**UNITED
      STATES**


**S** **ECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**______________**




**FORM
      10-Q**


**______________**




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


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**




**For
      the Quarterly Period Ended April 2, 2008**




**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
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer
              Identification
                Number)




**1460
                Buffet Way**
              **Eagan,
                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 ̈
            
            Accelerated
                Filer ̈Non-Accelerated
                Filer x
            
            Smaller
                Reporting Company ̈




Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act). Yes  ̈ No
x




The
      number of shares of Buffets Holdings, Inc. common stock outstanding as of May
      30, 2008 was 3,104,510.












**BUFFETS
      HOLDINGS, INC.**




**TABLE
      OF CONTENTS**




**Page****PART
                I. FINANCIAL INFORMATION (UNAUDITED)**Item
                1.
            
            
            Financial
                Statements
            
            
            3Condensed
                Consolidated Balance Sheets as of June 27, 2007 and April 2,
                2008
            
            
            3Condensed
                Consolidated Statements of Operations — Twelve Weeks and Forty
                Weeks Ended April 4, 2007 and April 2, 2008
            
            
            4Condensed
                Consolidated Statements of Cash Flows — Forty Weeks Ended April
                4, 2007 and April 2, 2008
            
            
            5Notes
                to the Condensed Consolidated Financial Statements
            
            
            6Item
                2.
            
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            
            32Item
                3.
            
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            
            50Item
                4.
            
            
            Controls
                and Procedures
            
            
            51**PART
                II. OTHER INFORMATION**Item
                1.
            
            
            Legal
                Proceedings
            
            
            52Item
                1A.
            
            
            Risk
                Factors
            
            
            53Item
                3.
            
            
            Defaults
                Upon Senior Securities
            
            
            55Item
                5.
            
            
            Other
                Information
            
            
            55Item
                6.
            
            
            Exhibits
            
            
            55









**PART
      I.** **FINANCIAL INFORMATION**





**Item** **1. Financial Statements**





**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**(DEBTOR-IN-POSSESSION)**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(UNAUDITED)**


**(In Thousands, Except Share Data)**





**June
                  27,**
                **2007**
              
              **April
                  2,**
                **2008****ASSETS**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              4,670
              
              $
              34,499Receivables
              
              
              10,219
              
              
              7,807Income
                  tax receivable
              
              
              13,324
              
              
              892Inventories
              
              
              32,836
              
              
              30,768Restricted
                  cash
              
              
              —
              
              
              3,556Prepaid
                  expenses and other current assets
              
              
              8,789
              
              
              20,080Assets
                  held for sale
              
              
              48,145
              
              
              5,737Deferred
                  income taxes
              
              
              3,000
              
              
              —Total
                  current assets
              
              
              120,983
              
              
              103,339PROPERTY
                  AND EQUIPMENT, net
              
              
              221,092
              
              
              206,811GOODWILL
              
              
              497,492
              
              
              138,500OTHER
                  INTANGIBLE ASSETS
              
              
              84,410
              
              
              60,759OTHER
                  ASSETS, net
              
              
              37,092
              
              
              38,062Total
                  assets
              
              $
              961,069
              
              $
              547,471**LIABILITIES
                  AND SHAREHOLDER’S DEFICIT**LIABILITIES
                  NOT SUBJECT TO COMPROMISECURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              81,090
              
              $
              44,366Accrued
                  liabilities
              
              
              133,920
              
              
              80,323Income
                  taxes payable
              
              
              24,336
              
              
              26Short-term
                  debt
              
              
              13,000
              
              
              30,000Current
                  maturities of long-term debt
              
              
              6,625
              
              
              200,000Total
                  current liabilities
              
              
              258,971
              
              
              354,715LONG-TERM
                  DEBT, net of current maturities
              
              
              822,050
              
              
              —DEFERRED
                  LEASE OBLIGATIONS
              
              
              38,209
              
              
              43,104DEFERRED
                  INCOME TAXES
              
              
              33,456
              
              
              26,873LONG-TERM
                  TAXES PAYABLE
              
              
              —
              
              
              621OTHER
                  LONG-TERM LIABILITIES
              
              
              9,341
              
              
              6,390Total
                  liabilities not subject to compromise
              
              
              1,162,027
              
              
              431,703LIABILITIES
                  SUBJECT TO COMPROMISE
              
              
              —
              
              
              821,134SHAREHOLDER’S
                  DEFICIT:Preferred
                  stock; $.01 par value, 1,100,000 shares authorized; none issued
                  and
                  outstanding as of June 27, 2007 and April 2, 2008
              
              
              —
              
              
              —Common
                  stock; $.01 par value, 3,600,000 shares authorized; 3,104,510 shares
                  issued and outstanding as of June 27, 2007 and April 2,
                  2008
              
              
              31
              
              
              31Additional
                  paid in capital
              
              
              82
              
              
              82Accumulated
                  deficit
              
              
              (201,129
              )
              
              (705,493
              )Accumulated
                  other comprehensive income
              
              
              58
              
              
              14Total
                  shareholder’s deficit
              
              
              (200,958
              )
              
              (705,366
              )Total
                  liabilities and shareholder’s deficit
              
              $
              961,069
              
              $
              547,471




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




3




**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**(DEBTOR-IN-POSSESSION)**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**


**(In
      Thousands)**





**Sixteen
                  Weeks Ended**
              
              **Forty
                  Weeks Ended****April
                  4,**
                **2007**
              
              **April
                  2,**
                **2008**
              
              **April
                  4,**
                **2007**
              
              **April
                  2,**
                **2008**RESTAURANT
                  SALES
              
              $
              509,202
              
              $
              466,950
              
              $
              1,028,369
              
              $
              1,207,564RESTAURANT
                  COSTS:Food
              
              
              176,372
              
              
              164,423
              
              
              355,556
              
              
              422,023Labor
              
              
              155,314
              
              
              140,876
              
              
              308,530
              
              
              365,182Direct
                  and occupancy
              
              
              130,741
              
              
              123,435
              
              
              259,930
              
              
              320,169Total
                  restaurant costs
              
              
              462,427
              
              
              428,734
              
              
              924,016
              
              
              1,107,374ADVERTISING
                  EXPENSES
              
              
              7,919
              
              
              9,524
              
              
              22,868
              
              
              28,181GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              22,300
              
              
              22,305
              
              
              46,313
              
              
              55,876CLOSED
                  RESTAURANT COSTS
              
              
              1,363
              
              
              688
              
              
              2,922
              
              
              3,574IMPAIRMENT
                  OF ASSETS
              
              
              —
              
              
              394,025
              
              
              —
              
              
              400,392LOSS
                  ON SALE LEASEBACK TRANSACTIONS
              
              
              —
              
              
              —
              
              
              2,498
              
              
              —LOSS
                  ON LITIGATION SETTLEMENTS
              
              
              6,045
              
              
              47
              
              
              6,045
              
              
              131MERGER
                  INTEGRATION COSTS
              
              
              3,485
              
              
              778
              
              
              6,999
              
              
              4,452OPERATING
                  INCOME (LOSS)
              
              
              5,663
              
              
              (389,151
              )
              
              16,708
              
              
              (392,416
              )OTHER
                  INCOME
              
              
              (194
              )
              
              (273
              )
              
              (692
              )
              
              (749
              )INTEREST
                  INCOME
              
              
              (60
              )
              
              (3
              )
              
              (138
              )
              
              (165
              )INTEREST
                  EXPENSE
              
              
              28,380
              
              
              29,133
              
              
              58,994
              
              
              71,476REORGANIZATION
                  ITEMS, NET
              
              
              —
              
              
              38,286
              
              
              —
              
              
              38,286LOSS
                  RELATED TO REFINANCING
              
              
              840
              
              
              1,666
              
              
              41,125
              
              
              1,671LOSS
                  BEFORE INCOME TAXES
              
              
              (23,303
              )
              
              (457,960
              )
              
              (82,581
              )
              
              (502,935
              )INCOME
                  TAX EXPENSE (BENEFIT)
              
              
              (8,906
              )
              
              3,864
              
              
              (32,108
              )
              
              2,316Net
                  loss
              
              $
              (14,397
              )
              $
              (461,824
              )
              $
              (50,473
              )
              $
              (505,251
              )




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




4


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**(DEBTOR-IN-POSSESSION)**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**


**(In
      Thousands)**




**Forty
                  Weeks Ended****April
                  4,**
                **2007**
              
              **April
                  2,**
                **2008**OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (50,473
              )
              $
              (505,251
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              30,674
              
              
              34,449Amortization
                  of debt issuance cost
              
              
              2,826
              
              
              4,450Accretion
                  of original issue discount
              
              
              5,623
              
              
              —Loss
                  related to refinancing:Write-off
                  of debt issuance costs
              
              
              8,686
              
              
              —Refinancing
                  premiums expensed
              
              
              31,599
              
              
              —Loss
                  on disposal of assets
              
              
              710
              
              
              3,132Loss
                  on sale leaseback transactions
              
              
              2,498
              
              
              —Reorganization
                  items, net
              
              
              —
              
              
              38,286Cash
                  reorganization items
              
              
              —
              
              
              (7,660
              )Impairment
                  of assets
              
              
              —
              
              
              400,392Deferred
                  income taxes
              
              
              (35,610
              )
              
              3,964Changes
                  in assets and liabilities:Receivables
              
              
              556
              
              
              2,414Inventories
              
              
              (56
              )
              
              (2,127
              )Prepaid
                  expenses and other current assets
              
              
              9,663
              
              
              (8,642
              )Accounts
                  payable
              
              
              7,539
              
              
              (886
              )Accrued
                  and other liabilities
              
              
              5,901
              
              
              3,657Income
                  taxes receivable/payable
              
              
              (26,343
              )
              
              16,993Net
                  cash used in operating activities
              
              
              (6,207
              )
              
              (16,829
              )INVESTING
                  ACTIVITIES:Proceeds
                  from sale leaseback transactions
              
              
              8,608
              
              
              —Proceeds
                  from sale of assets held for sale
              
              
              5,057
              
              
              17,951Cash
                  reorganization items
              
              
              —
              
              
              333Acquisitions,
                  net of liabilities assumed and cash acquired
              
              
              (168,794
              )
              
              —Purchase
                  of property and equipment
              
              
              (26,322
              )
              
              (28,898
              )Collections
                  on notes receivable
              
              
              713
              
              
              510Purchase
                  (sale) of other assets
              
              
              314
              
              
              (52
              )Net
                  cash used in investing activities
              
              
              (180,424
              )
              
              (10,156
              )FINANCING
                  ACTIVITIES:Repayment
                  of pre-merger term loan facility
              
              
              (182,053
              )
              
              —Repurchase
                  of 111⁄4% senior subordinated notes
              
              
              (180,778
              )
              
              —Repurchase
                  of 137⁄8% senior discount notes
              
              
              (105,306
              )
              
              —Repayment
                  of Ryan’s debt
              
              
              (145,000
              )
              
              —Proceeds
                  from post-merger term loan funding
              
              
              530,000
              
              
              —Proceeds
                  from DIP financing
              
              
              —
              
              
              30,000Repayment
                  of post-merger term loan funding
              
              
              (1,325
              )
              
              (4,647
              )Proceeds
                  from 121⁄2% senior note issuance
              
              
              300,000
              
              
              —Proceeds
                  from post-merger revolver facility
              
              
              23,500
              
              
              44,262Proceeds
                  from promissory note
              
              
              5,000
              
              
              —Increase
                  in restricted cash
              
              
              —
              
              
              (3,556
              )Prefunded
                  letters of credit
              
              
              —
              
              
              (3,734
              )Utility
                  deposits
              
              
              —
              
              
              (3,212
              )Cash
                  reorganization items
              
              
              —
              
              
              78Debt
                  issuance costs
              
              
              (36,705
              )
              
              (2,377
              )Payment
                  of refinancing premiums
              
              
              (32,554
              )
              
              —Net
                  cash provided by financing activities
              
              
              174,779
              
              
              56,814NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              (11,852
              )
              
              29,829CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              20,219
              
              
              4,670CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              8,367
              
              $
              34,499SUPPLEMENTAL
                  CASH FLOW INFORMATION:Cash
                  paid during the period for:Interest
                  (net of capitalized interest of $295 and $321)
              
              $
              49,218
              
              $
              67,062Income
                  taxes
              
              $
              29,814
              
              $
              677





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


5


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**(DEBTOR-IN-POSSESSION)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**1.** **Voluntary
      Chapter 11 Filing**




Buffets
      Holdings, Inc. (“Buffets Holdings”) and its subsidiaries, including Buffets,
      Inc. (“Buffets”), are collectively referred to as “the Company” in these notes
      to condensed consolidated financial statements. **** On
      January 22, 2008 (the “Petition Date”), Buffets Holdings and each of its
      subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief
      under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”)
      with the United States Bankruptcy Court for the District of Delaware (the
“Bankruptcy Court”), Case Number 08-10141 (collectively, the “Bankruptcy
      Cases”). On January 29, 2008, the official committee of unsecured creditors was
      appointed in the Bankruptcy Cases. The Company is continuing to operate the
      business as a debtor-in-possession under the jurisdiction of the Bankruptcy
      Court and in accordance with the applicable provisions of the Bankruptcy Code
      and the orders of the Bankruptcy Court. In general, as a debtor-in-possession,
      the Company is authorized under the Bankruptcy Code to continue to operate
      as an
      ongoing business, but may not engage in transactions outside the ordinary course
      of business without the prior approval of the Bankruptcy Court.




On
      January 22, 2008, the Company entered into a Debtor-In-Possession Credit
      Agreement (the “DIP Credit Agreement”) among Buffets Holdings, Buffets, the
      lenders named therein, and Credit Suisse, as Administrative Agent and Collateral
      Agent. The DIP Credit Agreement received interim approval by the Bankruptcy
      Court on January 23, 2008 and final approval on February 22, 2008. The DIP
      Credit Agreement provides for $200 million of borrowings under the Pre-Petition
      Credit Facility (as defined in Note 7 - “Debt”) that were rolled into the DIP
      Credit Agreement and an $85 million new money facility. Of the $85 million
      new
      money facility, $30 million was drawn on January 23, 2008 and $55 million was
      drawn on April 30, 2008. The proceeds of the new money facility incurred under
      the DIP Credit Agreement are being used to fund the continued operations of
      the
      Debtors’ business, pay certain expenses and fees incurred in connection with the
      Bankruptcy Cases, support the Debtors’ working capital needs and for general
      corporate purposes. The Company entered into the first amendment to the DIP
      Credit Agreement on February 22, 2008, just prior to the Bankruptcy Court’s
      final approval to reduce the amount of pre-petition borrowings rolled into
      the
      DIP Credit Agreement from $300 million to $200 million. See Note 7 - “Debt” for
      further discussion regarding the DIP Credit Agreement.




In
      conjunction with the commencement of the Bankruptcy Cases, the Company sought
      and obtained a number of orders from the Bankruptcy Court which were intended
      to
      enable it to operate in the normal course of business during the Bankruptcy
      Cases. The most significant of these orders were:




•
              authorization
                  to pay pre-petition and post-petition employee wages and salaries
                  and
                  related benefits during the Bankruptcy
                  Cases,




•
            authorization
                to give administrative priority status to the post-petition claims
                of
                certain critical vendors and subsequent approval to pay undisputed
                pre-petition claims of those vendors for goods delivered, received
                or
                accepted by the Debtors’ within the 20 days before the Petition Date in an
                amount not to exceed $35 million, so long as those vendors continued
                to
                provide goods to the Company, and




•
            authorization
                for the continued use of the Debtors’ cash management
                system




Pursuant
      to the Bankruptcy Code, the Debtors’ pre-petition obligations, including
      obligations under debt instruments, generally may not be enforced against them.
      In addition, any actions to collect pre-petition indebtedness are automatically
      stayed unless the stay is lifted by the Bankruptcy Court.




6




As
      a
      debtor-in-possession, the Company has the right, subject to Bankruptcy Court
      approval and certain other limitations, to assume or reject executory contracts
      and unexpired leases. In this context, “assume” means that the Company agrees to
      perform its obligations and cure any and all existing defaults under the
      contract or lease, and “reject” means that the Company is relieved from its
      obligations to perform further under the contract or lease but is subject to
      a
      claim for damages for the breach thereof. Any damages resulting from the
      rejection of executory contracts and unexpired leases are treated as general
      unsecured claims in the Bankruptcy Cases unless such claims had been secured
      on
      a pre-petition basis. As of April 2, 2008, the Company has rejected
      approximately 85 unexpired leases and 200 executory contracts and, where
      estimates were reasonably determinable, has included charges of the estimated
      liabilities related thereto in “Reorganization Items, net” in the accompanying
      unaudited condensed consolidated statement of operations. The Company is in
      the
      process of reviewing its executory contracts and remaining unexpired leases
      to
      determine which, if any, it will reject. For those remaining executory contracts
      and unexpired leases, the Company cannot reasonably determine or estimate the
      ultimate liability that may result from rejecting these contracts or leases
      and
      no provisions have been made for these items.




The
      accompanying condensed consolidated financial statements are prepared on a
      going
      concern basis, which contemplates the realization of assets and the satisfaction
      of liabilities in the normal course of business. However, the Bankruptcy Cases
      raise substantial doubt about the Company’s ability to remain a going
      concern. **** The
      Company’s continuation as a going concern is contingent upon, among other
      things, its ability (i) to comply with the terms and conditions of the DIP
      Credit Agreement; (ii) to reduce administrative, operating and interest costs
      and liabilities through the bankruptcy process; (iii) to generate sufficient
      cash flow from operations; (iv) to return to profitability; (v) to obtain
      confirmation of a plan of reorganization under the Bankruptcy Code and (vi)
      to
      obtain financing to facilitate an exit from bankruptcy. In the event the
      Company’s restructuring activities are not successful and it is required to
      liquidate, additional significant adjustments will be necessary in the carrying
      value of assets and liabilities, the revenues and expenses reported and the
      balance sheet classifications used.




The
      accompanying condensed consolidated financial statements reflect adjustments
      in
      accordance with American Institute of Certified Public Accountants’ Statement of
      Position 90-7 (SOP 90-7), *Financial
      Reporting by Entities in Reorganization Under the Bankruptcy Code.* As
      a
      result of the Bankruptcy Cases, substantially
      all unsecured liabilities as of the Petition Date, except those covered under
      certain first day motions filed with the Bankruptcy Court, are considered
      subject to compromise or other treatment under a plan of reorganization which
      must be confirmed by the Bankruptcy Court after submission to any required
      vote
      by affected parties. For
      financial reporting purposes, those liabilities and obligations whose treatment
      and satisfaction is dependent on the outcome of the Bankruptcy Cases are
      segregated and classified as “Liabilities Subject to Compromise” in the
      accompanying unaudited condensed consolidated balance sheet under SOP 90-7.
      The
      ultimate amount of and settlement terms for the Company’s pre-petition
      liabilities are dependent on the outcome of the Bankruptcy Cases, and
      accordingly are not presently determinable. Pursuant to SOP 90-7, professional
      fees associated with the Bankruptcy Cases, and certain gains and losses
      resulting from reorganization or restructuring of the business are reported
      separately as “Reorganization Items, net” in the accompanying unaudited
      condensed consolidated statement of operations. In addition, interest expense
      is
      reported only to the extent that it will be paid during the Bankruptcy Cases
      or
      that it is probable that it will be an allowed claim under the Bankruptcy
      Cases.




