              343
              
              
              6,884
              
              
              —
              
              
              7,227GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              1
              
              
              461
              
              
              8,804
              
              
              —
              
              
              9,266CLOSED
                  RESTAURANT COSTS
              
              
              —
              
              
              —
              
              
              742
              
              
              —
              
              
              742MERGER
                  INTEGRATION COSTS
              
              
              —
              
              
              440
              
              
              —
              
              
              —
              
              
              440OPERATING
                  INCOME (LOSS)
              
              
              (1
              )
              
              923
              
              
              8,967
              
              
              —
              
              
              9,889INTEREST
                  EXPENSE
              
              
              3,637
              
              
              575
              
              
              9,016
              
              
              —
              
              
              13,228INTEREST
                  INCOME
              
              
              —
              
              
              (28
              )
              
              —
              
              
              —
              
              
              (28
              )LOSS
                  RELATED TO REFINANCING
              
              
              —
              
              
              243
              
              
              —
              
              
              —
              
              
              243OTHER
                  INCOME
              
              
              —
              
              
              (202
              )
              
              —
              
              
              —
              
              
              (202
              )INCOME
                  (LOSS) BEFORE INCOME TAXES
              
              
              (3,638
              )
              
              335
              
              
              (49
              )
              
              —
              
              
              (3,352
              )INCOME
                  TAX EXPENSE (BENEFIT)
              
              
              (1,996
              )
              
              126
              
              
              (33
              )
              
              —
              
              
              (1,903
              )Net
                  income (loss) from continuing operations
              
              
              (1,642
              )
              
              209
              
              
              (16
              )
              
              —
              
              
              (1,449
              )Net
                  income from discontinued operations, net of tax
              
              
              —
              
              
              —
              
              
              309
              
              
              —
              
              
              309Net
                  income (loss)
              
              $
              (1,642
              )
              $
              209
              
              $
              293
              
              $
              —
              
              $
              (1,140
              )




19


**Condensed
      Consolidating Statement of Operations**


**For
      the Twelve Weeks Ended September 19, 2007**





**Parent**
            
            **Subsidiary**
              **Issuer**
            
            **Subsidiary**
              **Guarantors**
            
            **Eliminations**
            
            **Consolidated****(Unaudited)****(In
                thousands)**RESTAURANT
                SALES
            
            $
            —
            
            $
            10,047
            
            $
            366,492
            
            $
            —
            
            $
            376,539RESTAURANT
                COSTS:Food
            
            
            —
            
            
            3,605
            
            
            126,563
            
            
            —
            
            
            130,168Labor
            
            
            —
            
            
            2,934
            
            
            108,213
            
            
            —
            
            
            111,147Direct
                and occupancy
            
            
            —
            
            
            1,505
            
            
            96,665
            
            
            —
            
            
            98,170Total
                restaurant costs
            
            
            —
            
            
            8,044
            
            
            331,441
            
            
            —
            
            
            339,485ADVERTISING
                EXPENSES
            
            
            —
            
            
            258
            
            
            9,609
            
            
            —
            
            
            9,867GENERAL
                AND ADMINISTRATIVE EXPENSES
            
            
            —
            
            
            428
            
            
            15,622
            
            
            (152
            )
            
            15,898CLOSED
                RESTAURANT COSTS
            
            
            —
            
            
            —
            
            
            69
            
            
            —
            
            
            69MERGER
                INTEGRATION COSTS
            
            
            —
            
            
            789
            
            
            844
            
            
            —
            
            
            1,633LOSS
                ON LITIGATION SETTLEMENT
            
            
            —
            
            
            54
            
            
            —
            
            
            —
            
            
            54OPERATING
                INCOME (LOSS)
            
            
            —
            
            
            474
            
            
            8,907
            
            
            152
            
            
            9,533INTEREST
                EXPENSE
            
            
            —
            
            
            477
            
            
            20,278
            
            
            2
            
            
            20,757INTEREST
                INCOME
            
            
            —
            
            
            (159
            )
            
            —
            
            
            (2
            )
            
            (161
            )LOSS
                RELATED TO REFINANCING
            
            
            —
            
            
            5
            
            
            —
            
            
            —
            
            
            5OTHER
                INCOME
            
            
            —
            
            
            (422
            )
            
            —
            
            
            152
            
            
            (270
            )INCOME
                (LOSS) BEFORE INCOME TAXES
            
            
            —
            
            
            573
            
            
            (11,371
            )
            
            —
            
            
            (10,798
            )INCOME
                TAX EXPENSE (BENEFIT)
            
            
            —
            
            
            316
            
            
            (5,728
            )
            
            —
            
            
            (5,412
            )Net
                income (loss) from continuing operations
            
            
            —
            
            
            257
            
            
            (5,643
            )
            
            —
            
            
            (5,386
            )Net
                income (loss) from discontinued operations, net of tax
            
            
            —
            
            
            —
            
            
            37
            
            
            —
            
            
            37Net
                income (loss)
            
            $
            —
            
            $
            257
            
            $
            (5,606
            )
            $
            —
            
            $
            (5,349
            )




20


**Condensed
      Consolidating Statement of Cash Flows**


**For
      the Twelve Weeks Ended September 20, 2006**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**OPERATING
                  ACTIVITIES:Net
                  income (loss)
              
              $
              (1,642
              )
              $
              209
              
              $
              293
              
              $
              —
              
              $
              (1,140
              )Adjustments
                  to reconcile net income (loss) to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              —
              
              
              684
              
              
              6,700
              
              
              —
              
              
              7,384Amortization
                  of debt issuance costs
              
              
              94
              
              
              19
              
              
              300
              
              
              —
              
              
              413Accretion
                  of original issue discount
              
              
              3,543
              
              
              12
              
              
              193
              
              
              —
              
              
              3,748Loss
                  on disposal of assets
              
              
              —
              
              
              —
              
              
              249
              
              
              —
              
              
              249Changes
                  in assets and liabilities:Receivables
              
              
              —
              
              
              9,205
              
              
              (8,659
              )
              
              (152
              )
              
              394Inventories
              
              
              —
              
              
              1
              
              
              171
              
              
              —
              
              
              172Prepaid
                  expenses and other current assets
              
              
              1
              
              
              1,195
              
              
              (1,006
              )
              
              —
              
              
              190Accounts
                  payable
              
              
              —
              
              
              (5,211
              )
              
              425
              
              
              —
              
              
              (4,786
              )Accrued
                  and other liabilities
              
              
              —
              
              
              (5,829
              )
              
              (506
              )
              
              —
              
              
              (6,335
              )Income
                  taxes payable/refundable
              
              
              (1,996
              )
              
              (2,967
              )
              
              —
              
              
              —
              
              
              (4,963
              )Net
                  cash used in operating activities
              
              
              —
              
              
              (2,682
              )
              
              (1,840
              )
              
              (152
              )
              
              (4,674
              )INVESTING
                  ACTIVITIES:Acquisitions,
                  net of liabilities assumed
              
              
              —
              
              
              —
              
              
              (3,468
              )
              
              —
              
              
              (3,468
              )Purchase
                  of property and equipment
              
              
              —
              
              
              (123
              )
              
              (6,713
              )
              
              —
              
              
              (6,836
              )Corporate
                  cash advances (payments)
              
              
              —
              
              
              (4,835
              )
              
              4,683
              
              
              152
              
              
              —Collection
                  of notes receivable
              
              
              —
              
              
              697
              
              
              —
              
              
              —
              
              
              697Proceeds
                  from sale (purchase) of other assets
              
              
              —
              
              
              (2,897
              )
              
              (514
              )
              
              —
              
              
              (3,411
              )Net
                  cash provided by (used in) investing activities
              
              
              —
              
              
              (7,158
              )
              
              (6,012
              )
              
              152
              
              
              (13,018
              )FINANCING
                  ACTIVITIES:Repayment
                  of debt
              
              
              —
              
              
              (28
              )
              
              (438
              )
              
              —
              
              
              (466
              )Proceeds
                  from revolving credit facility
              
              
              —
              
              
              360
              
              
              5,640
              
              
              —
              
              
              6,000Net
                  cash provided by financing activities
              
              
              —
              
              
              332
              
              
              5,202
              
              
              —
              
              
              5,534NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              —
              
              
              (9,508
              )
              
              (2,650
              )
              
              —
              
              
              (12,158
              )CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              37
              
              
              14,068
              
              
              6,089
              
              
              —
              
              
              20,194CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              37
              
              $
              4,560
              
              $
              3,439
              
              $
              —
              
              $
              8,036




21


**Condensed
      Consolidating Statement of Cash Flows**


**For
      the Twelve Weeks Ended September 19, 2007**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(Unaudited)****(In
                  thousands)**OPERATING
                  ACTIVITIES:Net
                  income (loss)
              
