# UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION


WASHINGTON, D.C. 20549

# FORM 10-Q

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


OF THE SECURITIES EXCHANGE ACT OF 1934

For
the quarterly period ended December 17, 2003

Commission
file number:  333-98301

# BUFFETS, INC.

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|(State or other jurisdiction of |  | (IRS Employer      
|incorporation or organization)  |  | Identification No.)





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|---------------------------------------- | ----------
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|(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 [   ]

Indicate by checkmark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES [   ] NO [X]

The number of shares of Buffets,
Inc.s common stock outstanding as of January 27, 2004 was 100.

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# BUFFETS, INC.

TABLE OF CONTENTS

|                                 |  | 
|-------------------------------- |  | 
|Part I.    Financial Information |  | 
|                                 |  | 
|Item 1.                          |  | 
|                                 |  | 
|                                 |  | 
|                                 |  | 
|                                 |  | 
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|                                 |  | 
|                                 |  | 
|                                 |  | 
|                                 |  | 
|Item 2.                          |  | 
|                                 |  | 
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|Item 3.                          |  | 
|                                 |  | 
|Item 4.                          |  | 
|                                 |  | 
|Part II.  Other Information      |  | 
|                                 |  | 
|Item 5.                          |  | 
|                                 |  | 
|Item 6.                          |  | 

2

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# PART I.     FINANCIAL
INFORMATION

# ITEM 1.     FINANCIAL STATEMENTS

# BUFFETS, INC. AND
SUBSIDIARIES

# CONDENSED CONSOLIDATED
BALANCE SHEETS

|                                                         | July 2, | December 17,
|-------------------------------------------------------- | ------- | ------------
|
|
|
|
|
|CURRENT ASSETS:                                          |         |             
|Cash and cash equivalents                                |         |             
|Receivables                                              |         |             
|Inventories                                              |         |             
|Prepaid expenses and other current assets                |         |             
|Assets held for sale                                     |         |             
|Deferred income taxes                                    |         |             
|                                                         |         |             
|Total current assets                                     |         |             
|PROPERTY AND EQUIPMENT, net                              |         |             
|GOODWILL                                                 |         |             
|DEFERRED INCOME TAXES                                    |         |             
|OTHER ASSETS, net                                        |         |             
|                                                         |         |             
|Total assets                                             |         |             
|                                                         |         |             
|LIABILITIES AND SHAREHOLDER'S EQUITY                     |         |             
|CURRENT LIABILITIES:                                     |         |             
|Accounts payable                                         |         |             
|Accrued liabilities                                      |         |             
|Income taxes payable                                     |         |             
|Current maturities of long-term debt                     |         |             
|                                                         |         |             
|Total current liabilities                                |         |             
|LONG-TERM DEBT, net of current maturities                |         |             
|DEFERRED LEASE OBLIGATIONS                               |         |             
|OTHER LONG-TERM LIABILITIES                              |         |             
|                                                         |         |             
|Total liabilities                                        |         |             
|SHAREHOLDER'S EQUITY:                                    |         |             
|Common stock; $.01 par value, 100 shares authorized; 100 |         |             
|shares issued and outstanding                            |         |             
|Retained earnings                                        |         |             
|                                                         |         |             
|Total shareholder's equity                               |         |             
|                                                         |         |             
|Total liabilities and shareholder's equity               |         |             
|                                                         |         |             

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

3

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# BUFFETS, INC. AND
SUBSIDIARIES

# CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

|                                       | Twelve Weeks Ended | Twenty Four Weeks Ended
|-------------------------------------- | ------------------ | -----------------------
|
|
|
|
|RESTAURANT SALES                       |                    |                        
|RESTAURANT COSTS:                      |                    |                        
|Food                                   |                    |                        
|Labor                                  |                    |                        
|Direct and occupancy                   |                    |                        
|                                       |                    |                        
|Total restaurant costs                 |                    |                        
|ADVERTISING EXPENSES                   |                    |                        
|GENERAL AND ADMINISTRATIVE EXPENSES    |                    |                        
|LOSS ON SALE AND LEASEBACK TRANSACTION |                    |                        
|                                       |                    |                        
|OPERATING INCOME                       |                    |                        
|INTEREST EXPENSE                       |                    |                        
|INTEREST INCOME                        |                    |                        
|OTHER INCOME                           |                    |                        
|                                       |                    |                        
|INCOME (LOSS) BEFORE INCOME TAXES      |                    |                        
|INCOME TAX EXPENSE (BENEFIT)           |                    |                        
|                                       |                    |                        
|Net income (loss)                      |                    |                        
|                                       |                    |                        

4

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# BUFFETS, INC. AND
SUBSIDIARIES

# CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS

|                                                         | Twenty Four Weeks Ended
|-------------------------------------------------------- | -----------------------
|
|
|
|
|OPERATING ACTIVITIES:                                    |                        
|Net income                                               |                        
|Adjustments to reconcile net income to net cash          |                        
|provided by operating activities:                        |                        
|Depreciation and amortization                            |                        
|Amortization of debt issuance cost                       |                        
|Deferred income taxes                                    |                        
|Accretion of original issue discount                     |                        
|Loss (gain) on disposal of assets                        |                        
|Loss on sale and leaseback transaction                   |                        
|Changes in assets and liabilities:                       |                        
|Receivables                                              |                        
|Inventories                                              |                        
|Prepaid expenses and other current assets                |                        
|Accounts payable                                         |                        
|Accrued and other liabilities                            |                        
|Income taxes payable                                     |                        
|                                                         |                        
|Net cash provided by operating activities                |                        
|                                                         |                        
|INVESTING ACTIVITIES:                                    |                        
|Proceeds from sale and leaseback transaction             |                        
|Purchase of fixed assets                                 |                        
|Acquisition of 20% minority interest in Tahoe Joe's Inc. |                        
|Net proceeds from sale (purchase) of other assets        |                        
|                                                         |                        
|Net proceeds provided by (used in) investing activities  |                        
|                                                         |                        
|FINANCING ACTIVITIES:                                    |                        
|Repayment of debt                                        |                        
|Capital distribution                                     |                        
|Debt issuance costs                                      |                        
|                                                         |                        
|Net cash used in financing activities                    |                        
|                                                         |                        
|NET CHANGE IN CASH AND CASH EQUIVALENTS                  |                        
|CASH AND CASH EQUIVALENTS, beginning of period           |                        
|                                                         |                        
|CASH AND CASH EQUIVALENTS, end of period                 |                        
|                                                         |                        
|SUPPLEMENTAL CASH FLOW INFORMATION:                      |                        
|Cash paid during the period for--                        |                        
|Interest (net of capitalized interest of $183 and $108)  |                        
|                                                         |                        
|Income taxes                                             |                        
|                                                         |                        

