**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-K/A**


**(Amendment
      No. 1 to Form 10-K)**





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


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the fiscal year ended June 27, 2007**





**Commission
      file number: 333-116897**





**BUFFETS
      HOLDINGS, INC.**


(Exact
      name of registrant as specified in its charter)


Delaware
              
              22-3754018(State
                  or other jurisdiction of
              
              (I.R.S.
                  Employerincorporation
                  or organization)
              
              Identification
                  Number)1460
                  Buffet WayEagan,
                  Minnesota
              
              55121(Address
                  of principal
              
              (Zip
                  Code)executive
                  offices)





Registrant’s
      telephone number, including area code: (651)
      994-8608





Securities
      registered pursuant to Section 12(b) of the Act: None





Securities
      registered pursuant to Section 12(g) of the Act: None





Indicate
      by checkmark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. YES £ NO R





Indicate
      by checkmark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the Act. YES R NO £





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports) and (2) has been subject to such filing requirements
      for
      the past 90 days. YES R NO £





Indicate
      by checkmark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (229.405 of this chapter) is not contained herein, and will
      not
      be contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-K
      or any amendment to this Form 10-K R .





Indicate
      by checkmark whether the registrant is a large accelerated filer, an accelerated
      filer, or a non-accelerated filer. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act.


LARGE
                  ACCELERATED FILER£
              ACCELERATED
                  FILER£
              NON-ACCELERATED
                  FILERR





Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act). YES £ NO R





The
      aggregate market value of voting and non-voting stock common stock held by
      non-affiliates of the registrant as of June 27, 2007 was $0.





The
      number of shares of Buffets Holdings, Inc. common stock outstanding as of March
      31, 2008 was 3,104,510.





**TABLE
      OF CONTENTS**


**Page****Item****PART
                  I**1.
              Business
              
              31A.
              Risk
                  Factors/Forward-Looking Statements
              
              81B.
              Unresolved
                  Staff Comments
              
              152.
              Properties
              
              163.
              Legal
                  Proceedings
              
              184.
              Submission
                  of Matters to a Vote of Security Holders
              
              19**PART
                  II**5.
              Market
                  for the Registrant’s Common Stock and Related Stockholder
                  Matters
              
              196.
              Selected
                  Financial Data
              
              207.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              217A.
              Quantitative
                  and Qualitative Disclosures About Market Risks
              
              398.
              Financial
                  Statements and Supplementary Data
              
              409.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              
              849A.
              Controls
                  and Procedures
              
              849B.
              Other
                  Information
              
              84**PART
                  III**10.
              Directors
                  and Executive Officers of the Registrant
              
              8511.
              Executive
                  Compensation
              
              8712.
              Security
                  Ownership of Certain Beneficial Owners and Management
              
              9613.
              Certain
                  Relationships and Related Transactions
              
              9814.
              Principal
                  Accountant Fees and Services
              
              99**PART
                  IV**15.
              Exhibits,
                  Financial Statement Schedules, and Reports on Form 8-K
              
              100




2


**RESTATEMENT**





This
        Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) to the Company’s Annual Report on
        Form 10-K for the year ended June 27, 2007, initially filed with the Securities
        Exchange Commission (the “SEC”) on September 25, 2007, (the “Original Filing”)
        reflects a restatement of the consolidated financial statements of Buffets
        Holdings, Inc. and its subsidiaries for the years ended June 28, 2006 and
        June
        27, 2007, as discussed in Note 20 to the consolidated financial statements.
        The
        determination to restate these financial statements and other financial
        information was made as a result of management’s identification of tax
        accounting errors surrounding the merger with Ryan’s Restaurant Group, Inc. on
        November 1, 2006 (the “Merger”), as well as errors in the Company’s deferred tax
        balances and related valuation allowance and classification of income tax
        refund
        receivables. The adjustments totaled $1.2 million for the year ended June
        28, 2006 and increased the Company’s net loss to $6.0 million from $4.8 million
        as originally reported, and totaled $11.2 million for the year ended June
        27,
        2007 and increased the Company’s net loss to $116.7 million from $105.5 million
        as originally reported. The above stated adjustments had no effect on the
        Company’s cash and cash equivalents balance maintained as of June 28, 2006 and
        June 27, 2007. See Note 20 to the consolidated financial statements for further
        information on the restatement adjustments.





This
      Form
      10-K/A amends and restates Items 6, 7, 8 and 9A of Part II of the Original
      Filing. No attempt has been made in this Form 10-K/A to modify or update other
      disclosures presented in the original report on Form 10-K, except as required
      to
      reflect the effects of the restatement, and the addition of Note 21 -
“Subsequent Events.” This Form 10-K/A does not reflect events after the filing
      of the Form 10-K or modify or update those disclosures, including the exhibits
      to the Form 10-K affected by subsequent events, except as stated above.
      Information not affected by the restatement is unchanged and reflects the
      disclosure made at the time of the original filing of the Form 10-K on September
      25, 2007. Accordingly, this Form 10-K/A should be read in conjunction with
      Part
      I -Items 1, 1A, 1B, 2, 3, and 4, Part II - Items 5, 7A, 9, 9A and 9B and Part
      III - Items 10, 11, 12, 13 of the original Form 10-K which were not amended
      in
      this Form 10-K/A.





In
      addition, pursuant to the rules of the SEC, Item 15 of Part IV of the Original
      Filing has been amended to include an updated consent of the Company’s
      independent registered public accounting firm and currently dated certifications
      from the Company’s Chief Executive Officer and Chief Financial Officer, as
      required by sections 302 and 906 of the Sarbanes-Oxley Act of 2002.




**PART
      I**





**ITEM
      1. BUSINESS**





*Unless
      the context indicates or requires otherwise, (i) the term
“Buffets*  *Holdings”
      refers to Buffets Holdings, Inc.; (ii) the term “Buffets” refers
      to*  *Buffets,
      Inc., our principal operating subsidiary; and (iii) the terms
“we,”*  *“our,”
      “ours,” “us” and the “company” refer collectively to Buffets
      Holdings*  *and
      its subsidiaries. The use of these terms is not intended to imply
      that*  *Buffets
      Holdings and Buffets are not separate and distinct legal
      entities.*





**Our
      Company**





We
      are
      the nation’s largest steak-buffet restaurant chain and the second largest
      restaurant company in the family dining segment of the restaurant industry.
      Our
      restaurants are principally operated under the names Old Country Buffet®,
      HomeTown Buffet® (collectively the “Buffets brand”), Ryan’s® and Fire Mountain®
(collectively the “Ryan’s brand”). As of June 27, 2007, we had 632 company-owned
      steak-buffet restaurants, ten Tahoe Joe’s Famous Steakhouse® restaurants and
      eighteen franchised locations in 42 states.





Our
      restaurants provide a high level of food quality and service through uniform
      operational standards initiated at the corporate level. Our strategy is to
      offer
      quality food at an exceptional value. Freshness is maintained by preparing
      food
      in small batches of six to eight servings at a time, with preparations scheduled
      by monitoring current customer traffic and applying our proprietary food
      production forecasting model. Our steak-buffet restaurants employ uniform menus,
      recipes and ingredient specifications, except for minor differences relating
      to
      regional preferences. We offer an extensive menu with approximately 100 menu
      items at each meal, including entrees, soups, salads, fresh vegetables,
      non-alcoholic beverages and desserts. Typical entrees include steak, chicken,
      carved roast beef, ham, shrimp, fish and casseroles. We were an early innovator
      of the scatter bar, a buffet format that we believe reduces the waiting time
      of
      customers’ access to food, thereby enhancing their experience and increasing
      table turns. All of our steak-buffet restaurants serve lunch and dinner seven
      days a week. All of our Buffets brand restaurants and most of our Ryan’s brand
      restaurants offer breakfast on Saturdays and Sundays.




3





We
      have a
      national footprint of restaurant locations, which are strategically concentrated
      in high population density regions. Our strong brand awareness in these regions
      enables us to maximize penetration within such markets and achieve operating
      and
      advertising synergies. As of June 27, 2007, our advertising and marketing
      programs in our primary market areas provided media coverage for 66% of our
      steak-buffet restaurants. In addition, our restaurants are located in high
      customer traffic venues and include both freestanding units and units located
      in
      strip shopping centers and malls. As of June 27, 2007, approximately 66% of
      our
      restaurants were freestanding units and 34% were located in strip shopping
      centers or malls.





Our
      steak-buffet restaurants use an all-inclusive, all-you-can-eat, pricing strategy
      designed to provide a very high dining value to our customers. Our core
      proposition of great food at a great value attracts a broad variety of
      customers, including families, singles, and senior citizens. The average guest
      check in our Buffets brand restaurants for fiscal years 2006 and 2007 was $7.70
      and $7.91, respectively, and the average guest check in our Ryan’s brand
      restaurants for its fiscal year ended December 28, 2005, six months ended June
      28, 2006 and fiscal year ended June 27, 2007 was $8.17, $8.39 and $8.43,
      respectively. In order to further enhance our guests’ dining experience, we have
      focused on providing a level of customer service designed to supplement the
      self-service buffet format, including such features as limited table-side
      service and greeters.





Our
      steak-buffet restaurants average approximately 10,000 square feet in size and
      can generally seat between 225 and 485 people. On average, our Buffet brand
      restaurants served approximately 6,700 customers per week in fiscal 2007, while
      our Ryan’s brand restaurants served approximately 5,300 customers per week in
      fiscal 2007.





**Our
      Background**





Buffets
      was founded in 1983 to develop buffet-style restaurants under the name Old
      Country Buffet®. In October 1985, Buffets successfully completed an initial
      public offering with seven restaurants, and by 1988 had 47 company-owned units
      and nine franchised units. In September 1996, Buffets merged with Hometown
      Buffets, Inc., a similar publicly-held scatter-bar, buffet-style restaurant
      company established and developed by one of our co-founders. The merger provided
      us with additional management expertise and depth, and increased purchasing
      power and marketing efficiencies. The merger also added 80 company-owned
      restaurants in eleven states and nineteen franchised restaurants in eight
      states, bringing the total number of restaurants to 346 company-owned
      restaurants and 24 franchised restaurants in 36 states at December 31,
      1996.




Buffets
      Holdings was organized by investment funds affiliated with Caxton-Iseman
      Capital, LLC. (“Caxton-Iseman Capital”) in 2000. On October 2, 2000, Buffets
      Holdings acquired Buffets in a buyout from its public shareholders.
      Caxton-Iseman Investments L.P. and other investors, including members of
      management, made an equity investment in us and became the beneficial owners
      of
      100% of our existing common stock. Buffets Holdings is a holding company whose
      assets consist substantially of the capital stock of Buffets.





On
      December 29, 2005, Buffets Holdings entered into a contribution agreement with
      Caxton-Iseman Investments, L.P., Sentinel Capital Partners II, L.P., members
      of
      Buffets Holdings senior management and Buffets Restaurants Holdings, Inc.
      (“Buffets Restaurants Holdings”), a newly formed corporation (the “Contribution
      Agreement”). In accordance with the Contribution Agreement, holders of 100% of
      Buffets Holdings’ outstanding common stock contributed their shares of common
      stock of Buffets Holdings to Buffets Restaurants Holdings in exchange for
      proportional amounts of Buffets Restaurants Holdings common stock. As a result,
      Buffets Holdings is now a wholly-owned subsidiary of Buffets Restaurants
      Holdings. Concurrently with its formation, Buffets Restaurants Holdings entered
      into option agreements with two of the largest groups of holders of Buffets
      Holdings 13 7/8% senior discount notes, pursuant to which Buffets Restaurants
      Holdings was granted the option, for a period of one year, to purchase all
      of
      the 13 7/8% senior discount notes held by the groups of holders on the date
      of
      the agreement. In connection with the Ryan’s acquisition, the Company
      repurchased all of these outstanding notes. See Note 9 - “Long-Term Debt” to the
      accompanying consolidated financial statements for additional information about
      merger related refinancing.





**Recent
      Developments**





On
      November 1, 2006, Buffets and Ryan’s Restaurant Group, Inc. (“Ryan’s), a South
      Carolina corporation, announced the completion of the previously announced
      merger of Buffets Southeast, Inc., a South Carolina corporation and wholly-owned
      subsidiary of Buffets and Ryan’s in a cash transaction valued at approximately
      $834.0 million, including debt that was repaid at closing. Pursuant to the
      Agreement and Plan of Merger, dated as of July 24, 2006, by and among Buffets,
      Ryan’s and Buffets Southeast, Inc. (the “Merger Agreement”), Buffets Southeast,
      Inc. merged with and into Ryan’s, with Ryan’s remaining as the surviving
      corporation (the “Merger”). As a result of the Merger, Ryan’s became a
      wholly-owned subsidiary of Buffets. Ryan’s operates as a separate division of
      Buffets.




4




At
      the
      effective time of the Merger, each issued and outstanding share of Ryan’s common
      stock, par value $1.00 per share, was canceled and automatically converted
      into
      the right to receive $16.25 in cash, without interest. Also, at the effective
      time of the Merger, each outstanding option to purchase Ryan’s common stock (all
      of which had vested or vested as a consequence of the Merger) was canceled
      and
      automatically converted into the right to receive the excess, if any, of $16.25
      over the option exercise price. See Note 10 - “Acquisitions” to the accompanying
      consolidated financial statements for additional information on the
      Merger.





In
      June
      2007, the Company developed a plan to sell its Tahoe Joe’s Famous Steakhouse®
restaurants. The restaurants are being actively marketed to specific parties
      and
      management expects a sale to occur within the next fiscal year. As a result,
      we
      have revised the financial statements for all periods presented to show certain
      account balances and related activity related to the Tahoe Joe’s restaurants as
      discontinued operations. See Note 11 - “Discontinued Operations” in our
      accompanying consolidated financial statements for additional information on
      the
      account balances and related activity reclassified.





**Restaurant
      Operations and Controls**





In
      order
      to maintain a consistently high level of food quality and service in all of
      our
      restaurants, we have established uniform operational standards. These standards
      are implemented and enforced by the managers of each restaurant. We require
      all
      restaurants to be operated in accordance with rigorous standards and
      specifications relating to the quality of ingredients, preparation of food,
      maintenance of premises and employee conduct.





Each
      Buffets brand restaurant typically employs a Senior General Manager or General
      Manager, Kitchen Manager, Service Manager and Food Bar Manager. Each Ryan’s
      brand restaurant typically employs a General Manager, a Manager and an Assistant
      Manager. All of these positions are collectively referred to as “restaurant
      managers.” Each of our restaurant General Managers has primary responsibility
      for day-to-day operations in one of our restaurants, including customer
      relations, food service, cost controls, restaurant maintenance, personnel
      relations, implementation of our policies and the restaurant’s profitability. A
      portion of each restaurant managers’ compensation depends directly on the
      restaurant’s profitability. Bonuses are paid to restaurant managers each period
      based on a formula percentage of controllable restaurant profit. We believe
      that
      our compensation policies have been important in attracting, motivating and
      retaining qualified operating personnel.




Each
      steak-buffet restaurant General Manager reports to an Area Director, or Senior
      Area Director, who in turn reports to a Regional Vice President. Each Buffets
      brand Regional Vice President reports to our Executive Vice President of
      Operations - Buffets brands and each Ryan’s brand Regional Vice President
      reports to our Executive Vice President of Operations - Ryan’s brands. Our Tahoe
      Joe’s Famous Steakhouse® restaurants are operated by the company’s wholly-owned
      subsidiary Tahoe Joe’s, Inc. The divisional President overseeing Tahoe Joe’s
      reports to our Chief Executive Officer.





We
      maintain centralized financial and accounting controls for all of our
      restaurants. On a daily basis, restaurant managers forward customer counts,
      sales, labor costs and deposit information to our headquarters. On a weekly
      basis, restaurant managers forward a summarized profit and loss statement,
      sales
      report, supplier invoices and payroll data.





**Management
      Training**





We
      have a
      series of training programs that are designed to provide restaurant managers
      with the appropriate knowledge and skills necessary to be successful in their
      current positions. All new restaurant managers hired from outside our
      organization and hourly employees considered for promotion to restaurant
      management are required to complete eight days of classroom training at our
      corporate headquarters in Eagan, Minnesota for our Buffet brand restaurants
      or
      in Greer, South Carolina for our Ryan’s brand restaurants. After their initial
      instruction, new management candidates continue their training for three weeks
      in one of our certified training restaurants. The information covered in manager
      training includes basic management skills, food production, food safety and
      sanitation, labor management, operating programs and human resource
      management.





Advancement
      is tied to both current operational performance and training. At our Buffet
      brand restaurants, General Managers may be selected to attend a specialized
      training program conducted at our corporate headquarters. This program focuses
      on advanced management skills with emphasis on team building and performance
      accountability.





In
      addition to these programs, we conduct a variety of field training efforts
      for
      store management covering topics such as new product procedures, food safety,
      guest satisfaction and service and management development.


5


**Research
      and Development, Menu Selection and Purchasing**





The
      processes of developing new food offerings and establishing standard recipes
      and
      product specifications are handled at our corporate headquarters. Specialists
      drawn from our Food and Beverage, Marketing, Concept Development, and Operations
      and Purchasing departments lead this effort. Before new items are introduced
      or
      existing products are modified, a program of testing within limited markets
      is
      undertaken to assess customer acceptance and operational feasibility. Food
      quality is maintained through centralized supplier coordination and frequent
      restaurant visits by Area Directors and other management personnel.





New
      product activity includes an ongoing roll-out of new items to keep the guest
      experience fresh. Additionally, we have periodic promotions, wherein a specific
      theme such as BBQ, Italian, Asian, Seafood, or Mexican, is highlighted on a
      given night. Each spring and fall, a seasonal menu is introduced to provide
      variety and more seasonally appropriate food. Furthermore, although most of
      the
      menu is similar for all steak-buffet restaurants, individual restaurants have
      the option to customize a portion of the menu to satisfy local
      preferences.





Corporate
      headquarters personnel negotiate major product purchases directly with
      manufacturers on behalf of all of our restaurants for all food, beverage and
      supply purchasing, including quality specifications, delivery schedules and
      pricing and payment terms. Each restaurant manager places orders for inventories
      and supplies with, and receives shipments directly from, distributors and local
      suppliers approved by us. Restaurant managers approve all invoices before
      forwarding them to our corporate headquarters for payment. To date, we have
      not
      experienced any material difficulties in obtaining food and beverage inventories
      or restaurant supplies.





**Franchising
      and Joint Ventures**





As
      of
      June 27, 2007, we franchised eighteen steak-buffet restaurants under the Old
      Country Buffet® and HomeTown Buffet® names. One large franchisee comprises
      approximately 78% of the franchise base with small operators holding the
      remaining units. Franchisees must operate their restaurants in compliance with
      our operating and recipe manuals. Franchisees are not required to purchase
      food
      products or other supplies through us or our suppliers. Each franchised
      restaurant is required at all times to have a designated General Manager and
      Manager who have completed the required manager training program.





**Advertising
      and Promotion**





We
      market
      our steak-buffet restaurants through a two-tiered marketing approach including
      mass media advertising and community based marketing. Mass media advertising
      is
      used when we can receive a profitable return on expenditures. Our media plan
      is
      based on an efficient media mix, including television, radio, outdoor, and
      tourism industry advertising. As of June 27, 2007, approximately 66% of our
      steak-buffet restaurants are in markets supported by mass media
      advertising.





For
      fiscal 2008, our current plans are to execute a new media mix, incorporating
      additional print and direct mail media support. As a result, approximately
      88%
      of our comparable unit steak-buffet restaurants will receive media coverage
      through the first quarter.





We
      have
      instituted a disciplined approach to advertising expenditures, designed to
      increase the efficiency of our marketing dollars by focusing on high-return
      markets with specific food-theme promotions. These promotions feature a variety
      of popular cuisine categories such as BBQ, Italian, Asian, Seafood or Mexican.
      Food promotions are designed to keep the guest experience fresh and capitalize
      on current consumer taste trends.





Community
      based marketing is the responsibility of each store, however, events and
      activities are coordinated and monitored centrally by our Community Marketing
      Department. Our local marketing efforts are designed to build relationships
      with
      the community and drive incremental visits through specific, targeted community
      events. Many restaurants employ a dedicated community marketing representative
      to execute a trading area-specific plan of local events.




6


**Trademarks**





As
      of
      June 27, 2007, we had restaurants operating under the following trademarks
      or
      service marks that we have registered with the United States Patent and
      Trademark Office.





**•**
            Old
                Country Buffet®





**•**
            HomeTown
                Buffet®





**•**
            Country
                Buffet®





**•**
            Granny’s
                Buffet®





**•**
            Fire
                Mountain®





**•**
            Ryan’s®





**•**
            Tahoe
                Joe’s Famous Steakhouse®





As
      far as
      we are aware, our trademarks and registered service marks are generally valid
      and enforceable as long as the marks are used in connection with our restaurants
      and services. We regard our service marks and trademarks as having significant
      value and being an important factor in the development of our buffet and other
      restaurant concepts. Our policy is to pursue and maintain registration of our
      service marks and trademarks whenever practicable and to oppose vigorously
      any
      infringement or dilution of our service marks and trademarks.





**Competition**





The
      food
      service industry is highly competitive. Menu, price, service, convenience,
      location and ambiance are all important competitive factors. The relative
      importance of many such factors varies among different segments of the consuming
      public. By providing a wide variety of food and beverages at reasonable prices
      in an attractive and informal environment, we seek to appeal to a broad range
      of
      value-oriented consumers. We believe that our primary competitors in this
      industry segment are other buffet and grill restaurants, as well as traditional
      family and casual dining restaurants with full menus and table service.
      Secondary competition arises from many other sources, including home meal
      replacement and fast food. We believe that our success to date has been due
      to
      our particular approach of combining pleasant ambiance, high food quality,
      wide
      menu breadth, cleanliness, reasonable prices, and satisfactory levels of service
      and convenience.





**Regulation**





Each
      of
      our restaurants is subject to licensing and regulation by the health,
      sanitation, safety, building and fire agencies of the respective states and
      municipalities in which they are located. A failure to comply with one or more
      regulations could result in the imposition of sanctions, including the closing
      of facilities for an indeterminate period of time or third-party litigation,
      any
      of which could have a material adverse effect on us and our results of
      operations. Additionally, our restaurants must be constructed to meet federal,
      state and local building and zoning requirements.





We
      are
      also subject to laws and regulations governing our relationships with employees,
      including minimum wage requirements, overtime, classification relative to exempt
      and non-exempt employment status, reporting of tip income, work and safety
      conditions and regulations governing employment. Because a significant number
      of
      our employees are paid at rates tied to the federal minimum wage, an increase
      in
      such minimum wage would increase our labor costs. An increase in the federal
      minimum wage, state-specific minimum wages, or employee benefits costs could
      have a material adverse effect on us and our results of operations.





Additionally,
      our operations are regulated pursuant to state and local sanitation and public
      health laws. Our restaurants use electricity and natural gas, which are subject
      to various federal and state regulations concerning the allocation and pricing
      of energy. Our operating costs have been and will continue to be affected by
      increases in the cost of energy.




7





Each
      of
      our Tahoe Joe’s Famous Steakhouse® restaurants is further subject to licensing
      and regulation by a number of governmental authorities, including alcoholic
      beverage control agencies, in the state, county and municipality in which the
      restaurant is located. Difficulties or failures in obtaining the required
      licenses or approvals could delay or prevent the opening of a new restaurant
      in
      a particular area. Alcoholic beverage control regulations require restaurants
      to
      apply to a state authority and, in some locations, to county or municipal
      authorities for a license or permit to sell alcoholic beverages on the premises
      and to provide service for extended hours and on Sundays. Typically, licenses
      or
      permits must be renewed annually and may be revoked or suspended for cause
      at
      any time. Alcoholic beverage control regulations relate to numerous aspects
      of a
      restaurant’s operations, including the minimum age of patrons and employees, the
      hours of operation, advertising, and the wholesale purchasing, inventory control
      and handling, storage and dispensing of alcoholic beverages.





In
      California, we may be subject to “dram-shop” statutes, which generally provide a
      person injured by an intoxicated patron the right to recover damages from an
      establishment that wrongfully served alcoholic beverages to the intoxicated
      person. We carry liquor liability coverage as part of our existing comprehensive
      general liability insurance.





**Environmental
      Matters**





Our
      operations are also subject to federal, state and local laws and regulations
      relating to environmental protection, including regulation of discharges into
      the air and water. Under various federal, state and local laws, an owner or
      operator of real estate may be liable for the costs of removal or remediation
      of
      hazardous or toxic substances on or in such property. Such liability may be
      imposed without regard to whether the owner or operator knew of, or was
      responsible for, the presence of such hazardous or toxic substances. Although
      we
      are not aware of any material environmental conditions on our properties that
      require remediation under federal, state or local law, we have not conducted
      a
      comprehensive environmental review of our properties or operations. No assurance
      can be given that we have identified all of the potential environmental
      liabilities at our properties or that such liabilities would not have a material
      adverse effect on our financial condition.





**Employees**





As
      of
      June 27, 2007, we had approximately 38,000 employees. Except for approximately
      630 corporate employees, approximately one-third of which worked at our
      corporate headquarters, our employees worked at our 642 company-owned
      restaurants. Generally, each steak-buffet restaurant operates with three to
      four
      salaried managers and approximately 55 hourly employees. Our employees are
      not
      unionized. We have never experienced any significant work stoppages and believe
      that our relationships with our employees are good.





Our
      average hourly wages were reasonably stable from fiscal 2004 through fiscal
      2006, largely due to macro-economic conditions. During fiscal 2007, hourly
      wages
      increased approximately 3.5% at our Buffet brand restaurants, and increased
      approximately 8.6% at our Ryan’s brand restaurants. These increases were due to
      increases in state-specific minimum wage rates for eighteen states in which
      we
      do business. Additionally, a reduction in the number of server and cashier
      hours
      at our Ryan’s brand restaurants lead to a greater increase year over year than
      at our Buffet brand restaurants. At the same time, those reductions improved
      the
      employee efficiency ratio
      for
      our Ryan’s brand restaurants by 8.8%. Historically, in times of increasing
      average hourly wages, we have been able to offset hourly wage increases through
      increased efficiencies in operations and, as necessary, through retail price
      increases. There can be no assurance that we will continue to be able to offset
      hourly wage increases in the future.





**ITEM
      1A. RISK FACTORS/FORWARD-LOOKING STATEMENTS**





This
      report, together with our other ongoing securities filings, press releases,
      conference calls and discussions with securities analysts and other
      communications, contains certain forward-looking statements that involve risks
      and uncertainties. These statements relate to our future plans, objectives,
      expectations and intentions. These statements may be identified by us using
      words such as “expects,” “anticipates,” “intends,” “plans” and similar
      expressions. Our actual results could differ materially from those disclosed
      in
      these statements, due to various factors, including the following risk factors.
      We assume no obligation to publicly release the results of any revision or
      updates to forward-looking statements or these risk factors to reflect future
      events or unanticipated occurrences.


