**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 December 12, 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
            SMALLER
                REPORTING COMPANY £




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 March
      31, 2008 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 December
                12, 2007
            
            
            3Condensed
                Consolidated Statements of Operations (Unaudited) — Twelve Weeks and 24
                Weeks Ended December 13, 2006 and December 12, 2007
            
            
            4Condensed
                Consolidated Statements of Cash Flows (Unaudited) —24 Weeks Ended December
                13, 2006 and December 12, 2007
            
            
            5Notes
                to the Condensed Consolidated Financial Statements
                (Unaudited)
            
            
            6Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            
            
            29Item
                3. Quantitative and Qualitative Disclosures about Market
                Risk
            
            
            45Item
                4. Controls and Procedures
            
            
            45Part
                II. Other InformationItem
                1. Legal Proceedings
            
            
            46Item
                1A. Risk Factors
            
            
            46Item
                6. Exhibits
            
            
            48




2





**PART
      I. FINANCIAL INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS**





**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**




**June
                  27,**
                **2007**
              
              **December
                  12,**
                **2007****(Unaudited)****(In
                  thousands, except share data)****ASSETS**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              4,645
              
              $
              21,442Receivables
              
              
              10,219
              
              
              6,579Income
                  tax receivable
              
              
              13,324
              
              
              5,960Inventories
              
              
              32,087
              
              
              31,554Prepaid
                  expenses and other current assets
              
              
              8,632
              
              
              15,653Deferred
                  income taxes
              
              
              3,000
              
              
              3,000Assets
                  held for sale
              
              
              34,959
              
              
              24,487Current
                  assets related to discontinued operations
              
              
              14,117
              
              
              15,406Total
                  current assets
              
              
              120,983
              
              
              124,081PROPERTY
                  AND EQUIPMENT, net
              
              
              221,092
              
              
              203,159GOODWILL
              
              
              497,492
              
              
              515,689OTHER
                  INTANGIBLE ASSETS
              
              
              83,998
              
              
              67,461OTHER
                  ASSETS, net
              
              
              37,092
              
              
              34,630NON-CURRENT
                  ASSETS RELATED TO DISCONTINUED OPERATIONS
              
              
              412
              
              
              427Total
                  assets
              
              $
              961,069
              
              $
              945,447**LIABILITIES
                  AND SHAREHOLDER’S DEFICIT**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              81,090
              
              $
              70,058Accrued
                  liabilities
              
              
              132,783
              
              
              131,234Income
                  taxes payable
              
              
              24,336
              
              
              154Short-term
                  debt
              
              
              13,000
              
              
              54,000Current
                  maturities of long-term debt
              
              
              6,625
              
              
              826,025Current
                  liabilities related to discontinued operations
              
              
              1,137
              
              
              1,215Total
                  current liabilities
              
              
              258,971
              
              
              1,082,686LONG-TERM
                  DEBT, net of current maturities
              
              
              822,050
              
              
              —DEFERRED
                  INCOME TAXES
              
              
              33,456
              
              
              26,687LONG-TERM
                  TAXES PAYABLE
              
              
              —
              
              
              27,001DEFERRED
                  LEASE OBLIGATIONS
              
              
              38,209
              
              
              43,427OTHER
                  LONG-TERM LIABILITIES
              
              
              9,341
              
              
              9,541Total
                  liabilities
              
              
              1,162,027
              
              
              1,189,342SHAREHOLDER’S
                  DEFICIT:Preferred
                  stock; $.01 par value, 1,100,000 shares authorized; none issued
                  and
                  outstanding as of June 27, 2007 and December 12, 2007
              
              
              —
              
              
              —Common
                  stock; $.01 par value, 3,600,000 shares authorized; 3,104,510 shares
                  issued and outstanding as of June 27, 2007 and December 12,
                  2007
              
              
              31
              
              
              31Additional
                  paid in capital
              
              
              82
              
              
              82Accumulated
                  deficit
              
              
              (201,129
              )
              
              (243,669
              )Accumulated
                  other comprehensive income (loss)
              
              
              58
              
              
              (339
              )Total
                  shareholder’s deficit
              
              
              (200,958
              )
              
              (243,895
              )Total
                  liabilities and shareholder’s deficit
              
              $
              961,069
              
              $
              945,447





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**
            
            **24
                Weeks Ended****December
                13,**
              **2006**
            
            **December
                12,**
              **2007**
            
            **December
                13,**
              **2006**
            
            **December
                12,**
              **2007****(Unaudited)**
            
            **(Unaudited)****(In
                thousands)**
            
            **(In
                thousands)**RESTAURANT
                SALES
            
            $
            291,005
            
            $
            348,101
            
            $
            504,909
            
            $
            724,640RESTAURANT
                COSTS:Food
            
            
            100,409
            
            
            122,041
            
            
            174,499
            
            
            252,209Labor
            
            
            88,275
            
            
            107,448
            
            
            148,653
            
            
            218,595Direct
                and occupancy
            
            
            74,108
            
            
            95,190
            
            
            125,980
            
            
            193,360Total
                restaurant costs
            
            
            262,792
            
            
            324,679
            
            
            449,132
            
            
            664,164ADVERTISING
                EXPENSES
            
            
            7,722
            
            
            8,790
            
            
            14,949
            
            
            18,657GENERAL
                AND ADMINISTRATIVE EXPENSES
            
            
            13,795
            
            
            16,649
            
            
            23,061
            
            
            32,547CLOSED
                RESTAURANT COSTS
            
            
            817
            
            
            2,817
            
            
            1,559
            
            
            2,886IMPAIRMENT
                OF ASSETS
            
            
            —
            
            
            6,367
            
            
            —
            
            
            6,367MERGER
                INTEGRATION COSTS
            
            
            3,074
            
            
            2,041
            
            
            3,514
            
            
            3,674LOSS
                ON SALE LEASEBACK TRANSACTIONS
            
            
            2,498
            
            
            —
            
            
            2,498
            
            
            —LOSS
                ON LITIGATION SETTLEMENTS
            
            
            —
            
            
            30
            
            
            —
            
            
            84OPERATING
                INCOME (LOSS)
            
            
            307
            
            
            (13,272
            )
            
            10,196
            
            
            (3,739
            )INTEREST
                EXPENSE
            
            
            17,386
            
            
            21,585
            
            
            30,614
            
            
            42,342INTEREST
                INCOME
            
            
            (50
            )
            
            (1
            )
            
            (78
            )
            
            (162
            )LOSS
                RELATED TO REFINANCING
            
            
            40,042
            
            
            —
            
            
            40,285
            
            
            5OTHER
                INCOME
            
            
            (296
            )
            
            (205
            )
            
            (498
            )
            
            (475
            )LOSS
                BEFORE INCOME TAXES
            
            
            (56,775
            )
            
            (34,651
            )
            
            (60,127
            )
            
            (45,449
            )INCOME
                TAX EXPENSE (BENEFIT)
            
            
            (21,640
            )
            
            3,246
            
            
            (23,543
            )
            
            (1,739
            )Net
                loss from continuing operations
            
            
            (35,135
            )
            
            (37,897
            )
            
            (36,584
            )
            
            (43,710
            )Net
                income from discontinued operations, net of tax of $133, $166, $341and
                $191, respectively.
            
            
            199
            
            
            246
            
            
            508
            
            
            283Net
                loss
            
            $
            (34,936
            )
            $
            (37,651
            )
            $
            (36,076
            )
            $
            (43,427
            )





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**




**24
                  Weeks Ended****December
                  13,**
                **2006**
              
              **December
                  12,**
                **2007****(Unaudited)****(In
                  thousands)**OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (36,076
              )
              $
              (43,427
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              16,610
              
              
              20,035Amortization
                  of debt issuance cost
              
              
              1,208
              
              
              2,402Accretion
                  of original issue discount
              
              
              5,623
              
              
              —Loss
                  related to refinancing:Write-off
                  of debt issuance costs
              
              
              8,686
              
              
              —Refinancing
                  premiums expensed
              
              
              31,599
              
              
              —Loss
                  on disposal of assets
              
              
              425
              
              
              1,301Loss
                  on sale leaseback transactions
              
              
              2,498
              
              
              —Impairment
                  of assets
              
              
              —
              
              
              6,367Deferred
                  income taxes
              
              
              (30,896
              )
              
              964Changes
                  in assets and liabilities:Receivables
              
              
              1,264
              
              
              3,642Inventories
              
              
              195
              
              
              (118
              )Prepaid
                  expenses and other current assets
              
              
              1,123
              
              
              (8,121
              )Accounts
                  payable
              
              
              (2,574
              )
              
              (9,928
              )Accrued
                  and other liabilities
              
              
              (6,209
              )
              
              1,610Income
                  taxes receivable/payable
              
              
              4,371
              
              
              11,070Net
                  cash used in operating activities
              
              
              (2,153
              )
              
              (14,203
              )INVESTING
                  ACTIVITIES:Proceeds
                  from sale leaseback transactions
              
              
              8,608
              
              
              —Proceeds
                  from sale of assets held for sale
              
              
              —
              
              
              14,746Acquisitions,
                  net of liabilities assumed and cash acquired
              
              
              (168,906
              )
              
              1Purchase
                  of property and equipment
              
              
              (14,682
              )
              
              (22,402
              )Collections
                  on notes receivable
              
              
              710
              
              
              506Purchase
                  of other assets
              
              
              (258
              )
              
              (101
              )Net
                  cash used in investing activities
              
              
              (174,528
              )
              
              (7,250
              )FINANCING
                  ACTIVITIES:Repayment
                  of term loan facility
              
              
              (182,053
              )
              
              (2,650
              )Repurchase
                  of 111⁄4 % senior subordinated notes
              
              
              (180,778
              )
              
              —Repurchase
                  of 137/8 % senior discount notes
              
              
              (105,306
              )
              
              —Repayment
                  of Ryan’s debt
              
              
              (145,000
              )
              
              —Proceeds
                  from term loan funding
              
              
              530,000
              
              
              —Proceeds
                  from 12 1⁄2 % senior note issuance
              
              
              300,000
              
              
              —Proceeds
                  from revolver facility
              
              
              16,250
              
              
              41,000Debt
                  issuance costs
              
              
              (35,877
              )
              
              (95
              )Payment
                  of refinancing premiums
              
              
              (32,554
              )
              
              —Net
                  cash provided by financing activities
              
              
              164,682
              
              
              38,255NET
                  CHANGE IN CASH RELATED TO DISCONTINUED OPERATIONS
              
              
              —
              
              
              (5
              )NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              (11,999
              )
              
              16,797CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              20,194
              
              
              4,645CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              8,195
              
              $
              21,442SUPPLEMENTAL
                  CASH FLOW INFORMATION:Cash
                  paid during the period for —Interest
                  (net of capitalized interest of $163 and $193)
              
              $
              30,991
              
              $
              43,281Income
                  taxes
              
              $
              3,305
              
              $
              644




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% 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 626 restaurants, including 615 family
      steak-buffet restaurants and eleven Tahoe Joe’s Famous Steakhouse® restaurants,
      and franchised sixteen restaurants as of December 12, 2007. In February 2008,
      the Company closed 52 restaurants (see Note 14 — “Subsequent Events” for further
      discussion of these store closures). Subsequent to these closures, the Company
      owned and operated 574 restaurants, including 563 steak-buffet restaurants
      and
      eleven Tahoe Joe’s Famous Steakhouse® restaurants, and franchised sixteen
      restaurants.





*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 December 12, 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, 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.





*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 next twelve months. 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 9 - “Discontinued
      Operations” for additional information on the account balances and related
      activity reclassified.





6





*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 24 week period ended December 12, 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/A filed with the Securities and Exchange
        Commission on March 31, 2008 and with Management’s Discussion and Analysis of
        Financial Condition and Results of Operations appearing on pages 29 through
        45
        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.
      Going Concern**





The
        accompanying condensed consolidated financial statements have been prepared
        on a
        going concern basis, which contemplates the realization of assets and the
        discharge of liabilities in the normal course of business for the foreseeable
        future. The Company incurred net losses of $2.2 million, $6.0 million and
        $116.7
        million for the years ended June 29, 2005, June 28, 2006 and June 27, 2007,
        respectively, incurred a net loss of $43.4 million for the 24 weeks ended
        December 12, 2007, and has an accumulated deficit of $243.7 million
        (unaudited) and a working capital deficiency of $958.6 million (unaudited)
        at December 12, 2007, including $822.1 million (unaudited) of long-term
        debt classified as current as a result of the events of default.
        During the 24 weeks ended December 12, 2007, the Company had net cash used
        in
        operations of $14.2 million (unaudited) and completed asset sale transactions
        for proceeds totaling approximately $14.7 million (unaudited). As
        a
        result of these liquidity issues, the Company fell out of compliance with
        certain financial covenants included in its Pre-Petition Credit Agreement
        and
        failed to make an $18.8 million interest payment, due January 2, 2008 on
        its 12
1⁄2% Senior Notes.





The
      Company anticipates that substantially all of its and the other Debtor’s
      liabilities as of the date it filed for bankruptcy will be addressed under,
      and
      treated in accordance with, a plan of reorganization to be proposed to and
      voted
      on by the Company’s creditors in accordance with the provisions of the
      Bankruptcy Code. Although the Company intends to file and seek confirmation
      of
      such a plan, there can be no assurance as to when the plan will be filed or
      that
      the plan will be confirmed by the Bankruptcy Court and consummated. Nor can
      there be any assurance that the Company will be successful in achieving its
      goals, or that any measures that are achievable will result in sufficient
      improvement to the Company’s financial position. Accordingly, until the time
      that the Company emerges from bankruptcy, there will be no certainty about
      its
      ability to continue as a going concern. If a restructuring is not completed,
      the
      Company could be forced to sell a significant portion of its assets to retire
      outstanding indebtedness or, under certain circumstances, to cease
      operations.





The
        Company’s continuation as a going concern is contingent upon, amongst other
        things, its ability (i) to comply with the terms and conditions of the DIP
        Credit Agreement; (ii) to obtain confirmation of a plan of reorganization
        under
        the Bankruptcy Code; (iii) to reduce administrative, operating and interest
        costs and liabilities through the bankruptcy process; (iv) to return to
        profitability and (v) to generate sufficient cash flow from operations. These
        matters create substantial doubt relating to the Company’s ability to continue
        as a going concern. The accompanying condensed consolidated financial statements
        do not reflect any adjustments relating to the recoverability of assets and
        classifications of liabilities that might result from the outcome of these
        uncertainties. In addition, a plan of reorganization could materially change
        the
        amounts reported in the condensed consolidated financial statements.
        The accompanying condensed consolidated financial statements do not
        give effect to all the adjustments to the carrying value of assets and
        liabilities that may become necessary as a consequence of reorganization
        under
        Chapter 11.





7





**3.
      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
      24
      weeks of fiscal year 2007 or 2008.





Goodwill
      increased from approximately $497.5 million as of June 27, 2007 to approximately
      $515.7 million as of December 12, 2007. The increase of $18.2 million is the
      result of additional goodwill from the Ryan’s acquisition. See Note 7 -
“Acquisitions” for further discussion regarding the goodwill and other
      intangible assets associated with this transaction.





On
        January 22, 2008, the Company voluntarily filed for relief under Chapter
        11 of
        the United States Bankruptcy Code. As a result of the Chapter 11 filing and
        the
        events leading up to it, management performed an initial assessment of goodwill
        impairment as of the end of the second quarter of fiscal 2008, based on market
        multiples of trailing twelve month EBITDA. Although this initial assessment
        did
        not indicate an impairment of goodwill, because of the difficulty in making
        an
        assessment given the uncertainty related to the Chapter 11 filing and the
        development of the reorganization plan, the Company is taking steps to engage
        an
        outside firm to perform an independent valuation of goodwill. At this time,
        the
        Company is unable to make a good-faith estimate of the potential amount or
        range
        of amounts of the impairment charge, if one is determined to exist. Any
        impairment charge that may result from the completion of the valuation may
        be
        material, but will not result in future cash expenditures and will not result
        in
        any significant changes to its operations other than those communicated as
        part
        of the restructuring plans.





*Closed
      Restaurant Reserve*





The
      Company maintains a closed restaurant reserve for restaurants that are no longer
      being used in current operations. The closed restaurant costs are principally
      comprised of the Company’s estimates of lease termination costs and obligations,
      net of sublease income 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
      the Company’s success at negotiating early termination agreements with lessors
      are considered in establishing the reserve. 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 closed restaurant reserve (current and
      non-current in aggregate) was $1.7 million and $2.4 million as of June 27,
      2007
      and December 12, 2007, respectively.





*Derivative
      Instruments and Hedging Activities*





The
      Company uses financial derivatives to manage interest rate risk 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
      sheet 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 7 — “Debt” for further discussion of the interest rate swap and the impact
      of the Company’s bankruptcy proceeding.




8





*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.





**4.
      Recent Accounting Pronouncements**





In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      No.
      157 (“SFAS 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 157 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 157 will have on its consolidated results of operations and
      financial condition.





In
      February 2007, the FASB issued SFAS 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 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





**5.
      Property and Equipment**





Property
      and equipment was as follows (in thousands):


**June
                27,**
              **2007**
            
            **December
                12,**
              **2007**Land
            
            $
            16,829
            
            $
            10,519Buildings
            
            
            16,213
            
            
            9,156Equipment
            
            
            221,767
            
            
            232,309Leasehold
                improvements
            
            
            157,150
            
            
            159,966Accumulated
                depreciation and amortization
            
            
            (190,867
            )
            
            (208,791
            )$
            221,092
            
            $
            203,159





As
      of
      December 12, 2007, the Land value above includes approximately $2.8 million
      in
      assets the Company intends to sell, but are not expected to be sold within
      the
      next twelve months.





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





9


**6.
      Accrued Liabilities**





Accrued
      liabilities consisted of the following (in thousands):





**June
                27,**
              **2007**
            
            **December
                12,**
              **2007**Accrued
                compensation
            
            $
            32,710
            
            $
            28,196Accrued
                workers’ compensation
            
            
            21,427
            
            
            21,211Accrued
                sales, use and property taxes
            
            
            16,856
            
            
            20,152Accrued
                insurance
            
            
            17,350
            
            
            16,911Accrued
                interest
            
            
            22,603
            
            
            19,356Accrued
                litigation reserve
            
            
            9,926
            
            
            9,307Unearned
                revenue (gift cards/certificates)
            
            
            4,290
            
            
            4,597Accrued
                legal and consulting fees
            
            
            65
            
            
            2,014Closed
                restaurant reserve, current portion
            
            
            1,196
            
            
            1,674Accrued
                percentage rent
            
            
            992
            
            
            1,773Accrued
                other
            
            
            5,368
            
            
            6,043$
            132,783
            
            $
            131,234





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





*Closed
      Restaurant Reserve*





Closed
      restaurant costs incurred subsequent to December 31, 2002 have been accounted
      for in accordance with SFAS 146, *Accounting
      for Costs Associated*  *with
      Exit or Disposal Activities.*





The
      store
      closing costs are principally comprised of lease termination costs and
      obligations, net of sublease and other cash receipts. Employee termination
      costs
      are recognized in the period that the closure is communicated to the affected
      employees.