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

5

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# BUFFETS, INC. AND
SUBSIDIARIES

# NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

# (Unaudited)

# 1. Nature of Organization

Company Background

Buffets
Holdings, Inc. (Buffets Holdings), a Delaware corporation, was formed to acquire 100
percent of the common stock of Buffets, Inc. and its subsidiaries (the Company) in a
buyout from public shareholders. On October 2, 2000, pursuant to a sale agreement dated
September 29, 2000 between Buffets Holdings and Caxton-Iseman Investments LLP
(Caxton-Iseman), Buffets Holdings acquired the common stock of Buffets, Inc. for a total
of $639.8 million funded by (i) $85 million in cash held by the Company, (ii) $310 million
borrowed under a $340 million senior credit agreement, (iii) 14 percent senior
subordinated notes due September 29, 2008 in the principal amount of $80 million, (iv) 16
percent senior subordinated notes due September 29, 2008 in the principal amount of $15
million, (v) warrants to purchase 205,696 shares of common stock and 61,709 shares of
preferred stock, (vi) $20 million in proceeds from the sale and leaseback of the
Companys Eagan, Minnesota, headquarters facility, and (vii) $130 million of capital
contributions from Caxton-Iseman, Sentinel Capital and members of management.

Description of Business

The
Company owns and operates a chain of restaurants under the names of Old Country Buffet,
Country Buffet, HomeTown Buffet, Grannys Buffet, Country Roadhouse Buffet &
Grill, Tahoe Joes Famous Steakhouse, and Soup N Salad Unlimited in the United
States. The Company operates principally in the midscale family dining industry segment.
The Company operated 362 Company-owned restaurants (354 buffet restaurants and eight Tahoe
Joes Famous Steakhouse Restaurants) and franchised 21 restaurants as of December 17,
2003.

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 such SEC rules and
regulations. Operating results for the twelve-week and twenty four-week periods ended
December 17, 2003 are not necessarily indicative of results that may be expected for the
year ending June 30, 2004.

The
balance sheet as of July 2, 2003 has been derived from the audited 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 financial statements and the related notes contained in the Companys Form 10-K
filed with the Securities and Exchange Commission on September 30, 2003 and with
Managements Discussion and Analysis of Financial Condition and Results of Operations
appearing on pages 10 through 17 of this report.

6

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Principles of
Consolidation

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

Fiscal Year

The
Companys fiscal year is comprised of fifty-two or fifty-three weeks divided into
four fiscal quarters of twelve, twelve, sixteen, and twelve or thirteen weeks. There are
52 weeks in the Companys 2004 fiscal year.

Reclassifications

Certain amounts shown in the
prior-period condensed consolidated financial statements have been reclassified to conform
with the current period condensed consolidated financial statement presentation. These
reclassifications had no effect on net income (loss) or shareholders equity as
previously presented.

# 2. Recent Accounting
Pronouncements

In
January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. (FIN) 46, Consolidation of Variable Interest Entities, an Interpretation of ARB
51. The primary objectives of FIN 46 are to provide guidance on the identification
of entities for which control is achieved through means other than through voting rights
(variable interest entities, or VIEs) and how to determine when and which business
enterprise should consolidate the VIE (the primary beneficiary). In December 2003, the
FASB issued FIN 46 (R), Consolidation of Variable Interest Entities, which
represents a revision to FIN 46. The provisions of FIN 46 (R) are effective for interests
in VIEs as of the first interim, or annual, period ending after December 15, 2003. In
addition, FIN 46 (R) requires that both the primary beneficiary and all other enterprises
with a significant variable interest make additional disclosure in filings issued after
January 31, 2003. The Company adopted FIN 46 (R) as of December 17, 2003 and its adoption
had no impact on the Companys consolidated results of operations, financial position
or cash flow.

In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. SFAS No. 150 modifies the
accounting for certain financial instruments that, under previous guidance, issuers could
account for as equity. SFAS No. 150 requires that those instruments be classified as
liabilities in statements of financial position. Most of the guidance in SFAS No. 150 is
effective for all financial instruments entered into or modified after May 31, 2003, or
otherwise is effective at the beginning of the first interim period beginning after June
15, 2003. The Company adopted SFAS No. 150 as of July 3, 2003 and its adoption had no
impact on the Companys consolidated results of operations, financial position or
cash flow.

# 3. Other Assets

Other
assets consist principally of debt issuance costs, notes receivable and other intangibles
net of accumulated amortization of $1.3 million as of July 2, 2003 and $1.9 million as of
December 17, 2003. Debt issuance costs are the costs incurred to enter into the senior
credit agreement and issue the senior subordinated notes. Debt issuance costs are being
amortized over the terms of the related financing arrangements using the effective
interest method. Other intangibles include trademarks, franchise fees and liquor licenses.
Trademarks and franchise fees are being amortized on a straight-line basis over 10 years.
Liquor licenses are no longer amortized, as they were determined to have indefinite lives
upon the adoption of Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. Notes receivable represent the long-term portion of
notes that arose from the sale of certain restaurant facilities. Long-term and short-term
notes receivable collectively totaled $3.4 million as of July 2, 2003 and $3.5 million as
of December 17, 2003. The notes receivable have due dates between 2004 and 2010.