8


**Risks
      Related to Our Business**





*Our
      core steak-buffet restaurants are a maturing restaurant concept and
      face*  *intense
      competition.*





Our
      restaurants operate in a highly competitive industry comprising a large number
      of restaurants, including national and regional restaurant chains and franchised
      restaurant operations, as well as locally-owned, independent restaurants. Price,
      restaurant location, food quality, service and attractiveness of facilities
      are
      important aspects of competition, and the competitive environment is often
      affected by factors beyond a particular restaurant management’s control,
      including changes in the public’s taste and eating habits, population and
      traffic patterns and economic conditions. Many of our competitors have greater
      financial resources than we have and there are few non-economic barriers to
      entry. Therefore, new competitors may emerge at any time. We cannot assure
      you
      that we will be able to compete successfully against our competitors in the
      future or that competition will not have a material adverse effect on our
      operations or earnings.





We
      have
      been operating our core steak-buffet restaurant concept since 1983 and the
      Ryan’s restaurant chain acquired in 2006 dates its operations to 1978. The
      median age of our core steak-buffet restaurants is approximately twelve years.
      As a result, we are exposed to vulnerabilities associated with being a mature
      concept. These include vulnerability to innovations by competitors and
      out-positioning in markets where the demographics or customer preferences have
      changed. Mature units require greater expenditures for repair, maintenance,
      refurbishments and re-concepting, and we will be required to continue making
      such expenditures in the future in order to preserve traffic at many of our
      restaurants. We cannot be sure that these expenditures, particularly for
      remodeling and refurbishing, will be successful in preserving or building guest
      counts.





If
      our
      competitors in the casual dining, mid-scale and quick-service segments respond
      to any economic changes by adopting discount pricing strategies, it could have
      the effect of drawing customers away from companies such as ours that do not
      routinely engage in discount pricing, thereby reducing sales and pressuring
      margins. Because certain elements of our cost structure are fixed in nature,
      particularly over shorter time horizons, changes in marginal sales volume can
      have a more significant impact on our profitability than for a business
      operating in a more variable cost structure.





*We
      are dependent on attracting and retaining qualified employees
      while*  *controlling
      labor costs* ***.***





We
      operate in the service sector and are therefore extremely dependent upon the
      availability of qualified restaurant personnel. Availability of staff varies
      widely from location to location. If restaurant management and staff turnover
      trends increase, we would suffer higher direct costs associated with recruiting,
      training and retaining replacement personnel. Moreover, we could suffer from
      significant indirect costs, including restaurant disruptions due to management
      changeover, increased above-store management staffing and potential delays
      in
      new store openings due to staff shortages. Competition for qualified employees
      exerts pressure on wages paid to attract qualified personnel and raises
      recruiting expenses, resulting in higher labor costs.





Many
      of
      our employees are hourly workers whose wages may be impacted by an increase
      in
      the federal or state minimum wage. Legislation is regularly introduced at
      federal and state levels to increase minimum wage levels. On January 10, 2007,
      the federal government approved federal minimum wage increases according to
      the
      following schedule: $5.85 on July 24, 2007, $6.55 on July 24, 2008 and $7.25
      on
      July 24, 2009. In addition, eighteen states in which we operate have enacted
      minimum wage increases during the current fiscal year. An increase in the
      minimum wage may create pressure to increase the pay scale for our employees.
      A
      shortage in the labor pool, competition for employees or other general
      inflationary pressures or changes could also increase our labor
      costs.





Furthermore,
      the operation of buffet-style restaurants is materially different from other
      restaurant concepts. Consequently, the retention of executive management
      familiar with our core buffet business is important to our continuing success.
      The departure of one or more key operations executives or the departure of
      multiple executives in a short time period could have an adverse impact on
      our
      business.




9


Our
      workers’ compensation and employee benefit expenses are disproportionately
      concentrated in states with adverse legislative climates. Our highest
      per-employee workers’ compensation insurance costs are in California, where we
      retain a large employment presence. Various states have considered legislation
      that would require large employers to provide health insurance or equivalent
      funding for workers who have traditionally not been covered by employer health
      plans. Other potential state and federal mandates, such as compulsory paid
      absences, increases in overtime wages and unemployment tax rates, stricter
      citizenship requirements and revisions in the tax treatment of employee
      gratuities, could also adversely affect our business. Any increases in labor
      costs could have a material adverse affect on our results of operations and
      could decrease our profitability and cash available to service our debt
      obligations, if we were unable to compensate for such increased labor costs
      by
      raising the prices we charge our customers or realizing additional operational
      efficiencies.





*We
      are dependent on timely delivery of fresh ingredients by our suppliers.
      We*  *are
      also substantially dependent on a single food supplier.*





Our
      restaurant operations are dependent on timely deliveries of fresh ingredients,
      including fresh produce, dairy products and meat. The cost, availability and
      quality of the ingredients we use to prepare our food are subject to a range
      of
      factors, many of which are beyond our control. Fluctuations in weather, supply
      and demand and economic and political conditions could adversely affect the
      cost, availability and quality of our ingredients. Historically, when operating
      expenses increased due to inflation or increases in food costs, we have been
      able to recover these increased costs by increasing our menu prices. However,
      we
      may not be able to recover increased costs in the future because competition
      may
      limit or prohibit such future increases. If our food quality declines due to
      the
      lack of, or lower quality of, our ingredients or due to interruptions in the
      flow of fresh ingredients and similar factors, customer traffic may decline
      and
      negatively affect our restaurants’ results of operations. We rely exclusively on
      third-party distributors and suppliers for such deliveries. The number of
      companies capable of servicing our distribution needs on a national basis has
      declined over time, reducing our bargaining leverage and increasing
      vulnerability to distributor interruptions. In addition, our suppliers typically
      provide trade credit to us in connection with our purchases.





Among
      our
      major third party suppliers, as of fiscal year-end 2007 one supplier provided
      approximately 75% of the food products used in our restaurants. If this supplier
      is unable to perform its agreements with us, if the agreements with this
      supplier are suddenly and unexpectedly terminated or if the terms by which
      we
      purchase products from this supplier are significantly amended in a manner
      adverse to us, supply costs could increase and disruptions in distribution
      could
      occur during the transition to other food suppliers, which could have an adverse
      affect on our business, liquidity and results of operations.





*Our
      restaurant sales are subject to seasonality and major world
      events.*





Our
      restaurant sales volume fluctuates seasonally. Overall, restaurant sales are
      generally higher in the summer months and lower in the winter months. Positive
      or negative trends in weather conditions can have a strong influence on our
      business. This effect is heightened because many of our restaurants are in
      geographic areas that experience extremes in weather, including severe winter
      conditions and tropical storm patterns. Increases in gasoline prices may also
      have a negative impact on our business as they may decrease customers’
discretionary spending and their dining out expenditures. Additionally, major
      world events may adversely affect our business.





*Our
      business is affected by changes in consumer preferences and
      consumer*  *discretionary
      spending* ***.***





The
      restaurant industry is affected by consumer preferences and perceptions. If
      consumers seek out other dining alternatives rather than visit our restaurants,
      whether due to shifts in dietary trends, health emphasis or otherwise, our
      business could be hurt. In addition, negative publicity about our products
      could
      materially harm our business, results of operations and financial
      condition.





Our
      success depends to a significant extent on consumers having ready access to
      discretionary income. Discretionary spending can be influenced by a large number
      of factors, including changes in general economic conditions or consumer
      confidence. Significant declines in consumer confidence or in the amount of
      funds available for discretionary spending could have a material adverse effect
      on our business, results of operations and financial condition. We could
      experience declines in sales and profits during economic downturns, when energy
      prices are high, or due to concerns related to terrorism, for example.
      Escalating gasoline prices could motivate
      customers to visit our restaurants less frequently, alter their dining-out
      patterns or cause them to spend less when they do decide to dine away from
      home.
      Other factors that could reduce consumers’ discretionary spending could include
      increased borrowing costs due to adverse mortgage rate adjustments, credit
      card
      liability or other debt service expense.




10





*Current
      restaurant locations may become unattractive, and attractive
      new*  *locations
      may not be available for a reasonable price, if at all.*





The
      success of any restaurant depends, in substantial part, on its location. There
      can be no assurance that current locations will continue to be attractive as
      demographic patterns change. Neighborhood or economic conditions where
      restaurants are located could decline in the future, thus resulting in
      potentially reduced sales in these locations.





*We
      face risks associated with government regulations.*





In
      addition to wage and benefit regulatory risks, we are subject to other extensive
      government regulation at federal, state and local levels. These include, but
      are
      not limited to, regulations relating to the sale of food in all of our
      restaurants and of alcoholic beverages in our Tahoe Joe’s Famous Steakhouse®
restaurants. We are required to obtain and maintain governmental licenses,
      permits and approvals. Difficulty or failure in obtaining or maintaining them
      in
      the future could result in delaying or canceling the opening of new restaurants
      or the closing of current ones. Local authorities may suspend or deny renewal
      of
      our governmental licenses if they determine that our operations do not meet
      the
      standards for initial grant or renewal. This risk would be even higher if there
      were a major change in the licensing requirements affecting our types of
      restaurants.





The
      Federal Americans with Disabilities Act prohibits discrimination on the basis
      of
      disability in public accommodations and employment. Mandated modifications
      to
      our facilities in the future to make different accommodations for disabled
      persons could result in material, unanticipated expense.





State
      “Dram Shop” statutes generally provide a person injured by an intoxicated patron
      the right to recover damages from an establishment that wrongfully served
      alcoholic beverages to the intoxicated person. Application of these statutes
      to
      our operations, or liabilities otherwise associated with liquor service in
      our
      Tahoe Joe’s Famous Steakhouse® restaurants, could negatively affect our
      financial condition if not otherwise insured.





*Negative
      publicity relating to one of our restaurants, including our
      franchised*  *restaurants,
      could reduce sales at some or all of our other restaurants.*





We
      are,
      from time to time, faced with negative publicity relating to food quality,
      restaurant facilities, health inspection scores, employee relationships or
      other
      matters at one of our restaurants or those of our franchisees. Adverse publicity
      may negatively affect us, regardless of whether the allegations are valid or
      whether we are liable. In addition, the negative impact of adverse publicity
      relating to one restaurant may extend beyond the restaurant involved to affect
      some or all of our other restaurants. If a franchised restaurant fails to meet
      our franchise operating standards, our own restaurants could be adversely
      affected due to customer confusion or negative publicity. A similar risk exists
      with respect to totally unrelated food service businesses, if customers
      mistakenly associate such unrelated businesses with our own
      operations.





*Food-borne
      illness incidents could result in liability to us and could
      reduce*  *our
      restaurant sales.*





We
      cannot
      guarantee that our internal controls and training will be fully effective in
      preventing all food-borne illnesses. Furthermore, our reliance on third-party
      food processors makes it difficult to monitor food safety compliance and
      increases the risk that food-borne illness would affect multiple locations
      rather than single restaurants. Some food-borne illness incidents could be
      caused by third-party food suppliers and transporters outside of our control.
      New illnesses resistant to our current precautions may develop in the future,
      or
      diseases with long incubation periods could arise, such as bovine spongiform
      encephalopathy (“BSE”), sometimes referred to as “mad cow disease,” that could
      give rise to claims or allegations on a retroactive basis. In addition, the
      levels of chemicals or other contaminants that are currently considered safe
      in
      certain foods may be regulated more restrictively in the future or become the
      subject of public concern.





The
      reach
      of food-related public health concerns can be considerable due to the level
      of
      attention given to these matters by the media. Local public health developments
      and concerns over diseases such as avian flu and E. coli could have a national
      adverse impact on our sales. Similarly, concerns related to particular food
      constituents or the byproducts of cooking processes could also have an adverse
      impact. This could occur whether or not the developments are specifically
      attributable to our restaurants or those of our franchisees or
      competitors.




11


*Any
      negative development relating to our self-service food service
      approach**would
      have a material adverse impact on our primary business.*





Our
      steak-buffet restaurants have a service format that is heavily dependent upon
      self-service by our customers. Food tampering by customers or other events
      affecting the self-service format could cause regulatory changes or changes
      in
      our business pattern or customer perception. Any development that would
      materially impede or prohibit our continued use of a self-service approach,
      or
      reduce the appeal of self-service to our guests, would have a material adverse
      impact on our primary business.





*We
      face risks associated with environmental laws.*





We
      are
      subject to federal, state and local laws, regulations and ordinances relating
      to
      the protection of the environment, including those that govern the cleanup
      of
      contaminated sites and activities or operations that may have adverse
      environmental effects, such as discharges to air and water, as well as handling
      and disposal practices for solid and hazardous wastes. These laws and
      regulations may impose liability for the costs of cleaning up, and damage
      resulting from, sites contaminated by past spills, disposals or other releases
      of hazardous materials. We could incur such liabilities, including resulting
      cleanup costs, regardless of whether we lease or own the restaurants or land
      in
      question and regardless of whether such environmental conditions were created
      by
      us or resulted from historical operations of a prior owner or tenant or other
      third parties. We cannot guarantee that our obligations relating to our prior,
      existing or future restaurants or restaurant sites will not have a material
      adverse affect on us.





*We
      face risks because of the number of restaurants that we lease.*





Our
      success depends in part on our ability to secure leases in desired locations
      at
      rental rates we believe to be reasonable. We currently lease all of our
      restaurants located in shopping centers and malls, and we lease the land for
      all
      but 40 of our freestanding restaurants. We also lease the buildings for some
      of
      our freestanding locations. By December 2009, approximately 90 of our current
      leases will have expiring base lease terms and be subject to renewal
      consideration. Each of our lease agreements provides that the lessor may
      terminate the lease for a number of reasons, including our default in any
      payment of rent or taxes or our breach of any covenant or agreement in the
      lease. Termination of any of our leases could harm our results of operations
      and, as with a default under any of our indebtedness, could have a material
      adverse impact on our liquidity. Although we believe that we will be able to
      renew the existing leases that we wish to extend, there is no assurance that
      we
      will succeed in obtaining extensions in the future at rental rates that we
      believe to be reasonable or at all. Moreover, if some locations should prove
      to
      be unprofitable, we could remain obligated for lease payments even if we decide
      to withdraw from those locations. We will incur special charges relating to
      the
      closing of such restaurants, including lease termination costs. Impairment
      charges and other special charges will reduce our profits.





*We
      may not be able to protect our trademarks and other proprietary
      rights.*





We
      believe that our trademarks and other proprietary rights are important to our
      success and our competitive position. Accordingly, we devote substantial
      resources to the establishment and protection of our trademarks and proprietary
      rights. However, the actions taken by us may be inadequate to prevent imitation
      of our brands, proprietary rights and concepts by others, which may thereby
      dilute our brands in the marketplace or diminish the value of such proprietary
      rights, or to prevent others from claiming violations of their trademarks and
      proprietary rights by us. In addition, others may assert rights in our
      trademarks and other proprietary rights. Our exclusive rights to our trademarks
      are subject to the common law rights of any other person who began using the
      trademark (or a confusingly similar mark) prior to both the date of our
      registration and our first use of such trademarks in the relevant territory.
      We
      cannot guarantee that third parties will not assert claims against our
      intellectual property or that we will be able to successfully resolve such
      claims. Future actions by third parties may diminish the strength of our
      restaurant concepts’ trademarks or other proprietary rights and decrease our
      competitive strength and performance. We could also incur substantial costs
      to
      defend or pursue legal actions relating to the use of our intellectual property,
      which could have a material adverse affect on our business, results of operation
      or financial condition.




12


*We
      may not realize the anticipated benefits of our acquisition of Ryan’s and
      we*  *may
      face certain challenges regarding the integration of Ryan’s.*





We
      have
      benefited from certain cost savings and other financial and operating synergies
      as a result of our acquisition of Ryan’s and remain hopeful that further savings
      can be realized. However, we cannot predict whether these cost savings and
      benefits will continue or the extent to which further anticipated savings will
      be achieved, if at all. Additionally, the successful integration of Ryan’s will
      depend primarily on our ability to manage the operations of the combined
      company, which will require our management to devote a significant amount of
      time to such integration. A prolonged diversion of management’s attention and
      any delays or difficulties encountered in connection with the integration of
      Ryan’s business or realization of material expected synergies could hurt our
      business, results of operations and financial condition.




We
      may
      also be subject to unexpected claims and liabilities arising from the
      acquisition of Ryan’s. These claims and liabilities could be costly to defend
      and could be material in amount, which could have an adverse impact on our
      business, results of operations and financial condition.





*Complaints
      or litigation may hurt us.*





We
      are
      from time to time subject to employee claims alleging injuries, wage and hour
      violations, discrimination, harassment or wrongful termination, as well as
      customer and third party claims. In recent years, a number of restaurant
      companies have been subject to lawsuits, including class action lawsuits,
      alleging violations of federal and state law regarding workplace, employment
      and
      similar matters. A number of these lawsuits have resulted in the payment of
      substantial damages by the defendants. Currently, we are the subject of several
      collective-action lawsuits, including those related to Ryan’s pre-acquisition,
      that are described in Note 17 - “Commitments and Contingencies” to our
      accompanying consolidated financial statements. Regardless of whether any claims
      against us are valid or whether we are ultimately determined to be liable,
      claims may be expensive to defend and may divert time and money away from our
      operations and hurt our financial performance. A significant judgment for any
      claim(s) could materially adversely affect our financial condition or results
      of
      operations.





*We
      are controlled by a single shareholder and its interests may conflict
      with*  *yours.*





Through
      their ownership of approximately 77.4% of the outstanding common stock of
      Buffets Restaurants Holdings, Caxton-Iseman Investments L.P. and its affiliates
      control, and will likely continue to exercise control, over our business by
      virtue or their voting power with respect to the election of our directors.
      Our
      majority shareholder may undertake actions that are not in the best interests
      of
      specific interested parties.





**Risks
      Related to Our Substantial Indebtedness and Other
      Liabilities**





*Our
      indebtedness may limit our cash flow available to invest in our
      business,*  *which
      in turn could prevent us from fulfilling our obligations under
      our*  *outstanding
      debt.*





We
      have
      substantial debt service obligations. As of June 27, 2007, our long-term debt
      was $822.1 million and our shareholders’ deficit was $201.1 million (restated).
      We may also incur additional debt in the future, subject to certain limitations
      contained in our debt agreements.





The
      degree to which we are leveraged could have important consequences,
      including:





**•**
            the
                impairment of our ability to obtain additional financing in the future
                for
                working capital, capital expenditures for, among other items, restaurant
                development and refurbishment, acquisitions, general corporate purposes
                or
                other purposes.





**•**
            the
                impairment of our ability to refinance our indebtedness on terms
                that are
                favorable to us.





**•**
            a
                significant portion of our cash flow from operations must be dedicated
                to
                the payment of principal and interest on our debt, which reduces
                the funds
                available to us for our operations.





**•**
            placing
                us at a competitive disadvantage compared to our competitors that
                have
                less debt and therefore may be able to react to industry, regulatory
                and
                economic changes faster that we
                can.


13


**•**
            some
                of our debt is, and will continue to be, at variable rates of interest,
                which may result in higher interest expense in the event of increases
                in
                interest rates.





**•**
            the
                agreements governing our indebtedness contain financial and restrictive
                covenants, which are more difficult to comply with if we have high
                levels
                of indebtedness, and our failure to comply with these covenants may
                result
                in an event of default which, if not cured or waived, could have
                a
                material adverse effect on us.




*We
      are subject to covenants which limit the discretion of our management
      in**operating
      our business and could prevent us from engaging in some
      beneficial**activities
      or limit our ability to respond to changes.*





Our
      credit facility and the indenture governing Buffets 12 1/2% senior notes contain
      various restrictive covenants that limit our management’s discretion in
      operating our business. In particular, these agreements include covenants
      relating to limitations on:





**•**
            dividends
                on, and redemptions and repurchases of, capital stock.





**•**
            liens
                and sale leaseback transactions.





**•**
            loans
                and investments.





**•**
            the
                incurrence of additional indebtedness and the use of hedging
                arrangements.





**•**
            mergers,
                acquisitions and asset sales.





**•**
            transactions
                with affiliates.





**•**
            changes
                in business activities conducted by us and our subsidiaries.





**•**
            limitations
                of capital expenditures.





Our
      credit facility also includes financial covenants, including requirements that
      we maintain:





**•**
            a
                minimum interest coverage ratio, and





**•**
            a
                maximum leverage ratio.





These
      financial covenants become increasingly restrictive over time. For example,
      from
      November 1, 2006 (the date we entered into the Credit Facility) through July
      2,
      2008, we were and are required to have a minimum interest coverage ratio of
      1.50
      to 1.00 and from July 3, 2008 through December 17, 2008, we will be required
      to
      have a minimum interest coverage ratio of 1.60 to 1.00. In accordance with
      the
      terms of our credit facility, the minimum interest coverage ratio we are
      required to maintain increases on a periodic basis through April 6, 2011, after
      which we will be required to maintain a minimum interest coverage ratio of
      1.90
      to 1.00 for the remainder of the term of the Credit Facility. Similarly, from
      November 1, 2006 through September 19, 2007, our leverage ratio was not allowed
      to exceed 6.00 to 1.00 and from September 20, 2007 through July 2, 2008, our
      leverage ratio may not exceed 5.75 to 1.00. The maximum leverage ratio will
      decrease on a periodic basis through December 15, 2010, after which our leverage
      ratio will not be allowed to exceed 4.50 to 1.00 for the remainder of the term
      of the Credit Facility.





If
      we
      fail to comply with these restrictive and financial covenants, a default may
      allow creditors to accelerate the related debt as well as any other debt to
      which a cross-acceleration or cross-default provision applies, which could
      adversely affect our financial condition. Additionally, the lenders under our
      credit facility may be able to terminate any commitments they had made to supply
      us with further funds, including not permitting us to borrow under our existing
      revolving credit facility and not permitting us to issue letters of credit,
      which could affect our working capital and our ability to make capital
      improvements or expenditures. We may not be able to fully repay our debt
      obligations if some or all of our debt obligations are accelerated upon an
      event
      of default.




14


*We
      have substantial operating lease obligations. Our operating leases
      contain*  *terms
      that could limit our ability to manage our business and result in
      the*  *termination
      of our leases.*





We
      have
      substantial operating leases. As of June 27, 2007, our aggregate future
      operating lease obligations are approximately $1.8 billion.





The
      leases for most of our Ryan’s restaurants require our subsidiaries that are
      tenants under these leases to maintain a fixed coverage ratio. This covenant
      could limit our ability to manage our business and restrict us from taking
      actions that may be beneficial to our business. If our subsidiaries that are
      tenants are not able to maintain the fixed coverage ratio or otherwise comply
      with the terms of the leases, the landlords under their respective leases may
      terminate our right to possession without terminating the leases and also pursue
      all other remedies available to the landlords pursuant to law or judicial
      decision under laws of the applicable state. Any such termination of the leases
      or our right to possession, acceleration or exercise of other applicable remedy
      by the landlords would have a material adverse affect on our business, financial
      condition and results of operations.




*We
      may not be able to generate sufficient cash flow to meet our debt
      service*  *and
      operating lease obligations.*





Our
      ability to generate sufficient cash flow from operations to make payments on
      our
      debt and operating lease obligations will depend on our future financial
      performance, which will be affected by a range of economic, competitive,
      regulatory, legislative and business factors, many of which are outside of
      our
      control. If we do not generate sufficient cash flow from operations to satisfy
      our debt and operating lease obligations, we may have to undertake alternative
      financing plans, such as refinancing or restructuring our debt, selling assets,
      reducing or delaying capital investments or seeking to raise additional capital.
      We cannot assure you that any refinancing would be possible, that any assets
      could be sold or if sold, of the timing of the sales and the amount of proceeds
      realized from those sales, or that additional financing could be obtained on
      acceptable terms, if at all. Our inability to generate sufficient cash flow
      to
      satisfy our debt and operating lease obligations, or to refinance or renegotiate
      our obligations on commercially reasonable terms, would have an adverse effect
      on our business, financial condition and results of operations.





**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None.




15


**ITEM
      2. PROPERTIES**





**Restaurant
      Locations**





Our
      632
      steak-buffet restaurants are located in both urban and suburban areas in a
      variety of strip shopping centers, malls and freestanding buildings. We lease
      all of our 216 restaurant locations located in strip shopping centers and malls.
      These restaurants are operated in company-funded leasehold improvements located
      on leased land or in facilities where we lease both the underlying land and
      the
      leasehold improvements. Of the remaining 416 restaurants located in freestanding
      buildings, we own the building and land for 24 of the restaurants. In addition,
      we own land parcels for future development of restaurants or for sale to third
      parties.





Our
      leases are generally for ten to twenty-year terms, with two to four options
      exercisable at our discretion to renew for a period of five years each. The
      leases provide for rent to be paid on a monthly basis.





As
      of
      June 27, 2007, we and our franchisees operated 660 locations as
      follows:





**State**
            
            **Number
                of**
              **Company-****Operated**
              **Restaurants**
            
            **Number
                of**
              **Franchised**
              **Restaurants**
            
            **Total**
              **Number
                of**
              **Restaurants**Alabama
            
            
            21
            
            
            —
            
            
            21Arizona
            
            
            5
            
            
            8
            
            
            13Arkansas
            
            
            10
            
            
            —
            
            
            10California
            
            
            88
            
            
            1
            
            
            89Colorado
            
            
            12
            
            
            1
            
            
            13Connecticut
            
            
            6
            
            
            —
            
            
            6Delaware
            
            
            1
            
            
            —
            
            
            1Florida
            
            
            5
            
            
            —
            
            
            5Georgia
            
            
            38
            
            
            —
            
            
            38Idaho
            
            
            1
            
            
            —
            
            
            1Illinois
            
            
            40
            
            
            —
            
            
            40Indiana
            
            
            20
            
            
            —
            
            
            20Iowa
            
            
            4
            
            
            —
            
            
            4Kansas
            
            
            6
            
            
            —
            
            
            6Kentucky
            
            
            15
            
            
            —
            
            
            15Louisiana
            
            
            19
            
            
            —
            
            
            19Maine
            
            
            1
            
            
            —
            
            
            1Maryland
            
            
            9
            
            
            —
            
            
            9Massachusetts
            
            
            9
            
            
            —
            
            
            9Michigan
            
            
            26
            
            
            —
            
            
            26Minnesota
            
            
            15
            
            
            —
            
            
            15Mississippi
            
            
            12
            
            
            —
            
            
            12Missouri
            
            
            28
            
            
            —
            
            
            28Nebraska
            
            
            —
            
            
            3
            
            
            3New
                Jersey
            
            
            8
            
            
            —
            
            
            8New
                Mexico
            
            
            —
            
            
            2
            
            
            2New
                York
            
            
            15
            
            
            —
            
            
            15North
                Carolina
            
            
            21
            
            
            —
            
            
            21Ohio
            
            
            23
            
            
            —
            
            
            23Oklahoma
            
            
            7
            
            
            —
            
            
            7Oregon
            
            
            8
            
            
            —
            
            
            8Pennsylvania
            
            
            27
            
            
            —
            
            
            27Rhode
                Island
            
            
            1
            
            
            —
            
            
            1South
                Carolina
            
            
            33
            
            
            —
            
            
            33Tennessee
            
            
            26
            
            
            —
            
            
            26Texas
            
            
            22
            
            
            —
            
            
            22Utah
            
            
            —
            
            
            2
            
            
            2Virginia
            
            
            15
            
            
            —
            
            
            15Washington
            
            
            16
            
            
            —
            
            
            16West
                Virginia
            
            
            6
            
            
            —
            
            
            6Wisconsin
            
            
            12
            
            
            —
            
            
            12Wyoming
            
            
            1
            
            
            1
            
            
            2Total
                steak-buffet restaurants
            
            
            632
            
            
            18
            
            
            650Tahoe
                Joe’s restaurants (1)
            
            
            10
            
            
            —
            
            
            10Total
            
            
            642
            
            
            18
            
            
            660





(1)
            These
                restaurants are currently for sale and related activity has been
                reclassified to discontinued operations in the accompanying consolidated
                financial statements.