The
      following table summarizes closed restaurant reserve activity by cost type
      (in
      thousands):




**June
                27,**
              **2007**
            
            **December
                12,**
              **2007**BALANCE,
                beginning of period (current and non-current in aggregate)
            
            $
            2,776
            
            $
            1,654Additions:Lease
                obligations charged to earnings
            
            
            2,141
            
            
            1,655Lease
                obligations charged to goodwill
            
            
            131
            
            
            48Employee
                termination benefits charged to earnings
            
            
            5
            
            
            76Employee
                termination benefits charged to goodwill
            
            
            183
            
            
            218Reductions:Cash
                payments:Lease
                termination costs and obligations
            
            
            3,394
            
            
            925Employee
                severance benefits
            
            
            188
            
            
            294BALANCE,
                end of period (current and non-current in aggregate)
            
            $
            1,654
            
            $
            2,432





In
      addition to lease obligation and employee termination costs the Company incurred
      closed restaurant costs of $1.4 million and $1.2 million as of June 27, 2007
      and
      December 12, 2007, respectively, related to incremental cash and non-cash
      charges that were directly expensed.





The
      following table summarizes planned and actual restaurant closing
      activity:





**June
                27,**
              **2007**
            
            **December
                12,**
              **2007**Number
                of restaurants:Expected
                to close as of the beginning of the period
            
            
            1
            
            
            5Closed
                during the period
            
            
            32
            
            
            20Identified
                for closure during the period
            
            
            36
            
            
            68Expected
                to close as of the end of the period
            
            
            5
            
            
            53




10




**June
                27,**
              **2007**
            
            **December
                12,**
              **2007**Number
                of employees:Expected
                to be terminated as of the beginning of the period
            
            
            35
            
            
            175Terminated
                during the period
            
            
            1,120
            
            
            700Identified
                for termination during the period
            
            
            1,260
            
            
            2,380Expected
                to be terminated as of the end of the period
            
            
            175
            
            
            1,855





The
          remaining closed restaurant reserves (current and non-current in aggregate)
          are
          expected to be paid, by year as follows (in thousands):


2008
            
            $
            1,0222009
            
            
            1,0032010
            
            
            3702011
            
            
            282012
            
            
            9Thereafter
            
            
            —$
            2,432





The
      Company closed seven underperforming Buffets brand restaurants as of December
      12, 2007. Cash charges of approximately $1.1 million were incurred related
      to
      these restaurant closures. These charges included approximately $0.8 million
      related to lease termination costs and obligations, $0.1 million related to
      employee termination costs and approximately $0.2 million related to other
      associated costs. Non-cash charges related to these closures through the second
      fiscal 2008 quarter were approximately $1.0 million. These charges were expensed
      as incurred pursuant to SFAS 146 and are recorded in “Closed Restaurant Costs”
in the consolidated statements of operations. In addition, the Company closed
      thirteen Ryan’s brand restaurants through the second fiscal 2008 quarter.
      Charges related to these restaurant closures were charged to goodwill pursuant
      to EITF 95-3, *Recognition
      of Liabilities in Connection with a*  *Purchase
      Business Combination.* See
      Note
      8 — “Acquisitions” for further discussion of the merger with
      Ryan’s.




**7.
      Debt**





As
      of
      December 12, 2007, debt outstanding was as follows (in thousands):





Short-Term
                  borrowings consist of the following:Revolving
                  credit facility, interest at LIBOR plus 3.25%, due December 31,
                  2007
                  (interest at 8.31% as of December 12, 2007)
              
              $
              26,500Revolving
                  credit facility, interest at Prime plus 2.25%, (interest at 9.75%
                  as of
                  December 12, 2007)
              
              
              13,500Letter
                  of credit facility at 2.85% plus borrowings at LIBOR, due December
                  21,
                  2007 (interest at 7.91% as of December 12, 2007)
              
              
              10,000Letter
                  of credit facility at 2.85% plus revolving borrowings at Prime,
                  (interest
                  at 10.35% as of December 12, 2007)
              
              
              4,000Total
                  short-term debt
              
              
              54,000Term
                  loan, interest at LIBOR plus 2.75%, due quarterly through March
                  31, 2013
                  with remaining balance due November 1, 2013 (interest rate at 7.81%
                  as of
                  December 12, 2007)
              
              
              526,025Senior
                  notes, interest at 12.50%, due November 1, 2014
              
              
              300,000Current
                  Maturities of long-term debt
              
              
              826,025Total
                  short-term debt and current maturities
              
              $
              880,025





The
        Chapter 11 filing triggered the immediate acceleration of, and events of
        default
        to occur under, the 12 1/2% Senior Notes and the Pre-Petition Credit Facility.
        As a result, the Company has shown the principal amounts outstanding under
        these
        obligations as currently due.





***Post-Petition
      Financing***





*Debtor-In-Possession
      Credit Agreement*





In
      connection with the Chapter 11 filing, the Debtors entered into the DIP Credit
      Agreement. The $285 million DIP Credit Agreement consists of an $85 million
      new
      money facility and $200 million of borrowings under the Pre-Petition Credit
      Facility that have been rolled into the DIP Credit Agreement. Of the $85 million
      new money facility, $30 million was drawn on January 23, 2008 and $55 million
      is
      available, subject to certain conditions, on a delayed draw basis until April
      30, 2008. The Bankruptcy Court granted final approval of the DIP Credit
      Agreement on February 22, 2008. The proceeds of the new money loans incurred
      under the DIP Credit Agreement will be used to fund the continued operation
      of
      the Debtors’ businesses as debtors-in-possession under the Bankruptcy Code, pay
      certain expenses and fees incurred by the Company in connection with the
      Bankruptcy Cases, support the Debtors’ working capital needs and for general
      corporate purposes. As of March 31, 2008, $30.0 million of new money borrowings
      were outstanding under the DIP Credit Agreement.




11





Borrowings
        under the DIP Credit Agreement bear interest at the rate of LIBOR plus 7.25%,
        payable in cash monthly. The LIBOR rate will float throughout the life of
        the
        DIP Credit Agreement, provided that at no time during the life of the DIP
        Credit
        Agreement will the applicable LIBOR rate for  amounts outstanding under the
        new money facility of the DIP Credit Agreement be less than 4.00% per annum
        or
        greater than 5.00% per annum. In addition, the DIP Credit Agreement obligates
        the Debtors to pay certain fees to the agents and lenders thereunder, as
        described in the DIP Credit Agreement.





The
      DIP
      Credit Agreement requires payment of all amounts borrowed, together with accrued
      and unpaid interest, by the Maturity Date (as defined below). The Debtors have
      the right to voluntarily prepay any borrowing, in whole or in part at any time.
      Subject to certain exceptions, the Debtors are subject to mandatory prepayment
      of the principal amount in the event of certain asset sales or receipt of cash
      proceeds from the incurrence of indebtedness.





Obligations
      under the DIP Credit Agreement are secured by (i) a lien on all of the assets
      of
      the Debtors (which lien will have a first priority with respect to substantially
      all of the Debtors’ assets), including a pledge of all of the equity interests
      of each of the Company’s domestic subsidiaries and (ii) a super-priority
      administrative claim in each of the Bankruptcy Cases. The Company’s obligations
      under the DIP Credit Agreement are guaranteed by each of Buffets’ subsidiaries
      which is a Debtor pursuant to a Guarantee and Collateral Agreement, dated as
      of
      January 22, 2008, among Buffets, the Company, the subsidiaries of Buffets’ named
      therein and Credit Suisse as Collateral Agent.





The
      DIP
      Credit Agreement matures twelve months from January 22, 2008 (the “Maturity
      Date”). The DIP Credit Agreement allows for one automatic six-month extension of
      the Maturity Date if the principal balance outstanding under the new money
      facility of the DIP Credit Agreement is less than or equal to $50 million on
      such date, provided, further, that if the Company receives $10 million or more
      in asset sale proceeds during the first twelve months after the Company’s
      Chapter 11 petition date, the automatic six-month extension of the maturity
      will
      be available only if the principal balance outstanding under the new money
      DIP
      Credit Agreement is less than or equal to $40 million on such date. If the
      principal balance outstanding under the new money DIP Credit Agreement is
      greater than $50 million (or greater than $40 million, if the Company receives
      $10 million or more in asset proceeds during the first twelve months after
      the
      Company’s Chapter 11 petition date) on the twelve-month anniversary, a six-month
      extension may be granted with the consent of the holders of a majority in amount
      of the outstanding new money loans.





The
      DIP
      Credit Agreement contains customary representations, warranties and covenants
      by
      the Debtors, including, without limitation, reporting requirements, financial
      covenants, milestones related to the restructuring process, and limitations
      on
      the Company’s ability to sell assets.





The
      Debtors’ obligations under the DIP Credit Agreement may be accelerated following
      certain events of default, including (without limitation) any breach by the
      Debtors of any of the representations, warranties or covenants made in the
      DIP
      Credit Agreement, the dismissal by the Bankruptcy Court of any of the Bankruptcy
      Cases, the conversion of any of the Bankruptcy Cases to a case under Chapter
      7
      of the Bankruptcy Code or the appointment of a trustee pursuant to Chapter
      11 of
      the Bankruptcy Code.





***Pre-Petition
      Financing***





*Credit
      Facility*





On
      November 1, 2006, Buffets secured a $640.0 million senior secured credit
      facility (the “Pre-Petition 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”), Buffets and the Company entered
      into an amendment to its Pre-Petition 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 Pre-Petition 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
      December 12, 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%.




12





On
      January 10, 2008, we entered into a Forbearance Agreement and Second Amendment
      (the “Forbearance Agreement”) to the Credit Agreement, dated as of November 1,
      2006, among us, Buffets, our subsidiaries named therein, the lenders named
      therein, and Credit Suisse as Administrative Agent (the “Pre-Petition Credit
      Facility) relating to certain defaults under the Pre-Petition Credit Facility.
      The Forbearance Agreement also included certain amendments to the Pre-Petition
      Credit Facility. Among other things, the Forbearance Agreement provided that
      the
      lenders would forbear from exercising remedies related to certain pre-bankruptcy
      events of default, including the failure by the Company to maintain a minimum
      interest coverage ratio and a maximum leverage ratio and the failure by the
      Company to make the January 2, 2008 interest payment due on the Company’s 12 1⁄2%
      Senior Notes within the applicable 30-day grace period, and for the amendment
      of
      the Pre-Petition Credit Facility to, among other things, increase the interest
      rate margin applicable to LIBOR-based revolving and term loans to 7.25% and
      the
      interest rate margin applicable to alternate base rate revolving and term loans
      to 6.25%.





The
      bankruptcy filing triggered events of default under the Pre-Petition Credit
      Facility, as amended by the Forbearance Agreement, and the immediate
      acceleration of amounts outstanding under the Pre-Petition Credit Facility,
      other than the amounts rolled into the DIP Credit Agreement. The ability of
      the
      Pre-Petition Credit Facility lenders to seek remedies to enforce their rights
      under Pre-Petition Credit Facility is automatically stayed as a result of the
      Bankruptcy Cases and the Pre-Petition Credit Facility lenders’ rights of
      enforcement are subject to the applicable provisions of the Bankruptcy Code.
      As
      of March 31, 2008, there was approximately $580.3 million outstanding under
      the
      Pre-Petition Credit Facility, $200 million of which was rolled into the DIP
      Credit Facility.





On
      March
      12, 2008, we received final approval from the Bankruptcy Court for the Third
      Amendment (the “Third Amendment”) to the Pre-Petition Credit Facility. In
      accordance with the Third Amendment, we may continue to renew letters of credit
      originally issued under the Pre-Petition Credit Facility notwithstanding the
      fact that we filed a petition for relief under Chapter 11 of the Bankruptcy
      Code.





On
      April
      12, 2007, per the terms of its Pre-Petition Credit Agreement, the Company
      entered into an interest rate swap agreement (the “Swap Agreement”) to manage
      its exposure on debt instruments to interest rate fluctuation. The Swap
      Agreement, which became effective May 31, 2007 and has 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 calls 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. During the twelve weeks
      ended December 12, 2007, the Company recorded a loss on the swap of
      approximately $237,000,
      net of approximately $77,000 in tax benefit, to accumulated other comprehensive
      income (loss) and amortized $35,692 into earnings as an adjustment to interest
      expense, representing the realized portion of gains on the swap.





On
      January 22, 2008, the Company received notification that the Chapter 11 filing
      caused an Event of Default, as defined in the Swap Agreement. As a result of
      the
      default, January 22, 2008 was set as the Early Termination Date, as described
      in
      the Swap Agreement, and a calculation of the amount owed under the agreement
      was
      performed and determined to be approximately $1.0 million. The ability of the
      transaction counter-party to seek remedies to enforce their rights under the
      Swap Agreement is automatically stayed as a result of the Bankruptcy Cases
      and
      the Pre-Petition Credit Facility lenders’ rights of enforcement are subject to
      the applicable provisions of the Bankruptcy Code.





*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 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.





The
      bankruptcy filing triggered events of default under the indenture governing
      the
      12 1⁄2% Senior Notes and the immediate acceleration of the outstanding principal
      amount and accrued but unpaid interest of the 12 1⁄2% Senior Notes. The ability of
      the noteholders to seek remedies to enforce their rights under the indenture
      governing the 12 1⁄2% Senior Notes is automatically stayed as a result of our
      bankruptcy filing and the noteholders’ rights of enforcement are subject to the
      applicable provisions of the Bankruptcy Code.




13





**8.
      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 full 24
      weeks ended December 12, 2007, but not for the full 24 weeks ended December
      13,
      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 $205.8 million was allocated to goodwill.
      Substantially all the goodwill is not deductible for tax purposes.





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
            
            
            46,847Other
                current assets
            
            
            42,330Property,
                plant & equipment
            
            
            99,079Goodwill
            
            
            205,830Other
                intangible assets (1)
            
            
            66,735Other
                assets
            
            
            3,740Total
                assets acquired
            
            
            1,023,967Accounts
                payable
            
            
            15,735Current
                portion of long-term debt
            
            
            33,036Income
                taxes payable
            
            
            15,109Accrued
                liabilities
            
            
            71,875Deferred
                tax liability
            
            
            49,554Long-term
                debt
            
            
            111,964Other
                long-term liabilities
            
            
            1,859Total
                liabilities assumed
            
            
            299,132Net
                assets acquired
            
            
            724,835Less
                cash acquired
            
            
            559,406Net
                cash paid
            
            $
            165,429








(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 34 of
      the acquired restaurants. As a result, the Company recorded a liability for
      employee termination costs of $6.0 million. At December 12, 2007, the Company
      had notified 1,451 employees of the acquired entities of their impending
      termination. As of the end of the second quarter of fiscal 2008, all of the
      notified employees had been terminated and employee termination costs of $6.0
      million had been paid. 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 acquired certain properties which have been identified as “Assets Held
      for Sale” in the accompanying condensed consolidated balance sheet, pursuant to
      SFAS 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.




14





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 $32.7 million in acquisition and merger
        integration costs as of December 12, 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 SFAS 141, *Business
        Combinations* .
        Merger
        integration costs of approximately $14.6 million have been expensed as incurred
        since the date of acquisition, of which approximately $3.7 million were expensed
        through the second quarter of fiscal 2008 and are recorded in “Merger
        Integration Costs” in the accompanying condensed consolidated statements of
        operations.





**9.
      Discontinued Operations**





In
      June
      2007, the Company developed a plan to sell a substantial portion of the assets
      and related liabilities of its Tahoe Joe’s Famous Steakhouse® restaurants. The
      Company is actively marketing the restaurants and expects to complete the sale
      within the next twelve months. In accordance with SFAS 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**
              **December
                13, 2006**
            
            **Twelve
                Weeks Ended**
              **December
                12, 2007**
            
            **24
                Weeks Ended**
              **December
                13, 2006**
            
            **24
                Weeks Ended**
              **December
                12, 2007**Revenue
            
            $
            6,886
            
            $
            7,802
            
            $
            14,258
            
            $
            15,974Income
                from discontinued operations
            
            
            199
            
            
            246
            
            
            508
            
            
            283





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




**June
                  27,**
                **2007**
              
              **December
                  12,**
                **2007**Current
                  assets related to discontinued operations:Assets
                  held for sale
              
              $
              13,186
              
              $
              14,383Inventory
                  and prepaids
              
              
              931
              
              
              1,023Total
                  current assets
              
              $
              14,117
              
              $
              15,406Non-current
                  assets related to discontinued operations:Property
                  and equipment
              
              $
              —
              
              $
              —Liquor
                  licenses
              
              
              412
              
              
              427Total
                  non-current assets
              
              $
              412
              
              $
              427Current
                  liabilities related to discontinued operations:Gift
                  card liability
              
              $
              1,137
              
              $
              1,215Total
                  current liabilities
              
              $
              1,137
              
              $
              1,215




15




**10.
      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 $0.9 million. The Company had a liability
      for
      total unrecognized income tax benefits in the amount of $25.6 million on June
      28, 2007, and if recognized, approximately $13.4 million would impact the
      effective tax rate. Of the total unrecognized tax benefits reflected in the
      Company’s balance sheet as of June 28, 2007, the date of adoption, approximately
      $9.5 million represented interest and penalties. As of December 12, 2007, there
      was an adjustment to the liability for unrecognized income tax benefits in
      the
      amount of $1.4 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.
      The
      $0.8 million of current liability for unrecognized income tax benefits reflects
      the amount the Company expects to reverse during the next twelve months in
      connection with the expiration of various state statutes of
      limitations.




If
        any of
        our unrecognized income tax benefits were recognized, there would be no impact
        on our effective tax rate. We do not anticipate that total unrecognized tax
        benefits will significantly change due to the settlement of audits or the
        expiration of statute of limitations within the next twelve
        months.




The
      Company files tax returns, including returns for its subsidiaries, in the United
      States federal jurisdiction and in various state jurisdictions. Uncertain tax
      positions are related to tax years that remain subject to examination. U.S
      tax
      returns for fiscal years ended June, 2003 through 2007 remain subject to
      examination by federal tax authorities. Various fiscal years remain subject
      to
      examination for tax returns for state and local jurisdictions.





**11.
      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 December 12, 2007, the Company had expensed approximately
      $665,000 of this prepaid management fee. See Note 14 - “Subsequent Events” for
      updates to this agreement.





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. See Note 14 - “Subsequent Events” for updates to this
      agreement.





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.See
      Note 14 - “Subsequent Events” for updates to this agreement.