**2.** **Nature
      of Organization**




***Company
      Background***




Buffets
      Holdings, Inc., a Delaware corporation, was formed to acquire 100% of the common
      stock of Buffets, Inc. and its subsidiaries in a buyout from public shareholders
      on October 2, 2000 (the “Acquisition”). Buffets, 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.




7




***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
      574 restaurants, including 563 family steak-buffet restaurants and eleven Tahoe
      Joe’s Famous Steakhouse ® restaurants, and franchised sixteen restaurants as of April 2, 2008. In February
      2008, the Company closed 52 restaurants as part of the Bankruptcy Cases. See
      Note 10 - “Reorganization Items” for further discussion of these closed stores.




***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 April 2, 2008, has not entered into any franchise
      arrangements.




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




***Ryan’s
      Restaurant Group, Inc.***




On
      November 1, 2006, Buffets and Ryan’s Restaurant Group, Inc. (“Ryan’s”), a South
      Carolina corporation, completed the 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.




***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 forty week period ended April 2, 2008 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 with Ryan’s and the Bankruptcy
      Cases.




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




These
      unaudited condensed consolidated financial statements should be read in
      conjunction with the consolidated financial statements and the related notes
      contained in the Company’s Form 10-K/A filed with the Securities and Exchange
      Commission on March 31, 2008 and with Management’s Discussion and Analysis of
      Financial Condition and Results of Operations appearing on pages 32 through
      50
      of this report.




***Principles
      of Consolidation***




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




8




***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.




**3.
      Summary of Significant Accounting Policies**




***Segment
      Reporting***




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




***Long-Lived
      Assets***




The
        Company tests 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. The Company tests for impairment using historical
        cash flows and other relevant facts and circumstances as the primary basis
        for
        its estimates of future cash flows. Assets are grouped and evaluated for
        impairment at the lowest level for which there are identifiable cash flows,
        namely as individual restaurants. A restaurant is deemed to be impaired if
        a
        forecast of undiscounted future operating cash flows, including disposal
        value,
        if any, is less than its carrying amount.




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




Impairment
      charges related to long-lived assets of approximately $16.4 million, primarily
      related to assets currently held for sale, were recorded in the first forty
      weeks of fiscal year 2008. No impairment charges were recorded in the first
      forty weeks of fiscal year 2007.




***Goodwill
      and Other Intangible Assets***




The
      Company tests the recoverability of goodwill and other intangible assets
      annually or whenever events or circumstances indicate that the carrying amount
      may not be recoverable. Goodwill and other intangible assets are deemed to
      be
      impaired if the fair value of a reporting segment 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
      segment's goodwill or other intangible assets exceeds their implied fair value.
      The fair value of a reporting segment 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.




Goodwill
        decreased from approximately $497.5 million as of June 27, 2007 to approximately
        $138.5 million as of April 2, 2008. The decrease of $359.0 million is the
        result
        of $18.1 million in additional goodwill from the Ryan’s acquisition, offset by a
        $377.1 million impairment charge. See Note 9 — “Acquisitions” for further
        discussion regarding the goodwill and other intangible assets associated
        with
        the merger transaction.




9




On
        January 22, 2008, the Company voluntarily filed for relief under Chapter
        11 of
        the United States Bankruptcy Code. As a result of the Bankruptcy Cases and
        the
        events leading up to them, 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 Bankruptcy Cases
        and the development of the reorganization plan, the Company completed
        an assessment of the fair value of individual assets and liabilities to assess
        goodwill and other intangible assets as of April 2, 2008. As a result of
        this independent assessment, it was determined that goodwill was impaired.
        During the third quarter of fiscal 2008, the Company recognized a charge
        of
        $384.0 million related to the impairment of goodwill and certain other
        intangible assets, which is included in “Impairment of Assets” in the
        accompanying unaudited condensed consolidated statement of operations. This
        impairment charge is material, but will not result in future cash expenditures
        and will not result in any significant changes to the Company’s operations other
        than those communicated as part of the restructuring plans. The
        independent assessment used projections of future cash flows from the reporting
        segment. These projections are based on growth rates, anticipated future
        economic conditions, the appropriate discount rates relative to risk, and
        estimates of residual values. The Company believes that the estimates used
        are
        consistent with assumptions that marketplace participants would use in their
        estimates of fair value.If
        changes in growth rates, future economic conditions, discount rates, or
        estimates of residual values were to occur, goodwill may become impaired.No impairment charge was recorded during the first forty weeks of
        fiscal
        year 2007.




The
          goodwill impairment review was conducted in accordance with Statement of
          Financial Accounting Standard No. 142 (SFAS 142) *Goodwill
          and Other Intangibles* .
          SFAS
          142 requires a two step process in assessing goodwill. The first step is
          to
          determine if impairment has occurred whereas the second step determines
          the
          amount of such impairment. As part of the second step the company valued,
          among
          other things, its real and personal property, trademarks, recipes and franchisee
          agreements. This valuation concluded that there was approximately $192.2
          million
          of unrecognized value in the aforementioned assets, and while not recognized
          for
          accounting purposes, were a significant component of the offsetting recognized
          diminution in value of its goodwill.




***Closed
      Restaurant Reserve***




The
      Company maintains a closed restaurant reserve for restaurants that are no longer
      being used in current operations. The closed restaurant costs are principally
      comprised of the Company’s estimates of lease termination costs and obligations,
      net of sublease income and other cash receipts, and employee termination costs.
      Many factors including the local business environment, other available lease
      sites, the ability to secure subleases, the creditworthiness of subtenants,
      and
      the Company’s success at negotiating early termination agreements with lessors
      are considered in establishing the reserve. Adjustments to the reserve primarily
      relate to changes in subtenant income or actual exit costs differing from
      original estimates. Adjustments are made for changes in estimates in the period
      in which the changes become known. The closed restaurant reserve (current and
      non-current in aggregate) was $1.7 million and $0.8 million as of June 27,
      2007
      and April 2, 2008, respectively.




***Derivative
      Instruments and Hedging Activities***




Prior
        to
        the Petition Date, the Company used financial derivatives to manage interest
        rate risk in accordance with its Pre-Petition Credit Agreement, as amended
        and
        restated on March 13, 2007. Use of the Company’s derivative instruments was
        limited to a single interest rate swap. This instrument was 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
        unaudited condensed consolidated balance sheet at fair value and is classified
        as “Liabilities Subject to Compromise” in the accompanying condensed
        consolidated balance sheet as of April 2, 2008. 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
        was
        highly effective in offsetting changes in cash flows of the hedged
        item.




Changes
      in the fair value of a derivative that is highly effective and designated as
      a
      cash flow hedge are recorded in other comprehensive income until earnings are
      affected by the variability in cash flows of the designated hedged item.
      Immediately subsequent to the Petition Date the swap was terminated by the
      Administrative Agent. See Note 7 — “Debt” for further discussion of the interest
      rate swap and the impact of the Company’s bankruptcy proceeding.




10




***Liabilities
      Subject to Compromise***




Under
      bankruptcy law, actions by creditors to collect amounts owed prior to the
      Petition Date are stayed and certain other pre-petition contractual obligations
      may not be enforced against the Company. Substantially
      all unsecured liabilities as of the Petition Date, except those covered under
      certain first day motions filed with the Bankruptcy Court, have been classified
      as “Liabilities Subject to Compromise” in the current fiscal year condensed
      consolidated balance sheet.




***Reorganization
      Items***




Reorganization
      items are expense or income items that were incurred or realized due to the
      Bankruptcy Cases. These items include professional fees and similar types of
      expenses incurred as a direct result of the Bankruptcy Cases, loss accruals
      or
      gains or losses resulting from activities of the reorganization process, costs
      and claims, which stem from the rejection of leases and other executory
      contracts, and interest earned on excess cash accumulated during the Bankruptcy
      Cases.




***Use
      of Estimates***




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.




**4.
      Recent Accounting Pronouncements**




In
      December 2007, the FASB issued Statement of Financial Accounting Standard No.
      141(R) (SFAS 141(R)), *Business
      Combinations* and SFAS
      160, *Noncontrolling
      Interest in Consolidated Financial Statements, an amendment of ARB No.
      51.* These
      new standards will significantly change the accounting and reporting for
      business combination transactions and noncontrolling (minority) interests in
      consolidated financial statements. SFAS 141 (R) and SFAS 160 are required to
      be
      adopted simultaneously and are effective for the first annual reporting period
      beginning on or after December 15, 2008, which is the Company’s fiscal year
      2010. These standards will impact the Company if an acquisition is made or
      a
      minority interest is obtained after that effective date.




11




In
      February 2007, the FASB issued SFAS 159, *The
      Fair Value Option for Financial Assets and Liabilities.* This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value. If the fair value option is elected,
      unrealized gains and losses will be recognized in earnings at each subsequent
      reporting date. SFAS 159 is effective for fiscal years beginning after November
      15, 2007, which is the Company’s fiscal year 2009. The Company is currently
      evaluating the effect that the adoption of SFAS 159 will have on its
      consolidated results of operations and financial condition.




In
      September 2006, the FASB issued SFAS 157, *Fair
      Value Measurements.* This
      statement defines fair value, establishes a framework for using fair value
      to
      measure assets and liabilities, and expands disclosures about fair value
      measurements. The statement applies whenever other statements require or permit
      assets or liabilities to be measured at fair value. SFAS 157 is effective for
      fiscal years beginning after November 15, 2007, which is the Company’s fiscal
      year 2009. The Company is currently evaluating the effect that the adoption
      of
      SFAS 157 will have on its consolidated results of operations and financial
      condition.




**5.
      Property and Equipment**




Property
      and equipment was as follows (in thousands):




**June
                27,**
              **2007**
            
            **April
                2,**
              **2008**Land
            
            $
            16,829
            
            $
            9,299Buildings
            
            
            16,213
            
            
            6,518Equipment
            
            
            221,767
            
            
            224,136Leasehold
                improvements
            
            
            157,150
            
            
            153,512Accumulated
                depreciation and amortization
            
            
            (190,867
            )
            
            (212,874
            )Assets
                to be sold
            
            
            —
            
            
            26,220$
            221,092
            
            $
            206,811




As
      of
      April 2, 2008, the Land value in the table above includes approximately $2.8
      million in assets the Company intends to sell, but are not expected to be sold
      within the next twelve months.




As
      a
      result of the Bankruptcy Cases and the Company’s debtor-in-possession status,
      the Company no longer meets all of the criteria stated in SFAS 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets,* to
      classify certain assets intended to be sold within the next twelve months as
      held for sale. In accordance with SFAS 144, the Company has reclassified these
      assets, including those related to the Tahoe Joe’s restaurants, to property and
      equipment at the lower of their expected net proceeds or net book value,
      adjusted for any depreciation expense that would have been recognized had the
      assets not been classified as held for sale. As it is still the Company’s intent
      to sell these assets within the next twelve months, pending a court approved
      sales agreement, they have been segregated in the table above.




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




12




**6.
      Accrued Liabilities**




Accrued
      liabilities consisted of the following (in thousands):


**June
                27,**
              **2007**
            
            **April
                2,**
              **2008**Accrued
                compensation
            
            $
            32,710
            
            $
            27,855Workers’
                compensation claims reserve
            
            
            21,427
            
            
            21,190Accrued
                sales, use and property taxes
            
            
            16,856
            
            
            14,464Insurance
                claims reserve
            
            
            17,350
            
            
            5,207Accrued
                interest
            
            
            22,603
            
            
            797Accrued
                litigation reserve
            
            
            9,926
            
            
            92Unearned
                revenue (gift cards/certificates)
            
            
            5,427
            
            
            5,450Accrued
                legal and consulting fees
            
            
            65
            
            
            1,509Closed
                restaurant reserve, current portion
            
            
            1,196
            
            
            561Accrued
                percentage rent
            
            
            992
            
            
            2,353Accrued
                other
            
            
            5,368
            
            
            845$
            133,920
            
            $
            80,323




See
      Note
      9 — “Acquisitions” for further discussion of the impact of the merger with
      Ryan’s on the Company’s accrued liability balances. Also see Note 8 -
“Liabilities Subject to Compromise” for further discussion of accrued
      liabilities reclassified as a result of the Bankruptcy Cases.




***Closed
      Restaurant Reserve***




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




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




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




**June
                27,**
              **2007**
            
            **April
                2,**
              **2008**BALANCE,
                beginning of period (current and non-current in aggregate)
            
            $
            2,776
            
            $
            1,654Additions:Lease
                obligations charged to earnings
            
            
            2,141
            
            
            1,228Lease
                obligations charged to goodwill
            
            
            131
            
            
            48Employee
                termination benefits charged to earnings
            
            
            5
            
            
            1,323Employee
                termination benefits charged to goodwill
            
            
            183
            
            
            218Reductions:Cash
                payments:Lease
                termination costs and obligations
            
            
            3,394
            
            
            2,135Employee
                severance benefits
            
            
            188
            
            
            1,541BALANCE,
                end of period (current and non-current in aggregate)
            
            $
            1,654
            
            $
            795




In
      addition to lease obligation and employee termination costs the Company incurred
      closed restaurant costs of $1.4 million and $9.5 million as of June 27, 2007
      and
      April 2, 2008, respectively, related to incremental cash and non-cash charges
      that were directly expensed to “Closed Restaurant Costs,” “Merger and
      Integration Costs” or “Reorganization Items, net” in the accompanying condensed
      consolidated statements of operations.




13




The
      following table summarizes planned and actual restaurant closing
      activity:




**June
                27,**
              **2007**
            
            **April
                2,**
              **2008**Number
                of restaurants:Expected
                to close as of the beginning of the period
            
            
            1
            
            
            5Closed
                during the period
            
            
            32
            
            
            73Identified
                for closure during the period
            
            
            36
            
            
            7Expected
                to close as of the end of the period
            
            
            5
            
            
            3




**June
                27,**
              **2007**
            
            **April
                2,**
              **2008**Number
                of employees:Expected
                to be terminated as of the beginning of the period
            
            
            35
            
            
            175Terminated
                during the period
            
            
            1,120
            
            
            2,555Identified
                for termination during the period
            
            
            1,260
            
            
            2,485Expected
                to be terminated as of the end of the period
            
            
            175
            
            
            105




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




2008
            
            $
            5612009
            
            
            2342010
            
            
            —2011
            
            
            —2012
            
            
            —Thereafter
            
            
            —$
            795




The
      Company closed 73 underperforming Buffets brand (which include the Old Country
      Buffet ® and
      HomeTown Buffet ® brands)
      and Ryan’s brand restaurants (which include the Ryan’s ® and Fire
      Mountain ® brands)
      during the forty weeks ended April 2, 2008 and incurred total charges of $12.0
      million. These charges were expensed as incurred pursuant to SFAS 146 and
      included cash charges of approximately $3.6 million and non-cash charges of
      approximately $8.4 million. The $3.6 million of cash charges included
      approximately $1.2 million related to lease termination costs and obligations,
      $1.3 million related to employee termination costs and approximately $1.1
      million related to other associated costs.




Charges
      of approximately $3.6 million, included in the $12.0 million of total charges
      above, related to the closures of eight Buffets brand restaurants and additional
      costs incurred on previously closed restaurants. These charges are recorded
      in
“Closed Restaurant Costs” in the accompanying unaudited condensed consolidated
      statements of operations. Charges of approximately $0.8 million were related
      to
      four Ryan’s brand restaurants, closed subsequent to the Merger anniversary date,
      and are recorded in “Merger and Integration Costs” in the accompanying unaudited
      condensed consolidated statements of operations. Subsequent to the Petition
      Date, the Company closed 52 underperforming restaurants as part of its
      reorganization plan under Chapter 11. In accordance with SOP 90-7, costs
      associated with these closures of approximately $7.6 million are classified
      as
“Reorganization Items, net” in the accompanying unaudited condensed consolidated
      statement of operations. See Note 10 - “Reorganization Items” for further
      details surrounding these closures.




In
      addition to the $12.0 million of total charges above, charges of approximately
      $3.1 million related to the closure of nine Ryan’s brand restaurants, closed
      prior to the Merger anniversary date, were charged to goodwill pursuant to
      EITF
      95-3, *Recognition
      of Liabilities in Connection with a Purchase Business
      Combination.* See Note
      9 — “Acquisitions” for further discussion of the merger with Ryan’s.




14




**7.
      Debt**




As
      of
      April 2, 2008, debt consists of the following (in thousands):




Super-Secured
                borrowings consist of the following:DIP
                facility new money loan, interest at LIBOR, with a 4.0% floor, plus
                7.25%,
                due January 22, 2009 (interest at 11.25% as of April 2,
                2008)
            
            $
            30,000DIP
                facility rollover loan, interest at LIBOR plus 7.25%, due January
                22, 2009
                (interest at 9.94% as of April 2, 2008)
            
            
            200,000Total
                current debt
            
            
            230,000Secured
                borrowings consist of the following:Revolving
                      credit facility, interest at LIBOR plus 7.25%, due April 30,
                2007(interest
                at 9.94% as of April 2, 2008)
            
            
            40,000Letter
                of credit facility, interest at LIBOR plus 7.25%, due April 30, 2007
                (interest at 9.94% as of April 2, 2008)
            
            
            17,262Term
                loan, interest at LIBOR plus 7.25%, due January 22, 2009
            
            
            324,028Unsecured
                borrowings consist of the following:Senior
                notes, interest at 12.50%, due November 1, 2014
            
            
            300,000Total
                debt
            
            $
            911,290




***Post-Petition
      Financing***




*Debtor-In-Possession
      Credit Agreement*




In
      connection with the Bankruptcy Cases, the Debtors entered into the DIP Credit
      Agreement. The $285 million DIP Credit Agreement consists of an $85 million
      new
      money facility and $200 million of borrowings under the Pre-Petition Credit
      Facility that have been rolled into the DIP Credit Agreement. Of the $85 million
      new money facility, $30 million was drawn on January 23, 2008 and $55 million
      was drawn on April 30, 2008. The Bankruptcy Court granted final approval of
      the
      DIP Credit Agreement on February 22, 2008. The proceeds of the new money loans
      incurred under the DIP Credit Agreement are being used to fund the continued
      operations of the Debtors’ businesses as debtors-in-possession under the
      Bankruptcy Code, pay certain expenses and fees incurred by the Company in
      connection with the Bankruptcy Cases, support the Debtors’ working capital needs
      and for general corporate purposes.




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




The
      DIP
      Credit Agreement requires payment of all amounts borrowed, together with accrued
      and unpaid interest, by January 22, 2009 (the “Maturity Date”). The Debtors have
      the right to voluntarily prepay any borrowing, in whole or in part at any time.
      Subject to certain exceptions, the Debtors are subject to mandatory prepayment
      of the principal amount in the event of certain asset sales or receipt of cash
      proceeds from the incurrence of indebtedness.