              $
              —
              
              $
              257
              
              $
              (5,606
              )
              $
              —
              
              $
              (5,349
              )Adjustments
                  to reconcile net income (loss) to net cash provided by (used in)
                  operating
                  activities:Depreciation
                  and amortization
              
              
              —
              
              
              645
              
              
              9,396
              
              
              —
              
              
              10,041Amortization
                  of debt issuance costs
              
              
              —
              
              
              27
              
              
              1,153
              
              
              —
              
              
              1,180


Loss
                    on disposal of assets
                
                
                —
                
                
                —
                
                
                45
                
                
                —
                
                
                45


Deferred
                  income taxes
              
              
              —
              
              
              (34
              )
              
              (1,459
              )
              
              —
              
              
              (1,493
              )


Changes
                  in assets and liabilities:Receivables
              
              
              —
              
              
              17,288
              
              
              (15,052
              )
              
              —
              
              
              2,236Inventories
              
              
              —
              
              
              2
              
              
              105
              
              
              —
              
              
              107Prepaid
                  expenses and other current assets
              
              
              —
              
              
              442
              
              
              (1,332
              )
              
              —
              
              
              (890
              )Due
                  from parent
              
              
              6,274
              
              
              (6,274
              )
              
              —
              
              
              —
              
              
              —Accounts
                  payable
              
              
              —
              
              
              (4,825
              )
              
              1,061
              
              
              —
              
              
              (3,764
              )Accrued
                  and other liabilities
              
              
              —
              
              
              (12,329
              )
              
              4,437
              
              
              —
              
              
              (7,892
              )Income
                  taxes payable/refundable
              
              
              (6,274
              )
              
              2,534
              
              
              —
              
              
              —
              
              
              (3,740
              )Net
                  cash provided by (used in) operating activities
              
              
              —
              
              
              (2,267
              )
              
              (7,252
              )
              
              —
              
              
              (9,519
              )INVESTING
                  ACTIVITIES:Proceeds
                  from sale of assets held for sale
              
              
              —
              
              
              —
              
              
              8,813
              
              
              —
              
              
              8,813Acquisitions,
                  net of liabilities assumed
              
              
              —
              
              
              —
              
              
              (1
              )
              
              —
              
              
              (1
              )Purchase
                  of property and equipment
              
              
              —
              
              
              (497
              )
              
              (10,886
              )
              
              —
              
              
              (11,383
              )Collection
                  of notes receivable
              
              
              —
              
              
              501
              
              
              —
              
              
              —
              
              
              501Corporate
                  cash advances (payments)
              
              
              —
              
              
              10,238
              
              
              (10,238
              )
              
              —
              
              
              —Proceeds
                  from sale of other assets
              
              
              —
              
              
              (126
              )
              
              (559
              )
              
              —
              
              
              (685
              )Net
                  cash provided by (used in) investing activities
              
              
              —
              
              
              10,116
              
              
              (12,871
              )
              
              —
              
              
              (2,755
              )FINANCING
                  ACTIVITIES:Payments
                  on new term loan funding
              
              
              —
              
              
              (30
              )
              
              (1,295
              )
              
              —
              
              
              (1,325
              )Proceeds
                  from new revolver facility
              
              
              —
              
              
              471
              
              
              20,029
              
              
              —
              
              
              20,500Debt
                  issuance costs
              
              
              —
              
              
              —
              
              
              (15
              )
              
              —
              
              
              (15
              )Net
                  cash provided by financing activities
              
              
              —
              
              
              441
              
              
              18,719
              
              
              —
              
              
              19,160NET
                  CHANGE IN CASH AND CASH EQUIVALENTS RELATED TO DISCONTINUED
                  OPERATIONS
              
              
              —
              
              
              —
              
              
              (3
              )
              
              —
              
              
              (3
              )NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              —
              
              
              8,290
              
              
              (1,407
              )
              
              —
              
              
              6,883CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              37
              
              
              (1,852
              )
              
              6,460
              
              
              —
              
              
              4,645CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              37
              
              $
              6,438
              
              $
              5,053
              
              $
              —
              
              $
              11,528




22


**13.
      Subsequent Events**





The Company
        has engaged Houlihan, Lokey, Howard & Zukin Capital to act as
        financial advisor to review the business plan and advise the
        Company with respect to its capital structure.




23




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND**  **RESULTS
      OF OPERATIONS**





*You
      should read the following discussion in conjunction with our
      condensed*  *consolidated
      financial statements and related notes included elsewhere in
      this*  *report.
      Unless the context indicates or requires otherwise, (i) the
      term*  *“Buffets
      Holdings” refers to Buffets Holdings, Inc.; (ii) the term
“Buffets”*  *refers
      to Buffets, Inc., our principal operating subsidiary; (iii) the
      terms*  *“we,”
      “our,” “ours,” and the “Company” refer to Buffets Holdings, Inc. and
      its*  *subsidiaries.
      Some of the statements in the following discussion are*  *forward-looking
      statements. See “Forward-Looking Statements and Risk Factors” elsewhere in this
      filing.*  *Historical
      results will not be indicative of future results due to the*  *consummation
      of the merger transaction with Ryan’s Restaurant Group, Inc.*  *(“Ryan’s”)
      and the related refinancing of our indebtedness and Ryan’s*  *indebtedness.*





**Overview**





We
        are
        the nation’s largest steak-buffet restaurant chain by number of units and the
        second largest company in the family dining segment by sales volume. Our
        restaurants are principally operated under the names Ryan’s®, Fire
        Mountain®, Old Country Buffet® and HomeTown Buffet®. As of September 19,
        2007, we had 632 company-owned steak-buffet restaurants and seventeen franchised
        locations in 42 states.





Restaurants
                operating as of June 27, 2007
            
            
            632For
                the twelve week period ended September 19, 2007:Restaurants
                opened
            
            
            1Restaurants
                closed
            
            
            (1
            )Restaurants
                operating as of September 19, 2007
            
            
            632





Buffets
        was founded in 1983 to develop buffet-style restaurants under the name Old
        Country Buffet®. In October 1985, Buffets completed its initial public offering
        and was listed on The NASDAQ National Market. In September 1996, Buffets
        merged
        with HomeTown Buffet, Inc., which was developed by one of Buffets’ co-founders.
        In October 2000, Buffets was acquired by Buffets Holdings, a company organized
        by investment funds affiliated with Caxton-Iseman Capital, LLC (“Caxton-Iseman
        Capital”), in a buyout from public shareholders. On November 1, 2006, Buffets
        merged (the “Merger”) with Ryan’s to create the nation’s largest steak-buffet
        restaurant chain by number of units and the second largest company in the
        family dining segment by sales volume.





Our
        financial results are significantly impacted by changes in sales at our
        company-owned restaurants. Changes in sales are largely driven by changes
        in
        average weekly guest counts and average guest check. Average weekly guest
        counts
        are affected by changes in consumer confidence, competition, economic conditions
        and unusual weather patterns. We monitor average weekly guest counts very
        closely, as they directly impact our revenues and profits, and focus substantial
        efforts on growing these numbers on a same store basis. Same store average
        weekly sales and guest counts are affected by several factors including,
        our
        ability to consistently deliver a high-quality, value-priced selection of
        home-style cooked meals in a clean and pleasant self-service buffet format
        and
        the success of our marketing promotions and other business
        strategies.





Our
      business model is characterized by a relatively fixed cost structure,
      particularly in the short term. Accordingly, changes in marginal average weekly
      sales volume can have a more significant impact on our profitability than for
      a
      business operating in a more variable cost structure. Over a longer time
      horizon, by virtue of our diversified food offerings, we are able to address
      the
      semi-fixed element of food cost by modifying our offerings or by highlighting
      other foods on the menu in order to reduce consumption of the higher cost items.
      In addition, on a weekly basis we monitor our labor costs and hourly employee
      productivity, as measured by the number of guests served per labor hour, to
      ensure that restaurants are responsive in scheduling and managing our labor
      to
      varying levels of guest traffic.





Our
      fiscal year comprises 52 or 53 weeks divided into four fiscal quarters of
      twelve, twelve, sixteen and twelve or thirteen weeks, respectively. The current
      fiscal year is comprised of 53 weeks and will end on July 2, 2008.





