**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q/A**
 **Amendment
        No. 1**
 
 **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**
 **EXCHANGE
        ACT OF 1934**
 
 **For
        the quarterly period ended September 19, 2007**
 
 **Commission
        file number: 333-116897**
  **BUFFETS
        HOLDINGS, INC.**
 (Exact
        name of registrant as specified in its charter)
 
 Delaware
              
              22-3754018(State
                  or other jurisdiction of
              
              (I.R.S.
                  Employerincorporation
                  or organization)
              
              Identification
                  Number)1460
                  Buffet WayEagan,
                  Minnesota
              
              55121(Address
                  of principal executive offices)
              
              (Zip
                  Code)
 
 Registrant’s
        telephone number, including area code: (651) 994-8608
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports) and (2) has been subject to such filing requirements
        for
        the past 90 days. YES x NO o
 
 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 o
              ACCELERATED
                  FILER o
              NON-ACCELERATED
                  FILER x
  Indicate
        by checkmark whether the registrant is a shell company (as defined in Rule
        12b-2
        of the Exchange Act). YES o NO x
 
 The
        number of shares of Buffets Holdings, Inc. common stock outstanding as of
        March
        31, 2008 was 3,104,510.
 
 
  **EXPLANATORY
        NOTE**
 
 This
          Form
          10-Q/A of Buffets Holdings, Inc. is being filed for the purpose of amending
          and
          restating Part I - Items 1, 2 and 4 of our Form 10-Q for the twelve weeks
          ended
          September 19, 2007, to reflect the restatement of our condensed consolidated
          financial statements as of and for the twelve week period ended September
          19,
          2007 to correct certain tax accounting errors surrounding the merger with
          Ryan’s
          Restaurant Group, Inc. on November 1, 2006 (the “Merger”), as well as errors in
          the Company’s deferred tax balances and related valuation allowance and
          classification of income tax refund receivables.
 
 No
          attempt has been made in this Form 10-Q/A to modify or update other disclosures
          presented in the original report on Form 10-Q, except as required to reflect
          the
          effects of the restatement, and the addition of Note 14 - “Subsequent Events.”
This Form 10-Q/A does not reflect events after the filing of the Form 10-Q
          or
          modify or update those disclosures, including the exhibits to the Form
          10-Q
          affected by subsequent events, except as stated above. Information not
          affected
          by the restatement is unchanged and reflects the disclosure made at the
          time of
          the original filing of the Form 10-Q on November 5, 2007. Accordingly,
          this Form
          10-Q/A should be read in conjunction with Part I -Item 3 and Part II -
          Items 1,
          1A and 6 of the original Form 10-Q which were not amended in this Form
          10-Q/A.
 
 **BUFFETS
        HOLDINGS, INC.**
 **TABLE
        OF CONTENTS**
 
 **Page**Part
                    I. Financial InformationItem
                    1. Financial StatementsCondensed
                    Consolidated Balance Sheets (Unaudited) as of June 27, 2007 (Restated)
                    and
                    September 19, 2007 (Restated)
                
                2Condensed
                    Consolidated Statements of Operations (Unaudited) — Twelve Weeks Ended
                    September 20, 2006 and September 19, 2007 (Restated)
                
                3Condensed
                    Consolidated Statements of Cash Flows (Unaudited) — Twelve Weeks Ended
                    September 20, 2006 and September 19, 2007 (Restated)
                
                4Notes
                    to the Condensed Consolidated Financial Statements (Unaudited)
                    (Restated)
                
                5Item
                    2. Management’s Discussion and Analysis of Financial Condition and Results
                    of Operations
                
                24Item
                    3. Quantitative and Qualitative Disclosures about Market
                    Risk
                
                35Item
                    4. Controls and Procedures
                
                35Part
                    II. Other InformationItem
                    1. Legal Proceedings
                
                37Item
                    1A. Risk Factors
                
                37Item
                    6. Exhibits
                
                38
  1
 
 **PART
        I. FINANCIAL INFORMATION**
  **ITEM
        1. FINANCIAL STATEMENTS**
  **BUFFETS
        HOLDINGS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
  **As
                      Restated -**
                    **See
                      Note 13**
                  
                  **As
                      Restated -**
                    **See
                      Note 13****June
                      27,**
                    **2007**
                  
                  **September
                      19,**
                    **2007****(Unaudited)****(In
                      thousands, except share data)****ASSETS**CURRENT
                      ASSETS:Cash
                      and cash equivalents
                  
                  $
                  4,645
                  
                  $
                  11,528Receivables
                  
                  
                  10,219
                  
                  
                  7,985Income
                      tax receivable
                  
                  
                  13,324
                  
                  
                  19,851Inventories
                  
                  
                  32,087
                  
                  
                  31,869Prepaid
                      expenses and other current assets
                  
                  
                  8,632
                  
                  
                  8,956Deferred
                      income taxes
                  
                  
                  3,000
                  
                  
                  3,000Assets
                      held for sale
                  
                  
                  34,959
                  
                  
                  19,944Current
                      assets related to discontinued operations
                  
                  
                  14,117
                  
                  
                  15,054Total
                      current assets
                  
                  
                  120,983
                  
                  
                  118,187PROPERTY
                      AND EQUIPMENT, net
                  
                  
                  221,092
                  
                  
                  222,131GOODWILL
                  
                  
                  497,492
                  
                  
                  514,982OTHER
                      INTANGIBLE ASSETS
                  
                  
                  83,998
                  
                  
                  67,534OTHER
                      ASSETS, net
                  
                  
                  37,092
                  
                  
                  35,657NON-CURRENT
                      ASSETS RELATED TO DISCONTINUED OPERATIONS
                  
                  
                  412
                  
                  
                  493Total
                      assets
                  
                  $
                  961,069
                  
                  $
                  958,984**LIABILITIES
                      AND SHAREHOLDER’S DEFICIT**CURRENT
                      LIABILITIES:Accounts
                      payable
                  
                  $
                  81,090
                  
                  $
                  76,222Accrued
                      liabilities
                  
                  
                  132,783
                  
                  
                  123,971Income
                      taxes payable
                  
                  
                  24,336
                  
                  
                  185Short-term
                      debt
                  
                  
                  13,000
                  
                  
                  33,500Current
                      maturities of long-term debt
                  
                  
                  6,625
                  
                  
                  5,300Current
                      liabilities related to discontinued operations
                  
                  
                  1,137
                  
                  
                  1,020Total
                      current liabilities
                  
                  
                  258,971
                  
                  
                  240,198LONG-TERM
                      DEBT, net of current maturities
                  
                  
                  822,050
                  
                  
                  822,050DEFERRED
                      INCOME TAXES
                  
                  
                  33,456
                  
                  
                  26,765LONG-TERM
                      TAXES PAYABLE
                  
                  
                  —
                  
                  
                  26,478DEFERRED
                      LEASE OBLIGATIONS
                  
                  
                  38,209
                  
                  
                  41,011OTHER
                      LONG-TERM LIABILITIES
                  
                  
                  9,341
                  
                  
                  8,566Total
                      liabilities
                  
                  
                  1,162,027
                  
                  
                  1,165,068SHAREHOLDER’S
                      DEFICIT:Preferred
                      stock; $.01 par value, 1,100,000 shares authorized; none issued
                      and
                      outstanding as of June 27, 2007 and September 19, 2007
                  
                  
                  —
                  
                  
                  —Common
                      stock; $.01 par value, 3,600,000 shares authorized; 3,104,510
                      shares
                      issued and outstanding as of June 27, 2007 and September 19,
                      2007
                  
                  
                  31
                  
                  
                  31Additional
                      paid in capital
                  
                  
                  82
                  
                  
                  82Accumulated
                      deficit
                  
                  
                  (201,129
                  )
                  
                  (206,018
                  )Accumulated
                      other comprehensive income (loss)
                  
                  
                  58
                  
                  
                  (179
                  )Total
                      shareholder’s deficit
                  
                  
                  (200,958
                  )
                  
                  (206,084
                  )Total
                      liabilities and shareholder’s deficit
                  
                  $
                  961,069
                  
                  $
                  958,984
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  2
 
 **BUFFETS
        HOLDINGS, INC. AND SUBSIDIARIES**
 
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **Twelve
                    Weeks Ended****As
                    Restated - See Note 13****September
                    20,**
                  **2006**
                
                **September
                    19,**
                  **2007****(Unaudited)****(In
                    thousands)**RESTAURANT
                    SALES
                
                $
                213,904
                
                $
                376,539RESTAURANT
                    COSTS:Food
                
                
                74,090
                
                
                130,168Labor
                
                
                60,378
                
                
                111,147Direct
                    and occupancy
                
                
                51,872
                
                
                98,170Total
                    restaurant costs
                
                
                186,340
                
                
                339,485ADVERTISING
                    EXPENSES
                
                
                7,227
                
                
                9,867GENERAL
                    AND ADMINISTRATIVE EXPENSES
                
                
                9,266
                
                
                15,898CLOSED
                    RESTAURANT COSTS
                
                
                742
                
                
                69MERGER
                    INTEGRATION COSTS
                
                
                440
                
                
                1,633LOSS
                    ON LITIGATION SETTLEMENT
                
                
                —
                
                
                54OPERATING
                    INCOME
                
                
                9,889
                
                
                9,533INTEREST
                    EXPENSE
                
                
                13,228
                
                
                20,757INTEREST
                    INCOME
                
                
                (28
                )
                
                (161
                )LOSS
                    RELATED TO REFINANCING
                
                
                243
                
                
                5OTHER
                    INCOME
                
                
                (202
                )
                
                (270
                )LOSS
                    BEFORE INCOME TAXES
                
                
                (3,352
                )
                
                (10,798
                )INCOME
                    TAX BENEFIT
                
                
                (1,903
                )
                
                (4,985
                )Net
                    loss from continuing operations
                
                
                (1,449
                )
                
                (5,813
                )Net
                    income from discontinued operations, net of tax of $208 and $25,
                    respectively.
                
                
                309
                
                
                37Net
                    loss
                
                $
                (1,140
                )
                $
                (5,776
                )
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  3
 
 **BUFFETS
        HOLDINGS, INC. AND SUBSIDIARIES**
 
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **Twelve
                      Weeks Ended****As
                      Restated - See note 13****September
                      20,**
                    **2006**
                  
                  **September
                      19,**
                    **2007****(Unaudited)****(In
                      thousands)**OPERATING
                      ACTIVITIES:Net
                      loss
                  
                  $
                  (1,140
                  )
                  $
                  (5,776
                  )Adjustments
                      to reconcile net loss to net cash used in operating
                      activities:Depreciation
                      and amortization
                  
                  
                  7,384
                  
                  
                  10,041Amortization
                      of debt issuance cost
                  
                  
                  413
                  
                  
                  1,180Accretion
                      of original issue discount
                  
                  
                  3,748
                  
                  
                  —Loss
                      on disposal of assets
                  
                  
                  249
                  
                  
                  45Deferred
                      income taxes
                  
                  
                  —
                  
                  
                  (1,493
                  )Changes
                      in assets and liabilities:Receivables
                  
                  
                  394
                  
                  
                  2,236Inventories
                  
                  
                  172
                  
                  
                  107Prepaid
                      expenses and other current assets
                  
                  
                  190
                  
                  
                  (890
                  )Accounts
                      payable
                  
                  
                  (4,786
                  )
                  
                  (3,764
                  )Accrued
                      and other liabilities
                  
                  
                  (6,335
                  )
                  
                  (7,892
                  )Income
                      taxes receivable/payable
                  
                  
                  (4,963
                  )
                  
                  (3,313
                  )Net
                      cash used in operating activities
                  
                  
                  (4,674
                  )
                  
                  (9,519
                  )INVESTING
                      ACTIVITIES:Proceeds
                      from sale of assets held for sale
                  
                  
                  —
                  
                  
                  8,813Acquisitions,
                      net of liabilities assumed and cash acquired
                  
                  
                  (3,468
                  )
                  
                  (1
                  )Purchase
                      of property and equipment
                  
                  
                  (6,836
                  )
                  
                  (11,383
                  )Collections
                      on notes receivable
                  
                  
                  697
                  
                  
                  501Purchase
                      of other assets
                  
                  
                  (3,411
                  )
                  
                  (685
                  )Net
                      cash used in investing activities
                  
                  
                  (13,018
                  )
                  
                  (2,755
                  )FINANCING
                      ACTIVITIES:Repayment
                      of previous term loan facility
                  
                  
                  (466
                  )
                  
                  —Proceeds
                      from previous revolver facility
                  
                  
                  6,000
                  
                  
                  —Repayment
                      of term loan funding
                  
                  
                  —
                  
                  
                  (1,325
                  )Proceeds
                      from revolver facility
                  
                  
                  —
                  
                  
                  20,500Debt
                      issuance costs
                  
                  
                  —
                  
                  
                  (15
                  )Net
                      cash provided by financing activities
                  
                  
                  5,534
                  
                  
                  19,160NET
                      CHANGE IN CASH RELATED TO DISCONTINUED OPERATIONS
                  
                  
                  —
                  
                  
                  (3
                  )NET
                      CHANGE IN CASH AND CASH EQUIVALENTS
                  
                  
                  (12,158
                  )
                  
                  6,883CASH
                      AND CASH EQUIVALENTS, beginning of period
                  
                  
                  20,194
                  
                  
                  4,645CASH
                      AND CASH EQUIVALENTS, end of period
                  
                  $
                  8,036
                  
                  $
                  11,528SUPPLEMENTAL
                      CASH FLOW INFORMATION:Cash
                      paid during the period for —Interest
                      (net of capitalized interest of $77 and $98)
                  
                  $
                  14,769
                  
                  $
                  30,830Income
                      taxes
                  
                  $
                  3,268
                  
                  $
                  473
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  4
 
 **BUFFETS
        HOLDINGS, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)
        (As Restated)**
 
 **1.
        Nature of Organization**
  *Company
        Background*
 
 Buffets
        Holdings, Inc., a Delaware corporation, was formed to acquire 100 percent
        of the
        common stock of Buffets, Inc. and its subsidiaries in a buyout from public
        shareholders on October 2, 2000 (the “Acquisition”). Buffets Holdings, Inc. and
        subsidiaries (“Buffets Holdings”) and Buffets, Inc. and subsidiaries (“Buffets”)
        are collectively referred to as “the Company” in these Notes to Condensed
        Consolidated Financial Statements. Buffets, a Minnesota corporation, is the
        principal operating subsidiary of Buffets Holdings.
 
 On
        December 29, 2005, Buffets Holdings announced that its stockholders formed
        Buffets Restaurant Holdings, Inc. (“Buffets Restaurant Holdings”) and entered
        into a contribution agreement with Caxton-Iseman Investments, L.P., Sentinel
        Capital Partners, L.P., members of Buffets Holdings senior management and
        Buffets Restaurant Holdings (the “Contribution Agreement”). Pursuant to the
        terms of the Contribution Agreement, holders of 100% of Buffets Holdings’
outstanding common stock contributed their shares of common stock of Buffets
        Holdings to Buffets Restaurant Holdings in exchange for proportional amounts
        of
        Buffets Restaurant Holdings' common stock. As a result of the share exchange,
        Buffets Holdings is majority-owned by Buffets Restaurant Holdings.
 
 *Description
        of Business*
 
 The
        Company owns and operates a chain of restaurants in the United States under
        the
        names of Ryan’s®, Fire Mountain®, North’s®, Old Country Buffet®, Country
        Buffet®, HomeTown Buffet®, Granny’s Buffet SM and
        Tahoe Joe’s Famous Steakhouse®. The Company, operating principally in the family
        dining segment, owned and operated 643 restaurants, including 632 family
        steak-buffet restaurants and eleven Tahoe Joe’s Famous Steakhouse® restaurants,
        and franchised seventeen restaurants as of September 19, 2007.
 
 *Buffets
        Franchise Holdings, LLC*
 
 Buffets
        Franchise Holdings, LLC, a Minnesota corporation, was formed on March 12,
        2007
        to franchise buffet-style restaurants, primarily operating under the HomeTown
        Buffet® tradename. The Company will not directly own or operate any of these
        restaurants, and through September 19, 2007, has not entered into any franchise
        arrangements.
 
 The
        Company has completed the documentation required to franchise the HomeTown
        Buffet® brand and has filed the required registration forms with appropriate
        state and federal agencies. Filing these documents allows the HomeTown Buffet®
brand to be offered to franchise candidates in 39 states and the District
        of
        Columbia. The Company’s primary focus for the near term will be identifying
        highly qualified multi-unit restaurant operators in the states of Florida,
        Nevada, Arizona, New Mexico, Utah, and once registered, California.
 
 *Ryan’s
        Restaurant Group, Inc.*
 
 On
        November 1, 2006, Buffets and Ryan’s Restaurant Group, Inc. (“Ryan’s”), a South
        Carolina corporation, announced that they had completed the previously announced
        merger of Buffets Southeast, Inc., a South Carolina corporation and wholly-owned
        subsidiary of Buffets, and Ryan’s. Pursuant to the Agreement and Plan of Merger,
        dated as of July 24, 2006, by and among Buffets, Ryan’s and Buffets Southeast,
        Inc. (the “Merger Agreement”), Buffets Southeast, Inc. merged with and into
        Ryan’s, with Ryan’s remaining as the surviving corporation (the “Merger”). As a
        result of the Merger, Ryan’s became a wholly-owned subsidiary of
        Buffets.
 
