UNITED
      STATES


SECURITIES
      AND EXCHANGE
      COMMISSION


Washington,
      D.C.
      20549





FORM
      10-Q







[
      X
      ]            
QUARTERLY REPORT PURSUANT
      TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For
      the quarterly period ended December
      19, 2007





OR





[ ]           
      TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For
      the transition period from
      __________  to  _________




Commission
      file number
      0-8445


THE
                STEAK N SHAKE
                COMPANY
              (Exact
                name of registrant as
                specified in its charter)







INDIANA
            37-0684070(State
                or other
                jurisdiction
            (I.R.S.
                Employerof
                incorporation or
                organization)
            Identification
                No.)








36
                S. Pennsylvania Street, Suite
                500Indianapolis,Indiana
            46204(Address
                of principal executive
                offices)
            (Zip
                code)


(317)
      633-4100


(Registrant’s
      telephone number,
      including area code)








Not
      Applicable


(Former
      name, former address and former
      fiscal year, if changed since last report)





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.
      YesXNo





Indicate
      by check mark 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. (Check
      one):


Large
      accelerated filer                             
      Accelerated filerX                          
      Non-accelerated filer




Indicate
      by check mark whether the
      registrant is a shell company (as defined in Rule 12b-2 of the
      Exchange Act). YesNoX




As
      of January 23, 2008,28,492,199shares
      of the registrant’s Common Stock,
      $.50 par value, were outstanding.





THE
      STEAK N
      SHAKE COMPANY





FORM
      10-Q





TABLE
      OF CONTENTS








PARTI.FINANCIAL
                INFORMATION
            PageITEM
                1. FINANCIAL
                STATEMENTSCondensedConsolidated
                Statements of Financial
                Position (Unaudited) as of December 19, 2007 and September 26,
                2007
            3CondensedConsolidated
                Statements of Operations
                (Unaudited) for the Twelve Weeks Ended December 19, 2007 and
                December 20, 2006
            4CondensedConsolidated
                Statements of Cash Flows
                (Unaudited) for the Twelve Weeks Ended December 19, 2007 and
                December 20, 2006
            5Notes
                toCondensedConsolidated
                Financial Statements
                (Unaudited)
            6ITEM
                2.
                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            13ITEM
                3.
                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            21ITEM
                4. CONTROLS
                AND PROCEDURES
            21PART
                II. OTHER
                INFORMATIONITEM
                2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            22ITEM
                6.
                EXHIBITS
            22SIGNATURES
            23EXHIBIT
              31.01EXHIBIT
              31.02EXHIBIT
              32.01




2
 Table
          of Contents


PARTI.FINANCIAL
      INFORMATION





ITEM
      1. FINANCIAL
      STATEMENTS




Condensed
                  Consolidated Statements of Financial PositionThe
                  Steak n Shake
                  Company(Amounts
                  in $000s except share and
                  per share data)December
                  19,
                  2007
              
              
              September
                  26,
                  2007(Unaudited)
              
              
              (Unaudited)Assets:Current
                  AssetsCash
                  and cash
                  equivalents
              
              $
              2,004
              
              
              $
              1,497Receivables,
                  net
              
              
              5,287
              
              
              
              6,289Inventories
              
              
              7,372
              
              
              
              7,226Deferred
                  income
                  taxes
              
              
              3,354
              
              
              
              3,616Assets
                  held for
                  sale
              
              
              20,550
              
              
              
              18,571Other
                  current
                  assets
              
              
              10,569
              
              
              
              10,998Total
                  current
                  assets
              
              
              49,136
              
              
              
              48,197Net
                  property and
                  equipment
              
              
              489,537
              
              
              
              492,610Goodwill
              
              
              14,503
              
              
              
              14,503Other
                  intangible assets,
                  net
              
              
              1,914
              
              
              
              1,959Other
                  assets
              
              
              7,672
              
              
              
              7,945Total
                  assets
              
              $
              562,762
              
              
              $
              565,214Liabilities
                  and Shareholders'
                  Equity:Current
                  LiabilitiesAccounts
                  payable
              
              $
              28,313
              
              
              $
              28,195Accrued
                  expenses
              
              
              29,671
              
              
              
              32,624Current
                  portion of long-term
                  debt
              
              
              2,379
              
              
              
              2,390Line
                  of
                  credit
              
              
              27,900
              
              
              
              27,185Current
                  portion of obligations
                  under leases
              
              
              3,814
              
              
              
              4,180Total
                  current
                  liabilities
              
              
              92,077
              
              
              
              94,574Deferred
                  income
                  taxes
              
              
              4,871
              
              
              
              5,060Other
                  long-term
                  liabilities
              
              
              7,128
              
              
              
              5,701Obligations
                  under
                  leases
              
              
              139,102
              
              
              
              139,493Long-term
                  debt
              
              
              16,511
              
              
              
              16,522Commitments
                  and
                  ContingenciesShareholders'
                  Equity:Common
                  stock - $.50 stated value,
                  50,000,000 shares authorized -
                shares
                  issued:
                  30,332,839
              
              
              15,166
              
              
              
              15,166Additional
                  paid-in
                  capital
              
              
              126,983
              
              
              
              126,415Retained
                  earnings
              
              
              183,525
              
              
              
              185,024Treasury
                  stock - at cost:
                  1,944,825 shares as of December 19,2007;
                1,959,931
                  shares as of
                  September 26, 2007
              
              
              (22,601
              )
              
              
              (22,741
              )Total
                  shareholders'
                  equity
              
              
              303,073
              
              
              
              303,864Total
                  liabilities and
                  shareholders' equity
              
              $
              562,762
              
              
              $
              565,214See
                  accompanying
                  notes.
 3
 Table
            of Contents


Condensed
                  Consolidated Statements of OperationsThe
                  Steak n Shake
                  Company(Amounts
                  in $000s except share and
                  per share data)Twelve
                  Weeks
                  EndedDecember
                  19,
                  2007
              
              
              December
                  20,
                  2006(Unaudited)
              
              
              (Unaudited)Revenues:Net
                  sales
              
              $
              135,496
              
              
              $
              146,458Franchise
                  fees
              
              
              900
              
              
              
              808Total
                  revenues
              
              
              136,396
              
              
              
              147,266Costs
                  and
                  Expenses:Cost
                  of
                  sales
              
              
              32,684
              
              
              
              33,070Restaurant
                  operating
                  costs
              
              
              75,810
              
              
              
              75,468General
                  and
                  administrative
              
              
              10,134
              
              
              
              13,555Depreciation
                  and
                  amortization
              
              
              7,658
              
              
              