16


**12.
      Commitments and Contingencies**





*Litigation*





On
      January 22, 2008, the Company and each of its subsidiaries filed a voluntary
      petition for relief under Chapter 11 of the Bankruptcy Code with the United
      States Bankruptcy Court for the District of Delaware, Case Number 08-10141.
      Under the Bankruptcy Code, the filing of a petition automatically stays most
      litigation pending against the Debtors. For a further description of our
      bankruptcy filing, see Note 14 - “Subsequent Events.”





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. 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,
      which anticipated payments of approximately $7.2 million, received preliminary
      court approval on September 12, 2007 but final court approval was not obtained
      by the time that the Company filed for bankruptcy. The matter represents a
      pre-petition unsecured claim subject to resolution under the bankruptcy
      proceeding. The Company previously recorded the expected settlement of $7.2
      million in the accrued litigation reserve and the amount is included in “Accrued
      Liabilities” in the accompanying condensed consolidated balance sheets.





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 against Ryan’s
      Restaurant Group, Inc. and certain of its executives. This complaint is a class
      action lawsuit brought on behalf of hourly employees who worked for Ryan’s in
      West Virginia since July 2001. 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. At the time of the Company’s bankruptcy filing, the West Virginia action
      was in a preliminary stage and the Company’s liability, if any, was
      undeterminable. The matter represents a contested pre-petition claim that is
      stayed pursuant to the bankruptcy proceeding.





On
      April
      2, 2007, a putative class action lawsuit was filed against HomeTown Buffet,
      Inc.
      and Buffets Holdings, Inc. in California state court in San Bernardino County.
      The lawsuit alleges that HomeTown Buffet violated California wage and hour
      laws
      by failing to pay its hourly employees overtime, for failing to provide meal
      and
      rest period breaks as provided by the California Labor Code and for charging
      employees for uniforms and equipment. Defendants removed the lawsuit to the
      United States District Court for the Central District of California on June
      28,
      2007. The complaint does not make a specific monetary demand. This contested
      action has likewise been stayed by the Company’s bankruptcy proceeding. It was
      in a preliminary stage at the time of the filing and the pre-petition liability
      has not been established.





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.





**13.
      Condensed Consolidating Financial Statements**





The
      following 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.





17




**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
            
            
            337,143
            
            
            (328,556
            )
            
            10,219Income
              tax receivable
            
            
            —
            
            
            13,324
            
            
            —
            
            
            —
            
            
            13,324Inventories
            
            
            —
            
            
            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
            )
            
            23,657
            
            
            426,157
            
            
            (328,556
            )
            
            120,983PROPERTY
                AND EQUIPMENT, net
            
            
            —
            
            
            7,577
            
            
            213,515
            
            
            —
            
            
            221,092GOODWILL,
                net
            
            
            —
            
            
            11,442
            
            
            486,050
            
            
            —
            
            
            497,492OTHER
                INTANGIBLE ASSETS
            
            
            —
            
            
            —
            
            
            83,998
            
            
            —
            
            
            83,998INVESTMENT
                IN SUBSIDIARIES
            
            
            (194,447
            )
            
            124,476
            
            
            —
            
            
            69,971
            
            
            —OTHER
                ASSETS, net
            
            
            38
            
            
            183,407
            
            
            3,447
            
            
            (149,800
            )
            
            37,092NON-CURRENT
                ASSETS RELATED TO DISCONTINUED OPERATIONS
            
            
            —
            
            
            —
            
            
            412
            
            
            —
            
            
            412Total
                assets
            
            $
            (194,684
            )
            $
            350,559
            
            $
            1,213,579
            
            $
            (408,385
            )
            $
            961,069**LIABILITIES
                AND SHAREHOLDER’S EQUITY (DEFICIT)**CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            —
            
            $
            398,048
            
            $
            11,598
            
            $
            (328,556
            )
            $
            81,090Accrued
                liabilities
            
            
            —
            
            
            70,912
            
            
            61,871
            
            
            —
            
            
            132,783Income
                taxes payable
            
            
            6,274
            
            
            18,062
            
            
            —
            
            
            —
            
            
            24,336Short-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
            
            
            487,473
            
            
            93,780
            
            
            (328,556
            )
            
            258,971LONG-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
            
            
            545,006
            
            
            1,089,103
            
            
            (478,356
            )
            
            1,162,027SHAREHOLDER’S
                EQUITY (DEFICIT)Common
                stock
            
            
            31
            
            
            —
            
            
            —
            
            
            —
            
            
            31Additional
                paid in capital
            
            
            82
            
            
            —
            
            
            —
            
            
            —
            
            
            82Retained
                earnings (accumulated deficit)
            
            
            (201,129
            )
            
            (194,505
            )
            
            124,476
            
            
            70,029
            
            
            (201,129
            )Accumulated
                other comprehensive income
            
            
            58
            
            
            58
            
            
            —
            
            
            (58
            )
            
            58Total
                shareholder’s equity (deficit)
            
            
            (200,958
            )
            
            (194,447
            )
            
            124,476
            
            
            69,971
            
            
            (200,958
            )Total
                liabilities and shareholder’s equity (deficit)
            
            $
            (194,684
            )
            $
            350,559
            
            $
            1,213,579
            
            $
            (408,385
            )
            $
            961,069





18




**Condensed
      Consolidating Balance Sheet**


**As
      of December 12, 2007**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)****ASSETS**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              37
              
              $
              16,600
              
              $
              4,805
              
              $
              —
              
              $
              21,442Receivables
              
              
              (6,585
              )
              
              549
              
              
              364,449
              
              
              (351,834
              )
              
              6,579Income
                  tax receivables
              
              
              —
              
              
              5,960
              
              
              —
              
              
              
              
              
              5,960Inventories
              
              
              —
              
              
              884
              
              
              30,670
              
              
              —
              
              
              31,554Prepaid
                  expenses and other current assets
              
              
              —
              
              
              10,353
              
              
              5,300
              
              
              —
              
              
              15,653Deferred
                  income taxes
              
              
              —
              
              
              3,000
              
              
              —
              
              
              —
              
              
              3,000Assets
                  held for sale
              
              
              —
              
              
              —
              
              
              24,487
              
              
              —
              
              
              24,487Current
                  assets related to discontinued operations
              
              
              —
              
              
              —
              
              
              15,406
              
              
              —
              
              
              15,406Total
                  current assets
              
              
              (6,548
              )
              
              37,346
              
              
              445,117
              
              
              (351,834
              )
              
              124,081PROPERTY
                  AND EQUIPMENT, net
              
              
              —
              
              
              6,499
              
              
              196,660
              
              
              —
              
              
              203,159GOODWILL,
                  net
              
              
              —
              
              
              11,861
              
              
              503,828
              
              
              —
              
              
              515,689OTHER
                  INTANGIBLE ASSETS
              
              
              —
              
              
              —
              
              
              67,461
              
              
              —
              
              
              67,461INVESTMENT
                  IN SUBSIDIARIES
              
              
              (237,384
              )
              
              86,478
              
              
              —
              
              
              150,906
              
              
              —OTHER
                  ASSETS, net
              
              
              37
              
              
              181,146
              
              
              3,247
              
              
              (149,800
              )
              
              34,630NON-CURRENT
                  ASSETS RELATED TO DISCONTINUED OPERATIONS
              
              
              —
              
              
              —
              
              
              427
              
              
              —
              
              
              427Total
                  assets
              
              $
              (243,895
              )
              $
              323,330
              
              $
              1,216,740
              
              $
              (350,728
              )
              $
              945,447**LIABILITIES
                  AND SHAREHOLDER’S EQUITY (DEFICIT)**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              —
              
              $
              411,984
              
              $
              9,908
              
              $
              (351,834
              )
              $
              70,058Accrued
                  liabilities
              
              
              —
              
              
              68,110
              
              
              63,124
              
              
              —
              
              
              131,234Income
                  taxes payable
              
              
              —
              
              
              167
              
              
              (13
              )
              
              —
              
              
              154Short-term
                  debt
              
              
              —
              
              
              1,242
              
              
              52,758
              
              
              —
              
              
              54,000Current
                  maturities of long-term debt
              
              
              —
              
              
              18,999
              
              
              807,026
              
              
              —
              
              
              826,025Current
                  liabilities related to discontinued operations
              
              
              —
              
              
              —
              
              
              1,215
              
              
              —
              
              
              1,215Total
                  current liabilities
              
              
              —
              
              
              500,502
              
              
              934,018
              
              
              (351,834
              )
              
              1,082,686LONG-TERM
                  DEBT, net of current maturities
              
              
              —
              
              
              —
              
              
              149,800
              
              
              (149,800
              )
              
              —DEFERRED
                  INCOME TAXES
              
              
              —
              
              
              26,687
              
              
              —
              
              
              —
              
              
              26,687LONG-TERM
                  TAXES PAYBALE
              
              
              —
              
              
              27,001
              
              
              —
              
              
              —
              
              
              27,001DEFERRED
                  LEASE OBLIGATIONS
              
              
              —
              
              
              2,491
              
              
              40,936
              
              
              —
              
              
              43,427OTHER
                  LONG-TERM LIABILITIES
              
              
              —
              
              
              4,033
              
              
              5,508
              
              
              —
              
              
              9,541Total
                  liabilities
              
              
              —
              
              
              560,714
              
              
              1,130,262
              
              
              (501,634
              )
              
              1,189,342SHAREHOLDER’S
                  EQUITY (DEFICIT)Common
                  stock
              
              
              31
              
              
              —
              
              
              —
              
              
              —
              
              
              31Additional
                  paid in capital
              
              
              82
              
              
              —
              
              
              —
              
              
              —
              
              
              82Retained
                  earnings (accumulated deficit)
              
              
              (244,008
              )
              
              (237,031
              )
              
              86,464
              
              
              150,906
              
              
              (243,669
              )Accumulated
                  other comprehensive income (loss)
              
              
              —
              
              
              (353
              )
              
              14
              
              
              —
              
              
              (339
              )Total
                  shareholder’s equity (deficit)
              
              
              (243,895
              )
              
              (237,384
              )
              
              86,478
              
              
              150,906
              
              
              (243,895
              )Total
                  liabilities and shareholder’s equity (deficit)
              
              $
              (243,895
              )
              $
              323,330
              
              $
              1,216,740
              
              $
              (350,728
              )
              $
              945,447




19




**Condensed
      Consolidating Statement of Operations**


**For
      the Twelve Weeks Ended December 13, 2006**


**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**RESTAURANT
                  SALES
              
              $
              —
              
              $
              10,093
              
              $
              280,912
              
              $
              —
              
              $
              291,005RESTAURANT
                  COSTS:Food
              
              
              —
              
              
              3,604
              
              
              96,805
              
              
              —
              
              
              100,409Labor
              
              
              —
              
              
              3,045
              
              
              85,230
              
              
              —
              
              
              88,275Direct
                  and occupancy
              
              
              —
              
              
              (1,381
              )
              
              75,489
              
              
              —
              
              
              74,108Total
                  restaurant costs
              
              
              —
              
              
              5,268
              
              
              257,524
              
              
              —
              
              
              262,792ADVERTISING
                  EXPENSES
              
              
              —
              
              
              250
              
              
              7,472
              
              
              —
              
              
              7,722GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              2
              
              
              491
              
              
              13,302
              
              
              —
              
              
              13,795CLOSED
                  RESTAURANT COSTS
              
              
              —
              
              
              —
              
              
              817
              
              
              —
              
              
              817MERGER
                  INTEGRATION COSTS
              
              
              —
              
              
              2,795
              
              
              279
              
              
              —
              
              
              3,074LOSS
                  ON SALE LEASEBACK TRANSACTIONS
              
              
              —
              
              
              —
              
              
              2,498
              
              
              —
              
              
              2,498OPERATING
                  INCOME (LOSS)
              
              
              (2
              )
              
              1,289
              
              
              (980
              )
              
              —
              
              
              307INTEREST
                  EXPENSE
              
              
              1,818
              
              
              935
              
              
              14,633
              
              
              —
              
              
              17,386INTEREST
                  INCOME
              
              
              —
              
              
              (50
              )
              
              —
              
              
              —
              
              
              (50
              )LOSS
                  RELATED TO REFINANCING
              
              
              18,044
              
              
              21,998
              
              
              —
              
              
              —
              
              
              40,042OTHER
                  INCOME
              
              
              —
              
              
              (296
              )
              
              —
              
              
              —
              
              
              (296
              )LOSS
                  BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF SUBSIDIARIES
              
              
              (19,864
              )
              
              (21,298
              )
              
              (15,613
              )
              
              —
              
              
              (56,775
              )INCOME
                  TAX EXPENSE (BENEFIT)
              
              
              8,936
              
              
              (19,114
              )
              
              (11,462
              )
              
              —
              
              
              (21,640
              )Net
                  income (loss) before equity in net loss of subsidiaries
              
              
              (28,800
              )
              
              (2,184
              )
              
              (4,151
              )
              
              —
              
              
              (35,135
              )Equity
                  in net loss of subsidiaries
              
              
              (6,136
              )
              
              (3,952
              )
              
              —
              
              
              10,088
              
              
              —Net
                  loss from continuing operations
              
              
              (34,936
              )
              
              (6,136
              )
              
              (4,151
              )
              
              10,088
              
              
              (35,135
              )Net
                  income (loss) from discontinued operations, net of tax
              
              
              —
              
              
              —
              
              
              199
              
              
              —
              
              
              199Net
                  loss
              
              $
              (34,936
              )
              $
              (6,136
              )
              $
              (3,952
              )
              $
              10,088
              
              $
              (34,936
              )




20


**Condensed
      Consolidating Statement of Operations**


**For
      the 24 Weeks Ended December 13, 2006**




**Parent**
            
            **Subsidiary**
              **Issuer**
            
            **Subsidiary**
              **Guarantors**
            
            **Eliminations**
            
            **Consolidated****(Unaudited)****(In
                thousands)**RESTAURANT
                SALES
            
            $
            —
            
            $
            20,586
            
            $
            484,323
            
            $
            —
            
            $
            504,909RESTAURANT
                COSTS:Food
            
            
            —
            
            
            7,365
            
            
            167,134
            
            
            —
            
            
            174,499Labor
            
            
            —
            
            
            6,119
            
            
            142,534
            
            
            —
            
            
            148,653Direct
                and occupancy
            
            
            —
            
            
            110
            
            
            125,870
            
            
            —
            
            
            125,980Total
                restaurant costs
            
            
            —
            
            
            13,594
            
            
            435,538
            
            
            —
            
            
            449,132ADVERTISING
                EXPENSES
            
            
            —
            
            
            593
            
            
            14,356
            
            
            —
            
            
            14,949GENERAL
                AND ADMINISTRATIVE EXPENSES
            
            
            3
            
            
            952
            
            
            22,106
            
            
            —
            
            
            23,061CLOSED
                RESTAURANT COSTS
            
            
            —
            
            
            —
            
            
            1,559
            
            
            —
            
            
            1,559MERGER
                INTEGRATION COSTS
            
            
            —
            
            
            3,235
            
            
            279
            
            
            —
            
            
            3,514LOSS
                ON SALE LEASEBACK TRANSACTIONS
            
            
            —
            
            
            —
            
            
            2,498
            
            
            —
            
            
            2,498OPERATING
                INCOME (LOSS)
            
            
            (3
            )
            
            2,212
            
            
            7,987
            
            
            —
            
            
            10,196INTEREST
                EXPENSE
            
            
            5,455
            
            
            1,510
            
            
            23,649
            
            
            —
            
            
            30,614INTEREST
                INCOME
            
            
            —
            
            
            (78
            )
            
            —
            
            
            —
            
            
            (78
            )LOSS
                RELATED TO REFINANCING
            
            
            18,044
            
            
            22,241
            
            
            —
            
            
            —
            
            
            40,285OTHER
                INCOME
            
            
            —
            
            
            (498
            )
            
            —
            
            
            —
            
            
            (498
            )LOSS
                BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF SUBSIDIARIES
            
            
            (23,502
            )
            
            (20,963
            )
            
            (15,662
            )
            
            —
            
            
            (60,127
            )INCOME
                TAX EXPENSE (BENEFIT)
            
            
            6,940
            
            
            (18,988
            )
            
            (11,495
            )
            
            —
            
            
            (23,543
            )Net
                income (loss) before equity in net loss of subsidiaries
            
            
            (30,442
            )
            
            (1,975
            )
            
            (4,167
            )
            
            —
            
            
            (36,584
            )Equity
                in net loss of subsidiaries
            
            
            (5,634
            )
            
            (3,659
            )
            
            —
            
            
            9,293
            
            
            —Net
                loss from continuing operations
            
            
            (36,076
            )
            
            (5,634
            )
            
            (4,167
            )
            
            9,293
            
            
            (36,584
            )Net
                income (loss) from discontinued operations, net of tax
            
            
            —
            
            
            —
            
            
            508
            
            
            —
            
            
            508Net
                loss
            
            $
            (36,076
            )
            $
            (5,634
            )
            $
            (3,659
            )
            $
            9,293
            
            $
            (36,076
            )




21




**Condensed
      Consolidating Statement of Operations**


**For
      the Twelve Weeks Ended December 12, 2007**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**RESTAURANT
                  SALES
              
              $
              —
              
              $
              9,517
              
              $
              338,584
              
              $
              —
              
              $
              348,101RESTAURANT
                  COSTS:Food
              
              
              —
              
              
              3,509
              
              
              118,532
              
              
              —
              
              
              122,041Labor
              
              
              —
              
              
              2,914
              
              
              104,534
              
              
              —
              
              
              107,448Direct
                  and occupancy
              
              
              —
              
              
              1,423
              
              
              93,767
              
              
              —
              
              
              95,190Total
                  restaurant costs
              
              
              —
              
              
              7,846
              
              
              316,833
              
              
              —
              
              
              324,679ADVERTISING
                  EXPENSES
              
              
              —
              
              
              235
              
              
              8,555
              
              
              —
              
              
              8,790GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              —
              
              
              459
              
              
              16,341
              
              
              (151
              )
              
              16,649CLOSED
                  RESTAURANT COSTS
              
              
              —
              
              
              —
              
              
              2,817
              
              
              —
              
              
              2,817IMPAIRMENT
                  OF ASSETS
              
              
              —
              
              
              —
              
              
              6,367
              
              
              —
              
              
              6,367MERGER
                  INTEGRATION COSTS
              
              
              —
              
              
              683
              
              
              1,358
              
              
              —
              
              
              2,041LOSS
                  ON LITIGATION SETTLEMENT
              
              
              —
              
              
              30
              
              
              —
              
              
              —
              
              
              30OPERATING
                  INCOME (LOSS)
              
              
              —
              
              
              264
              
              
              (13,687
              )
              