7

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The
gross carrying amount and accumulated amortization of each major class of other intangible
assets were as follows (in thousands):

|                           | Franchise fees | Trademarks | Liquor licenses | Total |  |   |     |  
|-------------------------- | -------------- | ---------- | --------------- | ----- |  | - | --- | -
|
|
|
|BALANCE, July 2, 2003      |                |            | $               | 69    |  | $ | (44 | )
|FY 2004 Activity:          |                |           
|Amortization               |                |            |                 | --    |  |   | (5  | )
|                           |                |            |                 |       |  |   |     |  
|BALANCE, December 17, 2003 |                |            | $               | 69    |  | $ | (49 | )
|                           |                |            |                 |       |  |   |     |  

# 4. Long-Term Debt

As
of December 17, 2003, long-term debt outstanding was as follows (in thousands):

|                                                       | 
|------------------------------------------------------ | 
|Credit facility:                                       | 
|Revolver                                               | 
|Term loan, interest at LIBOR plus 3.50%, due quarterly | 
|through June 28, 2009 (interest rate at 4.6%)          | 
|                                                       | 
|Total credit facility                                  | 
|Senior subordinated notes, interest at 11.25%, due     | 
|July 15, 2010, net of discount of $7,678               | 
|                                                       | 
|Total long term debt                                   | 
|Less-- current maturities                              | 
|                                                       | 
|                                                       | 
|                                                       | 

Credit Facility

On June
28, 2002, the Company entered into a senior credit facility (the Credit Facility) which
provided for total borrowings of up to $295,000,000, including (i) a $245,000,000 term
loan, (ii) a $30,000,000 revolving credit facility, of which up to $20,000,000 is
available in the form of letters of credit, and (iii) a separate $20,000,000 letter of
credit facility. The terms of the Credit Facility permit the Company to borrow, subject to
availability and certain conditions, incremental term loans or to issue additional notes
in an aggregate amount up to $25,000,000. The term loan matures on June 28, 2009, while
the revolving facility and the letter of credit facility mature on June 28, 2007. The
borrowings due under the term loan are payable in equal quarterly installments in an
annual amount equal to 1% of the term loan during each of the first six years of the loan
(beginning on September 30, 2002), with the remaining balance payable due in equal
quarterly installments during the seventh year of the loan. The term loan is fully and
unconditionally guaranteed by Buffets Holdings, which has no independent assets or
operations, and is secured by substantially all of the Companys assets. Buffets
Holdings has also guaranteed the repayment of the Credit Facility. Pursuant to the Credit
Facilitys requirement, the Company purchased an interest rate cap with a notional
value of $15,000,000 and a 5% LIBOR strike price that expires on June 30, 2004.
Availability under the senior credit facility depends upon our continued compliance with
certain covenants and financial ratios including leverage, interest coverage and fixed
charge coverage as specifically defined in the senior Credit Agreement dated June 28,
2002. The Company was in compliance with all financial ratio covenants as of December 17,
2003. The financial ratio covenant requirements increase over time, however, as set forth
in the senior Credit Agreement.

As
of December 17, 2003, the Company had $27,116,360 in outstanding letters of credit, which
expire through November 13, 2004. As of December 17, 2003, the total borrowing
availability under the revolving credit facility was $21,000,000 and the total borrowing
capacity under the letter of credit facility was $1,883,640.

The
Company has the option of tying its borrowings to LIBOR or a base rate when calculating
the interest rate for the term loan. The base rate is the greater of Credit Suisse First
Bostons prime rate, or the federal funds effective rate plus one-half of 1 percent.

8

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11 1/4% Senior
Subordinated Notes

On
June 28, 2002, the Company issued 11 1/4% senior subordinated notes in the principal
amount of $230 million due July 15, 2010. Such notes were issued at 96.181%. Interest is
payable semi-annually on January 15 and July 15 of each year through July 15, 2010. Except
in the event of an initial public offering, we are not entitled to redeem the notes at our
option prior to July 15, 2006. The redemption price during the first twelve-month period
following July 15, 2006 is 105.625%. The redemption price declines by 1.875% per year
until July 15, 2009 at which point there is no redemption price premium. In the event of
an initial public offering prior to July 15, 2006, the Company may redeem up to 35% of the
aggregate principal amount of the notes at a redemption price of 111.25%. In addition, in
the event of an initial public offering by either the Company or Buffets Holdings, Inc.
prior to July 15, 2005, the Company is required to offer to purchase up to an aggregate
principal amount of the notes as may be purchased with funds equal in amount to 50% of the
net cash proceeds from that initial public offering at a price of 111.25% of the
outstanding principal amount of the notes, plus any accrued and unpaid interest to the
date of repurchase, provided, however, that, in no event will the Company be required to
make an offer to purchase more than $80.5 million aggregate principal amount of the notes.
Furthermore, in the event of a change in control, as defined in the indenture governing
those notes, the holders of the notes may require the Company to repurchase the notes at a
purchase price of 101% of the outstanding principal amount plus accrued and unpaid
interest.