              7,226Marketing
              
              
              6,001
              
              
              
              6,426Interest
              
              
              3,313
              
              
              
              3,133Rent
              
              
              3,208
              
              
              
              3,048Pre-opening
                  costs
              
              
              454
              
              
              
              934Asset
                  impairments and provision
                  for restaurant closings
              
              
              —
              
              
              
              (66
              )Other
                  income,
                  net
              
              
              (451
              )
              
              
              (405
              )Total
                  costs and
                  expenses
              
              
              138,811
              
              
              
              142,389(Loss)
                  Earnings Before Income
                  Taxes
              
              
              (2,415
              )
              
              
              4,877Income
                  Taxes
              
              
              (1,228
              )
              
              
              712Net
                  (Loss)
                  Earnings
              
              $
              (1,187
              )
              
              $
              4,165Basic
                  (Loss) Earnings Per Common
                  and
                Common
                  Equivalent
                  Share
              
              $
              (0.04
              )
              
              $
              0.15Diluted
                  (Loss) Earnings Per Common
                  and
                Common
                  Equivalent
                  Share
              
              $
              (0.04
              )
              
              $
              0.15Weighted
                  Average Shares and
                  Equivalents:Basic
              
              
              28,157,379
              
              
              
              27,907,125Diluted
              
              
              28,157,379
              
              
              
              28,131,733See
                  accompanying
                  notes.
  4
 Table
            of Contents
  Condensed
                  Consolidated Statements of Cash FlowsThe
                  Steak n Shake
                  Company(Amounts
                  in
                  $000s)Twelve
                  Weeks
                  EndedDecember
                  19,
                  2007
              
              
              December
                  20,
                  2006(Unaudited)
              
              
              (Unaudited)Operating
                  Activities:Net
                  (loss)
                  earnings
              
              $
              (1,187
              )
              
              $
              4,165Adjustments
                  to reconcile net
                  (loss) earnings
                to
                  net cash provided
                  by operating activities:Depreciation
                  and
                  amortization
              
              
              7,658
              
              
              
              7,226Provision
                  for deferred income
                  taxes
              
              
              262
              
              
              
              651Provision
                  for restaurant
                  closings
              
              
              —
              
              
              
              (66
              )Non-cash
                  expense for stock-based
                  compensation
                and
                  deferred
                  rent
              
              
              714
              
              
              
              846(Gain)
                  on disposal of
                  property
              
              
              (343
              )
              
              
              (12
              )Changes
                  in receivables and
                  inventories
              
              
              856
              
              
              
              1,654Changes
                  in other
                  assets
              
              
              84
              
              
              
              (2,199
              )Changes
                  in accounts payable and
                  accrued expenses
              
              
              (830
              )
              
              
              4,808Net
                  cash provided by operating
                  activities
              
              
              7,214
              
              
              
              17,073Investing
                  Activities:Additions
                  of property and
                  equipment
              
              
              (13,403
              )
              
              
              (23,673
              )Proceeds
                  from property and
                  equipment disposals
              
              
              6,610
              
              
              
              3,938Net
                  cash used in investing
                  activities
              
              
              (6,793
              )
              
              
              (19,735
              )Financing
                  Activities:Net
                  proceeds (payments) on line of
                  credit facility
              
              
              715
              
              
              
              (11,265
              )Proceeds
                  from issuance of
                  long-term debt
              
              
              —
              
              
              
              15,000Principal
                  payments on long-term
                  debt
              
              
              (22
              )
              
              
              (14
              )Principal
                  payments on lease
                  obligations
              
              
              (757
              )
              
              
              (1,006
              )Proceeds
                  from exercise of stock
                  options
              
              
              140
              
              
              
              217Excess
                  tax benefits from
                  stock-based awards
              
              
              10
              
              
              
              62Net
                  cash provided by financing
                  activities
              
              
              86
              
              
              
              2,994Increase
                  in Cash and Cash
                  Equivalents
              
              
              507
              
              
              
              332Cash
                  and Cash Equivalents at
                  Beginning of Period
              
              
              1,497
              
              
              
              4,820Cash
                  and Cash Equivalents at End
                  of Period
              
              $
              2,004
              
              
              $
              5,152See
                  accompanying
                  notes.
  5
 Table
            of Contents


Notes
      toCondensed Consolidated
      Financial Statements


The
      Steak n Shake
      Company


(Unaudited)


(Amounts
      in $000s, except share and per
      share data)








1.  Basis
      of Presentation


The
      accompanying unauditedcondensedconsolidated
      financial statements ofThe Steak n Shake Company
      (“we”, “us” or "Steak n Shake")have been prepared in
      accordance with
      accounting principles generally accepted in theUnited States of Americafor
      interim financial information and
      with the instructions to Form 10-Q and Article 10 of Regulation S-X.
      Accordingly, they do not include all of the information and notes required
      by
      accounting principles generally accepted in theUnited States of
      Americafor complete
      financial statements.




In
      our opinion, all adjustments
      considered necessary to present fairly thecondensed consolidated
      Statement of Financial
      Position as of December 19, 2007, and thecondensedconsolidated
      Statements of Operations
      and Cash Flows for the twelve weeks endedDecember 19, 2007 and
      December 20,
      2006, have been
      included.




Thecondensedconsolidated
      Statements of Operations
      for the twelve weeks ended December 19, 2007 and December 20, 2006 are not
      necessarily indicative of the consolidated Statements of Operations for the
      entire fiscal years. For further information, refer to the consolidated
      financial statements and notes thereto included in our Annual Report on Form
      10-K for the fiscal year ended September 26, 2007.







2.  Seasonal
      Aspects


We
      have substantial fixed costs which do
      not decline as a result of a decline in sales. Our first and second fiscal
      quarters, which include the winter months, usually reflect lower average weekly
      unit volumes as compared to the third and fourth fiscal quarters. Additionally,
      sales in the first and second fiscal quarters can be adversely affected by
      severe winter weather. We may also be negatively affected by adverse weather
      during the first and fourth fiscal quarters as hurricanes and tropical storms
      may impact the Southeastern portion of theUnited States,
      where we have a significant number of
      restaurants.