              151
              
              
              (13,272
              )INTEREST
                  EXPENSE
              
              
              —
              
              
              497
              
              
              21,090
              
              
              (2
              )
              
              21,585INTEREST
                  INCOME
              
              
              —
              
              
              (3
              )
              
              —
              
              
              2
              
              
              (1
              )OTHER
                  INCOME
              
              
              —
              
              
              (356
              )
              
              —
              
              
              151
              
              
              (205
              )LOSS
                  BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF SUBSIDIARIES
              
              
              —
              
              
              126
              
              
              (34,777
              )
              
              —
              
              
              (34,651
              )INCOME
                  TAX EXPENSE (BENEFIT)
              
              
              —
              
              
              (264
              )
              
              3,510
              
              
              —
              
              
              3,246Net
                  income (loss) before equity in net loss of subsidiaries
              
              
              —
              
              
              390
              
              
              (38,287
              )
              
              —
              
              
              (37,897
              )Equity
                  in net loss of subsidiaries
              
              
              (37,651
              )
              
              (38,041
              )
              
              —
              
              
              75,692
              
              
              —Net
                  loss from continuing operations
              
              
              (37,651
              )
              
              (37,651
              )
              
              (38,287
              )
              
              75,692
              
              
              (37,897
              )Net
                  income (loss) from discontinued operations, net of tax
              
              
              —
              
              
              —
              
              
              246
              
              
              —
              
              
              246Net
                  loss
              
              $
              (37,651
              )
              $
              (37,651
              )
              $
              (38,041
              )
              $
              75,692
              
              $
              (37,651
              )




22





**Condensed
      Consolidating Statement of Operations**


**For
      the 24 Weeks Ended December 12, 2007**


**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(Unaudited)****(In
                  thousands)**RESTAURANT
                  SALES
              
              $
              —
              
              $
              19,564
              
              $
              705,076
              
              $
              —
              
              $
              724,640RESTAURANT
                  COSTS:Food
              
              
              —
              
              
              7,114
              
              
              245,095
              
              
              —
              
              
              252,209Labor
              
              
              —
              
              
              5,848
              
              
              212,747
              
              
              —
              
              
              218,595Direct
                  and occupancy
              
              
              —
              
              
              2,928
              
              
              190,432
              
              
              —
              
              
              193,360Total
                  restaurant costs
              
              
              —
              
              
              15,890
              
              
              648,274
              
              
              —
              
              
              664,164ADVERTISING
                  EXPENSES
              
              
              —
              
              
              493
              
              
              18,164
              
              
              —
              
              
              18,657GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              —
              
              
              887
              
              
              31,963
              
              
              (303
              )
              
              32,547CLOSED
                  RESTAURANT COSTS
              
              
              —
              
              
              —
              
              
              2,886
              
              
              —
              
              
              2,886IMPAIRMENT
                  OF ASSETS
              
              
              —
              
              
              —
              
              
              6,367
              
              
              —
              
              
              6,367MERGER
                  INTEGRATION COSTS
              
              
              —
              
              
              1,472
              
              
              2,202
              
              
              —
              
              
              3,674LOSS
                  ON LITIGATION SETTLEMENT
              
              
              —
              
              
              84
              
              
              —
              
              
              —
              
              
              84OPERATING
                  INCOME
              
              
              —
              
              
              738
              
              
              (4,780
              )
              
              303
              
              
              (3,739
              )INTEREST
                  EXPENSE
              
              
              —
              
              
              974
              
              
              41,368
              
              
              —
              
              
              42,342INTEREST
                  INCOME
              
              
              —
              
              
              (162
              )
              
              —
              
              
              —
              
              
              (162
              )LOSS
                  RELATED TO REFINANCING
              
              
              —
              
              
              5
              
              
              —
              
              
              —
              
              
              5OTHER
                  INCOME
              
              
              —
              
              
              (778
              )
              
              —
              
              
              303
              
              
              (475
              )LOSS
                  BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF SUBSIDIARIES
              
              
              —
              
              
              699
              
              
              (46,148
              )
              
              —
              
              
              (45,449
              )INCOME
                  TAX EXPENSE (BENEFIT)
              
              
              —
              
              
              27
              
              
              (1,766
              )
              
              —
              
              
              (1,739
              )Net
                  income (loss) before equity in net loss of subsidiaries
              
              
              —
              
              
              672
              
              
              (44,382
              )
              
              —
              
              
              (43,710
              )Equity
                  in net loss of subsidiaries
              
              
              (43,427
              )
              
              (44,099
              )
              
              —
              
              
              87,526
              
              
              —Net
                  loss from continuing operations
              
              
              (43,427
              )
              
              (43,427
              )
              
              (44,382
              )
              
              87,526
              
              
              (43,710
              )Net
                  income (loss) from discontinued operations, net of tax
              
              
              —
              
              
              —
              
              
              283
              
              
              —
              
              
              283Net
                  loss
              
              $
              (43,427
              )
              $
              (43,427
              )
              $
              (44,099
              )
              $
              87,526
              
              $
              (43,427
              )
  23





**Condensed
      Consolidating Statement of Cash Flows**


**For
      the 24 Weeks Ended December 13, 2006**


**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (36,076
              )
              $
              (5,634
              )
              $
              (3,659
              )
              $
              9,293
              
              $
              (36,076
              )Adjustments
                  to reconcile net loss to net cash provided by (used in) operating
                  activities:Depreciation
                  and amortization
              
              
              —
              
              
              1,244
              
              
              15,366
              
              
              —
              
              
              16,610Amortization
                  of debt issuance costs
              
              
              315
              
              
              21
              
              
              872
              
              
              —
              
              
              1,208Accretion
                  of original issue discount
              
              
              5,315
              
              
              7
              
              
              301
              
              
              —
              
              
              5,623Loss
                  related to financing:Write-off
                  of debt issuance costs
              
              
              1,992
              
              
              154
              
              
              6,540
              
              
              —
              
              
              8,686Refinancing
                  premium expensed
              
              
              16,052
              
              
              358
              
              
              15,189
              
              
              —
              
              
              31,599Loss
                  on disposal of assets
              
              
              —
              
              
              —
              
              
              425
              
              
              —
              
              
              425Loss
                  on sale leaseback transactions
              
              
              —
              
              
              2,498
              
              
              —
              
              
              —
              
              
              2,498Deferred
                  income taxes
              
              
              —
              
              
              (711
              )
              
              (30,185
              )
              
              —
              
              
              (30,896
              )Equity
                  in earnings of subsidiaries
              
              
              5,634
              
              
              3,659
              
              
              —
              
              
              (9,293
              )
              
              —Changes
                  in assets and liabilities:Receivables
              
              
              (9,027
              )
              
              129,479
              
              
              (122,604
              )
              
              3,416
              
              
              1,264Inventories
              
              
              —
              
              
              (1
              )
              
              196
              
              
              —
              
              
              195Prepaid
                  expenses and other current assets
              
              
              3
              
              
              1,512
              
              
              (392
              )
              
              —
              
              
              1,123Due
                  from parent
              
              
              (108
              )
              
              —
              
              
              108
              
              
              —
              
              
              —Accounts
                  payable
              
              
              1,877
              
              
              (7,858
              )
              
              3,407
              
              
              —
              
              
              (2,574
              )Accrued
                  and other liabilities
              
              
              —
              
              
              (4,731
              )
              
              (1,478
              )
              
              —
              
              
              (6,209
              )Income
                  taxes payable
              
              
              16,341
              
              
              30,879
              
              
              (42,849
              )
              
              —
              
              
              4,371Net
                  cash provided by (used in) operating activities
              
              
              2,318
              
              
              150,876
              
              
              (158,763
              )
              
              3,416
              
              
              (2,153
              )INVESTING
                  ACTIVITIES:Proceeds
                  from sale leaseback transaction
              
              
              —
              
              
              8,608
              
              
              —
              
              
              —
              
              
              8,608Issuance
                  of notes receivable to Ryan’s
              
              
              —
              
              
              (149,800
              )
              
              —
              
              
              149,800
              
              
              —Acquisitions,
                  net of liabilities assumed and cash acquired
              
              
              —
              
              
              (165,488
              )
              
              (3,418
              )
              
              —
              
              
              (168,906
              )Purchase
                  of property and equipment
              
              
              —
              
              
              (298
              )
              
              (14,384
              )
              
              —
              
              
              (14,682
              )Corporate
                  cash advances (payments)
              
              
              —
              
              
              396,073
              
              
              (392,657
              )
              
              (3,416
              )
              
              —Collection
                  of notes receivable
              
              
              —
              
              
              710
              
              
              —
              
              
              —
              
              
              710Purchase
                  of other assets
              
              
              (174
              )
              
              (84
              )
              
              —
              
              
              —
              
              
              (258
              )Net
                  cash provided by (used in) investing activities
              
              
              (174
              )
              
              89,721
              
              
              (410,459
              )
              
              146,384
              
              
              (174,528
              )FINANCING
                  ACTIVITIES:Repayment
                  of term loan facility
              
              
              —
              
              
              (4,187
              )
              
              (177,866
              )
              
              —
              
              
              (182,053
              )Repurchase
                  of 111⁄4% senior subordinated notes
              
              
              —
              
              
              (4,158
              )
              
              (176,620
              )
              
              —
              
              
              (180,778
              )Repurchase
                  of 137/8% senior discount notes
              
              
              (105,306
              )
              
              —
              
              
              —
              
              
              —
              
              
              (105,306
              )Repayment
                  of Ryan’s debt
              
              
              —
              
              
              (145,000
              )
              
              —
              
              
              —
              
              
              (145,000
              )Proceeds
                  from new term loan funding
              
              
              —
              
              
              12,190
              
              
              517,810
              
              
              —
              
              
              530,000Proceeds
                  from 12 1⁄2% senior note issuance
              
              
              —
              
              
              6,900
              
              
              293,100
              
              
              —
              
              
              300,000Proceeds
                  from revolving credit facility
              
              
              —
              
              
              374
              
              
              15,876
              
              
              —
              
              
              16,250Debt
                  issuance costs
              
              
              —
              
              
              (825
              )
              
              (35,052
              )
              
              —
              
              
              (35,877
              )Payment
                  of refinancing premiums
              
              
              (16,052
              )
              
              (380
              )
              
              (16,122
              )
              
              —
              
              
              (32,554
              )Dividends
              
              
              119,214
              
              
              (119,214
              )
              
              —
              
              
              —
              
              
              —Issuance
                  of notes receivable from parent
              
              
              —
              
              
              —
              
              
              149,800
              
              
              (149,800
              )
              
              —Net
                  cash provided by (used in) financing activities
              
              
              (2,144
              )
              
              (254,300
              )
              
              570,926
              
              
              (149,800
              )
              
              164,682NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              —
              
              
              (13,703
              )
              
              1,704
              
              
              —
              
              
              (11,999
              )CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              37
              
              
              14,068
              
              
              6,089
              
              
              —
              
              
              20,194CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              37
              
              $
              365
              
              $
              7,793
              
              $
              —
              
              $
              8,195




24




**Condensed
      Consolidating Statement of Cash Flows**


**For
      the 24 Weeks Ended December 12, 2007**


**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**OPERATING
                  ACTIVITIES:Net
                  income (loss)
              
              $
              (43,427
              )
              $
              (43,427
              )
              $
              (44,099
              )
              $
              87,526
              
              $
              (43,427
              )Adjustments
                  to reconcile net income (loss) to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              —
              
              
              1,101
              
              
              18,934
              
              
              —
              
              
              20,035Amortization
                  of debt issuance costs
              
              
              —
              
              
              55
              
              
              2,347
              
              
              —
              
              
              2,402Loss
                  on disposal of assets
              
              
              —
              
              
              —
              
              
              1,301
              
              
              —
              
              
              1,301Impairment
                  of assets
              
              
              —
              
              
              —
              
              
              6,367
              
              
              —
              
              
              6,367Deferred
                  income taxes
              
              
              —
              
              
              22
              
              
              942
              
              
              —
              
              
              964Equity
                  in earnings of subsidiaries
              
              
              43,427
              
              
              44,099
              
              
              —
              
              
              (87,526
              )
              
              —Changes
                  in assets and liabilities:Receivables
              
              
              6,274
              
              
              (5,526
              )
              
              2,894
              
              
              —
              
              
              3,642Inventories
              
              
              —
              
              
              (26
              )
              
              (92
              )
              
              —
              
              
              (118
              )Prepaid
                  expenses and other current assets
              
              
              —
              
              
              (4,476
              )
              
              (3,645
              )
              
              —
              
              
              (8,121
              )Accounts
                  payable
              
              
              —
              
              
              (9,342
              )
              
              (586
              )
              
              —
              
              
              (9,928
              )Accrued
                  and other liabilities
              
              
              —
              
              
              (1,448
              )
              
              3,058
              
              
              —
              
              
              1,610Income
                  taxes payable/refundable
              
              
              (6,274
              )
              
              17,344
              
              
              —
              
              
              —
              
              
              11,070Net
                  cash used in operating activities
              
              
              —
              
              
              (1,624
              )
              
              (12,579
              )
              
              —
              
              
              (14,203
              )INVESTING
                  ACTIVITIES:Proceeds
                  from sale leaseback transaction
              
              
              —
              
              
              —
              
              
              14,746
              
              
              —
              
              
              14,746Acquisitions,
                  net of liabilities assumed and cash acquired
              
              
              —
              
              
              —
              
              
              1
              
              
              —
              
              
              1Purchase
                  of property and equipment
              
              
              —
              
              
              (30
              )
              
              (22,372
              )
              
              —
              
              
              (22,402
              )Corporate
                  cash advances (payments)
              
              
              —
              
              
              19,209
              
              
              (19,209
              )
              
              —
              
              
              —Collection
                  of notes receivable
              
              
              —
              
              
              506
              
              
              —
              
              
              —
              
              
              506Proceeds
                  from sale (purchase) of other assets
              
              
              —
              
              
              (489
              )
              
              388
              
              
              —
              
              
              (101
              )Net
                  cash provided by (used in) investing activities
              
              
              —
              
              
              19,196
              
              
              (26,446
              )
              
              —
              
              
              (7,250
              )FINANCING
                  ACTIVITIES:Repayment
                  of previous term loan facility
              
              
              —
              
              
              (61
              )
              
              (2,589
              )
              
              —
              
              
              (2,650
              )Proceeds
                  from revolving credit facility
              
              
              —
              
              
              943
              
              
              40,057
              
              
              —
              
              
              41,000Debt
                  issuance costs
              
              
              —
              
              
              (2
              )
              
              (93
              )
              
              —
              
              
              (95
              )Net
                  cash provided by financing activities
              
              
              —
              
              
              880
              
              
              37,375
              
              
              —
              
              
              38,255NET
                  CHANGE IN CASH AND CASH EQUIVALENTS RELATED TO DISCONTINUED
                  OPERATIONS
              
              
              —
              
              
              —
              
              
              (5
              )
              
              —
              
              
              (5
              )NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              —
              
              
              18,452
              
              
              (1,655
              )
              
              —
              
              
              16,797CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              37
              
              
              (1,852
              )
              
              6,460
              
              
              —
              
              
              4,645CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              37
              
              $
              16,600
              
              $
              4,805
              
              $
              —
              
              $
              21,442


25




**14.
      Subsequent Events**





*12
1⁄2%
      Senior Notes*





On
      January 3, 2008, Buffets announced that it elected to take advantage of the
      30-day grace period with respect to the missed interest payment, due January
      2,
      2008, on its 12 1⁄2% Senior Notes due November 1, 2014 to continue to pursue
      restructuring discussions with its creditors. The total amount of the missed
      interest payment was approximately $18.8 million. Those discussions with
      creditors did not result in a viable restructuring plan and as a result of
      the
      failed discussions and due to significantly limited liquidity, on January 22,
      2008, the Debtors filed voluntary petitions for relief under the provisions
      of
      Chapter 11 of the U.S. Bankruptcy Code. See “Reorganization under Chapter 11 of
      the U.S. Bankruptcy Code” below for further details.





The
      bankruptcy filing triggered events of default under the indenture governing
      the
      12 1⁄2% Senior Notes and the immediate acceleration of the outstanding principal
      amount and accrued but unpaid interest of the 12 1⁄2% Senior Notes. The ability of
      the noteholders to seek remedies to enforce their rights under the indenture
      governing the 12 1⁄2% Senior Notes is automatically stayed as a result of our
      bankruptcy filing and the noteholders’ rights of enforcement are subject to the
      applicable provisions of the Bankruptcy Code.





On
      January 7, 2008, U.S. Bank National Association resigned as Trustee, Registrar
      and Paying Agent under the 12 1⁄2% Senior Note Indenture and HSBC Bank USA, N.A.
      became the successor Trustee, Registrar and Paying Agent.





*Forbearance
      Agreement*





On
      January 10, 2008, we entered into a Forbearance Agreement and Second Amendment
      (the “Forbearance Agreement”) to the Credit Agreement, dated as of November 1,
      2006, among us, Buffets, our subsidiaries named therein, the lenders named
      therein, and Credit Suisse as Administrative Agent (the “Pre-Petition Credit
      Facility) relating to certain defaults under the Pre-Petition Credit Facility.
      The Forbearance Agreement also included certain amendments to the Pre-Petition
      Credit Facility. Among other things, the Forbearance Agreement provided that
      the
      lenders would forbear from exercising remedies related to certain pre-bankruptcy
      events of default, including the failure by the Company to maintain a minimum
      interest coverage ratio and a maximum leverage ratio and the failure by the
      Company to make the January 2, 2008 interest payment due on the Company’s 12 1⁄2%
      Senior Notes within the applicable 30-day grace period, and for the amendment
      of
      the Pre-Petition Credit Facility to, among other things, increase the interest
      rate margin applicable to LIBOR-based revolving and term loans to 7.25% and
      the
      interest rate margin applicable to alternate base rate revolving and term loans
      to 6.25%. As part of the conditions to the Forbearance Agreement, the Company
      had to refrain from paying amounts owed with respect to any indebtedness other
      than the obligations under the Loan Documents during the Forbearance Period.
      This includes refraining from paying amounts owed under the terms of the
      Management Agreement with the Caxton-Iseman Party.





The
      Bankruptcy Cases triggered events of default under the Pre-Petition Credit
      Facility, as amended by the Forbearance Agreement, and the immediate
      acceleration of amounts outstanding under the Pre-Petition Credit Facility,
      other than the amounts rolled into the DIP Credit Agreement. The ability of
      the
      Pre-Petition Credit Facility lenders to seek remedies to enforce their rights
      under the Pre-Petition Credit Facility is automatically stayed as a result
      of
      the Bankruptcy Cases and the Pre-Petition Credit Facility lenders’ rights of
      enforcement are subject to the applicable provisions of the Bankruptcy Code.