 *Tahoe
        Joe’s Famous Steakhouse®.*
 
 In
        June
        2007, the Company developed a plan to sell its Tahoe Joe’s Famous Steakhouse®
restaurants. The restaurants are being actively marketed and management expects
        a sale to occur within the current fiscal year. As a result, the Company
        has
        revised the accompanying condensed consolidated financial statements for
        all
        periods presented to show certain account balances and activity related to
        the
        Tahoe Joe’s restaurants as discontinued operations. See Note 8 - “Discontinued
        Operations” for additional information on the account balances and related
        activity reclassified.
  5
  *Interim
        Financial Information*
 
 In
        the
        opinion of management, the accompanying unaudited condensed consolidated
        financial statements contain all necessary adjustments, which are of a normal
        recurring nature, to present fairly the Company’s financial position and the
        results of its operations and cash flows for the periods presented, in
        conformity with accounting principles generally accepted in the United States
        of
        America and with the regulations of the Securities and Exchange Commission
        (“SEC”). Certain information and footnote disclosures normally included in
        accordance with accounting principles generally accepted in the United States
        of
        America, have been condensed or omitted pursuant to SEC rules and regulations.
        Operating results for the twelve week period ended September 19, 2007 are
        not
        necessarily indicative of results that may be achieved for the fiscal year
        ending July 2, 2008. Historical results will not be indicative of future
        results
        due to the consummation of the merger transaction with Ryan’s.
 
 The
        balance sheet as of June 27, 2007 has been derived from the audited consolidated
        financial statements at that date but does not include all of the information
        and footnotes required by accounting principles generally accepted in the
        United
        States of America for complete financial statements.
 
 These
        unaudited condensed consolidated financial statements should be read in
        conjunction with the consolidated financial statements and the related notes
        contained in the Company’s Form 10-K/A filed with the Securities and Exchange
        Commission on March 31, 2008.
 
 *Principles
        of Consolidation*
 
 The
        condensed consolidated financial statements include the accounts of the Company
        and its subsidiaries. All significant intercompany transactions have been
        eliminated in consolidation.
 
 *Fiscal
        Year*
 
 The
        Company’s fiscal year is comprised of 52 or 53 weeks divided into four fiscal
        quarters of twelve, twelve, sixteen, and twelve or thirteen weeks, respectively.
        The current fiscal year consists of 53 weeks and will end on July 2,
        2008.
 
 **2.
        Summary of Significant Accounting Policies**
 
 *Segment
        Reporting*
 
 The
        Company operates principally in the family dining segment in the United States,
        providing similar products to similar customers. The Company’s restaurants
        possess similar economic characteristics resulting in similar long-term expected
        financial results. Revenues are derived principally from food and nonalcoholic
        beverage sales. The Company does not rely on any major customers as a source
        of
        revenue. Management believes that the Company meets the criteria for aggregating
        its operations into a single reporting segment.
 
 *Goodwill
        and Other Intangible Assets*
 
 The
          Company tests the recoverability of goodwill and other intangible assets
          annually or whenever events or circumstances indicate that the carrying
          amount
          may not be recoverable. Goodwill and other intangible assets are deemed
          to be
          impaired if the fair value of a reporting unit is less than its carrying
          value.
          If goodwill or other intangible assets are determined to be impaired, the
          loss
          is measured as the amount by which the carrying amount of a reporting unit’s
          goodwill or other intangible assets exceeds its implied fair value. The
          fair
          value of a reporting unit is an estimate based on assumptions regarding
          its
          future cash flows. In the event that these assumptions change in the future,
          the
          Company may be required to record impairment charges related to its goodwill
          or
          other intangible assets. No impairment charges were recorded during the
          first
          twelve weeks of fiscal years 2007 and 2008.
  Goodwill
          increased from approximately $497.5 million as of June 27, 2007 to approximately
          $515.0 million as of September 19, 2007. The increase of $17.5 million
          is the
          result of additional goodwill from the Ryan's acquisition. In addition,
          other
          intangible assets decreased approximately $16.5 million, including a $16.3
          million reduction in trademarks and leasehold interests related to the
          Ryan's
          merger valuation and $0.2 million related to amortization of leasehold
          interests
          and recipes. See Note 7 - “Acquisitions” for further discussion regarding the
          goodwill and other intangible assets associated with this transaction.
  6
  *Derivative
        Instruments and Hedging Activities*
 
 The
        Company uses financial derivatives to manage interest rate risks in accordance
        with its Credit Agreement, as amended and restated on March 13, 2007. Use
        of the
        Company’s derivative instruments is currently limited to a single interest rate
        swap. This instrument is structured as an effective hedge of the variability
        of
        cash flows to be paid on a portion of the Company’s outstanding debt. The
        derivative is recognized on the accompanying condensed consolidated balance
        sheets at fair value. On the date the derivative contract was entered into,
        the
        Company documented the relationship between the hedging instrument and the
        hedged item, as well as its risk-management objective and strategy for
        undertaking the hedge transaction. This process included linking the derivative
        to a specific liability on the condensed consolidated balance sheets, as
        well as
        formally assessing, both at the hedge’s inception and on an ongoing basis,
        whether the derivative used in the hedging transaction is highly effective
        in
        offsetting changes in cash flows of the hedged item.
 
 Changes
          in the fair value of the derivative that is highly effective and designated
          as a
          cash flow hedge are recorded in other comprehensive income (loss) until
          earnings are affected by the variability in cash flows of the designated
          hedged
          item. See Note 6 — “Debt” for further discussion of the interest rate swap.
 
 *Use
        of Estimates*
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and the disclosure of contingent assets and liabilities at the
        date
        of the financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.
 
 **3.
        Recent Accounting Pronouncements**
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standard
        (“SFAS”) No. 157, *Fair
        Value Measurements* .
        This
        statement defines fair value, establishes a framework for using fair value
        to
        measure assets and liabilities, and expands disclosures about fair value
        measurements. The statement applies whenever other statements require or
        permit
        assets or liabilities to be measured at fair value. SFAS No. 157 is effective
        for fiscal years beginning after November 15, 2007, which is the Company’s
        fiscal year 2009. The Company does not expect this standard to have a
        material impact on its consolidated results of operations and financial
        condition.
 
 In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value*  *Option
        for Financial Assets and Liabilities* .
        This
        statement permits entities to choose to measure many financial instruments
        and
        certain other items at fair value. If the fair value option is elected,
        unrealized gains and losses will be recognized in earnings at each subsequent
        reporting date. SFAS No. 159 is effective for fiscal years beginning after
        November 15, 2007, which is the Company’s fiscal year 2009. The Company
        is currently evaluating the effect that the adoption of SFAS 159 will have
        on its consolidated results of operations and financial condition.
 
 **4.
        Property and Equipment**
 
 Property
        and equipment was as follows (in thousands):
 **June
                  27,**
                **2007**
              
              **September
                  19,**
                **2007**Land
              
              $
              16,829
              
              $
              20,362Buildings
              
              
              16,213
              
              
              14,838Equipment
              
              
              221,767
              
              
              227,623Leasehold
                  improvements
              
              
              157,150
              
              
              159,946Accumulated
                  depreciation and amortization
              
              
              (190,867
              )
              
              (200,638
              )$
              221,092
              
              $
              222,131
 
 As
        of
        September 19, 2007, the Land value above includes approximately $6.6 million
        in
        assets the Company intends to sell, but are not expected to be sold within
        the
        next twelve months.
 
 See
        Note
        7 – “Acquisitions” for discussion of the impact of the merger with Ryan’s on the
        Company’s property and equipment balances.
  7
  **5.
        Accrued Liabilities**
 
 Accrued
        liabilities consisted of the following (in thousands):
 
 **June
                  27,**
                **2007**
              
              **September
                  19,**
                **2007**Accrued
                  compensation
              
              $
              32,710
              
              $
              28,823Accrued
                  workers’ compensation
              
              
              21,427
              
              
              21,356Accrued
                  sales, use and property taxes
              
              
              16,856
              
              
              24,249Accrued
                  insurance
              
              
              17,350
              
              
              17,291Accrued
                  interest
              
              
              22,603
              
              
              11,367Accrued
                  litigation reserve
              
              
              9,926
              
              
              9,910Unearned
                  revenue (gift cards/certificates)
              
              
              4,290
              
              
              3,489Closed
                  restaurant reserve, current portion
              
              
              1,196
              
              
              914Accrued
                  percentage rent
              
              
              992
              
              
              1,397Accrued
                  other
              
              
              5,433
              
              
              5,175$
              132,783
              
              $
              123,971
 
 See
        Note
        7 – “Acquisitions” for further discussion of the impact of the merger with
        Ryan’s on the Company’s accrued liability balances.
  **6.
        Debt**
 
 As
        of
        September 19, 2007, debt outstanding was as follows (in thousands):
 
 Short-Term
                  borrowings consist of the following:Revolving
                  credit facility, interest at Prime plus 2.25%, due September 25,
                  2007
              
              $
              18,500Letter
                  of credit facility at 2.85% plus borrowings at LIBOR, due September
                  28,
                  2007 (interest at 8.09% as of September 19, 2007)
              
              
              15,000Current
                  maturities of long-term debt
              
              
              5,300Total
                  short-term borrowings
              
              $
              38,800Long-Term
                  borrowings consist of the following:Term
                  loan, interest at LIBOR plus 2.75%, due quarterly through March
                  31, 2013
                  with remaining balance due November 1, 2013 (interest rate at 7.99%
                  as of
                  September 19, 2007)
              
              
              527,350Senior
                  notes, interest at 12.50%, due November 1, 2014
              
              
              300,000827,350Less
                  — Current maturities of long-term debt
              
              
              (5,300
              )Total
                  long-term debt
              
              $
              822,050
 
 *Credit
        Facility*
 
 On
        November 1, 2006, Buffets secured a new $640.0 million senior secured credit
        facility (the “Credit Facility”) comprised of (i) a senior secured term loan
        facility in an aggregate principal amount of $530.0 million which matures
        on
        November 1, 2013 (the “Term Facility”), (ii) a senior secured revolving credit
        facility in an aggregate principal amount of up to $40.0 million which matures
        on November 1, 2011 (the “Revolving Facility”), of which up to $20.0 million is
        available through a sub facility in the form of letters of credit and (iii)
        a
        senior secured pre-funded synthetic letter of credit facility in an aggregate
        principal amount of $70.0 million which matures on May 1, 2013 (the “Synthetic
        Letter of Credit Facility”).
 
 Effective
        as of March 13, 2007 (the “Restatement Date”), the Company entered into an
        amendment to its Credit Facility. The amendment added a revolving loan feature
        to the Synthetic Letter of Credit Facility (cumulatively referred to as the
        “Synthetic Revolving Facility”), whereby the Company may secure letters of
        credit and/or revolving loans in an aggregate principal amount of $70 million.
        The amendment also relaxed the interest rate margins applicable to the Term
        Facility and Synthetic Revolving Facility, subject to a leverage-based pricing
        grid. In addition, the amendment added a repricing protection clause relating
        to
        the prepayment of term loans or synthetic revolving loans borrowed under
        the
        Credit Facility. The repricing protection provides that Buffets must pay
        a 1%
        prepayment premium on all such prepayments prior to March 13, 2008. No such
        prepayments have occurred as of September 19, 2007.
  8
  Borrowings
        under the Term Facility bear interest at an adjusted LIBOR rate plus a margin
        of
        either 2.50%, 2.75% or 3.00% in the case of Eurodollar borrowings and at
        a
        certain alternate base rate plus a margin of either 1.50%, 1.75% or 2.00%
        in the
        case of alternate base rate borrowings, depending on Buffets’ leverage ratio,
        and borrowings under the Revolving Facility bear interest at an adjusted
        LIBOR
        rate plus a margin of 3.25% or at an alternate base rate plus a margin of
        2.25%.
        Borrowings under the Synthetic Revolving Facility bear interest at an adjusted
        LIBOR rate plus a margin of 2.85%.
 
 The
          borrowings due under the Term Facility are payable in equal quarterly
          installments in an annual amount equal to 1% of the term loan during each
          of the
          first six and a half years of the loan, with the remaining balance payable
          due
          on November 1, 2013. The Revolving Facility and the Synthetic Revolving
          Facility
          are not subject to interim scheduled principal payments. The Credit Facility
          is
          fully and unconditionally guaranteed by Buffets Holdings, which has no
          independent assets or operations except for the capital stock of Buffets,
          and
          its existing and future domestic subsidiaries and is secured by substantially
          all of the Company’s assets. The Credit Facility contains customary restrictive
          covenants, including limitations on dividends on, and redemptions and
          repurchases of, capital stock, liens and sale leaseback transactions, loans
          and
          investments, the incurrence of additional indebtedness and mergers, acquisitions
          and asset sales. In addition, the Credit Facility contains financial covenants,
          which require that the Company maintains a minimum interest coverage ratio
          and a
          maximum leverage ratio. These financial covenants become increasingly
          restrictive over time. Specifically, on September 20, 2007, the Company’s
          leverage ratio requirement becomes more restrictive as the then current
          leverage
          ratio of 6.00 to 1.00 drops to 5.75 to 1.00. As of September 19, 2007,
          the
          Company was in compliance with all covenants and there were no events of
          default. The Credit Facility also contains customary events of default.
          Borrowing availability under the Credit Facility and its ability to issue
          letters of credit depends on there being no default or event of default
          under
          the Credit Facility and upon the Company’s continued compliance with the
          restrictive and financial covenants contained in the Credit Facility. As
          of the
          end of the first quarter of fiscal 2008 the Company’s actual leverage ratio was
          5.98 against a maximum leverage ratio of 6.00. The maximum leverage ratio
          drops
          to 5.75 at the next measurement date which is at the end of the Company’s second
          quarter of fiscal 2008. The Company continuously monitors compliance with
          the
          financial covenants in its Credit Facility and, as of September 19, 2007,
          was in
          compliance with these covenants. Depending on the Company's future results,
          the
          Company may breach these covenants at the end of its next fiscal quarter
          or in
          subsequent quarters. The Company has initiated discussions with the lenders
          under the Credit Facility to amend or waive the financial covenants. However,
          there are no assurances that the Company will be successful in obtaining
          amendments or waivers to the financial covenants on acceptable terms. Failure
          to
          obtain a waiver on acceptable terms could have a material adverse effect
          on the
          Company. If the Company were unsuccessful in obtaining a waiver of or an
          amendment to its financial covenants and an event of default were to occur
          under
          the Credit Facility, the lenders under the Credit Facility may be able
          to
          terminate any commitments they had made to supply the Company with further
          funds, including not permitting the Company to borrow under the existing
          revolving Credit Facility and not permitting the Company to issue letters
          of
          credit, which would adversely affect its liquidity. In addition, subject
          to
          certain cure periods, the occurrence of an event of default may allow the
          lenders to accelerate the repayment of amounts outstanding under the Credit
          Facility. Also, if the lenders were to accelerate indebtedness under the
          Company’s Credit Facility and such payment were not made, it would cause an
          event of default to occur under the indenture governing the Company’s 12 1⁄2%
          Senior Notes.
  On
        April
        12, 2007, the Company entered into an interest rate swap (“Swap”) agreement to
        manage its exposure on debt instruments to interest rate fluctuation. The
        Swap,
        which became effective May 31, 2007 and had a $32.0 million notional amount
        of
        indebtedness, was used to hedge a portion of the interest payments associated
        with the variable rate $530.0 million term loan by fixing the interest rate
        at
        5.10% (represents LIBOR on April 12, 2007 when the agreement was entered
        into).
        The swap agreement called for 90-day settlements beginning August 31, 2007.
        This
        instrument is structured as an effective hedge of the variability of cash
        flows
        to be paid on a portion of the Company’s outstanding debt. The derivative is
        recognized in the accompanying condensed consolidated balance sheets at fair
        value. On the date the derivative contract was entered into, the Company
        documented the relationship between the hedging instrument and the hedged
        item,
        as well as its risk-management objective and strategy for undertaking the
        hedge
        transaction. This process included linking the derivative to a specific
        liability on the condensed consolidated balance sheet, as well as formally
        assessing, both at the hedge’s inception and on an ongoing basis, whether the
        derivative used in the hedging transaction is highly effective in offsetting
        changes in cash flows of the hedged item. As of September 19, 2007, the Company
        recorded a loss on the swap of approximately $395,000,
        net of approximately $144,000 in tax benefit, to accumulated other comprehensive
        income (loss) and amortized $21,262 into earnings as an adjustment to interest
        expense, representing the realized portion of gains on the swap.
 
 As
        of
        September 19, 2007, Buffets had $53.1 million in outstanding letters of credit,
        which expire through August 30, 2008, and $15.0 million in outstanding loans
        under the Synthetic Revolving Facility. As of September 19, 2007, total letter
        of credit borrowing availability was $21.9 million, which is comprised of
        additional availability of $1.9 million under our Synthetic Revolving Facility
        and $20.0 million available through a sub facility to the Company’s Revolving
        Facility in the form of letters of credit.
 