6
 Table
          of Contents


3.  (Loss)
        Earnings Per
        Share
 (Loss)
        earnings per share of common stock is based on the weighted average number
        of
        shares outstanding during the period. The following table presents a
        reconciliation of the basic and diluted weighted average common shares as
        required byStatement
        of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS
        128”).
  Twelve
                    Weeks
                    EndedDecember
                    19,
                    2007
                
                
                December
                    20,
                    2006Basic
                    (loss) earnings per
                    share:Weighted
                    average common
                    shares
                
                
                28,157,379
                
                
                
                27,907,125Diluted
                    (loss) earnings per
                    share:Weighted
                    average common
                    shares
                
                
                28,157,379
                
                
                
                27,907,125Dilutive
                    effect of stock
                    options
                
                
                —
                
                
                
                224,608Weighted
                    average common and
                    incremental shares
                
                
                28,157,379
                
                
                
                28,131,733Number
                    of share-based awards
                    excluded from the calculation of
                  (loss)
                    earnings per
                    share because the awards' exercise prices were
                  greaterthan
                    the average market price of
                    the Company's common
                  stock,
                    orbecause
                    they were antidilutive due
                    to the Company's net
                  loss
                    for the twelveweeks
                    ended December 19,
                    2007
                
                
                1,386,549
                
                
                
                437,441




4.  Restaurant
      Closings


During
      the fourth quarter of fiscal
      2007, we permanently closed eight Company-owned restaurants. The net book value
      of these assets was transferred to Assets Held forSalein
      the consolidated Statement of
      Financial Position during the quarter ended September 26,
      2007.





Six
      of
      the closed restaurants were located near other Company-owned stores that will
      continue to operate, and we expect significant sales to transfer to the other
      existing locations. Therefore, the results of operations of these six
      restaurants are not presented as discontinued operations and continue to be
      included in continuing operations in the condensed consolidated Statement of
      Operations for the quarter ended December 20, 2006.The assets of the other two
      restaurants
      were not located near other Company-owned stores, and we do not expect to have
      significant continuing involvement in the operations after disposal. Although
      these restaurants meet the definition of "discontinued operations," as defined
      inSFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
      Assets" (“SFAS 144”), we have not
      segregated the results of operations as the amounts are immaterial. Net loss
      after tax related to the two restaurants totaled approximately$18forthefirst
      quarter offiscal year2007.





7
 Table
          of Contents
  5.  Net
          Property and
          Equipment
 Net
          property and equipment consists of
          the following:
  December
                      19,
                      2007
                  
                  
                  September
                      26,
                      2007Land
                  
                  $
                  168,699
                  
                  
                  $
                  171,631Buildings
                  
                  
                  166,220
                  
                  
                  
                  166,982Land
                      and leasehold
                      improvements
                  
                  
                  160,600
                  
                  
                  
                  156,687Equipment
                  
                  
                  203,721
                  
                  
                  
                  200,775Construction
                      in
                      progress
                  
                  
                  15,081
                  
                  
                  
                  16,555714,321
                  
                  
                  
                  712,630Less
                      accumulated depreciation and
                      amortization
                  
                  
                  (224,784
                  )
                  
                  
                  (220,020
                  )Net
                      property and
                      equipment
                  
                  $
                  489,537
                  
                  
                  $
                  492,610
 6.  Assets
          Held forSale
 Assets
          held for sale is comprised of the
          following:
  December
                      19,
                      2007
                  
                  
                  September
                      26,
                      2007Land
                      and
                      buildings
                  
                  $
                  19,473
                  
                  
                  $
                  17,494Land
                      and leasehold
                      improvements
                  
                  
                  592
                  
                  
                  
                  592Equipment
                  
                  
                  485
                  
                  
                  
                  485Total
                      assets held for
                      sale
                  
                  $
                  20,550
                  
                  
                  $
                  18,571
 Assets
          held for sale consists of
          property and equipment related to underperforming restaurants and land
          that is
          currently being marketed for disposal.TheDecember
          19,2007 balances includeninerestaurantsclosed
          during prior yearsand21parcels
          of land. We expect to sell these
          properties within the next 12 months.During thefiscal
          quarterended December 19,
          2007, we sold two
          land banked properties that were held for sale as of September 26,
          2007.
 
 TheSeptember
          26,2007 balances include
          eight restaurants
          closed during fiscal 2007, two closed during a prior year, and 19 parcels
          of
          land. TheSeptember 26,2007
          balancesalsoreflect
          the impact of an impairment
          of
          $3,453.


8
 Table
          of Contents
 7.  Goodwill
            and Other
            Intangibles
 
 Goodwill
 Goodwill
            consists of the excess of the
            purchase price over the fair value of the net assets acquired in connection
            with
            the acquisitions ofCreative Restaurants,
            Inc. ("CRI") and
            Kelley Restaurants, Inc. ("KRI")on July 6, 2006
            and December 29, 2004,
            respectively.
  Other
            Intangibles
 Other
            intangibles are comprised of
            the following:
  December
                        19,
                        2007
                    
                    
                    September
                        26,
                        2007Gross
                        value of intangible assets
                        subject to amortization
                    
                    $
                    2,291
                    
                    
                    $
                    2,291Accumulated
                        amortization
                    
                    
                    (877
                    )
                    
                    
                    (832
                    )Intangible
                        assets subject to
                        amortization, net
                    
                    
                    1,414
                    
                    
                    
                    1,459Intangible
                        assets with indefinite
                        lives
                    
                    
                    500
                    
                    
                    
                    500Total
                        intangible
                        assets
                    
                    $
                    1,914
                    
                    
                    $
                    1,959
  Intangible
            assets subject to
            amortization consist of a right to operate and favorable leases acquired
            in
            connection with prior acquisitions, and are being amortized over their
            estimated
            weighted average useful lives of 12 years and 8 years, respectively.
            Amortization expense for the first quarter of fiscal 2008 and 2007 was
            $45 and
            $43, respectively. Total annual amortization for each of the next five
            years is$193.
  Intangible
            assets with indefinite lives
            consist of reacquired franchise rights assumed
            in connection with the acquisitions
            of CRI and KRI and were recorded in accordance with the provisions of
            Emerging
            Issues Task Force Issue No. 04-1, "Accounting for Pre-existing Relationships
            between the Parties to a Business Combination" ("EITF
            04-1").
 8.  Borrowings
 As
          of December 19, 2007, we had
          outstanding borrowings of $18,143 under our amended and restated Senior
          Note
          Agreement and Private Shelf Facility (“Senior Note Agreement”). Our principal
          payments due over the next year total $1,714 and the remaining principal
          payments of $16,429 will be due beyond one year. Our total borrowing capacity
          under the Senior Note Agreement is $75,000 and our ability to borrow additional
          funds expires September 29, 2008. We plan to request an extension to the
          term of
          the $75,000 borrowing capacity.Current
          borrowings bear interest at a
          weighted average fixed rate of 6.6%.
 