# 5. Sale and Leaseback
Transaction

On
December 11, 2002, the Company entered into a sale and leaseback transaction whereby the
Company transferred its leasehold interests and leasehold improvements with respect to 27
restaurants to a third party for net proceeds of $22.6 million. The Company simultaneously
entered into long-term leases for those restaurants with an aggregate initial annual rent
of approximately $3.2 million. In connection with this sale and leaseback, the Company
recorded a loss of $5.4 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. Also included in the loss on the transaction were payments that the Company made
to Caxton-Iseman Capital, Inc., an affiliate of Caxton-Iseman Investments L.P. which held
approximately 77% of Buffets Holdings, Inc.s outstanding common stock as of December
18, 2002, for advisory fees equal to 1% of the gross proceeds of the transaction, or
approximately $0.3 million. In addition, the net proceeds for certain of the properties
were greater than the book value of the leasehold assets resulting in a deferred gain of
$3.3 million. The deferred gain will be accreted over the life of the respective
restaurant leases, ranging from 17 to 25 years.

# 6. Subsequent Event

On
January 27, 2004, Buffets Holdings announced a proposed offering of senior discount notes
in a Rule 144A offering. The gross proceeds from the proposed offering are expected to be
approximately $100 million. In connection with the proposed offering of senior discount
notes, the Company also intends to enter into an amended senior secured credit facility in
an aggregate amount of approximately $310 million.

Buffets
Holdings and the Company intend to use cash on hand, the proceeds from the proposed
offering of the senior discount notes and the Companys borrowings under its amended
credit facility to refinance all of Buffets outstanding indebtedness under the term
loan under its existing credit facility, use $50 million of proceeds to repurchase
the Companys 111⁄4% senior subordinated notes due 2010 and/or repay bank indebtedness,
redeem Buffets Holdings series A senior subordinated and series B junior
subordinated notes due 2011, make a distribution to stockholders and pay transaction fees
and expenses.  The proposed offering of senior discount notes and the other refinancing transactions are expected to
close during February 2004.

The
securities to be offered will not be registered under the Securities Act and may not be
offered or sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act.

9

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# ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

# MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

You
should read the following discussion in conjunction with our condensed consolidated
financial statements and related notes included elsewhere in this report. Unless the
context indicates or requires otherwise, (i) the terms Buffets,
we, our and Company refer to Buffets, Inc. and its
subsidiaries and (ii) the terms parent company and Buffets
Holdings refer to Buffets Holdings, Inc., our sole shareholder. Some of the
statements in the following discussion are forward-looking statements. See
Forward-Looking Statements and Risk Factors.

# General

As
of December 17, 2003, we operated 362 company-owned restaurant locations in 35 states
comprised of 354 buffet restaurants and eight Tahoe Joes Famous Steakhouse®
restaurants. The buffet restaurants are principally operated under the Old Country
Buffet® or HomeTown Buffet® brands. We also franchise 21 locations in eight
states.

We
were founded in 1983 to develop buffet-style restaurants under the name Old Country
Buffet. In October 1985, we completed our initial public offering and were listed on the
Nasdaq National Market. In September 1996, we merged with HomeTown Buffet, Inc., which was
developed by one of our co-founders and had 80 company-owned HomeTown Buffet restaurants
in 11 states and 19 franchised restaurants in eight states. In October 2000, Buffets was
acquired by Buffets Holdings, a company organized by Caxton-Iseman Capital, Inc., in a
buyout from public shareholders.

Certain
elements of our cost structure are fixed in nature, particularly over shorter time
horizons. Accordingly, changes in marginal sales volume can have a more significant impact
on our profitability than for a business possessing a more variable cost structure.

During
the past three quarters, we have experienced improving restaurant sales trends, primarily
in the form of increased guest traffic. We believe this improvement is due in large part
to the upturn in the economy as well as the rollout of new menu offerings, which has
caused an increase in restaurant visits by our target customers. We expect same-store
restaurant sales to continue to be positive in the next quarter compared with the
comparable prior year period, but believe that future sales strength in general and guest
traffic in particular will continue to be significantly influenced by general economic
conditions.

Our
fiscal year is comprised of 52 or 53 weeks divided into four fiscal quarters of 12, 12, 16
and 12 or 13 weeks.

The
following is a description of the line items from our income statements:

| |  | 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 certificates/cards when the gift certificates/cards are redeemed at our
restaurants. Until redemption, the unearned revenue from the sale of gift
certificates/cards is included in accrued liabilities on our balance sheet. 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. 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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| |  | Advertising expenses reflect all advertising and promotional costs.
| | - | -------------------------------------------------------------------

| |  | General and administrative expenses reflect all costs, other than marketing 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 management expenses and the costs of recruiting, training and
supervising restaurant management personnel.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Loss on sale and leaseback transaction reflects transaction costs and impairment losses
associated with the sale and leaseback of the leasehold interests and leasehold
improvements with respect to 27 restaurants completed on December 11, 2002.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Interest expense reflects interest costs associated with our debt, amortization of debt
issuance costs and accretion of original issuance discount on our subordinated notes and
bonds.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | Other income primarily reflects franchise fees earned, less minority interest associated
with our Tahoe Joes Inc. subsidiary during fiscal 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Income tax expense (benefit) reflects the current and deferred tax provision (benefit)
determined in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Critical Accounting
Policies

Our
condensed consolidated financial statements have been prepared in accordance with
accounting policies generally accepted in the United States of America. The preparation of
our 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, revenue recognition and goodwill. We base our
estimates and assumptions on historical experience and on various other factors that are
believed to be reasonable at the time the estimates and assumptions are made. 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.