 *12
        1/2% Senior Notes*
 
 On
        November 1, 2006, Buffets issued $300.0 million aggregate principal amount
        of
        its 12 1/2% senior notes. The issuance was consummated solely by means of
        a
        private placement either to qualified institutional buyers pursuant to Rule
        144A
        under the Securities Act of 1933, as amended (the “Securities Act”). Buffets
        filed a registration statement with the Securities and Exchange Commission
        to
        exchange its $300.0 million 12 1/2% Senior Notes due 2014 for notes registered
        under the Securities Act. The exchange offer was consummated on January 31,
        2007. The 12 1/2% Senior Notes mature on November 1, 2014. Buffets pays
        semi-annual interest on the 12 1/2% Senior Notes on January 1 and July
        1.
  9
 
 Buffets
        has the option to redeem all or a portion of the 12 1/2% Senior Notes on
        or
        after November 1, 2010 at fixed prices that decline over time. Buffets also
        has
        the option to redeem up to 35% of the aggregate principal amount of the 12
        1/2%
        Senior Notes on or prior to November 1, 2009 with the proceeds of one or
        more
        equity offerings at a redemption price of 112.50% of the principal amount
        of the
        12 1/2% Senior Notes, if at least 65% of the aggregate principal amount of
        the
        12 1/2% Senior Notes are outstanding after each such redemption and such
        redemption is made not more than 90 days after the consummation of certain
        equity offerings. Upon certain change of control and asset disposition events
        as
        described in the Indenture, Buffets may be required to redeem the 12 1/2%
        Senior
        Notes at a purchase price equal to 101% in the case of change of control
        events,
        or 100% in the case of asset disposition events, of the principal amount
        of the
        12 1/2% Senior Notes. The 12 1/2% Senior Notes are unsecured senior obligations
        of Buffets and are jointly and severally guaranteed on a senior unsecured
        basis
        by each of its current and future domestic subsidiaries and Buffets Holdings,
        which has no independent assets or operations except for the capital stock
        of
        Buffets. The Indenture contains customary covenants relating to restrictions
        on
        indebtedness, dividends on, and redemptions and repurchases of, capital stock,
        liens, loans and investments, debt and hedging arrangements, mergers,
        acquisitions and asset sales, transactions with affiliates an changes in
        business activities conducted by Buffets and certain subsidiaries. The Indenture
        also contains customary events of default. As of September 19, 2007, the
        Company
        was in compliance with all covenants and there were no events of
        default.
  **7.
        Acquisitions**
 
 *Ryan’s
        Restaurant Group, Inc.*
 
 On
          November 1, 2006, Buffets completed a merger with Ryan’s. As a result of the
          Merger, Ryan’s became a wholly-owned subsidiary of Buffets. The Merger was
          accounted for as a purchase business combination and for accounting purposes,
          Buffets was the acquiring enterprise. Accordingly, the results of Ryan’s
          operations are included in the Company’s results of operations for the twelve
          weeks ended September 19, 2007, but not for the twelve weeks ended September
          20,
          2006. The aggregate purchase price was approximately $165.4 million (net
          of cash
          acquired of $559.4 million), including approximately $18.1 million of
          capitalized acquisition related expenses. The excess of the purchase
          consideration plus acquisition costs over the fair value of assets acquired
          and
          liabilities assumed of approximately $205.1 million was allocated to goodwill.
          Substantially all the goodwill is not deductible for tax purposes. The
          Company
          is in the process of finalizing restructuring actions related to this
          acquisition, which may result in adjustment to the purchase price or incremental
          restructuring charges or both. In certain cases, the allocations of the
          excess
          purchase price are based upon preliminary estimates and assumptions.
          Accordingly, the allocations are subject to revision when the Company receives
          final information, including appraisals and other analyses. Revisions to
          the
          fair values, which may be significant, will be recorded by the Company
          as
          further adjustments to the purchase price allocations.
 
 The
        following table summarizes the allocation of the purchase price to the estimated
        fair market values of the assets acquired and liabilities assumed at the
        date of
        the acquisition:
 
 **November
                  1,**
                **2006****(in
                  thousands)**Cash
              
              $
              559,406Assets
                  held for sale
              
              
              46,869Deferred
                  tax assets
              
              
              —Other
                  current assets
              
              
              43,134Property,
                  plant & equipment
              
              
              100,063Goodwill
              
              
              205,124Other
                  intangible assets (1)
              
              
              66,735Other
                  assets
              
              
              3,749Total
                  assets acquired
              
              
              1,025,080Accounts
                  payable
              
              
              15,735Current
                  portion of long-term debt
              
              
              33,036Income
                  taxes payable
              
              
              15,109Accrued
                  liabilities
              
              
              70,529Deferred
                  tax liability
              
              
              52,011Long-term
                  debt
              
              
              111,964Other
                  long-term liabilities
              
              
              1,859Total
                  liabilities assumed
              
              
              300,243Net
                  assets acquired
              
              
              724,837Less
                  cash acquired
              
              
              559,406Net
                  cash paid
              
              $
              165,431
 
 (1)
              In
                  connection with the Merger, the Company acquired approximately
                  $63.4
                  million in trademarks, $2.5 million in recipes and $0.8 million
                  in
                  leasehold interests.
  10
  In
        connection with the Merger, the Company executed a headcount reduction
        initiative at the former corporate headquarters of Ryan’s and has closed 22 of
        the acquired restaurants. As a result, the Company recorded a liability for
        employee termination costs of $6.0 million. At September 19, 2007, the Company
        had notified 961 employees of the acquired entities of their impending
        termination. As of the end of the first quarter of fiscal 2008, 955 employees
        had actually been terminated and employee termination costs of $5.9 million
        had
        been paid. The remaining employee termination costs of approximately $0.1
        million are expected to be paid during the second quarter of fiscal 2008.
        Charges related to employee termination costs and the restaurant closures
        were
        charged to goodwill pursuant to EITF 95-3, *Recognition
        of Liabilities in*  *Connection
        with a Purchase Business Combination.* The
        Company is in the process of finalizing restructuring actions related to
        this
        acquisition, which may result in adjustments to the purchase price or
        incremental restructuring charges or both.
  The
        Company acquired certain properties which have been identified as “Assets Held
        for Sale” in the accompanying condensed consolidated balance sheet, pursuant to
        FASB Statement No. 144, *Accounting
        for the Impairment or Disposal of Long-Lived Assets* .
        The
        Company wrote down the carrying values of such assets to estimated net selling
        price as part of the purchase price allocation. Depreciation is no longer
        recorded on assets held for sale. Net selling price is estimated as the amount
        at which the asset could be bought or sold at fair value, less costs to sell.
        Fair value is determined at prevailing market conditions, appraisals or current
        estimated net sales proceeds from pending offers, if appropriate. The fair
        value
        of the Company’s assets held for sale primarily relates to land values. The
        Company expects to dispose of these assets within twelve months.
 
 The
        Company continually evaluates the assets in its portfolio in order to pursue
        an
        orderly disposition of its assets held for sale. There can be no assurance
        if or
        when sales will be completed or whether such sales will be completed on terms
        that will enable the Company to realize the full carrying value of such
        assets.
 
 The
        Company incurred approximately $30.6 million in acquisition and merger
        integration costs as of September 19, 2007. Acquisition costs of approximately
        $18.1 million are recorded as a component of the purchase price in the condensed
        consolidated balance sheets pursuant to FASB Statement No. 141, *Business
        Combinations* .
        Merger
        integration costs of approximately $12.5 million have been expensed as incurred
        since the date of acquisition, of which approximately $1.6 million were expensed
        in the first quarter of fiscal 2008 and are recorded in “Merger Integration
        Costs” in the accompanying condensed consolidated statements of
        operations.
 
 **8.
        Discontinued Operations**
 
 In
        June
        2007, the Company developed a plan to sell a substantial portion of the assets
        and related liabilities of its Tahoe Joe’s Famous Steakhouse® restaurants. The
        Company is actively marketing the restaurants and expects to complete the
        sale
        within the current fiscal year. In accordance with SFAS No. 144, *Accounting*  *for
        Impairment or Disposal of Long-Lived Assets,* the
        Company has reclassified those assets and related liabilities as held for
        sale
        and presented them as discontinued operations in the accompanying condensed
        consolidated balance sheets. In addition, certain financial results related
        to
        those assets and liabilities, including revenues, restaurant costs and related
        taxes, have been accounted for as discontinued operations in the accompanying
        condensed consolidated statements of operations for all periods
        presented.
 
 Revenues
        and certain results of operations for the Tahoe Joe’s restaurants include the
        following (in thousands):
  **Twelve
                  Weeks Ended**
                **September
                  20, 2006**
              
              **Twelve
                  Weeks Ended**
                **September
                  19, 2007**Revenue
              
              $
              7,372
              
              $
              8,172Income
                  from discontinued operations
              
              
              309
              
              
              37
  11
  The
        balance sheet information of discontinued operations includes the following
        (in
        thousands):
  **June
                  27,**
                **2007**
              
              **September
                  19,**
                **2007**Current
                  assets related to discontinued operations:Assets
                  held for sale
              
              $
              13,186
              
              $
              14,023Inventory
                  and prepaids
              
              
              931
              
              
              1,031Total
                  current assets
              
              $
              14,117
              
              $
              15,054Noncurrent
                  assets related to discontinued operations:Property
                  and equipment
              
              $
              —
              
              $
              —Liquor
                  licenses
              
              
              412
              
              
              493Total
                  noncurrent assets
              
              $
              412
              
              $
              493Current
                  liabilities related to discontinued operations:Gift
                  card liability
              
              $
              1,137
              
              $
              1,020
  **9.
        Income Taxes**
 
 The
        Company adopted the provisions of FASB Interpretation No. 48 (“FIN48”),
        Accounting for Uncertainty in Income Taxes, on June 28, 2007. As a result
        of the
        implementation of FIN48, the Company recognized a cumulative effect change
        on
        retained earnings of approximately $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 $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, $9.5 million represented interest
        and
        penalties. As of September 19, 2007, there was an adjustment to the liability
        for unrecognized income tax benefits in the amount of $0.9 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 in the accompanying condensed consolidated
        balance sheet as of September 19, 2007.
  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
 
 **10.
        Related-Party Transactions**
 
 In
        October 2000, the Company entered into a management agreement with an affiliate
        (the “Caxton-Iseman Party”) of Caxton-Iseman Investments L.P. Caxton-Iseman
        Investments L.P. is a majority shareholder of Buffets Restaurant Holdings,
        the
        parent company of Buffets Holdings, owning approximately 77.4% of the
        outstanding common stock. Under the management agreement, the Caxton-Iseman
        Party provides various advisory services to the Company in exchange for an
        annual advisory fee equal to 2% of the Company’s annual consolidated earnings
        before interest, taxes, depreciation and amortization. The Caxton-Iseman
        Party
        receives an additional fee for advisory services relating to particular
        financial transactions equal to 1% of the transaction value.
 
 On
        November 1, 2006, Buffets entered into the Second Amended and Restated
        Management and Fee Agreement (the “Management Agreement”) with the Caxton-Iseman
        Party. In accordance with the terms of the Management Agreement, upon the
        request of Buffets, the Caxton-Iseman Party is to provide certain acquisition
        and financial advisory services to Buffets.
 
 In
        consideration for the services to be provided by the Caxton-Iseman Party,
        Buffets agreed to pay the Caxton-Iseman Party (i) an annual fee equal to
        2% of
        Buffets’ EBITDA (as defined in the Management Agreement), (ii) a transaction
        fee, payable upon the completion by Buffets of any acquisition, of 2% of
        the
        sale price, (iii) a transaction fee, payable upon the completion of the sale
        of
        Buffets of 1% of the sale price, and (iv) a transaction fee, payable upon
        the
        completion of the sale by Buffets of any other divestitures, of 1% of the
        sale
        price. The annual fee payable in any year may not exceed the amounts permitted
        under the Company’s debt agreements, and the Caxton-Iseman Party is obligated to
        return any portion of the annual fee that has been prepaid if an event of
        default has occurred and is continuing under either the Company’s debt
        agreements. The Company prepaid the management fee in January 2007 for the
        calendar year. As of September 19, 2007, the Company had expensed approximately
        $665,000 of this prepaid management fee during the quarter.
  12
  In
        October 2000, the Company entered a management agreement with Sentinel Capital
        Partners, L.L.C., a minority shareholder of Buffets Restaurant Holdings owning
        approximately 7.0% of the outstanding common stock, under which Sentinel
        Capital
        Partners, L.L.C. provides various advisory services to the Company for an
        annual
        advisory fee of $200,000.
 
 Roe
        H.
        Hatlen, a founder of Buffets and a current member of the Board of Directors
        of
        Buffets and Buffets Holdings, entered into an advisory arrangement with Buffets
        Holdings on September 28, 2000 (the “Advisory Agreement”), that had an original
        term expiring in December 2005. On December 13, 2005, the Advisory Agreement
        was
        amended to extend the term through June 30, 2006 at an annual compensation
        of
        $200,000. The Advisory Agreement was further amended in July 2006 to extend
        the
        term through December 31, 2006 at the same annual compensation. The Company
        is
        currently paying Mr. Hatlen an annual fee of $200,000. In addition, Mr. Hatlen
        is entitled to (1) the use of certain company-provided facilities during
        the
        term of the agreement, (2) business expense (including auto expense)
        reimbursement arrangements during the term of the agreement, and (3) health,
        welfare, disability and life insurance benefits, on the same basis provided
        to
        senior executives of Buffets until December 31, 2010. All costs are recognized
        as incurred in “General and Administrative” expenses in the accompanying
        condensed consolidated statement of operations. Mr. Hatlen owns approximately
        6.0% of the outstanding common stock of Buffets Restaurant Holdings.
  **11.
        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 the
        bankruptcy filing, see Note 14 - “Subsequent Events.”
 
 On
        November 12, 2004, two former restaurant managers of the Company’s wholly-owned
        subsidiary, HomeTown Buffet, Inc. (“HomeTown Buffet”), individually and on
        behalf of all others similarly situated, filed a class action lawsuit against
        HomeTown Buffet in California Superior Court in San Francisco County. The
        lawsuit alleges that HomeTown Buffet violated California wage and hour laws
        by
        failing to pay all of its California managers and assistant managers overtime,
        and for making deductions from bonus compensation based on the company’s
        workers’ compensation costs. In March 2006, the plaintiffs amended the complaint
        in the lawsuit to add OCB Restaurant Company, LLC as a defendant, and to
        limit
        the claims to those managers below the level of restaurant General Manager.
        In
        April 2006, the defendants removed the lawsuit to the United States District
        Court for the Northern District of California. The plaintiffs seek compensatory
        damages, penalties, restitution of unpaid overtime and deductions, pre-judgment
        interest, costs of suit and reasonable attorneys’ fees. The complaint does not
        make a specific monetary demand.
 
 During
        the course of discovery, but prior to a motion for certification of a class,
        the
        parties reached a settlement of this action in mediation in late February
        2007.
        The settlement received preliminary court approval on September 12, 2007.
        While
        the Company is currently not able to predict the outcome of this action,
        the
        Company estimates that, should the court provide final approval of the
        settlement, the Company will pay approximately $7.2 million to resolve this
        matter. This amount has been recorded in the Company’s accrued litigation
        reserve and is included in “Accrued Liabilities” in the accompanying condensed
        consolidated balance sheets. Included in this amount is approximately $0.4
        million in attorney fees to be paid to the Company’s external counsel for
        services rendered through September 19, 2007 specifically related to negotiating
        the settlement.
 
 In
        June
        2006, a lawsuit was filed in the Berkeley County (West Virginia) circuit
        court
        on behalf of three plaintiffs alleging wage and hour violations similar to
        the
        Tennessee collective-action case discussed in the preceding paragraph. This
        case
        seeks class-action status, but pertains only to West Virginia employees who
        worked for Ryan’s during the five years ending July 2006. In July 2006,
        Defendants removed the lawsuit to the United States District Court for the
        Northern District of West Virginia. In February 2007, the Court denied
        Plaintiffs motion to remand the matter back to West Virginia state court.
        The
        plaintiffs seek compensatory damages, penalties, restitution of unpaid wages
        and
        deductions, pre-judgment interest, costs of suit and reasonable attorneys’ fees.
        The complaint does not make a specific monetary demand. This action is in
        a
        preliminary stage, and the Company is currently not able to predict the outcome
        of this action or reasonably estimate a range of possible loss. The Company
        is
        vigorously defending this action.
 