 We
          have a $50,000 Revolving
          Credit Facility that bears interest based on LIBOR plus 70 basis
          points, or the prime rate minus 100 basis points, at our election, and
          matures
          on January 30, 2009. As of December 19, 2007, borrowings under the facility
          were
          $27,900 bearing a current interest rate of 5%.
 
 In
          addition, we have one mortgage which
          was assumed in the acquisition of KRI in fiscal 2005. The mortgage matures
          in August 2008, bears interest at a fixed rate of 5% and had an
          outstanding balance of $646 at December 19, 2007. We also have one
          note in the amount of $101outstanding
          as of December
          19, 2007 on a property inJonesboro,Arkansas.
 
 Our
          debt agreements contain restrictions
          and covenants customary for credit agreements of these types which, among
          other things, require us to maintain certain financial ratios. We were
          in
          compliance with all covenants under those agreements at December 19,
          2007.


9
 Table
          of Contents
 9.  Income
            Taxes
 Our
            effective income tax rate increased
            to 50.8% from 14.6% in the same quarter in the prior year primarily due
            to the
            decrease in pre-tax earnings and the related proportionate increase of
            federal
            income tax credits when compared to total pre-tax earnings.
 
 On
            September 27, 2007, we adopted the
            provisions of Financial Accounting Standards Board ("FASB") Interpretation
            No.
            48, "Accounting for Uncertainty in Income Taxes"(“FIN 48”).
            As a result of the implementation of
            FIN 48, we recognized an increase of$614in
            the liability for unrecognized tax
            benefits, which was accounted for as a reductionof $312to
            retained earningsand $302 to deferred
            taxesas of the adoption
            date.
 
 We
            file income tax returns which are
            periodically audited by various federal, state and localjurisdictions.With
            few exceptions, we are no longer
            subject to federal, state and local tax examinations for fiscal years
            prior to
            2003.
 
 As
            of December 19, 2007, we have
            approximately $1,229 of unrecognized tax benefits, including approximately
            $181
            of interest and penalties which are included in Accruedexpenses
            in thecondensedconsolidatedStatement
            of Financial
            Position.During
            thequarterended
            December 19, 2007, we recognized
            approximately $23in
            potential interest and
            penalties associatedwith
            uncertain tax positions.The Company’s continuing practice
            is to
            recognize interest expense and penalties related to income tax matters
            in Income
            tax expense in the condensed consolidated Statement of Operations.Of the $1,229of
            unrecognized tax benefits, $1,116would impact
            the effective income tax rate if
            recognized.
 
 TheCompany
            believes it has certain federal
            tax exposures related to its fiscal year 2004. Due to the expiration
            of the
            federal statute of limitations for theCompany’s
            fiscal year 2004, it is
            possible that the total amount of unrecognized tax benefits will decrease
            by approximately $307within
            12 months.
 
 
 10.  Common
            Stock
            Plans
 Employee
            Stock Option Plans - During the
            fiscal quarter ended December 19, 2007, we did not grant any options
            to
            employees or non-employee directors. Employees and non-employee directors
            exercised and forfeited 17,000 and 13,100 options, respectively. Pre-tax
            stock-based compensation expense recorded during the fiscal quarter ended
            December 19, 2007 for the stock option plans totaled $228.
 
 Capital
            Appreciation Plans - During the
            fiscal quarter ended December 19, 2007, we did not grant any non-vested
            shares
            to employees or non-employee directors. No shares were forfeited and
            87,000
            shares vested. Pre-tax stock-based compensation expense recorded during the
            fiscal quarter ended December 19, 2007 for the plan totaled
            $277.
 
 Employee
            Stock Purchase Plan - During
            the fiscal quarter ended December 19, 2007, we did not issue any shares
            to
            employees under our Employee Stock Purchase Plan. Pre-tax stock-based
            compensation expense recorded during the fiscal quarter ended December
            19, 2007
            for the Employee Stock Purchase Plan totaled
            $110.


10
 Table
          of Contents


11.  Restructuring
 Duringfiscal
          year2007,
          same-store sales declined while certain restaurant operating costs, such
          as food
          costs and labor rates, increased. As a result, management undertook a review
          of
          its current operations which led to a comprehensive cost reduction plan.
          This
          plan includes group market and district consolidations as well as general
          and
          administrative cost reductions. The majority of planned cost reductions
          will be
          achieved through headcount reductions. Also included in these amounts are
          costs
          related to the resignation of our formerPresident
          andChief
          Executive Officer.
  In
          order to execute the comprehensive plan,during
          fiscal 2007we
          incurred approximately $2,221 inrestructuring
          expenses, including$2,040
          of severance costs, $80 of relocation costs and $101 of outplacement servicesrecordedin
          General andadministrative
          expense on the consolidated Statement ofOperations.Also
          in fiscal 2007 we
          reversed $1,495 of previously recognized compensation expense related to
          the
          Capital Appreciation Plan and Employee Stock Option Plan for stock awards
          that
          will not vest inthe
          future.
  Of
          the total $2,221ofrestructuring
          expensesaccrued
          during fiscal 2007,
          a total of $46 had been paid during the fourth quarter offiscal2007.An
          additional $985of
          theaccruedseverance,
          relocation costs and outplacement services waspaid
          in thefirst
          quarter of fiscal 2008.
          The remaining $1,190of
          the accrued expensesis
          expected to be paidduringtherestof
          fiscal 2008.No
          additional restructuring accrual was recorded in the first quarter of fiscal
          2008.
   12.  Supplemental
          Cash Flow
          Information
 During
          the
          fiscal quarter ended December 19, 2007, we did not issue any shares of
          restricted stock under our Capital Appreciation Plan, and we had $339 of
          capital
          expenditures in Accounts payable in the condensed consolidated
          Statement of Financial Position at the end of the quarter. During the
          fiscal quarter ended December 20, 2006, we issued 4,000 shares of restricted
          stock under our Capital Appreciation Plan with a market value of $72, and
          we had
          $2,282 of capital expenditures in Accounts payable in the condensed
          consolidated Statement of Financial Position at the end of the
          quarter.
 
  13.  Commitments
          and
          Contingencies
 We
          are engaged in various legal proceedings in the ordinary course of our
          business
          and have certain unresolved claims pending.  The ultimate liability, if
          any, for the aggregate amounts claimed cannot be determined at this time.
          However, management believes, based on examination of these matters and
          experiences to date, that the ultimate liability, if any, in excess of
          amounts
          already provided for in thecondensedconsolidated
          financial statements is not likely to have a material effect on our
          financial position,results
          of operations or cash flows.