24


The
      following is a description of the line items from our condensed consolidated
      statements of operations:




·
            We
                recognize as restaurant sales the proceeds from the sale of food
                and
                beverages at our company-owned restaurants at the time of such sale.
                We
                recognize the proceeds from the sale of gift cards/certificates when
                the
                gift cards/certificates are redeemed at our restaurants. Until redemption,
                the unearned revenue from the sale of gift cards/certificates is
                included
                in “Accrued Liabilities” on our accompanying condensed consolidated
                balance sheets. Our franchise income includes royalty fees and initial
                franchise fees received from our franchisee. We recognize royalty
                fees as
                other income based on the sales reported at the franchise
                restaurants.




·
            Restaurant
                costs reflect only direct restaurant operating costs, including food,
                labor and direct and occupancy costs. Food costs include the cost
                of food
                and nonalcoholic beverages consumed within the restaurants. Labor
                costs
                include compensation and benefits for both hourly and restaurant
                management employees. Direct and occupancy costs consist primarily
                of
                costs of supplies, maintenance, utilities, rent, real estate taxes,
                insurance, depreciation and
                amortization.





·
            Advertising
                expenses reflect all advertising and promotional costs including
                media and
                production costs.





·
            General
                and administrative expenses reflect all costs, other than advertising
                expenses, not directly related to the operation of restaurants. These
                expenses consist primarily of corporate administrative compensation
                and
                overhead, district and regional management compensation and related
                expenses and the costs of recruiting, training and supervising restaurant
                management personnel.





·
            Closed
                restaurant costs represent costs associated with store closure of
                underperforming restaurants, including, but not limited to lease
                termination costs and obligations and employee termination
                costs.





·
            Merger
                integration costs represent professional fees and employee travel
                and
                expenses related to integration activities associated with the Ryan’s and
                North’s acquisitions.





·
            Loss
                on litigation settlement represents the costs associated with the
                settlement of a class action lawsuit against HomeTown Buffet, Inc.
                and OCB
                Restaurant Company, LLC.





·
            Interest
                expense reflects interest costs associated with our debt and amortization
                of debt issuance cost. Interest expense for the first quarter of
                fiscal
                2007 also reflects accretion of original issuance discount on our
                11 1/4%
                senior subordinated notes and 13 7/8 % senior discount notes, which
                were
                repurchased and/or redeemed on, or shortly after, November 1,
                2006.





·
            Interest
                income reflects interest earned on our short-term investments.





·
            Loss
                related to refinancing for the first quarter of fiscal 2007 represents
                transaction costs associated with an amendment to Buffets’ previous credit
                facility in September 2006. This credit facility was replaced with
                Buffets’ current credit facility in conjunction with the Ryan’s merger on
                November 1, 2006. Loss related to refinancing for the first quarter
                of
                fiscal 2008 represents transaction costs associated with an amendment
                to
                Buffets’ current credit facility in March
                2007.





·
            Other
                income primarily reflects franchise fees earned.





·
            Income
                tax benefit reflects the current and deferred tax benefit determined
                in
                accordance with the provisions of SFAS No. 109,*Accounting
                for Income Taxes*.





**Recent
      Developments**





We
        have
        engaged Houlihan, Lokey, Howard & Zukin Capital to act as financial
        advisor to review the business plan and advise us with respect to our capital
        structure.





25


**Critical
      Accounting Policies**





Our
      condensed consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America.
      The preparation of our condensed consolidated financial statements requires
      management to make estimates and assumptions that affect the reported amount
      of
      assets and liabilities, the 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. On an ongoing basis, management evaluates
      its estimates and assumptions, including those related to recoverability of
      long-lived assets, goodwill, self-insurance reserves and income taxes.
      Management bases its estimates and assumptions on historical experience and
      on
      various other factors. Actual results may differ from these estimates and
      assumptions under different circumstances or conditions.





We
      believe the following critical accounting policies affect management’s
      significant estimates and assumptions used in the preparation of our condensed
      consolidated financial statements.





*Long-Lived
      Assets*





We
      test
      property and equipment for impairment annually or whenever events or
      circumstances indicate that the carrying amount of a restaurant’s assets may not
      be recoverable. We test for impairment using historical cash flows and other
      relevant facts and circumstances as the primary basis for its estimates of
      future cash flows. Assets are grouped and evaluated for impairment at the lowest
      level for which there are identifiable cash flows, namely as individual
      restaurants. A restaurant is deemed to be impaired if a forecast of undiscounted
      future operating cash flows, including disposal value, if any, is less than
      its
      carrying amount.





If
      a
      restaurant is determined to be impaired, the loss is measured as the amount
      by
      which the carrying amount of the restaurant exceeds its fair value. Fair value
      is based on quoted market prices in active markets, if available. If quoted
      market prices are not available, we generally measure fair value by discounting
      estimated future cash flows. This process requires the use of estimates and
      assumptions, which are subject to a high degree of judgment. Accordingly, actual
      results could vary significantly from such estimates.





No
      impairment charges were recorded in the first twelve weeks of fiscal years
      2007
      and 2008.





*Goodwill
      and Other Intangible Assets*





The
      Company tests the recoverability of goodwill and other intangible assets
      annually or whenever events or circumstances indicate that the carrying amount
      may not be recoverable. Goodwill and other intangible assets are deemed to
      be
      impaired if the fair value of a reporting unit is less than its carrying value.
      If goodwill or other intangible assets are determined to be impaired, the loss
      is measured as the amount by which the carrying amounts of a reporting unit’s
      goodwill or other intangible assets exceeds their implied fair value. The fair
      value of a reporting unit is an estimate based on assumptions regarding its
      future cash flows. In the event that these assumptions change in the future,
      the
      Company may be required to record impairment charges related to its goodwill
      or
      other intangible assets. No impairment charges were recorded in the first twelve
      weeks of fiscal years 2007 and 2008.





*Insurance
      Reserves*





We
      carry
      insurance reserves for exposure related to our workers compensation, general
      liability, medical and dental and vision programs. We effectively self-insure
      a
      significant portion of certain risks through the use of large self-insured
      retentions combined with stop-loss coverage, or by maintaining large deductibles
      on traditional policies of insurance. The liability represents an estimate
      of
      the ultimate cost of claims incurred and unpaid as of the balance sheet date,
      including both reported claims and claims that have been incurred but not
      reported. The estimated liability is established based upon historical claims
      data and third-party actuarial estimates of settlement costs for incurred
      claims. Our estimates include our judgments and independent actuarial
      assumptions regarding economic conditions, the frequency and severity of claims
      and claim development patterns and settlement practices. These estimates and
      assumptions are monitored and adjusted when warranted by changing circumstances.
      Changes in these factors may produce materially different amounts of expense
      and
      liabilities that would be reported under these insurance programs.





26


*Closed
      Restaurant Reserve*





We
      maintain a closed restaurant reserve for certain restaurants that are no longer
      operating. The closed restaurant costs are principally comprised of our
      estimates of lease termination costs and obligations, net of sublease and other
      cash receipts, and employee termination costs. Many factors including the local
      business environment, other available lease sites, the ability to secure
      subleases, the creditworthiness of subtenants, and our success at negotiating
      early termination agreements with lessors are considered in establishing the
      accruals. Adjustments to the reserve primarily relate to changes in subtenant
      income or actual exit costs differing from original estimates. Adjustments
      are
      made for changes in estimates in the period in which the changes become known.
      The store closing reserve (current and noncurrent in aggregate) was $1.7 million
      and $1.1 million as of June 27, 2007 and September 19, 2007,
      respectively.





*Income
      Taxes*





We
      estimate certain components of our provision for income taxes. These estimates
      include, among other items, depreciation and amortization expense allowable
      for
      tax purposes, allowable tax credits for items such as the Working Opportunity
      Tax Credit and taxes paid on reported employee tip income, effective rates
      for
      state and local taxes, and the tax deductibility of certain other items. Our
      estimates are based on current tax laws, the best available information at
      the
      time of the provision and historical experience. Income tax returns are subject
      to audit by federal, state, and local governments, generally years after the
      returns are filed. These returns could be subject to material adjustments or
      differing interpretations of the tax laws.





Deferred
      tax assets and liabilities are recognized for the expected future tax
      consequences of temporary differences between financial reporting amounts and
      the tax basis of existing assets and liabilities based on currently enacted
      tax
      laws and tax rates in effect for the periods in which the differences are
      expected to reverse. Income tax (benefit) expense is the tax payable/receivable
      for the year, plus or minus the change during the year in deferred income taxes.
      Valuation allowances are established when necessary to reduce deferred tax
      assets to the amount expected to be realized.