 The
        Company is 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 the Company’s consolidated
        financial position or the results of operations.
  13
 
 **12.
        Condensed Consolidating Financial Statements**
 
 The
        following condensed consolidating financial statements are presented pursuant
        to
        Rule 3-10 of Regulation S-X and give effect to the restatement discussed
        in Note
        13 - “Restatement.” 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.
  14
   **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
                )
                
                1,162,027COMMITMENTS
                    AND CONTINGENCIESSHAREHOLDER’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
                    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
  15
  **Condensed
        Consolidating Balance Sheet**
 **As
        of September 19, 2007**
  **Parent**
                  
                  **Subsidiary**
                    **Issuer**
                  
                  **Subsidiary**
                    **Guarantors**
                  
                  **Elimination**
                  
                  **Consolidated****ASSETS**
                  
                  **(Unaudited)**CURRENT
                      ASSETS:
                  
                  **(In
                      thousands)**Cash
                      and cash equivalents
                  
                  $
                  37
                  
                  $
                  6,438
                  
                  $
                  5,053
                  
                  $
                  —
                  
                  $
                  11,528Receivables
                  
                  
                  (6,586
                  )
                  
                  7,921
                  
                  
                  372,527
                  
                  
                  (365,877
                  )
                  
                  7,985Income
                      tax receivable
                  
                  
                  —
                  
                  
                  19,851
                  
                  
                  —
                  
                  
                  —
                  
                  
                  19,851Inventories
                  
                  
                  —
                  
                  
                  856
                  
                  
                  31,013
                  
                  
                  —
                  
                  
                  31,869Prepaid
                      expenses and other current assets
                  
                  
                  —
                  
                  
                  5,440
                  
                  
                  3,516
                  
                  
                  —
                  
                  
                  8,956Deferred
                      income taxes
                  
                  
                  —
                  
                  
                  1,514
                  
                  
                  1,486
                  
                  
                  —
                  
                  
                  3,000Assets
                      held for sale
                  
                  
                  —
                  
                  
                  —
                  
                  
                  19,944
                  
                  
                  —
                  
                  
                  19,944Current
                      assets related to discontinued operations
                  
                  
                  —
                  
                  
                  —
                  
                  
                  15,054
                  
                  
                  —
                  
                  
                  15,054Total
                      current assets
                  
                  
                  (6,549
                  )
                  
                  42,020
                  
                  
                  448,593
                  
                  
                  (365,877
                  )
                  
                  118,187PROPERTY
                      AND EQUIPMENT, net
                  
                  
                  —
                  
                  
                  7,721
                  
                  
                  214,410
                  
                  
                  —
                  
                  
                  222,131GOODWILL,
                      net
                  
                  
                  —
                  
                  
                  11,845
                  
                  
                  503,137
                  
                  
                  —
                  
                  
                  514,982OTHER
                      INTANGIBLE ASSETS
                  
                  
                  —
                  
                  
                  —
                  
                  
                  67,534
                  
                  
                  —
                  
                  
                  67,534INVESTMENT
                    IN SUBSIDIARIES
                  
                  
                  (199,573
                  )
                  
                  124,520
                  
                  
                  —
                  
                  
                  75,053
                  
                  
                  —OTHER
                      ASSETS, net
                  
                  
                  38
                  
                  
                  181,845
                  
                  
                  3,574
                  
                  
                  (149,800
                  )
                  
                  35,657NON-CURRENT
                      ASSETS RELATED TO DISCONTINUED OPERATIONS
                  
                  
                  —
                  
                  
                  —
                  
                  
                  493
                  
                  
                  —
                  
                  
                  493Total
                      assets
                  
                  $
                  (206,084
                  )
                  $
                  367,951
                  
                  $
                  1,237,741
                  
                  $
                  (440,624
                  )
                  $
                  958,984**LIABILITIES
                      AND SHAREHOLDER’S EQUITY (DEFICIT)**CURRENT
                      LIABILITIES:Accounts
                      payable
                  
                  $
                  —
                  
                  $
                  430,544
                  
                  $
                  11,555
                  
                  $
                  (365,877
                  )
                  $
                  76,222Accrued
                      liabilities
                  
                  
                  —
                  
                  
                  58,551
                  
                  
                  65,420
                  
                  
                  —
                  
                  
                  123,971Income
                      taxes payable
                  
                  
                  —
                  
                  
                  185
                  
                  
                  —
                  
                  
                  —
                  
                  
                  185Short
                      term debt
                  
                  
                  —
                  
                  
                  770
                  
                  
                  32,730
                  
                  
                  —
                  
                  
                  33,500Current
                      maturities of long-term debt
                  
                  
                  —
                  
                  
                  122
                  
                  
                  5,178
                  
                  
                  —
                  
                  
                  5,300Current
                      liabilities related to discontinued operations
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,020
                  
                  
                  —
                  
                  
                  1,020Total
                      current liabilities
                  
                  
                  —
                  
                  
                  490,172
                  
                  
                  115,903
                  
                  
                  (365,877
                  )
                  
                  240,198LONG-TERM
                      DEBT, net of current maturities
                  
                  
                  —
                  
                  
                  18,907
                  
                  
                  952,943
                  
                  
                  (149,800
                  )
                  
                  822,050DEFERRED
                      INCOME TAXES
                  
                  
                  —
                  
                  
                  26,765
                  
                  
                  —
                  
                  
                  —
                  
                  
                  26,765LONG-TERM
                      TAXES PAYABLE
                  
                  
                  —
                  
                  
                  26,478
                  
                  
                  —
                  
                  
                  —
                  
                  
                  26,478DEFERRED
                      LEASE OBLIGATIONS
                  
                  
                  —
                  
                  
                  2,410
                  
                  
                  38,601
                  
                  
                  —
                  
                  
                  41,011OTHER
                      LONG-TERM LIABILITIES
                  
                  
                  —
                  
                  
                  2,792
                  
                  
                  5,774
                  
                  
                  —
                  
                  
                  8,566Total
                      liabilities
                  
                  
                  —
                  
                  
                  567,524
                  
                  
                  1,113,221
                  
                  
                  (515,677
                  )
                  
                  1,165,068COMMITMENTS
                      AND CONTINGENCIESSHAREHOLDER’S
                      EQUITY (DEFICIT)Common
                      stock
                  
                  
                  31
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  31Additional
                      paid in capital
                  
                  
                  82
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  82Retained
                      earnings (accumulated deficit)
                  
                  
                  (206,018
                  )
                  
                  (199,394
                  )
                  
                  124,505
                  
                  
                  74,889
                  
                  
                  (206,018
                  )Accumulated
                      comprehensive income (loss)
                  
                  
                  (179
                  )
                  
                  (179
                  )
                  
                  15
                  
                  
                  164
                  
                  
                  (179
                  )Total
                      shareholder’s equity (deficit)
                  
                  
                  (206,084
                  )
                  
                  (199,573
                  )
                  
                  124,520
                  
                  
                  75,053
                  
                  
                  (206,084
                  )Total
                      liabilities and shareholder’s equity (deficit)
                  
                  $
                  (206,084
                  )
                  $
                  367,951
                  
                  $
                  1,237,741
                  
                  $
                  (440,624
                  )
                  $
                  958,984
  16
 
 **Condensed
        Consolidating Statement of Operations**
 **For
        the Twelve Weeks Ended September 20, 2006**
 **Parent**
                  
                  **Subsidiary**
                    **Issuer**
                  
                  **Subsidiary**
                    **Guarantors**
                  
                  **Eliminations**
                  
                  **Consolidated****(In
                      thousands)**RESTAURANT
                      SALES
                  
                  $
                  —
                  
                  $
                  10,493
                  
                  $
                  203,411
                  
                  $
                  —
                  
                  $
                  213,904RESTAURANT
                      COSTS:Food
                  
                  
                  —
                  
                  
                  3,761
                  
                  
                  70,329
                  
                  
                  —
                  
                  
                  74,090Labor
                  
                  
                  —
                  
                  
                  3,074
                  
                  
                  57,304
                  
                  
                  —
                  
                  
                  60,378Direct
                      and occupancy
                  
                  
                  —
                  
                  
                  1,491
                  
                  
                  50,381
                  
                  
                  —
                  
                  
                  51,872Total
                      restaurant costs
                  
                  
                  —
                  
                  
                  8,326
                  
                  
                  178,014
                  
                  
                  —
                  
                  
                  186,340ADVERTISING
                      EXPENSES
                  
                  
                  —
                  
                  
                  343
                  
                  
                  6,884
                  
                  
                  —
                  
                  
                  7,227GENERAL
                      AND ADMINISTRATIVE EXPENSES
                  
                  
                  1
                  
                  
                  461
                  
                  
                  8,804
                  
                  
                  —
                  
                  
                  9,266CLOSED
                      RESTAURANT COSTS
                  
                  
                  —
                  
                  
                  —
                  
                  
                  742
                  
                  
                  —
                  
                  
                  742MERGER
                      INTEGRATION COSTS
                  
                  
                  —
                  
                  
                  440
                  
                  
                  —
                  
                  
                  —
                  
                  
                  440OPERATING
                      INCOME (LOSS)
                  
                  
                  (1
                  )
                  
                  923
                  
                  
                  8,967
                  
                  
                  —
                  
                  
                  9,889INTEREST
                      EXPENSE
                  
                  
                  3,637
                  
                  
                  575
                  
                  
                  9,016
                  
                  
                  —
                  
                  
                  13,228INTEREST
                      INCOME
                  
                  
                  —
                  
                  
                  (28
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (28
                  )LOSS
                      RELATED TO REFINANCING
                  
                  
                  —
                  
                  
                  243
                  
                  
                  —
                  
                  
                  —
                  
                  
                  243OTHER
                      INCOME
                  
                  
                  —
                  
                  
                  (202
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (202
                  )INCOME
                      (LOSS) BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF
                      SUBSIDIARIES
                  
                  
                  (3,638
                  )
                  
                  335
                  
                  
                  (49
                  )
                  
                  —
                  
                  
                  (3,352
                  )INCOME
                      TAX EXPENSE (BENEFIT)
                  
                  
                  (1,996
                  )
                  
                  126
                  
                  
                  (33
                  )
                  
                  —
                  
                  
                  (1,903
                  )Net
                      income (loss) before equity in earnings of subsidiaries
                  
                  
                  (1,642
                  )
                  
                  209
                  
                  
                  (16
                  )
                  
                  —
                  
                  
                  (1,449
                  )Equity
                      in earnings of subsidiaries
                  
                  
                  502
                  
                  
                  293
                  
                  
                  —
                  
                  
                  (795
                  )
                  
                  —Net
                      income (loss) from continuing operations
                  
                  
                  (1,140
                  )
                  
                  502
                  
                  
                  (16
                  )
                  
                  (795
                  )
                  
                  (1,449
                  )Net
                      income from discontinued operations, net of tax
                  
                  
                  —
                  
                  
                  —
                  
                  
                  309
                  
                  
                  —
                  
                  
                  309Net
                      income (loss)
                  
                  $
                  (1,140
                  )
                  $
                  502
                  
                  $
                  293
                  
                  $
                  (795
                  )
                  $
                  (1,140
                  )
  17
 
 **Condensed
        Consolidating Statement of Operations**
 **For
        the Twelve Weeks Ended September 19, 2007**
 **Parent**
                  
                  **Subsidiary**
                    **Issuer**
                  
                  **Subsidiary**
                    **Guarantors**
                  
                  **Eliminations**
                  
                  **Consolidated****(Unaudited)****(In
                      thousands)**RESTAURANT
                      SALES
                  
                  $
                  —
                  
                  $
                  10,047
                  
                  $
                  366,492
                  
                  $
                  —
                  
                  $
                  376,539RESTAURANT
                      COSTS:Food
                  
                  
                  —
                  
                  
                  3,605
                  
                  
                  126,563
                  
                  
                  —
                  
                  
                  130,168Labor
                  
                  
                  —
                  
                  
                  2,934
                  
                  
                  108,213
                  
                  
                  —
                  
                  
                  111,147Direct
                      and occupancy
                  
                  
                  —
                  
                  
                  1,505
                  
                  
                  96,665
                  
                  
                  —
                  
                  
                  98,170Total
                      restaurant costs
                  
                  
                  —
                  
                  
                  8,044
                  
                  
                  331,441
                  
                  
                  —
                  
                  
                  339,485ADVERTISING
                      EXPENSES
                  
                  
                  —
                  
                  
                  258
                  
                  
                  9,609
                  
                  
                  —
                  
                  
                  9,867GENERAL
                      AND ADMINISTRATIVE EXPENSES
                  
                  
                  —
                  
                  
                  428
                  
                  
                  15,622
                  
                  
                  (152
                  )
                  
                  15,898CLOSED
                      RESTAURANT COSTS
                  
                  
                  —
                  
                  
                  —
                  
                  
                  69
                  
                  
                  —
                  
                  
                  69MERGER
                      INTEGRATION COSTS
                  
                  
                  —
                  
                  
                  789
                  
                  
                  844
                  
                  
                  —
                  
                  
                  1,633LOSS
                      ON LITIGATION SETTLEMENT
                  
                  
                  —
                  
                  
                  54
                  
                  
                  —
                  
                  
                  —
                  
                  
                  54OPERATING
                      INCOME (LOSS)
                  
                  
                  —
                  
                  
                  474
                  
                  
                  8,907
                  
                  
                  152
                  
                  
                  9,533INTEREST
                      EXPENSE
                  
                  
                  —
                  
                  
                  477
                  
                  
                  20,278
                  
                  
                  2
                  
                  
                  20,757INTEREST
                      INCOME
                  
                  
                  —
                  
                  
                  (159
                  )
                  
                  —
                  
                  
                  (2
                  )
                  
                  (161
                  )LOSS
                      RELATED TO REFINANCING
                  
                  
                  —
                  
                  
                  5
                  
                  
                  —
                  
                  
                  —
                  
                  
                  5OTHER
                      INCOME
                  
                  
                  —
                  
                  
                  (422
                  )
                  
                  —
                  
                  
                  152
                  
                  
                  (270
                  )INCOME
                      (LOSS) BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF
                      SUBSIDIARIES
                  
                  
                  —
                  
                  
                  573
                  
                  
                  (11,371
                  )
                  
                  —
                  
                  
                  (10,798
                  )INCOME
                      TAX EXPENSE (BENEFIT)
                  
                  
                  —
                  
                  
                  291
                  
                  
                  (5,276
                  )
                  
                  —
                  
                  
                  (4,985
                  )Net
                      income (loss) before equity in earnings of subsidiaries
                  
                  
                  —
                  
                  
                  282
                  
                  
                  (6,095
                  )
                  
                  —
                  
                  
                  (5,813
                  )Equity
                      in earnings of subsidiaries
                  
                  
                  (5,776
                  )
                  
                  (6,058
                  )
                  
                  —
                  
                  
                  11,834
                  
                  
                  —Net
                      income (loss) from continuing operations
                  
                  
                  (5,776
                  )
                  
                  (5,776
                  )
                  
                  (6,095
                  )
                  
                  11,834
                  
                  
                  (5,813
                  )Net
                      income from discontinued operations, net of tax
                  
                  
                  —
                  
                  
                  —
                  
                  
                  37
                  
                  
                  —
                  
                  
                  37Net
                      income (loss)
                  
                  $
                  (5,776
                  )
                  $
                  (5,776
                  )
                  $
                  (6,058
                  )
                  $
                  11,834
                  
                  $
                  (5,776
                  )
  18
 
 **Condensed
        Consolidating Statement of Cash Flows**
 **For
        the Twelve Weeks Ended September 20, 2006**
 **Parent**
                    
                    **Subsidiary**
                      **Issuer**
                    
                    **Subsidiary**
                      **Guarantors**
                    
                    **Eliminations**
                    
                    **Consolidated****(In
                        thousands)**OPERATING
                        ACTIVITIES:Net
                        income (loss)
                    
                    $
                    (1,140
                    )
                    $
                    502
                    
                    $
                    293
                    
                    $
                    (795
                    )
                    $
                    (1,140
                    )Adjustments
                        to reconcile net income (loss) to net cash used in operating
                        activities:Depreciation
                        and amortization
                    
                    
                    —
                    
                    
                    684
                    
                    
                    6,700
                    
                    
                    —
                    
                    
                    7,384Amortization
                        of debt issuance costs
                    
                    
                    94
                    
                    
                    19
                    
                    
                    300
                    
                    
                    —
                    
                    
                    413Accretion
                        of original issue discount
                    
                    
                    3,543
                    
                    
                    12
                    
                    
                    193
                    
                    
                    —
                    
                    
                    3,748Loss
                        on disposal of assets
                    
                    
                    —
                    
                    
                    —
                    
                    
                    249
                    
                    
                    —
                    
                    
                    249Equity
                        in earnings of subsidiaries
                    
                    
                    (502
                    )
                    
                    (293
                    )
                    
                    —
                    
                    
                    795
                    
                    
                    —Changes
                        in assets and liabilities:Receivables
                    
                    
                    —
                    
                    
                    9,205
                    
                    
                    (8,659
                    )
                    
                    (152
                    )
                    
                    394Inventories
                    
                    
                    —
                    
                    
                    1
                    
                    
                    171
                    
                    
                    —
                    
                    
                    172Prepaid
                        expenses and other current assets
                    
                    
                    1
                    
                    
                    1,195
                    
                    
                    (1,006
                    )
                    
                    —
                    
                    
                    190Accounts
                        payable
                    
                    
                    —
                    
                    
                    (5,211
                    )
                    
                    425
                    
                    
                    —
                    
                    
                    (4,786
                    )Accrued
                        and other liabilities
                    
                    
                    —
                    
                    
                    (5,829
                    )
                    
                    (506
                    )
                    
                    —
                    
                    
                    (6,335
                    )Income
                        taxes payable/refundable
                    
                    
                    (1,996
                    )
                    
                    (2,967
                    )
                    
                    —
                    
                    
                    —
                    
                    
                    (4,963
                    )Net
                        cash used in operating activities
                    
                    
                    —
                    
                    
                    (2,682
                    )
                    
                    (1,840
                    )
                    
                    (152
                    )
                    
                    (4,674
                    )INVESTING
                        ACTIVITIES:Acquisitions,
                        net of liabilities assumed and cash acquired
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (3,468
                    )
                    
                    —
                    
                    
                    (3,468
                    )Purchase
                        of property and equipment
                    
                    
                    —
                    
                    
                    (123
                    )
                    
                    (6,713
                    )
                    
                    —
                    
                    
                    (6,836
                    )Corporate
                        cash advances (payments)
                    
                    
                    —
                    
                    
                    (4,835
                    )
                    
                    4,683
                    
                    
                    152
                    
                    
                    —Collection
                        of notes receivable
                    
                    
                    —
                    
                    
                    697
                    
                    
                    —
                    
                    
                    —
                    
                    
                    697Proceeds
                        from sale (purchase) of other assets
                    
                    
                    —
                    
                    
                    (2,897
                    )
                    
                    (514
                    )
                    
                    —
                    
                    
                    (3,411
                    )Net
                        cash provided by (used in) investing activities
                    
                    
                    —
                    
                    
                    (7,158
                    )
                    
                    (6,012
                    )
                    