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




15




The
      DIP
      Credit Agreement allows for one automatic six-month extension of the Maturity
      Date if the principal balance outstanding under the new money facility of the
      DIP Credit Agreement is less than or equal to $50 million on such date, provided
      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 Maturity Date, a six-month extension may be granted with the consent of
      the
      holders of a majority in amount of the outstanding new money loans.




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




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




***Pre-Petition
      Financing***




*Credit
      Facility*




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




Effective
      as of March 13, 2007 (the “Restatement Date”), Buffets and the Company entered
      into an amendment to its Pre-Petition Credit Facility. The amendment added
      a
      revolving loan feature to the Synthetic Letter of Credit Facility (cumulatively
      referred to as the “Synthetic Revolving Facility”), whereby the Company may
      secure letters of credit and/or revolving loans in an aggregate principal amount
      of $70 million.




Prior
      to
      the Bankruptcy Cases, borrowings under the Term Facility bore 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 bore 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 bore interest at an adjusted LIBOR rate plus a margin of
      2.85%.




On
      January 10, 2008, the Company and Buffets entered into a Forbearance Agreement
      and Second Amendment (the “Forbearance Agreement”) to the Pre-Petition Credit
      Facility, dated as of November 1, 2006, among Buffets Holdings, Buffets, all
      subsidiaries named therein, the lenders named therein, and Credit Suisse as
      Administrative Agent relating to certain defaults under the Pre-Petition Credit
      Facility. The Forbearance Agreement also included certain amendments to the
      Pre-Petition Credit Facility. Among other things, the Forbearance Agreement
      provided that the lenders would forbear from exercising remedies related to
      certain pre-bankruptcy events of default, including the failure by the Company
      to maintain a minimum interest coverage ratio and a maximum leverage ratio,
      the
      failure by the Company to make the January 2, 2008 interest payment due on
      the
      Company’s 121⁄2% Senior Notes within the applicable 30-day grace period, and for
      the amendment of the Pre-Petition Credit Facility to, among other things,
      increase the interest rate margin applicable to LIBOR-based revolving and term
      loans to 7.25% and the interest rate margin applicable to alternate base rate
      revolving and term loans to 6.25%.




16




On
      March
      12, 2008, the Company 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, the Company may continue to renew letters
      of credit originally issued under the Pre-Petition Credit Facility
      notwithstanding the fact that the Company filed a petition for relief under
      Chapter 11 of the Bankruptcy Code.




The
      Bankruptcy Cases triggered events of default under the Pre-Petition Credit
      Facility, as amended by the Forbearance Agreement, and the immediate
      acceleration of amounts outstanding under the Pre-Petition Credit Facility,
      other than the amounts rolled into the DIP Credit Agreement. The ability of
      the
      Pre-Petition Credit Facility lenders to seek remedies to enforce their rights
      under Pre-Petition Credit Facility is automatically stayed as a result of the
      Bankruptcy Cases and the Pre-Petition Credit Facility lenders’ rights of
      enforcement are subject to the applicable provisions of the Bankruptcy Code.
      As
      of April 2, 2008, there was approximately $581.3 million outstanding under
      the
      Pre-Petition Credit Facility, $200 million of which was rolled into the DIP
      Credit Agreement. The Company is required to pay interest on all outstanding
      balances in the normal course throughout the Bankruptcy Cases. It is the
      Company’s belief that all outstanding debt, other than the Super-Secured amounts
      outstanding may be subject to compromise in the reorganization process. In
      accordance with the provisions of SOP 90-7, the Company classified the remaining
      $381.3 million outstanding under these obligations as “Liabilities Subject to
      Compromise” in the accompanying unaudited condensed consolidated balance sheet
      and has continued to record interest expense at the stated, post-petition
      contractual amounts.




On
      April
      12, 2007, per the terms of its Pre-Petition Credit Agreement, the Company
      entered into an interest rate swap agreement (the “Swap Agreement”) to manage
      its exposure on debt instruments to interest rate fluctuation. The Swap
      Agreement, which became effective May 31, 2007 and 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 was structured as an effective hedge of the
      variability of cash flows to be paid on a portion of the Company’s outstanding
      debt. 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 was highly effective in offsetting
      changes in cash flows of the hedged item.




On
      January 22, 2008, the Company received notification that the Bankruptcy Cases
      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. As a result, the
      Company recorded a current liability in the amount of $1.0 million. In addition,
      as the interest payments associated with the hedge are no longer probable,
      the
      Company wrote off the related amounts within other comprehensive income,
      deferred tax asset and related valuation allowance to interest expense. 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.
      In
      accordance with SOP 90-7, the Company classified the $1.0 million swap liability
      as “Liabilities Subject to Compromise” in the accompanying unaudited condensed
      consolidating balance sheet.




*121⁄2* *%
      Senior Notes*




The
      issuance of Buffets’ 121⁄2% 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 121⁄2% Senior Notes for notes registered under the
      Securities Act. The exchange offer was consummated on January 31, 2007. The
      121⁄2%
      Senior Notes mature on November 1, 2014. Per the terms of the indenture, Buffets
      is to pay semi-annual interest on the 121⁄2% Senior Notes on January 1 and July
      1.




17




The
        Bankruptcy Cases triggered events of default under the indenture governing
        the
        121⁄2% Senior Notes and the immediate acceleration of the outstanding principal
        amount and accrued but unpaid interest of the 121⁄2% Senior Notes. The ability of
        the noteholders to seek remedies to enforce their rights under the indenture
        governing the 121⁄2% Senior Notes is automatically stayed as a result of our
        bankruptcy filing and the noteholders’ rights of enforcement are subject to the
        applicable provisions of the Bankruptcy Code. In accordance with the provisions
        of SOP 90-7, the Company classified all amounts outstanding under this
        obligation as “Liabilities Subject to Compromise” in the accompanying unaudited
        condensed consolidated balance sheet, and ceased the accrual of interest
        on
        these notes as of the Petition Date. As of April 2, 2008, the contractual
        interest owed but unpaid on these notes was approximately $28.3 million,
        which is approximately $7.4 million in excess of recorded interest expense
        for
        this obligation.




**8.** **Liabilities
      Subject to Compromise**




Under
      bankruptcy laws, actions by creditors to collect amounts owed prior to the
      Petition Date are stayed and certain other pre-petition contractual obligations
      may not be enforced against the Company. Substantially all unsecured liabilities as of the Petition Date, except those
      covered under certain first day motions filed with the Bankruptcy court, have
      been classified as “Liabilities Subject to Compromise” in the current fiscal
      year condensed consolidated balance sheet.




On
      May
      12, 2008, the Bankruptcy Court set the Claims Bar Date for July
      21, 2008. The Claims Bar Date is defined as the last date for all persons and
      entities holding or wishing to assert bankruptcy claims against the Company
      or
      one of its subsidiaries to file a proof of claim form. As of May 30, 2008,
      the
      Company has received approximately 2,100 claims. The Company continues to
      evaluate all claims asserted in the Bankruptcy Cases and will file periodic
      motions with the court to reject, modify, liquidate or allow such claims.
      Recorded amounts may, in certain instances, be different than amounts asserted
      by the Company’s creditors and remain subject to reconciliation and
      adjustment.




The
        Company received approval from the Bankruptcy Court to pay or otherwise honor
        certain of its pre-petition obligations, including employee salaries, wages
        and
        benefits, vendor goods for certain critical vendors and certain real property
        claims. In addition, as of the Petition Date, the Company ceased the accrual
        of
        interest on its unsecured 12 1⁄2% Senior Notes. Contractual interest owed but
        unpaid on that obligation amounts to approximately $28.3 million as of April
        2,
        2008, which is approximately $7.4 million in excess of recorded interest
        expense. See Note 7 - “Debt” for further discussion of the Company’s debt
        agreements.




The
      following table summarizes the components of the “Liabilities Subject to
      Compromise” in the unaudited accompanying condensed consolidated balance sheet
      as of April 2, 2008 (in thousands):




Accounts
                payable
            
            $
            34,814Accrued
                liabilities
            
            
            76,413Income
                taxes payable
            
            
            239Debt
            
            
            681,290Long-term
                taxes payable
            
            
            27,001Other
                long-term liabilities
            
            
            1,377Total
                Liabilities Subject to Compromise
            
            $
            821,134




18




**9.** **Acquisitions**




***Ryan’s
      Restaurant Group, Inc.***




On
      November 1, 2006, Buffets completed the merger with Ryan’s. As a result of the
      merger, Ryan’s became a wholly-owned subsidiary of Buffets. The Merger was
      accounted for as a purchase business combination and for accounting purposes,
      Buffets was the acquiring enterprise. Accordingly, the results of Ryan’s
      operations are included in the Company’s results of operations for the full
      forty weeks ended April 2, 2008, but not for the full forty weeks ended April
      4,
      2007. 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 $205.7 million was allocated to goodwill.
      Substantially all the goodwill is not deductible for tax purposes.




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




**November
                1,**
              **2006**(In
                Thousands)Cash
            
            $
            559,406Assets
                held for sale
            
            
            46,847Other
                current assets
            
            
            42,330Property,
                plant & equipment
            
            
            99,079Goodwill
            
            
            205,707Other
                intangible assets(1)
            
            
            66,735Other
                assets
            
            
            3,740Total
                assets acquired
            
            
            1,023,844Accounts
                payable
            
            
            15,735Current
                portion of long-term debt
            
            
            33,036Income
                taxes payable
            
            
            14,986Accrued
                liabilities
            
            
            71,875Deferred
                tax liability
            
            
            49,554Long-term
                debt
            
            
            111,964Other
                long-term liabilities
            
            
            1,859Total
                liabilities assumed
            
            
            299,009Net
                assets acquired
            
            
            724,835Less
                cash acquired
            
            
            559,406Net
                cash paid
            
            $
            165,429


——————


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




19




In
      connection with the Merger, the Company executed a headcount reduction
      initiative at the former corporate headquarters of Ryan’s and has closed 34 of
      the acquired restaurants. As a result, the Company recorded a liability for
      employee termination costs of $6.0 million. At April 2, 2008, the Company had
      notified 1,451 employees of the acquired entities of their impending
      termination. As of the end of the third quarter of fiscal 2008, all of the
      notified employees had been terminated and employee termination costs of $6.0
      million had been paid. Charges related to employee termination costs and the
      restaurant closures were charged to goodwill pursuant to EITF 95-3, *Recognition
      of Liabilities in Connection with a Purchase Business
      Combination.*




The
      Company incurred approximately $33.5 million in acquisition and merger
      integration costs as of April 2, 2008. Acquisition costs of approximately $18.1
      million are recorded as a component of the purchase price in the condensed
      consolidated balance sheets pursuant to SFAS 141, *Business
      Combinations.* Merger
      integration costs of approximately $15.4 million have been expensed as incurred
      since the date of acquisition, of which approximately $4.5 million were expensed
      through the third quarter of fiscal 2008 and are recorded in “Merger Integration
      Costs” in the unaudited accompanying condensed consolidated statements of
      operations.




**10.** **Reorganization
      Items**




As
      of
      April 2, 2008, the Company had the following reorganization items (in
      thousands):




Professional
                fees
            
            $
            6,354Lease
                rejection costs
            
            
            24,608Closed
                store costs
            
            
            7,647Severance
            
            
            557Interest
                income
            
            
            (78
            )Gain
                on extinguishment
            
            
            (649
            )Gain
                on asset sales
            
            
            (222
            )Other
            
            
            69Total
                reorganization items, net
            
            $
            38,286




During
      the third quarter of fiscal 2008, the Company rejected approximately 70
      unexpired leases in connection with the Bankruptcy Cases. In accordance with
      Section 502(b)(6) of the Bankruptcy Code, the Company was required to recognize
      a charge for claims of a lessor for damages resulting from the termination
      of a
      lease of real property. Such claims are limited by specific provisions within
      the Bankruptcy Code. The Company recognized a charge of approximately $24.6
      million related to expected lessor claims and established a liability for an
      equal amount. This liability is an estimate and is classified as “Liabilities
      Subject to Compromise’ on the accompanying unaudited condensed consolidated
      balance sheet.




In
      February 2008,
      the Company closed 52 underperforming restaurants as part of its reorganization
      plan under Chapter 11. Cash charges of approximately $2.4 million were incurred
      related to these restaurant closures. These charges included approximately
      $0.9
      million related to lease termination costs and obligations, $1.2 million related
      to employee termination costs and approximately $0.3 related to other associated
      costs. Non-cash charges related to these closures were approximately $5.2
      million.




**11.
      Income Taxes**




The
      Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”),
      Accounting for Uncertainty in Income Taxes, on June 28, 2007. As a result of
      the
      implementation of FIN 48, the Company recognized a cumulative effect charge
      to
      retained earnings of approximately $0.9 million. The Company had a liability
      for
      total unrecognized income tax benefits in the amount of $25.6 million on June
      28, 2007, and if recognized, approximately $13.4 million would impact the
      effective tax rate. Of the total unrecognized tax benefits reflected in the
      Company’s balance sheet as of June 28, 2007, the date of adoption, approximately
      $9.5 million represented interest and penalties. As of April 2, 2008, there
      was
      an adjustment to the liability for unrecognized income tax benefits in the
      amount of $2.1 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.




20




As
      of
      April 2, 2008, the Company believes that it is reasonably possible that certain
      unrecognized tax benefits may significantly change as a result of the Bankruptcy
      Cases. Settlement of these unrecognized tax benefits will be determined by
      the
      Bankruptcy Court throughout the claims process. As a result, the Company cannot
      reasonably determine or estimate the ultimate liability that may result from
      settlement of these unrecognized tax benefits. The
        Company has reclassified the liability for unrecognized income tax benefits
        to
“Liabilities Subject to Compromise” in the accompanying unaudited condensed
        consolidated balance sheet.




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.




**12** **.
      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 April 2, 2008, the Company had expensed approximately
      $665,000 of this prepaid management fee and received a refund for the remaining
      prepaid balance from the Caxton-Iseman Party. In accordance with the terms
      of
      the DIP Credit Agreement, the Company ceased to accrue amounts owed under this
      agreement.




In
      October 2000, the Company entered a management agreement with Sentinel Capital
      Partners, L.L.C., a minority shareholder of Buffets Restaurant Holdings owning
      approximately 7.0% of the outstanding common stock, under which Sentinel Capital
      Partners, L.L.C. provides various advisory services to the Company for an annual
      advisory fee of $200,000. 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. As a result of Mr. Lobel’s resignation,
      this management agreement was terminated in accordance with its terms.




Roe
      H.
      Hatlen, a founder of Buffets and a former 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.




21




On
      January 11, 2008, Mr. Hatlen resigned from the Board of Directors of Buffets
      Holdings and of Buffets and this agreement was subsequently amended. The
      agreement was amended to (i) allow the agreement to 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. Mr. Hatlen’s
      compensation under the agreement remains unchanged.




**13** **.
      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.




On
      November 12, 2004, two former restaurant managers of our wholly-owned
      subsidiary, HomeTown Buffet, Inc. (“HomeTown Buffet”), individually and on
      behalf of all others similarly situated, filed a class action lawsuit against
      HomeTown Buffet in California Superior Court in San Francisco County. The
      lawsuit alleges that HomeTown Buffet violated California wage and hour laws
      by
      failing to pay all of its California managers and assistant managers overtime,
      and for making deductions from bonus compensation based on the company’s
      workers’ compensation costs. In March 2006, the plaintiffs amended the complaint
      in the lawsuit to add OCB Restaurant Company, LLC as a defendant, and to limit
      the claims to those managers below the level of restaurant General Manager.
      In
      April 2006, the defendants removed the lawsuit to the United States District
      Court for the Northern District of California. During the course of discovery,
      but prior to a motion for certification of a class, the parties reached a
      settlement of this action in mediation in late February 2007. The settlement,
      which anticipated payments of approximately $7.2 million, received preliminary
      court approval on September 12, 2007 but final court approval was not obtained
      by the time that the Company filed for bankruptcy. The matter represents a
      pre-petition unsecured claim subject to resolution under the bankruptcy
      proceeding. The Company previously recorded the expected settlement of $7.2
      million in the accrued litigation reserve. This amount is a pre-petition
      liability and is classified in “Liabilities Subject to Compromise” in the
      accompanying unaudited condensed consolidated balance sheet.




In
      June
      2006, a lawsuit was filed in the Berkeley County (West Virginia) circuit court
      on behalf of three plaintiffs alleging wage and hour violations against Ryan’s
      Restaurant Group, Inc. and certain of its executives. This complaint is a class
      action lawsuit brought on behalf of hourly employees who worked for Ryan’s in
      West Virginia since July 2001. In July 2006, Defendants removed the lawsuit
      to
      the United States District Court for the Northern District of West Virginia.
      In
      February 2007, the Court denied Plaintiffs motion to remand the matter back
      to
      West Virginia state court. The plaintiffs seek compensatory damages, penalties,
      restitution of unpaid wages and deductions, pre-judgment interest, costs of
      suit
      and reasonable attorneys’ fees. The complaint does not make a specific monetary
      demand. At the time of the Company’s bankruptcy filing, the West Virginia action
      was in a preliminary stage and the Company’s liability, if any, was
      undeterminable. The matter represents a contested pre-petition claim that is
      stayed pursuant to the bankruptcy proceeding.




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




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




22




**14** **.
      Subsequent Events**




*Draw
      Under New Money Facility*




On
      April
      30, 2008, the Company drew the remaining $55 million available under the new
      money facility portion of the DIP Credit Agreement. These proceeds are being
      used to fund the continued operations of the Debtors’ businesses as
      debtors-in-possession under the Bankruptcy Code, pay certain expenses and fees
      incurred by the Company in connection with the Bankruptcy Cases, support the
      Debtors’ working capital needs and for general corporate purposes.




**15.
      Condensed Consolidating Financial Statements**




The
      following condensed consolidating financial statements are presented pursuant
      to
      Rule 3-10 of Regulation S-X. Buffets, Inc. is an issuer (the “Subsidiary
      Issuer”) of 121⁄2% 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.