11
 Table
          of Contents
 14.  New
            Accounting
            Standards
 In
            September 2006, the FASB issuedSFASNo. 157,
            “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes
            a formal framework for measuring fair value and expands disclosures about
            fair
            value measurements. The Statement is effective beginning inourfiscal
            2009. We are in the process of determining the effect, if any, that
            the adoption of SFAS 157 will have on our financial
            statements.
  In
            February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
            Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides
            companies with an option to report selected financial assets and financial
            liabilities at fair value. Unrealized gains and losses on items for which
            the
            fair value option has been elected are reported in earnings at each subsequent
            reporting date. SFAS 159 is effective for fiscal years beginning after
            November 15, 2007, our fiscal 2009. We are in the process of determining
            the effect, if any, that the adoption of SFAS 159 will have on our
            financial statements.
  In
            December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
            141(R)”), which replaces SFAS 141. SFAS141(R)
            requires assets andliabilities
            acquired in a business combination, contingent consideration and certain
            acquired contingenciesto
            be measured at their fair values as of the date ofacquisition.
            SFAS 141(R) also requires that acquisition-related costs and restructuring
            costs
            be recognized separately from the business combination. SFAS141(R)
            is effective for fiscal years beginning after December 15, 2008,
            our fiscal 2010,and
            will be effective for business combinations entered into after January
            1,
            2009.We
            are in the process of determining the effect, if any, that the adoption of
            SFAS 141(R)will
            have on our financial statements.
  In
            December 2007, the FASB
            issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
            Statements, an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 clarifies the
            accounting for noncontrolling interests and establishes accounting and
            reporting
            standards for the noncontrolling interest in a subsidiary, including
            classification as a component of equity. SFAS 160 is effective for fiscal
            years
            beginning after December 15, 2008, our fiscal 2010. We
            are in the process of determining the effect, if any, that the adoption of
            SFAS 160will have on our financial
            statements.
 12
 Table
                  of Contents
 ITEM
          2. MANAGEMENT'S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
          OPERATIONS
 (Amounts
          in $000s, except share and per
          share data)
  Overview
 In
          the following discussion, the term
          "same store sales" refers to the sales of only those units open18months
          as of the beginning of the
          current fiscal quarter and which remained open through the end of the
          fiscal quarter.
  ·
                  Total
                        revenues decreased 7.4% to
                        $136,396.
 
 ·
                  Diluted
                        loss per share was
                        ($0.04).
  
 During
          the first fiscal quarter,
          same-store sales declined 9.5% primarily as a result of a decline in guest
          counts of 13.3%.Our
          same store sales and guest counts were negatively impacted by multiple
          factors,
          including deterioration in the consumer economic environment,unfavorable weather
          in the month of
          December,aggressive
          promotional activity from
          competitors, a prior year incremental coupon that was not repeated in the
          current year and ongoing challenges with store level
          execution.
 
 Rising
          unemployment rates, high fuel
          prices, continuing housing related issues and declining levels of consumer
          confidence reduced guest traffic for us and many of our peers in the restaurant
          sector. A snow storm during a crucial holiday shopping weekend in December
          also
          negatively affected guest traffic in several of our majorMidwestmarkets.
          Webelievethis
          adverse weather reduced our same
          store sales 1.0% for the quarter.
 
 During
          the first quarter we also
          experienced an increasing level of aggressive promotional activity from
          competitors, including price promotions, meal deals and day-part promotions.
          This activity most directly impacted our Saturday and Sunday lunch and
          dinner
          day-parts, which experienced 2.0% lower same store sales than other day
          of week
          comparisons.
 
 Same
          store sales were further impacted
          by a prior year incremental coupon thatoccurredin
          November 2006 but was not repeated in
          the current fiscal year. The effect of not repeating this coupon given
          the
          current highly price-sensitive environment was a 2.0%declinein
          same store sales for the
          quarter.
 
 In
          the first quarter we also continued
          our focus on intensifying store level execution, which as previously noted,
          has
          negatively impacted our value perception with guests. While we are encouraged
          by
          the early progress being made to improve the guest experience, it is not
          yet
          being executed at a level that offsets other factors contributing to lower
          guest
          counts.
 
 As
          previously reported, our current
          efforts to reverse negative same store sales trends remain focused on
          simplifying initiatives, intensifying focus on store level execution and
          critically managing ourcost structure.
          We are also working
          towards near-term promotions that we hope will increase guest traffic and
          reinvigorate same store sales.
 
 In
          the current quarter, we
          opened four new Company-owned restaurantsin established marketsand
          sold four restaurants to
          franchisees, keeping the total number of Company-owned restaurants at 435.
          Additionally, two new franchised units opened during quarter, bringing
          the total
          number of franchised units to 62.


13
 Table
          of Contents


Special
        Committee
        Update
 As
        previously reported, our Board of Directors appointed a Special Committee
        of
        independent directors to examine all potential strategic opportunities to
        increase shareholder value. The Special Committee continues to actively work
        with Merrill Lynch & Co., which was retained as its financial advisor. One
        of its tasks has been to advise our full Board of Directors on the process
        for
        hiring a permanent Chief Executive Officer (“CEO”).
        We continue to pursue a parallel process in conducting a search for the new
        CEO while working to evaluate strategic alternatives to enhance shareholder
        value. We look forward to providing an update on the work of the Special
        Committee, including the progress of the CEO search, when there is additional
        information to be shared.
   Fiscal
        2008
        Guidance
 As
        previouslyreported,
        given first quarter performance and the high level of uncertainty surrounding
        the current consumer and macroeconomic environment, we are suspending our
        2008
        full year diluted earnings per share and same store sales guidance until
        visibility into future results improves.
  We
        anticipate the openingof
        five additional Company-owned restaurants and fouradditional
        franchised units through the remainder of fiscal 2008,
        which is in line with the previously announced plans to open a total of nine
        Company-owned and six franchised restaurants in 2008.Also
        as originally planned, we will rebuild two older units and remodel four to
        six
        units utilizing an updated restaurant design to test consumer acceptance.
        We
        still anticipate that the updated design, if proven successful, will be used
        in
        new unit constructionbeginningin
        fiscal 2009.
 14
 Table
              of Contents
 