16





Our
      corporate headquarters is a leased facility located in Eagan,
      Minnesota.





The
      following table sets forth information concerning our owned property:





**Location**
            
            **Acres**
            
            **Use
                and Ownership**Anderson,
                SC
            
            2.40
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Riverdale,
                GA
            
            1.42
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Shively,
                KY
            
            2.66
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Anniston,
                AL
            
            1.71
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Kettering,
                OH
            
            2.10
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Indianapolis,
                IN
            
            1.03
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Toledo,
                OH
            
            5.77
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Lexington,
                KY
            
            3.55
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Battle
                Creek, MI
            
            2.76
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Wichita,
                KS
            
            3.17
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Bradley,
                IL
            
            3.17
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Columbus,
                OH
            
            2.95
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Middletown,
                OH
            
            2.48
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Houston,
                TX
            
            2.66
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Florence,
                KY
            
            2.65
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Gulfport,
                MS
            
            3.57
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Baytown,
                TX
            
            2.45
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.San
                Antonio, TX
            
            3.00
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Independence,
                MO
            
            2.20
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Kokomo,
                IN
            
            3.01
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Lynchburg,
                VA
            
            4.36
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Richmond,
                IN
            
            4.00
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Thomasville,
                AL
            
            2.65
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Laurens,
                SC
            
            5.23
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Lincolnton,
                NC
            
            4.01
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Sikeston,
                MO
            
            1.60
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Bellefontaine,
                OH
            
            2.50
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Shelby,
                NC
            
            3.10
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Natchez,
                MS
            
            2.17
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Union
                City, TN
            
            2.55
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Thomson,
                GA
            
            2.26
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Findlay,
                OH
            
            2.42
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Sterling,
                IL
            
            2.28
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Jacksonville,
                NC
            
            1.96
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Lovejoy,
                GA
            
            3.40
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Columbia,
                SC
            
            1.12
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Rock
                Hill, SC
            
            1.74
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Bossier
                City, LA
            
            2.37
            
            
            Buffet
                restaurant property owned by Ryan’s Restaurant Group,
                Inc.Tomball,
                TX
            
            1.51
            
            
            Land
                owned by Ryan’s Restaurant Group, Inc.Freeport,
                IL
            
            2.15
            
            
            Land
                owned by Ryan’s Restaurant Group, Inc.S.
                Boston, VA
            
            2.21
            
            
            Land
                owned by Ryan’s Restaurant Group, Inc.Niles,
                OH
            
            2.29
            
            
            Land
                owned by Ryan’s Restaurant Group, Inc.Rocky
                Mount, NC
            
            2.50
            
            
            Land
                owned by Ryan’s Restaurant Group, Inc.Weatherford,
                TX
            
            2.54
            
            
            Land
                owned by Ryan’s Restaurant Group, Inc.Rockingham,
                NC
            
            2.78
            
            
            Land
                owned by Ryan’s Restaurant Group, Inc.Greer,
                SC
            
            23.15
            
            
            Land
                owned by Ryan’s Restaurant Group, Inc.Greer,
                SC
            
            17.85
            
            
            Corporate
                building owned by Ryan’s Restaurant Group, Inc.Marshfield,
                Wisconsin
            
            5.04
            
            
            Cabinet
                shop owned by OCB Restaurant Company,
                LLC.




17




**New
      Restaurant Development**





Historically,
      our restaurant development has been approached on a disciplined basis, filling
      existing markets and capitalizing on opportunities where we had advertising
      and
      operational efficiencies. Where appropriate, we have closed restaurants that
      did
      not meet our strategic objectives or profitability goals.





**Improvement
      of Existing Restaurants**





We
      remain
      committed to maintaining and upgrading our restaurants to expand our guest
      base
      and maintain our appeal among repeat customers. Our interior remodeling program
      takes advantage of scheduled maintenance capital expenditures to update our
      restaurants to reflect a more contemporary interior design that provides a
      more
      visually appealing and comfortable restaurant interior. We plan on continuing
      the upgrading of our units with a new interior décor package over the next four
      to six years as they become due for a recurring refurbishment. Through this
      phased approach, we can minimize incremental capital expenditures, while
      providing a better and more contemporary dining environment for our guests.
      Our
      planned remodeling effort will focus on interior décor elements that have
      resonated well with our guests, as well as the introduction of our display
      cooking grills. During fiscal 2007, we completed the installation of eighteen
      display grills and expect to continue rolling out display grills company-wide
      over the next four years. We will be focusing these installations in markets
      where we can quickly reach advertising efficiency for our grilled
      offerings.





**ITEM
      3. LEGAL PROCEEDINGS**





On
      November 12, 2004, two former restaurant managers of our wholly-owned
      subsidiary, HomeTown Buffet, Inc. (“HomeTown Buffet”), individually and on
      behalf of all others similarly situated, filed a class action lawsuit against
      HomeTown Buffet in California Superior Court in San Francisco County. The
      lawsuit alleges that HomeTown Buffet violated California wage and hour laws
      by
      failing to pay all of its California managers and assistant managers overtime,
      and for making deductions from bonus compensation based on the company’s
      workers’ compensation costs. In March 2006, the plaintiffs amended the complaint
      in the lawsuit to add OCB Restaurant Company, LLC as a defendant, and to limit
      the claims to those managers below the level of restaurant General Manager.
      In
      April 2006, the defendants removed the lawsuit to the United States District
      Court for the Northern District of California. The plaintiffs seek compensatory
      damages, penalties, restitution of unpaid overtime and deductions, pre-judgment
      interest, costs of suit and reasonable attorneys’ fees. The complaint does not
      make a specific monetary demand.





During
      the course of discovery, but prior to a motion for certification of a class,
      the
      parties reached a settlement of this action in mediation in late February 2007.
      The settlement received preliminary court approval on September 12, 2007. While
      the Company is currently not able to predict the outcome of this action, the
      Company estimates that, should the court provide final approval of the
      settlement, the Company will pay approximately $7.2 million to resolve this
      matter. This amount has been recorded in the Company’s accrued litigation
      reserve and is included in “Accrued Liabilities” in the Company’s accompanying
      Consolidated Balance Sheets as of June 27, 2007 and “Loss on Litigation
      Settlement” in the Company’s fiscal 2007 Consolidated Statements of Operations.
      Also included in the Loss on Litigation Settlement is approximately $0.4 million
      in attorney fees paid to the Company’s external counsel for services rendered
      through June 27, 2007 specifically related to negotiating the
      settlement.





With
      regard to the previously disclosed 2002 class action lawsuit filed in the United
      States District Court, Middle District of Tennessee, Nashville Division, related
      to alleged wage and hour violations, all terms of the consensual settlement
      between the parties have been satisfied and the matter is considered
      closed.





In
      June
      2006, a lawsuit was filed in the Berkeley County (West Virginia) circuit court
      on behalf of three plaintiffs alleging wage and hour violations similar to
      the
      Tennessee collective-action case discussed in the preceding paragraph. This
      case
      seeks class-action status, but pertains only to West Virginia employees who
      worked for Ryan’s during the five years ending July 2006. In July 2006,
      Defendants removed the lawsuit to the United States District Court for the
      Northern District of West Virginia. In February 2007, the Court denied
      Plaintiffs motion to remand the matter back to West Virginia state court. The
      plaintiffs seek compensatory damages, penalties, restitution of unpaid wages
      and
      deductions, pre-judgment interest, costs of suit and reasonable attorneys’ fees.
      The complaint does not make a specific monetary demand. This action is in a
      preliminary stage, and the Company is currently not able to predict the outcome
      of this action or reasonably estimate a range of possible loss. The Company
      is
      vigorously defending this action.




18
 
  On
          August
          29, 2007, the Greenville County, South Carolina Circuit Court overseeing
          the
          2006 putative shareholder class action - Marjorie Fretwell v. Ryan’s Restaurant
          Group, Inc. - entered a final order approving the consensual settlement
          agreement between the parties, as previously disclosed.





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





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to a vote of security holders of the Company during
      fiscal 2007.





**PART
      II**





**ITEM
      5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED
      STOCKHOLDER**  **MATTERS**





As
      of
      June 27, 2007, we had one holder of our 3,104,510 shares of our common stock.
      There is no established public trading market for our common stock.





We
      have
      had no dividend transactions over the past two fiscal years.





The
      terms
      of our credit facility place restrictions on Buffets’ ability to pay dividends
      and otherwise transfer assets to us. Further, (i) the terms of the indenture
      governing Buffets’ senior subordinated notes place restrictions on the ability
      of Buffets and our other subsidiaries to pay dividends and otherwise transfer
      assets to us and (ii) the terms of Buffets Holdings indenture places
      restrictions on the ability of Buffets Holdings to pay dividends. We have no
      intention of paying dividends in the foreseeable future.





*Sales
      of Unregistered Securities*





On
      April
      5, 2007, we granted options to purchase an aggregate of 29,232 shares of our
      common stock to certain of our employees, each at an exercise price of $9.17
      per
      share. This grant of options to purchase our common stock was made under our
      Equity Participation Plan and were exempt from registration under the Securities
      Act pursuant to Section 4(2) of the Securities Act as transactions by an issuer
      not involving a public offering and/or Rule 701 under the Securities Act as
      exempt offers and sales of securities under a written compensatory benefit
      plan.
      Appropriate legends were or will be affixed to the share certificates and other
      instruments issued in such transactions. All recipients either have received
      or
      will receive adequate information about us or had or have access, through
      director or employment relationships, to such information.




19


**ITEM
      6. SELECTED FINANCIAL DATA**





**As
                  Restated - See Note 20**
              
              **As
                  Restated - See Note 20****Fiscal
                  Year**
                **Ended**
                **July
                  2,**
                **2003
                  (5)**
              
              **Fiscal
                  Year**
                **Ended**
                **June
                  30,**
                **2004
                  (5)**
              
              **Fiscal
                  Year**
                **Ended**
                **June
                  29,**
                **2005
                  (5)**
              
              **Fiscal
                  Year**
                **Ended**
                **June
                  28,**
                **2006
                  (5)(6)**
              
              **Fiscal
                  Year**
                **Ended**
                **June
                  27,**
                **2007
                  (3)(4)(5)(6)****(Dollars
                  in thousands, except average guest check and average weekly
                  sales)****Operating
                  Data:**Restaurant
                  sales
              
              $
              955,844
              
              $
              912,149
              
              $
              891,208
              
              $
              928,624
              
              $
              1,387,489Restaurant
                  costs:Food
              
              
              301,386
              
              
              296,039
              
              
              294,548
              
              
              316,040
              
              
              480,686Labor
              
              
              304,555
              
              
              277,823
              
              
              267,630
              
              
              263,879
              
              
              414,466Direct
                  and occupancy
              
              
              218,410
              
              
              210,375
              
              
              212,307
              
              
              220,714
              
              
              353,608Total
                  restaurant costs
              
              
              824,351
              
              
              784,237
              
              
              774,485
              
              
              800,633
              
              
              1,248,760Advertising
                  expenses
              
              
              28,570
              
              
              25,906
              
              
              24,166
              
              
              30,637
              
              
              33,896General
                  and administrative expenses
              
              
              43,543
              
              
              41,058
              
              
              41,906
              
              
              42,077
              
              
              60,405Shareholders’
                  rights repurchase
              
              
              —
              
              
              —
              
              
              —
              
              
              757
              
              
              —Closed
                  restaurant costs
              
              
              645
              
              
              1,085
              
              
              2,909
              
              
              6,023
              
              
              3,822Merger
                  integration costs
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              10,938Impairment
                  of assets
              
              
              4,803
              
              
              1,878
              
              
              3,609
              
              
              5,964
              
              
              415Gain
                  on sale of Original Roadhouse Grill restaurants
              
              
              (7,088
              )
              
              —
              
              
              —
              
              
              —
              
              
              —Loss
                  on litigation settlement
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              7,641Loss
                  on sale leaseback transactions
              
              
              5,856
              
              
              —
              
              
              —
              
              
              —
              
              
              2,498Financing-related
                  compensation expenses
              
              
              —
              
              
              2,240
              
              
              —
              
              
              —
              
              
              —Operating
                  income
              
              $
              55,164
              
              $
              55,745
              
              $
              44,133
              
              $
              42,533
              
              $
              19,114Net
                  income (loss) from continuing operations
              
              
              10,886
              
              
              6,935
              
              
              (3,933
              )
              
              (8,050
              )
              
              (117,604
              )Net
                  income from discontinued operations, net of tax
              
              
              1,041
              
              
              1,035
              
              
              1,749
              
              
              2,077
              
              
              863Net
                  income (loss)
              
              $
              11,927
              
              $
              7,970
              
              $
              (2,184
              )
              $
              (5,973
              )
              $
              (116,741
              )**Cash
                  Flow and Other Financial Data:**Capital
                  expenditures
              
              $
              25,722
              
              $
              33,007
              
              $
              29,131
              
              $
              31,346
              
              $
              40,875Depreciation
                  and amortization
              
              
              36,885
              
              
              33,807
              
              
              32,247
              
              
              32,067
              
              
              40,836Cash
                  flow from operating activities
              
              
              57,656
              
              
              50,490
              
              
              52,675
              
              
              49,305
              
              
              5,969Cash
                  flow from (used in) investing activities
              
              
              26,662
              
              
              (28,383
              )
              
              (28,471
              )
              
              (32,722
              )
              
              (180,608
              )Cash
                  flow from (used in) financing activities
              
              
              (76,825
              )
              
              (11,890
              )
              
              (29,614
              )
              
              (17,026
              )
              
              159,090**Balance
                  Sheet Data (at end of period)**Total
                  assets
              
              $
              552,986
              
              $
              567,531
              
              $
              545,023
              
              $
              537,412
              
              $
              961,069Total
                  long-term debt (1)
              
              
              421,122
              
              
              498,339
              
              
              466,194
              
              
              462,514
              
              
              828,675**Supplemental
                  Data (2):**Number
                  of company-owned steak-buffet restaurants (at end of
                  period)
              
              
              364
              
              
              352
              
              
              345
              
              
              329
              
              
              632**Buffet
                  brands:**Same
                  store average guest check
              
              $
              6.82
              
              $
              7.02
              
              $
              7.20
              
              $
              7.70
              
              $
              7.91Average
                  weekly sales
              
              $
              48,078
              
              $
              49,412
              
              $
              49,597
              
              $
              52,838
              
              $
              53,290Same
                  store sales change
              
              
              (4.4
              )%
              
              1.2
              %
              
              (0.7
              )%
              
              4.8
              %
              
              (0.7
              )%**Ryan’s
                  brands:**Same
                  store average guest check
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              8.41Average
                  weekly sales
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              44,458Same
                  store sales change
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (6.3
              )%





(1)
            Total
                debt represents the amount of our long-term debt, including current
                maturities.





(2)
            Reflects
                data relating to all of our company-owned restaurants.





(3)
            Includes
                activity of Ryan’s Restaurant Group, Inc. from November 1, 2006, the date
                of acquisition, to the end of the fiscal year. For further discussion
                of
                the acquisition, see Note 10 - “Acquisitions” to our accompanying
                consolidated financial statements.




(4)
            On
                June 29, 2006, we adopted the fair value based method of accounting
                for
                stock-based employee compensation as required by SFAS No. 123(R),*Share-Based
                Payment,*a
                revision of SFAS No. 123,*Accounting
                for**Stock-Based
                Compensation.*The
                fair value based method requires us to expense all stock-based employee
                compensation. We have adopted SFAS 123(R) using the modified prospective
                method. Accordingly, we have expensed all unvested and newly granted
                stock-based employee compensation beginning June 29, 2006, however,
                prior
                period amounts have not been retrospectively
                adjusted.





(5)
            Results
                have been adjusted to reflect the reclassification of certain Tahoe
                Joe’s
                activity to discontinued
                operations.





(6)
            See
                Note 20 - “Restatement” to the consolidated financial statements for
                restatement information.




20




**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS**  **OF
      OPERATIONS**




*The
          following
          management’s discussion and analysis gives effect to the restatements discussed
          in Note 20 to the consolidated financial statements.* *You
          should read the following discussion in conjunction with
“Selected*  *Financial
          Data” and our consolidated financial statements and related
          notes*  *included
          elsewhere in this report. Some of the statements in the
          following*  *discussion
          are forward-looking statements. See “Risk
          Factors/Forward-Looking*  *Statements.”*





**Overview**





We
      are
      the nation’s largest steak-buffet restaurant chain and the second largest
      restaurant company in the family dining segment of the restaurant industry.
      Our
      restaurants are principally operated under the names Old Country Buffet®,
      HomeTown Buffet®, Ryan’s® and Fire Mountain®. As of June 27, 2007, we had 632
      company-owned steak-buffet restaurants and eighteen franchised locations in
      42
      states.





Restaurants
                operating as of June 28, 2006
            
            
            329For
                the fiscal year ended June 27, 2007:Restaurants
                opened
            
            
            3Restaurants
                closed
            
            
            32Restaurants
                acquired
            
            
            332Restaurants
                operating as of June 27, 2007
            
            
            632





Buffets
      was founded in 1983 to develop buffet-style restaurants under the name Old
      Country Buffet®. In October 1985, Buffets completed its initial public offering
      and was listed on The NASDAQ National Market. In September 1996, Buffets merged
      with HomeTown Buffet, Inc., which was developed by one of Buffets’ co-founders
      and had 80 company-owned HomeTown Buffet® restaurants in eleven states and
      nineteen franchised restaurants in eight states. In October 2000, Buffets was
      acquired by Buffets Holdings, a company organized by investment funds affiliated
      with Caxton-Iseman Capital in a buyout from public shareholders. On November
      1,
      2006, Buffets merged with Ryan’s, the largest publicly traded buffet restaurant
      operator in the nation with 328 restaurants in 23 states, whereby Ryan’s became
      a wholly-owned subsidiary of Buffets.





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




21





Our
      business model is characterized by a relatively fixed cost structure,
      particularly in the short term. Accordingly, changes in marginal average weekly
      sales volume can have a more significant impact on our profitability than for
      a
      business operating in a more variable cost structure. Over a longer time
      horizon, by virtue of our diversified food offerings, we are able to address
      the
      semi-fixed element of food cost by modifying our offerings or by highlighting
      other foods on the menu in order to reduce consumption of the higher cost items.
      In addition, we monitor our labor costs and hourly employee productivity, as
      measured by the number of guests served per labor hour, on a weekly basis to
      ensure that restaurants are responsive in scheduling and managing our labor
      to
      varying levels of guest traffic. Since we acquired Buffets in a buyout from
      its
      public shareholders in October 2000, we have focused on improving asset
      management and optimizing our capital structure.





Our
      fiscal year is comprised of 52 or 53 weeks divided into four fiscal quarters
      of
      twelve, twelve, sixteen and twelve or thirteen weeks,
      respectively.





The
      following is a description of the line items from our consolidated statements
      of
      operations and selected financial data:





**•**
            We
                recognize as restaurant sales the proceeds from the sale of food
                and
                beverages at our company-owned restaurants at the time of such sale.
                We
                recognize the proceeds from the sale of gift cards/certificates when
                the
                gift cards/certificates are redeemed at our restaurants. Until redemption,
                the unearned revenue from the sale of gift cards/certificates is
                included
                in “Accrued Liabilities” on our accompanying Consolidated Balance Sheets.
                Our franchise income includes royalty fees and initial franchise
                fees
                received from our franchisees. We recognize royalty fees in “Other Income”
                on our accompanying Consolidated Statements of Operations 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.





**•**
            Advertising
                expenses reflect all advertising and promotional costs.





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





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





**•**
            Impairment
                of assets reflects fair market adjustments to the carrying value
                of
                long-lived assets, primarily comprised of leasehold improvements
                and
                equipment.





**•**
            Merger
                integration costs represent professional fees, performance bonuses
                and
                employee travel and expenses related to integration activities associated
                with the Ryan’s and North’s
                acquisitions.





**•**
            Shareholders’
                rights repurchase reflects the costs associated with the repurchase
                of
                certain rights associated with shares of common stock previously
                held by
                former management shareholders who separated from the
                company.





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





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


22


**•**
            Interest
                expense reflects interest costs associated with our debt and amortization
                of debt issuance cost. Interest expense also reflects accretion of
                original issuance discount on Buffets’ 11 1/4% senior subordinated notes
                and Buffets Holdings 13 7/8% senior discount notes, which were repurchased
                on November 1, 2006.





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





**•**
            Loss
                related to refinancing for fiscal years 2006 and 2007 represents
                transaction costs associated with amendments to Buffets’ Amended and
                Restated Credit Agreement in fiscal year 2006, repurchasing or redeeming
                Buffets’ 11 1/4% senior subordinated notes and our 13 7/8% senior discount
                notes on November 1, 2006 and transaction costs associated with an
                amendment to our credit facility agreement in March
                2007.





**•**
            Other
                income primarily reflects franchise fees earned.





**•**
            Income
                tax (benefit) expense reflects the current and deferred tax provision
                (benefit) determined in accordance with the provisions of Statement
                of
                Financial Accounting Standards (“SFAS”) No. 109,*Accounting
                for Income Taxes.*




**Recent
      Developments**





On
      November 1, 2006, Buffets and Ryan’s, announced the completion of the previously
      announced merger between Buffets Southeast, Inc., a South Carolina corporation
      and wholly-owned subsidiary of Buffets, and Ryan’s, also a South Carolina
      corporation, in a cash transaction valued at approximately $834.0 million,
      including debt that was repaid at closing. Pursuant to the Agreement, Buffets
      Southeast, Inc. merged with and into Ryan’s, with Ryan’s remaining as the
      surviving corporation.





At
      the
      effective time of the Merger, each issued and outstanding share of Ryan’s common
      stock, par value $1.00 per share, was canceled and automatically converted
      into
      the right to receive $16.25 in cash, without interest. Also, at the effective
      time of the Merger, each outstanding option to purchase Ryan’s common stock (all
      of which were vested or vested as a consequence of the Merger) was canceled
      and
      automatically converted into the right to receive the excess, if any, of $16.25
      over the option exercise price.





In
      conjunction with the Merger, Buffets refinanced its outstanding indebtedness
      by:





**•**
            securing
                a new $640.0 million senior secured credit agreement (the “Credit
                Facility”) comprised of (i) a $530.0 million senior secured term loan
                facility (the “Term Facility”), (ii) a $40.0 million senior secured
                revolving credit facility (the “Revolving Facility”), and (iii) a $70.0
                million senior secured pre-funded synthetic letter of credit facility
                (see
                Note 9 - “Long-Term Debt” to the accompanying consolidated financial
                statements for details regarding the subsequent conversion of this
                facility to a synthetic revolving facility),
                and





**•**
            issuing
                $300.0 million of its 12 1/2% Senior Notes due 2014 (the “12 1/2% Senior
                Notes”) pursuant to an indenture, dated as of November 1, 2006 (the
                “Indenture”).





Buffets
      used the proceeds of (i) $530.0 million from borrowings under the Term Facility,
      (ii) $5.0 million from borrowings under the Revolving Facility, (iii) $300.0
      million from the issuance of its 12 1/2% Senior Notes, (iv) $566.8 million
      from
      a sale leaseback transaction whereby it sold the land (or, in certain cases,
      underlying ground leases) and related improvements with respect to approximately
      275 Ryan’s restaurants and seven Buffets restaurants and simultaneously leased
      the properties back, (the “Sale Leaseback Transaction”) and approximately (v)
      $9.0 million of cash on hand to:





**•**
            pay
                $704.6 million to purchase the outstanding shares of Ryan’s common
                stock,





**•**
            repay
                $146.9 million of Ryan’s outstanding debt (including accrued interest and
                breakage fees),





**•**
            repay
                $196.4 million of existing indebtedness of Buffets under its prior
                credit
                facility (including accrued interest and breakage
                fees),





**•**
            repurchase
                $195.3 million of Buffets’ 11 1/4% senior subordinated notes (including
                accretion of original issue discount and early redemption
                premiums),


23


**•**
            repurchase
                $121.5 million of Buffets Holdings’ 13 7/8% senior discount notes
                (including accretion of original issue discount and early redemption
                premiums), and





**•**
            pay
                approximately $46.1 million for transaction fees and expenses.




In
      addition to the fees and expenses paid at closing, the Company incurred
      approximately $31.2 million of transaction closing fees and expenses that were
      paid subsequent to the transaction close date.





In
      the
      Sale Leaseback Transaction, Buffets and Ryan’s, as applicable, conveyed the land
      (or, in certain cases, underlying ground leases) and related improvements with
      respect to those properties to the buyer/lessor, and simultaneously leased
      those
      properties back pursuant to unitary and individual leases, each for an initial
      lease term of approximately twenty years, with four renewal terms of five years,
      except with respect to ground lease sites. The purchase price for the portfolio
      of sale leaseback properties was approximately $566.8 million. The annual net
      rent payable under the leases is equal to the purchase price multiplied by
      a
      10.15% cap rate, subject to annual increases of two times the Consumer Price
      Index, as defined therein, (but in no event greater than 2%), and, if the term
      of the leases are renewed, subject to further increases during some of the
      renewal terms based upon the then current fair market rental value. See Note
      5 -
“Property and Equipment” to the accompanying consolidated financial statements
      for further discussion of the Sale Leaseback Transaction.