23




**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
            )
            $
            6,485
            
            $
            —
            
            $
            4,670Receivables
            
            
            (312
            )
            
            1,944
            
            
            337,143
            
            
            (328,556
            )
            
            10,219Income
                tax receivable
            
            
            —
            
            
            13,324
            
            
            —
            
            
            —
            
            
            13,324Inventories
            
            
            —
            
            
            858
            
            
            31,978
            
            
            —
            
            
            32,836Prepaid
                expenses and other current assets
            
            
            —
            
            
            6,383
            
            
            2,406
            
            
            —
            
            
            8,789Assets
                held for sale
            
            
            —
            
            
            —
            
            
            48,145
            
            
            —
            
            
            48,145Deferred
                income taxes
            
            
            —
            
            
            3,000
            
            
            —
            
            
            —
            
            
            3,000Total
                current assets
            
            
            (275
            )
            
            23,657
            
            
            426,157
            
            
            (328,556
            )
            
            120,983PROPERTY
                AND EQUIPMENT, net
            
            
            —
            
            
            7,577
            
            
            213,515
            
            
            —
            
            
            221,092GOODWILL
            
            
            —
            
            
            11,442
            
            
            486,050
            
            
            —
            
            
            497,492OTHER
                INTANGIBLE ASSETS
            
            
            —
            
            
            —
            
            
            84,410
            
            
            —
            
            
            84,410INVESTMENT
                IN SUBSIDIARIES
            
            
            (194,447
            )
            
            124,476
            
            
            —
            
            
            69,971
            
            
            —OTHER
                ASSETS, net
            
            
            38
            
            
            183,407
            
            
            3,447
            
            
            (149,800
            )
            
            37,092Total
                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
            
            
            63,008
            
            
            —
            
            
            133,920Income
                taxes payable
            
            
            6,274
            
            
            18,062
            
            
            —
            
            
            —
            
            
            24,336Short-term
                debt
            
            
            —
            
            
            299
            
            
            12,701
            
            
            
            
            
            13,000Current
                maturities of long-term debt
            
            
            —
            
            
            152
            
            
            6,473
            
            
            —
            
            
            6,625Total
                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
                LEASE OBLIGATIONS
            
            
            —
            
            
            2,328
            
            
            35,881
            
            
            —
            
            
            38,209DEFERRED
                INCOME TAXES
            
            
            —
            
            
            33,456
            
            
            —
            
            
            —
            
            
            33,456OTHER
                LONG-TERM LIABILITIES
            
            
            —
            
            
            2,842
            
            
            6,499
            
            
            —
            
            
            9,341Total
                liabilities
            
            
            6,274
            
            
            545,006
            
            
            1,089,103
            
            
            (478,356
            )
            
            1,162,027SHAREHOLDER’S
                EQUITY (DEFICIT)Common
                stock
            
            
            31
            
            
            —
            
            
            —
            
            
            —
            
            
            31Additional
                paid in capital
            
            
            82
            
            
            —
            
            
            —
            
            
            —
            
            
            82Retained
                earnings (accumulated deficit)
            
            
            (201,129
            )
            
            (194,505
            )
            
            124,476
            
            
            70,029
            
            
            (201,129
            )Accumulated
                other comprehensive income
            
            
            58
            
            
            58
            
            
            —
            
            
            (58
            )
            
            58Total
                shareholder’s equity (deficit)
            
            
            (200,958
            )
            
            (194,447
            )
            
            124,476
            
            
            69,971
            
            
            (200,958
            )Total
                liabilities and shareholder’s equity (deficit)
            
            $
            (194,684
            )
            $
            350,559
            
            $
            1,213,579
            
            $
            (408,385
            )
            $
            961,069




24




**CONDENSED
      CONSOLIDATING BALANCE SHEET**


**As
      of April 2, 2008**




**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated**(In
                  Thousands)**ASSETS**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              36
              
              $
              27,862
              
              $
              6,601
              
              $
              —
              
              $
              34,499Receivables
              
              
              (6,585
              )
              
              558
              
              
              562,279
              
              
              (548,445
              )
              
              7,807Income
                  tax receivable
              
              
              —
              
              
              892
              
              
              —
              
              
              —
              
              
              892Inventories
              
              
              —
              
              
              874
              
              
              29,894
              
              
              —
              
              
              30,768Restricted
                  cash
              
              
              —
              
              
              3,556
              
              
              —
              
              
              —
              
              
              3,556Prepaid
                  expenses and other current assets
              
              
              —
              
              
              11,949
              
              
              8,131
              
              
              —
              
              
              20,080Assets
                  held for sale
              
              
              —
              
              
              —
              
              
              5,737
              
              
              —
              
              
              5,737Total
                  current assets
              
              
              (6,549
              )
              
              45,691
              
              
              612,642
              
              
              (548,445
              )
              
              103,339PROPERTY
                  AND EQUIPMENT, net
              
              
              —
              
              
              6,260
              
              
              200,551
              
              
              —
              
              
              206,811GOODWILL
              
              
              —
              
              
              3,185
              
              
              135,315
              
              
              —
              
              
              138,500OTHER
                  INTANGIBLE ASSETS
              
              
              —
              
              
              —
              
              
              60,759
              
              
              —
              
              
              60,759INVESTMENT
                  IN SUBSIDIARIES
              
              
              (698,855
              )
              
              (166,822
              )
              
              —
              
              
              865,677
              
              
              —OTHER
                  ASSETS, net
              
              
              38
              
              
              181,446
              
              
              6,378
              
              
              (149,800
              )
              
              38,062Total
                  assets
              
              $
              (705,366
              )
              $
              69,760
              
              $
              1,015,645
              
              $
              167,432
              
              $
              547,471**LIABILITIES
                  AND SHAREHOLDER’S DEFICIT**LIABILITIES
                  NOT SUBJECT TO COMPROMISECURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              —
              
              $
              585,318
              
              $
              7,493
              
              $
              (548,445
              )
              $
              44,366Accrued
                  liabilities
              
              
              —
              
              
              37,481
              
              
              42,842
              
              
              —
              
              
              80,323Income
                  taxes payable
              
              
              —
              
              
              26
              
              
              —
              
              
              —
              
              
              26Short-term
                  debt
              
              
              —
              
              
              690
              
              
              29,310
              
              
              —
              
              
              30,000Current
                  maturities of long-term debt
              
              
              —
              
              
              4,600
              
              
              195,400
              
              
              —
              
              
              200,000Total
                  current liabilities
              
              
              —
              
              
              628,115
              
              
              275,045
              
              
              (548,445
              )
              
              354,715LONG-TERM
                  DEBT, net of current maturities
              
              
              —
              
              
              —
              
              
              149,800
              
              
              (149,800
              )
              
              —DEFERRED
                  LEASE OBLIGATIONS
              
              
              —
              
              
              2,600
              
              
              40,504
              
              
              —
              
              
              43,104DEFERRED
                  INCOME TAXES
              
              
              —
              
              
              26,873
              
              
              —
              
              
              —
              
              
              26,873LONG-TERM
                  TAXES PAYABLE
              
              
              —
              
              
              621
              
              
              —
              
              
              —
              
              
              621OTHER
                  LONG-TERM LIABILITIES
              
              
              —
              
              
              2,389
              
              
              4,001
              
              
              —
              
              
              6,390Total
                  liabilities not subject to compromise
              
              
              —
              
              
              660,598
              
              
              469,350
              
              
              (698,245
              )
              
              431,703LIABILITIES
                  SUBJECT TO COMPROMISE
              
              
              —
              
              
              108,017
              
              
              713,117
              
              
              —
              
              
              821,134SHAREHOLDER’S
                  DEFICITCommon
                  stock
              
              
              31
              
              
              —
              
              
              —
              
              
              —
              
              
              31Additional
                  paid in capital
              
              
              82
              
              
              —
              
              
              —
              
              
              —
              
              
              82Accumulated
                  deficit
              
              
              (705,493
              )
              
              (698,869
              )
              
              (166,836
              )
              
              865,705
              
              
              (705,493
              )Accumulated
                  other comprehensive income
              
              
              14
              
              
              14
              
              
              14
              
              
              (28
              )
              
              14Total
                  shareholder’s deficit
              
              
              (705,366
              )
              
              (698,855
              )
              
              (166,822
              )
              
              865,677
              
              
              (705,366
              )Total
                  liabilities and shareholder’s deficit
              
              $
              (705,366
              )
              $
              69,760
              
              $
              1,015,645
              
              $
              167,432
              
              $
              547,471




25




**CONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONS**


**For
      the Sixteen Weeks Ended April 4, 2007**




**Parent**
            
            **Subsidiary**
              **Issuer**
            
            **Subsidiary**
              **Guarantors**
            
            **Eliminations**
            
            **Consolidated**(In
                Thousands)RESTAURANT
                SALES
            
            $
            —
            
            $
            12,745
            
            $
            496,457
            
            $
            —
            
            $
            509,202RESTAURANT
                COSTS:Food
            
            
            —
            
            
            4,633
            
            
            171,739
            
            
            —
            
            
            176,372Labor
            
            
            —
            
            
            3,920
            
            
            151,394
            
            
            —
            
            
            155,314Direct
                and occupancy
            
            
            —
            
            
            2,051
            
            
            128,690
            
            
            —
            
            
            130,741Total
                restaurant costs
            
            
            —
            
            
            10,604
            
            
            451,823
            
            
            —
            
            
            462,427ADVERTISING
                EXPENSES
            
            
            —
            
            
            148
            
            
            7,771
            
            
            —
            
            
            7,919GENERAL
                AND ADMINISTRATIVE EXPENSES
            
            
            —
            
            
            549
            
            
            21,751
            
            
            —
            
            
            22,300CLOSED
                RESTAURANT COSTS
            
            
            —
            
            
            —
            
            
            1,363
            
            
            —
            
            
            1,363LOSS
                ON LITIGATION SETTLEMENTS
            
            
            —
            
            
            6,045
            
            
            —
            
            
            
            
            
            6,045MERGER
                INTEGRATION COSTS
            
            
            —
            
            
            2,580
            
            
            905
            
            
            —
            
            
            3,485OPERATING
                INCOME (LOSS)
            
            
            —
            
            
            (7,181
            )
            
            12,844
            
            
            —
            
            
            5,663OTHER
                INCOME
            
            
            —
            
            
            (194
            )
            
            —
            
            
            —
            
            
            (194
            )INTEREST
                INCOME
            
            
            —
            
            
            (60
            )
            
            —
            
            
            —
            
            
            (60
            )INTEREST
                EXPENSE
            
            
            —
            
            
            1,702
            
            
            26,678
            
            
            —
            
            
            28,380LOSS
                RELATED TO REFINANCING
            
            
            —
            
            
            840
            
            
            —
            
            
            —
            
            
            840LOSS
                BEFORE INCOME TAXES AND EQUITY
              IN
                NET LOSS OF SUBSIDIARIES
            
            
            —
            
            
            (9,469
            )
            
            (13,834
            )
            
            —
            
            
            (23,303
            )INCOME
                TAX EXPENSE (BENEFIT)
            
            
            (18,371
            )
            
            7,867
            
            
            1,598
            
            
            —
            
            
            (8,906
            )Net
                income (loss) before equity in net loss of subsidiaries
            
            
            18,371
            
            
            (17,336
            )
            
            (15,432
            )
            
            —
            
            
            (14,397
            )Equity
                in net loss of subsidiaries
            
            
            (32,768
            )
            
            (15,432
            )
            
            —
            
            
            48,200
            
            
            —Net
                loss
            
            $
            (14,397
            )
            $
            (32,768
            )
            $
            (15,432
            )
            $
            48,200
            
            $
            (14,397
            )




26




**CONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONS**


**For
      the Forty Weeks Ended April 4, 2007**





**Parent**
            
            **Subsidiary**
              **Issuer**
            
            **Subsidiary**
              **Guarantors**
            
            **Eliminations**
            
            **Consolidated**(Unaudited)
                (In Thousands)RESTAURANT
                SALES
            
            $
            —
            
            $
            33,331
            
            $
            995,038
            
            $
            —
            
            $
            1,028,369RESTAURANT
                COSTS:Food
            
            
            —
            
            
            11,998
            
            
            343,558
            
            
            —
            
            
            355,556Labor
            
            
            —
            
            
            10,039
            
            
            298,491
            
            
            —
            
            
            308,530Direct
                and occupancy
            
            
            —
            
            
            2,161
            
            
            257,769
            
            
            —
            
            
            259,930Total
                restaurant costs
            
            
            —
            
            
            24,198
            
            
            899,818
            
            
            —
            
            
            924,016ADVERTISING
                EXPENSES
            
            
            —
            
            
            741
            
            
            22,127
            
            
            —
            
            
            22,868GENERAL
                AND ADMINISTRATIVE EXPENSES
            
            
            3
            
            
            1,501
            
            
            44,809
            
            
            —
            
            
            46,313CLOSED
                RESTAURANT COSTS
            
            
            —
            
            
            —
            
            
            2,922
            
            
            —
            
            
            2,922LOSS
                ON SALE LEASEBACK TRANSACTIONS
            
            
            —
            
            
            —
            
            
            2,498
            
            
            —
            
            
            2,498LOSS
                ON LITIGATION SETTLEMENTS
            
            
            —
            
            
            6,045
            
            
            —
            
            
            —
            
            
            6,045MERGER
                INTEGRATION COSTS
            
            
            —
            
            
            5,815
            
            
            1,184
            
            
            —
            
            
            6,999OPERATING
                INCOME (LOSS)
            
            
            (3
            )
            
            (4,969
            )
            
            21,680
            
            
            —
            
            
            16,708OTHER
                INCOME
            
            
            —
            
            
            (692
            )
            
            —
            
            
            —
            
            
            (692
            )INTEREST
                INCOME
            
            
            —
            
            
            (138
            )
            
            —
            
            
            —
            
            
            (138
            )INTEREST
                EXPENSE
            
            
            5,455
            
            
            3,212
            
            
            50,327
            
            
            —
            
            
            58,994LOSS
                RELATED TO REFINANCING
            
            
            18,044
            
            
            23,081
            
            
            —
            
            
            —
            
            
            41,125LOSS
                BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF SUBSIDIARIES
            
            
            (23,502
            )
            
            (30,432
            )
            
            (28,647
            )
            
            —
            
            
            (82,581
            )INCOME
                TAX BENEFIT
            
            
            (11,431
            )
            
            (11,121
            )
            
            (9,556
            )
            
            —
            
            
            (32,108
            )Net
                loss before equity in net loss of subsidiaries
            
            
            (12,071
            )
            
            (19,311
            )
            
            (19,091
            )
            
            —
            
            
            (50,473
            )Equity
                in net loss of subsidiaries
            
            
            (38,402
            )
            
            (19,091
            )
            
            —
            
            
            57,493
            
            
            —Net
                loss
            
            $
            (50,473
            )
            $
            (38,402
            )
            $
            (19,091
            )
            $
            57,493
            
            $
            (50,473
            )




27




**CONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONS**




**For
      the Sixteen Weeks Ended April 2, 2008**







**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated**(In
                  Thousands)RESTAURANT
                  SALES
              
              $
              —
              
              $
              12,540
              
              $
              454,410
              
              $
              —
              
              $
              466,950RESTAURANT
                  COSTS:Food
              
              
              —
              
              
              4,670
              
              
              159,753
              
              
              —
              
              
              164,423Labor
              
              
              —
              
              
              3,706
              
              
              137,170
              
              
              —
              
              
              140,876Direct
                  and occupancy
              
              
              —
              
              
              2,007
              
              
              121,428
              
              
              —
              
              
              123,435Total
                  restaurant costs
              
              
              —
              
              
              10,383
              
              
              418,351
              
              
              —
              
              
              428,734ADVERTISING
                  EXPENSES
              
              
              —
              
              
              256
              
              
              9,268
              
              
              —
              
              
              9,524GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              —
              
              
              599
              
              
              21,908
              
              
              (202
              )
              
              22,305CLOSED
                  RESTAURANT COSTS
              
              
              —
              
              
              —
              
              
              688
              
              
              —
              
              
              688IMPAIRMENT
                  OF ASSETS
              
              
              —
              
              
              200,114
              
              
              193,911
              
              
              —
              
              
              394,025LOSS
                  ON LITIGATION SETTLEMENTS
              
              
              —
              
              
              47
              
              
              —
              
              
              —
              
              
              47MERGER
                  INTEGRATION COSTS
              
              
              —
              
              
              631
              
              
              147
              
              
              —
              
              
              778OPERATING
                  LOSS
              
              
              —
              
              
              (199,490
              )
              
              (189,863
              )
              
              202
              
              
              (389,151
              )OTHER
                  INCOME
              
              
              —
              
              
              (4,765
              )
              
              —
              
              
              202
              
              
              (273
              )INTEREST
                  INCOME
              
              
              —
              
              
              (3
              )
              
              —
              
              
              —
              
              
              (3
              )INTEREST
                  EXPENSE
              
              
              —
              
              
              669
              
              
              28,464
              
              
              —
              
              
              29,133REORGANIZATION
                  ITEMS, net
              
              
              —
              
              
              6,253
              
              
              32,033
              
              
              —
              
              
              38,286LOSS
                  RELATED TO REFINANCING
              
              
              —
              
              
              1,666
              
              
              —
              
              
              —
              
              
              1,666LOSS
                  BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF SUBSIDIARIES
              
              
              —
              
              
              (207,600
              )
              
              (250,360
              )
              
              —
              
              
              (457,960
              )INCOME
                  TAX EXPENSE
              
              
              —
              
              
              925
              
              
              2,939
              
              
              —
              
              
              3,864Net
                  loss before equity in net loss of subsidiaries
              
              
              —
              
              
              (208,525
              )
              
              (253,299
              )
              
              —
              
              
              (461,824
              )Equity
                  in net loss of subsidiaries
              
              
              (461,824
              )
              
              (253,299
              )
              
              —
              
              
              715,123
              
              
              —Net
                  loss
              
              $
              (461,824
              )
              $
              (461,824
              )
              $
              (253,299
              )
              $
              715,123
              
              $
              (461,824
              )




28




**CONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONS**


**For
      the Forty Weeks Ended April 2, 2008**




**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated**(Unaudited)
                  (In Thousands)RESTAURANT
                  SALES
              
              $
              —
              
              $
              32,104
              
              $
              1,175,460
              
              $
              —
              
              $
              1,207,564RESTAURANT
                  COSTS:Food
              
              
              —
              
              
              11,784
              
              
              410,239
              
              
              —
              
              
              422,023Labor
              
              
              —
              
              
              9,554
              
              
              355,628
              
              
              —
              
              
              365,182Direct
                  and occupancy
              
              
              —
              
              
              4,935
              
              
              315,234
              
              
              —
              
              
              320,169Total
                  restaurant costs
              
              
              —
              
              
              26,273
              
              
              1,081,101
              
              
              —
              
              
              1,107,374ADVERTISING
                  EXPENSES
              
              
              —
              
              
              749
              
              
              27,432
              
              
              —
              
              
              28,181GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              —
              
              
              1,486
              
              
              54,895
              
              
              (505
              )
              
              55,876CLOSED
                  RESTAURANT COSTS
              
              
              —
              
              
              —
              
              
              3,574
              
              
              —
              
              
              3,574IMPAIRMENT
                  OF ASSETS
              
              
              —
              
              
              200,114
              
              
              200,278
              
              
              —
              
              
              400,392LOSS
                  ON LITIGATION SETTLEMENTS
              
              
              —
              
              
              131
              
              
              —
              
              
              —
              
              
              131MERGER
                  INTEGRATION COSTS
              
              
              —
              
              
              2,103
              
              
              2,349
              
              
              —
              
              
              4,452OPERATING
                  LOSS
              
              
              —
              
              
              (198,752
              )
              
              (194,169
              )
              
              505
              
              
              (392,416
              )OTHER
                  INCOME
              
              
              —
              
              
              (1,254
              )
              
              —
              
              
              505
              
              
              (749
              )INTEREST
                  INCOME
              
              
              —
              
              
              (165
              )
              