*Gift
        Cards and Gift Certificates*




We
        sell
        plastic gift cards and paper gift certificates to our customers. Proceeds
        from
        the sale of gift cards/certificates are initially recorded as a liability
        when
        received. Revenues from the sale of gift cards at our restaurants are recognized
        upon redemption. In estimating the related gift card/certificate liability,
        we
        analyze historical trends to derive our estimates of future gift
        card/certificate redemption patterns. The assumptions and activity are closely
        monitored for changes in escheatment laws and redemption patterns. We adjust
        our
        gift card/certificate liability based on historical and expected non-redemption
        trends. These adjustments are classified within “Direct and Occupancy Costs” in
        our accompanying condensed consolidated statements of operations. Our gift
        card/certificate liability was $5.4 million and $4.5 million as of June 27,
        2007
        and September 19, 2007, respectively, of which approximately $1.1 million
        and
        $1.0 million, respectively, was related to the Tahoe Joe’s restaurants, and is
        classified as discontinued operations in the accompanying condensed consolidated
        balance sheets.





*Share
      Based Compensation*





We
      are a
      nonpublic entity, as defined by SFAS No. 123(R), *Share-Based
      Payment* ,
      which
      requires the measurement and recognition of compensation expense for all
      share-based payment awards made to employees and directors, including employee
      stock options based on estimated fair value on the grant date.





The
      requirements of SFAS 123(R) apply prospectively to new awards and to awards
      modified, repurchased, or cancelled after the required effective date, which
      was
      June 29, 2006, the first day of fiscal year 2007. We are required to continue
      to
      account for any portion of awards outstanding as of this date using the
      accounting principles originally applied to those awards. As such, we will
      continue to account for those awards outstanding as of the adoption date using
      the intrinsic value method pursuant to the requirements of APB 25. Subsequent
      grants and existing awards that are modified, repurchased, or cancelled after
      the adoption date will be accounted for pursuant to the requirements of SFAS
      123(R).





27


For
      purposes of determining the estimated fair value of share-based payment awards
      on the date of grant under SFAS 123(R), we use the Black-Scholes option-pricing
      model (“Black-Scholes Model”). The Black-Scholes Model requires the input of
      certain assumptions that involve judgment. Because our employee stock options
      have characteristics significantly different from those of traded options,
      and
      because changes in the input assumptions can materially affect the fair value
      estimates, the available option pricing models may not provide a reliable single
      measure of the fair value of our employee stock options. We are unable to
      reasonably estimate the fair value of our equity awards and similar instruments
      because it is not practicable for us to estimate the expected volatility of
      its
      share price. Therefore, we calculate volatility using the historical volatility
      of publicly traded companies within the family dining segment of the restaurant
      industry in order to determine the estimated fair value of our equity awards.
      SFAS 123(R) refers to this method as the calculated value method of estimating
      fair value.





There
      was
      no financial statement impact associated with the adoption of SFAS 123(R) and
      we
      did not recognize or record any share-based compensation for twelve week periods
      ending September 20, 2006 and September 19, 2007.





*Lease
      Accounting*





We
      are
      obligated under various lease agreements for certain restaurants. We recognize
      rent expense on a straight-line basis over the expected lease term. Within
      the
      provisions of certain of our leases, there are rent holidays and/or escalations
      in payments over the base lease term, as well as renewal periods. The effects
      of
      the holidays and escalations have been reflected in rent expense on a
      straight-line basis over the expected lease term, which includes cancellable
      option periods when failure to exercise such options would result in an economic
      penalty to the Company. The lease term commences on the date when we have the
      right to control the use of the leased property, which is typically before
      rent
      payments are due under the terms of the lease. The condensed consolidated
      financial statements reflect the same lease term for amortizing leasehold
      improvements as we use to determine capital versus operating lease
      classifications and in calculating straight-line rent expense for each
      restaurant. Percentage rent expense is generally based upon sales levels and
      is
      accrued when we determine that it is probable that such sales levels will be
      achieved. Our judgments related to the probable term for each restaurant affect
      the classification and accounting for leases as capital versus operating, the
      rent holidays and escalation in payments that are included in the calculation
      of
      straight-line rent and the term over which leasehold improvements for each
      restaurant facility are amortized. These judgments may produce materially
      different amounts of depreciation, amortization and rent expense than would
      be
      reported if different assumptions were used.





*Merger
      Integration Costs*





Merger
      integration costs represent professional fees, performance bonuses and employee
      travel and expenses related to integration activities associated with the Ryan’s
      and North’s acquisitions. Merger integration costs of approximately $12.5
      million have been expensed as incurred since November 1, 2006, of which
      approximately $1.6 million were expensed in the first quarter of fiscal 2008
      are
      recorded in “Merger Integration Costs” in the accompanying condensed
      consolidated statements of operations.





28


**Results
      of Operations**





*The
        following discussion reflects our historical results for the
        twelve-week*  *periods
        ended September 20, 2006 and September 19, 2007. Our operating results
        include*  *the
        impact of Ryan’s operations and the impact of the related refinancing
        of*  *our
        indebtedness and Ryan’s indebtedness for the entire twelve week
        period*  *ended
        September 19, 2007, but exclude the impact of Ryan’s operations and
        related*  *refinancing
        for the twelve weeks ended September 20, 2006. Our future results
        may*  *not
        be consistent with our historical results. The following discussion
        should*  *be
        read in conjunction with our condensed consolidated financial statements
        and*  *related
        notes included elsewhere in this report.*





**Twelve
                Weeks Ended****September
                20,**
              **2006**
            
            **September
                19,**
              **2007****(dollars
                in thousands)****Significant
                items that impacted results of operations:**Closed
                restaurant costs (1)
            
            $
            742
            
            
            69Merger
                integration costs (2)
            
            
            440
            
            
            1,633







(1)
            Closed
                restaurant costs were $0.7 million during the first quarter of fiscal
                2007
                as compared to $0.1 million for the first quarter of fiscal 2008.
                The
                decrease was due in large part to the closure of three under performing
                restaurants in the first twelve weeks of fiscal 2007 compared with
                one
                store closure in the first twelve weeks of fiscal 2008. In fiscal
                2007, we
                incurred cash charges related to these closures of approximately
                $0.9
                million. These charges included approximately $0.7 million related
                to
                lease termination costs and obligations, $0.1 million related to
                employee
                termination costs and $0.1 million related to other associated costs.
                In
                fiscal 2008, we closed one Ryan’s® restaurant acquired in the merger.
                Charges related to that closure were charged to goodwill pursuant
                to EITF
                95-3,*Recognition
                of Liabilities in connection with a Purchase Business
                Combination.*The $0.1 million recognized in the statement of operations relates
                to
                changes in reserve estimates related to previously closed stores,
                terminations of sublease agreements and other related costs. See
                Note 7 -
                “Acquisitions” to our accompanying condensed consolidated financial
                statements for further discussion of our merger with Ryan’s.





(2)
            Merger
                integration costs represent professional fees and employee travel
                and
                expenses related to integration activities associated with the Ryan’s and
                North’s acquisitions.





29


**Twelve
      weeks ended September 19, 2007 compared to twelve weeks ended September 20,
      2006:**





The
      following table sets forth our results of operations based on the percentage
      relationship of the items listed to our restaurant sales during the periods
      shown:





**Twelve
                  Weeks Ended****September
                  20, 2006**
              
              **September
                  19, 2007****(dollars
                  in thousands)**Restaurant
                  sales
              
              $
              213,904
              
              
              100.0
              %
              $
              376,539
              
              
              100.0
              %Restaurant
                  costs:Food
              
              
              74,090
              
              
              34.6
              
              
              130,168
              
              
              34.6Labor
              
              
              60,378
              
              
              28.2
              
              
              111,147
              
              
              29.5Direct
                  and occupancy
              
              
              51,872
              
              
              24.3
              
              
              98,170
              
              
              26.1Total
                  restaurant costs
              
              
              186,340
              
              
              87.1
              
              
              339,485
              
              
              90.2Advertising
                  expenses
              
              
              7,227
              
              
              3.4
              
              
              9,867
              
              
              2.6General
                  and administrative expenses
              
              
              9,266
              
              
              4.3
              
              
              15,898
              
              
              4.2Closed
                  restaurant costs
              
              
              742
              
              
              0.3
              
              
              69
              
              
              0.0Merger
                  integration costs
              
              
              440
              
              
              0.2
              
              
              1,633
              
              
              0.4Loss
                  on litigation settlement
              
              
              —
              
              
              —
              
              
              54
              
              
              0.0Operating
                  income
              
              
              9,889
              
              
              4.6
              
              
              9,533
              
              
              2.5Interest
                  expense
              
              
              13,228
              
              
              6.2
              
              
              20,757
              
              
              5.5Interest
                  income
              
              
              (28
              )
              