See
      “Liquidity and Capital Resources” elsewhere in this report for further
      discussion of the debt agreements entered into in connection with the
      Merger.





**Critical
      Accounting Policies**





Our
      consolidated financial statements have been prepared in accordance with
      accounting principles 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 liabilities at the date of the
      financial statements and the reported amounts of revenues and expenses during
      the reporting period. On an ongoing basis, management evaluates its estimates
      and assumptions, including those related to recoverability of long-lived assets,
      goodwill, self-insurance reserves and income taxes. Management bases its
      estimates and assumptions on historical experience and on various other factors.
      Actual results may differ from these estimates and assumptions under different
      circumstances or conditions.





We
      believe the following critical accounting policies affect management’s
      significant estimates and assumptions used in the preparation of our
      accompanying consolidated financial statements.





*Long-Lived
      Assets*





We
      test
      property and equipment for impairment annually or whenever events or
      circumstances indicate that the carrying amount of a restaurant’s assets may not
      be recoverable. We test for impairment using historical cash flows and other
      relevant facts and circumstances as the primary basis for our estimates of
      future cash flows. Assets are grouped and evaluated for impairment at the lowest
      level for which there are identifiable cash flows, namely as individual
      restaurants. A restaurant is deemed to be impaired if a forecast of undiscounted
      future operating cash flows, including disposal value, if any, is less than
      its
      carrying amount.





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





During
      fiscal years 2005, 2006 and 2007, we expensed approximately $3.6 million, $6.0
      million and $0.4 million, respectively, relating to the impairment of long-lived
      assets for 29, 33, and one restaurant(s), respectively.




24


*Goodwill
      and Other Intangible Assets*





We
      test
      the recoverability of goodwill and other intangible assets annually or whenever
      events or circumstances indicate that the carrying amount may not be
      recoverable. Goodwill and other intangible assets are deemed to be impaired
      if
      the fair value of a reporting unit is less than its carrying value. If goodwill
      or other intangible assets are determined to be impaired, the loss is measured
      as the amount by which the carrying amount of a reporting unit’s goodwill or
      other intangible assets exceeds their implied fair value. The fair value of
      a
      reporting unit is an estimate based on assumptions regarding its future cash
      flows. In the event that these assumptions change in the future, we may be
      required to record impairment charges related to its goodwill or other
      intangible assets. No impairment charges were recorded in fiscal years 2005,
      2006 or 2007.





*Insurance
      Reserves*





We
      have
      insurance reserves for exposure related to our workers compensation, general
      liability and medical and dental programs. We effectively self-insure a
      significant portion of certain risks through the use of large self-insured
      retentions combined with stop-loss coverage, or by maintaining large deductibles
      on traditional policies of insurance. The liability represents an estimate
      of
      the ultimate cost of claims incurred and unpaid as of the balance sheet date,
      including both reported claims and claims that have been incurred but not
      reported. The estimated liability is established based upon historical claims
      data and third-party actuarial estimates of settlement costs for incurred
      claims. Our estimates include our judgments and independent actuarial
      assumptions regarding economic conditions, the frequency and severity of claims
      and claim development patterns and settlement practices. These estimates and
      assumptions are monitored and adjusted when warranted by changing circumstances.
      Changes in these factors may produce materially different amounts of expense
      and
      liabilities that would be reported under these insurance programs.





*Closed
      Restaurant Reserve*





We
      maintain a closed restaurant reserve for restaurants that are no longer being
      utilized in current operations. The closed restaurant costs are principally
      comprised of our estimates of lease termination costs and obligations, net
      of
      sublease and other cash receipts, and employee termination costs. Many factors
      including the local business environment, other available lease sites, the
      ability to secure subleases, the creditworthiness of subtenants, and our success
      at negotiating early termination agreements with lessors are considered in
      establishing the accruals. Adjustments to the reserve primarily relate to
      changes in subtenant income or actual exit costs differing from original
      estimates. Adjustments are made for changes in estimates in the period in which
      the changes become known. The store closing reserve (current and noncurrent
      in
      aggregate) was $2.8 million and $1.7 million as of June 28, 2006 and June 27,
      2007, respectively.





We
      closed
      eleven underperforming restaurants in fiscal year 2007 and incurred cash charges
      related to these restaurant closures of approximately $1.7 million. These
      charges included approximately $1.1 million related to lease termination costs
      and obligations, $0.2 million related to employee termination costs and $0.4
      million related to other associated costs. Non-cash charges related to these
      closures were approximately $0.4 million. These charges were expensed as
      incurred pursuant to SFAS No. 146, *Accounting
      for*  *Costs
      Associated with Exit or Disposal Activities,* and
      are
      recorded in “Closed Restaurant Costs” in the accompanying Consolidated
      Statements of Operations. In addition, we closed eighteen Ryan’s® restaurants
      and three Fire Mountain® restaurants between November 1, 2006 (acquisition date)
      and June 27, 2007. Charges related to these 21 restaurants were charged to
      goodwill pursuant to EITF 95-3, *Recognition
      of Liabilities in Connection with a Purchase Business*  *Combination.* See
      Note
      10 — “Acquisitions” to our accompanying consolidated financial statements for
      further discussion of our merger with Ryan’s.





*Income
      Taxes*





We
      estimate certain components of our provision for income taxes. These estimates
      include, among other items, depreciation and amortization expense allowable
      for
      tax purposes, allowable tax credits for items such as the Working Opportunity
      Tax Credit and taxes paid on reported employee tip income, effective rates
      for
      state and local taxes, and the tax deductibility of certain other items. Our
      estimates are based on current tax laws, the best available information at
      the
      time of the provision and historical experience. Income tax returns are subject
      to audit by federal, state, and local governments, generally years after the
      returns are filed. These returns could be subject to material adjustments or
      differing interpretations of the tax laws.




25


Deferred
      tax assets and liabilities are recognized for the expected future tax
      consequences of temporary differences between financial reporting amounts and
      the tax basis of existing assets and liabilities based on currently enacted
      tax
      laws and tax rates in effect for the periods in which the differences are
      expected to reverse. Income tax (benefit) expense is the tax payable/receivable
      for the year, plus or minus the change during the year in deferred income taxes.
      Valuation allowances are established when necessary to reduce deferred tax
      assets to the amount expected to be realized.





*Gift
      Cards*





We
      sell
      plastic gift cards and paper gift certificates to our customers. Proceeds from
      the sale of gift cards/certificates are initially recorded as a liability when
      received. Revenues from the sale of gift cards/certificates at our restaurants
      are recognized upon redemption. In estimating the related gift card/certificate
      liability, we analyze historical trends to derive our estimates of future gift
      card/certificate redemption patterns. The assumptions and activity are closely
      monitored for changes in escheatment laws and redemption patterns. We adjust
      our
      gift card/certificate liability based on historical and expected non-redemption
      trends. These adjustments are classified within “Direct and Occupancy Costs” in
      our accompanying Consolidated Statements of Operations. Our gift
      card/certificate liability was $4.0 million and $5.4 million, of which
      approximately $1.2 and $1.1 million was related to the Tahoe Joe’s restaurants
      and was reclassified as discontinued operations in the accompanying Consolidated
      Balance Sheets as of June 28, 2006 and June 27, 2007, respectively.





*Share-Based
      Compensation*





On
      June
      29, 2006 we adopted the provisions of SFAS No. 123(R) (revised 2004), *Share-based
      Payment,* which
      requires the recognition of compensation cost for share-based awards granted
      to
      employees based on their fair values at the time of grant over the requisite
      service period. Our pre-tax compensation cost for stock options as reflected
      in
      the accompanying Consolidated Statements of Operations is included in “General
      and Administrative Expenses.” Prior to the adoption of SFAS 123(R), we accounted
      for activity under our stock-based employee compensation plans under the
      recognition and measurement principles of APB (Accounting Principles Board)
      Opinion No. 25, *Accounting
      for Stock Issued*  *to
      Employees.* Accordingly,
      the Company did not recognize compensation expense in connection with employee
      stock option grants because stock options are granted at exercise prices not
      less than the fair value of the common stock on the date of grant.





We
      elected to use the modified prospective transition method as permitted by SFAS
      No. 123(R) and therefore did not restate our financial results for prior
      periods. Under this transition method, we apply the provisions of SFAS No.
      123(R) to new awards and to awards modified, repurchased, or cancelled after
      June 29, 2006.





For
      purposes of determining the estimated fair value of share-based payment awards
      on the date of grant under SFAS No. 123(R), we use the Black-Scholes
      option-pricing model (“Black-Scholes Model”). The Black-Scholes Model requires
      the input of certain assumptions that involve judgment. Because our employee
      stock options have characteristics significantly different from those of traded
      options, and because changes in the input assumptions can materially affect
      the
      fair value estimates, the available option pricing models may not provide a
      reliable single measure of the fair value of our employee stock options. We
      are
      unable to reasonably estimate the fair value of our equity awards and similar
      instruments because it is not practicable for us to estimate the expected
      volatility of its share price. Therefore, we calculate volatility using the
      historical volatility of publicly traded companies within the family dining
      segment of the restaurant industry in order to determine the estimated fair
      value of our equity awards. SFAS No. 123(R) refers to this method as the
      calculated value method of estimating fair value.





Upon
      adoption of SFAS No. 123(R) we recognized and recorded approximately $77,000
      in
      share-based compensation for the fiscal year ended June 27, 2007 in connection
      with the grant of options to purchase an aggregate of 29,232 shares of our
      common stock to certain of our employees.




26


*Lease
      Accounting*





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





*Merger
      Integration Costs*





Merger
      integration costs represent professional fees, performance bonuses and employee
      travel and expenses related to integration activities associated with the Ryan’s
      and North’s acquisitions. As of June 27, 2007, merger integration costs of
      approximately $10.9 million have been expensed as incurred and are recorded
      in
“Merger Integration Costs” in the accompanying Consolidated Statements of
      Operations.





**Results
      of Operations**





*The
      following discussion reflects our historical results for the
      fiscal*  *years
      ended June 29, 2005, June 28, 2006 and June 27, 2007. Our
      operating*  *results
      include the impact of Ryan’s operations and the impact of the
      related*  *refinancing
      of our indebtedness and Ryan’s indebtedness for the period
      November*  *1,
      2006 ( the acquisition date) through June 27, 2007, but exclude the
      impact*  *of
      Ryan’s operations and related refinancing for the fiscal years ended
      June*  *29,
      2005 and June 28, 2006. Our future results may not be consistent with
      our*  *historical
      results. The following discussion should be read in conjunction
      with*  *our
      restated consolidated financial statements and related notes included elsewhere
      in*  *this
      report.*





**Fiscal
      Year 2007 compared to Fiscal Year 2006**





**Year
                Ended****June
                28,**
              **2006**
            
            **June
                27,**
              **2007****(Dollars
                in thousands)****Significant
                items that impacted results of operations:**Credit
                card claim settlement (1)
            
            $
            (715
            )
            $
            —Shareholders’
                rights repurchase (2)
            
            
            757
            
            
            —Closed
                restaurant costs (3)
            
            
            6,023
            
            
            3,822Impairment
                of assets (4)
            
            
            5,964
            
            
            415Loss
                related to refinancing (5)
            
            
            647
            
            
            41,134Merger
                integration costs (6)
            
            
            —
            
            
            10,938Loss
                on sale leaseback transactions (7)
            
            
            —
            
            
            2,498Loss
                on litigation settlement (8)
            
            
            —
            
            
            7,641





(1)
                Credit
                    card claim settlement reflects funds received from the Visa
                    Check/MasterMoney Antitrust Litigation class action lawsuit.
                    The
                    settlement was recorded in “Direct and Occupancy Costs” in our
                    accompanying Consolidated Statement of
                    Operations.





(2)
            Shareholders’
                rights repurchase reflects the costs of the repurchase of certain
                rights
                associated with shares of common stock previously held by former
                management shareholders who separated from the
                Company.




27




(3)
            Closed
                restaurant costs were $3.8 million for fiscal 2007 as compared to
                $6.0
                million for fiscal 2006. The decrease was in large part due to the
                closure
                of eleven under performing Old Country Buffet ® and HomeTown Buffet®
                restaurants in fiscal 2007 compared with nineteen store closures
                in fiscal
                2006. During fiscal 2007, we incurred cash charges related to these
                store
                closures of approximately $1.7 million. These charges included
                approximately $1.1 million related to lease termination costs and
                obligations, $0.2 million related to employee termination costs and
                obligations, and $0.4 million related to other associated costs.
                In
                addition, non-cash charges related to these closures were approximately
                $0.4 million. The remaining charges of approximately $1.7 million
                relate
                to changes in reserve estimates related to previously closed stores,
                terminations of sublease agreements and other related costs. In addition,
                we closed eighteen Ryan’s® restaurants and three Fire Mountain®
                restaurants between November 1, 2006 (acquisition date) and June
                27, 2007.
                Charges related to these 21 restaurants were charged to goodwill
                pursuant
                to EITF 95-3,*Recognition
                of Liabilities in Connection with a Purchase**Business
                Combination.*See
                Note 10 — “Acquisitions” to our accompanying consolidated financial
                statements for further discussion of our merger with
                Ryan’s.





(4)
            We
                test property and equipment for impairment annually or whenever events
                or
                circumstances indicate that the carrying amount of a restaurant’s assets
                may not be recoverable. Assets are grouped and evaluated for impairment
                at
                the lowest level for which there are identifiable cash flows, namely
                as
                individual restaurants. During fiscal 2007 and 2006, we recognized
                losses
                of approximately $0.4 million and $6.0 million, respectively, related
                to
                impairments of the carrying value of our long-lived assets for one
                and 33
                under performing restaurant(s), respectively, as the carrying value
                of
                these long-lived assets exceeded their fair
                value.





(5)
              Effective
                  as of July 28, 2005, we entered into an amendment to our prior
                  credit
                  facility. In connection with this amendment, we incurred $0.6 million
                  in
                  transaction fees during the first quarter of fiscal 2006. On November
                  1,
                  2006, due to the merger with Ryan’s, we refinanced our long-term debt. In
                  connection with this refinancing, we wrote off approximately $31.6
                  million
                  of cumulative debt discount related to Buffets senior subordinated
                  notes
                  and Buffets Holdings senior discount notes and approximately $8.7
                  million
                  of debt issuance costs related to the predecessor credit facility,
                  senior
                  subordinated notes and senior discount notes. The remaining charges
                  represent transaction fees, including $0.8 million incurred in
                  conjunction
                  with an amendment to our credit facility in March 2007. See “Liquidity and
                  Capital Resources” elsewhere in this report for further details regarding
                  this amendment.





(6)
            Merger
                integration costs represent professional fees, performance bonuses
                and
                employee travel and expenses related to integration activities associated
                with the Ryan’s and North’s
                acquisitions.





(7)
            During
                the second quarter of fiscal 2007, we entered into a sale leaseback
                transaction whereby we transferred our leasehold interests and leasehold
                improvements with respect to seven restaurants to a third party for
                net
                proceeds of approximately $8.4 million. We simultaneously entered
                into
                long-term leases for those restaurants with an aggregate initial
                annual
                rent of approximately $0.9 million. In connection with this sale
                leaseback
                transaction, we recorded a loss of approximately $2.5 million primarily
                to
                reflect the impairment of certain of the properties for which the
                net
                proceeds were less than the book value of theleasehold
                assets. 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 approximately $0.9 million. The deferred gain will
                be
                accreted over the life of the respective restaurant leases, ranging
                from
                19-21 years.





(8)
            Loss
                on litigation settlement represents the costs associated with the
                settlement of a class action lawsuit against HomeTown Buffets, Inc.
                and
                OCB Restaurant Company, LLC. See “Item 2. Legal Proceedings” elsewhere in
                this report for further details. The settlement received preliminary
                court
                approval on September 12, 2007. While the Company is currently not
                able to
                predict the outcome of this action, the Company estimates that, should
                the
                court provide final approval of the settlement, we will pay approximately
                $7.2 million to resolve this matter. The remaining $0.4 represents
                attorney fees paid to our external counsel for services rendered
                through
                June 27, 2007 specifically related to negotiating this
                settlement.




28


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:





**Year
                Ended**
              **June
                28, 2006**
            
            **Year
                Ended**
              **June
                27 2007****(Dollars
                in thousands)**Restaurant
                sales
            
            $
            928,624
            
            
            100.0
            %
            $
            1,387,489
            
            
            100.0
            %Restaurant
                costs:Food
            
            
            316,040
            
            
            34.0
            
            
            480,686
            
            
            34.6Labor
            
            
            263,879
            
            
            28.4
            
            
            414,466
            
            
            29.9Direct
                and occupancy
            
            
            220,714
            
            
            23.8
            
            
            353,608
            
            
            25.5Total
                restaurant costs
            
            
            800,633
            
            
            86.2
            
            
            1,248,760
            
            
            90.0Advertising
                expenses
            
            
            30,637
            
            
            3.3
            
            
            33,896
            
            
            2.4General
                and administrative expenses
            
            
            42,077
            
            
            4.5
            
            
            60,405
            
            
            4.4Shareholders’
                rights repurchase
            
            
            757
            
            
            0.1
            
            
            —
            
            
            0.0Closed
                restaurant costs
            
            
            6,023
            
            
            0.6
            
            
            3,822
            
            
            0.3Impairment
                of assets
            
            
            5,964
            
            
            0.6
            
            
            415
            
            
            0.0Merger
                integration costs
            
            
            —
            
            
            0.0
            
            
            10,938
            
            
            0.8Loss
                on sale leaseback transactions
            
            
            —
            
            
            0.0
            
            
            2,498
            
            
            0.2Loss
                on litigation settlement
            
            
            —
            
            
            0.0
            
            
            7,641
            
            
            0.6Operating
                income
            
            
            42,533
            
            
            4.6
            
            
            19,114
            
            
            1.4Interest
                expense
            
            
            52,242
            
            
            5.6
            
            
            79,664
            
            
            5.7Interest
                income
            
            
            (375
            )
            
            (0.0
            )
            
            (215
            )
            
            (0.0
            )Loss
                related to refinancing
            
            
            647
            
            
            0.1
            
            
            41,134
            
            
            3.0Other
                income
            
            
            (994
            )
            
            (0.1
            )
            
            (936
            )
            
            (0.1
            )Loss
                before income taxes
            
            
            (8,987
            )
            
            (1.0
            )
            
            (100,533
            )
            
            (7.2
            )Income
                tax (benefit) expense
            
            
            (937
            )
            
            (0.1
            )
            
            17,071
            
            
            1.2Net
                loss from continuing operations
            
            
            (8,050
            )
            
            (0.9
            )
            
            (117,604
            )
            
            (8.5
            )Income
                from discontinued operations, net of tax of $1,396 and $579 in 2006
                and
                2007, respectively
            
            
            2,077
            
            
            0.2
            
            
            863
            
            
            0.1Net
                loss
            
            $
            (5,973
            )
            
            (0.6
            )
            $
            (116,741
            )
            
            (8.4
            )





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





*The
      following narrative should be read in conjunction with the
      significant*  *items
      that impacted results of operations discussed above.*





*Restaurant
      Sales.* Restaurant
      sales increased $458.9 million, or 49.4%, compared with the fiscal year ended
      June 28, 2006, primarily due to the Ryan’s acquisition. Excluding Ryan’s
      restaurant sales, restaurant sales decreased $20.9 million, or 2.3% during
      the
      2007 fiscal year.





Average
      weekly sales for fiscal 2007 for the Buffets brand restaurants increased
      approximately 0.9% to $53,290 as compared to the prior year. Same-store sales
      for fiscal 2007 decreased by 0.7% for the Buffets brand restaurants as compared
      to the prior year. This decrease was primarily attributable to a 3.3% decline
      in
      guest traffic, partially offset by a 2.6% increase in average check. Average
      weekly sales on a pro forma basis for fiscal 2007 for the Ryan’s brand
      restaurants decreased approximately 5.2% to $44,458. Same-store sales on a
      pro
      forma basis for fiscal 2007 for the Ryan’s brand restaurants, decreased by 6.3%.
      This decrease was primarily attributable to a 7.3% decline in guest traffic,
      partially offset by a 1.0% increase in average check. Same-stores sales
      calculations reflect those restaurants that have been in operation for at least
      eighteen operating periods.




*Restaurant
      Costs.* Restaurant
      costs for fiscal 2007 increased $448.1 million or 56.0% primarily due to the
      merger with Ryan’s. Restaurant costs as a percentage of sales increased 380
      basis points compared to the prior year. Excluding the restaurants acquired
      in
      the merger with Ryan’s, restaurant costs increased 220 basis points as a
      percentage of sales for the same time period.





Food
      costs increased $164.6 million, or 52.1%, during fiscal 2007 primarily due
      to
      the merger with Ryan’s. Food costs increased 60 basis points as a percentage of
      sales during fiscal 2007 as compared to the prior year. Excluding the
      restaurants acquired in the merger with Ryan’s, food costs increased 80 basis
      points, primarily due to higher commodity costs due to increases in corn prices
      as well as due to higher world-wide demand for cheese and dairy
      products.




29





Labor
      costs increased $150.6 million, or 57.1%, during fiscal 2007 primarily due
      to
      the merger with Ryan’s. Labor costs increased 150 basis points as a percentage
      of sales versus those experienced in the prior year primarily due to a higher
      labor complement in the Ryan’s system than our historical average labor
      complement. Excluding the restaurants acquired in the merger with Ryan’s, labor
      costs increased 80 basis points, primarily due to wage inflation as a result
      of
      minimum wage increases in several states effective January 1, 2007 and other
      modest wage increases.





Direct
      and occupancy costs increased $132.9 million, or 60.2%, primarily due to the
      merger with Ryan’s. Direct and occupancy costs increased by 170 basis points as
      a percentage of sales versus the comparable period in the prior year primarily
      due to higher direct and occupancy costs as a percentage of sales in the Ryan’s
      system than our historical average. Excluding the restaurants acquired in the
      merger with Ryan’s, direct and occupancy costs increased 60 basis points as a
      percentage of sales due to tightened sales leverage, resulting from the
      fixed-cost nature of our occupancy costs over a declining sales
      base.





*Advertising
      Expenses.* Advertising
      costs increased $3.3 million, or 10.6%, but decreased 90 basis points as a
      percentage of sales, during fiscal 2007 versus the prior year. Historically,
      Ryan’s did not incur significant media advertising expenditures. We intend to
      continue to test advertising at Ryan’s and, if successful, expect to expand our
      advertising plan to include Ryan’s going forward.





*General
      and Administrative Expenses.* General
      and administrative expenses increased $18.3 million, or 43.6%, primarily due
      to
      the merger with Ryan’s. General and administrative expenses were generally flat
      as a percentage of sales during fiscal 2007 as compared to prior
      year.





*Interest
      Expense.* Interest
      expense increased $27.4 million, or 10 basis points as a percentage of sales,
      during fiscal 2007 versus the prior year primarily due to higher interest rates
      on our term loans and higher accreted balances of our senior subordinated and
      senior discount notes for the first eighteen weeks of fiscal 2007, as well
      as
      the significant increase in our variable rate long-term debt balances as the
      result of our debt refinancing on November 1, 2006.





*Income
      Taxes.* Income
      tax (benefit)/expense increased 110 basis points as a percentage of sales for
      fiscal 2007 compared to fiscal 2006. This increase is largely attributable
      to a
      $45.5 million tax valuation allowance recorded against our deferred tax assets
      due to the large increase in loss before income taxes in fiscal 2007. Net
      deferred tax assets were $48.5 million, after adjusting for non-amortizing
      deferred tax liabilities related to Ryan’s intangible assets. The $45.5 million
      tax valuation allowance was derived by reducing the net deferred tax assets
      of
      $48.5 million by $3.0 million related to the expected deferred tax asset
      utilization from the proposed sale of our Tahoe Joe’s restaurants.





The
      decrease in the effective tax rate was primarily due to the $45.5 million charge
      to establish the tax valuation allowance discussed above. This increase in
      tax
      expense has a decremental impact on the effective tax rate relative to the
      statutory rate given our tax position reflected in our fiscal 2007 Consolidated
      Statement of Operations of net tax expense recognized on large pre-tax losses.
      The impact of this valuation allowance charge was offset in part by an increase
      in income tax benefit, principally due to the large increase in loss before
      income taxes and the favorable impact in the current fiscal year of repurchasing
      our outstanding 13 7/8% senior discount notes on November 1, 2006, as compared
      to the unfavorable historical impact of the non-deductible portion of the
      interest on these notes. The $45.5 million charge was further offset by the
      impact of general business credits, primarily related to the renewal of WOTC
      and
      other related tax credits by the U.S. Congress during our third fiscal quarter.
      As such, the effective tax rate applied to our pretax loss for fiscal 2007
      includes a cumulative catch-up on the backlog of credits that were on hold
      until
      the extension of the tax statute was signed into law. These favorable items
      offsetting the valuation allowance charge had an incremental impact on the
      effective tax rate in the current fiscal year given our tax position of net
      tax
      expense recognized on large pre-tax losses.




30


**Fiscal
      Year 2006 compared to Fiscal Year 2005**





**Year
                Ended****June
                29,**
              **2005**
            
            **June
                28,**
              **2006****(Dollars
                in thousands)****Significant
                items that impacted results of operations:**Credit
                card claim settlement (1)
            
            $
            —
            
            $
            (715
            )Shareholders’
                rights repurchase (2)
            
            
            —
            
            
            757Closed
                restaurant costs (3)
            
            
            2,909
            
            
            6,023Impairment
                of assets (4)
            
            
            3,609
            
            
            5,964Loss
                related to refinancing (5)
            
            
            856
            
            
            647Loss
                related to early extinguishment of debt (6)
            
            
            1,923
            
            
            —





(1)
            Credit
                card claim settlement reflects funds received from the Visa
                Check/MasterMoney Antitrust Litigation class action lawsuit. The
                settlement was recorded in “Direct and Occupancy Costs” in our
                accompanying Consolidated Statement of
                Operations.





(2)
            Shareholders’
                rights repurchase reflects the costs of the repurchase of certain
                rights
                associated with shares of common stock previously held by former
                management shareholders who separated from the
                Company.





(3)
            Closed
                restaurant costs were $6.0 million for fiscal 2006 as compared to
                $2.9
                million for the fiscal 2005. The increase was in large part due to
                the
                closure of nineteen under performing restaurants in fiscal 2006 compared
                with eleven store closures in fiscal 2005. We incurred charges related
                to
                these store closures of approximately $4.5 million and $2.1 million
                in
                fiscal 2006 and fiscal 2005, respectively. In addition, we incurred
                charges of approximately $1.5 million and $0.8 million in fiscal
                2006 and
                fiscal 2005, respectively, related to the termination of sublease
                agreements and other related costs.