                    152
                    
                    
                    (13,018
                    )FINANCING
                        ACTIVITIES:Repayment
                        of debt
                    
                    
                    —
                    
                    
                    (28
                    )
                    
                    (438
                    )
                    
                    —
                    
                    
                    (466
                    )Proceeds
                        from revolving credit facility
                    
                    
                    —
                    
                    
                    360
                    
                    
                    5,640
                    
                    
                    —
                    
                    
                    6,000Net
                        cash provided by financing activities
                    
                    
                    —
                    
                    
                    332
                    
                    
                    5,202
                    
                    
                    —
                    
                    
                    5,534NET
                        CHANGE IN CASH AND CASH EQUIVALENTS
                    
                    
                    —
                    
                    
                    (9,508
                    )
                    
                    (2,650
                    )
                    
                    —
                    
                    
                    (12,158
                    )CASH
                        AND CASH EQUIVALENTS, beginning of period
                    
                    
                    37
                    
                    
                    14,068
                    
                    
                    6,089
                    
                    
                    —
                    
                    
                    20,194CASH
                        AND CASH EQUIVALENTS, end of period
                    
                    $
                    37
                    
                    $
                    4,560
                    
                    $
                    3,439
                    
                    $
                    —
                    
                    $
                    8,036
  19
 
 **Condensed
        Consolidating Statement of Cash Flows**
 **For
        the Twelve Weeks Ended September 19, 2007**
 **Parent**
                  
                  **Subsidiary**
                    **Issuer**
                  
                  **Subsidiary**
                    **Guarantors**
                  
                  **Eliminations**
                  
                  **Consolidated****(In
                      thousands)**OPERATING
                      ACTIVITIES:Net
                      income (loss)
                  
                  $
                  (5,739
                  )
                  $
                  (5,739
                  )
                  $
                  (6,058
                  )
                  $
                  11,760
                  
                  $
                  (5,776
                  )Adjustments
                      to reconcile net income (loss) to net cash used in operating
                      activities:Depreciation
                      and amortization
                  
                  
                  —
                  
                  
                  645
                  
                  
                  9,396
                  
                  
                  —
                  
                  
                  10,041Amortization
                      of debt issuance costs
                  
                  
                  —
                  
                  
                  27
                  
                  
                  1,153
                  
                  
                  —
                  
                  
                  1,180Loss
                      on disposal of assets
                  
                  
                  —
                  
                  
                  —
                  
                  
                  45
                  
                  
                  —
                  
                  
                  45Deferred
                      income taxes
                  
                  
                  —
                  
                  
                  (34
                  )
                  
                  (1,459
                  )
                  
                  —
                  
                  
                  (1,493
                  )Equity
                      in earnings of subsidiaries
                  
                  
                  5,739
                  
                  
                  6,021
                  
                  
                  —
                  
                  
                  (11,760
                  )
                  
                  —Changes
                      in assets and liabilities:Receivables
                  
                  
                  —
                  
                  
                  17,288
                  
                  
                  (15,052
                  )
                  
                  —
                  
                  
                  2,236Inventories
                  
                  
                  —
                  
                  
                  2
                  
                  
                  105
                  
                  
                  —
                  
                  
                  107Prepaid
                      expenses and other current assets
                  
                  
                  —
                  
                  
                  442
                  
                  
                  (1,332
                  )
                  
                  —
                  
                  
                  (890
                  )Due
                      from parent
                  
                  
                  6,274
                  
                  
                  (6,274
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —Accounts
                      payable
                  
                  
                  
                  
                  
                  (4,825
                  )
                  
                  1,061
                  
                  
                  
                  
                  
                  (3,764
                  )Accrued
                      and other liabilities
                  
                  
                  —
                  
                  
                  (12,329
                  )
                  
                  4,437
                  
                  
                  —
                  
                  
                  (7,892
                  )Income
                      taxes payable/refundable
                  
                  
                  (6,274
                  )
                  
                  2,961
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (3,313
                  )Net
                      cash used in operating activities
                  
                  
                  —
                  
                  
                  (1,815
                  )
                  
                  (7,704
                  )
                  
                  —
                  
                  
                  (9,519
                  )INVESTING
                      ACTIVITIES:Proceeds
                      from sale of assets held for sale
                  
                  
                  —
                  
                  
                  —
                  
                  
                  8,813
                  
                  
                  —
                  
                  
                  8,813Acquisitions,
                      net of liabilities assumed and cash acquired
                  
                  
                  
                  
                  
                  —
                  
                  
                  (1
                  )
                  
                  
                  
                  
                  (1
                  )Purchase
                      of property and equipment
                  
                  
                  —
                  
                  
                  (497
                  )
                  
                  (10,886
                  )
                  
                  —
                  
                  
                  (11,383
                  )Collection
                      of notes receivable
                  
                  
                  —
                  
                  
                  501
                  
                  
                  —
                  
                  
                  —
                  
                  
                  501Corporate
                      cash advances (payments)
                  
                  
                  —
                  
                  
                  9,786
                  
                  
                  (9,786
                  )
                  
                  —
                  
                  
                  —Proceeds
                      from sale of other assets
                  
                  
                  —
                  
                  
                  (126
                  )
                  
                  (559
                  )
                  
                  —
                  
                  
                  (685
                  )Net
                      cash provided by (used in) investing activities
                  
                  
                  —
                  
                  
                  9,664
                  
                  
                  (12,419
                  )
                  
                  —
                  
                  
                  (2,755
                  )FINANCING
                      ACTIVITIES:Payments
                      on new term loan funding
                  
                  
                  
                  
                  
                  (30
                  )
                  
                  (1,295
                  )
                  
                  
                  
                  
                  (1,325
                  )Proceeds
                      from new revolver facility
                  
                  
                  —
                  
                  
                  471
                  
                  
                  20,029
                  
                  
                  —
                  
                  
                  20,500Debt
                      issuance costs
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (15
                  )
                  
                  —
                  
                  
                  (15
                  )Net
                      cash provided by financing activities
                  
                  
                  —
                  
                  
                  441
                  
                  
                  18,719
                  
                  
                  —
                  
                  
                  19,160NET
                      CHANGE IN CASH AND CASH EQUIVALENTS RELATED TO DISCONTINUED
                      OPERATIONS
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (3
                  )
                  
                  —
                  
                  
                  (3
                  )NET
                      CHANGE IN CASH AND CASH EQUIVALENTS
                  
                  
                  —
                  
                  
                  8,290
                  
                  
                  (1,407
                  )
                  
                  —
                  
                  
                  6,883CASH
                      AND CASH EQUIVALENTS, beginning of period
                  
                  
                  37
                  
                  
                  (1,852
                  )
                  
                  6,460
                  
                  
                  —
                  
                  
                  4,645CASH
                      AND CASH EQUIVALENTS, end of period
                  
                  $
                  37
                  
                  $
                  6,438
                  
                  $
                  5,053
                  
                  $
                  —
                  
                  $
                  11,528
   20
 
 **13.
        Restatement**
 
 Subsequent
          to the issuance of the Company’s condensed consolidated financial statements for
          the period ended September 19, 2007, the Company identified certain tax
          accounting errors related to the merger with Ryan’s Restaurant Group, Inc. on
          November 1, 2006 (the “Merger”), as well as the Company’s deferred tax balances
          and related valuation allowance and the classification of income tax refund
          receivables. As a result, the Company has restated the accompanying condensed
          consolidated financial statements. The effects of the restatement are as
          follows:
  **Effects
          on Consolidated Balance Sheet as of June 27, 2007**
 
 **As
                      Previously****Reported**
                  
                  **As
                      Restated**Income
                      Tax Receivable
                  
                  $
                  —
                  
                  $
                  13,324Total
                      Current Assets
                  
                  
                  107,659
                  
                  
                  120,983Goodwill
                  
                  
                  502,046
                  
                  
                  497,492Total
                      Assets
                  
                  
                  952,299
                  
                  
                  961,069Income
                      Taxes Payable
                  
                  
                  3,147
                  
                  
                  24,336Total
                      Current Liabilities
                  
                  
                  237,782
                  
                  
                  258,971Total
                      Liabilities
                  
                  
                  1,140,838
                  
                  
                  1,162,027Accumulated
                      Deficit
                  
                  
                  (188,710
                  )
                  
                  (201,129
                  )Total
                      Shareholders’ Deficit
                  
                  
                  (188,539
                  )
                  
                  (200,958
                  )Total
                      Liabilities and Shareholders’ Deficit
                  
                  
                  952,299
                  
                  
                  961,069
  **Effects
          on Condensed Consolidated Balance Sheet as of September 19,
          2007**
 
 **As
                    Previously****Reported**
                
                **As
                    Restated**Goodwill
                
                $
                519,536
                
                $
                514,982Total
                    Assets
                
                
                963,538
                
                
                958,984Income
                    Taxes Payable
                
                
                1,019
                
                
                185Total
                  Current Liabilities
                
                
                241,032
                
                
                240,198Long-Term
                    Taxes Payable
                
                
                16,838
                
                
                26,478Total
                    Liabilities
                
                
                1,156,262
                
                
                1,165,068Accumulated
                    Deficit
                
                
                (192,658
                )
                
                (206,018
                )Total
                    Shareholders’ Deficit
                
                
                (192,724
                )
                
                (206,084
                )Total
                    Liabilities and Shareholders’ Deficit
                
                
                963,538
                
                
                958,984
 
 **Effects
          on Condensed Consolidated Statement of Operations for the twelve-week period
          ended September 19, 2007**
 
 **As
                  Previously****Reported**
              
              **As
                  Restated**Income
                  Tax Benefit
              
              $
              (5,412
              )
              $
              (4,985
              )Loss
                  from Continuing Operations
              
              
              (5,386
              )
              
              (5,813
              )Net
                  Loss
              
              
              (5,349
              )
              
              (5,776
              )
 
 **Effects
          on Condensed Consolidated Statement of Cash Flows for the twelve-week period
          ended September 19, 2007**
 
 **As
                  Previously****Reported**
              
              **As
                  Restated**Net
                  Loss
              
              $
              (5,349
              )
              $
              (5,776
              )Income
                  Taxes Payable
              
              
              (3,740
              )
              
              (3,313
              )
  Additionally,
            the Company’s management determined that it had not appropriately applied equity
            method accounting in the condensed consolidating financial statements
            presented
            in Note 12. Accordingly, the accompanying supplemental financial information
            for
            the Parent Company and Guarantor and Non-Guarantor subsidiaries presented
            in
            Note 12 has been restated.
  **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 on January 22,
        2008,
        the Company and each of its subsidiaries (collectively, 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
        Chapter 11 filing triggered the immediate acceleration of, and events of
        default
        to occur under, the 12 1/2% Senior Notes and the Credit Facility. However,
        the
        ability of the Company’s creditors to seek remedies to enforce their rights
        under these obligations is automatically stayed as a result of the Bankruptcy
        Cases and their rights to 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.
  21
  *Forbearance
        Agreement*
 
 On
        January 10, 2008, Buffets entered into a Forbearance Agreement and Second
        Amendment to the Credit Facility (the “Forbearance Agreement”) with its Credit
        Facility Lenders relating to the Company’s Credit Agreement, dated November 1,
        2006. The Forbearance Agreement provided that the Administrative Agent and
        the
        lenders party to the Credit Agreement would forbear from exercising their
        default-related rights and remedies with respect to certain, at that time
        anticipated, defaults under the Credit Agreement, 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. 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.
 
 *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.
 
 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 the provisions of 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 “Cases”). The petitions were filed in order
        to enable the Debtors to pursue reorganization efforts under Chapter 11 of
        the
        Bankruptcy Code. The Company remains in possession of its assets and will
        continue to operate its business and manage its property as a
        debtor-in-possession.
 
 *DIP
        Credit Agreement*
 
 In
        connection with their Chapter 11 filings, the Debtors entered into a $285
        million 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 $285 million
        DIP
        Credit Agreement consists of an $85 million new money facility and $200 million
        of borrowings under Buffets’ Credit Facility 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.
  22
 
 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 thereunder, as
        described in the DIP Credit Agreement.
 
 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
        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.
 
 The
        DIP
        Credit Agreement matures twelve months from January 22, 2008, provided that
        there will be 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, 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.
 
 *Interest
        Rate 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.
 
 *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.
  *Goodwill
            Impairment*
 
 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.
 *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 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 or 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 the Company’s ability to continue as a
                going concern. The accompanying 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 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.
 23
 
 **ITEM
        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND**  **RESULTS
        OF OPERATIONS**
  *The
          following management’s discussion and analysis gives effect to the restatements
          discussed in Note 13 to the condensed consolidated financial statements.
          You
          should read the following discussion in conjunction with our
          condensed*  *consolidated
          financial statements and related notes included elsewhere in
          this*  *report.
          Unless the context indicates or requires otherwise, (i) the
          term*  *“Buffets
          Holdings” refers to Buffets Holdings, Inc.; (ii) the term
“Buffets”*  *refers
          to Buffets, Inc., our principal operating subsidiary; (iii) the
          terms*  *“we,”
          “our,” “ours,” and the “Company” refer to Buffets Holdings, Inc. and
          its*  *subsidiaries.
          Some of the statements in the following discussion are*  *forward-looking
          statements. See “Forward-Looking Statements and Risk Factors” elsewhere in this
          filing.*  *Historical
          results will not be indicative of future results due to the*  *consummation
          of the merger transaction with Ryan’s Restaurant Group, Inc.*  *(“Ryan’s”)
          and the related refinancing of our indebtedness and Ryan’s*  *indebtedness.*
  **Overview**
 
 We
        are
        the nation’s largest steak-buffet restaurant chain by number of units and the
        second largest company in the family dining segment by sales volume. Our
        restaurants are principally operated under the names Ryan’s®, Fire
        Mountain®, Old Country Buffet® and HomeTown Buffet®. As of September 19,
        2007, we had 632 company-owned steak-buffet restaurants and seventeen franchised
        locations in 42 states.
 
 Restaurants
                  operating as of June 27, 2007
              
              
              632For
                  the twelve week period ended September 19, 2007:Restaurants
                  opened
              
              
              1Restaurants
                  closed
              
              
              (1
              )Restaurants
                  operating as of September 19, 2007
              
              
              632
 
 Buffets
        was founded in 1983 to develop buffet-style restaurants under the name Old
        Country Buffet®. In October 1985, Buffets completed its initial public offering
        and was listed on The NASDAQ National Market. In September 1996, Buffets
        merged
        with HomeTown Buffet, Inc., which was developed by one of Buffets’ co-founders.
        In October 2000, Buffets was acquired by Buffets Holdings, a company organized
        by investment funds affiliated with Caxton-Iseman Capital, LLC (“Caxton-Iseman
        Capital”), in a buyout from public shareholders. On November 1, 2006, Buffets
        merged (the “Merger”) with Ryan’s to create the nation’s largest steak-buffet
        restaurant chain by number of units and the second largest company in the
        family dining segment by sales volume.
 
 Our
        financial results are significantly impacted by changes in sales at our
        company-owned restaurants. Changes in sales are largely driven by changes
        in
        average weekly guest counts and average guest check. Average weekly guest
        counts
        are affected by changes in consumer confidence, competition, economic conditions
        and unusual weather patterns. We monitor average weekly guest counts very
        closely, as they directly impact our revenues and profits, and focus substantial
        efforts on growing these numbers on a same store basis. Same store average
        weekly sales and guest counts are affected by several factors including,
        our
        ability to consistently deliver a high-quality, value-priced selection of
        home-style cooked meals in a clean and pleasant self-service buffet format
        and
        the success of our marketing promotions and other business
        strategies.
 
 Our
        business model is characterized by a relatively fixed cost structure,
        particularly in the short term. Accordingly, changes in marginal average
        weekly
        sales volume can have a more significant impact on our profitability than
        for a
        business operating in a more variable cost structure. Over a longer time
        horizon, by virtue of our diversified food offerings, we are able to address
        the
        semi-fixed element of food cost by modifying our offerings or by highlighting
        other foods on the menu in order to reduce consumption of the higher cost
        items.
        In addition, on a weekly basis we monitor our labor costs and hourly employee
        productivity, as measured by the number of guests served per labor hour,
        to
        ensure that restaurants are responsive in scheduling and managing our labor
        to
        varying levels of guest traffic.
 
 Our
        fiscal year comprises 52 or 53 weeks divided into four fiscal quarters of
        twelve, twelve, sixteen and twelve or thirteen weeks, respectively. The current
        fiscal year is comprised of 53 weeks and will end on July 2, 2008.
  24
  The
        following is a description of the line items from our condensed consolidated
        statements of operations:
  ·
              We
                  recognize as restaurant sales the proceeds from the sale of food
                  and
                  beverages at our company-owned restaurants at the time of such
                  sale. We
                  recognize the proceeds from the sale of gift cards/certificates
                  when the
                  gift cards/certificates are redeemed at our restaurants. Until
                  redemption,
                  the unearned revenue from the sale of gift cards/certificates is
                  included
                  in “Accrued Liabilities” on our accompanying condensed consolidated
                  balance sheets. Our franchise income includes royalty fees and
                  initial
                  franchise fees received from our franchisee. We recognize royalty
                  fees as
                  other income based on the sales reported at the franchise
                  restaurants.
  ·
              Restaurant
                  costs reflect only direct restaurant operating costs, including
                  food,
                  labor and direct and occupancy costs. Food costs include the cost
                  of food
                  and nonalcoholic beverages consumed within the restaurants. Labor
                  costs
                  include compensation and benefits for both hourly and restaurant
                  management employees. Direct and occupancy costs consist primarily
                  of
                  costs of supplies, maintenance, utilities, rent, real estate taxes,
                  insurance, depreciation and
                  amortization.
 