              (0.0
              )
              
              (161
              )
              
              (0.0
              )Loss
                  related to refinancing
              
              
              243
              
              
              0.1
              
              
              5
              
              
              0.0Other
                  income
              
              
              (202
              )
              
              (0.1
              )
              
              (270
              )
              
              (0.1
              )Loss
                  before income taxes
              
              
              (3,352
              )
              
              (1.6
              )
              
              (10,798
              )
              
              (2.9
              )Income
                  tax benefit
              
              
              (1,903
              )
              
              (0.9
              )
              
              (5,412
              )
              
              (1.4
              )Net
                  loss from continuing operations
              
              
              (1,449
              )
              
              (0.7
              )
              
              (5,386
              )
              
              (1.4
              )Net
                  income from discontinued operations, net of tax
              
              
              309
              
              
              0.1
              
              
              37
              
              
              0.0Net
                  loss
              
              $
              (1,140
              )
              
              (0.5
              )
              $
              (5,349
              )
              
              (1.4
              )





*Certain
      percentage amounts do not sum to total due to rounding.*





*Restaurant
      Sales.* Restaurant
      sales increased $162.6 million, or 76.0%, during the twelve weeks ended
      September 19, 2007 over the comparable prior year period, primarily due to
      the
      merger with Ryan’s. Excluding Ryan’s restaurant sales, restaurant sales
      decreased $1.2 million, or 0.6%, during the first quarter of fiscal
      2008.





Average
        weekly sales for the first quarter of fiscal 2008 for the Buffets brand
        restaurants, which include the Old Country Buffet® and HomeTown Buffet® brands,
        increased approximately 0.7% to $54,627 as compared to the comparable prior
        year
        period. Same store sales for the first quarter of fiscal 2008 decreased by
        0.2%
        for the Buffets brand restaurants as compared to the prior year. This decrease
        was primarily attributable to a 3.0% decline in guest traffic, partially
        offset
        by a 2.8% increase in average check. Average weekly sales for the first quarter
        of fiscal 2008 for the Ryan’s brand restaurants, which include the Ryan’s® and
        Fire Mountain® brands, decreased by 1.1% to $44,348 as compared to the
        comparable prior year period. Same store sales for the first quarter decreased
        by 4.0% for the Ryan’s brand restaurants as compared to the prior year. This
        decrease was primarily attributable to a 6.2% decline in guest traffic,
        partially offset by a 2.2% increase in average check. Same store sales
        calculations reflect those restaurants that have been in operation for at
        least
        eighteen operating periods.





*Restaurant
      Costs.* Restaurant
      costs for the first quarter of fiscal 2008 increased $153.1 million, or 82.2%,
      over the comparable prior year period, primarily due to the merger with Ryan’s.
      Restaurant costs as a percentage of sales increased by 310 basis points compared
      with the comparable prior year period. Excluding the restaurants acquired in
      the
      merger with Ryan’s, restaurant costs increased 60 basis points as a percentage
      of sales for the first quarter of fiscal 2008 compared with the prior year
      period.





Total
      food costs increased $56.1 million, or 75.7%, during the twelve weeks ended
      September 19, 2007 over the comparable prior year period, primarily due to
      the
      merger with Ryan’s. Food costs for the Ryan’s brand restaurants, as a percentage
      of sales, are consistent with our existing Buffets brand restaurants. Food
      costs
      were flat as a percentage of sales during the first quarter of fiscal 2008
      as
      compared to the prior year period. The increase in food costs due to increases
      in certain commodities such as chicken and dairy products were offset by
      synergies realized in connection with the Ryan’s merger.





30


Labor
      costs increased $50.8 million, or 84.1%, during the twelve weeks ended September
      19, 2007 over the comparable prior year period, primarily due to the merger
      with
      Ryan’s. Labor costs increased 130 basis points as a percentage of sales during
      the first quarter of fiscal 2008 as compared to the prior year period, primarily
      due to a higher labor complement in the Ryan’s system than our historical
      average labor complement. Excluding the restaurants acquired in the Ryan’s
      merger, labor costs increased 40 basis points as a percentage of sales,
      primarily due to wage inflation as a result of minimum wage increases in several
      states effective January 1, 2007, federal minimum wage increases effective
      July
      24, 2007 and other modest wage increases.





Direct
      and occupancy costs increased $46.3 million, or 89.3%, during the twelve weeks
      ended September 19, 2007 over the comparable prior year period, primarily due
      to
      the merger with Ryan’s. Direct and occupancy costs increased by 180 basis points
      as a percentage of sales primarily due to higher direct and occupancy costs
      as a
      percentage of sales in the Ryan’s system than our historical average. Excluding
      the restaurants acquired in the merger with Ryan’s, direct and occupancy costs
      were flat as a percentage of sales for the first quarter of fiscal 2008 compared
      to the prior year period.





*Advertising
      Expenses.* Advertising
      costs increased $2.6 million during the first quarter of fiscal 2008 versus
      the
      comparable quarter in the prior year, but decreased 80 basis points as a
      percentage of sales. Historically, Ryan’s did not incur significant media
      advertising expenditures so the inclusion of Ryan’s sales with little
      advertising spend significantly improved the sales leverage of this cost
      category. We intend to continue to test electronic media advertising and direct
      mail advertising at Ryan’s and, if successful, expect to expand our advertising
      plan to include Ryan’s going forward.





*General
      and Administrative Expenses.* General
      and administrative expenses increased $6.6 million, or 71.6%, during the twelve
      weeks ended September 19, 2007, primarily due to the merger with Ryan’s. General
      and administrative expenses decreased 10 basis points as a percentage of sales
      during the first quarter of fiscal 2008 as compared to the comparable period
      in
      the prior year, due to cost synergies realized in connection with the Ryan’s
      merger, partially offset by tightened sales leverage resulting from the
      fixed-cost nature of these costs over a declining sales base.





*Interest
      Expense.* Interest
      expense increased $7.5 million during the first quarter of fiscal 2008 versus
      the comparable prior year period primarily due to the significant increase
      in
      our long-term debt balances as the result of our debt refinancing on November
      1,
      2006. Interest expense decreased 70 basis points as a percentage of sales for
      the first quarter of fiscal 2008 versus the comparable prior year period due
      to
      the larger sales base from the acquired restaurants.





*Income
      Taxes.* Income
      tax benefit increased 50 basis points as a percentage of sales for the twelve
      weeks ended September 19, 2007 versus the comparable period in the prior year,
      principally due to a $6.2 million reduction in our deferred tax valuation
      allowance related to Ryan’s. This adjustment is due to provision-to-return
      differences reflecting higher deductions in Ryan’s November 1, 2006 stub period
      tax return than initially expected, primarily related to  changes
      in tax accounting methods. The adjustment to the valuation allowance is
      recorded in “Income tax benefit” in the accompanying condensed consolidated
      statements of operations, whereas the adjustment to the underlying deferred
      tax
      asset balances is recorded in “Goodwill” in the accompanying condensed
      consolidated balance sheets. The adjustment to the valuation allowance has
      been
      partially offset by an adjustment of $0.6 million to accrue quarterly interest
      on tax reserve items.





Excluding
      the $5.6 million of adjustments above and the impact of presenting Tahoe
      Joe’s tax provision within discontinued operations, our projected effective rate
      for fiscal 2008 is approximately (2.3)%.  The difference between this
      rate and the statutory rate is due to the projected increase in our valuation
      allowance to offset the tax benefits from our projected loss before income
      taxes. As a result, this rate primarily reflects projected state income tax
      expense for fiscal 2008.





**Liquidity
      and Capital Resources**





We
      are a
      holding company with no operations or assets of our own other than the capital
      stock of our subsidiaries. Our operations are conducted through our
      subsidiaries. The terms of our credit facility place restrictions on Buffets’
ability to pay dividends and otherwise transfer assets to us. Further, the
      terms
      of the Indenture governing Buffets’ 12 1/2% Senior Notes place restrictions on
      the ability of Buffets and our other subsidiaries to pay dividends and otherwise
      transfer assets to us.





31


Cash
      flows generated from our operating activities provide us with a significant
      source of liquidity. Our sales are primarily for cash or credit and settlement
      occurs within a few days. Our cash flow from operations is used for payments
      to
      vendors, capital expenditures, including remodeling initiatives, general
      corporate purposes and debt service payments. Vendors are paid on terms ranging
      from 14 to 35 days. Our favorable vendor terms relative to the timing of our
      cash receipts allow us to voluntarily accelerate our debt repayments, which
      in
      turn causes a significant working capital deficit.