Recoverability of
Long-Lived Assets

We
periodically evaluate long-lived assets and goodwill related to those assets for
impairment whenever events or changes in circumstances indicate the carrying value amount
of an asset or group of assets may not be recoverable. We consider a history of operating
losses and the other factors described to be its primary indicator of potential
impairment. Assets are grouped and evaluated for impairment at the lowest level for which
there are identifiable cash flows, namely individual restaurants. A restaurant is deemed
to be impaired if a forecast of undiscounted future operating cash flows directly related
to the restaurant, including disposal value, if any, are 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,
an estimate of fair value is based on the best information available, including prices for
similar assets or the results of valuation techniques such as discounted estimated future
cash flows as if the decision to continue to use the impaired restaurant was a new
investment decision. We generally measure fair value by discounting estimated future cash
flows. Considerable management judgment is necessary to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from such estimates. There
were no impairment charges during the 24 weeks ended December 17, 2003. We expensed
approximately $1.0 million during the 12 weeks ended December 18, 2002 and approximately
$1.1 million during the 24 weeks ended December 18, 2002 relating to the impairment of
long-lived assets associated with 11 and 13 restaurants, respectively. This amount was
partially offset by an approximate $0.8 million reduction in lease obligation accrual
assumptions in accrued store closing costs, based on receiving greater than planned
sublease and other cash receipts. In addition, we also recognized approximately $5.4
million in impairments on 15 restaurants as part of the loss on the sale and leaseback
transaction completed on December 11, 2002.

11

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Goodwill and Other
Intangible Assets

Goodwill
represents the excess of our acquisition cost over the fair market value of the net assets
acquired. We amortized that goodwill on a straight-line basis over a 30-year life through
the end of the fiscal year ended January 2, 2002. However, on January 3, 2002, we began
applying the new rules on accounting for goodwill and other intangible assets issued by
the Financial Accounting Standards Board in SFAS No. 142 Goodwill and Other
Intangible Assets. There were no impairments to goodwill and other intangible assets
identified for the first 24 weeks of 2004 or 2003.

# Results of Operations

The
following discussion reflects our historical results for the 12-week and 24-week periods
ended December 17, 2003 and December 18, 2002.

Our
future results may not be consistent with our historical results. Most notably, our fiscal
2003 results included the operating results for 13 Original Roadhouse Grill restaurants
that were sold in June 2003, as well as the impact of a sale and leaseback transaction
with respect to 27 restaurants completed in December 2002. The following discussion should
be read in conjunction with our condensed consolidated financial statements and related
notes included elsewhere in this report.

For the 12 Weeks Ended December
17, 2003 Compared to the 12 Weeks Ended December 18, 2002

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:

|                                        | 12 Weeks | 12 Weeks |  
|--------------------------------------- | -------- | -------- | -
|
|
|
|                                        |          |          |  
|Restaurant sales                        |          |          | $
|Restaurant costs                        |          |          |  
|Advertising expenses                    |          |          |  
|General and administrative expenses     |          |          |  
|Loss on sales and leaseback transaction |          |          |  
|                                        |          |          |  
|Operating income                        |          |          |  
|Interest expense                        |          |          |  
|Interest income                         |          |          |  
|Other income                            |          |          |  
|                                        |          |          |  
|Income (loss) before income taxes       |          |          |  
|Income tax expense (benefit)            |          |          |  
|                                        |          |          |  
|Net income (loss)                       |          |          | $
|                                        |          |          |  

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

Restaurant
Sales. Restaurant sales for the 12 weeks ended December 17, 2003 decreased $9.9
million, or 4.5%, compared with the 12 weeks ended December 18, 2002. The decline in sales
for the quarter ended December 17, 2003 versus the prior year period was primarily
attributable to the closure of 14 buffet restaurants and the sale of 13 Original Roadhouse
Grill restaurants, partially offset by the opening of 3 units, over the past year. Average
weekly sales for the second quarter of fiscal 2004 of $48,435 were 3.0% higher than the
comparable prior year periods average weekly sales of $47,021. Same-store sales for
the second quarter of fiscal 2004 increased by 2.3% compared to the comparable prior year
period, reflecting a 1.0% decline in guest traffic offset by a 3.3% increase in average
check. The increase in average check was comprised of approximately a 2.0% price increase
and a 1.3% average check increase due to a traffic mix shift to the dinner day part. The
dinner day part has a higher price than lunch or breakfast. We currently expect same-store
sales for the third quarter of the fiscal 2004 (the 16-week period ending April 7, 2004)
to increase by approximately 1% to 3% versus the comparable period in fiscal 2003 due to
the improved macro-economic environment and our improved menu offerings.

12

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Restaurant
Costs. Restaurant costs for the second quarter of fiscal 2004 decreased by 0.2% as a
percentage of sales compared with the comparable prior year period. Food costs as a
percentage of sales increased 130 basis points primarily due to our expanded and enriched
menu offerings. Labor costs as a percentage of sales were 180 basis points lower than
those experienced in the comparable quarter in the prior year, primarily due to a
reduction in our restaurant management staffing levels substantially effected during the
third quarter of fiscal 2003 and improved productivity of our hourly employees. Direct and
occupancy costs as a percentage of sales increased by 30 basis points versus the
comparable quarter in the prior year. The increase was primarily attributable to the
recognition during fiscal 2003 of $1.2 million in net proceeds from the partial settlement
of an insurance claim, partially offset by decreases in depreciation and amortization
expense resulting from the sale and leaseback of 30 restaurants during fiscal 2003. We
currently expect that restaurant costs will remain stable as a percentage of sales during
the third quarter of fiscal 2004.

Advertising
Expenses. Advertising costs decreased 0.5% as a percentage of sales during the second
quarter of fiscal 2004 versus the comparable quarter in the prior year. Approximately 62%
of our buffet restaurants received television-advertising support in the second quarter of
2004 compared with 79% during the comparable quarter in 2003. Last year we invested in
heavier advertising weights in a number of markets during prime time and late news in an
effort to drive traffic. These investments did not produce returns at levels justifying
their continuation. Accordingly, our weights were reduced to more historic levels for
2004. For the past three quarters we have focused our television-advertising investments
in our most media-efficient markets. We expect advertising costs as a percentage of sales
during the third quarter of this year to be similar to those experienced in the second
quarter of 2004.

General
and Administrative Expenses.General and administrative expenses as a percentage of
sales decreased 40 basis points during the second quarter of 2004 as compared to the 12
weeks ended December 18, 2002. This reduction was largely due to a decrease in
professional fees and a workforce reduction of approximately 70 non-store employees
largely effected during the third quarter of fiscal 2003. We expect that general and
administrative expenses, as a percentage of sales, will remain stable for the third
quarter of fiscal 2004.