*Departure
      of Directors or Certain Officers*





On
      January 11, 2008, Roe H. Hatlen, Vice-Chairman of the Board of Directors of
      Buffets Holdings and of Buffets, resigned from the respective Company’s Board of
      Directors. Mr. Hatlen was a member of the Audit Committee. Mr. Hatlen will
      continue to serve as an advisor to the Company under the terms of the Advisory
      Agreement he had previously entered into with the Company, which agreement
      was
      amended in connection with his resignation to (i) acknowledge that the agreement
      may be terminated by either party upon 30 days prior written notice and (ii)
      limit the scope of services to be provided by Mr. Hatlen under the agreement
      to
      those that he is requested to perform by the Company’s Chief Executive Officer
      or such other officer designated by the Chairman of the Company’s Board of
      Directors.





On
      January 11, 2008, Robert M. Rosenberg, a member of the Board of Directors of
      Buffets Holdings and of Buffets, resigned from the respective Company’s Board of
      Directors. Mr. Rosenberg was also a member of the Company’s Audit
      Committee.





On
      January 18, 2008, David S. Lobel, a member of the Board of Directors of Buffets
      Holdings and of Buffets, resigned from the respective Company’s Board of
      Directors. Mr. Lobel was a member of the Company’s Compensation Committee. As a
      result of Mr. Lobel’s resignation, the Management and Fee Agreement, dated
      October 2, 2000, between Buffets, Inc. and Sentinel Capital Partners, LLC was
      terminated in accordance with its terms.




26





On
      February 1, 2007, Mr. Mario Lee was removed from his positions as Divisional
      President of the Old Country Buffet and HomeTown Buffet restaurant brands and
      Executive Vice President of Operations of the Company. At the time of the change
      Mr. Lee was reassigned as a Regional Vice President of the Company. His annual
      salary was revised to $192,500 and his participation in the Enterprise Equity
      Value Grown Bonus Plan was changed to the bonus plan applicable to Regional
      Vice
      Presidents.





*Reorganization
      Under Chapter 11 of the U.S. Bankruptcy Code*





On
      January 22, 2008, the Company and each of its subsidiaries (collectively, the
      “Debtors”) filed voluntary petitions for relief under Chapter 11 of the U.S.
      Bankruptcy code (the “Bankruptcy Code”) with the United States Bankruptcy Court
      for the District of Delaware (the “Bankruptcy Court”), Case Number 08-10141
      (collectively, the “Bankruptcy Cases”). The petitions were filed in order to
      enable the Debtors to pursue reorganization efforts under Chapter 11 of the
      Bankruptcy Code. The Bankruptcy Cases are being jointly administered, and the
      Company and its subsidiaries will continue to operate and manage its business
      as
      debtors in possession, subject to the supervision of the Bankruptcy Court and
      in
      accordance with applicable provisions of the Bankruptcy Code.





The
      bankruptcy filing triggered the immediate acceleration of, and events of default
      to occur under, certain of the Company’s direct financial obligations,
      including, among other things, amounts outstanding under the Pre-Petition Credit
      Agreement and its 12 1⁄2% Senior Notes, due November 2014. However, the ability of
      its creditors to seek remedies to enforce their rights under these and other
      of
      its obligations is automatically stayed as a result of the Bankruptcy Cases
      and
      its creditors’ rights of enforcement are subject to the applicable provisions of
      the Bankruptcy Code. See “12 1⁄2% Senior Notes” and “Forbearance Agreement” above
      for further details.





*DIP*  *Credit
      Agreement*





In
      connection with their Chapter 11 filings, the Debtors entered into the $285
      million DIP Credit Agreement (as defined in Note 2 - “Going Concern”) among the
      Company, Buffets, the lenders named therein, and Credit Suisse as Administrative
      Agent and Collateral Agent. The $285 million Dip Credit Agreement consists
      of an
      $85 million new money facility and $200 million of borrowings under Buffets’
Pre-Petition Credit Agreement that was rolled into the DIP Credit Agreement.
      Of
      the $85 million new money facility, $55 million is available subject to certain
      conditions, on a delayed draw basis until April 30, 2008. The proceeds of the
      new money loans incurred under the DIP Credit Agreement will be used to fund
      the
      continued operations of the Debtors’ businesses as debtors and
      debtors-in-possession under the Bankruptcy Code, pay certain transactional
      expenses and fees incurred by the Company and support the Debtors’ working
      capital needs and for general corporate purposes.





Borrowings
      under the DIP Credit Agreement will bear interest at the rate of LIBOR plus
      7.25%, payable in cash monthly. The LIBOR rate will float throughout the life
      of
      the DIP Credit Agreement, provided that at no time during the life of the DIP
      Credit Agreement will the applicable LIBOR rate for the $85 million new money
      facility outstanding under the DIP Credit Agreement be less that 4.00% per
      annum
      or greater than 5.00% per annum. In addition, the DIP Credit Agreement obligated
      the Debtors to pay certain fees to the agents and lenders there under, as
      described in the DIP Credit Agreement.





The
      DIP
      Credit Agreement requires payment of all amounts borrowed, together with accrued
      and unpaid interest, by the Maturity Date (as defined below). The Debtors have
      the right to voluntarily prepay any borrowing, in whole or in part at any time.
      Subject to certain exceptions, the Debtors are subject to mandatory prepayment
      of the principal amount in the event of certain asset sales or receipt of cash
      proceeds from the incurrence of indebtedness.





Obligations
      under the DIP Credit Agreement are secured by (i) a lien on all of the assets
      of
      the Debtors (which lien will have a first priority with respect to substantially
      all of the Debtors’ assets), including a pledge of all of the equity interests
      of each of the Company’s domestic subsidiaries and (ii) a super-priority
      administrative claim in each of the Cases. The Company’s obligations under the
      DIP Credit Agreement are guaranteed by each of the Buffets subsidiaries which
      is
      a Debtor pursuant to a Guarantee and Collateral Agreement, dated January 22,
      2008, among Buffets, the Company, the subsidiaries of Buffets named therein
      and
      Credit Suisse as Collateral Agent.





The
      DIP
      Credit Agreement contains customary representations, warranties and covenants
      by
      the Debtors, including, without limitation, reporting requirements, financial
      covenants (including a requirement to maintain minimum financial results as
      defined therein), milestones related to the restructuring process, and
      limitations on the Company’s ability to sell assets. In order to draw down on
      the availability under the new money facility we must remain in compliance
      with
      all covenants in the DIP Credit Agreement.




The
      Debtors’ obligations under the DIP Credit Agreement may be accelerated following
      certain events of default, including (without limitation) any breach by the
      Debtors of any of the representations, warranties or covenants made in the
      DIP
      Credit Agreement, the dismissal by the Bankruptcy Court of any of the Cases,
      or
      the conversion of any of the Cases to a case under Chapter 7 of the Bankruptcy
      Code or the appointment of a trustee pursuant to Chapter 11 of the Bankruptcy
      Code.




27





The
      DIP
      Credit Agreement matures twelve months from January 22, 2008. The DIP Credit
      Agreement allows for one automatic six-month extension of the maturity if the
      principal balance outstanding under the new money facility of the DIP Credit
      Agreement is less than or equal to $50 million on such date, provided, that
      if
      the Company receives $10 million or more in asset sale proceeds during the
      first
      twelve months after the Company’s Chapter 11 petition date, the automatic
      six-month extension of the maturity will be available only if the principal
      balance outstanding under the new money DIP Credit Agreement is less than or
      equal to $40 million on such date. If the principal balance outstanding under
      the new money DIP Credit Agreement is greater than $50 million (or greater
      than
      $40 million, if the Company receives $10 million or more in asset proceeds
      during the first twelve months after the Company’s Chapter 11 petition date) on
      the twelve-month anniversary, a six-month extension may be granted with the
      consent of the holders of a majority in amount of the outstanding new money
      loans.





*Store
      Closures*





On
        February 7, 2008 the Company approved the closure of 52 underperforming
        restaurants that were primarily leased properties located in 23 states. All
        but
        one of the applicable restaurants were closed on February 10 th and
        11 th ,
        2008.
        The Company’s ongoing analysis and review of its restaurant portfolio determined
        that these restaurants did not have the potential to deliver acceptable returns
        on invested capital. In connection with the restaurant closures, the Company
        terminated the employment of 2,200 to 2,300 employees.





In
      regard
      to the 52 closed stores, cash charges incurred were approximately $2.1 million.
      These charges included approximately $0.7 million related to lease termination
      costs and obligations, $1.2 million related to employee termination costs and
      approximately $0.2 million related to other associated costs. Non-cash charges
      related to these closures were approximately $7.5 million. These charges were
      expensed as incurred pursuant to SFAS 146.





*Third
      Amendment to the Pre-Petition Credit Facility*





On
      March
      12, 2008, we received final approval from the Bankruptcy Court for the Third
      Amendment (the “Third Amendment”) to the Pre-Petition Credit Facility. In
      accordance with the Third Amendment, we may continue to renew letters of credit
      originally issued under the Pre-Petition Credit Facility notwithstanding the
      fact that we filed a petition for relief under Chapter 11 of the Bankruptcy
      Code.





28





**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 (the “Merger”) with Ryan’s Restaurant Group, Inc.
      (“Ryan’s”), the related refinancing of our indebtedness and Ryan’s indebtedness
      and the Chapter 11 reorganization discussed below.*




**Recent
      Developments**





***12
      1⁄2% Senior Notes***





On
      January 3, 2008, Buffets announced that it elected to take advantage of the
      30-day grace period with respect to the missed interest payment, due January
      2,
      2008, on its 12 1⁄2% Senior Notes due November 1, 2014 (the “12 1⁄2% Senior Notes”)
      to continue to pursue restructuring discussions with its creditors. The total
      amount of the interest payment was approximately $18.8 million. Those
      discussions with creditors did not result in a viable restructuring plan and
      as
      a result of the failed discussions and due to significantly limited liquidity,
      on January 22, 2008, the Company and its subsidiaries filed voluntary petitions
      for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code.
      See
“—Reorganization Under Chapter 11 of the U.S. Bankruptcy Code” below for further
      details.





***Forbearance
      Agreement***





On
      January 10, 2008, we entered into a Forbearance Agreement and Second Amendment
      (the “Forbearance Agreement”) to the Credit Agreement, dated as of November 1,
      2006, among us, Buffets, our subsidiaries named therein, the lenders named
      therein, and Credit Suisse as Administrative Agent (the “Pre-Petition Credit
      Facility”) relating to certain defaults under the Pre-Petition Credit Facility.
      The Forbearance Agreement also included certain amendments to the Pre-Petition
      Credit Facility. See “─Liquidity and Capital Resources- Pre-Petition Credit
      Facility” for more information.





***Reorganization
      Under Chapter 11 of the U.S. Bankruptcy Code***





Beginning
      in fiscal 2006, a variety of external economic factors began causing a decline
      in recent operating performance and liquidity. The leading factor has been
      a
      significant decline in discretionary spending among our core customers, which
      we
      believe has been caused by higher gasoline and energy prices, increased debt
      service loads due to rate increases on adjustable rate mortgages, lower consumer
      confidence and the general economic downturn. The unavailability of readily
      available credit caused by the collapse of the sub-prime mortgage market,
      stagnant home valuations, and lower available home equity due to previous
      consumer refinancing efforts has compounded our core consumer’s burden.
      Additionally, the increases in labor costs due to increases in minimum wage
      rates, food costs and energy expenses have materially increased our costs which,
      in turn has led to significant losses and decreased liquidity. As a result
      of
      the decline in our operating performance and liquidity, on January 22, 2008,
      we
      and each of our subsidiaries (collectively, the “Debtors”) filed voluntary
      petitions for relief under Chapter 11 of the U.S. Bankruptcy code (the
“Bankruptcy Code”) with the United States Bankruptcy Court for the District of
      Delaware (the “Bankruptcy Court”), Case Number 08-10141 (collectively, the
“Bankruptcy Cases”). The petitions were filed in order to enable the Debtors to
      pursue reorganization efforts under Chapter 11 of the Bankruptcy Code. The
      Bankruptcy Cases are being jointly administered, and we will continue to operate
      and manage our business as debtors in possession, subject to the supervision
      of
      the Bankruptcy Court and in accordance with applicable provisions of the
      Bankruptcy Code.





We
      intend
      to continue normal business operations during the Bankruptcy Cases while we
      evaluate our business both financially and operationally and implement
      comprehensive improvements as appropriate to enhance performance. We intend
      to
      take steps to reduce costs, increase efficiency and return to profitability
      so
      that we emerge from bankruptcy as a stronger, more viable company. While we
      cannot predict with precision how long the reorganization process will take,
      it
      could take upward of twelve months.





The
      bankruptcy filing triggered the immediate acceleration of, and events of default
      to occur under, certain of our direct financial obligations, including, among
      other things, amounts outstanding under the Pre-Petition Credit Facility and
      our
      12 1⁄2% Senior Notes, due November 2014. However, the ability of our creditors to
      seek remedies to enforce their rights under these and other of our obligations
      is automatically stayed as a result of the Bankruptcy Cases and our creditors’
rights of enforcement are subject to the applicable provisions of the Bankruptcy
      Code.




29





We
      anticipate that substantially all of our and the other Debtor’s liabilities as
      of the date we filed for bankruptcy will be addressed under, and treated in
      accordance with, a plan of reorganization to be proposed to and voted on by
      our
      creditors in accordance with the provisions of the Bankruptcy Code. Although
      we
      intend to file and seek confirmation of such a plan, there can be no assurance
      as to when the plan will be filed or that the plan will be confirmed by the
      Bankruptcy Court and consummated. Nor can there be any assurance that we will
      be
      successful in achieving our goals, or that any measures that are achievable
      will
      result in sufficient improvement to our financial position. To the extent that
      the plan of reorganization contemplates new financing or refinancing
      requirements, there is no certainty that such funding will become available
      pursuant to acceptable terms or amounts. In summary, until the time that we
      emerge from bankruptcy, there will be no certainty about our ability to continue
      as a going concern. If a restructuring is not completed, we could be forced
      to
      sell a significant portion of our assets to retire outstanding indebtedness
      or,
      under certain circumstances, to cease operations.





Our
      continuation as a going concern is contingent upon, amongst other things, our
      ability (i) to comply with the terms and conditions of the DIP Credit Agreement
      described below; (ii) to obtain confirmation of a plan of reorganization under
      the Bankruptcy Code; (iii) to reduce administrative, operating and interest
      costs and liabilities through the bankruptcy process; (iv) to return to
      profitability and (v) to generate sufficient cash flow from operations. These
      matters create uncertainty relating to our ability to continue as a growing
      concern. The accompanying unaudited condensed consolidated financial statements
      do not reflect any adjustments relating to the recoverability of assets and
      classifications of liabilities that might result from the outcome of these
      uncertainties. In addition, a plan of reorganization could materially change
      the
      amounts reported in our condensed consolidated financial statements. Our
      condensed consolidated financial statements as of December 12, 2007 do not
      give
      effect to all the adjustments to the carrying value of assets and liabilities
      that may become necessary as a consequence of reorganization under Chapter
      11.





***Debtor-In-Possession
      Credit Agreement***





On
      February 22, 2008, the Company received final approval from the Bankruptcy
      Court
      of its Secured Super-Priority Debtor-in-Possession Credit Agreement (the “DIP
      Credit Agreement”) among the Company, Buffets, the lenders named therein, and
      Credit Suisse as Administrative Agent and Collateral Agent. The DIP Credit
      Agreement consists of an $85 million new money facility and $200 million of
      borrowings under the Pre-Petition Credit Facility that was rolled into the
      DIP
      Credit Agreement. See “Credit Facilities and Other Long-Term Debt - The
      Debtor-In-Possession Credit Agreement” for additional information.





***Store
      Closures***





On
      February 7, 2008, we approved the closure of 52 underperforming restaurants,
      consisting primarily of leased properties located in 23 states. All but one
      of
      the applicable restaurants were closed on February 10 th and
      11 th .
      Our
      ongoing analysis and review of our restaurant portfolio determined that these
      restaurants did not have the potential to deliver acceptable returns on invested
      capital. In connection with the restaurant closures, we terminated the
      employment of 2,200 to 2,300 employees.





In
      regard
      to the 52 closed stores, cash charges incurred were approximately $2.1 million.
      These charges included approximately $0.7 million related to lease termination
      costs and obligations, $1.2 million related to employee termination costs and
      approximately $0.2 million related to other associated costs. Non-cash charges
      related to these closures were approximately $7.5 million. These charges were
      expensed as incurred pursuant to SFAS 146.





***Third
      Amendment to the Pre-Petition Credit Facility***





On
      March
      12, 2008, we received final approval from the Bankruptcy Court for the Third
      Amendment (the “Third Amendment”) to the Pre-Petition Credit Facility. In
      accordance with the Third Amendment, we may continue to renew letters of credit
      originally issued under the Pre-Petition Credit Facility notwithstanding the
      fact that we filed a petition for relief under Chapter 11 of the Bankruptcy
      Code. See “—Liquidity and Capital Resources—Credit Facilities on Other Long Term
      Debt.”





**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 December 12,
      2007, we had 615 company-owned steak-buffet restaurants and sixteen franchised
      locations in 42 states.





Restaurants
                operating as of June 27, 2007
            
            
            632For
                the twenty-four week period ended December 12, 2007:Restaurants
                opened
            
            
            3Restaurants
                closed
            
            
            (20
            )Restaurants
                operating as of December 12, 2007
            
            
            615




30




In
      February 2008, we closed 52 restaurants (see “—Recent Developments—Store
      Closures” for further discussion of these store closures). Subsequent to these
      closures, the Company owned and operated 574 restaurants, including 563
      steak-buffet restaurants and eleven Tahoe Joe’s Famous Steakhouse® restaurants,
      and franchised sixteen restaurants.





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. On January 22, 2008, we and each of
      our
      subsidiaries filed voluntary petitions for relief under Chapter 11 of the
      Bankruptcy Code. See “—Recent Developments—Reorganization Under Chapter 11 of
      the U.S. Bankruptcy Code” for further details.





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.





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 franchisees. 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 the closure of
                underperforming restaurants, including, but not limited to lease
                termination costs and obligations and employee termination
                costs.·
            Impairment
                of assets reflects fair market adjustments to the carrying value
                of
                long-lived assets, primarily comprised of assets held for sale.





·
            Merger
                integration costs represent professional fees, performance bonuses,
                employee travel and expenses and other costs related to integration
                activities associated with the acquisitions of Ryan’s and North’s
                Restaurants, Inc.





·
            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.




31




·
            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 fiscal year 2007 represents transaction
                costs
                associated with amendments to Buffets’ Amended and Restated Credit
                Agreement and repurchasing or redeeming our 11 1/4% senior subordinated
                notes and 13 7/8 % senior discount notes on or shortly after November
                1,
                2006. Loss related to refinancing for fiscal year 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 109,*Accounting
                for Income Taxes*.