(4)
            We
                test property and equipment for impairment annually or whenever events
                or
                circumstances indicate that the carrying amount of a restaurant’s assets
                may not be recoverable. Assets are grouped and evaluated for impairment
                at
                the lowest level for which there are identifiable cash flows, namely
                as
                individual restaurants. During fiscal 2006 and 2005, we recognized
                losses
                of approximately $6.0 million and $3.6 million, respectively, related
                to
                impairments of the carrying value of our long-lived assets for 33
                and 29
                under performing restaurants, respectively, as the carrying value
                of these
                long-lived assets exceeded their fair
                value.





(5)
            We
                incurred approximately $0.9 million of costs related to an initial
                public
                offering of Income Deposit Securities that was withdrawn due to
                unfavorable market conditions during the second quarter of fiscal
                2005.
                Effective as of July 28, 2005, we entered into an amendment to Buffets
                credit agreement and incurred $0.6 million in transaction fees in
                the
                first quarter of fiscal 2006.





(6)
            During
                the first quarter of fiscal 2005, we paid approximately $15.7 million
                to
                repurchase approximately $14.3 million of Buffets’ 11 1/4% senior
                subordinated notes at an average price of 106.7%. The difference
                between
                the premium purchase price and the discounted carrying value of the
                senior
                subordinated notes, as well as the associated write-off of debt issuance
                costs, was recognized as a loss related to the early extinguishment
                of
                debt.




31


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:





**Year
                Ended**
              **June
                29, 2005**
            
            **Year
                Ended**
              **June
                28, 2006****(Dollars
                in thousands)**Restaurant
                sales
            
            $
            891,208
            
            
            100.0
            %
            $
            928,624
            
            
            100.0
            %Restaurant
                costs:Food
            
            
            294,548
            
            
            33.1
            
            
            316,040
            
            
            34.0Labor
            
            
            267,630
            
            
            30.0
            
            
            263,879
            
            
            28.4Direct
                and occupancy
            
            
            212,307
            
            
            23.8
            
            
            220,714
            
            
            23.8Total
                restaurant costs
            
            
            774,485
            
            
            86.9
            
            
            800,633
            
            
            86.2Advertising
                expenses
            
            
            24,166
            
            
            2.7
            
            
            30,637
            
            
            3.3General
                and administrative expenses
            
            
            41,906
            
            
            4.7
            
            
            42,077
            
            
            4.5Shareholders’
                rights repurchase
            
            
            —
            
            
            —
            
            
            757
            
            
            0.1Closed
                restaurant costs
            
            
            2,909
            
            
            0.3
            
            
            6,023
            
            
            0.6Impairment
                of assets
            
            
            3,609
            
            
            0.4
            
            
            5,964
            
            
            0.6Operating
                income
            
            
            44,133
            
            
            5.0
            
            
            42,533
            
            
            4.6Interest
                expense
            
            
            48,100
            
            
            5.4
            
            
            52,242
            
            
            5.6Interest
                income
            
            
            (515
            )
            
            (0.1
            )
            
            (375
            )
            
            (0.0
            )Loss
                related to refinancing
            
            
            856
            
            
            0.1
            
            
            647
            
            
            0.1Loss
                related to early extinguishment of debt
            
            
            1,923
            
            
            0.2
            
            
            —
            
            
            —Other
                income
            
            
            (935
            )
            
            (0.1
            )
            
            (994
            )
            
            (0.1
            )Loss
                before income taxes
            
            
            (5,296
            )
            
            (0.6
            )
            
            (8,987
            )
            
            (1.0
            )Income
                tax benefit
            
            
            (1,363
            )
            
            (0.2
            )
            
            (937
            )
            
            (0.1
            )Net
                loss from continuing operations
            
            
            (3,933
            )
            
            (0.4
            )
            
            (8,050
            )
            
            (0.9
            )Income
                from discontinued operations, net of tax of $1,176 and $1,396 for
                2005 and
                2006, respectively
            
            
            1,749
            
            
            0.2
            
            
            2,077
            
            
            0.2Net
                loss
            
            $
            (2,184
            )
            
            (0.2
            )
            $
            (5,973
            )
            
            (0.6
            )





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





*The
      following narrative should be read in conjunction with the
      significant*  *items
      that impacted results of operations discussed above.*





*Restaurant
      Sales.* Restaurant
      sales increased $37.4 million, or 4.2%, compared with the fiscal year ended
      June
      29, 2005. Average weekly sales for fiscal 2006 of $52,838 were 6.5% higher
      than
      the prior year. Same-store sales for fiscal 2006 increased by 4.8% compared
      to
      the prior year, reflecting a 6.3% increase in average check, partially offset
      by
      a 1.5% decline in guest traffic. We believe high gasoline prices and rising
      mortgage interest rates have affected our target customers’ disposable income
      spending decisions and adversely impacted our guest counts. We believe this
      impact has been partially mitigated due to the popularity of our enhanced
      protein offerings.





*Restaurant
      Costs.* Restaurant
      costs for fiscal 2006 decreased 0.7% as a percentage of sales compared with
      the
      prior year. Food costs increased 0.9% as a percentage of sales primarily due
      to
      our steak and shrimp promotions, which commenced early in fiscal 2006. Our
      steak
      offerings were introduced in the first quarter of fiscal 2006 and were expanded
      system-wide in the second quarter and further expanded in frequency to
      six-to-seven days per week during the third quarter. In addition, we expanded
      the frequency of our shrimp offerings during fiscal 2006.





Labor
      costs were 1.6% lower as a percentage of sales in large part due to improved
      sales leverage, as well as a reduction in workers compensation costs as compared
      to the prior year. We have a large presence in the California market and a
      large
      part of our workers compensation reserve relates to claims in that state.
      Beginning January 1, 2003, a series of workers’ compensation medical reform
      bills were enacted in California in an effort to control rapidly increasing
      medical costs. The last of these reform bills was enacted in April 2004. In
      late
      2004 and early 2005, California’s Division of Workers’ Compensation implemented
      significant regulatory changes called for by the reform bills, that have
      subsequently resulted in an overall reduction in the number of claims and the
      average cost per claim in that state. These trends have favorably impacted
      our
      claims experience in the California market, resulting in reductions in our
      workers’ compensation insurance reserve totaling approximately $4.9 million
      during fiscal 2006.




32





Direct
      and occupancy costs were essentially flat in fiscal 2006 compared with fiscal
      2005. Our claims experience worsened during fiscal 2006 resulting in increases
      in our general liability insurance reserve totaling approximately $1.9
      million.





*Advertising
      Expenses.* Advertising
      costs increased 0.6% as a percentage of sales during fiscal 2006 versus the
      prior year as we significantly increased promotional advertising in conjunction
      with the expansion of our system-wide steak promotion during the second quarter.
      This heightened marketing commitment, resulting in media coverage for the
      majority of our owned steak-buffet units, served to announce the system-wide
      introduction of steak offerings. Television advertising was expanded into areas
      that had previously not received advertising. The scope of advertising was
      reduced in the third and fourth quarters to a level more consistent with prior
      years.





*General
      and Administrative Expenses.* General
      and administrative expenses decreased 0.2% as a percentage of sales during
      fiscal 2006 as compared to the prior year. This decrease was largely due to
      reasonably fixed costs on an improving sales base.





*Interest
      Expense.* Interest
      expense increased 0.2% as a percentage of sales during fiscal 2006 versus the
      prior year period primarily due to rising interest rates on our term loans
      and
      the impact of higher accretion of non-cash interest expense on our 13 7/8%
      senior discount notes.





*Income
      Taxes.*Income
      tax benefit decreased 0.1% as a percentage of sales for fiscal 2006 versus
      fiscal 2005 principally due to an increase in loss before income taxes as well
      as an increase in the effective tax rate. The change in the effective rate
      of
      5.1% for fiscal 2006 compared with 7.9% for the prior year was largely
      attributable to the impact of stable tax credits on declining pre-tax income.
      The variance between the effective tax rate and the statutory tax rate was
      largely attributable to the non-deductibility of a portion of the interest
      on
      our 13 7/8% senior discount notes. The increase in the accreted interest related
      to these notes caused the non-deductible portion of this interest to have a
      greater impact on the effective rate. In addition, the cumulative impacts of
      the
      conversion of one of our subsidiaries to a limited liability company (LLC)
      in
      the second quarter and the non-deductibility of the costs related to the
      repurchase of certain rights associated with shares of common stock previously
      held by former management shareholders who separated from us during the third
      quarter of fiscal 2006 increased tax (benefit) expense. Effective September
      22,
      2005, OCB Restaurant Co. was converted to OCB Restaurant Company, LLC. In
      conjunction with this LLC conversion, we recognized a cumulative charge of
      $368,000 to restate the carrying value of our deferred tax assets, to reflect
      a
      lower expected future tax rate. In conjunction with the shareholder rights
      repurchases, we recognized an income tax charge of $268,000. These increases
      in
      tax expense have a decremental impact on the effective tax rate relative to
      the
      statutory rate given our tax position of net tax benefits on pre-tax
      losses.





**Liquidity
      and Capital Resources**





We
      are a
      holding company with no operations or assets of our own other than the capital
      stock of our subsidiaries. Our operations are conducted through our
      subsidiaries. The terms of our credit facility place restrictions on Buffets’
ability to pay dividends and otherwise transfer assets to us. Further, the
      terms
      of the indenture governing Buffets’ 12 1/2% Senior Notes place restrictions on
      the ability of Buffets and our other subsidiaries to pay dividends and otherwise
      transfer assets to us.





Cash
      flows generated from our operating activities provide us with a significant
      source of liquidity. Our sales are primarily for cash or credit and settlement
      occurs within a few days. Our cash flow from operations is used for debt service
      payments, capital expenditures, including remodeling initiatives, payments
      to
      vendors and general corporate purposes. Vendors are paid on terms ranging from
      14 to 35 days. In addition to cash flows from operations, revolving credit
      loans
      and swingline loans are available to us under our credit facility. Letters
      of
      credit issued under the letter of credit facility are also available to us
      to
      support payment obligations incurred for our general corporate purposes. Our
      favorable vendor terms relative to the timing of our cash receipts allow us
      to
      voluntarily accelerate our debt repayments, which in turn causes a significant
      working capital deficit.





Our
      short-term and long-term liquidity needs arise primarily from principal and
      interest payments on our indebtedness, rent payments under our lease agreements,
      capital expenditures and working capital requirements, including development
      and
      construction of new restaurants, restaurant refurbishment and the installation
      of new information systems. We expect these requirements to continue in the
      foreseeable future.




33


*Operating
      Activities.* Net
      cash
      provided by operating activities in fiscal years 2007, 2006 and 2005 was $6.0
      million, $49.3 million and $52.7 million, respectively. The overall decline
      in
      2007 net cash provided by operating activities is primarily attributable to
      a
      $24.1 million increase in cash payments for interest, a $27.7 million increase
      in cash payments for income taxes and $10.9 million in non-capitalizable merger
      integration costs related to the merger with Ryan’s. Net cash provided by
      operating activities exceeded net loss for fiscal 2007 principally due to the
      effect of noncash depreciation and amortization, write-off of debt issuance
      costs, premiums expensed on our debt refinancing, accretion of original issue
      discount, the collection of a long term deposit of $10.0 million, and the
      liquidation of company owned life insurance contracts of $4.8 million. Net
      cash
      provided by operating activities exceeded net loss for fiscal 2006 principally
      due to the effect of noncash depreciation and amortization, accretion of
      original issue discount, and loss related to the impairment of
      assets.





*Investing
      Activities.* Net
      cash
      used in investment activities in fiscal years 2007, 2006 and 2005 was $180.6
      million, $32.7 million and $28.5 million, respectively. During fiscal 2007,
      our
      property and equipment related capital expenditures of $40.9 million represented
      remodeling and improvement cost on our existing restaurants. On August 1, 2006,
      our subsidiary, OCB Restaurant Company, LLC acquired certain assets and
      liabilities of North’s Restaurants, Inc. for approximately $3.4 million
      (including acquisition costs). On November 1, 2006, we acquired Ryan’s for net
      cash consideration paid of approximately $165.4 million (including acquisition
      costs). These uses of cash were partially offset by cash provided by our sale
      and leaseback of seven restaurants resulting in gross proceeds of $8.6 million
      and by our sale of twenty assets held for sale resulting in gross proceeds
      of
      $18.1 million. During fiscal 2006, remodeling and improvement costs on our
      existing restaurants accounted for approximately $26.3 million of our capital
      expenditures. The bulk of the remainder of our capital expenditures during
      fiscal 2006 was comprised of new construction expenditures.





*Financing
      Activities.*Net
      cash
      provided by financing activities in fiscal year 2007, was $159.1 million and
      net
      cash used in financing activities in fiscal years 2006 and 2005 was $17.0
      million and $29.6 million, respectively. During fiscal 2007, financing
      activities consisted primarily of borrowings of $543.0 million under our term
      loan and revolving facilities and the issuance by Buffets of $300.0 million
      of
      its 12 1/2% Senior Notes, offset in part by $183.4 million of term loan
      repayments, $180.8 million for the repurchase of Buffets 11 1/4% senior
      subordinated notes, $105.3 million for the repurchase of Buffets Holdings 13
      7/8% senior discount notes, and $145.0 million for the repayment of Ryan’s notes
      payable. In addition, we incurred $32.6 million in debt refinancing premiums
      and
      $36.9 million of debt issuance costs related to the refinancing of our credit
      facility and the issuance of our 12 1/2% senior notes. During fiscal 2006,
      financing activities primarily consisted of accelerated debt
      payments.





*Future
      Capital Expenditures.* During
      fiscal 2008, we plan to:





**§**
            Spend
                approximately $10 million to $19 million on remodeling and improvement
                costs that will be capitalized. These capital improvements will depend
                on
                the specific needs of the restaurants and the availability of liquidity
                through our existing credit lines. Remodels incorporate design elements
                to
                update the décor of our existing facilities including a lighter, more
                contemporary interior design and expanded dessert displays. Other
                improvement costs include a variety of outlays such as new carpet,
                equipment and minor leasehold improvements and display grill
                installations.





**§**
            Spend
                approximately $1 million on miscellaneous corporate and information
                systems investments.





**§**
            Spend
                approximately $10 million to $20 million on capital improvements
                specifically related to the restaurants we acquired in the Merger.
                These
                capital improvements will depend on the specific needs of the restaurants
                and the availability of liquidity through our existing credit lines.
                In
                addition, we plan to spend approximately $1 million to $3 million on the
                integration of Ryan’s that will not be
                capitalized.





Subject
      to continued compliance with the covenants in our Credit Facility, we believe
      that, for the next twelve months, 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. We continuously monitor compliance with the
      financial covenants in our Credit Facility and, as of June 27, 2007, were in
      compliance with these covenants. However, if circumstances were to change we
      will take actions necessary to mitigate such circumstances, including seeking
      waivers under, or amendments to, our Credit Facility.




34


**Credit
      Facilities and Other Long Term Debt**





*Credit
      Facility*





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





Effective
      as of March 13, 2007 (the “Restatement Date”), Buffets entered into an amendment
      to its Credit Facility. The amendment added a revolving loan feature to the
      Synthetic Letter of Credit Facility (cumulatively referred to as the “Synthetic
      Revolving Facility”), whereby the Company may secure letters of credit and/or
      revolving loans in an aggregate principal amount of $70 million. The amendment
      also relaxed the interest rate margins applicable to the Term Facility and
      Synthetic Revolving Facility, subject to a leverage-based pricing grid. In
      addition, the amendment added a repricing protection clause relating to the
      prepayment of term loans or synthetic revolving loans borrowed under the Credit
      Facility. The repricing protection provides that Buffets must pay a 1%
      prepayment premium on all such prepayments prior to March 13, 2008. No such
      prepayments have occurred as of June 27, 2007.





Borrowings
      under the Term Facility and Synthetic Revolving Facility bear interest at an
      adjusted LIBOR rate plus a margin of either 2.50%, 2.75% or 3.00% in the case
      of
      Eurodollar borrowings and at a certain alternate base rate plus a margin of
      either 1.50%, 1.75% or 2.00% in the case of alternate base rate borrowings,
      depending on Buffets’ leverage ratio, and borrowings under the Revolving
      Facility bear interest at an adjusted LIBOR rate plus a margin of 3.25% or
      at an
      alternate base rate plus a margin at 2.25%.





The
      borrowings due under the Term Facility are payable in equal quarterly
      installments in an annual amount equal to 1% of the term loan during each of
      the
      first six and a half years of the loan, with the remaining balance payable
      due
      on November 1, 2013. The Revolving Facility and the Synthetic Revolving Facility
      are not subject to interim scheduled principal payments. The Credit Facility
      is
      fully and unconditionally guaranteed by Buffets Holdings, which has no
      independent assets or operations except for the capital stock of Buffets, and
      its existing and future domestic subsidiaries and is secured by substantially
      all of the Company’s assets. The Credit Facility contains customary restrictive
      covenants, including limitations on dividends on, and redemptions and
      repurchases of, capital stock, liens and sale leaseback transactions, loans
      and
      investments, the incurrence of additional indebtedness and mergers, acquisitions
      and asset sales. In addition, the Credit Facility contains financial covenants,
      which require that we maintain a minimum interest coverage ratio and a maximum
      leverage ratio. These financial covenants become increasingly restrictive over
      time. Specifically, on September 20, 2007, our leverage ratio requirement
      becomes more restrictive as the current leverage ratio of 6.00 to 1.00 drops
      to
      5.75 to 1.00. As of June 27, 2007, there were no events of default and we were
      in compliance with all covenants. The Credit Facility also contains customary
      events of default. Borrowing availability under the Credit Facility and our
      ability to continue to issue letters of credit depends on there being no default
      or event of default under the Credit Facility and upon our continued compliance
      with the restrictive and financial covenants contained in the Credit Facility.
      For further discussion on these covenants, see “Item 1.A. Risk Factors/Forward
      Looking Statements — Risks related to our substantial Indebtedness and Other
      Liabilities.”





As
      of
      June 27, 2007, there was $528.7 million outstanding under the Term Facility,
      $8
      million outstanding under the Revolving Facility and $57.1 million outstanding
      letters of credit under the Synthetic Revolving Facility. The interest rate
      in
      effect under the Term Facility was 8.11% and the interest rate in effect under
      the Revolving Facility was 10.50%.





*12*  *1/2%
      Senior Notes*





On
      November 1, 2006, Buffets issued $300 million of its 12 1/2% Senior Notes by
      means of a private placement to qualified institutional buyers pursuant to
      Rule
      144A under the Securities Act of 1933, as amended (the “Securities Act”).
      Buffets filed a registration statement with the Securities and Exchange
      Commission to exchange all of its 12 1/2% Senior Notes due 2014 for identical
      notes registered under the Securities Act. The exchange offer was consummated
      on
      January 31, 2007. The 12 1/2% Senior Notes mature on November 1, 2014. Buffets
      pays interest on the 12 1/2% Senior Notes on January 1 and July 1 of each
      year.




35





Buffets
      has the option to redeem all or a portion of the 12 1/2% Senior Notes on or
      after November 1, 2010 at fixed prices that decline over time. Buffets also
      has
      the option to redeem up to 35% of the aggregate principal amount of the 12
      1/2%
      Senior Notes on or prior to November 1, 2009 with the proceeds of one or more
      equity offerings at a redemption price of 112.50% of the principal amount of
      the
      12 1/2% Senior Notes, if at least 65% of the aggregate principal amount of
      the
      12 1/2% Senior Notes are outstanding after each such redemption and such
      redemption is made not more than 90 days after the consummation of certain
      equity offerings. Upon certain change of control and asset disposition events
      as
      described in the Indenture, Buffets may be required to redeem the 12 1/2% Senior
      Notes at a purchase price equal to 101% in the case of change of control events,
      or 100% in the case of asset disposition events, of the principal amount of
      the
      12 1/2% Senior Notes. The 12 1/2% Senior Notes are unsecured senior obligations
      of Buffets and are jointly and severally guaranteed on a senior unsecured basis
      by each of its current and future domestic subsidiaries and Buffets Holdings,
      which has no independent assets or operations except for the capital stock
      of
      Buffets.





The
      Indenture contains customary covenants relating to restrictions on indebtedness,
      dividends on, and redemptions and repurchases of, capital stock, liens and
      sale
      leaseback transactions, loans and investments, debt and hedging arrangements,
      mergers, acquisitions and asset sales, transactions with affiliates and changes
      in business activities conducted by Buffets and certain subsidiaries. The
      Indenture also contains customary events of default. As of June 27, 2007, we
      were in compliance with all covenants and there were no events of
      default.





**Off-Balance
      Sheet Arrangements**





Our
      Company does not participate in any off-balance sheet arrangements.





**Contractual
      Obligations**





The
      following table provides aggregate information about our material contractual
      payment obligations and the fiscal year in which these payments are due. As
      a
      result of the Chapter 11 filing, our future obligations under these agreements
      may significantly change in the future. See Note 21 - “Subsequent Events” to the
      accompanying consolidated financial statements for further details.





**Payments
                Due by Fiscal Year****2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**
            
            **Thereafter**
            
            **Total****(in
                thousands)**Long-term
                debt (1)
            
            $
            6,625
            
            $
            5,300
            
            $
            5,300
            
            $
            3,975
            
            $
            5,300
            
            $
            802,175
            
            $
            828,675Interest
                (2)
            
            
            56,250
            
            
            37,500
            
            
            18,750
            
            
            37,500
            
            
            37,500
            
            
            106,250
            
            
            293,750Operating
                leases (3)
            
            
            113,082
            
            
            111,873
            
            
            106,392
            
            
            100,370
            
            
            94,472
            
            
            1,247,324
            
            
            1,773,513Advisory
                fees (4)
            
            
            4,000
            
            
            4,000
            
            
            4,000
            
            
            4,000
            
            
            4,000
            
            
            —
            
            
            20,000Purchase
                obligations (5)
            
            
            23,037
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            23,037Total
                contractual cash obligations
            
            $
            202,994
            
            $
            158,673
            
            $
            134,442
            
            $
            145,845
            
            $
            141,272
            
            $
            2,155,749
            
            $
            2,938,975





(1)
                Long-term
                    debt payments for fiscal years 2008 through 2011 represent the
                    required
                    principal payments on Buffets’ Term Facility. Long-term debt payments in
                    the “Thereafter” column represent the remaining principal amounts due on
                    Buffets’ Term Facility and the aggregate balance of Buffets’ 12 1/2%
                    Senior Notes. Debt payments could be accelerated upon violation
                    of debt
                    covenants. We believe the likelihood of debt covenant violations
                    to be
                    remote. See Note 9 — “Long-Term Debt” to our accompanying consolidated
                    financial statements for details of our long-term obligations.




36


(2)
              Amounts
                  represent contractual interest payments on Buffets’ 12 1/2% Senior Notes.
                  We pay interest on our 12 1/2% Senior Notes on January 1 and July
                  1 of
                  each year. Due to the timing of these payments in relation to our
                  fiscal
                  year-end, the number of interest payments made in any given year
                  could
                  vary. Interest payments on Buffets’ variable-rate Term Facility are
                  excluded due to unpredictability in applicable interest rates.
                  The
                  borrowings under the Term Facility and Synthetic Revolving Facility
                  bear
                  interest at an adjusted LIBOR rate plus a margin of either 2.50%,
                  2.75% or
                  3.00% in the case of Eurodollar borrowings and at a certain alternate
                  base
                  rate plus a margin of either 1.50%, 1.75% or 2.00% in the case
                  of
                  alternate base borrowings, depending on Buffets’ leverage ratio, and
                  borrowings under the Revolving Facility bear interest at an adjusted
                  LIBOR
                  rate plus a margin of 3.25% or at an alternate base rate plus a
                  margin of
                  2.25%. The Term Facility matures on November 1, 2013. Interest
                  payments
                  are due quarterly. The interest rate, at LIBOR plus 2.75%, was
                  8.11% as of
                  June 27, 2007. The borrowings due under the Term Facility are payable
                  in
                  equal quarterly installments in an annual amount equal to 1% of
                  the term
                  loan during each of the first six and a half years of the loan,
                  with the
                  remaining balance payable due on November 1, 2013. See Note 9 — “Long-Term
                  Debt” to our accompanying consolidated financial statements for details
                  of
                  our long-term obligations.





(3)
            Operating
                leases is comprised of minimum rents and contingent rents. Operating
                leases have not been reduced by minimum sublease rentals of approximately
                $8.5 million. See Note 17 — “Commitments and Contingencies” to our
                accompanying consolidated financial statements for details of our
                operating lease obligations.





(4)
            The
                advisory fees comprise our contractual obligation to pay annual advisory
                fees to each of Roe H. Hatlen, Sentinel Capital Partners, L.L.C.
                and the
                Caxton-Iseman Party. See Item 13 - “Certain Relationships and Related
                Transactions” elsewhere in this report for further discussion of these
                agreements. Under the terms of these agreements, Mr. Hatlen and Sentinel
                Capital are each paid a fixed annual fee. The fee of the Caxton-Iseman
                Party is calculated as a percentage of our earnings before interest,
                taxes, depreciation and amortization and is estimated to be approximately
                $3.6 million per year. The fee paid to each of Roe H. Hatlen and
                Sentinel
                Capital Partners, L.L.C. is fixed at $0.2 million per year. The agreements
                with the Caxton-Iseman Party and Sentinel Capital are of perpetual
                duration, and hence no estimate of the aggregate amount of future
                obligations (represented in the “Thereafter” column, above) is provided.





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





**Other
      Commercial Commitments**





As
      of
      June 27, 2007, Buffets had $57.1 million in outstanding letters of credit,
      which
      expire through April 7, 2008. As of June 27, 2007, total letter of credit
      borrowing availability was $32.9 million, which is comprised of additional
      availability of $12.9 million under our Synthetic Revolving Facility and $20
      million available through a sub facility to the Company’s Revolving Facility in
      the form of letters of credit.




37


**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. 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 are mitigated in
      our
      quarterly data presentations through the inclusion of sixteen weeks in the
      quarter ending in early April of each year, compared to only twelve or thirteen
      weeks in each of the other fiscal quarters. Our restaurant sales may also be
      affected by unusual weather patterns, particularly during the winter months,
      major world events or matters of public interest that compete for customers’
attention.





**New
      Accounting Standards**





In
        February 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standard (“SFAS”) No. 159, *The
        Fair Value*  *Option
        for Financial Assets and Liabilities* .
        This
        statement permits entities to choose to measure many financial instruments
        and
        certain other items at fair value. If the fair value option is elected,
        unrealized gains and losses will be recognized in earnings at each subsequent
        reporting date. SFAS No. 159 is effective for fiscal years beginning after
        November 15, 2007, which is our fiscal year 2009. We are currently evaluating
        the effect that the adoption of SFAS 159 will have on its consolidated results
        of operations and financial condition.