              —
              
              
              —
              
              
              (165
              )INTEREST
                  EXPENSE
              
              
              —
              
              
              1,644
              
              
              69,832
              
              
              —
              
              
              71,476REORGANIZATION
                  ITEMS, net
              
              
              —
              
              
              6,253
              
              
              32,033
              
              
              —
              
              
              38,286LOSS
                  RELATED TO REFINANCING
              
              
              —
              
              
              1,671
              
              
              —
              
              
              —
              
              
              1,671LOSS
                  BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF SUBSIDIARIES
              
              
              —
              
              
              (206,901
              )
              
              (296,034
              )
              
              —
              
              
              (502,935
              )INCOME
                  TAX EXPENSE
              
              
              —
              
              
              952
              
              
              1,364
              
              
              —
              
              
              2,316Net
                  loss before equity in net loss of subsidiaries
              
              
              —
              
              
              (207,853
              )
              
              (297,398
              )
              
              —
              
              
              (505,251
              )Equity
                  in net loss of subsidiaries
              
              
              (505,251
              )
              
              (297,398
              )
              
              —
              
              
              802,649
              
              
              —Net
                  loss
              
              $
              (505,251
              )
              $
              (505,251
              )
              $
              (297,398
              )
              $
              802,649
              
              $
              (505,251
              )




29




**CONDENSED
      CONSOLIDATING STATEMENT OF CASH FLOWS**


**For
      the Forty Weeks Ended April 4, 2007**





**Parent**
            
            **Subsidiary**
              **Issuer**
            
            **Subsidiary**
              **Guarantors**
            
            **Eliminations**
            
            **Consolidated**(In
                Thousands**)**OPERATING
                ACTIVITIES:Net
                loss
            
            $
            (50,473
            )
            $
            (38,402
            )
            $
            (19,091
            )
            $
            57,493
            
            $
            (50,473
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                activities:Depreciation
                and amortization
            
            
            —
            
            
            2,245
            
            
            28,429
            
            
            —
            
            
            30,674Amortization
                of debt issuance costs
            
            
            140
            
            
            62
            
            
            2,624
            
            
            —
            
            
            2,826Accretion
                of original issue discount
            
            
            5,315
            
            
            7
            
            
            301
            
            
            —
            
            
            5,623Loss
                related to financing:Write-off
                of debt issuance costs
            
            
            1,992
            
            
            154
            
            
            6,540
            
            
            —
            
            
            8,686Refinancing
                premiums expensed
            
            
            16,052
            
            
            358
            
            
            15,189
            
            
            —
            
            
            31,599Loss
                on disposal of assets
            
            
            —
            
            
            —
            
            
            710
            
            
            —
            
            
            710Loss
                on sale leaseback transactions
            
            
            —
            
            
            2,498
            
            
            —
            
            
            —
            
            
            2,498Deferred
                income taxes
            
            
            —
            
            
            (819
            )
            
            (34,791
            )
            
            —
            
            
            (35,610
            )Equity
                in earnings of subsidiaries
            
            
            38,402
            
            
            19,091
            
            
            —
            
            
            (57,493
            )
            
            —Changes
                in assets and liabilities:Receivables
            
            
            (12,903
            )
            
            142,055
            
            
            (132,013
            )
            
            3,417
            
            
            556Inventories
            
            
            —
            
            
            —
            
            
            (56
            )
            
            —
            
            
            (56
            )Prepaid
                expenses and other current assets
            
            
            3
            
            
            (2,687
            )
            
            12,347
            
            
            —
            
            
            9,663Due
                from parent
            
            
            (108
            )
            
            —
            
            
            108
            
            
            —
            
            
            —Accounts
                payable
            
            
            1,877
            
            
            14,469
            
            
            (8,807
            )
            
            —
            
            
            7,539Accrued
                and other liabilities
            
            
            —
            
            
            16,994
            
            
            (11,093
            )
            
            —
            
            
            5,901Income
                taxes receivable/payable
            
            
            1,814
            
            
            5,960
            
            
            (34,117
            )
            
            —
            
            
            (26,343
            )Net
                cash provided by (used in) operating activities
            
            
            2,111
            
            
            161,985
            
            
            (173,720
            )
            
            3,417
            
            
            (6,207
            )INVESTING
                ACTIVITIES:Proceeds
                from sale leaseback transactions
            
            
            —
            
            
            8,608
            
            
            —
            
            
            —
            
            
            8,608Proceeds
                from sale of assets held for sale
            
            
            —
            
            
            5,057
            
            
            —
            
            
            —
            
            
            5,057Issuance
                of notes receivable to Ryan’s
            
            
            —
            
            
            (149,800
            )
            
            —
            
            
            149,800
            
            
            —Acquisitions,
                net of liabilities assumed and cash acquired
            
            
            —
            
            
            (165,376
            )
            
            (3,418
            )
            
            —
            
            
            (168,794
            )Purchase
                of property and equipment
            
            
            —
            
            
            (1,036
            )
            
            (25,286
            )
            
            —
            
            
            (26,322
            )Corporate
                cash advances (payments)
            
            
            —
            
            
            380,337
            
            
            (376,920
            )
            
            (3,417
            )
            
            —Collection
                of notes receivable
            
            
            —
            
            
            713
            
            
            —
            
            
            —
            
            
            713Purchase
                of other assets
            
            
            33
            
            
            —
            
            
            281
            
            
            —
            
            
            314Net
                cash provided by (used in) investing activities
            
            
            33
            
            
            78,503
            
            
            (405,343
            )
            
            146,383
            
            
            (180,424
            )FINANCING
                ACTIVITIES:Repayment
                of pre-merger term loan facility
            
            
            —
            
            
            (4,187
            )
            
            (177,866
            )
            
            —
            
            
            (182,053
            )Repurchase
                of 111⁄4% senior subordinated notes
            
            
            —
            
            
            (4,158
            )
            
            (176,620
            )
            
            —
            
            
            (180,778
            )Repurchase
                of 137⁄8% senior discount notes
            
            
            (105,306
            )
            
            —
            
            
            —
            
            
            —
            
            
            (105,306
            )Repayment
                of Ryan’s debt
            
            
            —
            
            
            (145,000
            )
            
            —
            
            
            —
            
            
            (145,000
            )Proceeds
                from post-merger term loan funding
            
            
            —
            
            
            12,190
            
            
            517,810
            
            
            —
            
            
            530,000Repayment
                of post-merger term loan funding
            
            
            —
            
            
            (30
            )
            
            (1,295
            )
            
            
            
            
            (1,325
            )Proceeds
                from 121⁄2% senior note issuance
            
            
            —
            
            
            6,900
            
            
            293,100
            
            
            —
            
            
            300,000Proceeds
                from post-merger revolver facility
            
            
            —
            
            
            540
            
            
            22,960
            
            
            —
            
            
            23,500Proceeds
                from promissory note
            
            
            —
            
            
            115
            
            
            4,885
            
            
            —
            
            
            5,000Debt
                issuance costs
            
            
            —
            
            
            (844
            )
            
            (35,861
            )
            
            —
            
            
            (36,705
            )Payment
                of refinancing premiums
            
            
            (16,052
            )
            
            (380
            )
            
            (16,122
            )
            
            —
            
            
            (32,554
            )Dividends
            
            
            119,214
            
            
            (119,214
            )
            
            —
            
            
            —
            
            
            —Issuance
                of notes receivable from parent
            
            
            —
            
            
            —
            
            
            149,800
            
            
            (149,800
            )
            
            —Net
                cash provided by (used in) financing activities
            
            
            (2,144
            )
            
            (254,068
            )
            
            580,791
            
            
            (149,800
            )
            
            174,779NET
                CHANGE IN CASH AND CASH EQUIVALENTS
            
            
            —
            
            
            (13,580
            )
            
            1,728
            
            
            —
            
            
            (11,852
            )CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            37
            
            
            14,068
            
            
            6,114
            
            
            —
            
            
            20,219CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            37
            
            $
            488
            
            $
            7,842
            
            $
            —
            
            $
            8,367




30




**CONDENSED
      CONSOLIDATING STATEMENT OF CASH FLOWS**


**For
      the Forty Weeks Ended April 2, 2008**




**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated**(In
                  thousands)OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (505,251
              )
              $
              (505,251
              )
              $
              (297,398
              )
              $
              802,649
              
              $
              (505,251
              )Adjustments
                  to reconcile net loss to net cash provided by (used in) operating
                  activities:Depreciation
                  and amortization
              
              
              —
              
              
              1,902
              
              
              32,547
              
              
              —
              
              
              34,449Amortization
                  of debt issuance costs
              
              
              —
              
              
              102
              
              
              4,348
              
              
              —
              
              
              4,450Loss
                  on disposal of assets
              
              
              —
              
              
              4
              
              
              3,128
              
              
              —
              
              
              3,132Reorganization
                  items
              
              
              —
              
              
              6,253
              
              
              32,033
              
              
              —
              
              
              38,286Cash
                  reorganization items
              
              
              —
              
              
              (6,156
              )
              
              (1,504
              )
              
              —
              
              
              (7,660
              )Impairment
                  of assets
              
              
              —
              
              
              200,114
              
              
              200,278
              
              
              —
              
              
              400,392Deferred
                  income taxes
              
              
              —
              
              
              91
              
              
              3,873
              
              
              —
              
              
              3,964Equity
                  in earnings of subsidiaries
              
              
              505,251
              
              
              297,398
              
              
              —
              
              
              (802,649
              )
              
              —Changes
                  in assets and liabilities:Receivables
              
              
              6,273
              
              
              (6,858
              )
              
              2,999
              
              
              —
              
              
              2,414Inventories
              
              
              —
              
              
              (16
              )
              
              (2,111
              )
              
              —
              
              
              (2,127
              )Prepaid
                  expenses and other current assets
              
              
              —
              
              
              (6,076
              )
              
              (2,566
              )
              
              —
              
              
              (8,642
              )Accounts
                  payable
              
              
              —
              
              
              (3,684
              )
              
              2,798
              
              
              —
              
              
              (886
              )Accrued
                  and other liabilities
              
              
              —
              
              
              2,720
              
              
              937
              
              
              —
              
              
              3,657Income
                  taxes receivable/payable
              
              
              (6,274
              )
              
              23,144
              
              
              123
              
              
              —
              
              
              16,993Net
                  cash provided in (used in) operating activities
              
              
              (1
              )
              
              3,687
              
              
              (20,515
              )
              
              —
              
              
              (16,829
              )INVESTING
                  ACTIVITIES:Proceeds
                  from sale of assets held for sale
              
              
              —
              
              
              —
              
              
              17,951
              
              
              —
              
              
              17,951Cash
                  reorganization items
              
              
              —
              
              
              —
              
              
              333
              
              
              
              
              
              333Purchase
                  of property and equipment
              
              
              —
              
              
              (1,406
              )
              
              (27,492
              )
              
              —
              
              
              (28,898
              )Corporate
                  cash advances (payments)
              
              
              —
              
              
              28,166
              
              
              (28,166
              )
              
              —
              
              
              —Collection
                  of notes receivable
              
              
              —
              
              
              510
              
              
              —
              
              
              —
              
              
              510Proceeds
                  from sale (purchase) of other assets
              
              
              —
              
              
              689
              
              
              (741
              )
              
              —
              
              
              (52
              )Net
                  cash provided by (used in) investing activities
              
              
              —
              
              
              27,959
              
              
              (38,115
              )
              
              —
              
              
              (10,156
              )FINANCING
                  ACTIVITIES:Proceeds
                  from DIP financing
              
              
              —
              
              
              690
              
              
              29,310
              
              
              —
              
              
              30,000Repayment
                  of post-merger term loan facility
              
              
              —
              
              
              (107
              )
              
              (4,540
              )
              
              —
              
              
              (4,647
              )Proceeds
                  from post-merger revolving credit facility
              
              
              —
              
              
              1,018
              
              
              43,244
              
              
              —
              
              
              44,262Increase
                  in restricted cash
              
              
              —
              
              
              (3,556
              )
              
              —
              
              
              
              
              
              (3,556
              )Prefunded
                  letters of credit
              
              
              —
              
              
              —
              
              
              (3,734
              )
              
              
              
              
              (3,734
              )Utility
                  deposits
              
              
              —
              
              
              —
              
              
              (3,212
              )
              
              
              
              
              (3,212
              )Cash
                  reorganization items
              
              
              —
              
              
              78
              
              
              —
              
              
              
              
              
              78Debt
                  issuance costs
              
              
              —
              
              
              (55
              )
              
              (2,322
              )
              
              —
              
              
              (2,377
              )Net
                  cash provided by (used in) financing activities
              
              
              —
              
              
              (1,932
              )
              
              58,746
              
              
              —
              
              
              56,814NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              (1
              )
              
              29,714
              
              
              116
              
              
              —
              
              
              29,829CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              37
              
              
              (1,852
              )
              
              6,485
              
              
              —
              
              
              4,670CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              36
              
              $
              27,862
              
              $
              6,601
              
              $
              —
              
              $
              34,499




31




**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




*You
      should read the following discussion in conjunction with our unaudited condensed
      consolidated financial statements and related notes included elsewhere in this
      report. Unless the context indicates or requires otherwise, (i) the term
“Buffets Holdings” refers to Buffets Holdings, Inc.; (ii) the term “Buffets”
refers to Buffets, Inc., our principal operating subsidiary; (iii) the terms
      “we,” “our,” “ours,” and the “Company” refer to Buffets Holdings, Inc. and its
      subsidiaries. Some of the statements in the following discussion are
      forward-looking statements. See “Forward-Looking Statements and Risk Factors”
elsewhere in this filing. Historical results will not be indicative of future
      results due to the consummation of the merger transaction (the “Merger”) with
      Ryan’s Restaurant Group, Inc. (“Ryan’s”), the related refinancing of our
      indebtedness and Ryan’s indebtedness and the Bankruptcy Cases discussed in
“Recent Developments - Voluntary Chapter 11 Filing.”*




**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
      April 2, 2008, we had 563 company-owned steak-buffet restaurants and sixteen
      franchised locations in 42 states.




Restaurants
                operating as of June 27, 2007
            
            
            632For
                the forty week period ended April 2, 2008:Restaurants
                opened
            
            
            4Restaurants
                closed
            
            
            (73
            )Restaurants
                operating as of April 2, 2008
            
            
            563




In
      February 2008, we closed 52 restaurants in connection with the Bankruptcy Cases.
      See “Recent Developments — Store Closures” for further discussion of these store
      closures.




Buffets
      was founded in 1983 to develop buffet-style restaurants under the name Old
      Country Buffet ® .
      In
      October 1985, Buffets completed its initial public offering and was listed
      on
      The NASDAQ National Market. In September 1996, Buffets merged with HomeTown
      Buffet, Inc., which was developed by one of Buffets’ co-founders. In October
      2000, Buffets was acquired by Buffets Holdings, a company organized by
      investment funds affiliated with Caxton-Iseman Capital, LLC (“Caxton-Iseman
      Capital”), in a buyout from public shareholders. On November 1, 2006, Buffets
      merged (the “Merger”) with Ryan’s to create the nation’s largest steak-buffet
      restaurant chain by number of units and the second largest company in the family
      dining segment by sales volume. On January 22, 2008, we and each of our
      subsidiaries filed voluntary petitions for relief under Chapter 11 of the
      Bankruptcy Code. See “— Recent Developments — Voluntary Chapter 11 Filing” for
      further details.




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




32




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




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




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




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




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




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




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




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




·
              Impairment
                  of assets reflects fair market adjustments to the carrying value
                  of
                  long-lived assets, as well as adjustments to the carrying value
                  of
                  goodwill and other intangible
                  assets.




·
            Loss
                on sale leaseback transactions reflects transaction costs and net
                impairment losses associated with the sale and leaseback of the leasehold
                interests and leasehold improvements of seven restaurants related
                to the
                November 1, 2006 refinancing.




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




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




·
              Reorganization
                  items are expense or income
                  items that were incurred or realized due to the Bankruptcy Cases.
                  These
                  items include professional fees and similar types of expenses incurred
                  as
                  a direct result of the Bankruptcy Cases, loss accruals or gains
                  or losses
                  resulting from activities of the reorganization process, costs
                  and claims,
                  which stem from the rejection of leases and other executory contracts,
                  and
                  interest earned on excess cash accumulated during the Bankruptcy
                  Cases.


·
            Other
                income primarily reflects franchise fees earned.




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




33




·
            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
                111⁄4%
                senior subordinated notes and 137⁄8% senior discount notes, which were
                repurchased and/or redeemed on, or shortly after, November 1,
                2006.




·
            Loss
                related to refinancing for fiscal year 2007 represents transaction
                costs
                associated with amendments to Buffets’ Amended and Restated Credit
                Agreement and repurchasing or redeeming our 111⁄4% senior subordinated notes
                and 137⁄8% senior discount notes on or shortly after November 1, 2006. Loss
                related to refinancing for fiscal year 2008 represents transaction
                costs
                associated with amendments to Buffets’ current credit facility as well as
                the DIP Credit Agreement.




·
            Income
                tax expense (benefit) reflects the current and deferred tax benefit
                determined in accordance with the provisions of SFAS 109,*Accounting
                for Income Taxes.*




**Recent
      Developments**




***Voluntary
        Chapter 11 Filing***




On
      January 22, 2008 (the “Petition Date”), Buffets Holdings, Inc. (“Buffets
      Holdings”) and each of its subsidiaries, including Buffets, Inc, (collectively,
      the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the
      United States Bankruptcy Code (the “Bankruptcy Code”) with the United States
      Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), Case
      Number 08-10141 (collectively, the “Bankruptcy Cases”). On January 29, 2008, the
      official committee of unsecured creditors was appointed in the Bankruptcy Cases.
      The Company is continuing to operate the business as a debtor-in-possession
      under the jurisdiction of the Bankruptcy Court and in accordance with the
      applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy
      Court. In general, as a debtor-in-possession, the Company is authorized under
      the Bankruptcy Code to continue to operate as an ongoing business, but may
      not
      engage in transactions outside the ordinary course of business without the
      prior
      approval of the Bankruptcy Court.




***DIP
      Credit Agreement***




On
      January 22, 2008, the Company entered into a Debtor-In-Possession Credit
      Agreement (the “DIP Credit Agreement”) among the Company, Buffets, the lenders
      named therein, and Credit Suisse, as Administrative Agent and Collateral Agent.
      The DIP Credit Agreement received interim approval by the Bankruptcy Court
      on
      January 23, 2008 and final approval on February 22, 2008. The DIP Credit
      Agreement provides for $200 million of borrowings under the Pre-Petition Credit
      Facility (as defined in “Credit Facilities and Other Long-Term Debt”) that were
      rolled into the DIP Credit Agreement and an $85 million new money facility.
      Of
      the $85 million new money facility, $30 million was drawn on January 23, 2008
      and $55 million was drawn on April 30, 2008. The proceeds of the new money
      facility incurred under the DIP Credit Agreement are being used to fund the
      continued operations of the Debtors’ business, pay certain expenses and fees
      incurred in connection with the Bankruptcy Cases, support the Debtors’ working
      capital needs and for general corporate purposes. The Company entered into
      the
      first amendment to the DIP Credit Agreement on January 22, 2008, just prior
      to
      the Bankruptcy Court’s final approval to reduce the amount of pre-petition
      borrowings rolled into the DIP Credit Agreement from $300 million to $200
      million. See “Credit Facilities and Other Long-Term Debt” for further discussion
      regarding the DIP Credit Agreement.