**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.





Impairment
      charges of approximately $6.4 million, primarily related to assets currently
      held for sale, were recorded in the first 24 weeks of fiscal year 2008. No
      impairment charges were recorded in the first 24 weeks of fiscal year
      2007.





*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 24
      weeks of fiscal years 2007 and 2008.




32





On
        January 22, 2008, the Company voluntarily filed for relief under Chapter
        11 of
        the United States Bankruptcy Code. As a result of the Chapter 11 filing and
        the
        events leading up to it, management performed an initial assessment of goodwill
        impairment as of the end of the second quarter of fiscal 2008, based on market
        multiples of trailing twelve month and forecasted EBITDA. Although this initial
        assessment did not indicate an impairment of goodwill, because of the difficulty
        in making an assessment given the uncertainty related to the Chapter 11 filing
        and the development of the reorganization plan, the Company is taking steps
        to
        engage an outside firm to perform an independent valuation of goodwill. At
        this
        time, the Company is unable to make a good-faith estimate of the potential
        amount or range of amounts of the impairment charge, if one is determined
        to
        exist. Any impairment charge that may result from the completion of the
        valuation may be material, but will not result in future cash expenditures
        and
        will not result in any significant changes to its operations other than those
        communicated as part of the restructuring plans.





*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.




*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 non-current in aggregate) was $1.7
      million and $2.4 million as of June 27, 2007 and December 12, 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 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 $5.8 million as of June 27,
      2007
      and December 12, 2007, respectively, of which approximately $1.1 million and
      $1.2 million, respectively, was related to the Tahoe Joe’s restaurants, and is
      classified as discontinued operations in the accompanying condensed consolidated
      balance sheets.




33





*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).





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 the 24 week periods
      ending December 13, 2006 and December 12, 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, employee
      travel and expenses and other costs related to integration activities associated
      with the acquisitions of Ryan’s and North’s Restaurants, Inc. Merger integration
      costs of approximately $14.6 million have been expensed as incurred since
      November 1, 2006, of which approximately $3.7 million were expensed in the
      first
      two quarters of fiscal 2008 are recorded in “Merger Integration Costs” in the
      accompanying condensed consolidated statements of operations.




34





**Results
      of Operations**





*The
      following discussion reflects our historical results for the
      twelve-week*  *periods
      ended December 13, 2006 and December 12, 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
      December 12, 2007, and include the impact of Ryan’s operations and
      related*  *refinancing
      from November 1, 2006, the merger date, to December 13, 2006. Our future results
      may*  *not
      be consistent with our historical results due to the Merger and Chapter 11
      reorganization. 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****December
                  13,**
                **2006**
              
              **December
                  12,**
                **2007****(dollars
                  in thousands)****Significant
                  items that impacted results of operations:**Closed
                  restaurant costs (1)
              
              $
              817
              
              $
              2,817Impairment
                  of assets (2)
              
              
              —
              
              
              6,367Merger
                  integration costs (3)
              
              
              3,074
              
              
              2,041Loss
                  on sale leaseback transactions (4)
              
              
              2,498
              
              
              —Loss
                  related to refinancing (5)
              
              
              40,042
              
              
              —





(1)
            Closed
                restaurant costs were $0.8 million during the second quarter of fiscal
                2007 as compared to $2.8 million for the second quarter of fiscal
                2008.
                The increase was due in large part to the closure of nine under performing
                restaurants in the twelve-week period ended December 13, 2006 compared
                to
                nineteen store closures in the twelve-week period ended December
                12, 2007.
                In the second quarter of fiscal 2007, we closed seven Ryan’s brand
                restaurants acquired in the merger. Costs related to these store
                closures
                were charged to goodwill pursuant to EITF 95-3,*Recognition
                of Liabilities in Connection with a Purchase Business Combination.*For
                the remaining two stores, we incurred cash charges of approximately
                $0.2
                million. These charges included approximately $0.1 million related
                to
                lease termination costs and obligations and $0.1 million related
                to
                employee termination costs and other associated costs. The remaining
                charges of approximately $0.5 million relate to changes in reserve
                estimates related to previously closed stores, terminations of sublease
                agreements and other related costs. In the second quarter of fiscal
                2008,
                we closed twelve Ryan’s brand restaurants acquired in the merger. Charges
                related to these closures were charged to goodwill pursuant to EITF
                95-3,*Recognition
                of Liabilities in Connection with a Purchase Business
                Combination.*For the remaining seven stores closed, we incurred cash charges of
                approximately $0.9 million. These charges included approximately
                $0.8
                million related to lease termination costs and obligations and $0.1
                million related to employee termination costs and other associated
                costs.
                The remaining charges of approximately $1.9 million related to changes
                in
                reserve estimates related to previously closed stores, terminations
                of
                sublease agreements and other related costs. See Note 8 - “Acquisitions”
                to our accompanying condensed consolidated financial statements for
                further discussion of our merger with Ryan’s.(2)
            We
                test property and equipment annually or whenever events or circumstances
                indicate that the carrying amount of a restaurant’s assets may not be
                recoverable. Assets are grouped and evaluated for impairment at the
                lowest
                level for which there are identifiable cash flows, namely as individual
                restaurants. During the second quarter of fiscal year 2008 we recognized
                losses of approximately $6.4 million related to impairments of the
                carrying value of our long-lived assets for nineteen restaurants
                currently
                classified as held for sale and one land parcel currently held in
                property
                and equipment, as the carrying value of these long-lived assets exceeded
                their fair value. No impairment was recorded during the second quarter
                of
                fiscal year 2007.





(3)
            Merger
                integration costs represent professional fees, performance bonuses,
                employee travel and expenses and other costs related to integration
                activities associated with the acquisitions of Ryan’s and North’s
                Restaurants, Inc.(4)
            During
                the second quarter of fiscal 2007, we entered into a sale leaseback
                transaction whereby we transferred our leasehold interests and leasehold
                improvements with respect to seven restaurants to a third party for
                net
                proceeds of approximately $8.4 million. We simultaneously entered
                into
                long-term leases for those restaurants. In connection with this sale
                leaseback transaction, we recorded a loss of approximately $2.5 million
                primarily to reflect the impairment of certain of the properties
                for which
                the net proceeds were less than the book value of the leasehold
                assets.(5)
            On
                November 1, 2006, due to the merger with Ryan’s, we refinanced our
                long-term debt. In connection with this refinancing, we wrote off
                approximately $30.6 million in cumulative debt discount related to
                our
                senior subordinated notes and senior discount notes and approximately
                $8.7
                million of debt issuance costs related to a predecessor credit facility,
                senior subordinated notes and senior discount notes. The remaining
                charges
                represent transaction fees.




35




**Twelve
      weeks ended December 12, 2007 compared to twelve weeks ended December 13,
      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****December
                  13, 2006**
              
              **December
                  12, 2007****(dollars
                  in thousands)**Restaurant
                  sales
              
              $
              291,005
              
              
              100.0
              %
              $
              348,101
              
              
              100.0
              %Restaurant
                  costs:Food
              
              
              100,409
              
              
              34.5
              
              
              122,041
              
              
              35.1Labor
              
              
              88,275
              
              
              30.3
              
              
              107,448
              
              
              30.9Direct
                  and occupancy
              
              
              74,108
              
              
              25.5
              
              
              95,190
              
              
              27.3Total
                  restaurant costs
              
              
              262,792
              
              
              90.3
              
              
              324,679
              
              
              93.3Advertising
                  expenses
              
              
              7,722
              
              
              2.7
              
              
              8,790
              
              
              2.5General
                  and administrative expenses
              
              
              13,795
              
              
              4.7
              
              
              16,649
              
              
              4.8Closed
                  restaurant costs
              
              
              817
              
              
              0.3
              
              
              2,817
              
              
              0.8Impairment
                  of assets
              
              
              —
              
              
              0.0
              
              
              6,367
              
              
              1.8Merger
                  integration costs
              
              
              3,074
              
              
              1.1
              
              
              2,041
              
              
              0.6Loss
                  on sale leaseback transactions
              
              
              2,498
              
              
              0.9
              
              
              —
              
              
              0.0Loss
                  on litigation settlements
              
              
              —
              
              
              0.0
              
              
              30
              
              
              0.0Operating
                  income (loss)
              
              
              307
              
              
              0.1
              
              
              (13,272
              )
              
              (3.8
              )Interest
                  expense
              
              
              17,386
              
              
              6.0
              
              
              21,585
              
              
              6.2Interest
                  income
              
              
              (50
              )
              
              (0.0
              )
              
              (1
              )
              
              (0.0
              )Loss
                  related to refinancing
              
              
              40,042
              
              
              13.8
              
              
              —
              
              
              0.0Other
                  income
              
              
              (296
              )
              
              (0.1
              )
              
              (205
              )
              
              (0.1
              )Loss
                  before income taxes
              
              
              (56,775
              )
              
              (19.5
              )
              
              (34,651
              )
              
              (10.0
              )Income
                  tax expense (benefit)
              
              
              (21,640
              )
              
              (7.4
              )
              
              3,246
              
              
              0.9Net
                  loss from continuing operations
              
              
              (35,135
              )
              
              (12.1
              )
              
              (37,897
              )
              
              (10.9
              )Net
                  income from discontinued operations, net of tax
              
              
              199
              
              
              0.1
              
              
              246
              
              
              0.1Net
                  loss
              
              $
              (34,936
              )
              
              (12.0
              )
              $
              (37,651
              )
              
              (10.8
              )




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





*Restaurant
      Sales.* Restaurant sales increased $57.1 million, or 19.6%, during the 24 week period
      ended December 12, 2007 over the comparable prior year period, primarily due
      to
      the merger with Ryan’s. Excluding Ryan’s restaurant sales, restaurant sales
      decreased $7.5 million, or 3.6%, during the second quarter of fiscal
      2008.





Average
      weekly sales during the second quarter of fiscal 2008 for the Buffets brand
      restaurants, which include the Old Country Buffet® and HomeTown Buffet® brands,
      decreased approximately 1.9% to $51,261 as compared to the comparable prior
      year
      period. Same store sales for the second quarter of fiscal 2008 decreased by
      2.9%
      for the Buffets brand restaurants as compared to the prior year. This decrease
      was primarily attributable to a 5.2% decline in guest traffic, partially offset
      by a 2.3% increase in average check. Average weekly sales for the second quarter
      of fiscal 2008 for the Ryan’s brand restaurants, which include the Ryan’s® and
      Fire Mountain® brands, decreased by 4.1% to $41,305 as compared to the
      comparable prior year period. Same store sales for the second quarter decreased
      by 6.9% for the Ryan’s brand restaurants as compared to the prior year. This
      decrease was primarily attributable to a 9.6% decline in guest traffic,
      partially offset by a 2.7% increase in average check. Same store sales
      calculations reflect those restaurants that have been in operation for at least
      eighteen operating periods.




36


*Food
      costs.*Total
      food costs increased $21.6 million, or 21.5%, during the twelve-week period
      ended December 12, 2007 over the comparable prior year period, in part due
      to
      the merger with Ryan’s. Food costs as a percentage of sales increased by 60
      basis points during the second quarter of fiscal 2008 as compared to the prior
      year period, primarily due to increases in the price of certain commodities
      such
      as chicken and dairy products. These increases were partially offset by
      synergies realized on vendor procurement and production of certain food items
      in
      connection with the Ryan’s merger.





*Labor
      costs.* Labor
      costs increased $19.2 million, or 21.7%, during the twelve-week period ended
      December 12, 2007 over the comparable prior year period, in part due to the
      merger with Ryan’s. Labor costs as a percentage of sales increased 60 basis
      points during the second quarter of fiscal 2008 as compared to the prior year
      period, 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. This increase was
      partially offset by synergies realized on labor mix changes in connection with
      the Ryan’s merger.





*Direct
      and occupancy costs.* Direct
      and occupancy costs increased $21.1 million, or 28.4%, during the twelve-week
      period ended December 12, 2007 over the comparable prior year period, in part
      due to the merger with Ryan’s. Direct and occupancy costs as a percentage of
      sales increased by 180 basis points during the second quarter of fiscal 2008
      as
      compared to the prior year period, primarily due to higher repairs and
      maintenance and utilities costs, as well as tightened sales leverage resulting
      from the fixed-cost nature of our occupancy costs over a declining sales base
      during the period





*Advertising
      Expenses.* Advertising costs increased $1.1 million during the second quarter of fiscal
      2008 versus the comparable prior year period, but decreased 20 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 $2.9 million, or 20.7%, during the
      twelve-week period ended December 12, 2007. General and administrative expenses
      as a percentage of sales increased by 10 basis points during the second quarter
      of fiscal 2008 as compared to the prior year period, primarily due to increases
      in professional and legal fees as well as tightened sales leverage resulting
      from the fixed-cost nature of these costs over a declining sales base during
      the
      period. These increases were partially offset by synergies realized in
      connection with the Ryan’s merger.





*Interest
      Expense.* Interest
      expense increased $4.2 million during the second quarter of fiscal 2008 versus
      the comparable prior year period. Interest expense as a percentage of sales
      increased by 20 basis points during the second quarter of fiscal 2008 versus
      the
      comparable prior year period primarily due to the significant increase in our
      short-term borrowings as well as increases in interest rates on those
      borrowings.





*Income
      Taxes.* Income
      tax expense increased 830 basis points as a percentage of sales for the
      twelve-week period ended December 12, 2007 versus the comparable period in
      the
      prior year, principally due to reductions in our pretax losses and our projected
      effective tax rate for fiscal 2008, a $2.5 million increase in our deferred
      tax
      valuation allowance related to Ryan’s and an adjustment of $0.2 million to
      accrue quarterly interest on tax reserve items. This adjustment is due to fair
      value adjustments to Ryan’s purchase balance sheet. The $2.5 million 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.





Excluding
      the $2.7 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 (1.0)%.  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.





37




*The
      following discussion reflects our restated historical results for the 24
      week*  *periods
      ended December 13, 2006 and December 12, 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 24 week
      period*  *ended
      December 12, 2007, and include the impact of Ryan’s operations and
      related*  *refinancing
      from November1, 2006, the merger date, to December 13, 2006. Our future results
      may*  *not
      be consistent with our historical results due to the Merger and Chapter 11
      reorganization. The following discussion should*  *be
      read in conjunction with our condensed consolidated financial statements
      and*  *related
      notes included elsewhere in this report.*


**24
                  Weeks Ended****December
                  13,**
                **2006**
              
              **December
                  12,**
                **2007****(dollars
                  in thousands)****Significant
                  items that impacted results of operations:**Closed
                  restaurant costs (1)
              
              $
              1,559
              
              $
              2,886Impairment
                  of assets (2)
              
              
              —
              
              
              6,367Merger
                  integration costs (3)
              
              
              3,514
              
              
              3,674Loss
                  on sale leaseback transactions (4)
              
              
              2,498
              
              
              —Loss
                  related to refinancing (5)
              
              
              40,285
              
              
              5


(1)
            Closed
                restaurant costs were $1.6 million during the first half of fiscal
                2007 as
                compared to $2.9 million for the first half of fiscal 2008. The increase
                was due in large part to the closure of twelve under performing
                restaurants in the 24 week period ended December 13, 2006 compared
                to
                twenty store closures in the 24 week period ended December 12, 2007.
                In
                fiscal 2007, we closed seven Ryan’s brand restaurants acquired in the
                merger. Costs related to these store closures were charged to goodwill
                pursuant to EITF 95-3,*Recognition
                of Liabilities in Connection with a Purchase Business Combination.*For
                the remaining five stores, we incurred cash charges of approximately
                $1.1
                million. These charges included approximately $0.1 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
                addition, non-cash charges related to these closures were approximately
                $0.2 million. The remaining charges of approximately $0.3 million
                relate
                to changes in reserve estimates related to previously closed stores,
                terminations of sublease agreements and other related costs. In fiscal
                2008, we closed thirteen Ryan’s brand restaurants acquired in the merger.
                Charges related to these closures were charged to goodwill pursuant
                to
                EITF 95-3,*Recognition
                of Liabilities in Connection with a Purchase Business
                Combination.*For the remaining seven stores, we incurred cash charges of approximately
                $0.9 million. These charges included approximately $0.8 million related
                to
                lease termination costs and obligations and $0.1 million related
                to
                employee termination costs and other associated costs. In addition,
                non-cash charges related to these closures were approximately $0.9
                million. The remaining charges of approximately $1.1 million related
                to
                changes in reserve estimates related to previously closed stores,
                terminations of sublease agreements and other related costs.





(2)
            We
                test property and equipment annually or whenever events or circumstances
                indicate that the carrying amount of a restaurant’s assets may not be
                recoverable. Assets are grouped and evaluated for impairment at the
                lowest
                level for which there are identifiable cash flows, namely as individual
                restaurants. During fiscal year 2008 we recognized losses of approximately
                $6.4 million related to impairments of the carrying value of our
                long-lived assets for nineteen restaurants currently classified as
                held
                for sale and one land parcel currently held in property and equipment,
                as
                the carrying value of these long-lived assets exceeded their fair
                value.
                No impairment was recorded during fiscal year 2007.(3)
            Merger
                integration costs represent professional fees, performance bonuses,
                employee travel and expenses and other costs related to integration
                activities associated with the Ryan’s and North’s
                acquisitions.(4)
            During
                the second quarter of fiscal 2007, we entered into a sale leaseback
                transaction whereby we transferred our leasehold interests and leasehold
                improvements with respect to seven restaurants to a third party for
                net
                proceeds of approximately $8.4 million. We simultaneously entered
                into
                long-term leases for those restaurants. In connection with this sale
                leaseback transaction, we recorded a loss of approximately $2.5 million
                primarily to reflect the impairment of certain of the properties
                for which
                the net proceeds were less than the book value of the leasehold
                assets.(5)
            On
                November 1, 2006, due to the merger with Ryan’s, we refinanced our
                long-term debt. In connection with this refinancing, we wrote off
                approximately $30.6 million in cumulative debt discount related to
                our
                senior subordinated notes and senior discount notes and approximately
                $8.7
                million of debt issuance costs related to the predecessor Credit
                Facility,
                senior subordinated notes and senior discount notes. The remaining
                charges
                represent transaction fees.