In
      September 2006, the FASB issued SFAS no. 158, *Employers’
      Accounting for*  *Defined
      Benefit Pension and Other Postretirement Plans* .
      This
      statement requires companies to recognize a net liability or asset and an
      offsetting adjustment to accumulated other comprehensive income to report the
      funded status of defined benefit pension and other postretirement benefit plans.
      The statement requires prospective application, and the recognition and
      disclosure requirements are effective for companies with fiscal years ending
      after December 15, 2006, which is our fiscal year 2007. Adoption of SFAS No.
      158
      did not have a material impact on the Company’s consolidated results of
      operations and financial condition.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      This
      statement defines fair value, establishes a framework for using fair value
      to
      measure assets and liabilities, and expands disclosures about fair value
      measurements. The statement applies whenever other statements requires or permit
      assets or liabilities to be measured at fair value. SFAS No. 157 is effective
      for fiscal years beginning after November 15, 2007, which is our fiscal year
      2009. We do not expect this standard to have a material impact on its
      consolidated results of operations and financial condition.





In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, *Considering
      the Effects of Prior Year Misstatements when quantifying*  *Misstatements
      in Current Year Financial Statements* ,
      which
      provides interpretive guidance regarding the consideration given to prior year
      misstatements when determining materiality in current year financial statements.
      SAB No. 108 is effective for fiscal years ending after November 15, 2006, which
      is our 2007 fiscal year. Adoption of SAB No. 108 did not have a material impact
      on our consolidated results of operations and financial condition.





In
      July
      2006, FASB Interpretation No. 48, *Accounting
      for Uncertainty in*  *Income
      Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”),* was
      issued. FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with FASB
      Statement No. 109, *Accounting
      for Income Taxes.* FIN
      48
      also prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. The new FASB standard also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosure, and transition. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006, which is the
      beginning of our fiscal year 2008. We are currently evaluating the effect that
      the adoption of FIN 48 will have on its consolidated results of operations
      and
      financial condition.





In
      March
      2006, the Emerging Issues Task Force (“EITF”) issued EITF Issue 06-3, *How
      Taxes Collected From Customers and Remitted to Governmental*  *Authorities
      Should Be Presented in the Income Statement (That Is Gross
      versus*  *Net
      Presentation)* .
      A
      consensus was reached that entities may adopt a policy of presenting sales
      taxes
      in the income statement on either a gross or net basis. If
      taxes
      are significant, an entity should disclose its policy of presenting taxes and
      the amounts of taxes. The guidance is effective for periods beginning after
      December 15, 2006, which our fiscal year 2008. We do not expect this standard
      to
      have a material impact on its consolidated results of operations and financial
      condition.




38


**ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISK**





**Quantitative
      and Qualitative Disclosures about Market Risk**





*Interest
      Rate Risks.* We
      have
      interest rate exposure relating to the variable portion of our long-term
      obligations, which were approximately $528.7 million at June 27, 2007. Buffets’
12 1/2% Senior Notes are fixed rate instruments, while the interest rate on
      the
      term loan under the Credit Facility is variable. A 1% change in interest rates
      on our variable rate debt would have resulted in our interest rate expense
      fluctuating by approximately $4.1 million for the fiscal year ended June 27,
      2007. In addition, we entered into a swap agreement to fix a portion of our
      variable rate interest. See Note 9 — “Long-Term Debt” to our accompanying
      consolidated financial statements for further discussion of this
      agreement.





*Food
      Commodity Risks.* Many
      of
      the food products purchased by us are affected by commodity pricing and are,
      therefore, subject to price volatility caused by weather, production problems,
      delivery difficulties and other factors that are outside our control. To control
      this risk in part, we have fixed price purchase commitments with terms of one
      year or less for some key food and supplies from vendors who supply our national
      food distributor. In addition, we believe that substantially all of our food
      and
      supplies are available from several sources, which helps to control food
      commodity risks. In the past, we have been able to increase menu prices, or
      vary
      the menu items offered, if needed, in order to offset food product price
      increases. However, we may not be able to recover increased costs in the future
      because competition may limit or prohibit such future increases. To compensate
      for a hypothetical price increase of 10% for food and beverages, we would need
      to increase menu prices by an average of approximately 3%. Our average menu
      price increase for fiscal 2006 was approximately 6%. Our average menu price
      increases for fiscal 2007 were 3% for our Buffet brand restaurants and 2.3%
      for
      our Ryan’s brand restaurants.




39


**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





**INDEX
      TO FINANCIAL STATEMENTS**


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**





**Page**Report
                  of Independent Registered Public Accounting Firm
              41Consolidated
                  Balance Sheets as of June 28, 2006 (Restated) and June 27, 2007
                  (Restated)
              42Consolidated
                  Statements of Operations for the Years Ended June 29, 2005, June
                  28, 2006
                  (Restated) and June 27, 2007 (Restated)
              43Consolidated
                  Statements of Shareholder’s Equity (Deficit) for the Years Ended June 29,
                  2005, June 28, 2006 (Restated) and June 27, 2007
                  (Restated)
              44Consolidated
                  Statements of Cash Flows for the Years Ended June 29, 2005, June
                  28, 2006
                  (Restated) and June 27, 2007 (Restated)
              45Notes
                  to Consolidated Financial Statements (Restated)
              47


40




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Shareholders of


Buffet
      Holdings, Inc. and Subsidiaries:




We
      have
      audited the accompanying consolidated balance sheets of Buffet Holdings, Inc.
      (a
      Delaware Corporation) and subsidiaries (the "Company") as of June 27, 2007
      and
      June 28, 2006, and the related consolidated statements of operations, changes
      in
      shareholders' deficit, and cash flows for each of the years ended June 27,
      2007,
      June 28, 2006, and June 29, 2005.  These consolidated financial statements
      are the responsibility of the Company's management.  Our responsibility is
      to express an opinion on these consolidated financial statements based on our
      audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require that
      we plan and perform the audit to obtain reasonable assurance about whether
      the
      financial statements are free of material misstatement.  The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting.  Our audits included consideration of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company's internal control
      over financial reporting.  Accordingly, we express no such
      opinion *.* An
      audit also includes examining, on a test basis, evidence supporting the amounts
      and disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, as well as evaluating the
      overall financial statement presentation.  We believe that our audits
      provide a reasonable basis for our opinion.




In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the financial position of Buffets Holdings, Inc. ** and
      subsidiaries as of June 27, 2007 and June 28, 2006, and the results of their
      operations and their cash flows for the years ended June 27, 2007, June 28,
      2006, and June 29, 2005 in conformity with accounting principles generally
      accepted in the United States of America.




As
        discussed in Note 20 to the consolidated financial statements, the
        accompanying consolidated financial statements for the years ended June 27,
        2007
        and June 28, 2006 have been restated.




As
        discussed in Note 21 to the consolidated financial statements, Buffets Holdings,
        Inc. and subsidiaries filed for reorganization under Chapter 11 of the United
        States Bankruptcy Code. The accompanying consolidated financial statements
        do
        not purport to reflect or provide for the consequences of the bankruptcy
        proceedings. In particular, such consolidated financial statements do not
        purport to show (1) as to assets, their realizable value on a liquidation
        basis or their availability to satisfy liabilities; (2) as to prepetition
        liabilities, the amounts that may be allowed for claims or contingencies,
        or the
        status and priority thereof; (3) as to stockholder accounts, the effect of
        any changes that may be made in the capitalization of the Company; or (4)
        as to
        operations, the effect of any changes that may be made in its
        business.


The
          accompanying consolidated financial statements have been prepared assuming
          that
          the Company will continue as a going concern.As discussed in Note 21 to
          the consolidated financial statements, the Company has incurred significant
          losses from operations, has negative working capital, and fell out of compliance
          with certain financial covenants included in its Pre-Pretition Credit Agreement.
          In addition, the ability of the Company to comply with the terms and conditions
          of the debtor-in-possession Credit Agreement, to obtain confirmation of
          a plan
          of reorganization under Chapter 11 of the United States Bankruptcy Code,
          to
          reduce administrative, operating and interest costs and liabilities through
          the
          bankruptcy process, to return to profitability, and to generate sufficient
          cash
          flow from operations, raise substantial doubt about its ability to continue
          as a
          going concern.  Management's plans concerning these matters are also
          discussed in Note 21 to the consolidated financial statements. The consolidated
          financial statements do not include adjustments that might result from
          the
          outcome of this uncertainty.




/s/
      Deloitte & Touche




Minneapolis,
      Minnesota


September
        24, 2007 (March 31, 2008, as to the effects of the restatement discussed
        in Note
        20, and Note 21)




41


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





**As
                  Restated - S****ee
                  Note 20**
              
              **As
                  Restated -**
                **See
                  Note 20****June
                  28,**
                **2006**
              
              **June
                  27,**
                **2007****(In
                  thousands, except share data)****ASSETS**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              20,194
              
              $
              4,645Receivables
              
              
              4,879
              
              
              10,219Income
                  tax receivable
              
              
              117
              
              
              13,324Inventories
              
              
              18,226
              
              
              32,087Prepaid
                  expenses and other current assets
              
              
              5,314
              
              
              8,632Deferred
                  income taxes (Note 15)
              
              
              10,324
              
              
              3,000Assets
                  held for sale
              
              
              —
              
              
              34,959Current
                  assets related to discontinued operations
              
              
              795
              
              
              14,117Total
                  current assets
              
              
              59,849
              
              
              120,983PROPERTY
                  AND EQUIPMENT, net (Note 5)
              
              
              132,287
              
              
              221,092GOODWILL
              
              
              312,163
              
              
              497,492OTHER
                  INTANGIBLE ASSETS (Note 6)
              
              
              —
              
              
              83,998DEFERRED
                  INCOME TAXES (Note 15)
              
              
              12,482
              
              
              —OTHER
                  ASSETS, net (Note 7)
              
              
              11,194
              
              
              37,092Non-current
                  assets related to discontinued operations
              
              
              9,437
              
              
              412Total
                  assets
              
              $
              537,412
              
              $
              961,069**LIABILITIES
                  AND SHAREHOLDER’S DEFICIT**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              48,101
              
              $
              81,090Accrued
                  liabilities (Note 8)
              
              
              67,166
              
              
              132,783Income
                  taxes payable (Note 15)
              
              
              7,094
              
              
              24,336Short-term
                  debt
              
              
              —
              
              
              13,000Current
                  maturities of long-term debt
              
              
              1,862
              
              
              6,625Current
                  liabilities related to discontinued operations
              
              
              1,178
              
              
              1,137Total
                  current liabilities
              
              
              125,401
              
              
              258,971LONG-TERM
                  DEBT, net of current maturities (Note 9)
              
              
              460,652
              
              
              822,050DEFERRED
                  INCOME TAXES (Note 15)
              
              
              —
              
              
              33,456DEFERRED
                  LEASE OBLIGATIONS
              
              
              28,356
              
              
              38,209OTHER
                  LONG-TERM LIABILITIES
              
              
              7,355
              
              
              9,341Total
                  liabilities
              
              
              621,764
              
              
              1,162,027COMMITMENTS
                  AND CONTINGENCIES (Note 17)SHAREHOLDER’S
                  DEFICIT:Preferred
                  stock, $.01 par value; 1,100,000 shares authorized; none issued
                  and
                  outstanding as of June 28, 2006 and June 27, 2007
              
              
              —
              
              
              —Common
                  stock, $.01 par value; 3,600,000 shares authorized; shares issued
                  and
                  outstanding of 3,104,510 as of June 28, 2006 and June 27,
                  2007
              
              
              31
              
              
              31Additional
                  paid in capital
              
              
              5
              
              
              82Accumulated
                  deficit
              
              
              (84,388
              )
              
              (201,129
              )Accumulated
                  other comprehensive income
              
              
              —
              
              
              58Total
                  shareholder’s deficit
              
              
              (84,352
              )
              
              (200,958
              )Total
                  liabilities and shareholder’s deficit
              
              $
              537,412
              
              $
              961,069





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


42


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**For
                the Year Ended****As
                Restated -**
              **See
                Note 20**
            
            **As
                Restated -**
              **See
                Note 20****June
                29,**
              **2005**
            
            **June
                28,**
              **2006**
            
            **June
                27,**
              **2007****(In
                thousands)**RESTAURANT
                SALES
            
            $
            891,208
            
            $
            928,624
            
            $
            1,387,489RESTAURANT
                COSTS:Food
            
            
            294,548
            
            
            316,040
            
            
            480,686Labor
            
            
            267,630
            
            
            263,879
            
            
            414,466Direct
                and occupancy
            
            
            212,307
            
            
            220,714
            
            
            353,608Total
                restaurant costs
            
            
            774,485
            
            
            800,633
            
            
            1,248,760ADVERTISING
                EXPENSES
            
            
            24,166
            
            
            30,637
            
            
            33,896GENERAL
                AND ADMINISTRATIVE EXPENSES
            
            
            41,906
            
            
            42,077
            
            
            60,405SHAREHOLDERS’
                RIGHTS REPURCHASE
            
            
            —
            
            
            757
            
            
            —CLOSED
                RESTAURANT COSTS
            
            
            2,909
            
            
            6,023
            
            
            3,822IMPAIRMENT
                OF ASSETS
            
            
            3,609
            
            
            5,964
            
            
            415MERGER
                INTEGRATION COSTS
            
            
            —
            
            
            —
            
            
            10,938LOSS
                ON LITIGATION SETTLEMENT
            
            
            —
            
            
            —
            
            
            7,641LOSS
                ON SALE LEASEBACK TRANSACTIONS
            
            
            —
            
            
            —
            
            
            2,498OPERATING
                INCOME
            
            
            44,133
            
            
            42,533
            
            
            19,114INTEREST
                EXPENSE
            
            
            48,100
            
            
            52,242
            
            
            79,664INTEREST
                INCOME
            
            
            (515
            )
            
            (375
            )
            
            (215
            )LOSS
                RELATED TO REFINANCING
            
            
            856
            
            
            647
            
            
            41,134LOSS
                RELATED TO EARLY EXTINGUISHMENT OF DEBT
            
            
            1,923
            
            
            —
            
            
            —OTHER
                INCOME
            
            
            (935
            )
            
            (994
            )
            
            (936
            )LOSS
                BEFORE INCOME TAXES
            
            
            (5,296
            )
            
            (8,987
            )
            
            (100,533
            )INCOME
                TAX (BENEFIT) EXPENSE
            
            
            (1,363
            )
            
            (937
            )
            
            17,071Loss
                from continuing operations
            
            
            (3,933
            )
            
            (8,050
            )
            
            (117,604
            )Net
                income from discontinued operations, net of tax of $1,176, $1,396
                and $579
                for 2005, 2006, and 2007, respectively
            
            
            1,749
            
            
            2,077
            
            
            863Net
                loss
            
            $
            (2,184
            )
            $
            (5,973
            )
            $
            (116,741
            )





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




43


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDER’S DEFICIT**




**Preferred
                  Stock**
              
              
              **Common
                  Stock**
              
              
              **Additional**
                **Paid-In**
              
              
              **Accumulated**
              
              
              **Accumulated**
                **Other**
                **Comprehensive****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Deficit**
              
              
              **Income**
              
              
              **Total****(In
                  thousands, except share data)****BALANCE,
                  June 30, 2004**
              
              
              —
              
              $
              —
              
              
              3,185,672
              
              $
              32
              
              $
              —
              
              $
              (75,948
              )
              $
              —
              
              $
              (75,916
              )Issuance
                  of stock
              
              
              —
              
              
              —
              
              
              144,150
              
              
              1
              
              
              14
              
              
              —
              
              
              —
              
              
              15Purchase
                  of treasury stock
              
              
              —
              
              
              —
              
              
              (154,687
              )
              
              (1
              )
              
              —
              
              
              (283
              )
              
              —
              
              
              (284
              )Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (2,184
              )
              
              —
              
              
              (2,184
              )**BALANCE,
                  June 29, 2005**
              
              
              —
              
              
              —
              
              
              3,175,135
              
              
              32
              
              
              14
              
              
              (78,415
              )
              
              —
              
              
              (78,369
              )Purchase
                  of treasury stock
              
              
              —
              
              
              —
              
              
              (70,625
              )
              
              (1
              )
              
              (9
              )
              
              —
              
              
              —
              
              
              (10
              )Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (5,973
              )
              
              —
              
              
              (5,973
              )**BALANCE,
                  June 28, 2006 (As Restated - See Note 20)**
              
              
              —
              
              
              —
              
              
              3,104,510
              
              
              31
              
              
              5
              
              
              (84,388
              )
              
              —
              
              
              (84,352
              )Comprehensive
                  income (loss):Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (116,741
              )
              
              —
              
              
              (116,741
              )Other
                  comprehensive income:Change
                  in fair value of derivatives, net of tax of $35
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              58
              
              
              58Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (116,683
              )Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              77
              
              
              —
              
              
              —
              
              
              77**BALANCE,
                  June 27, 2007 (As Restated - See Note 20)**
              
              
              —
              
              $
              —
              
              
              3,104,510
              
              $
              31
              
              $
              82
              
              $
              (201,129
              )
              $
              58
              
              $
              (200,958
              )





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


44


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**For
                  the Year Ended****As
                  Restated -**
                **See
                  Note 20**
              
              **As
                  Restated -**
                **See
                  Note 20****June
                  29,**
                **2005**
              
              **June
                  28,**
                **2006**
              
              **June
                  27,**
                **2007****(In
                  thousands)**OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (2,184
              )
              $
              (5,973
              )
              $
              (116,741
              )Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              32,247
              
              
              32,067
              
              
              40,836Amortization
                  of debt issuance costs
              
              
              1,386
              
              
              1,532
              
              
              4,032Accretion
                  of original issue discount
              
              
              11,906
              
              
              13,336
              
              
              5,623Loss
                  related to refinancing:Write-off
                  of debt issuance costs
              
              
              —
              
              
              —
              
              
              8,686Refinancing
                  premiums expensed
              
              
              —
              
              
              —
              
              
              31,599Loss
                  related to early extinguishment of debt
              
              
              1,923
              
              
              —
              
              
              —Deferred
                  tax benefit
              
              
              (3,780
              )
              
              (2,078
              )
              
              (1,533
              )Loss
                  on disposal of assets
              
              
              2,280
              
              
              1,218
              
              
              1,326Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              77Impairment
                  of assets
              
              
              3,609
              
              
              5,964
              
              
              415Loss
                  on sale leaseback transactions
              
              
              —
              
              
              —
              
              
              2,498Changes
                  in assets and liabilities:Receivables
              
              
              331
              
              
              1,753
              
              
              (891
              )Inventories
              
              
              (683
              )
              
              (703
              )
              
              (763
              )Prepaid
                  expenses and other current assets
              
              
              (1,074
              )
              
              1,283
              
              
              20,294Accounts
                  payable
              
              
              1,704
              
              
              2,189
              
              
              15,388Accrued
                  and other liabilities
              
              
              2,551
              
              
              (1,270
              )
              
              6,197Income
                  taxes receivable/payable
              
              
              2,459
              
              
              (13
              )
              
              (11,074
              )Net
                  cash provided by operating activities
              
              
              52,675
              
              
              49,305
              
              
              5,969INVESTING
                  ACTIVITIES:Proceeds
                  from sale leaseback transactions
              
              
              —
              
              
              —
              
              
              8,608Proceeds
                  from sale of assets held for sale
              
              
              —
              
              
              —
              
              
              18,113Purchase
                  of property and equipment
              
              
              (29,131
              )
              
              (31,346
              )
              
              (40,875
              )Collections
                  on notes receivable
              
              
              733
              
              
              1,062
              
              
              1,753Acquisitions,
                  net of liabilities assumed and cash acquired
              
              
              —
              
              
              —
              
              
              (168,848
              )(Purchase)
                  Proceeds from sale of other assets
              
              
              (73
              )
              
              (2,438
              )
              
              641Net
                  cash used in investing activities
              
              
              (28,471
              )
              
              (32,722
              )
              
              (180,608
              )




45




**For
                the Year Ended****As
                Restated -**
              **See
                Note 20**
            
            **As
                Restated -**
              **See
                Note 20****June
                29,**
              **2005**
            
            **June
                28,**
              **2006**
            
            **June
                27,**
              **2007****(In
                thousands)**FINANCING
                ACTIVITIES:Repayment
                of previous term loan facility
            
            $
            (29,781
            )
            $
            (17,016
            )
            $
            (182,053
            )Repurchase
                of 11 1/4% senior subordinated notes
            
            
            —
            
            
            —
            
            
            (180,778
            )Repurchase
                of 13 7/8% senior discount notes
            
            
            —
            
            
            —
            
            
            (105,306
            )Repayment
                of Ryan’s debt
            
            
            —
            
            
            —
            
            
            (145,000
            )Proceeds
                from term loan funding
            
            
            —
            
            
            —
            
            
            530,000Repayment
                of term loan funding
            
            
            —
            
            
            —
            
            
            (1,325
            )Proceeds
                from new revolver facility
            
            
            —
            
            
            —
            
            
            13,000Purchase
                of treasury stock
            
            
            (284
            )
            
            (10
            )
            
            —Proceeds
                from issuance of common stock
            
            
            15
            
            
            —
            
            
            —Proceeds
                from 12 1/2% senior note issuance
            
            
            —
            
            
            —
            
            
            300,000Reduction
                of restricted cash available for early extinguishment of
                debt
            
            
            16,228
            
            
            —
            
            
            —Use
                of restricted cash for early extinguishment of debt
            
            
            (15,736
            )
            
            —
            
            
            —Payment
                of refinancing premiums
            
            
            —
            
            
            —
            
            
            (32,554
            )Debt
                issuance costs
            
            
            (56
            )
            
            —
            
            
            (36,894
            )Net
                cash (used in) provided by financing activities
            
            
            (29,614
            )
            
            (17,026
            )
            
            159,090NET
                CHANGE IN CASH AND CASH EQUIVALENTS
            
            
            (5,410
            )
            
            (443
            )
            
            (15,549
            )CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            26,047
            
            
            20,637
            
            
            20,194CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            20,637
            
            $
            20,194
            
            $
            4,645SUPPLEMENTAL
                CASH FLOW INFORMATION:Cash
                paid during the period for:Interest
                (net of capitalized interest of $538, $330 and $402,
                respectively)
            
            $
            32,530
            
            $
            37,242
            
            $
            61,370Income
                taxes
            
            $
            1,130
            
            $
            2,549
            
            $
            30,241





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




46


**BUFFETS
      HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(As
      Restated)**





**1.
      Nature of Organization**





*Company
      Background*





Buffets
      Holdings, Inc., a Delaware corporation, was formed to acquire 100 percent of
      the
      common stock of Buffets, Inc. and its subsidiaries in a buyout from public
      shareholders on October 2, 2000 (the Acquisition). Buffets Holdings, Inc. and
      subsidiaries (Buffets Holdings) and Buffets, Inc. and subsidiaries (“Buffets”)
      are collectively referred to as “the Company” in these Notes to Consolidated
      Financial Statements. Buffets, a Minnesota corporation, is the principal
      operating subsidiary of Buffets Holdings.





On
      December 29, 2005, Buffets Holdings announced that its stockholders formed
      Buffets Restaurants Holdings, Inc. (“Buffets Restaurant Holdings”) and entered
      into a contribution agreement with Caxton-Iseman Investments, L.P., Sentinel
      Capital Partners II, L.P., members of Buffets Holdings senior management and
      Buffets Restaurants Holdings (the “Contribution Agreement”). Pursuant to the
      terms of the Contribution Agreement, holders of 100% of Buffets Holdings’
outstanding common stock contributed their shares of common stock of Buffets
      Holdings to Buffets Restaurants Holdings in exchange for proportional amounts
      of
      Buffets Restaurants Holdings common stock. As a result of the share exchange,
      Buffets Holdings is majority-owned by Buffets Restaurants Holdings.





*Description
      of Business*





The
      Company owns and operates a chain of restaurants in the United States under
      the
      names of Ryan’s®, Fire Mountain®, North’s®, Old Country Buffet®, Country
      Buffet®, HomeTown Buffet®, Granny’s Buffet(SM) and Tahoe Joe’s Famous
      Steakhouse®. The Company, operating principally in the family dining segment,
      owned and operated 642 restaurants, including 632 steak-buffet restaurants
      and
      ten Tahoe Joe’s Famous Steakhouse® restaurants, and franchised eighteen
      restaurants operating as of June 27, 2007.





*Buffets
      Franchise Holdings, LLC*





Buffets
      Franchise Holdings, LLC, a Minnesota corporation, was formed on March 12, 2007
      to franchise buffet-style restaurants, primarily operating under the HomeTown
      Buffet® tradename. The Company does not directly own or operate any restaurants,
      and through June 27, 2007, has not entered into any franchise
      arrangements.





The
      Company has completed the documentation required to franchise the HomeTown
      Buffet® brand and has filed the required registration forms with appropriate
      state and federal agencies. Filing these documents allows the HomeTown Buffet®
brand to be offered to franchise candidates in 38 states and the District of
      Columbia. The Company’s primary focus for the near term will be identifying
      highly qualified multi-unit restaurant operators in the states of Florida,
      Nevada, Arizona, New Mexico, Utah, and once registered, California.





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





On
      November 1, 2006, Buffets and Ryan’s Restaurant Group, Inc. (“Ryan’s”),
      announced the completion of the previously announced merger between Buffets
      Southeast, Inc., a South Carolina corporation and wholly-owned subsidiary of
      Buffets, and Ryan’s, also a South Carolina corporation, in a cash transaction
      valued at approximately $834.0 million, including debt that was repaid at
      closing. Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”),
      dated as of July 24, 2006 by and among Buffets, Ryan’s and Buffets Southeast,
      Inc., Buffets Southeast, Inc. merged with and into Ryan’s, with Ryan’s remaining
      as the surviving corporation (the “Merger”). As a result of the Merger, Ryan’s
      became a wholly-owned subsidiary of Buffets. Buffets, headquartered in Eagan,
      Minnesota, now operates 642 restaurants in 39 states, principally under the
      Ryan’s®, Fire Mountain®, Old Country Buffet® and HomeTown Buffet®
brands.





At
      the
      effective time of the Merger, each issued and outstanding share of Ryan’s common
      stock, par value $1.00 per share, was canceled and automatically converted
      into
      the right to receive $16.25 in cash, without interest. Also, at the effective
      time of the Merger, each outstanding option to purchase Ryan’s common stock (all
      of which had vested or vested as a consequence of the Merger) was canceled
      and
      automatically converted into the right to receive the excess, if any, of $16.25
      over the option exercise price.