Our
      short-term and long-term liquidity needs arise primarily from principal and
      interest payments on our indebtedness, rent payments under our lease agreements,
      capital expenditures and working capital requirements, including development
      and
      construction of new restaurants, restaurant refurbishment and the installation
      of new information systems. We expect these requirements to continue in the
      foreseeable future. Our primary sources of liquidity are cash flow from
      operations, landlord contributions, credits received from trade suppliers and
      available borrowing capacity under our Credit Facility, including revolving
      credit loans, swing line loans and the ability to issue letters of credit.
      See
“— Credit
      Facilities and Other Long Term Debt.”





*Operating
        Activities.* Net
        cash
        used in operating activities was $9.5 million and $4.7 million for the twelve
        weeks ended September 19, 2007 and September 20, 2006, respectively. The
        overall
        increase in net cash used in operating activities is primarily attributable
        to a
        $16.1 million increase in cash interest payments and $1.6 million in
        non-capitalizable merger integration costs related to the merger with Ryan’s.
        Net cash used in operating activities was lower than the net loss for the
        first
        twelve weeks of fiscal 2008 principally due to payments of accounts payable
        and
        accrued liabilities and a net reduction in income taxes payable, partially
        offset by the effect of noncash depreciation and amortization and the write-off
        of debt issuance costs. Net cash used in operating activities was lower than
        net
        loss for the first twelve weeks of fiscal 2007 principally due to payments
        of
        accounts payable, accrued liabilities and income taxes payable, partially
        offset
        by the effect of noncash depreciation and amortization and accretion of original
        issue discount.





*Investing
        Activities.* Net
        cash
        used in investment activities was $2.8 million and $13.0 million for the
        twelve
        weeks ended September 19, 2007 and September 20, 2006, respectively. During
        the
        first twelve weeks of fiscal 2008, our property and equipment related capital
        expenditures of $11.4 million represented remodeling and improvement cost
        on our
        existing restaurants. This use of cash was partially offset by cash provided
        by
        our sale of certain assets held for sale resulting in gross proceeds of $8.8
        million. During the first twelve weeks of fiscal 2007, our property and
        equipment related capital expenditures of $6.8 million represented remodeling
        and improvement cost on our existing restaurants. On August 1, 2006, our
        subsidiary, OCB Restaurant Company, LLC acquired certain assets and liabilities
        of North’s Restaurant, Inc. for approximately $3.5 million. The remaining cash
        used in investing activities during the first twelve weeks of fiscal 2007
        was
        primarily comprised of capitalized transaction costs related to our merger
        with
        Ryan’s.




*Financing
      Activities.* Net
      cash
      provided by financing activities was $19.2 million and $5.5 million for the
      first twelve weeks of fiscal years 2008 and 2007, respectively. During the
      first
      twelve weeks of fiscal 2008, financing activities consisted primarily of
      borrowings of $20.5 million under our revolving facilities offset in part by
      $1.3 million of term loan repayments. During the first twelve weeks of fiscal
      2007, financing activities primarily consisted of proceeds from revolver
      borrowings.




*Future
      Capital Expenditures.* During
      the remainder of fiscal 2008, we plan to:





·
            Spend
                approximately $5.0 million - $15.0 million on remodeling and improvement
                costs that will be capitalized. These capital improvements will depend
                on
                the specific needs of the restaurants and the availability of liquidity
                through our existing credit lines. Remodels projects incorporate
                design
                elements to update the décor of our existing facilities including a
                lighter, more contemporary interior design and expanded dessert displays.
                Other improvement costs include a variety of outlays such as new
                carpet,
                equipment and minor leasehold improvements and display grill
                installations.





·
            Spend
                approximately $1.0 million on miscellaneous corporate and information
                systems investments.





·
            Spend
                approximately $5.0 million - $15.0 million on capital improvements
                specifically related to the restaurants we acquired in the Merger.
                These
                capital improvements will depend on the specific needs of the restaurants
                and the availability of liquidity through our existing credit lines.
                In
                addition, we plan to spend approximately $1.0 million - $3.0 million
                on
                the integration of Ryan’s that will not be
                capitalized.





32




*Income
      Tax Refunds.* We
      expect
      to receive approximately $19.9 million in income tax refunds over the remainder
      of fiscal 2008. Approximately $13.1 million relates to Ryan’s stub period
      federal return through November 1, 2006, $5.1 million relates to carryback
      claims to be filed related to federal returns filed in previous years and $1.7
      million relates to state tax returns. We expect to collect approximately $17.0
      million - 18.0 million in the second fiscal quarter and the balance over the
      remainder of fiscal 2008.





**Credit
      Facilities and Other Long Term Debt**





*Credit
      Facility*





In
      connection with the Merger, Buffets entered into a new $640.0 million senior
      secured credit facility (the “Credit Facility”) comprised of (i) a senior
      secured term loan in an aggregate principal amount of $530.0 million which
      matures on November 1, 2013 (the “Term Facility”), (ii) a senior secured
      revolving credit facility in an aggregate principal amount of up to $40.0
      million which matures on November 1, 2011 (the “Revolving Facility”), of which
      up to $20.0 million is available through a sub facility in the form of letters
      of credit and (iii) a senior secured pre-funded synthetic letter of credit
      facility in an aggregate principal amount of $70.0 million which matures on
      May
      1, 2013 (the “Synthetic Letter of Credit Facility”).





Effective
      as of March 13, 2007 (the “Restatement Date”), the Company entered into an
      amendment to its Credit Facility. The amendment added a revolving loan feature
      to the Synthetic Letter of Credit Facility (cumulatively referred to as the
      “Synthetic Revolving Facility”), whereby the Company may secure letters of
      credit and/or revolving loans in an aggregate principal amount of $70 million.
      The amendment also relaxed the interest rate margins applicable to the Term
      Facility and Synthetic Revolving Facility, subject to a leverage-based pricing
      grid. In addition, the amendment added a repricing protection clause relating
      to
      the prepayment of term loans or synthetic revolving loans borrowed under the
      Credit Facility. The repricing protection provides that Buffets must pay a
      1%
      prepayment premium on all such prepayments prior to March 13, 2008. No such
      prepayments have occurred as of September 19, 2007.





Borrowings
      under the Term Facility and Synthetic Revolving Facility bear interest at an
      adjusted LIBOR rate plus a margin of either 2.50%, 2.75% or 3.00% in the case
      of
      Eurodollar borrowings and at a certain alternate base rate plus a margin of
      either 1.50%, 1.75% or 2.00% in the case of alternate base rate borrowings,
      depending on Buffets’ leverage ratio, and borrowings under the Revolving
      Facility bear interest at an adjusted LIBOR rate plus a margin of 3.25% or
      at an
      alternate base rate plus a margin at 2.25%.





The
        borrowings due under the Term Facility are payable in equal quarterly
        installments in an annual amount equal to 1% of the term loan during each
        of the
        first six and a half years of the loan, with the remaining balance payable
        due
        on November 1, 2013. The Revolving Facility and the Synthetic Revolving Facility
        are not subject to interim scheduled principal payments. The Credit Facility
        is
        fully and unconditionally guaranteed by Buffets Holdings, which has no
        independent assets or operations except for the capital stock of Buffets,
        and
        its existing and future domestic subsidiaries and is secured by substantially
        all of the Company’s assets. The Credit Facility contains customary restrictive
        covenants, including limitations on dividends on, and redemptions and
        repurchases of, capital stock, liens and sale leaseback transactions, loans
        and
        investments, the incurrence of additional indebtedness and mergers, acquisitions
        and asset sales. In addition, the Credit Facility contains financial covenants,
        which require that we maintain a minimum interest coverage ratio and a maximum
        leverage ratio. These financial covenants become increasingly restrictive
        over
        time. Specifically, on September 20, 2007, our leverage ratio requirement
        becomes more restrictive as the current leverage ratio of 6.00 to 1.00 drops
        to
        5.75 to 1.00. As of September 19, 2007, there were no events of default and
        we
        were in compliance with all covenants. The Credit Facility also contains
        customary events of default. Borrowing availability under the Credit Facility
        and our ability to continue to issue letters of credit depends on there being
        no
        default or event of default under the Credit Facility and upon our continued
        compliance with the restrictive and financial covenants contained in the
        Credit
        Facility.  As
        of the
        end of the first quarter of fiscal 2008 the Company's actual leverage ratio
        was
        5.98 against a maximum leverage ratio of 6.00. The maximum leverage ratio
        drops
        to 5.75 at the next measurement date which is at the end of the Company's
        second
        quarter of fiscal 2008.  We
        continuously monitor compliance with the financial covenants in our Credit
        Facility and, as of September 19, 2007, were in compliance with these covenants.
        Depending on our future results we may breach these covenants at the end
        of our
        next fiscal quarter or in subsequent quarters. We have initiated discussions
        with the lenders under our Credit Facility to amend or waive the financial
        covenants. However,
        there are no assurances that we will be successful in obtaining amendments
        or
        waivers to the financial covenants on acceptable terms. Failure to obtain
        a
        waiver on acceptable terms could have a material adverse effect on the Company.See “Risk Factors— **** Our
        credit facility contains financial covenants. If we are unable to comply
        with
        these covenants, our liquidity could be adversely affected.”