38




**24
      weeks ended December 12, 2007 compared to 24 weeks ended December 13,
      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:


**24
                  Weeks Ended****December
                  13, 2006**
              
              **December
                  12, 2007****(dollars
                  in thousands)**Restaurant
                  sales
              
              $
              504,909
              
              
              100.0
              %
              $
              724,640
              
              
              100.0
              %Restaurant
                  costs:Food
              
              
              174,499
              
              
              34.6
              
              
              252,209
              
              
              34.8Labor
              
              
              148,653
              
              
              29.4
              
              
              218,595
              
              
              30.2Direct
                  and occupancy
              
              
              125,980
              
              
              25.0
              
              
              193,360
              
              
              26.7Total
                  restaurant costs
              
              
              449,132
              
              
              89.0
              
              
              664,164
              
              
              91.7Advertising
                  expenses
              
              
              14,949
              
              
              3.0
              
              
              18,657
              
              
              2.6General
                  and administrative expenses
              
              
              23,061
              
              
              4.6
              
              
              32,547
              
              
              4.5Closed
                  restaurant costs
              
              
              1,559
              
              
              0.3
              
              
              2,886
              
              
              0.4Impairment
                  of assets
              
              
              —
              
              
              —
              
              
              6,367
              
              
              0.9Merger
                  integration costs
              
              
              3,514
              
              
              0.7
              
              
              3,674
              
              
              0.5Loss
                  on sale leaseback transactions
              
              
              2,498
              
              
              0.5
              
              
              —
              
              
              —Loss
                  on litigation settlements
              
              
              —
              
              
              —
              
              
              84
              
              
              0.0Operating
                  income
              
              
              10,196
              
              
              2.0
              
              
              (3,739
              )
              
              (0.5
              )Interest
                  expense
              
              
              30,614
              
              
              6.1
              
              
              42,342
              
              
              5.8Interest
                  income
              
              
              (78
              )
              
              (0.0
              )
              
              (162
              )
              
              (0.0
              )Loss
                  related to refinancing
              
              
              40,285
              
              
              8.0
              
              
              5
              
              
              0.0Other
                  income
              
              
              (498
              )
              
              (0.1
              )
              
              (475
              )
              
              (0.1
              )Loss
                  before income taxes
              
              
              (60,127
              )
              
              (11.9
              )
              
              (45,449
              )
              
              (6.3
              )Income
                  tax benefit
              
              
              (23,543
              )
              
              (4.7
              )
              
              (1,739
              )
              
              (0.2
              )Net
                  loss from continuing operations
              
              
              (36,584
              )
              
              (7.2
              )
              
              (43,710
              )
              
              (6.0
              )Net
                  income from discontinued operations, net of tax
              
              
              508
              
              
              0.1
              
              
              283
              
              
              0.0Net
                  loss
              
              $
              (36,076
              )
              
              (7.1
              )
              $
              (43,427
              )
              
              (6.0
              )




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





*Restaurant
      Sales.* Restaurant sales increased $219.7 million, or 43.5%, during the first 24 weeks
      of fiscal 2008 over the comparable prior year period, primarily due to the
      merger with Ryan’s. Excluding Ryan’s restaurant sales, restaurant sales
      decreased $8.6 million, or 2.1%, during the first 24 weeks of fiscal
      2008.





Average
      weekly sales for the first 24 weeks of fiscal 2008 for the Buffets brand
      restaurants, which include the Old Country Buffet® and HomeTown Buffet® brands,
      decreased approximately 0.5% to $52,975 as compared to the comparable prior
      year
      period. Same store sales for the first 24 weeks of fiscal 2008 decreased by
      1.5%
      for the Buffets brand restaurants as compared to the prior year. This decrease
      was primarily attributable to a 4.1% decline in guest traffic, partially offset
      by a 2.6% increase in average check. Average weekly sales for the first 24
      weeks
      of fiscal 2008 for the Ryan’s brand restaurants, which include the Ryan’s® and
      Fire Mountain® brands, decreased by 2.5% to $42,830 as compared to the
      comparable prior year period. Same store sales for the first 24 weeks of fiscal
      2008 decreased by 5.4% for the Ryan’s brand restaurants as compared to the prior
      year. This decrease was primarily attributable to a 7.8% decline in guest
      traffic, partially offset by a 2.4% increase in average check. Same store sales
      calculations reflect those restaurants that have been in operation for at least
      eighteen operating periods.




39





*Food
      costs.* Total
      food costs increased $77.7 million, or 44.5%, during the first 24 weeks of
      fiscal 2008 over the comparable prior year period, primarily due to the merger
      with Ryan’s. Food costs as a percentage of sales increased by 20 basis points
      during the first half of fiscal 2008 as compared to the prior year period,
      primarily due to increases in the price of certain commodities such as chicken
      and dairy products. These increases were partially offset by synergies realized
      on vendor procurement and production of certain food items in connection with
      the Ryan’s merger.





*Labor
      costs.* Labor
      costs increased $69.9 million, or 47.1%, during the first 24 weeks of fiscal
      2008 over the comparable prior year period, primarily due to the merger with
      Ryan’s. Labor costs as a percentage of sales increased 80 basis points during
      the first half of fiscal 2008 as compared to the prior year period, 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. This increase was partially offset by
      synergies realized on labor mix changes in connection with the Ryan’s
      merger.





*Direct
      and occupancy costs.* Direct
      and occupancy costs increased $67.4 million, or 53.5%, during the first 24
      weeks
      of fiscal 2008 over the comparable prior year period, primarily due to the
      merger with Ryan’s. Direct and occupancy costs as a percentage of sales
      increased by 170 basis points during the first half of fiscal 2008 as compared
      to the prior year period, primarily due to higher repairs and maintenance and
      utilities costs as well as tightened sales leverage resulting from the
      fixed-cost nature of our occupancy costs over a declining sales base during
      the
      period





*Advertising
      Expenses.* Advertising costs increased $3.7 million during the first 24 weeks of fiscal
      2008 versus the comparable prior year period, but decreased 40 basis points
      as a
      percentage of sales during the first half of fiscal 2008 as compared to the
      prior year period. 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 $9.5 million, or 41.1%, during first
      24
      weeks of fiscal 2008 primarily due to the merger with Ryan’s, but decreased 10
      basis points as a percentage of sales during the first half of fiscal 2008
      as
      compared to the prior year period. This decrease was due to synergies realized
      in connection with the Ryan’s merger.





*Interest
      Expense.* Interest
      expense increased $11.7 million during the first 24 weeks of fiscal 2008 versus
      the comparable prior year period, but decreased 30 basis points as a percentage
      of sales during the first half of fiscal 2008 compared to the prior year period,
      primarily due to the larger sales base from the acquired
      restaurants.





*Income
      Taxes.* Income
      tax benefit decreased 490 basis points as a percentage of sales for the first
      twenty-four weeks of fiscal 2008 versus the comparable period in the prior
      year,
      principally due to a reduction in our projected effective rate for fiscal 2008
      and an adjustment of $1.2 million to accrue interest on tax reserve items.
      These
      items have been partially offset by a $3.7 million reduction in our deferred
      tax
      valuation allowance related to Ryan’s. Of this $3.7 million reduction, $6.2
      million 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, partially
      offset by $2.5 million due to fair value adjustments to the Ryan’s purchase
      balance sheet. The $3.7 million reduction 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.





Excluding
      the $2.5 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 (1.0)%.  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. Cash flows generated from our operating activities generally
      provide us with a 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 generally ranging from 14 to 35 days.




40





On
      January 3, 2008, Buffets announced that it elected to take advantage of the
      30-day grace period with respect to the missed interest payment, due January
      2,
      2008, on its 12 1⁄2% Senior Notes to pursue restructuring discussions with its
      creditors. The total amount of the missed interest payment was approximately
      $18.8 million. Those discussions with creditors did not result in a viable
      restructuring plan and on January 22, 2008, as the result of these failed
      discussions and due to significantly limited liquidity caused by a variety
      of
      factors including a decrease in discretionary spending by our core customer
      segment and higher food, labor and energy prices, we and the other Debtors
      filed
      a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with
      the
      Bankruptcy Court.





The
      Bankruptcy Cases triggered the immediate acceleration of, and events of default
      to occur under, certain of our direct financial obligations, including, among
      others, amounts outstanding under the Pre-Petition Credit Agreement and our
      12
1⁄2% Senior Notes. The Bankruptcy Cases stayed the ability of the lenders under
      the Pre-Petition Credit Agreement and the holders of our 12 1⁄2% Senor Notes from
      seeking remedies to enforce their rights during the Bankruptcy Cases. As a
      result, our short-term liquidity needs arise primarily from principal and
      interest payments under the DIP Credit Agreement (discussed below), capital
      expenditures and working capital requirements. Our primary sources of liquidity
      are cash flows from operations and available borrowing capacity under the DIP
      Credit Agreement.





In
      connection with the Chapter 11 filing, we entered into the DIP Credit Agreement
      to provide post-petition financing. The $285 million DIP Credit Agreement
      consists of an $85 million new money facility and $200 million of borrowings
      under the Pre-Petition Credit Agreement that were rolled into the DIP Credit
      Agreement. The proceeds of the new money facility incurred under the DIP Credit
      Agreement will be used to fund our and the other Debtors’ continued operations
      as debtors in possession under the Bankruptcy Code, pay certain expenses and
      fees incurred in connection with the Bankruptcy Cases, support working capital
      needs and for general corporate purposes. In addition, on March 12, 2008, we
      received final approval from the Bankruptcy Court for the Third Amendment (the
      “Third Amendment”) to the Pre-Petition Credit Facility. In accordance with the
      Third Amendment, we may continue to renew letters of credit originally issued
      under the Pre-Petition Credit Facility notwithstanding the fact that we filed
      a
      petition for relief under Chapter 11 of the Bankruptcy Code. See “—Credit
      Facilities and Other Long-Term Debt” below.





*Operating
      Activities.*Net cash
      used in operating activities was $14.2 million and $2.2 million for the 24
      weeks
      ended December 12, 2007 and December 13, 2006, respectively. The overall
      increase in net cash used in operating activities is primarily attributable
      to a
      $12.3 million increase in cash interest payments and $3.5 million in
      non-capitalizable merger integration costs related to the merger with Ryan’s.
      Net cash used in operating activities was higher than the net loss for the
      first
      24 weeks of fiscal 2008 principally due to receipt of accounts receivable and
      a
      net increase in income taxes payable as well as the effect of non-cash
      depreciation and amortization. Net cash used in operating activities was higher
      than net loss for the first 24 weeks of fiscal 2007 principally due to the
      effect of non-cash depreciation and amortization and accretion of original
      issue
      discount, as well as refinancing premiums expensed.





*Investing
      Activities.* Net cash
      used in investment activities was $7.3 million and $174.5 million for the 24
      weeks ended December 12, 2007 and December 13, 2006, respectively. During the
      first 24 weeks of fiscal 2008, our property and equipment related capital
      expenditures of $22.4 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 $14.7
      million. During the first 24 weeks of fiscal 2007, our property and equipment
      related capital expenditures of $14.7 million represented remodeling and
      improvement cost on our existing restaurants. On November 1, 2006, we acquired
      certain assets and liabilities of Ryan’s for approximately $168.9 million.




*Financing
      Activities.* Net cash
      provided by financing activities was $38.3 million and $164.7 million for the
      first 24 weeks of fiscal years 2008 and 2007, respectively. During the first
      24
      weeks of fiscal 2008, financing activities consisted primarily of borrowings
      of
      $41.0 million under our revolving facilities offset in part by $2.7 million
      of
      term loan repayments under the Pre-Petition Credit Facility. During the first
      24
      weeks of fiscal 2007, financing activities primarily consisted of proceeds
      of
      $546.2 million from our Pre-Petition Credit Facility and the issuance of $300
      million of our 12 1⁄2% Senior Notes, offset in part by $182.1 million of term loan
      repayments, $180.8 million for the repurchase of our 11 1/4 % Senior
      Subordinated Notes, $105.3 million for the repurchase of our 13 7/8% senior
      discount notes, and $145 million for the repayment of Ryan’s notes payable. In
      addition, we incurred $32.6 million in debt refinancing premiums and $35.9
      million of debt issuance costs related to the refinancing of our Pre-Petition
      Credit Agreement and the issuance of our 12 1⁄2% Senior Notes .




*Income
      Tax Refunds.*We
      expect to receive approximately $6.0 million in income tax refunds over the
      remainder of fiscal 2008. Approximately $4.5 million relates to carryback claims
      related to federal returns filed in previous years and $1.5 million relates
      to
      state tax returns.




41





**Credit
      Facilities and Other Long Term Debt**





***Post-Petition
      Financing***





*Debtor-in-Possession
      Credit Agreement*





In
      connection with the Chapter 11 filing, we and the other Debtors have entered
      into the DIP Credit Agreement. The $285 million DIP Credit Agreement consists
      of
      an $85 million new money facility and $200 million of borrowings under the
      Pre-Petition Credit Agreement that will be rolled into the DIP Credit Agreement.
      Of the $85 million new money facility, $30 million drawn on January 23, 2008
      and
      $55 million is available, subject to certain conditions, on a delayed draw
      basis
      until April 30, 2008. The proceeds of the new money loans incurred under the
      DIP
      Credit Agreement will be used to fund the continued operation of our and the
      other Debtors’ businesses as debtors in possession under the Bankruptcy Code,
      pay certain expenses and fees incurred by us in connection with the Bankruptcy
      Cases, support the Debtors’ working capital needs and for general corporate
      purposes. As of March 31, 2008, approximately $30.0 million of new money
      borrowings were outstanding under the DIP Credit Agreement.





Borrowings
      under the DIP Credit Agreement bear interest at the rate of LIBOR plus 7.25%,
      payable in cash monthly. The LIBOR rate will float throughout the life of the
      DIP Credit Agreement, provided that at no time during the life of the DIP Credit
      Agreement will the applicable LIBOR rate for (1) amounts outstanding under
      the
      new money facility of the DIP Credit Agreement be less than 4.00% per annum
      or
      greater than 5.00% per annum and (2) amounts rolled into the DIP Credit
      Agreement from the Pre-Petition Credit Facility exceed 5.00% per annum. In
      addition, the DIP Credit Agreement obligates the Debtors to pay certain fees
      to
      the agents and lenders there under, as described in the DIP Credit Agreement.





The
      DIP
      Credit Agreement requires payment of all amounts borrowed, together with accrued
      and unpaid interest, by the Maturity Date (as defined below). The Debtors have
      the right to voluntarily prepay any borrowing, in whole or in part at any time.
      Subject to certain exceptions, the Debtors are subject to mandatory prepayment
      of the principal amount in the event of certain asset sales or receipt of cash
      proceeds from the incurrence of indebtedness.





Obligations
      under the DIP Credit Agreement are secured by (i) a lien on all of the assets
      of
      the Debtors (which lien will have a first priority with respect to substantially
      all of the Debtors’ assets), including a pledge of all of the equity interests
      of each of the Company’s domestic subsidiaries and (ii) a super-priority
      administrative claim in each of the Bankruptcy Cases. The Company’s obligations
      under the DIP Credit Agreement are guaranteed by each of Buffets’ subsidiaries
      which is a Debtor pursuant to a Guarantee and Collateral Agreement, dated as
      of
      January 22, 2008, among Buffets, the Company, the subsidiaries of Buffets’ named
      therein and Credit Suisse as Collateral Agent.





The
      DIP
      Credit Agreement matures twelve months from January 22, 2008 (the “Maturity
      Date”). The DIP Credit Agreement allows for one automatic six-month extension of
      the Maturity Date if the principal balance outstanding under the new money
      facility of the DIP Credit Agreement is less than or equal to $50 million on
      such date, provided, further, that if the Company receives $10 million or more
      in asset sale proceeds during the first twelve months after the Company’s
      Chapter 11 petition date, the automatic six-month extension of the maturity
      will
      be available only if the principal balance outstanding under the new money
      DIP
      Credit Agreement is less than or equal to $40 million on such date. If the
      principal balance outstanding under the new money DIP Credit Agreement is
      greater than $50 million (or greater than $40 million, if the Company receives
      $10 million or more in asset proceeds during the first twelve months after
      the
      Company’s Chapter 11 petition date) on the twelve-month anniversary, a six-month
      extension may be granted with the consent of the holders of a majority in amount
      of the outstanding new money loans.





The
      DIP
      Credit Agreement contains customary representations, warranties and covenants
      by
      the Debtors, including, without limitation, reporting requirements, financial
      covenants (including a requirement to maintain minimum financial results as
      defined therein), milestones related to the restructuring process, and
      limitations on the Company’s ability to sell assets. In order to draw down on
      the availability under the new money facility we must remain in compliance
      with
      all covenants in the DIP Credit Agreement.





The
      Debtors’ obligations under the DIP Credit Agreement may be accelerated following
      certain events of default, including (without limitation) any breach by the
      Debtors of any of the representations, warranties or covenants made in the
      DIP
      Credit Agreement, the dismissal by the Bankruptcy Court of any of the Bankruptcy
      Cases, the conversion of any of the Bankruptcy Cases to a case under Chapter
      7
      of the Bankruptcy Code or the appointment of a trustee pursuant to Chapter
      11 of
      the Bankruptcy Code.




42





***Pre-Petition
      Financing***





*Credit
      Facility*





In
      connection with the Merger, Buffets entered into a new $640.0 million senior
      secured credit facility (the “Pre-Petition 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, Buffets and the Company entered into an amendment to
      its
      Pre-Petition 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
      Pre-Petition Credit Agreement. 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 December 12, 2007.





On
      January 10, 2008, Buffets entered into the Forbearance Agreement with the
      Pre-Petition Credit Facility lenders. Among other things, the Forbearance
      Agreement provided that the lenders would forbear from exercising remedies
      related to certain pre-bankruptcy events of default and for the amendment of
      the
      Pre-Petition Credit Facility to, among other things, increase the interest
      rate
      margin applicable to LIBOR-based revolving and term loans to 7.25% and the
      interest rate margin applicable to alternate base rate revolving and term loans
      to 6.25%.





The
      Bankruptcy Cases triggered events of default under the Pre-Petition Credit
      Facility, as amended by the Forbearance Agreement, and the immediate
acceleration of amounts outstanding under the Pre-Petition Credit Facility,
      other than the amounts rolled into the DIP Credit Agreement. The ability of
      the
      Pre-Petition Credit Facility lenders to seek remedies to enforce their rights
      under the Pre-Petition Credit Facility is automatically stayed as a result
      of
      the Bankruptcy Cases and the Pre-Petition Credit Facility lenders’ rights of
      enforcement are subject to the applicable provisions of the Bankruptcy Code.
      As
      of March 31, 2008, there was approximately $580.3 million outstanding under
      the
      Pre-Petition Credit Facility, $200 million of which was rolled into the DIP
      Credit Facility.





*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 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.





The
      bankruptcy filing triggered events of default under the indenture governing
      the
      12 1⁄2% Senior Notes and the immediate acceleration of the outstanding principal
      amount and accrued but unpaid interest of the 12 1⁄2% Senior Notes. The ability of
      the noteholders to seek remedies to enforce their rights under the indenture
      governing the 12 1⁄2% Senior Notes is automatically stayed as a result of our
      bankruptcy filing and the noteholders’ rights of enforcement are subject to the
      applicable provisions of the Bankruptcy Code.