Loss
on Sale and Leaseback Transaction.On December 11, 2002, we entered into a sale and
leaseback transaction whereby we transferred our leasehold interests and leasehold
improvements with respect to 27 restaurants to a third party for net proceeds of $22.6
million. We simultaneously entered into long-term leases for those restaurants with an
aggregate initial annual rent of approximately $3.2 million. In connection with this sale
and leaseback, we recorded a loss of $5.4 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. Also included in the loss on the transaction were payments that we made
to Caxton-Iseman Capital, Inc., an affiliate of Caxton-Iseman Investments L.P. which held
approximately 77% of Buffets Holdings, Inc.s outstanding common stock as of December
18, 2002, for advisory fees equal to 1% of the gross proceeds of the transaction, or
approximately $0.3 million. In addition, the net proceeds for certain of the properties
were greater than the book value of the leasehold assets resulting in a deferred gain of
$3.3 million. The deferred gain will be accreted over the life of the respective
restaurant leases, ranging from 17 to 25 years.

Interest
Expense. Interest expense decreased 0.5% as a percentage of sales during the second
quarter of fiscal 2004 versus the comparable prior year period primarily due to lower
weighted average outstanding debt balances.

13

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Income
Taxes. Income taxes increased 1.5% as a percentage of sales for the 12 weeks ended
December 17, 2003 compared to the 12 weeks ended December 18, 2002 principally due to an
increase in income before income taxes.

For the 24 Weeks Ended December
17, 2003 Compared to the 24 Weeks Ended December 18, 2002

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

|                                        | 24 Weeks | 24 Weeks |  
|--------------------------------------- | -------- | -------- | -
|
|
|
|                                        |          |          |  
|Restaurant sales                        |          |          | $
|Restaurant costs                        |          |          |  
|Advertising expenses                    |          |          |  
|General and administrative expenses     |          |          |  
|Loss on sales and leaseback transaction |          |          |  
|                                        |          |          |  
|Operating income                        |          |          |  
|Interest expense                        |          |          |  
|Interest income                         |          |          |  
|Other income                            |          |          |  
|                                        |          |          |  
|Income before income taxes              |          |          |  
|Income tax expense                      |          |          |  
|                                        |          |          |  
|Net income                              |          |          | $
|                                        |          |          |  

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

Restaurant
Sales. Restaurant sales for the 24 weeks ended December 17, 2003 decreased $25.8
million, or 5.7%, compared with the 24 weeks ended December 18, 2002. The decline in sales
for the 24 weeks ended December 17, 2003 versus the prior year period was primarily
attributable to the closure of 14 buffet restaurants and the sale of 13 Original Roadhouse
Grill restaurants, partially offset by the opening of 3 units, over the past year. Average
weekly sales for the first 24 weeks of fiscal 2004 of $49,221 were 1.5% higher than the
comparable prior year periods average weekly sales of $48,511. Same-store sales for
the first 24 weeks of fiscal 2004 increased by 0.1% compared to the comparable prior year
period, reflecting a 2.3% decline in guest traffic offset by a 2.4% increase in average
check.

Restaurant
Costs. Restaurant costs for the first 24 weeks of fiscal 2004 increased by 0.8% as a
percentage of sales compared with the comparable prior year period. Food cost as a
percentage of sales increased 140 basis points primarily due to our expanded and enriched
menu offerings. Labor costs as a percentage of sales were 90 basis points lower than those
experienced in the comparable prior year period, primarily due to a reduction in our
restaurant management staffing levels substantially effected during the third quarter of
fiscal 2003. Direct and occupancy costs as a percentage of sales increased by 30 basis
points versus the comparable prior year period. The increase was primarily attributable to
the recognition, during the second quarter of fiscal 2003, of $1.2 million in net proceeds
from a partial settlement of an insurance claim, as well as an increase in utility costs,
partially offset by decreases in depreciation and amortization expense resulting from the
sale and leaseback of 30 restaurants during fiscal 2003.

Advertising
Expenses. Advertising costs decreased 0.4% as a percentage of sales during the first
24 weeks of fiscal 2004 versus the comparable prior year period primarily due to a more
targeted advertising campaign.

General
and Administrative Expenses. General and administrative expenses as a percentage of
sales decreased 40 basis points during the first 24 weeks of 2004 as compared to the 24
weeks ended December 18, 2002. This reduction was largely due to a decrease in
professional fees and a workforce reduction of approximately 70 non-store employees
largely effected during the third quarter of fiscal 2003.

Interest
Expense. Interest expense decreased 0.3% as a percentage of sales during the first 24
weeks of fiscal 2004 versus the comparable prior year period primarily due to lower
weighted average outstanding debt balances.

14

---

Income
Taxes. Income taxes increased 0.7% as a percentage of sales for the 24 weeks ended
December 17, 2003 compared to the 24 weeks ended December 18, 2002 principally due to an
increase in income before income taxes.

# Liquidity and Capital
Resources

Cash
flows generated from operating activities provide us with a significant source of
liquidity. Because most of our sales are for cash or credit with settlement within a few
days and most vendors are paid on typical terms ranging from approximately 14 to 35 days,
we operate on a significant working capital deficit. In addition to cash flows from
operations, a revolving credit facility is available to us for general corporate purposes
as revolving credit loans or as swing-line loans. Letters of credit issued under the
revolving loan facility or the letter of credit facility are also available to us to
support payment obligations incurred for our general corporate purposes.

Historically,
our capital requirements have been for the development and construction of new
restaurants, restaurant refurbishment, the installation of new corporate information
systems and debt service obligations. We expect these requirements to continue in the
foreseeable future.