As
      of
      September 19, 2007, there was $527.4 million outstanding under the Term
      Facility, $18.5 million outstanding under the Revolving Facility, and $68.1
      million outstanding under the Synthetic Revolving Facility, including $53.1
      million outstanding letters of credit. The interest rate in effect under the
      Term Facility was 7.99% and the interest rate in effect under the Synthetic
      Revolving Facility was 8.09%.




33




*12
      1/2% Senior Notes*





The
      issuance of Buffets’ 12 1/2% Senior Notes was consummated solely by means of a
      private placement to qualified institutional buyers pursuant to Rule 144A under
      the Securities Act of 1933, as amended (the “Securities Act”). Buffets filed a
      registration statement with the Securities and Exchange Commission to exchange
      all of its $300.0 million 12 1/2% Senior Notes due 2014 for notes registered
      under the Securities Act. The exchange offer was consummated on January 31,
      2007. The 12 1/2% Senior Notes mature on November 1, 2014. Buffets pays
      semi-annual interest on the 12 1/2% Senior Notes on January 1 and July
      1.





Buffets
      has the option to redeem all or a portion of the 12 1/2% Senior Notes on or
      after November 1, 2010 at fixed prices that decline over time. Buffets also
      has
      the option to redeem up to 35% of the aggregate principal amount of the 12
      1/2 %
      Senior Notes on or prior to November 1, 2009 with the proceeds of one or more
      equity offerings at a redemption price of 112.50% of the principal amount of
      the
      12 1/2% Senior Notes, if at least 65% of the aggregate principal amount of
      the
      12 1/2% Senior Notes are outstanding after each such redemption and such
      redemption is made not more than 90 days after the consummation of certain
      equity offerings. Upon certain change of control and asset disposition events
      as
      described in the Indenture, Buffets may be required to redeem the 12 1/2% Senior
      Notes at a purchase price equal to 101% in the case of change of control events,
      or 100% in the case of asset disposition events, of the principal amount of
      the
      12 1/2% Senior Notes. The 12 1/2% Senior Notes are unsecured senior obligations
      of Buffets and are jointly and severally guaranteed on a senior unsecured basis
      by each of its current and future domestic subsidiaries and Buffets Holdings,
      which has no independent assets or operations except for the capital stock
      of
      Buffets.





The
      Indenture contains customary covenants relating to restrictions on indebtedness,
      dividends on, and redemptions and repurchases of, capital stock, liens and
      sale
      leaseback transactions, loans and investments, debt and hedging arrangements,
      mergers, acquisitions and asset sales, transactions with affiliates and changes
      in business activities conducted by Buffets and certain subsidiaries. The
      Indenture also contains customary events of default. As of September 19, 2007,
      the Company was in compliance with all covenants and there were no events of
      default.





**Seasonality
      and Quarterly Fluctuations**





Our
      sales
      are seasonal, with a lower percentage of annual sales occurring in most of
      our
      current market areas during the winter months due to a reduction in daylight
      operating hours and poorer weather conditions. Accordingly, restaurant sales
      per
      unit are lower in our third fiscal quarter ending in April of each year. The
      impact of these reduced average weekly sales are mitigated in our quarterly
      data
      presentations through the inclusion of 16 weeks in the quarter ending in early
      April of each year, compared to only 12 or 13 weeks in each of the other fiscal
      quarters. Our restaurant sales may also be affected by unusual weather patterns,
      particularly during the winter months, major world events or matters of public
      interest that compete for customers’ attention.





**Forward-Looking
      Statements and Risk Factors**





This
      Quarterly Report on Form 10-Q includes some forward-looking statements.
      Forward-looking statements give our current expectations or forecasts of future
      events. All statements other than statements of current or historical fact
      contained in this Quarterly Report on Form 10-Q, including statements regarding
      our future financial position, business strategy, budgets, projected costs
      and
      plans and objectives of management for future operations, are forward-looking
      statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“may,” “plan,” and similar expressions, as they relate to us, are intended to
      identify forward-looking statements. In particular, these include, among other
      things, the factors that are described in the “Risk Factors” identified in our
      Annual Report on Form 10-K, filed with the Securities and Exchange Commission
      on
      September 25, 2007, and statements relating to general business and economic
      conditions, changes in consumer confidence and the level of their discretionary
      spending and restaurant visitation frequency, negative publicity, the impact
      of
      competition, the ability to integrate the restaurants acquired in the Ryan’s
      acquisition, the ability to realize the benefits and synergies of the Ryan’s
      acquisition, the ability to service our substantial indebtedness and otherwise
      comply with our lending covenants, the seasonality of our business, adverse
      weather conditions, future commodity prices, fuel and utility costs, changes
      in
      minimum wage rates, availability of food products, labor availability, retention
      and costs, employment and environmental laws, public health developments
      including avian flu and E. coli, developments affecting the public’s perception
      of buffet-style restaurants, real estate availability, interest rate
      fluctuations, political environment (including acts of terrorism and wars),
      governmental regulations and inflation.





34


We
      have
      based these forward-looking statements largely on our current expectations
      and
      projections about future events and financial trends that we believe may affect
      our financial condition, results of operations, business strategy and financial
      needs. They can be affected by inaccurate assumptions we might make or by known
      or unknown risks, uncertainties and assumptions, including the risks,
      uncertainties and assumptions described in the “Risk Factors/Forward-Looking
      Statements” identified in our Annual Report on Form 10-K, as updated in any
      Quarterly Report on Form 10-Q. In light of these risks, uncertainties and
      assumptions, the forward-looking statements in this Quarterly Report on Form
      10-Q may not occur and actual results could differ materially from those
      anticipated or implied in the forward-looking statements. When you consider
      these forward-looking statements, you should keep in mind these risk factors
      and
      other cautionary statements in this Quarterly Report on Form 10-Q.





Our
      forward-looking statements speak only as of the date made. We undertake no
      obligation to update or revise any forward-looking statements, whether as a
      result of new information, future events or otherwise.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





*Interest
      Rate Risks.* We
      have
      interest rate exposure relating to the variable portion of our long-term
      obligations, which were approximately $527.4 million at September 19, 2007.
      Buffets’ 12 1/2% Senior Notes are fixed rate instruments, while the interest
      rate on the term loan under the Credit Facility is variable. A 1% change in
      interest rates on our variable rate debt would have resulted in our interest
      rate expense fluctuating by approximately $1.2 million for the first quarter
      ended September 19, 2007. In addition, we entered into a swap agreement to
      fix a
      portion of our variable rate interest. See Note 6 — “Debt” to our accompanying
      condensed consolidated financial statements for further discussion of this
      agreement.





*Food
      Commodity Risks.* Many
      of
      the food products purchased by us are affected by commodity pricing and are,
      therefore, subject to price volatility caused by weather, production problems,
      delivery difficulties and other factors that are outside our control. To control
      this risk in part, we have fixed price purchase commitments with terms of one
      year or less for some key food and supplies from vendors who supply our national
      food distributor. In addition, we believe that substantially all of our food
      and
      supplies are available from several sources, which helps to control food
      commodity risks. In the past, we have been able to increase menu prices, or
      vary
      the menu items offered, if needed, in order to offset food product price
      increases. However, we may not be able to recover increased costs in the future
      because competition may limit or prohibit such future increases. To compensate
      for a hypothetical price increase of 10% for food and beverages, we would need
      to increase menu prices by an average of approximately 3%. Our average menu
      price increases for fiscal 2007 were 3% for our Buffet brand restaurants and
      1%
      for our Ryan’s brand restaurants.