 Critical
        Accounting
        Policies
 Management’s
        discussion and analysis of financial condition and results of operations
        is
        based upon ourcondensedconsolidated
        financial statements, which have been prepared in accordance
        with accounting principles generally accepted in theUnited
        States of
        America.
        The preparation
        of our financial statements requires us to make estimates and judgments that
        affect the reported amounts of assets, liabilities and expenses and the related
        disclosure of contingent assets and liabilities.Critical accounting
        policies are those we believe are most important to portraying our financial
        condition and results of operations and also require the most subjective
        or
        complex judgments by management.Judgments
        and uncertainties regarding the application of these policies may result
        in
        materially different amounts being reported under various conditions or using
        different assumptions. On an
        ongoing
        basis, we evaluate our estimates and assumptions based on historical experience
        and other factors that are believed to be relevant under the circumstances.Except
        for income taxes, there have been no material changes to the critical accounting
        policies previouslydisclosed
        in our
        Annual Report on Form 10-K for the fiscal year endedSeptember26,
        2007. The
        methodology applied to management’sestimate
        for income
        taxes has changed due to the implementation of a new accounting pronouncement
        as
        described below.
  InJune
        2006, the
        Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
        No. 109” (“FIN 48”), which became effective for us at the beginning of
        our current fiscal year, September 27, 2007. FIN 48 addresses the
        determination of how tax benefits claimed or expected to be claimed on a
        tax
        return should be recorded in the financial statements. Under FIN 48, we must
        recognize the tax benefit from an uncertain tax position only if it is more
        likely than not that the tax position will be sustained on examination by
        the
        taxing authorities, based on the technical merits of the position. The tax
        benefits recognized in the financial statements from such a position are
        measured based on the largest benefit that has a greater than 50% likelihood
        of
        being realized upon ultimate resolution. As a
        result of the
        implementation of FIN 48, we recognized an increase of$614in the liability
        for unrecognized tax benefits, which was accounted for as a
        reductionof
        $312toretained
        earningsand
        $302 to deferred taxesas
        of the adoptiondate. Our estimates of the tax benefit from uncertain tax positions
        may
        change in the future due to new developments in each
        matter.
  For
        additional information regarding the adoption of FIN 48, see Note 9 of Notes
        to
        Condensed Consolidated Financial Statements in Part I, Item 1 of this Form
        10-Q.


15
 Table
          of Contents


Results
        of
        Operations
 The
        following table sets forth the
        percentage relationship to total revenues, unless otherwise indicated, of
        items
        included in ourcondensedconsolidated
        Statements of
        Operations for the periods indicated:
  Twelve
                    Weeks
                    EndedDecember
                    19,
                    2007
                
                
                December
                    20,
                    2006Revenues:Net
                    sales
                
                
                99.3
                %
                
                
                99.5
                %Franchise
                    fees
                
                
                0.7
                
                
                
                0.5Total
                    revenues
                
                
                100.0
                
                
                
                100.0Costs
                    and
                    Expenses:Cost
                    of
                    sales (1)
                
                
                24.1
                
                
                
                22.6Restaurant
                    operating costs
                    (1)
                
                
                55.9
                
                
                
                51.5General
                    and
                    administrative
                
                
                7.4
                
                
                
                9.2Depreciation
                    and
                    amortization
                
                
                5.6
                
                
                
                4.9Marketing
                
                
                4.4
                
                
                
                4.4Interest
                
                
                2.4
                
                
                
                2.1Rent
                
                
                2.4
                
                
                
                2.1Pre-opening
                    costs
                
                
                0.3
                
                
                
                0.6Asset
                    impairments and provision
                    for restaurant closings
                
                
                —
                
                
                
                —Other
                    income,
                    net
                
                
                (0.3
                )
                
                
                (0.3
                )(Loss)
                    Earnings Before Income
                    Taxes
                
                
                (1.8
                )
                
                
                3.3Income
                    Taxes
                
                
                (0.9
                )
                
                
                0.5Net
                    (Loss)
                    Earnings
                
                
                (0.9
                )
                  %
                
                
                2.8
                %(1)
                    Cost of sales and restaurant
                    operating costs are expressed as a percentage of net
                    sales.
 
 Comparison
        of Twelve Weeks Ended
        December 19, 2007 to Twelve Weeks Ended December 20,
        2006
 
 Net
        (Loss) Earnings
 Net
        (loss) earnings decreased $5,352 to
        a net loss of ($1,187), or ($0.04) per diluted share, as compared with net
        earnings of $4,165, or $0.15 per diluted share, for the first quarter of
        fiscal
        2007.The decrease was
        primarily driven by the decline in same store sales noted below.
  Revenues
 Net
          sales decreased 7.5% from $146,458 to $135,496 primarily due to the decline
          in same store sales. Same store sales decreased 9.5% due to a decline in
          guest
          traffic of 13.3%, which was partially offset by a 3.8% increase in average
          guest expenditure.A
          total of approximately 3% of the decline in same store sales was attributable
          tounfavorable
          weather in the month of Decemberanda
          prior year incremental coupon that was not repeated in the current
          year,
          as described above. The remainder of the same store sales decline is due
          todeterioration
          in the consumer economic environment, aggressive promotional
          activity from competitorsand
          ongoing challenges with store level execution,
          also described above.The
          increase in average guest expenditure results primarily frommenu
          price increases of 3.7%, whicharemade
          up of the annualization of fiscal 2007 price increases in addition to a
          2.1%
          increase in the first quarter of fiscal 2008. These price increases were
          implemented to offset minimum wage and commodity cost
          pressures.