Net
cash provided by operating activities was $26.5 million for the 24 weeks ended December
17, 2003 and $49.2 million for the 24 weeks ended December 18, 2002. Net cash provided by
operating activities exceeded the net income for the first 24 weeks of fiscal 2004
principally due to the effect of depreciation and amortization. Net cash provided by
operating activities exceeded net income for the first 24 weeks of fiscal 2003 primarily
due to the effect of depreciation and amortization, a loss on the sale and leaseback
transaction, a decrease in prepaid expenses and other current assets and an increase in
accrued and other liabilities. The decrease in cash provided by operating activities
between the first 24 weeks of 2004 and 2003 was largely attributable to the timing of
interest payments on our term loans and senior subordinated debt and the timing of
payments on our accounts payable.

Net
cash used in investment activities was $16.0 million for the 24 weeks ended December 17,
2003 compared with net cash provided by investment activities of $8.1 million for the 24
weeks ended December 18, 2002. The majority of the change was attributable to the
completion of a sale and leaseback of our leasehold interests and our leasehold
improvements with respect to 27 restaurants on December 11, 2002 for net proceeds of $22.6
million. We simultaneously entered into long-term leases for those restaurants with an
aggregate initial rent of approximately $3.2 million. The sale and leaseback transaction
also resulted in a deferred gain of approximately $3.3 million. This deferred gain will be
accreted over the life of the respective restaurant leases, ranging from 17 to 25 years.
Capital expenditures in fiscal 2004 were largely comprised of re-image expenditures for
approximately 50 restaurants, while capital expenditures in fiscal 2003 were primarily
comprised of new store outlays.

Net
cash used in financing activities totaled $1.9 million for the first 24 weeks of fiscal
2004 and $25.9 million for the comparable prior year period. Financing activities
consisted primarily of accelerated repayments of debt in both fiscal 2004 and 2003.

On
June 28, 2002, we entered into new debt agreements to refinance our existing debt, make a
distribution to our parent, Buffets Holdings, Inc., and repurchase our outstanding
preferred stock warrants. We issued 111⁄4% senior subordinated notes in the principal
amount of $230 million, net of a discount of $8.8 million, and borrowed $245 million under
a $295 million senior credit facility.

15

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The
Companys $295 million senior credit facility is comprised of (i) a $245 million term
loan, (ii) a $30 million revolving credit facility, of which up to $20 million is
available in the form of letters of credit, and (iii) a separate $20 million letter of
credit facility. The terms of the senior credit facility permit us to borrow, subject to
availability and certain conditions, incremental term loans or to issue additional notes
in an aggregate amount up to $25 million. The Company has the option of tying its
borrowings to LIBOR or a base rate when calculating the interest rate for the term loan.
The base rate is the greater of Credit Suisse First Bostons prime rate, or the
federal funds effective rate plus one-half of 1 percent. The term loan matures on June 28,
2009 while the revolving facility and the letter of credit facility mature on June 28,
2007. The borrowings due under the term loan are payable in equal quarterly installments
in an annual amount equal to 1% of the term loan during each of the first six years of the
loan (beginning on September 30, 2002), with the remaining balance payable due in equal
quarterly installments during the seventh year of the loan. The term loan is secured by
substantially all of our assets. Buffets Holdings, Inc. has also guaranteed the repayment
of the senior credit facility. Pursuant to the Credit Facilitys requirement, the
Company purchased an interest rate cap with a notional value of $15,000,000 and a 5% LIBOR
strike price that expires on June 30, 2004. Availability under the senior credit facility
depends upon our continued compliance with certain covenants and financial ratios
including leverage, interest coverage and fixed charge coverage as specifically defined in
the senior Credit Agreement dated June 28, 2002. The Company was in compliance with all
financial ratio covenants as of December 17, 2003. The financial ratio covenant
requirements increase over time, however, as set forth in the senior Credit Agreement.

As
of December 17, 2003, we had approximately $27.1 million in outstanding letters of credit,
which expire through November 13, 2004. As of December 17, 2003, the total borrowing
availability under the revolving credit facility was $21 million and the total borrowing
capacity under the letter of credit facility was approximately $1.9 million.

As
discussed above, on June 28, 2002, we issued $230.0 million aggregate principal amount of
our 111⁄4% senior subordinated notes due July 15, 2010. Gross proceeds from the
offering of the notes were approximately $221.2 million. Interest is payable semi-annually
on January 15 and July 15 of each year. Except in the event of an initial public offering,
we are not entitled to redeem the notes prior to July 15, 2006, after which we can choose
to redeem some or all of the notes at specified redemption prices. The indenture governing
the notes contains covenants limiting our ability to (1) incur additional indebtedness,
(2) make restricted payments, (3) create restrictions on the payment of dividends, (4)
sell assets or capital stock of subsidiaries, (5) engage in transactions with affiliates,
(6) sell or issue capital stock of subsidiaries, and (7) consolidate, merge or transfer
assets. The payment of principal, premium and interest on the notes is fully and
unconditionally guaranteed, jointly and severally, by all of our wholly-owned
subsidiaries, namely Distinctive Dining, Inc., Hometown Buffet, Inc., OCB Purchasing Co.,
OCB Restaurant Co., Tahoe Joes Inc. and Restaurant Innovations, Inc.

During
the third quarter of fiscal 2004, we plan to open 3 new restaurants. We estimate that we
will spend approximately $3 million in the aggregate on construction of new restaurants,
principally for leasehold improvements. We anticipate spending approximately $5 million in
remodeling, relocation and improvement costs for existing facilities and an additional $1
million for corporate and system investments. During fiscal 2003, we introduced, on a
trial basis, a unit image enhancement program in approximately 50 of our restaurants. The
re-imaged restaurants under this program encompassed multiple versions of a new
look incorporating a feature food bar, a more contemporary interior, new exterior
signage as well as more expanded food offerings. Re-imaged restaurants have not
consistently met our return-on-investment expectations. We plan to continue a scaled-back
refurbishment program, including a more contemporary interior design and distinctive
exterior architectural elements. We will work on delivering more consistent performance
from our existing re-imaged portfolio over the balance of fiscal 2004, before further
rollout to additional restaurants of the other elements in our program.