43


**Contractual
      Obligations**





The
      following table provides aggregate information about our material contractual
      payment obligations as of December 12, 2007 and the fiscal year in which these
      payments are due (fiscal 2008 represents the remainder of the fiscal year).
      As a
      result of the Chapter 11 filing, our future obligations under these agreements
      may significantly change in the future. See Note 14 - “Subsequent Events” for
      further details’.





**Payments
      Due by Fiscal Year**





**2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **Thereafter**
            
            **Total****(in
                thousands)**Long-term
                debt(1)
            
            $
            826,025
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            826,025Interest
                (2)
            
            
            20,137
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            20,137Operating
                leases(3)
            
            
            56,868
            
            
            112,105
            
            
            106,757
            
            
            100,884
            
            
            95,523
            
            
            1,251,143
            
            
            1,723,280Advisory
                fees(4)
            
            
            1,050
            
            
            2,000
            
            
            2,000
            
            
            2,000
            
            
            2,000
            
            
            —
            
            
            9,050Purchase
                obligations(5)
            
            
            75,880
            
            
            32,651
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            108,531Total
                contractual cash obligations
            
            $
            979,960
            
            $
            146,756
            
            $
            108,757
            
            $
            102,884
            
            $
            97,523
            
            $
            1,251,143
            
            $
            2,687,023




(1)
            Long-term
                debt payments for fiscal year 2008 shows all required principal payments
                on Buffets’ Pre-Petition Credit Agreement and the aggregate balance of
                Buffets’ 12 1⁄2% Senior Notes as currently due as a result of the Bankruptcy
                Cases.





(2)
            Amount
                represents contractual interest payments on Buffets’ 12 1⁄2% Senior Notes
                prior to the Bankruptcy Cases. It is expected that this liability
                will be
                settled under the terms of the Bankruptcy Court. As a result, the
                Company
                has ceased accruing interest on these notes. See Note 14 - “Subsequent
                Events” for details of the Bankruptcy Cases. Interest payments on Buffets’
                variable-rate Term Facility are excluded. The borrowings under the
                Term
                Facility bear interest, at Buffets’ option, at an adjusted LIBOR rate plus
                a margin of either 2.75% or 3.00% in the case of Eurodollar borrowings
                and
                at a certain alternate base rate plus a margin of either 1.75% or
                2.00% in
                the case of alternate base rate borrowings, depending on Buffets’ leverage
                ratio. The Term Facility matures on November 1, 2013. Interest payments
                are due quarterly. The interest rate, at LIBOR plus 2.75%, was 8.37%
                as of
                December 13, 2006. 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 due and payable on November 1, 2012. See Note
                7 to
                our consolidated financial statements included elsewhere in this
                report
                for details of our long-term
                obligations.





(3)
            Operating
                leases are comprised of minimum rents and contingent rents. Operating
                leases have not been reduced by minimum sublease rentals of approximately
                $0.9 million. It is possible that our obligations under these lease
                agreements could change significantly through the reorganization
                process.





(4)
            The
                advisory fees comprise our contractual obligation to pay annual advisory
                fees to each of Roe H. Hatlen, Sentinel Capital Partners, L.L.C.
                and the
                Caxton-Iseman Party. See “Certain Relationships and Related Transactions.”
                Under the terms of these agreements, Mr. Hatlen and Sentinel Capital
                are
                each paid a fixed annual fee. The fee of the Caxton-Iseman Party
                is
                calculated as a percentage of our earnings before interest, taxes,
                depreciation and amortization, which in fiscal 2005 resulted in a
                payment
                of $1.8 million. This figure has been used as an estimate for our
                obligations under that agreement for fiscal 2007 and each fiscal
                year
                thereafter. The agreements with the Caxton-Iseman Party and Sentinel
                Capital are of perpetual duration, and hence no estimate of the aggregate
                amount of future obligations (represented in the “Thereafter” column,
                above) is provided. As a result of the Chapter 11 filing, our ability
                to
                make payments under these agreements has been limited.





(5)
            In
                determining purchase obligations for this table we used our interpretation
                of the definition set forth in the SEC Final Rule,*Disclosure
                in Management’s Discussion and Analysis about Off-Balance**Sheet
                Arrangements and Aggregate Contractual Obligations*,
                which states, “a ‘purchase obligation’ is defined as an agreement to
                purchase goods or services that is enforceable and legally binding
                on the
                registrant and that specifies all significant terms, including: fixed
                minimum quantities to be purchased; fixed, minimum or variable/price
                provisions, and the approximate timing of the transaction.” In applying
                this definition, we have only included purchase obligations to the
                extent
                the failure to perform would result in formal recourse against the
                Company. Accordingly, certain procurement arrangements that indicate
                we
                are to purchase future items are included, but only to the extent
                they
                include a recourse provision for our failure to
                purchase.





**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.




44





**Forward-Looking
      Statements and Risk Factors**





The
      statements contained in this Quarterly Report on Form 10-Q that are not
      historical facts are forward-looking statements, including references to the
      Company’s plans in the context of bankruptcy reorganization. These and other
      forward-looking statements are subject to risks and uncertainties that could
      cause actual results to differ materially from those set forth in, or implied
      by, the forward looking statements. Factors that may cause actual results to
      differ from the forward-looking statements in general are described in the
“Risk
      Factors/Forward-Looking Statements” section in Buffets Holdings’ Form 10-K/A
      filed with the Securities and Exchange Commission on March 31, 2008 and in
      “—Part II Other Information—Item 1A. Risk Factors” herein. The statements in
      this Quarterly Report on Form 10-Q, including statements with respect to the
      Bankruptcy Cases, reflect Buffets Holdings’ current beliefs based upon available
      information. Developments subsequent to this Quarterly Report on Form 10-Q
      are
      likely to cause these statements to become outdated, and no obligation is
      undertaken to update the information.





**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 $526.0 million at December 12, 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 $2.4 million for the 24 weeks ended December 12,
      2007. In addition, we entered into a swap agreement to fix a portion of our
      variable rate interest. See Note 7 — “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* .





As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of the principal executive officer and
      principal financial officer, of our disclosure controls and procedures (as
      defined in Rules 13a-14(c) and 15d-14(c) under the Securities and Exchange
      Act
      of 1934 (the “Exchange Act”)). Based upon this evaluation, we have concluded
      that as of December 12, 2007 our disclosure controls and procedures were
      ineffective due to the material weakness in internal control over financial
      reporting as described in Item 9A of our amended Annual Report on Form 10-K/A
      for the fiscal year ended June 27, 2007. In fiscal 2008, we began to remediate
      the identified material weakness in our internal control over financial
      reporting. See “Item 9A. Controls and Procedures” of our amended Annual Report
      of Form 10-K/A for the fiscal year ended June 27, 2007 for more information
      on
      the identified material weakness. Remediation completed in the second quarter
      of
      fiscal 2008 includes:





(i)
              the
                  purchase and implementation on a test basis of tax preparation
                  software.





(ii)
              the
                  engagement of a third-party tax consultant to review internally
                  prepared
                  tax work papers.





*Changes
      in Internal Control* .





Other
      than such actions noted above, there have been no changes to tour internal
      control over financial reporting during the second quarter of fiscal 2008 that
      have materially affected, or are reasonably likely to materially affect, our
      internal control over financial reporting.





45




**PART
      II. OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**





On
      January 22, 2008, the Debtors filed a voluntary petition for relief under
      Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for
      the District of Delaware, Case Number 08-10141. Under the Bankruptcy Code,
      the
      filing of a petition automatically stays most litigation pending against the
      Debtors. For a further description of the Bankruptcy Cases, see “Management’s
      Discussion and Analysis —Recent Developments—Reorganization Under Chapter 11 of
      the US Bankruptcy Code.”





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. 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,
      which anticipated payments of approximately $7.2 million, received preliminary
      court approval on September 12, 2007, but final court approval was not obtained
      prior to the time that the Company filed for bankruptcy. The matter represents
      a
      pre-petition unsecured claim subject to resolution under the bankruptcy
      proceeding. The Company previously recorded the expected settlement of $7.2
      million in the accrued litigation reserve and the amount is included in “Accrued
      Liabilities” in the accompanying condensed consolidated balance
      sheets.





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 against Ryan’s
      Restaurant Group, Inc. and certain of its executives. The complaint is a class
      action lawsuit brought on behalf of hourly employees who worked for Ryan’s in
      West Virginia since July 2001. 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. At the time of the Company’s bankruptcy filing, the West Virginia action
      was in a preliminary stage and the Company’s liability, if any, was
      undeterminable. The matter represents a contested pre-petition claim that is
      stayed pursuant to the bankruptcy proceeding.





On
      April
      2, 2007, a putative class action lawsuit was filed against HomeTown Buffet,
      Inc.
      and Buffets Holdings, Inc. in California state court in San Bernardino County.
      The lawsuit alleges that HomeTown Buffet violated California wage and hour
      laws
      by failing to pay its hourly employees overtime, for failing to provide meal
      and
      rest period breaks as provided by the California Labor Code and for charging
      employees for uniforms and equipment. Defendants removed the lawsuit to the
      United States District Court for the Central District of California on June
      28,
      2007. The complaint does not make a specific monetary demand. This contested
      action has likewise been stayed by the Company’s bankruptcy proceeding. It was
      in a preliminary stage at the time of the filing and the pre-petition liability
      has not been established.





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**





*As
      discussed above, on January 22, 2008, the Company filed a voluntary petition
      under Chapter 11 of the Bankruptcy Code. The following risk factors have been
      included as a result of the Chapter 11 filing and should be read in conjunction
      with the Risk Factors set forth in the Company’s Form 10-K/A for fiscal 2007 and
      Form 10-Q/A for the first quarter of fiscal 2008.*





*The
      Company filed for reorganization under Chapter 11 of the Bankruptcy Code on
      January 22, 2008 and is subject to the risks and uncertainties associated with
      the Bankruptcy Cases.*





For
      the
      duration of the Bankruptcy Cases, our operations and our ability to execute
      our
      business strategy will be subject to the risks and uncertainties associated
      with
      bankruptcy. These risks include our ability to continue as a going concern;
      operate within the restrictions and the liquidity limitations of the DIP Credit
      Agreement; obtain Bankruptcy Court approval with respect to motions filed in
      the
      Bankruptcy Cases from time to time; develop, confirm and consummate a plan
      of
      reorganization; obtain and maintain normal payment terms with vendors and
      service providers and maintain contracts that are critical to our operations;
      attract, motivate and retain key employees; attract and retain customers; and
      fund and execute our business plan. We will also be subject to risks and
      uncertainties with respect to the actions and decisions of our and the other
      Debtors’ creditors and other third parties who have interests in the Bankruptcy
      Cases that may be inconsistent with our plans.




46





These
      risks and uncertainties could affect our businesses and operations in various
      ways. For example, negative events or publicity associated with the Bankruptcy
      Cases could adversely affect our relationships with our vendors and employees,
      as well as with customers, which in turn could adversely affect our operations
      and financial condition. Also, pursuant to the Bankruptcy Code, we need
      Bankruptcy Court approval for transactions outside the ordinary course of
      business, which may limit our ability to respond timely to certain events or
      take advantage of certain opportunities. Because of the risk and uncertainties
      associated with the Bankruptcy Cases, we cannot predict or quantify the ultimate
      impact that events occurring during the reorganization process will have on
      our
      business, financial condition and results of operations and there is no
      certainty about our ability to continue as a going concern.





As
      a
      result of the Bankruptcy Cases, realization of assets and liquidation of
      liabilities are subject to uncertainty. While operating under the protection
      of
      the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise
      as
      permitted in the normal course of business, we may sell or otherwise dispose
      of
      assets and liquidate or settle liabilities for amounts other than those
      reflected in the consolidated financial statements. Further, a plan of
      reorganization could materially change the amounts and classifications reported
      in the consolidated historical financial statements, which do not give effect
      to
      any adjustments to the carrying value of assets or amounts of liabilities that
      might be necessary as a consequence of confirmation of a plan of
      reorganization.





*A
      long period of operating under Chapter 11 may harm our
      business.*





A
      long
      period of operating under Chapter 11 could adversely affect our business and
      operations. So long as the Bankruptcy Cases continue, our senior management
      will
      be required to spend a significant amount of time and effort dealing with the
      Bankruptcy Cases instead of focusing exclusively on business operations. A
      prolonged period of operating under Chapter 11 will also make it more difficult
      to attract and retain management and other key personnel necessary to the
      success and growth of our business. In addition, the longer the Bankruptcy
      Cases
      continue, the more likely it is that our vendors will lose confidence in our
      ability to successfully reorganize our businesses and they may seek to establish
      alternative arrangements for providing us with goods, including alternative
      payment arrangements, which in turn could have an adverse effect on our
      liquidity and/or results of operations.





*We
      may not be able to obtain confirmation of our Chapter 11 plan.*





In
      order
      to successfully emerge from Chapter 11 bankruptcy protection, we believe that
      we
      must develop, and obtain requisite court and creditor approval of, a viable
      Chapter 11 plan of reorganization. This process requires us to meet certain
      statutory requirements with respect to adequacy of disclosure with respect
      to a
      plan, soliciting and obtaining creditor acceptance of a plan, and fulfilling
      other statutory conditions for confirmation. We may not receive the requisite
      acceptances to confirm such a plan. Even if the requisite acceptances of a
      plan
      are received, the Bankruptcy Court may not confirm it.





If
      a plan
      is not confirmed by the Bankruptcy Court, it is unclear whether we would be
      able
      to reorganize our businesses and what, if any, distributions to holders of
      claims against us, including holders of our 12 1⁄2% Senior Notes, would ultimately
      receive with respect to their claims. If an alternative reorganization could
      not
      be agreed upon, it is possible that we would have to liquidate our assets,
      in
      which case it is likely that holders of claims would receive substantially
      less
      favorable treatment than they would receive if we were to emerge as a viable,
      reorganized entity.





*The
      DIP Credit Agreement includes financial and other covenants that impose
      substantial restrictions on the Debtors’ financial and business
      operations.*





The
      DIP
      Credit Agreement includes financial covenants that, among other things, require
      us to achieve certain levels of EBITDA (earnings before interest, taxes,
      depreciation and amortization, as defined in the facility). If we are unable
      to
      achieve the results that are contemplated in our business plan, we may be unable
      to comply with the EBITDA covenant. Furthermore, the DIP Credit Agreement
      restricts our ability to, among other things, contract or incur additional
      indebtedness, make investments (including acquisitions) or sell assets. If
      we
      fail to comply with the covenants in the DIP Credit Agreement and are unable
      to
      obtain a waiver or amendment of the DIP Credit Agreement, an event of default
      will occur thereunder. The DIP Credit Agreement contains other events of default
      customary for DIP financings, including a change of control event of
      default.





We
      face
      uncertainty regarding the adequacy of our capital resources, including
      liquidity, and have limited access to additional financing. In addition to
      the
      cash requirements necessary to fund ongoing operations, we have incurred
      significant professional fees and other costs in connection with the Bankruptcy
      Cases and expect that we will continue to incur significant professional fees
      and costs. As of March 31, 2008, we had approximately $44.0 million in available
      cash and $55.0 million available for borrowing under the DIP Credit Agreement.
      We cannot assure you that the amounts of cash available from operations together
      with our DIP Credit Agreement will be sufficient to fund operations until such
      time as we are able to propose a plan of reorganization that will receive the
      requisite acceptance by creditors and be confirmed by the Bankruptcy Court.
      In
      the event that cash flows and available borrowings under the DIP Credit
      Agreement are not sufficient to meet our cash requirements, we may be required
      to seek additional financing. We can provide no assurance that additional
      financing would be available or, if available, offered on acceptable terms.




47





As
      a
      result of the Bankruptcy Cases and the circumstances leading to the bankruptcy
      filing, our access to additional financing is, and for the foreseeable future
      will likely continue to be, very limited. Our long-term liquidity requirements
      and the adequacy of our capital resources are difficult to predict at this
      time
      and ultimately cannot be determined until a plan of reorganization has been
      developed and is confirmed by the Bankruptcy Court in the Bankruptcy Cases.





*A
      plan of reorganization may result in holders of our 12 1⁄2% Senior Notes receiving
      no distribution on account of their interests and cancellation of their Senior
      Notes.*





Under
      the
      priority scheme established by the Bankruptcy Code, unless creditors agree
      otherwise, post-petition liabilities and certain pre-petition liabilities must
      be satisfied in full before the holders of our 12 1⁄2% Senior Notes will be
      entitled to receive any distribution or retain any property under a plan of
      reorganization. The ultimate recovery to creditors, including the noteholders,
      if any, will not be determined until confirmation of a plan or plans of
      reorganization. No assurance can be given as to what values, if any, will be
      ascribed in the Bankruptcy Cases to the 12 1⁄2% Senior Notes or what types or
      amounts of distributions, if any, the noteholders would receive. A plan of
      reorganization could result in holders of our 12 1⁄2% Senior Notes receiving no
      distribution on account of their interests and cancellation of their existing
      notes. If certain requirements of the Bankruptcy Code are met, a plan of
      reorganization can be confirmed notwithstanding its rejection by the noteholders
      and notwithstanding the face that such noteholders do not receive or retain
      any
      property on account of their interests under the plan. Therefore, an investment
      in our 12 1⁄2% Senior Notes is highly speculative.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





The
      commencement of the Bankruptcy Cases triggered events of default to occur and
      the immediate acceleration of amounts outstanding under the Pre-Petition Credit
      Facility, the interest rate swap agreement, dated April 12, 2007, that the
      Company entered into in accordance with the terms of the Pre-Petition Credit
      Facility (the “Interest Rate Swap”) and the 12 1⁄2% Senior Notes. As of March 31,
      2008, there was approximately $580.3 million outstanding under the Pre-Petition
      Credit Facility and $300 million in aggregate principal amount outstanding
      under
      the 12 1⁄2% Senior Notes. As a result of the default under the Interest Rate Swap,
      a calculation of the amount owed under the agreement was performed and
      determined to be approximately $1.0 million.





**ITEM
      5. OTHER INFORMATION**





We
      are a
      voluntary filer and file annual reports on Form 10-K, quarterly reports on
      Form
      10-Q, current reports on Form 8-K, amendments to those reports and other
      information with the Securities and Exchange Commission (“SEC”). The public can
      obtain copies of these materials by contacting the SEC at 1-800-SEC-0330, or
      by
      accessing the SEC’s website at www.sec.gov. In addition, a link to our SEC
      filings is provided on our website at www.buffet.com.





**ITEM
      6. EXHIBITS**





See
      Index
      to Exhibits on page 50 of this report.




48




**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:
                March 31, 2008
            By:
            /s/
                R. Michael Andrews, Jr.R.
                Michael Andrews, Jr.Chief
                Executive Officer
                (Principal
                  Executive Officer)




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




49





**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.




50