34


***Going
      Concern***




The
      accompanying condensed consolidated financial statements are prepared on a
      going
      concern basis, which contemplates the realization of assets and the satisfaction
      of liabilities in the normal course of business. However, the Bankruptcy Cases
      raise substantial doubt about the Company’s ability to remain a going
      concern. **** The
      Company’s continuation as a going concern is contingent upon, among other
      things, its ability (i) to comply with the terms and conditions of the DIP
      Credit Agreement; (ii) to reduce administrative, operating and interest costs
      and liabilities through the bankruptcy process; (iii) to generate sufficient
      cash flow from operations; (iv) to return to profitability; (v) to obtain
      confirmation of a plan of reorganization under the Bankruptcy Code and (vi)
      to
      obtain financing in order to exit from bankruptcy. In the event the Company’s
      restructuring activities are not successful and it is required to liquidate,
      additional significant adjustments will be necessary in the carrying value
      of
      assets and liabilities, the revenues and expenses reported and the balance
      sheet
      classifications used.




***Store
      Closures***




On
      February 7, 2008, we approved the closure of 52 underperforming restaurants,
      consisting primarily of leased properties located in 23 states. All but one
      of
      the applicable restaurants were closed on February 10 th and
      11 th .
      Our
      ongoing analysis and review of our restaurant portfolio determined that these
      restaurants did not have the potential to deliver acceptable returns on invested
      capital. In connection with the restaurant closures, we terminated the
      employment of 2,200 to 2,300 employees. Cash charges of approximately $2.4
      million were incurred related to these restaurant closures. These charges
      included approximately $0.9 million related to lease termination costs and
      obligations, $1.2 million related to employee termination costs and
      approximately $0.3 million related to other associated costs. Non-cash charges
      related to these closures were approximately $5.2 million.


***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.


***Asset
      Impairments***




During
        the third quarter of fiscal year 2008, the Company completed
        an assessment of the fair value of individual assets and liabilities to assess
        goodwill and other intangible assets as of April 2, 2008. As a
        result of this independent assessment, it was determined that goodwill was
        impaired. The Company recognized a charge of $384.0 million related to the
        impairment of goodwill and certain other intangible assets. In addition,
        the
        Company recognized a charge of $16.4 million related to the impairment of
        certain long-lived assets. Both of these charges are included in “Impairment of
        Assets” in the Company’s unaudited condensed consolidated statement of
        operations. These impairment charges are material, but will not result in
        future
        cash expenditures and will not result in any significant changes to the
        Company’s operations other than those communicated as part of its restructuring
        plans.




**Critical
      Accounting Policies**




Our
      accompanying unaudited 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.


35




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




Impairment
      charges related to long-lived assets of approximately $16.4 million, primarily
      related to assets currently held for sale, were recorded in the first forty
      weeks of fiscal year 2008. No impairment charges were recorded in the first
      forty weeks of fiscal year 2007.




***Goodwill
      and Other Intangible Assets***




The
      Company tests the recoverability of goodwill and other intangible assets
      annually or whenever events or circumstances indicate that the carrying amount
      may not be recoverable. Goodwill and other intangible assets are deemed to
      be
      impaired if the fair value of a reporting segment 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
      segment’s goodwill or other intangible assets exceeds their implied fair value.
      The fair value of a reporting segment 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.




On
        January 22, 2008, the Company voluntarily filed for relief under Chapter
        11 of
        the United States Bankruptcy Code. As a result of the Bankruptcy Cases and
        the
        events leading up to them, 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 Bankruptcy Cases
        and the development of the reorganization plan, the Company completed
        an assessment of the fair value of individual assets and liabilities to assess
        goodwill and other intangible assets as of April 2, 2008. As a
        result of this independent assessment, it was determined that goodwill was
        impaired. During the third quarter of fiscal 2008, the Company recognized
        a
        charge of $384.0 million related to the impairment of goodwill and certain
        other
        intangible assets, which is included in “Impairment of Assets” in the
        accompanying unaudited condensed consolidated statement of operations. This
        impairment charge is material, but will not result in future cash expenditures
        and will not result in any significant changes to the Company’s operations other
        than those communicated as part of the restructuring plans. The
        independent assessment used projections of future cash flows from the reporting
        segment. These projections are based on growth rates, anticipated future
        economic conditions, the appropriate discount rates relative to risk, and
        estimates of residual values. The Company believes that the estimates used
        are
        consistent with assumptions that marketplace participants would use in their
        estimates of fair value.If
        changes in growth rates, future economic conditions, discount rates, or
        estimates of residual values were to occur, goodwill may become impaired.No impairment charge was recorded during the first forty weeks of
        fiscal
        year 2007.




The
          goodwill impairment review was conducted in accordance with Statement of
          Financial Accounting Standard No. 142 (SFAS 142) *Goodwill
          and Other Intangibles* .
          SFAS
          142 requires a two step process in assessing goodwill. The first step is
          to
          determine if impairment has occurred whereas the second step determines
          the
          amount of such impairment. As part of the second step the company valued,
          among
          other things, its real and personal property, trademarks, recipes and franchisee
          agreements. This valuation concluded that there was approximately $192.2
          million
          of unrecognized value in the aforementioned assets, and while not recognized
          for
          accounting purposes, were a significant component of the offsetting recognized
          diminution in value of its goodwill.




***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.




36




***Closed
      Restaurant Reserve***




We
      maintain a closed restaurant reserve for certain restaurants that are no longer
      operating. The closed restaurant costs are principally comprised of our
      estimates of lease termination costs and obligations, net of sublease and other
      cash receipts, and employee termination costs. Many factors including the local
      business environment, other available lease sites, the ability to secure
      subleases, the creditworthiness of subtenants, and our success at negotiating
      early termination agreements with lessors are considered in establishing the
      accruals. Adjustments to the reserve primarily relate to changes in subtenant
      income or actual exit costs differing from original estimates. Adjustments
      are
      made for changes in estimates in the period in which the changes become known.
      The store closing reserve (current and non-current in aggregate) was $1.7
      million and $0.8 million as of June 27, 2007 and April 2, 2008,
      respectively.




***Liabilities
      Subject to Compromise***




Under
      bankruptcy law, actions by creditors to collect amounts owed prior to the
      Petition Date are stayed and certain other pre-petition contractual obligations
      may not be enforced against us. Substantially all unsecured liabilities as
      of
      the Petition Date, except those covered under certain first day motions filed
      with the Bankruptcy Court, have been classified as “Liabilities Subject to
      Compromise” in the current fiscal year condensed consolidated balance
      sheet.




***Reorganization
      Items***




Reorganization
      items are expense or income items that were incurred or realized due to the
      Bankruptcy Cases. These items include professional fees and similar types of
      expenses incurred as a direct result of the Bankruptcy Cases, loss accruals
      or
      gains or losses resulting from activities of the reorganization process, costs
      and claims, which stem from the rejection of leases and other executory
      contracts, and interest earned on excess cash accumulated during the Bankruptcy
      Cases.




***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
      gift cards to our customers. Proceeds from the sale of gift cards/certificates
      are initially recorded as a liability when received. Revenues from the sale
      of
      gift cards at our restaurants are recognized upon redemption. In estimating
      the
      related gift card/certificate liability, we analyze historical trends to derive
      our estimates of future gift card/certificate redemption patterns. The
      assumptions and activity are closely monitored for changes in escheatment laws
      and redemption patterns. We adjust our gift card/certificate liability based
      on
      historical and expected non-redemption trends. These adjustments are classified
      within “Direct and Occupancy Costs” in our accompanying condensed consolidated
      statements of operations. Our gift card/certificate liability was $5.4 million
      as of both June 27, 2007 and April 2, 2008.




37




***Share
      Based Compensation***




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




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




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




There
      was
      no financial statement impact associated with the adoption of SFAS 123(R) and
      we
      did not recognize or record any share-based compensation for the forty week
      periods ending April 4, 2007 and April 2, 2008.




***Lease
      Accounting***




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




***Merger
      Integration Costs***




Merger
      integration costs represent professional fees, performance bonuses, employee
      travel and expenses and other costs related to integration activities associated
      with the acquisitions of Ryan’s and North’s Restaurants, Inc. Merger integration
      costs of approximately $15.4 million have been expensed as incurred since
      November 1, 2006, of which approximately $4.5 million were expensed in the
      first
      three quarters of fiscal 2008 are recorded in “Merger Integration Costs” in the
      accompanying unaudited condensed consolidated statements of
      operations.




38




**Results
      of Operations**




*The
      following discussion reflects our historical results for the sixteen-week
      periods ended April 4, 2007 and April 2, 2008. 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 sixteen-week periods ended
      April 2, 2008 and April 4, 2007. Our future results may not be consistent with
      our historical results due to the Bankruptcy Cases. The following discussion
      should be read in conjunction with our condensed consolidated financial
      statements and related notes included elsewhere in this
      report.*




**Sixteen
                  Weeks Ended****April
                  4,**
                **2007**
              
              **April
                  2,**
                **2008**(Dollars
                  in Thousands)**Significant
                  items that impacted results of operations:**Closed
                  restaurant costs(1)
              
              $
              1,363
              
              $
              688Impairment
                  of assets(2)
              
              
              —
              
              
              394,025Loss
                  on litigation(3)
              
              
              6,045
              
              
              47Merger
                  integration costs(4)
              
              
              3,485
              
              
              778


——————


(1)
            Closed
                restaurant costs were $1.4 million for the sixteen-weeks ended April
                4,
                2007 as compared to $0.7 million for the sixteen-weeks ended April
                2,
                2008. During the third quarter of fiscal 2007, we closed six
                underperforming restaurants in the normal business course. During
                the
                third quarter of fiscal 2008, we closed 53 restaurants, of which
                52 were
                related to the Bankruptcy Cases. As a result, costs associated with
                these
                52 closures were recognized as “Reorganization Items, net” in the
                accompanying unaudited condensed consolidated statement of operations.
                The
                $0.7 million in closed restaurant costs shown in the table above
                relates
                to the other restaurant closed in the third quarter and additional
                costs
                incurred on previously closed restaurants. See Note 10 — “Reorganization
                Items” to our accompanying unaudited condensed consolidated financial
                statements for further discussion of costs related to the 52 restaurant
                closures.




(2)
              We
                  test property and equipment, as well as goodwill and other intangibles,
                  annually or whenever events or circumstances indicate that the
                  carrying
                  amount of a restaurant’s assets may not be recoverable. Assets are grouped
                  and evaluated for impairment at the lowest level for which there
                  are
                  identifiable cash flows, namely as individual restaurants. During
                  the
                  third quarter of fiscal year 2008 we recognized losses of approximately
                  $10.0 million related to impairments of the carrying value of our
                  long-lived assets for five restaurants the Company intends to sell
                  and one
                  land parcel currently held in property and equipment, as the carrying
                  value of these long-lived assets exceeded their fair value. In
                  addition,
                  we recognized losses of approximately $384.0 million related to
                  the
                  impairment of goodwill and certain intangible assets. No impairment
                  was
                  recorded during the third quarter of fiscal year
                  2007.




(3)
            Loss
                on litigation settlements represents the costs associated with the
                settlement of a class action lawsuit against HomeTown Buffet, Inc.
                and OCB
                Restaurant Company, LLC. The precise terms of the settlement are
                subject
                to continuing negotiation, and the final settlement is subject to
                court
                approval. While we are currently not able to predict the outcome
                of this
                action, we have accrued approximately $6.0 million to resolve this
                matter.
                This is a pre-petition liability and is classified as “Liabilities Subject
                to Compromise” in the accompanying unaudited condensed consolidated
                balance sheet.




(4)
            Merger
                integration costs represents professional fees and employee travel
                and
                expenses related to integration activities associated with the
                Merger.




39




**Sixteen** **Weeks Ended April 2, 2008 Compared To Sixteen Weeks Ended April 4,
      2007:**




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:




**Sixteen
                  Weeks Ended****April
                  4, 2007**
              
              **April
                  2, 2008**(Dollars
                  in Thousands)Restaurant
                  sales
              
              $
              509,202
              
              
              100.0
              %
              $
              466,950
              
              
              100.0
              %Restaurant
                  costs:Food
              
              
              176,372
              
              
              34.6
              
              
              164,423
              
              
              35.2Labor
              
              
              155,314
              
              
              30.5
              
              
              140,876
              
              
              30.2Direct
                  and occupancy
              
              
              130,741
              
              
              25.7
              
              
              123,435
              
              
              26.4Total
                  restaurant costs
              
              
              462,427
              
              
              90.8
              
              
              428,734
              
              
              91.8Advertising
                  expenses
              
              
              7,919
              
              
              1.6
              
              
              9,524
              
              
              2.0General
                  and administrative expenses
              
              
              22,300
              
              
              4.4
              
              
              22,305
              
              
              4.8Closed
                  restaurant costs
              
              
              1,363
              
              
              0.3
              
              
              688
              
              
              0.1Impairment
                  of assets
              
              
              —
              
              
              0.0
              
              
              394,025
              
              
              84.4Loss
                  on litigation settlements
              
              
              6,045
              
              
              1.2
              
              
              47
              
              
              0.0Merger
                  integration costs
              
              
              3,485
              
              
              0.7
              
              
              778
              
              
              0.2Operating
                  income (loss)
              
              
              5,663
              
              
              1.1
              
              
              (389,151
              )
              
              (83.7
              )Other
                  income
              
              
              (194
              )
              
              (0.0
              )
              
              (273
              )
              
              (0.1
              )Interest
                  income
              
              
              (60
              )
              
              (0.0
              )
              
              (3
              )
              
              (0.0
              )Interest
                  expense
              
              
              28,380
              
              
              5.6
              
              
              29,133
              
              
              6.2Reorganization
                  items, net
              
              
              —
              
              
              0.0
              
              
              38,286
              
              
              8.2Loss
                  related to refinancing
              
              
              840
              
              
              0.2
              
              
              1,666
              
              
              0.4Loss
                  before income taxes
              
              
              (23,303
              )
              
              (4.6
              )
              
              (457,960
              )
              
              (98.1
              )Income
                  tax expense (benefit)
              
              
              (8,906
              )
              
              (1.7
              )
              
              3,864
              
              
              0.8Net
                  loss
              
              $
              (14,397
              )
              
              (2.8
              )
              $
              (461,824
              )
              
              (98.9
              )




*Certain
      Percentage Amounts Do Not Sum To Total Due To Rounding.*




*Restaurant
      Sales.* Restaurant sales decreased $42.3 million, or 8.3%, during the sixteen week
      period ended April 2, 2008 over the comparable prior year period, primarily
      due
      to a decline in customer guest counts and a decrease in the number of stores
      operating during the period.




Average
      weekly sales during the third quarter of fiscal 2008 for the Buffets brand
      restaurants, which include the Old Country Buffet ® and
      HomeTown Buffet ® brands,
      increased approximately 1.0% to $52,611 as compared to the comparable prior
      year
      period. Same store sales for the third quarter of fiscal 2008 decreased by
      1.4%
      for the Buffets brand restaurants as compared to the prior year. This decrease
      was primarily attributable to a 2.4% decline in guest traffic, partially offset
      by a 1.0% increase in average check. Average weekly sales for the third quarter
      of fiscal 2008 for the Ryan’s brand restaurants, which include the
      Ryan’s ® and Fire
      Mountain ® brands,
      decreased by 2.8% to $43,175 as compared to the comparable prior year period.
      Same store sales for the third quarter decreased by 6.1% for the Ryan’s brand
      restaurants as compared to the prior year. This decrease was primarily
      attributable to a 7.6% decline in guest traffic, partially offset by a 1.5%
      increase in average check. Same store sales calculations reflect those
      restaurants that have been in operation for at least eighteen operating
      periods.




*Food
      costs.* Total
      food costs decreased $11.9 million, or 6.8%, during the sixteen-week period
      ended April 2, 2008 over the comparable prior year period, in part due to the
      decline in guest counts and a decrease in the number of stores operating during
      the period. Food costs as a percentage of sales increased by 60 basis points
      during the third quarter of fiscal 2008 as compared to the prior year period,
      primarily due to increases in the price of certain menu items such as steak,
      chicken, dairy and oil-based products. These increases were partially offset
      by
      declining prices on other food items as well as a more cost-effective menu
      mix.




40




*Labor
      costs.* Labor
      costs decreased $14.4 million, or 9.3%, during the sixteen-week period ended
      April 2, 2008 over the comparable prior year period, in part due to the decline
      in guest counts and a decrease in the number of stores operating during the
      period. Labor costs as a percentage of sales decreased 30 basis points during
      the third quarter of fiscal 2008 as compared to the prior year period, primarily
      due to the closing of a significant number of underperforming restaurants during
      the period.




*Direct
      and occupancy costs.* Direct
      and occupancy costs decreased $7.3 million, or 5.6%, during the sixteen-week
      period ended April 2, 2008 over the comparable prior year period, in part due
      to
      the due to the decline in guest counts and a decrease in the number of stores
      operating during the period. Direct and occupancy costs as a percentage of
      sales
      increased by 70 basis points during the second quarter of fiscal 2008 as
      compared to the prior year period, primarily due to higher repairs and
      maintenance and utilities costs, as well as tightened sales leverage resulting
      from the fixed-cost nature of our occupancy costs over a declining sales base
      during the period.




*Advertising
      Expenses.* Advertising costs increased $1.6 million during the third quarter of fiscal
      2008
      versus the comparable prior year period and increased 40 basis points as a
      percentage of sales. We launched a direct mail advertising campaign during
      the
      third quarter of fiscal 2008 for both the Buffets and Ryan’s brands. In the
      third quarter of fiscal year 2007 there was no such campaign for the Ryan’s
      brand.




*General
      and Administrative Expenses.* General
      and administrative expenses remained flat during the third quarter of fiscal
      2008 compared to the third quarter of the prior year. General and administrative
      expenses as a percentage of sales increased by 40 basis points during the third
      quarter of fiscal 2008 as compared to the prior year period, primarily due
      to an
      increase in professional fees stemming primarily from the Bankruptcy Cases,
      as
      well as tightened sales leverage resulting from the fixed-cost nature of these
      costs over a declining sales base during the period. We do not expect a decrease
      in professional and legal fees until the conclusion of the Bankruptcy
      Cases.




*Interest
        Expense.* Interest
        expense increased $0.8 million during the third quarter of fiscal 2008 versus
        the comparable prior year period. Interest expense as a percentage of sales
        increased by 60 basis points during the third quarter of fiscal 2008 versus
        the
        comparable prior year period, primarily due to the increase in our interest
        rates on outstanding borrowings as a result of the Forbearance Agreement
        and the
        DIP Credit Agreement, offset by the fact that the Company is no longer accruing
        interest on its Senior Notes.