47





In
      conjunction with the Merger, Buffets refinanced its outstanding indebtedness
      by:




**•**
            securing
                a new $640.0 million senior secured credit agreement (the “Credit
                Facility”) comprised of (i) a $530.0 million senior secured term loan (the
                “Term Facility”), (ii) a $40.0 million senior secured revolving credit
                facility (the “Revolving Facility”), and (iii) a $70.0 million senior
                secured pre-funded synthetic letter of credit facility (see Note
                9 —
                “Long-Term Debt” for details regarding the subsequent conversion of this
                facility to a synthetic revolving facility),
                and





**•**
            issuing
                $300.0 million of its 12 1/2% senior notes due 2014 (the “12 1/2% Senior
                Notes”) pursuant to an indenture dated November 1, 2006 (the
                “Indenture”).





Buffets
      used the proceeds of (i) $530.0 million from borrowings under the Term Facility,
      (ii) $5.0 million from borrowings under the Revolving Facility, (iii) $300.0
      million from the issuance of its 12 1/2% Senior Notes, (iv) $566.8 million
      from
      a sale leaseback transaction whereby it sold the land (or, in certain cases,
      underlying ground leases) and related improvements with respect to approximately
      275 Ryan’s restaurants and seven Buffets restaurants and simultaneously leased
      the properties back, (the “Sale Leaseback Transaction”) and approximately (v)
      $9.0 million of cash on hand to:





**•**
            pay
                $704.6 million to purchase the outstanding shares of Ryan’s common
                stock,





**•**
            repay
                $146.9 million of Ryan’s outstanding debt (including accrued interest and
                breakage fees),





**•**
            repay
                $196.4 million of existing indebtedness of Buffets under its existing
                credit facility (including accrued interest and breakage
                fees),





**•**
            repurchase
                or redeem $195.3 million of Buffets’ 11 1/4% senior subordinated notes
                (including accretion of original issue discount and early redemption
                premiums),





**•**
            repurchase
                $121.5 million of Buffets Holdings’ 13 7/8% senior discount notes
                (including accretion of original issue discount and early redemption
                premiums), and





**•**
            pay
                approximately $46.1 million for transaction fees and expenses.





In addition
        to the fees and expenses paid at closing, the Company incurred approximately
        $31.2 million of transaction closing fees and expenses that were paid subsequent
        to the transaction close date.





In
      the
      Sale Leaseback Transaction, Buffets and Ryan’s, as applicable, conveyed the land
      (or, in certain cases, underlying ground leases) and related improvements with
      respect to those properties to the buyer/lessor, and simultaneously leased
      those
      properties back pursuant to unitary and individual leases, each for an initial
      lease term of approximately 20 years, with four renewal terms of five years,
      except with respect to ground lease sites. The purchase price for the portfolio
      of sale leaseback properties was approximately $566.8 million. The annual net
      rent payable under the leases is equal to the purchase price multiplied by
      a
      10.15% cap rate, subject to annual increases of two times the Consumer Price
      Index, as defined therein, (but in no event greater than 2%), and, if the term
      of the leases are renewed, subject to further increases during some of the
      renewal terms based upon the then current fair market rental value. See Note
      5 —
“Property and Equipment” for further discussion of the Sale Leaseback
      Transaction.





*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 52 or 53 weeks divided into four fiscal
      quarters of twelve, twelve, sixteen, and twelve or thirteen weeks, respectively.
      All references herein to “2007” represent the 52-week period ended June 27,
      2007. All references herein to “2006” represent the 52-week period ended June
      28, 2006. All references herein to “2005” represent the 52-week period ended
      June 29, 2005.




48





*Reclassifications*





Certain
      amounts shown in the prior-period consolidated financial statements have been
      reclassified to conform with the current period consolidated financial statement
      presentation. Specifically, certain account balances and activity related to
      the
      Company’s ten Tahoe Joe’s locations have been reclassified to discontinued
      operations. See Note 11 — “Discontinued Operations” for details on the account
      balances and activity reclassified. These reclassifications had no effect on
      net
      income (loss) or shareholder’s equity (deficit) as previously
      presented.





**2.
      Summary of Significant Accounting Policies**





*Cash
      and Cash Equivalents*





Investments
      with original maturities of three months or less are considered to be cash
      equivalents and are recorded at cost, which approximates market value. Cash
      equivalents consist principally of commercial paper and money market
      funds.





*Receivables*





Receivables
      primarily consist of credit card receivables, landlord receivables and vendor
      rebates. Landlord receivables represent the portion of costs for leasehold
      improvements remaining to be reimbursed by landlords at year-end. Vendor rebates
      result from discounts on purchases negotiated with the vendors. Rebates are
      recorded as a reduction to food costs in the statement of operations as the
      associated food cost is recognized.





*Inventories*





Inventories,
      consisting primarily of food, beverage, china and smallwares for each restaurant
      location, are stated at the lower of cost or market. Cost is determined by
      the
      first-in, first-out method (FIFO) for food and beverage inventories. China
      and
      smallwares are stated at their original cost and subsequent additions and
      replacements are expensed as purchased.





*Property
      and Equipment*





Property
      and equipment are stated at cost. Depreciation is accounted for using the
      straight-line method. Equipment is depreciated over estimated useful lives,
      ranging from three to ten years. Leasehold improvements are amortized over
      the
      shorter of their useful lives or terms of the related leases, which are
      generally ten to fifteen years. Buildings are depreciated over estimated useful
      lives, generally 39 1/2 years.





Normal
      maintenance and repairs are charged to expense as incurred. Major improvements
      to buildings and equipment, which extend the useful life of an item, are
      capitalized and depreciated. The cost and accumulated depreciation of property
      and equipment retired or otherwise disposed of are removed from the related
      accounts, and any residual values are charged or credited to
      income.





*Assets
      Held for Sale*





During
      2007, the Company acquired certain properties which have been identified as
      “Assets Held for Sale” in the Consolidated Balance Sheets, pursuant to SFAS No.
      144, *Accounting
      for the Impairment or Disposal of*  *Long-Lived
      Assets.* The
      Company wrote down the carrying values of such assets to estimated net selling
      price as part of the purchase price allocation. Depreciation is no longer
      recorded on assets held for sale. Net selling price is estimated as the amount
      at which the asset could be bought or sold (fair value) less costs to sell.
      Fair
      value is determined at prevailing market conditions, appraisals or current
      estimated net sales proceeds from pending offers, if appropriate. The fair
      value
      of the Company’s assets held for sale primarily relates to land values. The
      Company expects to dispose of these assets within twelve months.





The
      Company continues to evaluate the assets in its total portfolio as well as
      to
      pursue an orderly disposition of its held for sale assets. There can be no
      assurance if or when sales will be completed or whether such sales will be
      completed on terms that will enable the Company to realize the full carrying
      value of such assets.




49


*Debt
      Issuance Costs*





Debt
      issuance costs are amortized to interest expense over the term of the related
      financing using the effective interest method. In the event of early debt
      repayment, the capitalized debt issuance costs are written off to other expense
      as a loss on early extinguishment of debt.





*Goodwill
      and Other Intangible Assets*





The
        Company tests the recoverability of goodwill and other intangible assets
        annually or whenever events or circumstances indicate that the carrying amount
        may not be recoverable. Goodwill and other intangible assets are deemed to
        be
        impaired if the fair value of a reporting unit is less than its carrying
        value.
        If goodwill or other intangible assets are determined to be impaired, the
        loss
        is measured as the amount by which the carrying amount of a reporting unit’s
        goodwill exceeds its implied fair value. The fair value of a reporting unit
        is
        an estimate based on assumptions regarding its future cash flows. In the
        event
        that these assumptions change in the future, the Company may be required
        to
        record impairment charges related to its goodwill or other intangible assets.
        No
        impairment charges were recorded in fiscal years 2005, 2006 or
        2007.


Goodwill
            increased from approximately $312.2 million as of June 28, 2006 to
            approximately $497.5 million as of June 27, 2007. The increase of $185.3
            million
            is the result of the additional goodwill from the Ryan’s acquisition of
            approximately $187.6 million and a decrease in Buffets' goodwill of $2.3
            million
            related to an adjustment to deferred income taxes originally established in
            fiscal year 2000 related to the Acquisition.See Note 10 – “Acquisitions”
to the accompanying consolidated financial statements for further
            discussion
            regarding the goodwill and other intangibles assets associated with this
            transaction.




*Long-Lived
      Assets*





The
      Company tests property and equipment for impairment annually or whenever events
      or circumstances indicate that the carrying amount of a restaurant’s assets may
      not be recoverable. The Company tests for impairment using historical cash
      flows
      and other relevant facts and circumstances as the primary basis for its
      estimates of future cash flows. Assets are grouped and evaluated for impairment
      at the lowest level for which there are identifiable cash flows, namely
      individual restaurants. A restaurant is deemed to be impaired if a forecast
      of
      undiscounted future operating cash flows, including disposal value, if any,
      is
      less than its carrying amount.





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





During
      fiscal years 2005, 2006 and 2007, the Company recognized losses of approximately
      $3.6 million, $6.0 million and $0.4 million, respectively, relating to the
      impairment of the carrying value of long-lived assets for 29, 33 and one
      restaurant(s), respectively.





*Insurance
      Reserves*





The
      Company has insurance reserves for exposure related to the workers compensation,
      general liability, medical and dental programs. The Company effectively
      self-insures a significant portion of certain risks through the use of large
      self-insured retentions combined with stop loss coverage, or by maintaining
      large deductibles on traditional policies of insurance. The self-insurance
      liability represents an estimate of the ultimate cost of claims incurred and
      unpaid as of the balance sheet date, including both reported claims and claims
      that have been incurred but not reported. The estimated liability is established
      based upon historical claims data and third-party actuarial estimates of
      settlement costs for incurred claims. The Company’s estimates include judgments
      and independent actuarial assumptions regarding economic conditions, the
      frequency and severity of claims and claim development patterns and settlement
      practices. These estimates and assumptions are monitored and adjusted when
      warranted by changing circumstances. Changes in these factors may produce
      materially different amounts of expense and liabilities that would be reported
      under these insurance programs.





*Closed
      Restaurant Reserve*





The
      Company maintains a closed restaurant reserve for restaurants that are no longer
      being used in current operations. The closed restaurant costs are principally
      comprised of the Company’s estimates of lease termination costs and obligations,
      net of sublease and other cash receipts, and employee termination costs. Many
      factors including the local business environment, other available lease sites,
      the ability to secure subleases, the creditworthiness of subtenants, and the
      Company’s success at negotiating early termination agreements with lessors are
      considered in establishing the accruals. Adjustments to the reserve primarily
      relate to changes in subtenant income or actual exit costs differing from
      original estimates. Adjustments are made for changes in estimates in the period
      in which the changes become known. The closed restaurant reserve (current and
      noncurrent in aggregate) was $2.8 million and $1.7 million as of June 28, 2006
      and June 27, 2007, respectively.




50




*Pre-opening
      Costs*





Costs
      incurred in connection with the opening of new restaurants are expensed as
      incurred in accordance with Statement of Position (“SOP”) 98-5, *Reporting
      on the Costs of Start-up Activities.* SOP
      98-5
      requires companies to expense as incurred all start-up and pre-opening costs
      that are not otherwise capitalized as long-lived assets.





*Advertising
      Expenses*





Advertising
      costs for media, print and research are charged to expense as incurred.
      Television commercial production costs are expensed upon first airing of the
      commercial.





*Income
      Taxes*





The
      Company estimates certain components of its provision for income taxes. These
      estimates include, among other items, depreciation and amortization expense
      allowable for tax purposes, allowable tax credits for items such as the Working
      Opportunity Tax Credit and taxes paid on reported employee tip income, effective
      rates for state and local taxes, and the tax deductibility of certain other
      items. The Company’s estimates are based on current tax laws, the best available
      information at the time of the provision and historical experience. Income
      tax
      returns are subject to audit by federal, state, and local governments, generally
      years after the returns are filed. These returns could be subject to material
      adjustments or differing interpretations of the tax laws.





Deferred
      tax assets and liabilities are recognized for the expected future tax
      consequences of temporary differences between financial reporting amounts and
      the tax basis of existing assets and liabilities based on currently enacted
      tax
      laws and tax rates in effect for the periods in which the differences are
      expected to reverse. Income tax (benefit) expense is the tax payable/receivable
      for the year, plus the change during the year in deferred income taxes.
      Valuation allowances are established when necessary to reduce deferred tax
      assets to the amount expected to be realized.





*Derivative
      Instruments and Hedging Activities*





The
        Company uses financial derivatives to manage interest rate risks in accordance
        with its Credit Agreement, as amended and restated on March 31, 2007. Use
        of the
        Company’s derivative instruments is currently limited to a single interest rate
        swap. This instrument is structured as an effective hedge of the variability
        of
        cash flows to be paid on a portion of the Company’s outstanding debt. The
        derivative is recognized on the accompanying consolidated
        balance sheets at fair value. On the date the derivative contract was entered
        into, the Company documented the relationship between the hedging instrument
        and
        the hedged item, as well as its risk-management objective and strategy for
        undertaking the hedge transaction. This process included linking the derivative
        to a specific liability on the consolidated balance sheet, as well as formally
        assessing, both at the hedge’s inception and on an ongoing basis, whether the
        derivative used in the hedging transaction is highly effective in offsetting
        changes in cash flows of the hedged item.





Changes
      in the fair value of the derivative that is highly effective and designated
      as a
      cash flow hedge are recorded in other comprehensive income (loss) until earnings
      are affected by the variability in cash flows of the designated hedged item.
      See
      Note 9 — “Long-Term Debt” for further discussion of the interest rate
      swap.





*Revenue
      Recognition*





The
      Company’s restaurant sales include proceeds from the sale of food and beverages
      at Company-owned restaurants.





The
      Company recognizes franchise income for royalty fees and initial franchise
      fees
      received from franchisees. Initial fees are recognized as income when required
      obligations under the terms of the franchise agreement are fulfilled. Royalty
      fees are based on gross sales and are recognized in income as sales are
      generated. Franchise income was $0.9 million for fiscal years 2005, 2006 and
      2007. Franchise income is included in “Other Income” in the accompanying
      Consolidated Statements of Operations.




51


Buffets
      sells both paper gift certificates and plastic gift cards. Proceeds from the
      sale of gift cards/certificates are initially recorded as a liability when
      received. Revenues from the sale of gift cards/certificates are recognized
      upon
      redemption. In estimating the related gift card/certificate liability, the
      Company analyzes historical trends to derive its estimates of future gift card
      redemption patterns. The assumptions and activity are closely monitored for
      changes in escheatment laws and redemption patterns. The Company adjusts its
      gift card/certificate liability based on historical and expected non-redemption
      trends. These adjustments are classified within “Direct and Occupancy Costs” in
      the accompanying Consolidated Statements of Operations. The Company’s gift
      card/certificate liability was $4.0 million and $5.4
      million, of which approximately $1.2 and $1.1 million was related to the Tahoe
      Joe’s restaurants and was reclassified as discontinued operations in the
      accompanying Consolidated Balance Sheets as of June 28, 2006 and June 27, 2007,
      respectively.





*Use
      of Estimates*





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





*Fair
      Value Disclosure of Financial Instruments*





The
      Company’s financial instruments consist of cash and cash equivalents,
      receivables, notes receivable, accounts payable and long-term debt. The
      following methods were used in estimating the fair value of each class of
      financial instrument:





For
      cash
      equivalents, receivables and accounts payable, the carrying amounts approximate
      fair value because of the short duration of these financial instruments. The
      fair value of notes receivable is estimated based on the present value of
      expected future cash flows discounted at the interest rate currently offered
      by
      the Company, which approximates rates currently being offered by local lending
      institutions for loans of similar terms to companies of comparable credit risk.
      The carrying value of notes receivable approximates fair value.





The
      fair
      value of the Company’s variable interest rate debt is estimated by discounting
      future cash flows for these instruments using the Company’s expected borrowing
      rate for debt of comparable risk and maturity. The rate on the Company’s
      variable interest rate debt approximates rates currently being offered by
      lending institutions for loans of similar terms to companies of comparable
      credit risk. The fair value of fixed interest rate debt is estimated based
      on
      quoted prices for those of similar instruments.





The
      fair
      value of the Company’s long-term debt, including current portion, was $476.1
      million and $541.7 million as of June 28, 2006 and June 27, 2007,
      respectively.





*Segment
      Reporting*





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




52


*Stock-Based
      Compensation*





On
      June
      29, 2006 the Company adopted the provisions of SFAS No. 123(R) (revised 2004), *Share-based
      Payment,* which
      requires recognition of compensation cost for share-based awards granted to
      employees based on their fair values at the time of grant over the requisite
      service period. The Company’s pre-tax compensation cost for stock options as
      reflected in the accompanying Consolidated Statements of Operations is included
      in “General and Administrative Expenses.” For fiscal year 2007, compensation
      cost for stock options granted to certain employees during the fiscal year
      was
      approximately $77,000. As of June 27, 2007 there was no unrecognized
      compensation cost related to stock option awards as all awards fully vest upon
      issuance. Prior to the adoption of SFAS 123(R), the Company accounted for
      activity under its stock-based employee compensation plans under the recognition
      and measurement principles of Accounting Principles Board (APB) Opinion No.
      25, *Accounting
      for*  *Stock
      Issued to Employees.* Accordingly,
      the Company did not recognize compensation expense in connection with employee
      stock option grants because stock options are granted at exercise prices not
      less than the fair value of the common stock on the date of grant. As required
      by SFAS No. 123, the Company provided certain pro forma disclosures for
      stock-based awards as if the fair-value-based approach of SFAS No. 123 had
      been
      applied.





The
      Company elected to use the modified prospective transition method as permitted
      by SFAS No. 123(R) and therefore did not restate its financial results for
      prior
      periods. Under this transition method, the Company applied the provisions of
      SFAS No. 123(R) to new awards and to awards modified, repurchased, or cancelled
      after June 29, 2006. The Company’s stock-based compensation plans are described
      in more detail in Note 4 — “Stock-Based Compensation.”





*Merger
      Integration Costs*





Merger
      integration costs represent professional fees, performance bonuses and employee
      travel and expenses related to integration activities associated with the Ryan’s
      and North’s acquisitions. As of June 27, 2007, merger integration costs of
      approximately $10.9 million have been expensed as incurred and are recorded
      in
“Merger Integration Costs” in the accompanying Consolidated Statements of
      Operations.





**3.
      Recent Accounting Pronouncements**





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for*  *Financial
      Assets and Liabilities* .
      This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value. If the fair value option is elected,
      unrealized gains and losses will be recognized in earnings at each subsequent
      reporting date. SFAS No. 159 is effective for fiscal years beginning after
      November 15, 2007, which is the Company’s fiscal year 2009. The Company is
      currently evaluating the effect that the adoption of SFAS 159 will have on
      its
      consolidated results of operations and financial condition.





In
      September 2006, the FASB issued SFAS No. 158, *Employers’
      Accounting for*  *Defined
      Benefit Pension and Other Postretirement Plans* .
      This
      statement requires companies to recognize a net liability or asset and an
      offsetting adjustment to accumulated other comprehensive income to report the
      funded status of defined benefit pension and other postretirement benefit plans.
      The statement requires prospective application, and the recognition and
      disclosure requirements are effective for companies with fiscal years ending
      after December 15, 2006, which is the Company’s fiscal year 2007. Adoption of
      SFAS No. 158 did not have a material impact on the Company’s consolidated
      results of operations and financial condition.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      This
      statement defines fair value, establishes a framework for using fair value
      to
      measure assets and liabilities, and expands disclosures about fair value
      measurements. The statement applies whenever other statements requires or permit
      assets or liabilities to be measured at fair value. SFAS No. 157 is effective
      for fiscal years beginning after November 15, 2007, which is the Company’s
      fiscal year 2009. The Company does not expect this standard to have a material
      impact on its consolidated results of operations and financial
      condition.





In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, *Considering
      the Effects of Prior Year Misstatements when quantifying*  *Misstatements
      in Current Year Financial Statements* ,
      which
      provides interpretive guidance regarding the consideration given to prior year
      misstatements when determining materiality in current year financial statements.
      SAB No. 108 is effective for fiscal years ending after November 15, 2006, which
      is the Company’s 2007 fiscal year. Adoption of SAB No. 108 did not have a
      material impact on the Company’s consolidated results of operations and
      financial condition.




53


In
      July
      2006, FASB Interpretation No. 48, *Accounting
      for Uncertainty in*  *Income
      Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”),* was
      issued. FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with FASB
      Statement No. 109, *Accounting
      for Income Taxes.* FIN
      48
      also prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. The new FASB standard also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosure, and transition. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006, which is the
      beginning of the Company’s fiscal year 2008. The Company is currently evaluating
      the effect that the adoption of FIN 48 will have on its consolidated results
      of
      operations and financial condition.





In
      March
      2006, the Emerging Issues Task Force (“EITF”) issued EITF Issue 06-3, *How
      Taxes Collected From Customers and Remitted to Governmental*  *Authorities
      Should Be Presented in the Income Statement (That Is Gross
      versus*  *Net
      Presentation)* .
      A
      consensus was reached that entities may adopt a policy of presenting sales
      taxes
      in the income statement on either a gross or net basis. If taxes are
      significant, an entity should disclose its policy of presenting taxes and the
      amounts of taxes. The guidance is effective for periods beginning after December
      15, 2006, which is the Company’s fiscal year 2008. The Company does not expect
      this standard to have a material impact on its consolidated results of
      operations and financial condition.





**4.
      Stock-Based Compensation**





On
      June
      29, 2006, the Company adopted SFAS No. 123(R), *Share-Based*  *Payment* ,
      which
      requires the measurement and recognition of compensation expense for all
      share-based payment awards made to employees and directors, including employee
      stock options based on estimated fair value on the grant date. SFAS 123(R)
      supersedes SFAS No. 123, *Accounting
      for Stock-Based Compensation* and
      APB
      Opinion No. 25, *Accounting
      for Stock Issued to Employees.*





Pursuant
      to SFAS 123(R), a nonpublic entity will measure the cost of employee services
      received in exchange for an award of equity instruments based on the grant-date
      fair value of those instruments, except in certain circumstances. Specifically,
      if it is not possible to reasonably estimate the fair value of equity share
      options and similar instruments because it is not practicable to estimate the
      expected volatility of the entity’s share price, a nonpublic entity is required
      to measure its awards of equity share options and similar instruments based
      on a
      value calculated using the historical volatility of an appropriate industry
      sector index instead of the expected volatility of its share price (“Calculated
      Value”). The Company is a nonpublic entity, as defined by SFAS 123(R), and the
      Company is unable to reasonably estimate the fair value of its equity awards
      and
      similar instruments because it is not practicable for the Company to estimate
      the expected volatility of its share price. Therefore, the Company calculates
      volatility using the historical volatility of publicly traded companies within
      the family dining segment of the restaurant industry in order to determine
      the
      Calculated Value of our equity awards.





For
      purposes of determining the Calculated Value of share-based payment awards
      on
      the date of grant under SFAS 123(R), the Company uses the Black-Scholes
      option-pricing model (“Black-Scholes Model”). The Black-Scholes Model requires
      the input of certain assumptions that involve judgment. Because the Company’s
      employee stock options have characteristics significantly different from those
      of traded options, and because changes in the input assumptions can materially
      affect the fair value estimates, the available option pricing models may not
      provide a reliable single measure of the fair value of the Company’s employee
      stock options. Management will continue to assess the assumptions and
      methodologies used to calculate estimated fair value of share-based
      compensation. Circumstances may change and additional data may become available
      over time, which could result in changes to these assumptions and methodologies,
      and thereby materially impact the Company’s fair value
      determination.





In
      the
      case of liability instruments, as opposed to share-based payment awards, a
      nonpublic entity may elect to measure its liability awards at their fair value
      or intrinsic value (the difference between the strike price and the market
      price). The value of liability awards is remeasured subsequently at each
      reporting date through the settlement date. Changes in fair value during the
      requisite service period will be recognized as compensation cost over that
      period. The Company has elected to use the intrinsic value method to measure
      its
      liability awards.




54


As
      a
      nonpublic entity, the Company used the minimum value method in calculating
      its
      pro forma disclosures required under SFAS 123 for the periods prior to fiscal
      2007. As such, the Company was required to adopt SFAS 123(R) using the
      prospective transition method. Under this method of adoption, the requirements
      of SFAS 123(R) apply prospectively to new awards and to awards modified,
      repurchased, or cancelled after the required effective date, which was June
      29,
      2006, the first day of fiscal year 2007. The Company is required to continue
      to
      account for any portion of awards outstanding as of this date using the
      accounting principles originally applied to those awards. As such, the Company
      will continue to account for those awards outstanding as of the adoption date
      using the intrinsic value method pursuant to the requirements of APB 25.
      Subsequent grants and existing awards that are modified, repurchased, or
      cancelled after the adoption date will be accounted for pursuant to the
      requirements of SFAS 123(R).





The
      Company recognized and recorded approximately $77,000 in share-based
      compensation related to options granted to certain employees during the fiscal
      year ended June 27, 2007, as calculated using the following inputs to the Black
      Scholes pricing model:





**For
                the Year Ended**
              **June
                27, 2007**Risk-free
                interest rate
            
            
            4.91
            %Expected
                volatility
            
            
            45.0
            %Expected
                dividend yield
            
            
            0.0
            %Expected
                life in years
            
            
            2.0





**5.
      Property and Equipment**





Property
      and equipment was as follows (in thousands):





**June
                28,**
              **2006**
            
            **June
                27,**
              **2007**Land
            
            $
            762
            
            $
            16,829Buildings
            
            
            3,082
            
            
            16,213Equipment
            
            
            146,152
            
            
            221,767Leasehold
                improvements
            
            
            143,909
            
            
            157,150Accumulated
                depreciation and amortization
            
            
            (161,618
            )
            
            (190,867
            )$
            132,287
            
            $
            221,092





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





*Sale
      Leaseback Transaction*





On
      November 1, 2006, immediately prior to the merger with Ryan’s, Buffets and
      Ryan’s entered into a sale leaseback transaction with affiliates of Fortress
      Investment Group LLC (the “Affiliates”), involving approximately 275 Ryan’s
      restaurants and seven Buffets restaurants. In the Sale Leaseback Transaction,
      Buffets and Ryan’s, as applicable, conveyed the land (or, in certain cases,
      underlying ground leases) and related improvements with respect to those
      properties to the Affiliates or its assignee, Realty Income Corporation (or
      its
      affiliate), and simultaneously leased those properties back pursuant to unitary
      and individual leases, each for an initial lease term of approximately 20 years,
      with four renewal terms of five years, except with respect to ground lease
      sites. The purchase price for the portfolio of sale leaseback properties was
      approximately $566.8 million. The annual net rent payable under the leases
      is
      equal to the purchase price multiplied by a 10.15% cap rate, subject to annual
      increases of two times the Consumer Price Index, as defined therein, (but in
      no
      event greater than 2%), and, if the term of the leases are renewed, subject
      to
      further increases during some of the renewal terms based upon the then current
      fair market rental value.