**ITEM
      4. CONTROLS AND PROCEDURES**





*Disclosure
      Controls and Procedures* .
      We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our reports filed pursuant to the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported
      within the time periods specified in the Securities and Exchange Commission’s
      rules and regulations, and that the information is accumulated and communicated
      to our management, including our principal executive officer and our principal
      financial and accounting officer, as appropriate, to allow timely decisions
      regarding required disclosures based closely on the definition of “disclosure
      controls and procedures” in Rules 13a-15(e) and 15d-15(e) of the Securities
      Exchange Act of 1934.





As
      of
      September 19, 2007, we carried out an evaluation, under the supervision and
      with
      the participation of our management, including our principal executive officer
      and our principal financial and accounting officer, of the effectiveness of
      the
      design and operation of our disclosure controls and procedures. Based on this
      evaluation, we concluded that our disclosure controls and procedures were
      effective.





*Changes
      in Internal Control* .
      During
      the twelve weeks ended September 19, 2007, there were no significant changes
      in
      our internal control over financial reporting (as defined in Rules 13a-15(f)
      and
      15d-15(f) of the Securities and Exchange Act of 1934) that have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting.





It
      should
      be noted that any system of controls, however well designed and operated, can
      provide only reasonable, and not absolute, assurance that the objectives of
      the
      system will be met. In addition, the design of any control system is based
      in
      part upon certain assumptions about the likelihood of future events. Because
      of
      these and other inherent limitations of control systems, there is only
      reasonable assurance that our controls will succeed in achieving the stated
      goals under all potential future conditions.





35


**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





On
      November 12, 2004, two former restaurant managers of our wholly-owned
      subsidiary, HomeTown Buffet, Inc. (“HomeTown Buffet”), individually and on
      behalf of all others similarly situated, filed a class action lawsuit against
      HomeTown Buffet in California Superior Court in San Francisco County. The
      lawsuit alleges that HomeTown Buffet violated California wage and hour laws
      by
      failing to pay all of its California managers and assistant managers overtime,
      and for making deductions from bonus compensation based on the company’s
      workers’ compensation costs. In March 2006, the plaintiffs amended the complaint
      in the lawsuit to add OCB Restaurant Company, LLC as a defendant, and to limit
      the claims to those managers below the level of restaurant General Manager.
      In
      April 2006, the defendants removed the lawsuit to the United States District
      Court for the Northern District of California. The plaintiffs seek compensatory
      damages, penalties, restitution of unpaid overtime and deductions, pre-judgment
      interest, costs of suit and reasonable attorneys’ fees. The complaint does not
      make a specific monetary demand.





During
      the course of discovery, but prior to a motion for certification of a class,
      the
      parties reached a settlement of this action in mediation in late February 2007.
      The settlement received preliminary court approval on September 12, 2007. While
      the Company is currently not able to predict the outcome of this action, the
      Company estimates that should the court provide final approval of the
      settlement, the Company will pay approximately $7.2 million to resolve this
      matter. This amount has been recorded in the Company’s accrued litigation
      reserve and is included in “Accrued Liabilities” in the Company’s accompanying
      Consolidated Balance Sheets and “Loss on Litigation Settlement” in the Company’s
      Consolidated Statements of Operations. Also included in the Loss on Litigation
      Settlement is approximately $0.4 million in attorney fees paid to the Company’s
      external counsel for services rendered through June 27, 2007 specifically
      related to negotiating the settlement.




In
      June
      2006, a lawsuit was filed in the Berkeley County (West Virginia) circuit court
      on behalf of three plaintiffs alleging wage and hour violations similar to
      the
      Tennessee collective-action case discussed in the preceding paragraph. This
      case
      seeks class-action status, but pertains only to West Virginia employees who
      worked for Ryan’s during the five years ending July 2006. In July 2006, Company
      removed the lawsuit to the United States District Court for the Northern
      District of West Virginia. In February 2007, the Court denied Plaintiffs motion
      to remand the matter back to West Virginia state court. The plaintiffs seek
      compensatory damages, penalties, restitution of unpaid wages and deductions,
      pre-judgment interest, costs of suit and reasonable attorneys’ fees. The
      complaint does not make a specific monetary demand. This action is in a
      preliminary stage, and the Company is currently not able to predict the outcome
      of this action or reasonably estimate a range of possible loss. The Company
      is
      vigorously defending this action.





We
      are
      also involved in various legal actions arising in the ordinary course of
      business. In the opinion of management, the ultimate disposition of those
      matters will not have a material adverse effect on our consolidated financial
      position or the results of operations.





**ITEM
      1A. RISK FACTORS**





**Risks
      Relating to Our Business**





For
      a
      more detailed discussion of risk factors affecting the Company's business,
      please also refer to the section entitled “Risk Factors / Forward Looking
      Statements” in our Annual Report on Form 10-K, filed with the Securities and
      Exchange Commission on September 25, 2007.





*Our
      credit facility contains financial covenants. If we are unable to comply with
      these covenants, our liquidity could be adversely affected.*





Our
      credit facility contains financial covenants, including requirements that we
      maintain:




·
            a
                minimum interest coverage ratio, and  ·
            a maximum leverage
              ratio.




36


These
      financial covenants become increasingly restrictive over time. For example,
      from
      November 1, 2006 (the date we entered into the Credit Facility) through July
      2,
      2008, we were and are required to have a minimum interest coverage ratio of
      1.50
      to 1.00 and from July 3, 2008 through December 17, 2008, we will be required
      to
      have a minimum interest coverage ratio of 1.60 to 1.00. In accordance with
      the
      terms of our Credit Facility, the minimum interest coverage ratio we are
      required to maintain increases on a periodic basis through April 6, 2011, after
      which we will be required to maintain a minimum interest coverage ratio of
      1.90
      to 1.00 for the remainder of the term of the Credit Facility. Similarly, from
      November 1, 2006 through September 19, 2007, our leverage ratio was not allowed
      to exceed 6.00 to 1.00 and from September 20, 2007 through July 2, 2008, our
      leverage ratio may not exceed 5.75 to 1.00. The maximum leverage ratio will
      decrease on a periodic basis through December 15, 2010, after which our leverage
      ratio will not be allowed to exceed 4.50 to 1.00 for the remainder of the term
      of the Credit Facility.





We
        continuously monitor compliance with the financial covenants in our Credit
        Facility and, as of September 19, 2007, were in compliance with these covenants.
        Depending on our future results we may breach these covenants at the end
        of our
        next fiscal quarter or in subsequent quarters, especially in light of the
        fact
        that as of September 20, 2007, the maximum leverage ratio we are required
        to
        maintain under our Credit Facility decreased to 5.75 to 1.00 from 6.00 to
        1.00.
        We have initiated discussions with the lenders under our Credit Facility
        to
        amend or waive the financial covenants. However, no assurance can be given
        that
        we will be able to secure any such waiver or amendment on acceptable terms.
        Failure to obtain a waiver on acceptable terms could have a material adverse
        effect on the Company.





If
      we
      were unsuccessful in obtaining a waiver of or an amendment to our financial
      covenants and an event of default were to occur under our Credit Facility,
      the
      lenders under our Credit Facility may be able to terminate any commitments
      they
      had made to supply us with further funds, including not permitting us to borrow
      under our existing revolving Credit Facility and not permitting us to issue
      letters of credit, which would adversely affect our liquidity. In addition,
      subject to certain cure periods, the occurrence of an event of default may
      allow
      the lenders to accelerate the repayment of amounts outstanding under our Credit
      Facility. Also, if the lenders were to accelerate indebtedness under our Credit
      Facility and such payment were not made, it would cause an event of default
      to
      occur under the indenture governing our 12 1⁄2% Senior Notes.




**ITEM
      6. EXHIBITS**





See
      Index
      to Exhibits on page 39 of this report.





37


**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.


**BUFFETS
                HOLDINGS, INC.**Date: November 5, 2007
            By:
            /s/
              R.
              Michael Andrews, Jr.R.
                Michael Andrews, Jr.
              Chief Executive Officer
              (Principal Executive
                Officer)




By:
            /s/
              A.
              Keith WallA.
                  Keith Wall
                Chief
                  Financial Officer
                (Principal
                  Financial and Accounting
                  Officer)




38


**INDEX
      TO EXHIBITS**





**Exhibit**
              **Number**
            
            **Description**31.1
            
            Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of Principal Financial and Accounting Officer pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.32.1*
            
            Certification
                of Principal Executive Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2*
            
            Certification
                of Principal Financial Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.







*
            Shall
                not be deemed “filed” for purposes of Section 18 of the Securities
                Exchange Act of 1934, or otherwise subject to the liability of that
                Section. Such exhibits shall not be deemed incorporated by reference
                into
                any filing under the Securities Act of 1933 or Securities Exchange
                Act of
                1934.




39