 ·
              Advertising
                  expenses reflect all advertising and promotional costs including
                  media and
                  production costs.
 
 ·
              General
                  and administrative expenses reflect all costs, other than advertising
                  expenses, not directly related to the operation of restaurants.
                  These
                  expenses consist primarily of corporate administrative compensation
                  and
                  overhead, district and regional management compensation and related
                  expenses and the costs of recruiting, training and supervising
                  restaurant
                  management personnel.
 
 ·
              Closed
                  restaurant costs represent costs associated with store closure
                  of
                  underperforming restaurants, including, but not limited to lease
                  termination costs and obligations and employee termination
                  costs.
 
 ·
              Merger
                  integration costs represent professional fees and employee travel
                  and
                  expenses related to integration activities associated with the
                  Ryan’s and
                  North’s acquisitions.
 
 ·
              Loss
                  on litigation settlement represents the costs associated with the
                  settlement of a class action lawsuit against HomeTown Buffet, Inc.
                  and OCB
                  Restaurant Company, LLC.
 
 ·
              Interest
                  expense reflects interest costs associated with our debt and amortization
                  of debt issuance cost. Interest expense for the first quarter of
                  fiscal
                  2007 also reflects accretion of original issuance discount on our
                  11 1/4%
                  senior subordinated notes and 13 7/8 % senior discount notes, which
                  were
                  repurchased and/or redeemed on, or shortly after, November 1,
                  2006.
 
 ·
              Interest
                  income reflects interest earned on our short-term
                  investments.
 
 ·
              Loss
                  related to refinancing for the first quarter of fiscal 2007 represents
                  transaction costs associated with an amendment to Buffets’ previous credit
                  facility in September 2006. This credit facility was replaced with
                  Buffets’ current credit facility in conjunction with the Ryan’s merger on
                  November 1, 2006. Loss related to refinancing for the first quarter
                  of
                  fiscal 2008 represents transaction costs associated with an amendment
                  to
                  Buffets’ current credit facility in March
                  2007.
 
 ·
              Other
                  income primarily reflects franchise fees
                  earned.
 
 ·
              Income
                  tax benefit reflects the current and deferred tax benefit determined
                  in
                  accordance with the provisions of SFAS No. 109,*Accounting
                  for Income Taxes*.
 
 **Recent
        Developments**
 
 We
        have
        engaged Houlihan, Lokey, Howard & Zukin Capital to act as financial
        advisor to review the business plan and advise us with respect to our capital
        structure.
  25
  **Critical
        Accounting Policies**
 
 Our
        condensed consolidated financial statements have been prepared in accordance
        with accounting principles generally accepted in the United States of America.
        The preparation of our condensed consolidated financial statements requires
        management to make estimates and assumptions that affect the reported amount
        of
        assets and liabilities, the disclosure of contingent assets and liabilities
        at
        the date of the financial statements and the reported amounts of revenues
        and
        expenses during the reporting period. On an ongoing basis, management evaluates
        its estimates and assumptions, including those related to recoverability
        of
        long-lived assets, goodwill, self-insurance reserves and income taxes.
        Management bases its estimates and assumptions on historical experience and
        on
        various other factors. Actual results may differ from these estimates and
        assumptions under different circumstances or conditions.
 
 We
        believe the following critical accounting policies affect management’s
        significant estimates and assumptions used in the preparation of our condensed
        consolidated financial statements.
 
 *Long-Lived
        Assets*
 
 We
        test
        property and equipment for impairment annually or whenever events or
        circumstances indicate that the carrying amount of a restaurant’s assets may not
        be recoverable. We test for impairment using historical cash flows and other
        relevant facts and circumstances as the primary basis for its estimates of
        future cash flows. Assets are grouped and evaluated for impairment at the
        lowest
        level for which there are identifiable cash flows, namely as individual
        restaurants. A restaurant is deemed to be impaired if a forecast of undiscounted
        future operating cash flows, including disposal value, if any, is less than
        its
        carrying amount.
 
 If
        a
        restaurant is determined to be impaired, the loss is measured as the amount
        by
        which the carrying amount of the restaurant exceeds its fair value. Fair
        value
        is based on quoted market prices in active markets, if available. If quoted
        market prices are not available, we generally measure fair value by discounting
        estimated future cash flows. This process requires the use of estimates and
        assumptions, which are subject to a high degree of judgment. Accordingly,
        actual
        results could vary significantly from such estimates.
 
 No
        impairment charges were recorded in the first twelve weeks of fiscal years
        2007
        and 2008.
 
 *Goodwill
        and Other Intangible Assets*
 
 The
        Company tests the recoverability of goodwill and other intangible assets
        annually or whenever events or circumstances indicate that the carrying amount
        may not be recoverable. Goodwill and other intangible assets are deemed to
        be
        impaired if the fair value of a reporting unit is less than its carrying
        value.
        If goodwill or other intangible assets are determined to be impaired, the
        loss
        is measured as the amount by which the carrying amounts of a reporting unit’s
        goodwill or other intangible assets exceeds their implied fair value. The
        fair
        value of a reporting unit is an estimate based on assumptions regarding its
        future cash flows. In the event that these assumptions change in the future,
        the
        Company may be required to record impairment charges related to its goodwill
        or
        other intangible assets. No impairment charges were recorded in the first
        twelve
        weeks of fiscal years 2007 and 2008.
 
 *Insurance
        Reserves*
 
 We
        carry
        insurance reserves for exposure related to our workers compensation, general
        liability, medical and dental and vision programs. We effectively self-insure
        a
        significant portion of certain risks through the use of large self-insured
        retentions combined with stop-loss coverage, or by maintaining large deductibles
        on traditional policies of insurance. The liability represents an estimate
        of
        the ultimate cost of claims incurred and unpaid as of the balance sheet date,
        including both reported claims and claims that have been incurred but not
        reported. The estimated liability is established based upon historical claims
        data and third-party actuarial estimates of settlement costs for incurred
        claims. Our estimates include our judgments and independent actuarial
        assumptions regarding economic conditions, the frequency and severity of
        claims
        and claim development patterns and settlement practices. These estimates
        and
        assumptions are monitored and adjusted when warranted by changing circumstances.
        Changes in these factors may produce materially different amounts of expense
        and
        liabilities that would be reported under these insurance programs.
  26
  *Closed
        Restaurant Reserve*
 
 We
        maintain a closed restaurant reserve for certain restaurants that are no
        longer
        operating. The closed restaurant costs are principally comprised of our
        estimates of lease termination costs and obligations, net of sublease and
        other
        cash receipts, and employee termination costs. Many factors including the
        local
        business environment, other available lease sites, the ability to secure
        subleases, the creditworthiness of subtenants, and our success at negotiating
        early termination agreements with lessors are considered in establishing
        the
        accruals. Adjustments to the reserve primarily relate to changes in subtenant
        income or actual exit costs differing from original estimates. Adjustments
        are
        made for changes in estimates in the period in which the changes become known.
        The store closing reserve (current and noncurrent in aggregate) was $1.7
        million
        and $1.1 million as of June 27, 2007 and September 19, 2007,
        respectively.
 
 *Income
        Taxes*
 
 We
        estimate certain components of our provision for income taxes. These estimates
        include, among other items, depreciation and amortization expense allowable
        for
        tax purposes, allowable tax credits for items such as the Working Opportunity
        Tax Credit and taxes paid on reported employee tip income, effective rates
        for
        state and local taxes, and the tax deductibility of certain other items.
        Our
        estimates are based on current tax laws, the best available information at
        the
        time of the provision and historical experience. Income tax returns are subject
        to audit by federal, state, and local governments, generally years after
        the
        returns are filed. These returns could be subject to material adjustments
        or
        differing interpretations of the tax laws.
 
 Deferred
        tax assets and liabilities are recognized for the expected future tax
        consequences of temporary differences between financial reporting amounts
        and
        the tax basis of existing assets and liabilities based on currently enacted
        tax
        laws and tax rates in effect for the periods in which the differences are
        expected to reverse. Income tax (benefit) expense is the tax payable/receivable
        for the year, plus or minus the change during the year in deferred income
        taxes.
        Valuation allowances are established when necessary to reduce deferred tax
        assets to the amount expected to be realized.
 
 *Gift
        Cards and Gift Certificates*
  We
        sell
        plastic gift cards and paper gift certificates to our customers. Proceeds
        from
        the sale of gift cards/certificates are initially recorded as a liability
        when
        received. Revenues from the sale of gift cards at our restaurants are recognized
        upon redemption. In estimating the related gift card/certificate liability,
        we
        analyze historical trends to derive our estimates of future gift
        card/certificate redemption patterns. The assumptions and activity are closely
        monitored for changes in escheatment laws and redemption patterns. We adjust
        our
        gift card/certificate liability based on historical and expected non-redemption
        trends. These adjustments are classified within “Direct and Occupancy Costs” in
        our accompanying condensed consolidated statements of operations. Our gift
        card/certificate liability was $5.4 million and $4.5 million as of June 27,
        2007
        and September 19, 2007, respectively, of which approximately $1.1 million
        and
        $1.0 million, respectively, was related to the Tahoe Joe’s restaurants, and is
        classified as discontinued operations in the accompanying condensed consolidated
        balance sheets.
 
 *Share
        Based Compensation*
 
 We
        are a
        nonpublic entity, as defined by SFAS No. 123(R), *Share-Based
        Payment* , which
        requires the measurement and recognition of compensation expense for all
        share-based payment awards made to employees and directors, including employee
        stock options based on estimated fair value on the grant date.
 
 The
        requirements of SFAS 123(R) apply prospectively to new awards and to awards
        modified, repurchased, or cancelled after the required effective date, which
        was
        June 29, 2006, the first day of fiscal year 2007. We are required to continue
        to
        account for any portion of awards outstanding as of this date using the
        accounting principles originally applied to those awards. As such, we will
        continue to account for those awards outstanding as of the adoption date
        using
        the intrinsic value method pursuant to the requirements of APB 25. Subsequent
        grants and existing awards that are modified, repurchased, or cancelled after
        the adoption date will be accounted for pursuant to the requirements of SFAS
        123(R).
  27
  For
        purposes of determining the estimated fair value of share-based payment awards
        on the date of grant under SFAS 123(R), we use the Black-Scholes option-pricing
        model (“Black-Scholes Model”). The Black-Scholes Model requires the input of
        certain assumptions that involve judgment. Because our employee stock options
        have characteristics significantly different from those of traded options,
        and
        because changes in the input assumptions can materially affect the fair value
        estimates, the available option pricing models may not provide a reliable
        single
        measure of the fair value of our employee stock options. We are unable to
        reasonably estimate the fair value of our equity awards and similar instruments
        because it is not practicable for us to estimate the expected volatility
        of its
        share price. Therefore, we calculate volatility using the historical volatility
        of publicly traded companies within the family dining segment of the restaurant
        industry in order to determine the estimated fair value of our equity awards.
        SFAS 123(R) refers to this method as the calculated value method of estimating
        fair value.
 
 There
        was
        no financial statement impact associated with the adoption of SFAS 123(R)
        and we
        did not recognize or record any share-based compensation for twelve week
        periods
        ended September 20, 2006 and September 19, 2007.
 
 *Lease
        Accounting*
 
 We
        are
        obligated under various lease agreements for certain restaurants. We recognize
        rent expense on a straight-line basis over the expected lease term. Within
        the
        provisions of certain of our leases, there are rent holidays and/or escalations
        in payments over the base lease term, as well as renewal periods. The effects
        of
        the holidays and escalations have been reflected in rent expense on a
        straight-line basis over the expected lease term, which includes cancellable
        option periods when failure to exercise such options would result in an economic
        penalty to the Company. The lease term commences on the date when we have
        the
        right to control the use of the leased property, which is typically before
        rent
        payments are due under the terms of the lease. The condensed consolidated
        financial statements reflect the same lease term for amortizing leasehold
        improvements as we use to determine capital versus operating lease
        classifications and in calculating straight-line rent expense for each
        restaurant. Percentage rent expense is generally based upon sales levels
        and is
        accrued when we determine that it is probable that such sales levels will
        be
        achieved. Our judgments related to the probable term for each restaurant
        affect
        the classification and accounting for leases as capital versus operating,
        the
        rent holidays and escalation in payments that are included in the calculation
        of
        straight-line rent and the term over which leasehold improvements for each
        restaurant facility are amortized. These judgments may produce materially
        different amounts of depreciation, amortization and rent expense than would
        be
        reported if different assumptions were used.
 
 *Merger
        Integration Costs*
 
 Merger
        integration costs represent professional fees, performance bonuses and employee
        travel and expenses related to integration activities associated with the
        Ryan’s
        and North’s acquisitions. Merger integration costs of approximately $12.5
        million have been expensed as incurred since November 1, 2006, of which
        approximately $1.6 million were expensed in the first quarter of fiscal 2008
        are
        recorded in “Merger Integration Costs” in the accompanying condensed
        consolidated statements of operations.
  28
  **Results
        of Operations**
 
 *The
        following discussion reflects our historical results for the
        twelve-week*  *periods
        ended September 20, 2006 and September 19, 2007. Our operating results
        include*  *the
        impact of Ryan’s operations and the impact of the related refinancing
        of*  *our
        indebtedness and Ryan’s indebtedness for the entire twelve week
        period*  *ended
        September 19, 2007, but exclude the impact of Ryan’s operations and
        related*  *refinancing
        for the twelve weeks ended September 20, 2006. Our future results
        may*  *not
        be consistent with our historical results. The following discussion
        should*  *be
        read in conjunction with our condensed consolidated financial statements
        and*  *related
        notes included elsewhere in this report.*
 **Twelve
                  Weeks Ended****September
                  20,**
                **2006**
              
              **September
                  19,**
                **2007****(dollars
                  in thousands)****Significant
                  items that impacted results of operations:**Closed
                  restaurant costs (1)
              
              $
              742
              
              
              69Merger
                  integration costs (2)
              
              
              440
              
              
              1,633
 
 (1)
              Closed
                  restaurant costs were $0.7 million during the first quarter of
                  fiscal 2007
                  as compared to $0.1 million for the first quarter of fiscal 2008.
                  The
                  decrease was due in large part to the closure of three under performing
                  restaurants in the first twelve weeks of fiscal 2007 compared with
                  one
                  store closure in the first twelve weeks of fiscal 2008. In fiscal
                  2007, we
                  incurred cash charges related to these closures of approximately
                  $0.9
                  million. These charges included approximately $0.7 million related
                  to
                  lease termination costs and obligations, $0.1 million related to
                  employee
                  termination costs and $0.1 million related to other associated
                  costs. In
                  fiscal 2008, we closed one Ryan’s® restaurant acquired in the merger.
                  Charges related to that closure were charged to goodwill pursuant
                  to EITF
                  95-3,*Recognition
                  of Liabilities in connection with a Purchase Business
                  Combination.*The $0.1 million recognized in the statement of operations relates
                  to
                  changes in reserve estimates related to previously closed stores,
                  terminations of sublease agreements and other related costs. See
                  Note 7 -
                  “Acquisitions” to our accompanying condensed consolidated financial
                  statements for further discussion of our merger with
                  Ryan’s.
 
 (2)
              Merger
                  integration costs represent professional fees and employee travel
                  and
                  expenses related to integration activities associated with the
                  Ryan’s and
                  North’s acquisitions.
  29
  **Twelve
        weeks ended September 19, 2007 compared to twelve weeks ended September 20,
        2006:**
 
 The
        following table sets forth our results of operations based on the percentage
        relationship of the items listed to our restaurant sales during the periods
        shown:
 **Twelve
                    Weeks Ended****September
                    20, 2006**
                
                **September
                    19, 2007****(dollars
                    in thousands)**Restaurant
                    sales
                
                $
                213,904
                
                
                100.0
                %
                $
                376,539
                
                
                100.0
                %Restaurant
                    costs:Food
                
                
                74,090
                
                
                34.6
                
                
                130,168
                
                
                34.6Labor
                
                
                60,378
                
                
                28.2
                
                
                111,147
                
                
                29.5Direct
                    and occupancy
                
                
                51,872
                
                
                24.3
                
                
                98,170
                
                
                26.1Total
                    restaurant costs
                
                
                186,340
                
                
                87.1
                
                
                339,485
                
                
                90.2Advertising
                    expenses
                
                
                7,227
                
                
                3.4
                
                
                9,867
                
                
                2.6General
                    and administrative expenses
                
                
                9,266
                
                
                4.3
                
                
                15,898
                
                
                4.2Closed
                    restaurant costs
                
                
                742
                
                
                0.3
                
                
                69
                
                
                0.0Merger
                    integration costs
                
                
                440
                
                
                0.2
                
                
                1,633
                
                
                0.4Loss
                    on litigation settlement
                
                
                —
                
                
                —
                
                
                54
                
                
                0.0Operating
                    income
                
                
                9,889
                
                
                4.6
                
                
                9,533
                
                
                2.5Interest
                    expense
                
                
                13,228
                
                
                6.2
                
                
                20,757
                
                
                5.5Interest
                    income
                
                
                (28
                )
                
                (0.0
                )
                
                (161
                )
                
                (0.0
                )Loss
                    related to refinancing
                
                
                243
                
                
                0.1
                
                
                5
                
                
                0.0Other
                    income
                
                
                (202
                )
                
                (0.1
                )
                
                (270
                )
                
                (0.1
                )Loss
                    before income taxes
                
                
                (3,352
                )
                
                (1.6
                )
                
                (10,798
                )
                
                (2.9
                )Income
                    tax benefit
                
                
                (1,903
                )
                
                (0.9
                )
                
                (4,985
                )
                
                (1.3
                )Net
                    loss from continuing operations
                
                
                (1,449
                )
                
                (0.7
                )
                
                (5,813
                )
                
                (1.5
                )Net
                    income from discontinued operations, net of tax
                
                
                309
                
                
                0.1
                
                
                37
                
                
                0.0Net
                    loss
                
                $
                (1,140
                )
                
                (0.5
                )
                $
                (5,776
                )
                
                (1.5
                )
 
 *Certain
        percentage amounts do not sum to total due to rounding.*
 
 *Restaurant
        Sales.* Restaurant sales increased $162.6 million, or 76.0%, during the twelve weeks
        ended September 19, 2007 over the comparable prior year period, primarily
        due to
        the merger with Ryan’s. Excluding Ryan’s restaurant sales, restaurant sales
        decreased $1.2 million, or 0.6%, during the first quarter of fiscal
        2008.
 