*Income
      Taxes.* Income
      tax expense increased 250 basis points as a percentage of sales for the
      sixteen-week period ended April 2, 2008 versus the comparable period in the
      prior year, principally due to reductions in our pretax losses and our projected
      effective tax rate for fiscal 2008, a $3.0 million to increase the deferred
      tax
      valuation allowance to offset 100% of the underlying deferred tax assets due
      to
      a reduction in expected cash proceeds from the sale of Tahoe Joe’s, resulting in
      a change in expectations from an expected taxable gain to an expected taxable
      loss from the transaction and $0.8 million to accrue quarterly interest on
      tax
      reserve items.




Excluding
      the impacts of the adjustments above, our projected effective rate for fiscal
      2008 is approximately (0.4)%. 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.




41




*The
      following discussion reflects our historical results for the forty-week periods
      ended April 4, 2007 and April 2, 2008. 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 forty week period ended
      April 2, 2008, and include the impact of Ryan’s operations and related
      refinancing from November 1, 2006, the merger date, to April 4, 2007. Our future
      results may not be consistent with our historical results due to the Merger
      and
      Bankruptcy Cases. The following discussion should be read in conjunction with
      our condensed consolidated financial statements and related notes included
      elsewhere in this report.*




**Forty
                  Weeks Ended****April
                  4,**
                **2007**
              
              **April
                  2,**
                **2008**(Dollars
                  in Thousands)**Significant
                  items that impacted results of operations:**Closed
                  restaurant costs(1)
              
              $
              2,922
              
              $
              3,574Impairment
                  of assets(2)
              
              
              —
              
              
              400,392Loss
                  on sale leaseback transactions(3)
              
              
              2,498
              
              
              —Loss
                  on litigation settlement(4)
              
              
              6,045
              
              
              131Merger
                  integration costs(5)
              
              
              6,999
              
              
              4,452


——————




(1)
            Closed
                restaurant costs were $2.9 million for the forty weeks ended April
                4, 2007
                as compared to $3.6 million for the forty weeks ended April 2, 2008.
                The
                increase was due in large part to the closure of six underperforming
                restaurants in the normal business course for the forty week period
                ended
                April 4, 2007 compared to twenty-one store closures in the normal
                business
                course for the forty week period ended April 2,
                2008.




The
                    Company closed 73 underperforming Buffets brand and Ryan’s brand
                    restaurants during the forty weeks ended April 2, 2008 and incurred
                    total
                    charges of $12.0 million. These charges were expensed as incurred
                    pursuant
                    to SFAS 146 and included cash charges of approximately $3.6 million
                    and
                    non-cash charges of approximately $8.4 million. The $3.6 million
                    of cash
                    charges included approximately $1.2 million related to lease
                    termination
                    costs and obligations, $1.3 million related to employee termination
                    costs
                    and approximately $1.1 million related to other associated
                    costs.


Charges
                    of approximately $3.6 million, included in the $12.0 million
                    of total
                    charges above, related to the closures of eight Buffets brand
                    stores and
                    additional costs incurred on previously closed restaurants. These
                    charges
                    are recorded in “Closed Restaurant Costs” in the accompanying unaudited
                    condensed consolidated statements of operations. Charges of approximately
                    $0.8 million were related to four Ryan’s brand restaurants, closed
                    subsequent to the Merger anniversary date, and are recorded in
“Merger and
                    Integration Costs” in the accompanying unaudited condensed consolidated
                    statements of operations. Subsequent to the Petition Date, the
                    Company
                    closed 52 underperforming restaurants as part of its reorganization
                    plan
                    under Chapter 11. In accordance with SOP 90-7, costs associated
                    with these
                    closures of approximately $7.6 million are classified as “Reorganization
                    Items, net” in the accompanying unaudited condensed consolidated statement
                    of operations. See Note 10 - “Reorganization Items” for further details
                    surrounding these closures.
 Inaddition
                      to the $12 million of total charges above, charges of approximately
                      $3.1
                      million related to the closure of nine Ryan’s brand restaurants, closed
                      prior to the Merger anniversary date, were charged to goodwill
                      pursuant to
                      EITF 95-3,*Recognition
                      of Liabilities in Connection with a Purchase Business
                      Combination.*See Note 9 — “Acquisitions” for further discussion of the merger with
                      Ryan’s.
  42


(2)
                  We
                      test property and equipment, as well as goodwill and other
                      intangibles,
                      annually or whenever events or circumstances indicate that
                      the carrying
                      amount of a restaurant’s assets may not be recoverable. Assets are grouped
                      and evaluated for impairment at the lowest level for which
                      there are
                      identifiable cash flows, namely as individual restaurants.
                      For the forty
                      week period ended April 2, 2008 we recognized losses of approximately
                      $16.4 million related to impairments of the carrying value
                      of our
                      long-lived assets for 24 restaurants currently classified as
                      held for sale
                      and one land parcel currently held in property and equipment,
                      as the
                      carrying value of these long-lived assets exceeded their fair
                      value. In
                      addition, we recognized losses of approximately $384.0 million
                      related to
                      the impairment of goodwill and certain intangible assets. No
                      impairment
                      was recorded during the second quarter of fiscal year
                      2007.




(3)
            During
                the second quarter of fiscal 2007, we entered into a sale leaseback
                transaction whereby we transferred our leasehold interests and leasehold
                improvements with respect to seven restaurants to a third party for
                net
                proceeds of approximately $8.4 million. We simultaneously entered
                into
                long-term leases for those restaurants. In connection with this sale
                leaseback transaction, we recorded a loss of approximately $2.5 million
                primarily to reflect the impairment of certain of the properties
                for which
                the net proceeds were less than the book value of the leasehold assets.




(4)
            Loss
                on litigation settlements represents the costs associated with the
                settlement of a class action lawsuit against HomeTown Buffet, Inc.
                and OCB
                Restaurant Company, LLC. The precise terms of the settlement are
                subject
                to continuing negotiation, and the final settlement is subject to
                court
                approval. While we are currently not able to predict the outcome
                of this
                action, we have accrued approximately $6.0 million to resolve this
                matter.
                This is a pre-petition liability and is classified as “Liabilities Subject
                to Compromise” in the accompanying unaudited condensed consolidated
                balance sheet.




(5)
            Merger
                integration costs represents professional fees, performance bonuses,
                employee travel and expenses and other costs related to integration
                activities associated with the Ryan’s and North’s
                acquisitions.


43


**Forty** **Weeks Ended April 2, 2008 Compared To Forty Weeks Ended April 4,
      2007:**




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:




**Forty
                  Weeks Ended****April
                  4, 2007**
              
              **April
                  2, 2008**(Dollars
                  in Thousands)Restaurant
                  sales
              
              $
              1,028,369
              
              
              100.0
              %
              $
              1,207,564
              
              
              100.0
              %Restaurant
                  costs:Food
              
              
              355,556
              
              
              34.6
              
              
              422,023
              
              
              34.9Labor
              
              
              308,530
              
              
              30.0
              
              
              365,182
              
              
              30.2Direct
                  and occupancy
              
              
              259,930
              
              
              25.3
              
              
              320,169
              
              
              26.5Total
                  restaurant costs
              
              
              924,016
              
              
              89.9
              
              
              1,107,374
              
              
              91.7Advertising
                  expenses
              
              
              22,868
              
              
              2.2
              
              
              28,181
              
              
              2.3General
                  and administrative expenses
              
              
              46,313
              
              
              4.5
              
              
              55,876
              
              
              2.3Closed
                  restaurant costs
              
              
              2,922
              
              
              0.3
              
              
              3,574
              
              
              0.3Impairment
                  of assets
              
              
              —
              
              
              0.0
              
              
              400,392
              
              
              33.2Loss
                  on sale leaseback transactions
              
              
              2,498
              
              
              0.2
              
              
              —
              
              
              0.0Loss
                  on litigation settlements
              
              
              6,045
              
              
              0.6
              
              
              131
              
              
              0.0Merger
                  integration costs
              
              
              6,999
              
              
              0.7
              
              
              4,452
              
              
              0.4Operating
                  income
              
              
              16,708
              
              
              1.6
              
              
              (392,416
              )
              
              (32.5
              )Other
                  income
              
              
              (692
              )
              
              (0.1
              )
              
              (749
              )
              
              (0.1
              )Interest
                  income
              
              
              (138
              )
              
              (0.0
              )
              
              (165
              )
              
              (0.0
              )Interest
                  expense
              
              
              58,994
              
              
              5.7
              
              
              71,476
              
              
              5.9Reorganization
                  items, net
              
              
              —
              
              
              0.0
              
              
              38,286
              
              
              3.2Loss
                  related to refinancing
              
              
              41,125
              
              
              4.0
              
              
              1,671
              
              
              0.1Loss
                  before income taxes
              
              
              (82,581
              )
              
              (8.0
              )
              
              (502,935
              )
              
              (41.6
              )Income
                  tax expense (benefit)
              
              
              (32,108
              )
              
              (3.1
              )
              
              2,316
              
              
              0.2Net
                  loss
              
              $
              (50,473
              )
              
              (4.9
              )
              $
              (505,251
              )
              
              (41.8
              )




*Certain
      Percentage Amounts Do Not Sum To Total Due To Rounding.*




*Restaurant
      Sales.* Restaurant sales increased $179.2 million, or 17.4%, during the first forty
      weeks of fiscal 2008 over the comparable prior year period, primarily due to
      the
      merger with Ryan’s. Excluding Ryan’s restaurant sales, restaurant sales
      decreased $18.1 million, or 2.5%, during the first forty weeks of fiscal
      2008.




Average
      weekly sales for the first forty weeks of fiscal 2008 for the Buffets brand
      restaurants, which include the Old Country Buffet ® and
      HomeTown Buffet ® brands,
      increased approximately 0.1% to $52,800 as compared to the comparable prior
      year
      period. Same store sales for the first forty weeks of fiscal 2008 decreased
      by
      1.4% for the Buffets brand restaurants as compared to the prior year. This
      decrease was primarily attributable to a 3.4% decline in guest traffic,
      partially offset by a 2.0% increase in average check. Average weekly sales
      for
      the first forty weeks of fiscal 2008 for the Ryan’s brand restaurants, which
      include the Ryan’s ® and Fire
      Mountain ® brands,
      decreased by 2.7% to $42,977 as compared to the comparable prior year period.
      Same store sales for the first forty weeks of fiscal 2008 decreased by 5.4%
      for
      the Ryan’s brand restaurants as compared to the prior year. This decrease was
      primarily attributable to a 7.5% decline in guest traffic, partially offset
      by a
      2.1% increase in average check. Same store sales calculations reflect those
      restaurants that have been in operation for at least eighteen operating
      periods.




*Food
      costs.* Total
      food costs increased $66.5 million, or 18.7%, during the first forty weeks
      of
      fiscal 2008 over the comparable prior year period, primarily due to the merger
      with Ryan’s. Food costs as a percentage of sales increased by 30 basis points
      during the first half of fiscal 2008 as compared to the prior year period,
      primarily due to increases in the price of certain menu items such as steak,
      chicken, dairy and oil-based products. These increases were partially offset
      by
      synergies realized on vendor procurement and production of certain food items
      in
      connection with the Ryan’s merger.




44




*Labor
      costs.* Labor
      costs increased $56.7 million, or 18.4%, during the first forty weeks of fiscal
      2008 over the comparable prior year period, primarily due to the merger with
      Ryan’s. Labor costs as a percentage of sales increased 20 basis points during
      the first half of fiscal 2008 as compared to the prior year period, primarily
      due to wage inflation as a result of minimum wage increases in several states
      effective January 1, 2007, federal minimum wage increases effective July 24,
      2007 and other modest wage increases. This increase was partially offset by
      synergies realized on labor mix changes in connection with the Ryan’s
      merger.




*Direct
      and occupancy costs.* Direct
      and occupancy costs increased $60.2 million, or 23.2%, during the first forty
      weeks of fiscal 2008 over the comparable prior year period, primarily due to
      the
      merger with Ryan’s. Direct and occupancy costs as a percentage of sales
      increased by 120 basis points during the first half of fiscal 2008 as compared
      to the prior year period, primarily due to higher repairs and maintenance and
      utilities costs as well as tightened sales leverage resulting from the
      fixed-cost nature of our occupancy costs over a declining sales base during
      the
      period.




*Advertising
      Expenses.* Advertising costs increased $5.3 million during the first forty weeks of fiscal
      2008 versus the comparable prior year period and increase 10 basis points as
      a
      percentage of sales during the first half of fiscal 2008 as compared to the
      prior year period. Historically, Ryan’s did not incur significant media
      advertising expenditures. Since acquisition, we have increased the amount of
      advertising related to the Ryan’s brand and in the current fiscal year, we have
      included the Ryan’s brands in all major media campaigns, resulting in a slightly
      higher cost in the current year.




*General
      and Administrative Expenses.* General
      and administrative expenses increased $8.1 million, or 17.4%, during first
      forty
      weeks of fiscal 2008 primarily due to the merger with Ryan’s, but stayed flat as
      a percentage of sales during the first three quarters of fiscal 2008 as compared
      to the prior year period.




*Interest
        Expense.* Interest
        expense increased $12.5 million during the first forty weeks of fiscal 2008
        versus the comparable prior year period and increased 20 basis points as
        a
        percentage of sales during the first half of fiscal 2008 compared to the
        prior
        year period, primarily due to the higher interest rates paid on the
        post-petition and DIP financing, offset by the fact that the Company is no
        longer accruing interest on its Senior Notes.




*Income
      Taxes.* Income
      tax expense increased 330 basis points as a percentage of sales for the first
      forty weeks of fiscal 2008 versus the comparable period in the prior year,
      principally due to a reduction in our projected effective rate for fiscal 2008
      and $2.1 million of accrued interest on tax reserve items. These items have
      been
      partially offset by a $0.7 million net reduction in our deferred tax valuation
      allowance related to Ryan’s. Of this $0.7 million net reduction, $6.2 million is
      due to provision-to-return differences reflecting higher deductions in Ryan’s
      November 1, 2006 stub period tax return than initially expected, primarily
      related to changes in tax accounting methods, partially offset by $2.5 million
      due to fair value adjustments to the Ryan’s purchase balance sheet and $3.0
      million to increase the deferred tax valuation allowance to offset 100% of
      the
      underlying deferred tax assets due to a reduction in expected cash proceeds
      from
      the sale of Tahoe Joe’s, resulting in a change in expectations from an expected
      taxable gain to an expected taxable loss from the transaction. The $0.7 million
      net reduction to the valuation allowance is recorded in “Income tax benefit” in
      the accompanying condensed consolidated statements of operations, whereas the
      $3.7 million adjustment to the underlying deferred tax asset balances is
      recorded in “Goodwill” in the accompanying condensed consolidated balance
      sheets.




Excluding
      the impacts of the adjustments above, our projected effective rate for fiscal
      2008 is approximately (0.4)%. The difference between this rate and the statutory
      rate is due to the projected increase in our valuation allowance to offset
      the
      tax benefits from our projected loss before income taxes. As a result, this
      rate
      primarily reflects projected state income tax expense for fiscal
      2008.




**Liquidity
      and Capital Resources**




We
      are a
      holding company with no operations or assets of our own other than the capital
      stock of our subsidiaries. Our operations are conducted through our
      subsidiaries. Cash flows generated from our operating activities generally
      provide us with a source of liquidity. Our sales are primarily for cash or
      credit and settlement occurs within a few days. Our cash flow from operations
      is
      used for payments to vendors, capital expenditures, including remodeling
      initiatives, general corporate purposes and debt service payments. Vendors
      are
      paid on terms generally ranging from 14 to 35 days.




45




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 121⁄2% Senior Notes to pursue restructuring discussions with its
      creditors. The total amount of the missed interest payment was approximately
      $18.8 million. Those discussions with creditors did not result in a viable
      restructuring plan and on January 22, 2008, as the result of these failed
      discussions and due to significantly limited liquidity caused by a variety
      of
      factors including a decrease in discretionary spending by our core customer
      segment and higher food, labor and energy prices, we and each of our
      subsidiaries filed a voluntary petition for relief under Chapter 11 of the
      Bankruptcy Code with the Bankruptcy Court.




The
      Bankruptcy Cases triggered the immediate acceleration of, and events of default
      to occur under, certain of our direct financial obligations, including, among
      others, amounts outstanding under the Pre-Petition Credit Agreement and our
      121⁄2%
      Senior Notes. The Bankruptcy Cases stayed the ability of the lenders under
      the
      Pre-Petition Credit Agreement and the holders of our 121⁄2% Senior Notes from
      seeking remedies to enforce their rights during the Bankruptcy Cases. As a
      result of the stay and our Bankruptcy Cases, our short-term liquidity needs
      arise primarily from principal and interest payments under the DIP Credit
      Agreement (discussed below), capital expenditures and working capital
      requirements. Our primary sources of liquidity are cash flows from operations
      and available borrowing capacity under the DIP Credit Agreement.




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


*Operating
          Activities.* Net cash
          used in operating activities was $16.8 million and $6.2 million for the
          forty
          weeks ended April 2, 2008 and April 4, 2007, respectively. The overall
          increase
          in net cash used in operating activities is primarily attributable to a $17.8
          million increase in cash interest payments, $7.7 million in cash paid for
          reorganization items and an increase of approximately $18.3 million in
          cash used
          for prepaid expenses and other current assets, partially offset by a decrease
          of
          $29.1 million in cash paid for income taxes. The large increase in cash
          used for
          prepayments is primarily due to a the collection of long term deposit of
          $10.0
          million in the comparable prior year period, as well as, a shift in timing
          of
          payments related to marketing inititiatives versus the comparable period
          in the
          prior year. Net cash used in operating activities was lower than the net
          loss
          for the first 40 weeks of fiscal 2008 principally due to the effects of
          noncash
          charges including reorganization items, impairments of assets, and depreciation
          and amortization partially offset by net favorable working capital changes.
          Net
          cash used in operating activities was lower than the net loss for the first
          40
          weeks of fiscal 2007 principally due to the effect of noncash depreciation
          and
          amortization, write-off of debt issuance costs, premiums expensed on our
          debt
          refinancing, accretion of original issue discount, the collection of long
          term
          deposit of $10.0 million, and the sale of company owned life insurance
          contracts
          of $4.8 million..




*Investing
      Activities.* Net cash
      used in investment activities was $10.2 million and $180.4 million for the
      forty
      weeks ended April 2, 2008 and April 4, 2007, respectively. During the first
      forty weeks of fiscal 2008, our property and equipment related capital
      expenditures of $28.9 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 $18.0
      million. During the first forty weeks of fiscal 2007, our property and equipment
      related capital expenditures of $26.3 million represented remodeling and
      improvement cost on our existing restaurants. On November 1, 2006, we acquired
      certain assets and liabilities of Ryan’s for approximately $168.8
      million.