16
 Table
          of Contents
  Costs
          and Expenses
 Cost
          of sales was $32,684or
          24.1%
          of net sales, compared with $33,070 or 22.6% of net sales inthefirst
          quarter of fiscal 2007.The
          increase as a percentage of net salesincludes
          approximately 1.0% related tonew
          menu items with higher percentage food cost, including new entrée salads,
          chicken sandwiches and Fruit n Frozen yogurt shakes,as
          well asoperational
          inefficiencies from implementing the new product mix. Highercommodity
          costsrelated
          todairy
          andfried
          productscontributed
          approximately0.5%
          ofthe
          increase in food cost percentage.
 Restaurant
          operating costs were $75,810or
          55.9% of net sales compared to $75,468 or 51.5% of net sales inthefirst
          quarter of fiscal 2007.The
          increase was due primarily to higher minimum wage rates and utility costs,
          the
          timing ofrepairs
          and maintenanceandthe
          impact of negative same store sales on fixed costs.
  General
          and administrative expenses decreased $3,421 (25.2%) to $10,134 and decreased
          as
          a percentage of total revenues from 9.2% to 7.4%. Specifically,
          the
          decrease resulted from cutbacks in outside consulting services,bonusesand
          stock compensation, as well as lower salaries and wages due to reductions
          in
          staffing,
          which together accounted for $2,100 of the savings.The
          decrease relates to the planned reduction in general and administrative
          spending
          that resulted from a critical review of our cost structure performed in
          fiscal
          2007. We are on target to meet our goal of reducing general and administrative
          spending by a net $8,100 over the course of fiscal
          2008.
  Depreciation
          and amortization expense was $7,658 or 5.6% of total revenues, versus $7,226
          or
          4.9% of total revenues in the first quarter of fiscal 2007.The
          increase as a percentage of total revenues was due to the impact of negative
          same store sales on fixed costs.
  Interest
          expensewas
          $3,313 or 2.4% of total revenues, compared to $3,133 or 2.1% of total revenues
          in the first quarter of fiscal 2007.The
          increase is a result of increased net borrowings under our Revolving Credit
          Facility, partially offset by lower average borrowings under
          leases.
  Rent
          expense increased slightly as a percentage of total revenues primarily
          as a
          result of the decline in same store sales, as well as increases in rental
          rates for new unit leases.
  Pre-opening
          costs decreased $480 (51.4%) to $454, due in part to the decreased number
          of units opened in the current quarter versus thefirst
          quarter of fiscal 2007.
          During the current quarter, we opened four new restaurants compared
          to five in thefirst
          quarter of fiscal 2007.The
          decrease also relates to variances inthetiming
          of when pre-opening costs are incurred compared to when the stores are
          opened.
  Income
              Taxes
 Our
              effective income tax rate increased to 50.8% from 14.6% in the same quarterofthe
              prior year.
              Income taxes for the current quarter reflect theimpactofthe
              decrease in pre-tax earnings and the related proportionate increase
              of federal
              income tax credits.
              Income taxes for the first quarter of fiscal 2007 include a benefit
              of $650
              related to the retroactive extension of the Work Opportunity and Welfare
              to Work
              tax credits.


17
 Table
          of Contents
  Liquidity
          and Capital
          Resources
 During
          the twelve week period ended December 19, 2007, we opened four
          Company-owned restaurants and sold four stores to franchisees. In addition,
          franchisees opened two new restaurants during the current quarter. In the
          twelve week period ended December 20, 2006, we opened five Company-owned
          restaurants and a franchisee opened one new restaurant. For the twelve
          weeks ended December 19, 2007, capital expenditures totaled $13,403 as
          compared
          to $23,673 for the same period in the prior year. In addition, we received
          proceeds of $6,610 from the sale of two land banked properties and the
          refranchising of three Company-owned stores and $3,938 from the sale of
          three
          properties during the twelve weeks ended December 19, 2007 and December
          20,
          2006, respectively.
  We
          anticipate openingfiveadditional
          Company-owned restaurants during the remainder of fiscal year 2008, for
          a total
          of nine new Company-owned restaurants,
          as previously announced. The
          average cost of a new Company-owned restaurant, including land, site
          improvements, building, equipment and pre-opening costs isapproximately
          $2,000 to $2,500.Additionally,as
          planned, we will rebuild two older units and remodel four to six units
          utilizing
          an updated restaurant design to test consumer acceptance. We still anticipate
          that the updated design, if proven successful, will be used in new unit
          construction beginning in fiscal 2009.Capital
          spending for fiscal year 2008 isstillestimated
          to be $37,000 to $45,000.We
          intend to fund future capital expenditures and meet our working capital
          needs by
          using anticipated cash flows from operations, our existing borrowing facilities
          andpotential
          sale-leaseback transactions.
  During
          the twelve weeks ended December 19, 2007, cash provided by operations totaled
          $7,214, compared to $17,073 in the same period in the prior year. This
          decrease
          in cash provided by operations is attributable primarily to changes in
          working
          capital and a decline in net earnings. Net cash provided by financing activities
          for the twelve weeks ended December 19, 2007 totaled $86 compared to
          $2,994 in the comparable prior year period. This decrease is due to a reduction
          in net borrowings.
 As
            of December 19, 2007, we had outstanding borrowings of $18,143 under
            our amended
            and restated Senior Note Agreement and Private Shelf Facility (“Senior Note
            Agreement”).Our
            principal payments due over the next year total $1,714 and the remaining
            principal payments of $16,429
            will be due beyond one year.Our
            total borrowing capacity under the Senior Note Agreement is $75,000 and
            our
            ability to borrow additional funds expires September 29, 2008. We plan
            to
            request an extension to the term of the $75,000 borrowing capacity.Current
            borrowings bear interest at a weighted average fixed rate of
            6.6%.
 We
          have a $50,000 Revolving Credit Facility that bears interest based on
          LIBOR plus 70 basis points, or the prime rate minus 100 basis points, at
          our
          election, and matures on January 30, 2009. As of December 19, 2007, borrowings
          under the facility were $27,900 bearing a current interest rate of
          5%.
  In
          addition, we have one mortgage which was assumed in the acquisition of KRI
          in fiscal 2005. The mortgage matures in August 2008, bears interest at
          a fixed
          rate of 5% and had an outstanding balance of $646 at December 19,
          2007. We also have one note in the amount of $101outstanding
          as of December 19, 2007 on a property inJonesboro,Arkansas.
  Our
          debt agreements contain restrictions and covenants customary for credit
          agreements of these types which, among other things, require us to maintain
          certain financial ratios. We were in compliance with all covenants
          under those agreements at December 19,
          2007.


18
 Table
          of Contents
  New
          Accounting
          Standards
 In
          September 2006, the FASB issued Statement of Financial Accounting Standards
          No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
          value, establishes a formal framework for measuring fair value and expands
          disclosures about fair value measurements. The Statement is effective beginning
          inourfiscal
          2009. We are in the process of determining the effect, if any, that
          the adoption of SFAS 157 will have on our financial
          statements.
  In
          February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
          Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides
          companies with an option to report selected financial assets and financial
          liabilities at fair value. Unrealized gains and losses on items for which
          the
          fair value option has been elected are reported in earnings at each subsequent
          reporting date. SFAS 159 is effective for fiscal years beginning after
          November 15, 2007, our fiscal 2009. We are in the process of determining
          the effect, if any, that the adoption of SFAS 159 will have on our
          financial statements.
  In
          December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
          141(R)”), which replaces SFAS 141. SFAS141(R)
          requires assets andliabilities
          acquired in a business combination, contingent consideration, and certain
          acquired contingenciesto
          be measured at their fair values as of the date ofacquisition.
          SFAS 141(R) also requires that acquisition-related costs and restructuring
          costs
          be recognized separately from the business combination. SFAS141(R)
          is effective for fiscal years beginning after December 15, 2008,
          our fiscal 2010,and
          will be effective for business combinations entered into after January
          1,
          2009.We
          are in the process of determining the effect, if any, that the adoption of
          SFAS 141(R)will
          have on our financial statements.
  In
          December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
          Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS 160”).
          SFAS 160 clarifies the accounting for noncontrolling interests and establishes
          accounting and reporting standards for the noncontrolling interest in a
          subsidiary, including classification as a component of equity. SFAS 160
          is
          effective for fiscal years beginning after December 15, 2008, our fiscal
          2010.
We
          are in the process of determining the effect, if any, that the adoption of
          SFAS160will have on our financial statements.
   Effects
            of Governmental Regulations and
            Inflation
 Most
            of our employees are paid hourly rates related to federal and state minimum
            wage
            laws. Any increase in minimum wage levels directly increases our operating
            costs. We are also subject to various federal, state and local laws related
            to
            zoning, land use, safety standards, working conditions and accessibility
            standards. Any changes in these laws that require improvements to our
            restaurants would increase operating costs. In addition, we are subject
            to
            franchise registration requirements and certain related federal and state
            laws
            regarding franchise operations. Any changes in these laws could affect
            our
            ability to attract and retain franchisees. During the fiscal 2007, a number
            of states passed increases in minimum wages.We
            took active measures to maintain the profits in these states through
            increases
            in menu prices.
  Inflation
            in food, labor, fringe benefits,energy
            costs, transportation costsand
            other operating costs directly affects our operations. Our results of
            operations
            have not been significantly affected by inflation in the recent
            past.