On
January 27, 2004, Buffets Holdings announced a proposed offering of senior discount notes
in a Rule 144A offering. The gross proceeds from the proposed offering are expected to be
approximately $100 million. In connection with the proposed offering of senior discount
notes, Buffets also intends to enter into an amended senior secured credit facility in an
aggregate amount of approximately $310 million.

16

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Buffets
Holdings and Buffets intend to use cash on hand, the proceeds from the proposed offering
of the senior discount notes and Buffets borrowings under its amended credit
facility to refinance all of Buffets outstanding indebtedness under the term loan
under its existing credit facility, use $50 million of proceeds to repurchase
Buffets 111⁄4% senior subordinated notes due 2010 and/or repay bank indebtedness, redeem
Buffets Holdings series A senior subordinated and series B junior subordinated notes
due 2011, make a distribution to stockholders and pay transaction fees and expenses.  The proposed offering of senior discount
notes and the other refinancing transactions are expected to close during February 2004.

The
securities to be offered will not be registered under the Securities Act and may not be
offered or sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act.

We
are not aware of any other event or trend that would potentially affect our capital
requirements or liquidity. For the next twelve months, we believe that cash flow from
operations, landlord contributions, credits received from trade suppliers and available
borrowing capacity will be adequate to finance our development plans, on-going operations
and debt service obligations.

# 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. Our restaurant sales may also be affected
by unusual weather patterns, major world events or matters of public interest that compete
for customers attention. Generally, restaurant sales per unit are lower in the
winter months, our third fiscal quarter ending in April of each year. The impact of these
reduced average weekly sales will be mitigated in our future quarterly data presentations
through the inclusion of 16 weeks in the quarter ending in April of each year, compared to
only 12 or 13 weeks in each of the other fiscal quarters.

# Forward-Looking
Statements and Risk Factors

The statements contained in this report
which are not historical facts are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from those set
forth in, or implied by, forward-looking statements. We have tried, whenever possible, to
identify these forward-looking statements using words such as projects,
anticipates, believes, estimates, expects,
plans, intends, and similar expressions. Similarly, statements
herein that describe our business strategy, outlook, objectives, plans, intentions or
goals are also forward-looking statements. The risks and uncertainties involving
forward-looking statements include, but are not limited to, general business and economic
conditions, negative publicity, the impact of competition, the seasonality of our
business, adverse weather conditions, future commodity prices, fuel and utility costs,
labor costs, employment and environmental laws, governmental regulations, and inflation.
For a detailed discussion of risks and uncertainties that may cause our future performance
to differ from that projected in the forward-looking statements, please refer to the
Risk Factors/Forward-Looking Statements section contained in Buffets
Form 10-K filed with the Securities and Exchange Commission on September 30, 2003. All
forward-looking statements speak only as of the date of this report. All subsequent
written and oral forward-looking statements attributable to us or any person acting on our
behalf are qualified by the cautionary statements in this section. We undertake no
obligation to update or publicly release any revisions to forward-looking statements to
reflect events, circumstances or changes in expectations after the date of this report.

# ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest
Rate Risks. We have interest rate exposure relating to the variable portion of our
long-term obligations. Our 111⁄4% senior subordinated notes are fixed and the
interest rates on the term loans under our senior credit facility are variable. A 1%
change in interest rates on our variable rate debt would have resulted in our interest
expense fluctuating by approximately $0.8 million for the 24 weeks ended December 17,
2003. Our interest rate risk is mitigated, in part, by an interest rate cap purchased on
November 25, 2002 with a notional value of $15 million and a 5% LIBOR strike price that
expires on June 30, 2004.

17

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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. We believe we have the
ability to increase menu prices, or vary the menu items offered, if needed, in response to
food product price increases within the range that has been experienced historically. To
compensate for a hypothetical price increase of 10% for food and beverages, we would need
to increase menu prices by an average of approximately 3%. Our average check increases
were approximately 2% for the 24 weeks ended December 17, 2003. Accordingly, we believe
that a hypothetical 10% increase in food product costs would not have a material effect on
our operating results.

# ITEM 4.     CONTROLS AND
PROCEDURES

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

We
carried out an evaluation, under the supervision and with the participation of our
management, including our chief executive officer and our chief financial officer of the
effectiveness of the design and operation of our disclosure controls and procedures as of
December 17, 2003. Based on this evaluation, we concluded that our disclosure controls and
procedures were effective as of such date.

Changes
in Internal Control Over Financial Reporting. During the 12 weeks ended December 17,
2003, there were no changes in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) that have
materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

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

# PART II.      OTHER
INFORMATION

# ITEM 5.      OTHER INFORMATION

We
are not required to file reports with the Securities and Exchange Commission pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, but are filing
this Quarterly Report on Form 10-Q on a voluntary basis. Accordingly, we are not an
issuer as defined in Section 2(a)(7) of the Sarbanes-Oxley Act of 2002.

18

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# ITEM 6.     EXHIBITS AND
REPORTS ON FORM 8-K

(a)       
          Exhibits

| | 4.1 | Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.1 | Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer.
| | ---- | ------------------------------------------------------------------------

| | 31.2. | Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer.
| | ----- | ------------------------------------------------------------------------

(b)       
          Reports on Form 8-K

| | 1. | On October 29, 2003, we furnished a current report on Form 8-K (Items 7 and 12)
                    announcing first quarter results for fiscal 2004 and reporting same
                    store sales guidance for the second quarter of fiscal 2004.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

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# 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.

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|Date:   January 27, 2004 | 
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