*Financing
      Activities.* Net cash
      provided by financing activities was $56.8 million and $174.8 million for the
      first forty weeks of fiscal years 2008 and 2007, respectively. During the first
      forty weeks of fiscal 2008, financing activities consisted primarily of
      borrowings of $74.3 million under our DIP Credit Agreement and the revolving
      portion of our Pre-Petition Credit Facility, offset in part by $4.6 million
      of
      term loan repayments under the Pre-Petition Credit Facility. In addition, we
      had
      a net increase in restricted cash of $3.6 million, financed $3.7 million in
      prefunded letters of credit and $$3.2 million in utility related deposits and
      incurred $2.4 million in debt issuance costs related to the DIP Credit
      Agreement. During the first forty weeks of fiscal 2007, financing activities
      primarily consisted of proceeds of $553.5 million from our Pre-Petition Credit
      Facility and the issuance of $300 million of our 121⁄2% Senior Notes, offset in
      part by $182.1 million of term loan repayments, $180.8 million for the
      repurchase of our 111⁄4 % Senior Subordinated Notes, $105.3 million for the
      repurchase of our 137⁄8% senior discount notes, and $145 million for the repayment
      of Ryan’s notes payable. In addition, we incurred $32.6 million in debt
      refinancing premiums and $36.7 million of debt issuance costs related to the
      refinancing of our Pre-Petition Credit Agreement and the issuance of our 121⁄2%
      Senior Notes.




46




*Income
      Tax Refunds.* We
      expect to receive approximately $0.9 million in income tax refunds over the
      remainder of fiscal 2008 related to state tax returns.




**Credit
      Facilities and Other Long Term Debt**




***Post-Petition
      Financing***




*Debtor-in-Possession
      Credit Agreement*




In
      connection with the Bankruptcy Cases, we and the other Debtors have entered
      into
      the DIP Credit Agreement. The $285 million DIP Credit Agreement consists of
      an
      $85 million new money facility and $200 million of borrowings under the
      Pre-Petition Credit Agreement that will be rolled into the DIP Credit Agreement.
      Of the $85 million new money facility, $30 million was drawn on January 23,
      2008
      and the remaining $55 million was drawn on April 30, 2008. The proceeds of
      the
      new money loans incurred under the DIP Credit Agreement will be used to fund
      the
      continued operation of our and the other Debtors’ businesses as debtors in
      possession under the Bankruptcy Code, pay certain expenses and fees incurred
      by
      us in connection with the Bankruptcy Cases, support the Debtors’ working capital
      needs and for general corporate purposes.




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




The
      DIP
      Credit Agreement requires payment of all amounts borrowed, together with accrued
      and unpaid interest, by January 22, 2009 (the “Maturity Date”). The Debtors have
      the right to voluntarily prepay any borrowing, in whole or in part at any time.
      Subject to certain exceptions, the Debtors are subject to mandatory prepayment
      of the principal amount in the event of certain asset sales or receipt of cash
      proceeds from the incurrence of indebtedness.




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




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




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




47




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




***Pre-Petition
      Financing***




*Credit
      Facility*




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




Effective
      as of March 13, 2007, Buffets and the Company entered into an amendment to
      its
      Pre-Petition Credit Facility. The amendment added a revolving loan feature
      to
      the Synthetic Letter of Credit Facility (cumulatively referred to as the
“Synthetic Revolving Facility”), whereby the Company may secure letters of
      credit and/or revolving loans in an aggregate principal amount of $70 million.




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




The
      Bankruptcy Cases triggered events of default under the Pre-Petition Credit
      Facility, as amended by the Forbearance Agreement, and the immediate
      acceleration of amounts outstanding under the Pre-Petition Credit Facility,
      other than the amounts rolled into the DIP Credit Agreement. The ability of
      the
      Pre-Petition Credit Facility lenders to seek remedies to enforce their rights
      under the Pre-Petition Credit Facility is automatically stayed as a result
      of
      the Bankruptcy Cases and the Pre-Petition Credit Facility lenders’ rights of
      enforcement are subject to the applicable provisions of the Bankruptcy Code.
      As
      of April 2, 2008, there was approximately $580.3 million outstanding under
      the
      Pre-Petition Credit Facility, $200 million of which was rolled into the DIP
      Credit Agreement.




*121⁄2* *%
      Senior Notes*




The
      issuance of Buffets’ 121⁄2% 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 121⁄2% Senior Notes for notes registered under the
      Securities Act. The exchange offer was consummated on January 31, 2007. The
      121⁄2%
      Senior Notes mature on November 1, 2014. Buffets is required to pay semi-annual
      interest on the 121⁄2% Senior Notes on January 1 and July 1.




The
      bankruptcy filing triggered events of default under the indenture governing
      the
      121⁄2% Senior Notes and the immediate acceleration of the outstanding principal
      amount and accrued but unpaid interest of the 121⁄2% Senior Notes. The ability of
      the noteholders to seek remedies to enforce their rights under the indenture
      governing the 121⁄2% Senior Notes is automatically stayed as a result of our
      bankruptcy filing and the noteholders’ rights of enforcement are subject to the
      applicable provisions of the Bankruptcy Code.




48




**Contractual
      Obligations**




The
      following table provides aggregate information about our material contractual
      payment obligations as of April 2, 2008 and the fiscal year in which these
      payments are due (fiscal 2008 represents the remainder of the fiscal year).
      As a
      result of the Bankruptcy Cases, our future obligations under these agreements
      may significantly change. See Note 8 — “Liabilities Subject to Compromise” for
      further details.






**Payments
      Due by Fiscal Year**




**2008**
              
              **2009**
              
              **2010**
              
              **2011**
              
              **2012**
              
              **Thereafter**
              
              **Total**(In
                  Thousands)Long-term
                  debt(1)
              
              $
              824,028
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              824,028Interest(2)
              
              
              37,500
              
              
              37,500
              
              
              18,750
              
              
              37,500
              
              
              37,500
              
              
              106,250
              
              
              275,000Operating
                  leases(3)
              
              
              17,269
              
              
              100,925
              
              
              96,359
              
              
              91,727
              
              
              87,450
              
              
              1,134,850
              
              
              1,528,580Advisory
                  fees(4)
              
              
              1,335
              
              
              2,000
              
              
              2,000
              
              
              2,000
              
              
              2,000
              
              
              —
              
              
              9,335Purchase
                  obligations(5)
              
              
              31,214
              
              
              49,704
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              80,918Total
                  contractual cash obligations
              
              $
              911,346
              
              $
              190,129
              
              $
              117,109
              
              $
              131,227
              
              $
              126,950
              
              $
              1,241,100
              
              $
              2,717,861


——————


(1)
            Long-term
                debt payments for fiscal year 2008 shows the entire principal amount
                on
                Buffets’ Pre-Petition Credit Facility and the aggregate balance of
                Buffets’ 121⁄2% Senior Notes as currently due as a result of the Bankruptcy
                Cases.




(2)
            Amount
                represents contractual interest payments on Buffets’ 121⁄2% Senior Notes. It
                is expected that this liability will be settled under the terms of
                the
                Bankruptcy Court. As a result, the Company ceased accruing interest
                on
                these notes as of the Petition Date. See Note 8 - “Liabilities Subject to
                Compromise” for details on actual interest amounts recorded. Interest
                payments on Buffets’ variable-rate Pre-Petition and DIP facilities are
                excluded. The borrowings under these facilities bear interest at
                an
                adjusted LIBOR rate plus a margin of 7.25% and mature on January
                22, 2009.
                Of these borrowings, only the $30 million new money facility is subject
                to
                a 4.00% floor and a 5.00% ceiling. The interest rate, at LIBOR plus
                7.25%,
                was 9.94% as of April 2, 2008. See Note 7 - “Debt” to our accompanying
                unaudited condensed consolidated financial statements included elsewhere
                in this report for details of our debt
                obligations.




(3)
            Operating
                leases are comprised of minimum rents and contingent rents. Operating
                leases have not been reduced by minimum sublease rentals of approximately
                $1.3 million. It is possible that our obligations under these lease
                agreements could change significantly through the reorganization
                process.




(4)
            The
                advisory fees comprise our contractual obligation to pay annual advisory
                fees to Roe H. Hatlen and the Caxton-Iseman Party. See Note 11 -
                “Related-Party Transactions.” Under the terms of his agreement,
                Mr. Hatlen is paid a fixed annual fee. The fee of the Caxton-Iseman
                Party is calculated as a percentage of our earnings before interest,
                taxes, depreciation and amortization, which in fiscal 2005 resulted
                in a
                payment of $1.8 million. This figure has been used as an estimate
                for our
                obligations under that agreement for fiscal 2007 and each fiscal
                year
                thereafter. The agreement with the Caxton-Iseman Party is of perpetual
                duration, and hence no estimate of the aggregate amount of future
                obligations (represented in the “Thereafter” column, above) is provided.
                As a result of the Bankruptcy Cases our ability to make payments
                under the
                Caxton-Iseman Party agreement has been limited. We do not anticipate
                making any additional payments under this
                agreement.




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




49


**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**




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




**Item
      3. Quantitative a** **nd
      Qualitative Disclosures About Market Risk**




*Interest
      Rate Risks.* We have
      interest rate exposure relating to the variable portion of our debt obligations,
      which were approximately $524.0 million at April 2, 2008. Buffets’ 121⁄2% Senior
      Notes are fixed rate instruments, while the interest rate on the term loan
      under
      the Pre-Petition and DIP facilities are variable. A 1% change in interest rates
      on our variable rate debt would have resulted in our interest rate expense
      fluctuating by approximately $4.0
      million for the forty weeks ended April 2, 2008.




*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 3.5%. Our average menu
      price increases for fiscal 2007 were 3% for our Buffet brand restaurants and
      1%
      for our Ryan’s brand restaurants.




50




**Item
      4. Controls a** **nd
      Procedures**




**Disclosure
      Controls and Procedures**




As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of the principal executive officer and
      principal financial officer, of our disclosure controls and procedures (as
      defined in Rules 13a-14(c) and 15d-14(c) under the Securities and Exchange
      Act
      of 1934 (the “Exchange Act”)). Based upon this evaluation, we have concluded
      that as of April 2, 2008 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. In fiscal 2008,
      we
      began to remediate the identified material weakness in our internal control
      over
      financial reporting. Remediation efforts implemented as of the third quarter
      of
      fiscal 2008 include:




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




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


(iii)
              the
                  formalization of documentation regarding internal practices and
                  conclusions
 (iv)
                the
                      formalization of communication among both internal and external
                      groups
                      involved in the process
 (v)
                    an
                          increase in formalized training
                          opportunities


**Changes
      in Internal Control**




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




51




**PART
      II. OTHER INFORMATION**




**Item
      1. Legal Proceedings**




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




On
      November 12, 2004, two former restaurant managers of our wholly-owned
      subsidiary, HomeTown Buffet, Inc. (“HomeTown Buffet”), individually and on
      behalf of all others similarly situated, filed a class action lawsuit against
      HomeTown Buffet in California Superior Court in San Francisco County. The
      lawsuit alleges that HomeTown Buffet violated California wage and hour laws
      by
      failing to pay all of its California managers and assistant managers overtime,
      and for making deductions from bonus compensation based on the company’s
      workers’ compensation costs. In March 2006, the plaintiffs amended the complaint
      in the lawsuit to add OCB Restaurant Company, LLC as a defendant, and to limit
      the claims to those managers below the level of restaurant General Manager.
      In
      April 2006, the defendants removed the lawsuit to the United States District
      Court for the Northern District of California. During the course of discovery,
      but prior to a motion for certification of a class, the parties reached a
      settlement of this action in mediation in late February 2007. The settlement,
      which anticipated payments of approximately $7.2 million, received preliminary
      court approval on September 12, 2007, but final court approval was not obtained
      prior to the time that the Company filed for bankruptcy. The matter represents
      a
      pre-petition unsecured claim subject to resolution under the bankruptcy
      proceeding. The Company previously recorded the expected settlement of $7.2
      million in the accrued litigation reserve. This amount is a pre-petition
      liability and is classified in “Liabilities Subject to Compromise” in the
      accompanying unaudited condensed consolidated balance sheet.




In
      June
      2006, a lawsuit was filed in the Berkeley County (West Virginia) circuit court
      on behalf of three plaintiffs alleging wage and hour violations against Ryan’s
      Restaurant Group, Inc. and certain of its executives. The complaint is a class
      action lawsuit brought on behalf of hourly employees who worked for Ryan’s in
      West Virginia since July 2001. In July 2006, Defendants removed the lawsuit
      to
      the United States District Court for the Northern District of West Virginia.
      In
      February 2007, the Court denied Plaintiffs motion to remand the matter back
      to
      West Virginia state court. The plaintiffs seek compensatory damages, penalties,
      restitution of unpaid wages and deductions, pre-judgment interest, costs of
      suit
      and reasonable attorneys’ fees. The complaint does not make a specific monetary
      demand. At the time of the Company’s bankruptcy filing, the West Virginia action
      was in a preliminary stage and the Company’s liability, if any, was
      undeterminable. The matter represents a contested pre-petition claim that is
      stayed pursuant to the bankruptcy proceeding.




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




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




52




**Item
      1** **A.
      Risk Factors**




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




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




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




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




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




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




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




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




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




53




If
      a plan
      is not confirmed by the Bankruptcy Court, it is unclear whether we would be
      able
      to reorganize our businesses and what, if any, distributions to holders of
      claims against us, including holders of our 121⁄2% Senior Notes, would ultimately
      receive with respect to their claims. If an alternative reorganization could
      not
      be agreed upon, it is possible that we would have to liquidate our assets,
      in
      which case it is likely that holders of claims would receive substantially
      less
      favorable treatment than they would receive if we were to emerge as a viable,
      reorganized entity.




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




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




We
        face
        uncertainty regarding the adequacy of our capital resources, including
        liquidity, and have limited access to additional financing. In addition to
        the
        cash requirements necessary to fund ongoing operations, we have incurred
        significant professional fees and other costs in connection with the Bankruptcy
        Cases and expect that we will continue to incur significant professional
        fees
        and costs. As of May 30, 2008, we had approximately $92. 3 million
        in available cash and no amounts available for borrowing under the DIP Credit
        Agreement. We cannot assure you that the amounts of cash available from
        operations together with our DIP Credit Agreement will be sufficient to fund
        operations until such time as we are able to propose a plan of reorganization
        that will receive the requisite acceptance by creditors and be confirmed
        by the
        Bankruptcy Court. In the event that cash flows and available borrowings under
        the DIP Credit Agreement are not sufficient to meet our cash requirements,
        we
        may be required to seek additional financing. We can provide no assurance
        that
        additional financing would be available or, if available, offered on acceptable
        terms.




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




***A
      plan of reorganization may result in holders of our*** **121⁄2%
      Senior Notes receiving no distribution on account of their interests and
      cancellation of their Senior Notes.**




Under
      the
      priority scheme established by the Bankruptcy Code, unless creditors agree
      otherwise, post-petition liabilities and certain pre-petition liabilities must
      be satisfied in full before the holders of our 121⁄2% Senior Notes will be
      entitled to receive any distribution or retain any property under a plan of
      reorganization. The ultimate recovery to creditors, including the noteholders,
      if any, will not be determined until confirmation of a plan or plans of
      reorganization. No assurance can be given as to what values, if any, will be
      ascribed in the Bankruptcy Cases to the 121⁄2% Senior Notes or what types or
      amounts of distributions, if any, the noteholders would receive. A plan of
      reorganization could result in holders of our 121⁄2% Senior Notes receiving no
      distribution on account of their interests and cancellation of their existing
      notes. If certain requirements of the Bankruptcy Code are met, a plan of
      reorganization can be confirmed notwithstanding its rejection by the noteholders
      and notwithstanding the face that such noteholders do not receive or retain
      any
      property on account of their interests under the plan. Therefore, an investment
      in our 121⁄2% Senior Notes is highly speculative.


***Our
          goodwill and intangible assets may become
          impaired***
 
 We
          are
          required to evaluate goodwill and other intangibles for impairment whenever
          changes in circumstances indicate that the carrying amount may not be
          recoverable from estimated future cash flows or at least annually. This
          evaluation requires the use of projections of future cash flows from the
          reporting segment. These projections are based on growth rates, anticipated
          future economic conditions, the appropriate discount rates relative to
          risk, and
          estimates of residual values. If changes in growth rates, future economic
          conditions, discount rates, or estimates of residual values were to occur,
          goodwill and other intangibles may become impaired. This could result in
          material charges that could be adverse to our operating results and financial
          position.


54




**Item
      3. Defaults Upon Senior Securities**




The
      commencement of the Bankruptcy Cases triggered events of default to occur and
      the immediate acceleration of amounts outstanding under the Pre-Petition Credit
      Facility, the interest rate swap agreement, dated April 12, 2007, that the
      Company entered into in accordance with the terms of the Pre-Petition Credit
      Facility (the “Interest Rate Swap”) and the 121⁄2% Senior Notes. As of April 2,
      2008, there was approximately $581.3 million outstanding under the Pre-Petition
      Credit Facility and $300 million in aggregate principal amount outstanding
      under
      the 121⁄2% Senior Notes. As a result of the default under the Interest Rate Swap,
      a calculation of the amount owed under the agreement was performed and
      determined to be approximately $1.0 million.




**Item
      5. Other Information**




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




**Item
      6. Exhibits**




See
      Index
      to Exhibits on page 57 of this report.




55




**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:
                May 30, 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)




56




**INDEX
      TO EXHIBITS**


**Exhibit
                    Number**
                
                **Description**10.1*
                
                Forbearance
                    Agreement and Second Amendment, dated January 10, 2008, to the
                    Credit
                    Agreement, dated November 1, 2006, among Buffets, Inc., Buffets
                    Holdings,
                    Inc., Buffets Inc.’s subsidiaries named therein, the Lenders named therein
                    and Credit Suisse, as Administrative Agent and Collateral
                    Agent.10.2*
                
                Secured
                    Super-Priority Debtor-In-Possession Credit Agreement, dated as
                    of January
                    22, 2008, among Buffets, Inc., Buffets Holdings, Inc., the Lenders
                    named
                    therein and Credit Suisse, as Administrative Agent and Collateral
                    Agent.10.3*
                
                Guarantee
                    and Collateral Agreement, dated January 22, 2008, among Buffets,
                    Inc.,
                    Buffets Holdings, Inc., the subsidiaries of Buffets, Inc. from
                    time to
                    time party thereto and Credit Suisse, as Collateral
                    Agent.10.4*
                
                First
                    Amendment, dated as of February 22, 2008, to the Secured Super-Priority
                    Debtor-In-Possession Credit Agreement, dated as of January 22,
                    2008, among
                    Buffets, Inc., Buffets Holdings, Inc., the Lenders named therein
                    and
                    Credit Suisse, as Administrative Agent and Collateral
                    Agent.10.5*
                
                Third
                    Amendment, dated as of March 10, 2008, to the Credit Agreement,
                    dated as
                    of November 1, 2006, among Buffets, Inc., Buffets Holdings, Inc.,
                    Buffet
                    Inc.’s subsidiaries named therein, the Lenders named therein and Credit
                    Suisse, as Administrative Agent and Collateral Agent.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.




*
        Previously provided or incorporated by reference.




57