 Average
        weekly sales for the first quarter of fiscal 2008 for the Buffets brand
        restaurants, which include the Old Country Buffet® and HomeTown Buffet® brands,
        increased approximately 0.7% to $54,627 as compared to the comparable prior
        year
        period. Same store sales for the first quarter of fiscal 2008 decreased by
        0.2%
        for the Buffets brand restaurants as compared to the prior year. This decrease
        was primarily attributable to a 3.0% decline in guest traffic, partially
        offset
        by a 2.8% increase in average check. Average weekly sales for the first quarter
        of fiscal 2008 for the Ryan’s brand restaurants, which include the Ryan’s® and
        Fire Mountain® brands, decreased by 1.1% to $44,348 as compared to the
        comparable prior year period. Same store sales for the first quarter decreased
        by 4.0% for the Ryan’s brand restaurants as compared to the prior year. This
        decrease was primarily attributable to a 6.2% decline in guest traffic,
        partially offset by a 2.2% increase in average check. Same store sales
        calculations reflect those restaurants that have been in operation for at
        least
        eighteen operating periods.
 
 *Restaurant
        Costs.* Restaurant costs for the first quarter of fiscal 2008 increased $153.1 million,
        or 82.2%, over the comparable prior year period, primarily due to the merger
        with Ryan’s. Restaurant costs as a percentage of sales increased by 310 basis
        points compared with the comparable prior year period. Excluding the restaurants
        acquired in the merger with Ryan’s, restaurant costs increased 60 basis points
        as a percentage of sales for the first quarter of fiscal 2008 compared with
        the
        prior year period.
  30
  Total
        food costs increased $56.1 million, or 75.7%, during the twelve weeks ended
        September 19, 2007 over the comparable prior year period, primarily due to
        the
        merger with Ryan’s. Food costs for the Ryan’s brand restaurants, as a percentage
        of sales, are consistent with our existing Buffets brand restaurants. Food
        costs
        were flat as a percentage of sales during the first quarter of fiscal 2008
        as
        compared to the prior year period. The increase in food costs due to increases
        in certain commodities such as chicken and dairy products were offset by
        synergies realized in connection with the Ryan’s merger.
 
 Labor
        costs increased $50.8 million, or 84.1%, during the twelve weeks ended September
        19, 2007 over the comparable prior year period, primarily due to the merger
        with
        Ryan’s. Labor costs increased 130 basis points as a percentage of sales during
        the first quarter of fiscal 2008 as compared to the prior year period, primarily
        due to a higher labor complement in the Ryan’s system than our historical
        average labor complement. Excluding the restaurants acquired in the Ryan’s
        merger, labor costs increased 40 basis points as a percentage of sales,
        primarily due to wage inflation as a result of minimum wage increases in
        several
        states effective January 1, 2007, federal minimum wage increases effective
        July
        24, 2007 and other modest wage increases.
 
 Direct
        and occupancy costs increased $46.3 million, or 89.3%, during the twelve
        weeks
        ended September 19, 2007 over the comparable prior year period, primarily
        due to
        the merger with Ryan’s. Direct and occupancy costs increased by 180 basis points
        as a percentage of sales primarily due to higher direct and occupancy costs
        as a
        percentage of sales in the Ryan’s system than our historical average. Excluding
        the restaurants acquired in the merger with Ryan’s, direct and occupancy costs
        were flat as a percentage of sales for the first quarter of fiscal 2008 compared
        to the prior year period.
 
 *Advertising
        Expenses.* Advertising costs increased $2.6 million during the first quarter of fiscal
        2008
        versus the comparable quarter in the prior year, but decreased 80 basis points
        as a percentage of sales. Historically, Ryan’s did not incur significant media
        advertising expenditures so the inclusion of Ryan’s sales with little
        advertising spend significantly improved the sales leverage of this cost
        category. We intend to continue to test electronic media advertising and
        direct
        mail advertising at Ryan’s and, if successful, expect to expand our advertising
        plan to include Ryan’s going forward.
 
 *General
        and Administrative Expenses.* General
        and administrative expenses increased $6.6 million, or 71.6%, during the
        twelve
        weeks ended September 19, 2007, primarily due to the merger with Ryan’s. General
        and administrative expenses decreased 10 basis points as a percentage of
        sales
        during the first quarter of fiscal 2008 as compared to the comparable period
        in
        the prior year, due to cost synergies realized in connection with the Ryan’s
        merger, partially offset by tightened sales leverage resulting from the
        fixed-cost nature of these costs over a declining sales base.
 
 *Interest
        Expense.* Interest
        expense increased $7.5 million during the first quarter of fiscal 2008 versus
        the comparable prior year period primarily due to the significant increase
        in
        our long-term debt balances as the result of our debt refinancing on November
        1,
        2006. Interest expense decreased 70 basis points as a percentage of sales
        for
        the first quarter of fiscal 2008 versus the comparable prior year period
        due to
        the larger sales base from the acquired restaurants.
 
 *Income
        Taxes.* Income
        tax benefit increased 40 basis points as a percentage of sales for the twelve
        weeks ended September 19, 2007 versus the comparable period in the prior
        year,
        principally due to a $6.2 million reduction in our deferred tax valuation
        allowance related to Ryan’s. This adjustment is due to provision-to-return
        differences reflecting higher deductions in Ryan’s November 1, 2006 stub period
        tax return than initially expected, primarily related to changes
        in tax accounting methods. The adjustment to the valuation allowance is
        recorded in “Income tax benefit” in the accompanying condensed consolidated
        statements of operations, whereas the adjustment to the underlying deferred
        tax
        asset balances is recorded in “Goodwill” in the accompanying condensed
        consolidated balance sheets. The adjustment to the valuation allowance has
        been
        partially offset by a reduction in our projected effective rate for fiscal
        2008
        and an adjustment of $1.0 million to accrue quarterly interest on tax reserve
        items.
 
 Excluding
        the $6.2 million of adjustments above and the impact of presenting Tahoe
        Joe’s tax provision within discontinued operations, our projected effective rate
        for fiscal 2008 is approximately (2.3)%.  The difference between this
        rate and the statutory rate is due to the projected increase in our valuation
        allowance to offset the tax benefits from our projected loss before income
        taxes. As a result, this rate primarily reflects projected state income tax
        expense for fiscal 2008.
 
 **Liquidity
        and Capital Resources**
 
 We
        are a
        holding company with no operations or assets of our own other than the capital
        stock of our subsidiaries. Our operations are conducted through our
        subsidiaries. The terms of our credit facility place restrictions on Buffets’
ability to pay dividends and otherwise transfer assets to us. Further, the
        terms
        of the Indenture governing Buffets’ 12 1/2% Senior Notes place restrictions on
        the ability of Buffets and our other subsidiaries to pay dividends and otherwise
        transfer assets to us.
  31
  Cash
        flows generated from our operating activities provide us with a significant
        source of liquidity. Our sales are primarily for cash or credit and settlement
        occurs within a few days. Our cash flow from operations is used for payments
        to
        vendors, capital expenditures, including remodeling initiatives, general
        corporate purposes and debt service payments. Vendors are paid on terms ranging
        from 14 to 35 days. Our favorable vendor terms relative to the timing of
        our
        cash receipts allow us to voluntarily accelerate our debt repayments, which
        in
        turn causes a significant working capital deficit.
 
 Our
        short-term and long-term liquidity needs arise primarily from principal and
        interest payments on our indebtedness, rent payments under our lease agreements,
        capital expenditures and working capital requirements, including development
        and
        construction of new restaurants, restaurant refurbishment and the installation
        of new information systems. We expect these requirements to continue in the
        foreseeable future. Our primary sources of liquidity are cash flow from
        operations, landlord contributions, credits received from trade suppliers
        and
        available borrowing capacity under our Credit Facility, including revolving
        credit loans, swing line loans and the ability to issue letters of credit.
        See
“— Credit Facilities and Other Long Term Debt.”
 
 *Operating
        Activities.* Net cash
        used in operating activities was $9.5 million and $4.7 million for the twelve
        weeks ended September 19, 2007 and September 20, 2006, respectively. The
        overall
        increase in net cash used in operating activities is primarily attributable
        to a
        $16.1 million increase in cash interest payments and $1.6 million in
        non-capitalizable merger integration costs related to the merger with Ryan’s.
        Net cash used in operating activities was lower than the net loss for the
        first
        twelve weeks of fiscal 2008 principally due to payments of accounts payable
        and
        accrued liabilities and a net reduction in income taxes payable, partially
        offset by the effect of noncash depreciation and amortization and the write-off
        of debt issuance costs. Net cash used in operating activities was lower than
        net
        loss for the first twelve weeks of fiscal 2007 principally due to payments
        of
        accounts payable, accrued liabilities and income taxes payable, partially
        offset
        by the effect of noncash depreciation and amortization and accretion of original
        issue discount.
 
 *Investing
        Activities.* Net cash
        used in investment activities was $2.8 million and $13.0 million for the
        twelve
        weeks ended September 19, 2007 and September 20, 2006, respectively. During
        the
        first twelve weeks of fiscal 2008, our property and equipment related capital
        expenditures of $11.4 million represented remodeling and improvement cost
        on our
        existing restaurants. This use of cash was partially offset by cash provided
        by
        our sale of certain assets held for sale resulting in gross proceeds of $8.8
        million. During the first twelve weeks of fiscal 2007, our property and
        equipment related capital expenditures of $6.8 million represented remodeling
        and improvement cost on our existing restaurants. On August 1, 2006, our
        subsidiary, OCB Restaurant Company, LLC acquired certain assets and liabilities
        of North’s Restaurant, Inc. for approximately $3.5 million. The remaining cash
        used in investing activities during the first twelve weeks of fiscal 2007
        was
        primarily comprised of capitalized transaction costs related to our merger
        with
        Ryan’s.
  *Financing
        Activities.* Net cash
        provided by financing activities was $19.2 million and $5.5 million for the
        first twelve weeks of fiscal years 2008 and 2007, respectively. During the
        first
        twelve weeks of fiscal 2008, financing activities consisted primarily of
        borrowings of $20.5 million under our revolving facilities offset in part
        by
        $1.3 million of term loan repayments. During the first twelve weeks of fiscal
        2007, financing activities primarily consisted of proceeds from revolver
        borrowings.
  *Future
        Capital Expenditures.* During
        the remainder of fiscal 2008, we plan to:
 
 ·
              Spend
                  approximately $5.0 million - $15.0 million on remodeling and improvement
                  costs that will be capitalized. These capital improvements will
                  depend on
                  the specific needs of the restaurants and the availability of liquidity
                  through our existing credit lines. Remodels projects incorporate
                  design
                  elements to update the décor of our existing facilities including a
                  lighter, more contemporary interior design and expanded dessert
                  displays.
                  Other improvement costs include a variety of outlays such as new carpet,
                  equipment and minor leasehold improvements and display grill
                  installations.
 
 ·
              Spend
                  approximately $1.0 million on miscellaneous corporate and information
                  systems investments.
 
 ·
              Spend
                  approximately $5.0 million - $15.0 million on capital improvements
                  specifically related to the restaurants we acquired in the Merger.
                  These
                  capital improvements will depend on the specific needs of the restaurants
                  and the availability of liquidity through our existing credit lines.
                  In
                  addition, we plan to spend approximately $1.0 million - $3.0 million
                  on
                  the integration of Ryan’s that will not be
                  capitalized.
  32
  *Income
        Tax Refunds.* We
        expect to receive approximately $19.9 million in income tax refunds over
        the
        remainder of fiscal 2008. Approximately $13.1 million relates to Ryan’s stub
        period federal return through November 1, 2006, $5.1 million relates to
        carryback claims to be filed related to federal returns filed in previous
        years
        and $1.7 million relates to state tax returns. We expect to collect
        approximately $17.0 million - 18.0 million in the second fiscal quarter and
        the
        balance over the remainder of fiscal 2008.
 
 **Credit
        Facilities and Other Long Term Debt**
 
 *Credit
        Facility*
 
 In
        connection with the Merger, Buffets entered into a new $640.0 million senior
        secured credit facility (the “Credit Facility”) comprised of (i) a senior
        secured term loan in an aggregate principal amount of $530.0 million which
        matures on November 1, 2013 (the “Term Facility”), (ii) a senior secured
        revolving credit facility in an aggregate principal amount of up to $40.0
        million which matures on November 1, 2011 (the “Revolving Facility”), of which
        up to $20.0 million is available through a sub facility in the form of letters
        of credit and (iii) a senior secured pre-funded synthetic letter of credit
        facility in an aggregate principal amount of $70.0 million which matures
        on May
        1, 2013 (the “Synthetic Letter of Credit Facility”).
 
 Effective
        as of March 13, 2007 (the “Restatement Date”), the Company entered into an
        amendment to its Credit Facility. The amendment added a revolving loan feature
        to the Synthetic Letter of Credit Facility (cumulatively referred to as the
        “Synthetic Revolving Facility”), whereby the Company may secure letters of
        credit and/or revolving loans in an aggregate principal amount of $70 million.
        The amendment also relaxed the interest rate margins applicable to the Term
        Facility and Synthetic Revolving Facility, subject to a leverage-based pricing
        grid. In addition, the amendment added a repricing protection clause relating
        to
        the prepayment of term loans or synthetic revolving loans borrowed under
        the
        Credit Facility. The repricing protection provides that Buffets must pay
        a 1%
        prepayment premium on all such prepayments prior to March 13, 2008. No such
        prepayments have occurred as of September 19, 2007.
 
 Borrowings
          under the Term Facility bear interest at an adjusted LIBOR rate plus a
          margin of
          either 2.50%, 2.75% or 3.00% in the case of Eurodollar borrowings and at
          a
          certain alternate base rate plus a margin of either 1.50%, 1.75% or 2.00%
          in the
          case of alternate base rate borrowings, depending on Buffets’ leverage ratio,
          and borrowings under the Revolving Facility bear interest at an adjusted
          LIBOR
          rate plus a margin of 3.25% or at an alternate base rate plus a margin
          at 2.25%.
Borrowings
          under the Synthetic Revolving Facility bear interest at an adjusted LIBOR
          rate
          plus a margin of 2.85%.
 
 The
        borrowings due under the Term Facility are payable in equal quarterly
        installments in an annual amount equal to 1% of the term loan during each
        of the
        first six and a half years of the loan, with the remaining balance payable
        due
        on November 1, 2013. The Revolving Facility and the Synthetic Revolving Facility
        are not subject to interim scheduled principal payments. The Credit Facility
        is
        fully and unconditionally guaranteed by Buffets Holdings, which has no
        independent assets or operations except for the capital stock of Buffets,
        and
        its existing and future domestic subsidiaries and is secured by substantially
        all of the Company’s assets. The Credit Facility contains customary restrictive
        covenants, including limitations on dividends on, and redemptions and
        repurchases of, capital stock, liens and sale leaseback transactions, loans
        and
        investments, the incurrence of additional indebtedness and mergers, acquisitions
        and asset sales. In addition, the Credit Facility contains financial covenants,
        which require that we maintain a minimum interest coverage ratio and a maximum
        leverage ratio. These financial covenants become increasingly restrictive
        over
        time. Specifically, on September 20, 2007, our leverage ratio requirement
        becomes more restrictive as the current leverage ratio of 6.00 to 1.00 drops
        to
        5.75 to 1.00. As of September 19, 2007, there were no events of default and
        we
        were in compliance with all covenants. The Credit Facility also contains
        customary events of default. Borrowing availability under the Credit Facility
        and our ability to continue to issue letters of credit depends on there being
        no
        default or event of default under the Credit Facility and upon our continued
        compliance with the restrictive and financial covenants contained in the
        Credit
        Facility. As of the end of the first quarter of fiscal 2008 the Company's
        actual leverage ratio was 5.98 against a maximum leverage ratio of 6.00.
        The
        maximum leverage ratio drops to 5.75 at the next measurement date which is
        at
        the end of the Company's second quarter of fiscal 2008. We continuously
        monitor compliance with the financial covenants in our Credit Facility and,
        as
        of September 19, 2007, were in compliance with these covenants. Depending
        on our
        future results we may breach these covenants at the end of our next fiscal
        quarter or in subsequent quarters. We have initiated discussions with the
        lenders under our Credit Facility to amend or waive the financial covenants.
        However, there are no assurances that we will be successful in obtaining
        amendments or waivers to the financial covenants on acceptable terms. Failure
        to
        obtain a waiver on acceptable terms could have a material adverse effect
        on the
        Company. See “Risk Factors— Our
        credit facility contains financial covenants. If we are unable to comply
        with
        these covenants, our liquidity could be adversely affected.”
  As
        of
        September 19, 2007, there was $527.4 million outstanding under the Term
        Facility, $18.5 million outstanding under the Revolving Facility, and $68.1
        million outstanding under the Synthetic Revolving Facility, including $53.1
        million outstanding letters of credit. The interest rate in effect under
        the
        Term Facility was 7.99% and the interest rate in effect under the Synthetic
        Revolving Facility was 8.09%.
  33
  *12
        1/2% Senior Notes*
 
 The
        issuance of Buffets’ 12 1/2% Senior Notes was consummated solely by means of a
        private placement to qualified institutional buyers pursuant to Rule 144A
        under
        the Securities Act of 1933, as amended (the “Securities Act”). Buffets filed a
        registration statement with the Securities and Exchange Commission to exchange
        all of its $300.0 million 12 1/2% Senior Notes due 2014 for notes registered
        under the Securities Act. The exchange offer was consummated on January 31,
        2007. The 12 1/2% Senior Notes mature on November 1, 2014. Buffets pays
        semi-annual interest on the 12 1/2% Senior Notes on January 1 and July
        1.
 