19
 Table
          of Contents


Risks
      Associated with Forward-Looking
      Statements


Certain
        statements contained in this report represent forward-looking
        statementswithin
        the meaning of the Private Securities Litigation Reform Act of 1995.
        In general, forward-looking statements include estimates of future revenues,
        cash flows, capital expenditures or other financial items, as well as
        assumptions underlying any of the foregoing. Forward-looking statements reflect
        management’s current expectations regarding future events and use words such as
“anticipate,” “believe,” “expect,” “may” and other similar
        terminology.
        A forward-looking statement is neither a prediction nor a guarantee of future
        events or circumstances, and those future events or circumstances may not
        occur.
        Investors should not place undue reliance on the forward-looking statements,
        which speak only as of the date of this report. These forward-looking statements
        are based on currently available operating, financial and competitive
        information and are subject to various risks and uncertainties. Our actual
        future results and trends may differ materially depending on a variety of
        factors, many beyond our control, including, but not limited
        to:
 
 ·
              the
                  poor performance or closing of
                  even a small number of
                  restaurants;
 ·
              our
                  ability to attract and retain
                  guests;
 ·
              the
                  ability of our franchisees to
                  operate profitable
                  restaurants;
 ·
              changes
                  in guest preferences,
                  tastes and dietary habits;
 ·
              minimum
                  wage
                  rates;
 ·
              the
                  availability and cost of
                  qualified personnel;
 ·
              fluctuations
                  in food commodity
                  prices and the availability of food
                  commodities;
 ·
              harsh
                  weather
                  conditions;
 ·
              unfavorable
                  publicity relating to
                  food safety or food borne
                  illness;
 ·
              our
                  ability to comply with the
                  restrictions and covenantsto
                  our debt agreements;
 ·
              our
                  ability to renegotiate our
                  debt agreements and refinance our current debt at similar
                  rates;
 ·
              our
                  ability to comply with
                  existing and future governmental
                  regulations;
 ·
              our
                  ability to adequately protect
                  our trademarks, service marks and other components of our brand;
                  and
 ·
              other
                  risks
                  identified in the periodic reports we file with the Securities
                  and
                  Exchange Commission.
 
 Accordingly,
        such forward-looking statements do not purport to be predictions of future
        events or circumstances and may not be realized.Additional
        risks and uncertainties not currently known to us or that are currently deemed
        immaterial may also become important factors that may harm our business,
        financial condition, results of operations or cash flows. We assume no
        obligation to update forward-looking statements except as required in our
        periodic reports.
 20
 Table
              of
              Contents
 ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK
 
 Our
        primary market risk exposure with regard to financial instruments is to changes
        in interest rates. We invest excess cash primarily in cash equivalents due
        to their relatively low credit risk. Interest rates on these securities are
        based upon market rates at the time of purchase and remain fixed until
        maturity.
  Pursuant
        to the terms of our Senior Note Agreement, we may from time to time borrow
        in
        increments of at least $5,000. The interest rate on the notes is based upon
        market rates at the time of the borrowing. Once the interest rate is established
        at the time of the initial borrowing, the interest rate remains fixed over
        the
        term of the underlying note. The Revolving Credit Agreement bears interest
        at a
        rate based upon LIBOR plus70
        basis points,or
        the prime rate minus 100 basis points, at our election.Historically,
        we have not used derivative financial instruments to manage exposure to interest
        rate changes. AtDecember19,
        2007 a hypothetical 100 basis point increase in short-term interest rates
        would
        have an impact of approximately $45on
        ourquarterlynet
        loss.
  We purchase
        certain food products which may be affected by volatility in commodity prices
        due to weather
        conditions, supply levelsand
        other market conditions. We utilize various purchasing and contract pricing
        techniques to minimize volatility but do not enter into financial derivative
        contracts.
 
 
 ITEM
        4. CONTROLS AND
        PROCEDURES
 
 Based
        on an evaluation of our disclosure controls and procedures (as defined in
        Exchange Act Rules 13a-15(e) and 15d-15(c)), our Chief Executive Officer
        and
        Chief Financial Officer have concluded that our disclosure controls and
        procedures were effective as ofDecember19,
        2007.
  There
        have been no changes in our internal control over financial reporting that
        occurred during the current quarter endedDecember
        19,2007
        that have materially affected, or that are reasonably likely to materially
        affect, our internal control over financial
        reporting.
 21
 Table
              of
              Contents


PART
      II. OTHER
      INFORMATION





ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





The
      publicly announced share repurchase program approved
      by our Board of Directors expired on November 16, 2007. We did not make any
      share repurchases during the first quarter of fiscal 2008 prior to the
      expiration of the program.








ITEM
      6.
      EXHIBITS





Exhibit
                  Number
              
              Description31.01
              
              Rule
                  13(a)-14(a)/15d-14(a)
                  Certification of Chief Executive Officer31.02
              
              Rule
                  13(a)-14(a)/15d-14(a)
                  Certification of Chief Financial Officer32.01
              
              Section
                  1350
                  Certifications


22
 Table
            of Contents


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.
 
 Date:January 28,2008
 THE
          STEAK N SHAKE
          COMPANY
 
 By:/s/
          Jeffrey
          A. Blade
 Jeffrey
          A. Blade
 Executive
          Vice President, Chief
          Financial &
Administrative Officer
    23