 Buffets
        has the option to redeem all or a portion of the 12 1/2% Senior Notes on
        or
        after November 1, 2010 at fixed prices that decline over time. Buffets also
        has
        the option to redeem up to 35% of the aggregate principal amount of the 12
        1/2 %
        Senior Notes on or prior to November 1, 2009 with the proceeds of one or
        more
        equity offerings at a redemption price of 112.50% of the principal amount
        of the
        12 1/2% Senior Notes, if at least 65% of the aggregate principal amount of
        the
        12 1/2% Senior Notes are outstanding after each such redemption and such
        redemption is made not more than 90 days after the consummation of certain
        equity offerings. Upon certain change of control and asset disposition events
        as
        described in the Indenture, Buffets may be required to redeem the 12 1/2%
        Senior
        Notes at a purchase price equal to 101% in the case of change of control
        events,
        or 100% in the case of asset disposition events, of the principal amount
        of the
        12 1/2% Senior Notes. The 12 1/2% Senior Notes are unsecured senior obligations
        of Buffets and are jointly and severally guaranteed on a senior unsecured
        basis
        by each of its current and future domestic subsidiaries and Buffets Holdings,
        which has no independent assets or operations except for the capital stock
        of
        Buffets.
 
 The
        Indenture contains customary covenants relating to restrictions on indebtedness,
        dividends on, and redemptions and repurchases of, capital stock, liens and
        sale
        leaseback transactions, loans and investments, debt and hedging arrangements,
        mergers, acquisitions and asset sales, transactions with affiliates and changes
        in business activities conducted by Buffets and certain subsidiaries. The
        Indenture also contains customary events of default. As of September 19,
        2007,
        the Company was in compliance with all covenants and there were no events
        of
        default.
 
 **Seasonality
        and Quarterly Fluctuations**
 
 Our
        sales
        are seasonal, with a lower percentage of annual sales occurring in most of
        our
        current market areas during the winter months due to a reduction in daylight
        operating hours and poorer weather conditions. Accordingly, restaurant sales
        per
        unit are lower in our third fiscal quarter ending in April of each year.
        The
        impact of these reduced average weekly sales are mitigated in our quarterly
        data
        presentations through the inclusion of 16 weeks in the quarter ending in
        early
        April of each year, compared to only 12 or 13 weeks in each of the other
        fiscal
        quarters. Our restaurant sales may also be affected by unusual weather patterns,
        particularly during the winter months, major world events or matters of public
        interest that compete for customers’ attention.
 
 **Forward-Looking
        Statements and Risk Factors**
 
 This
          Quarterly Report on Form 10-Q/A includes some forward-looking statements.
          Forward-looking statements give our current expectations or forecasts of
          future
          events. All statements other than statements of current or historical fact
          contained in this Quarterly Report on Form 10-Q/A, including statements
          regarding our future financial position, business strategy, budgets, projected
          costs and plans and objectives of management for future operations, are
          forward-looking statements. The words “anticipate,” “believe,” “estimate,”
“expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to
          us, are intended to identify forward-looking statements. In particular,
          these
          include, among other things, the factors that are described in the “Risk
          Factors” identified in our Annual Report on Form 10-K/A, filed with the
          Securities and Exchange Commission on March 31, 2008, and statements relating
          to
          general business and economic conditions, changes in consumer confidence
          and the
          level of their discretionary spending and restaurant visitation frequency,
          negative publicity, the impact of competition, the ability to integrate
          the
          restaurants acquired in the Ryan’s acquisition, the ability to realize the
          benefits and synergies of the Ryan’s acquisition, the ability to service our
          substantial indebtedness and otherwise comply with our lending covenants,
          the
          seasonality of our business, adverse weather conditions, future commodity
          prices, fuel and utility costs, changes in minimum wage rates, availability
          of
          food products, labor availability, retention and costs, employment and
          environmental laws, public health developments including avian flu and
          E. coli,
          developments affecting the public’s perception of buffet-style restaurants, real
          estate availability, interest rate fluctuations, political environment
          (including acts of terrorism and wars), governmental regulations and
          inflation.
  34
  We
          have
          based these forward-looking statements largely on our current expectations
          and
          projections about future events and financial trends that we believe may
          affect
          our financial condition, results of operations, business strategy and financial
          needs. They can be affected by inaccurate assumptions we might make or
          by known
          or unknown risks, uncertainties and assumptions, including the risks,
          uncertainties and assumptions described in the “Risk Factors/Forward-Looking
          Statements” identified in our Annual Report on Form 10-K/A filed on March 31,
          2008, as updated in any Quarterly Report on Form 10-Q. In light of these
          risks,
          uncertainties and assumptions, the forward-looking statements in this Quarterly
          Report on Form 10-Q/A may not occur and actual results could differ materially
          from those anticipated or implied in the forward-looking statements. When
          you
          consider these forward-looking statements, you should keep in mind these
          risk
          factors and other cautionary statements in this Quarterly Report on Form
          10-Q/A.
 
 Our
        forward-looking statements speak only as of the date made. We undertake no
        obligation to update or revise any forward-looking statements, whether as
        a
        result of new information, future events or otherwise.
  **ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**
 
 *Interest
        Rate Risks.* We have
        interest rate exposure relating to the variable portion of our long-term
        obligations, which were approximately $527.4 million at September 19, 2007.
        Buffets’ 12 1/2% Senior Notes are fixed rate instruments, while the interest
        rate on the term loan under the Credit Facility is variable. A 1% change
        in
        interest rates on our variable rate debt would have resulted in our interest
        rate expense fluctuating by approximately $1.2 million for the first quarter
        ended September 19, 2007. In addition, we entered into a swap agreement to
        fix a
        portion of our variable rate interest. See Note 6 — “Debt” to our accompanying
        condensed consolidated financial statements for further discussion of this
        agreement.
 
 *Food
        Commodity Risks.* Many of
        the food products purchased by us are affected by commodity pricing and are,
        therefore, subject to price volatility caused by weather, production problems,
        delivery difficulties and other factors that are outside our control. To
        control
        this risk in part, we have fixed price purchase commitments with terms of
        one
        year or less for some key food and supplies from vendors who supply our national
        food distributor. In addition, we believe that substantially all of our food
        and
        supplies are available from several sources, which helps to control food
        commodity risks. In the past, we have been able to increase menu prices,
        or vary
        the menu items offered, if needed, in order to offset food product price
        increases. However, we may not be able to recover increased costs in the
        future
        because competition may limit or prohibit such future increases. To compensate
        for a hypothetical price increase of 10% for food and beverages, we would
        need
        to increase menu prices by an average of approximately 3%. Our average menu
        price increases for fiscal 2007 were 3% for our Buffet brand restaurants
        and 1%
        for our Ryan’s brand restaurants.
  **ITEM
        4. CONTROLS AND PROCEDURES**
 
 *Disclosure
        Controls and Procedures*
  In
        connection with the restatements discussed above in the explanatory note
        to this
        Form 10-Q/A and in Note 13 - “Restatement” to our accompanying condensed
        consolidated financial statements, under the direction of our Chief Executive
        Officer and Chief Financial Officer, we reevaluated our disclosure controls
        and
        procedures (as defined in Rule 13(a)-15(c) or Rule15 (d)-15(e) of the Securities
        Exchange Act of 1934). We concluded that our disclosure controls and procedures
        were not effective as of September 19, 2007, solely as a result of the material
        weakness described below.
  A
        material weakness is a control deficiency, or combination of control
        deficiencies, that results in more than a remote likelihood that a material
        misstatement of our annual or interim financial statements would not be
        prevented or detected. As of September 19, 2007, we did not maintain effective
        internal control over the following areas; (1) determination of deferred
        income
        tax balances related to a business combination, (2) determination of tax
        provision amounts related to certain timing differences such as depreciation
        and
        (3) determining the appropriate basis at which to record tax reserves, gross
        versus net. Specifically, controls over the processes and procedures in
        calculating deferred income tax liabilities related to a business combination
        were not effective to ensure that the deferred income tax liabilities and
        allocated goodwill were fairly stated in accordance with generally accepted
        accounting principles. In addition, controls over the processes and procedures
        in calculating depreciation for tax purposes were not effective to ensure
        the
        accuracy of the calculation and the processes and procedures in determining
        the
        basis at which to record tax reserves were not effective to ensure that the
        tax
        reserves were fairly stated in accordance with generally accepted accounting
        principles. These deficiencies resulted in the restatements herein affecting
        deferred income taxes and related valuation allowance, goodwill, income taxes
        payable and retained earnings. Additionally, this control deficiency could
        result in a misstatement in the aforementioned accounts that would result
        in a
        material misstatement to the annual or interim consolidated financial statements
        that would not be prevented or detected. Therefore, we have concluded that
        this
        control deficiency constitutes a material weakness.
  35
 
 *Changes
        in Internal Control Over Financial Reporting*
 
 During
        the twelve weeks ended September 19, 2007, there were no changes in our internal
        control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
        of
        the Securities Exchange Act of 1934) that have materially affected, or are
        reasonably likely to materially affect, our internal control over financial
        reporting.
  36
  **PART
        II. OTHER INFORMATION**
  **ITEM
        1. LEGAL PROCEEDINGS**
 
 On
        November 12, 2004, two former restaurant managers of our wholly-owned
        subsidiary, HomeTown Buffet, Inc. (“HomeTown Buffet”), individually and on
        behalf of all others similarly situated, filed a class action lawsuit against
        HomeTown Buffet in California Superior Court in San Francisco County. The
        lawsuit alleges that HomeTown Buffet violated California wage and hour laws
        by
        failing to pay all of its California managers and assistant managers overtime,
        and for making deductions from bonus compensation based on the company’s
        workers’ compensation costs. In March 2006, the plaintiffs amended the complaint
        in the lawsuit to add OCB Restaurant Company, LLC as a defendant, and to
        limit
        the claims to those managers below the level of restaurant General Manager.
        In
        April 2006, the defendants removed the lawsuit to the United States District
        Court for the Northern District of California. The plaintiffs seek compensatory
        damages, penalties, restitution of unpaid overtime and deductions, pre-judgment
        interest, costs of suit and reasonable attorneys’ fees. The complaint does not
        make a specific monetary demand.
 
 During
          the course of discovery, but prior to a motion for certification of a class,
          the
          parties reached a settlement of this action in mediation in late February
          2007.
          The settlement received preliminary court approval on September 12, 2007.
          While
          the Company is currently not able to predict the outcome of this action,
          the
          Company estimates that should the court provide final approval of the
          settlement, the Company will pay approximately $7.2 million to resolve
          this
          matter. This amount has been recorded in the Company’s accrued litigation
          reserve and is included in “Accrued Liabilities” in the Company’s accompanying
          Consolidated Balance Sheets and “Loss on Litigation Settlement” in the Company’s
          Consolidated Statements of Operations. Also included in the Loss on Litigation
          Settlement is approximately $0.4 million in attorney fees to be paid to
          the
          Company’s external counsel for services rendered through September 19, 2007
          specifically related to negotiating the settlement.
  In
        June
        2006, a lawsuit was filed in the Berkeley County (West Virginia) circuit
        court
        on behalf of three plaintiffs alleging wage and hour violations similar to
        the
        Tennessee collective-action case discussed in the preceding paragraph. This
        case
        seeks class-action status, but pertains only to West Virginia employees who
        worked for Ryan’s during the five years ending July 2006. In July 2006, Company
        removed the lawsuit to the United States District Court for the Northern
        District of West Virginia. In February 2007, the Court denied Plaintiffs
        motion
        to remand the matter back to West Virginia state court. The plaintiffs seek
        compensatory damages, penalties, restitution of unpaid wages and deductions,
        pre-judgment interest, costs of suit and reasonable attorneys’ fees. The
        complaint does not make a specific monetary demand. This action is in a
        preliminary stage, and the Company is currently not able to predict the outcome
        of this action or reasonably estimate a range of possible loss. The Company
        is
        vigorously defending this action.
 
 We
        are
        also involved in various legal actions arising in the ordinary course of
        business. In the opinion of management, the ultimate disposition of those
        matters will not have a material adverse effect on our consolidated financial
        position or the results of operations.
 
 **ITEM
        1A. RISK FACTORS**
 
 **Risks
        Relating to Our Business**
 
 For
        a
        more detailed discussion of risk factors affecting the Company's business,
        please also refer to the section entitled “Risk Factors / Forward Looking
        Statements” in our Annual Report on Form 10-K/A, filed with the Securities and
        Exchange Commission on March 31, 2008.
 
 *Our
        credit facility contains financial covenants. If we are unable to comply
        with
        these covenants, our liquidity could be adversely affected.*
 
 Our
        credit facility contains financial covenants, including requirements that
        we
        maintain:
  ·
              a
                  minimum interest coverage ratio, and·
              a
                  maximum leverage ratio.
  37
  These
        financial covenants become increasingly restrictive over time. For example,
        from
        November 1, 2006 (the date we entered into the Credit Facility) through July
        2,
        2008, we were and are required to have a minimum interest coverage ratio
        of 1.50
        to 1.00 and from July 3, 2008 through December 17, 2008, we will be required
        to
        have a minimum interest coverage ratio of 1.60 to 1.00. In accordance with
        the
        terms of our Credit Facility, the minimum interest coverage ratio we are
        required to maintain increases on a periodic basis through April 6, 2011,
        after
        which we will be required to maintain a minimum interest coverage ratio of
        1.90
        to 1.00 for the remainder of the term of the Credit Facility. Similarly,
        from
        November 1, 2006 through September 19, 2007, our leverage ratio was not allowed
        to exceed 6.00 to 1.00 and from September 20, 2007 through July 2, 2008,
        our
        leverage ratio may not exceed 5.75 to 1.00. The maximum leverage ratio will
        decrease on a periodic basis through December 15, 2010, after which our leverage
        ratio will not be allowed to exceed 4.50 to 1.00 for the remainder of the
        term
        of the Credit Facility.
 
 We
        continuously monitor compliance with the financial covenants in our Credit
        Facility and, as of September 19, 2007, were in compliance with these covenants.
        Depending on our future results we may breach these covenants at the end
        of our
        next fiscal quarter or in subsequent quarters, especially in light of the
        fact
        that as of September 20, 2007, the maximum leverage ratio we are required
        to
        maintain under our Credit Facility decreased to 5.75 to 1.00 from 6.00 to
        1.00.
        We have initiated discussions with the lenders under our Credit Facility
        to
        amend or waive the financial covenants. However, no assurance can be given
        that
        we will be able to secure any such waiver or amendment on acceptable terms.
        Failure to obtain a waiver on acceptable terms could have a material adverse
        effect on the Company.
 
 If
        we
        were unsuccessful in obtaining a waiver of or an amendment to our financial
        covenants and an event of default were to occur under our Credit Facility,
        the
        lenders under our Credit Facility may be able to terminate any commitments
        they
        had made to supply us with further funds, including not permitting us to
        borrow
        under our existing revolving Credit Facility and not permitting us to issue
        letters of credit, which would adversely affect our liquidity. In addition,
        subject to certain cure periods, the occurrence of an event of default may
        allow
        the lenders to accelerate the repayment of amounts outstanding under our
        Credit
        Facility. Also, if the lenders were to accelerate indebtedness under our
        Credit
        Facility and such payment were not made, it would cause an event of default
        to
        occur under the indenture governing our 12 1⁄2% Senior Notes.
 
 **ITEM
        6. EXHIBITS**
 
 See
        Index
        to Exhibits on page 40 of this report.
  38
  **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 Wall
                Chief
                  Financial Officer
                (Principal
                  Financial and Accounting Officer)
  39
  **INDEX
        TO EXHIBITS**
  **Exhibit**
                **Number**
              
              **Description**31.1
              
              Certification
                  of Principal Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.31.2
              
              Certification
                  of Principal Financial and Accounting Officer pursuant to Section
                  302 of
                  the Sarbanes-Oxley Act of 2002.32.1*
              
              Certification
                  of Principal Executive Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.32.2*
              
              Certification
                  of Principal Financial Officer pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.
 
 *
              Shall
                  not be deemed “filed” for purposes of Section 18 of the Securities
                  Exchange Act of 1934, or otherwise subject to the liability of
                  that
                  Section. Such exhibits shall not be deemed incorporated by reference
                  into
                  any filing under the Securities Act of 1933 or Securities Exchange
                  Act of
                  1934.
  40