The
      Company and Ryan’s applied the provisions of SFAS No. 98, *Accounting*  *for
      Leases* to
      their
      respective portion of the Sale Leaseback Transaction. Net proceeds from the
      sale
      leaseback of Ryan’s 275 restaurants were approximately $546.8 million and net
      proceeds from the sale leaseback of Buffets’ seven restaurants were
      approximately $8.4 million. The aggregate initial annual rent for Ryan’s 275
      properties is approximately $56.6 million and for Buffets’ seven properties is
      approximately $0.9 million.




55


The
      Ryan’s portion of the Sale Leaseback Transaction occurred prior to the Company’s
      merger with Ryan’s. Therefore, the impacts of the loss of $43.8 million on 76
      properties and the deferred gain of $113.3 million on 199 properties are
      reflected in goodwill (see Note 10 — “Acquisitions” for a summary of the
      allocation of the purchase price to the estimated fair market values of the
      assets acquired and liabilities assumed at the date of the
      acquisition).





The
      Company recognized a loss of $2.5 million on the Sale Leaseback Transaction
      for
      four of its seven locations. In addition, the net proceeds were greater than
      the
      book value of the leasehold assets for three locations resulting in a deferred
      gain of $0.9 million. The deferred gain is being accreted over the lives of
      the
      respective restaurant leases. The Company does not have any continuing
      involvement with the sale and leaseback properties. The leases are accounted
      for
      as operating leases.





**6.
      Other Intangible Assets**





Other
      intangible assets were as follows (in thousands):





**June
                28, 2006**
            
            **June
                27, 2007****Gross
                Carrying**
            
            **Accumulated**
            
            **Gross
                Carrying**
            
            **Accumulated****Amount**
            
            **Amortization**
            
            **Amount**
            
            **Amortization**Amortized
                Intangible Assets:Leasehold
                interests
            
            $
            —
            
            $
            —
            
            $
            2,323
            
            $
            211Recipes
            
            
            —
            
            
            —
            
            
            2,602
            
            
            156$
            —
            
            $
            —
            
            $
            4,925
            
            $
            367Unamortized
                Intangible Assets:Trademarks
            
            $
            —
            
            
            
            
            $
            79,440





Leasehold
      interests relate to favorable lease contracts acquired in the acquisitions
      of
      Ryan’s and North’s Restaurants, Inc. of $1.0 million and $1.3 million,
      respectively, and are amortized over the remaining lives of the underlying
      leases. Recipes represent the value attributed to proprietary food recipes
      acquired in the acquisition of Ryan’s and are amortized over a weighted average
      life of 11 years. Aggregate amortization expense for the fiscal year ended
      June
      27, 2007 was $0.4 million. Amortization expense is expected to be approximately
      $0.4 million in each of the five subsequent fiscal years.





Trademarks
      represent the value attributable to trade name and trademark rights acquired in
      the acquisition of Ryan’s and are deemed to have indefinite lives.





See
      Note
      10 — “Acquisitions” for further discussion of the impact of the merger with
      Ryan’s on the Company’s other asset balances.





**7.
      Other Assets**





Other
      assets were as follows (in thousands):





**June
                28,**
              **2006**
            
            **June
                27,**
              **2007**Debt
                issuance costs
            
            $
            9,308
            
            $
            33,483Prepaid
                acquisition costs
            
            
            1,346
            
            
            —Deposits
            
            
            477
            
            
            3,491Other
                long-term assets
            
            
            63
            
            
            118$
            11,194
            
            $
            37,092





Debt
      issuance costs are the capitalized costs incurred in connection with entering
      into Buffets’ senior secured Credit Facility and issuing Buffets’ 12 1/2% Senior
      Notes. Debt issuance costs are being amortized over the terms of the financing
      arrangements using the effective interest method. Debt issuance costs are net
      of
      accumulated amortization of $4.0 million and $3.4 million as of June 28, 2006
      and June 27, 2007, respectively.





Long-term
      deposits include insurance escrow deposits and prepaid rent and other
      deposits.





See
      Note
      10 — “Acquisitions” for further discussion of the impact of the merger with
      Ryan’s on the Company’s other asset balances.




56




**8.
      Accrued Liabilities**





Accrued
      liabilities consisted of the following (in thousands):





**June
                28,**
              **2006**
            
            **June
                27,**
              **2007**Accrued
                compensation
            
            $
            17,634
            
            $
            32,710Accrued
                workers’ compensation
            
            
            12,520
            
            
            21,427Accrued
                interest
            
            
            13,552
            
            
            22,603Accrued
                insurance
            
            
            8,178
            
            
            17,350Accrued
                litigation reserve
            
            
            504
            
            
            9,926Accrued
                sales, use and property taxes
            
            
            6,348
            
            
            16,856Unearned
                revenue (gift certificates/cards)
            
            
            2,820
            
            
            4,290Closed
                restaurant reserve, current portion
            
            
            1,685
            
            
            1,196Accrued
                other
            
            
            3,925
            
            
            6,425$
            67,166
            
            $
            132,783





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





*Accrued
      Workers’ Compensation Liability*





The
      Company has a large presence in the California market and a large part of its
      workers compensation reserve relates to claims in that state. Beginning January
      1, 2003, a series of workers’ compensation medical reform bills were enacted in
      California in an effort to control rapidly increasing medical costs. The last
      of
      these reform bills was enacted in April 2004. In late 2004 and early 2005,
      California’s Division of Workers’ Compensation implemented significant
      regulatory changes called for by the reform bills, that have subsequently
      resulted in an overall reduction in the number of claims and the average cost
      per claim in that state. These trends favorably impacted the Company’s claims
      experience in the California market, resulting in reductions in the Company’s
      accrued workers’ compensation liability totaling approximately $4.9 million
      during fiscal 2006. The impact of this favorable reduction in the reserve is
      recorded in the labor line item within the restaurant costs section of the
      consolidated statement of operations for the year ended June 28,
      2006.





*Closed
      Restaurant Reserve*





Closed
      restaurant costs incurred subsequent to December 31, 2002 have been accounted
      for in accordance with SFAS No. 146 *Accounting
      for Costs Associated*  *with
      Exit or Disposal Activities.*





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





The
      following table summarizes closed restaurant reserve activity by type of cost
      for the past two fiscal years (in thousands):





**For
                the Year Ended****June
                28,**
              **2006**
            
            **June
                27,**
              **2007**BALANCE,
                beginning of period (current and noncurrent in aggregate)
            
            $
            1,499
            
            $
            2,776Additions:Lease
                obligations charged to earnings
            
            
            4,847
            
            
            2,141Lease
                obligations charged to goodwill
            
            
            —
            
            
            131Employee
                termination benefits charged to earnings
            
            
            444
            
            
            5Employee
                termination benefits charged to goodwill
            
            
            —
            
            
            183Reductions:Cash
                payments:Lease
                termination costs and obligations
            
            
            3,570
            
            
            3,394Employee
                severance benefits
            
            
            444
            
            
            188BALANCE,
                end of period (current and noncurrent in aggregate)
            
            $
            2,776
            
            $
            1,654





In
      addition to lease obligation and employee termination costs the Company incurred
      closed restaurant costs of $0.7 million and $1.4 million for fiscal years 2006
      and 2007, respectively, related to incremental cash and non-cash charges that
      were directly expensed.




57


The
      following table summarizes planned and actual restaurant closing activity for
      the past two fiscal years:





**For
                the Year Ended****June
                28,**
              **2006**
            
            **June
                27,**
              **2007**Number
                of restaurants:Expected
                to close as of the beginning of the period
            
            
            4
            
            
            1Closed
                during the period
            
            
            19
            
            
            32Identified
                for closure during the period
            
            
            16
            
            
            36Expected
                to close as of the end of the period
            
            
            1
            
            
            5





**For
                the Year Ended****June
                28,**
              **2006**
            
            **June
                27,**
              **2007**Number
                of employees:Expected
                to be terminated as of the beginning of the period
            
            
            140
            
            
            35Terminated
                during the period
            
            
            665
            
            
            1,120Identified
                for termination during the period
            
            
            560
            
            
            1,260Expected
                to be terminated as of the end of the period
            
            
            35
            
            
            175





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





2008
            
            $
            1,1962009
            
            
            4062010
            
            
            382011
            
            
            132012
            
            
            1Thereafter
            
            
            —$
            1,654





The
      Company closed eleven underperforming restaurants in fiscal 2007. Cash charges
      were incurred related to these restaurant closures of approximately $1.7
      million. These charges included approximately $1.1 million related to lease
      termination costs and obligations, $0.2 million related to employee termination
      costs and $0.4 million related to other associated costs. Non-cash charges
      related to these closures for fiscal 2007 were approximately $0.4 million.
      These
      charges were expensed as incurred pursuant to SFAS 146 and are recorded in
      “closed restaurant costs” in the Consolidated Statements of Operations. In
      addition, the Company closed eighteen Ryan’s® restaurants and three Fire
      Mountain® restaurants between November 1, 2006 (acquisition date) and June 27,
      2007. Charges related to these 21 restaurants were charged to goodwill pursuant
      to EITF 95-3, *Recognition
      of Liabilities in Connection with a*  *Purchase
      Business Combination.* See
      Note
      10 — “Acquisitions” for further discussion of the merger with
      Ryan’s.




58


**9.
      Long-Term Debt**





Long-term
      debt outstanding was as follows (in thousands):





**June
                28,**
              **2006**
            
            **June
                27,**
              **2007**Short-Term
                borrowings consisted of the following:Letter
                of credit facility at 2.85% plus borrowings at LIBOR, due July 19,
                2007
                (interest at 8.17% as of June 27, 2007)
            
            $
            —
            
            $
            5,000Revolving
                credit facility, interest at Prime plus 2.25%, due June 29,
                2007
            
            
            —
            
            
            8,000Current
                maturities of long-term debt
            
            
            1,862
            
            
            6,625Total
                short-term borrowings
            
            
            1,862
            
            
            19,625Long-Term
                borrowings consisted of the following:Term
                loan, interest at LIBOR plus 2.75%, due quarterly through March 31,
                2013
                (interest at 8.11% as of June 27, 2007)
            
            
            182,053
            
            
            528,675Senior
                discount notes, interest at 13.875%, due December 15, 2010, net of
                discount of $32,009 at June 28, 2006
            
            
            99,991
            
            
            —Senior
                subordinated notes, interest at 11.25%, due July 15, 2010, net of
                discount
                of $4,195 at June 28, 2006
            
            
            180,470
            
            
            —Senior
                notes, interest at 12.50%, due November 1, 2014
            
            
            —
            
            
            300,000462,514
            
            
            828,675Less
                — Current maturities
            
            
            1,862
            
            
            6,625Total
                long-term debt
            
            $
            460,652
            
            $
            822,050





As
      of
      June 27, 2007, future maturities of long-term debt by year were as follows
      (in
      thousands):





2008
            
            $
            6,6252009
            
            
            5,3002010
            
            
            5,3002011
            
            
            3,9752012
            
            
            5,300Thereafter
            
            
            802,175$
            828,675





*Merger
      Related Refinancing*





In
        connection with the Merger, the Company refinanced its debt through borrowings
        under a new senior secured credit agreement and the issuance by Buffets of
        its
        12 1/2% Senior Notes. In addition, on November 1, 2006, the Company repaid
        $196.4 million of Buffets’ existing indebtedness under its predecessor credit
        facility (including accrued interest and breakage fees), repurchased $194.9
        million of Buffets’ 11 1/4% senior subordinated notes (including accretion of
        original issue discount and early redemption premiums), repurchased $121.4
        million of Buffets Holdings’ 13 7/8% senior discount notes (including accretion
        of original issue discount and early redemption premiums) and repaid $146.9
        million of Ryan’s outstanding debt including accrued interest and cable
        premiums.





*Credit
      Facility*





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


59


Effective
      as of March 13, 2007 (the “Restatement Date”), the Company entered into an
      amendment to its Credit Facility. The amendment added a revolving loan feature
      to the Synthetic Letter of Credit Facility (cumulatively referred to as the
      “Synthetic Revolving Facility”), whereby the Company may secure letters of
      credit and/or revolving loans in an aggregate principal amount of $70 million.
      The amendment also relaxed the interest rate margins applicable to the Term
      Facility and Synthetic Revolving Facility, subject to a leverage-based pricing
      grid. In addition, the amendment added a repricing protection clause relating
      to
      the prepayment of term loans or synthetic revolving loans borrowed under the
      Credit Facility. The repricing protection provides that Buffets must pay a
      1%
      prepayment premium on all such prepayments prior to March 13, 2008. No such
      prepayments have occurred as of June 27, 2007.





Borrowings
        under the Term Facility bear interest at an adjusted LIBOR rate plus a margin
        of
        either 2.50%, 2.75% or 3.00% in the case of Eurodollar borrowings and at
        a
        certain alternate base rate plus a margin of either 1.50%, 1.75% or 2.00%
        in the
        case of alternate base rate borrowings, depending on Buffets’ leverage ratio,
        and borrowings under the Revolving Facility bear interest at an adjusted
        LIBOR
        rate plus a margin of 3.25% or at an alternate base rate plus a margin of
        2.25%.
Borrowings
        under the Synthetic Revolving Facility bear interest at an adjusted LIBOR
        rate
        plus a margin of 2.85%.





The
      borrowings due under the Term Facility are payable in equal quarterly
      installments in an annual amount equal to 1% of the term loan during each of
      the
      first six and a half years of the loan, with the remaining balance payable
      due
      on November 1, 2013. The Revolving Facility and the Synthetic Revolving Facility
      are not subject to interim scheduled principal payments. The Credit Facility
      is
      fully and unconditionally guaranteed by Buffets Holdings, which has no
      independent assets or operations except for the capital stock of Buffets, and
      its existing and future domestic subsidiaries and is secured by substantially
      all of the Company’s assets. The Credit Facility contains customary restrictive
      covenants, including limitations on dividends on, and redemptions and
      repurchases of, capital stock, liens and sale leaseback transactions, loans
      and
      investments, the incurrence of additional indebtedness and mergers, acquisitions
      and asset sales. In addition, the Credit Facility contains financial covenants,
      which require that we maintain a minimum interest coverage ratio and a maximum
      leverage ratio. These financial covenants become increasingly restrictive over
      time. Specifically, on September 20, 2007, our leverage ratio requirement
      becomes more restrictive as the current leverage ratio of 6.00 to 1.00 drops
      to
      5.75 to 1.00. As of June 27, 2007, the Company was in compliance with all
      covenants and there were no events of default. The Credit Facility also contains
      customary events of default. Borrowing availability under the Credit Facility
      and our ability to issue letters of credit depends on there being no default
      or
      event of default under the Credit Facility and upon the Company’s continued
      compliance with the restrictive and financial covenants contained in the Credit
      Facility. See Note 21 - “Subsequent Events.”





On
      April
      12, 2007, the Company entered into an interest rate swap (“Swap”) agreement to
      manage its exposure on debt instruments to interest rate fluctuation. The Swap,
      which became effective May 31, 2007 and had a $32.0 million notional amount
      of
      indebtedness, was used to hedge a portion of the interest payments associated
      with the variable rate $530.0 million term loan by fixing the interest rate
      at
      LIBOR. The swap agreement calls for 90-day settlements beginning August 31,
      2007. This instrument is structured as an effective hedge of the variability
      of
      cash flows to be paid on a portion of its outstanding debt. The derivative
      is
      recognized on the balance sheet at fair value. On the date the derivative
      contract was entered into, the Company documented the relationship between
      the
      hedging instrument and the hedged item, as well as its risk-management objective
      and strategy for undertaking the hedge transaction. This process included
      linking the derivative to a specific liability on the consolidated balance
      sheet, as well as formally assessing, both at the hedge’s inception and on an
      ongoing basis, whether the derivative used in the hedging transaction is highly
      effective in offsetting changes in cash flows of the hedged item. As of June
      27,
      2007, the Company recorded a gain on the swap in the amount of $57,754,
      net of $36,155 tax to accumulated other comprehensive income. The net gain
      will
      be amortized into earnings as an adjustment to interest expense over the same
      period in which the related interest costs on the debt are being recognized
      in
      earnings. No amount was reclassified to interest expense during fiscal 2007
      as
      no settlement, in the form of interest payments made on the related debt,
      occurred during fiscal 2007. See Note 21 - “Subsequent Events.”




As
      of
      June 27, 2007, Buffets had $57.1 million in outstanding letters of credit,
      which
      expire through April 7, 2008. As of June 27, 2007, total letter of credit
      borrowing availability was $32.9 million, which is comprised of additional
      availability of $12.9 million under our Synthetic Revolving Facility and $20
      million available through a sub facility to the Company’s Revolving Facility in
      the form of letters of credit.





On
      May 3,
      2007, the Company repaid its $5 million short-term promissory note and related
      accrued interest.


60


*12*  *1/2%
      Senior Notes*





On
      November 1, 2006, Buffets issued $300.0 million aggregate principal amount
      of
      its 12 1/2% senior notes. The issuance was consummated solely by means of a
      private placement to qualified institutional buyers pursuant to Rule 144A under
      the Securities Act of 1933, as amended (the “Securities Act”). Buffets filed a
      registration statement with the Securities and Exchange Commission to exchange
      all of its 12 1/2% Senior Notes due 2014 for notes registered under the
      Securities Act. The exchange offer was consummated on January 31, 2007. The
      12
      1/2% Senior Notes mature on November 1, 2014. Buffets pays interest on the
      12
      1/2% Senior Notes on January 1 and July 1 of each year.





Buffets
      has the option to redeem all or a portion of the 12 1/2% Senior Notes on or
      after November 1, 2010 at fixed prices that decline over time. Buffets also
      has
      the option to redeem up to 35% of the aggregate principal amount of the 12
      1/2%
      Senior Notes on or prior to November 1, 2009 with the proceeds of one or more
      equity offerings at a redemption price of 112.50% of the principal amount of
      the
      12 1/2% Senior Notes, if at least 65% of the aggregate principal amount of
      the
      12 1/2% Senior Notes are outstanding after each such redemption and such
      redemption is made not more than 90 days after the consummation of certain
      equity offerings. Upon certain change of control and asset disposition events
      as
      described in the Indenture, Buffets may be required to redeem the 12 1/2% Senior
      Notes at a purchase price equal to 101% in the case of change of control events,
      or 100% in the case of asset disposition events, of the principal amount of
      the
      12 1/2% Senior Notes. The 12 1/2% Senior Notes are unsecured senior obligations
      of Buffets and are jointly and severally guaranteed on a senior unsecured basis
      by each of its current and future domestic subsidiaries and Buffets Holdings,
      which has no independent assets or operations except for the capital stock
      of
      Buffets.





The
      Indenture contains customary covenants relating to restrictions on indebtedness,
      dividends on, and redemptions and repurchases of, capital stock, liens, loans
      and investments, debt and hedging arrangements, mergers, acquisitions and asset
      sales, transactions with affiliates and changes in business activities conducted
      by Buffets and certain subsidiaries. The Indenture also contains customary
      events of default. As of June 27, 2007, the Company was in compliance with
      all
      covenants and there were no events of default.





**10.
      Acquisitions**





*Ryan’s
      Restaurant Group, Inc.*





On
      November 1, 2006, Buffets completed the merger with Ryan’s. As a result of the
      merger, Ryan’s became a wholly-owned subsidiary of Buffets. The merger with
      Ryan’s created the nation’s largest steak-buffet restaurant chain and the second
      largest company in the family dining segment. In addition, it increases the
      Company’s national footprint and allows the Company to operate 642 restaurants
      in 39 states principally under the Ryan’s®, Fire Mountain®, Old Country Buffet®
and HomeTown Buffet® brands.





The
      merger was accounted for as a purchase business combination and for accounting
      purposes, Buffets was the acquiring enterprise. Accordingly, the results of
      Ryan’s operations subsequent to November 1, 2006 are included in the Company’s
      results of operations for the fiscal year ended June 27, 2007. The net cash
      consideration paid was approximately $165.4 million (net of cash acquired of
      $559.4 million), including approximately $18.1 million of capitalized
      acquisition related expenses. The excess of the purchase consideration plus
      acquisition costs over the fair value of assets acquired and liabilities assumed
      was allocated to goodwill of approximately $187.6 million. Substantially all
      the
      goodwill is not deductible for tax purposes. The Company is still in the process
      of finalizing restructuring actions related to this acquisition, which may
      result in adjustment to the purchase price or incremental restructuring charges
      or both. In certain cases, the allocations of the excess purchase price are
      based upon preliminary estimates and assumptions. Accordingly, the allocations
      are subject to revision when the Company receives final information, including
      appraisals and other analyses. Revisions to the fair values, which may be
      significant, will be recorded by the Company as further adjustments to the
      purchase price allocations.


61


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





**November
                1,**
              **2006****(in
                thousands)**Cash
            
            $
            559,406Assets
                held for sale
            
            
            53,072Deferred
                tax assets
            
            
            —Other
                current assets
            
            
            43,210Property,
                plant & equipment
            
            
            98,985Goodwill
            
            
            187,634Other
                intangible assets (1)
            
            
            83,071Other
                assets
            
            
            3,750Total
                assets acquired
            
            
            1,029,128Accounts
                payable
            
            
            15,735Current
                portion of long-term debt
            
            
            33,036Income
                taxes payable
            
            
            15,109Accrued
                liabilities
            
            
            69,126Deferred
                tax liability
            
            
            57,065Long-term
                debt
            
            
            111,964Other
                long-term liabilities
            
            
            2,257Total
                liabilities assumed
            
            
            304,292Net
                assets acquired
            
            
            724,836Less
                cash acquired
            
            
            559,406Net
                cash paid
            
            $
            165,430





(1)
              In
                  connection with the Merger, we acquired approximately $79.4 million
                  in
                  trademarks, $2.6 million in recipes and $1.0 million in leasehold
                  interests.





In
      connection with the Merger and the related 21 restaurant closures, the Company
      recorded a liability for employee termination costs of $5.9 million. At June
      27,
      2007, the Company had communicated the termination of 926 employees of the
      acquired entities. As of the end of the 2007 fiscal year, 911 employees had
      actually been terminated and employee termination costs of $5.7 million had
      been
      paid. The remaining employee termination costs of approximately $0.2 million
      are
      expected to be paid during the first and second quarters of fiscal 2008. Charges
      related to employee termination costs and the restaurant closures were charged
      to goodwill pursuant to EITF 95-3, *Recognition
      of Liabilities in*  *Connection
      with a Purchase Business Combination.* The
      Company is in the process of finalizing restructuring actions related to this
      acquisition, which may result in adjustment to the purchase price or incremental
      restructuring charges or both.





The
      Company incurred approximately $29.0 million in transaction and merger
      integration costs as of June 27, 2007. Acquisition costs of approximately $18.1
      million are recorded as a component of the purchase price in the consolidated
      balance sheets pursuant to SFAS No. 141, *Business
      Combinations.* Merger
      integration costs of approximately $10.9 million have been expensed as incurred
      and are recorded in “Merger Integration Costs” in the accompanying Consolidated
      Statements of Operations.





Unaudited
        Pro forma consolidated results of continuing operations, as though the merger
        with Ryan’s had taken place at the beginning of the periods presented, are as
        follows (in thousands):





**Twelve
                  Weeks Ended**
              
              **Fifty-two
                  Weeks Ended****June
                  28, 2006**
              
              **June
                  27, 2007**
              
              **June
                  28, 2006**
              
              **June
                  28, 2007**Revenue
              
              $
              426,624
              
              $
              383,346
              
              $
              1,751,049
              
              $
              1,680,649Net
                  loss
              
              
              (8,271
              )(1)
              
              (66,268
              )(2)
              
              (28,819
              )(3)
              
              (127,984
              )(4)





(1)
            Pro
                forma net loss is increased by additional rent expense of $12.4 million
                related to the Sale Leaseback Transaction, as adjusted for depreciation
                expense on assets sold in the Sale Leaseback Transaction, and additional
                interest expense of $6.2 million. Pro forma net loss is reduced by
                general
                and administrative expense synergies of $0.5 million and an increase
                in
                tax benefit of $6.8 million assuming a 37.8% tax
                rate.




62




(2)
            There
                are no pro forma adjustments necessary for the twelve weeks ended
                June 27,
                2007 given that Ryan’s operating results are included in the consolidated
                statement of operations for the full sixteen-week period. Pro forma
                net
                loss has not been adjusted for nonrecurring items including loss
                on
                litigation of $1.6 million and merger integration costs of approximately
                $3.9.





(3)
            Pro
                forma net loss is increased by additional rent expense of $53.7 million
                related to the Sale Leaseback Transaction, as adjusted for depreciation
                expense on assets sold in the Sale Leaseback Transaction, and additional
                interest expense of $26.9 million. Pro forma net loss is reduced
                by
                general and administrative expense synergies of $1.5 million and
                an
                increase in tax benefit of $29.7 million assuming a 37.8% tax
                rate.





(4)
            Pro
                forma net loss is increased by additional rent expense of $18.6 million
                related to the Sale Leaseback Transaction, as adjusted for depreciation
                expense on assets sold in the Sale Leaseback Transaction, additional
                interest expense of $7.5 million and an increase in tax expense of
                $7.1
                million assuming a 37.8% tax rate. Pro forma net loss is reduced
                by
                general and administrative expense synergies of $0.7 million and
                the
                elimination of Ryan’s loss on sale leaseback of $43.8 million during the
                period preceding the merger. Pro forma net loss has not been adjusted
                for
                loss on sale leaseback of $2.5 million, loss on litigation settlement
                of
                $7.6 million, merger integration costs of $10.9 million, and the
                loss
                related to refinancing of $41.1
                million.





*North’s
      Restaurants, Inc.*





On
      August
      1, 2006, the Company’s subsidiary, OCB Restaurant Company, LLC, acquired certain
      assets and liabilities of North’s Restaurants, Inc. (“North’s”), primarily
      comprised of five buffet restaurants in California and Oregon. The purchase
      price was $3.3 million. In addition, the Company incurred $0.1 million of
      transaction costs. The acquisition was accounted for as a purchase business
      combination in accordance with SFAS No. 141 *Business*  *Combinations.* No
      goodwill was recorded as a result of the purchase price allocation. The results
      of the acquired restaurants subsequent to August 1, 2006, are included in our
      results of operations for the twelve and fifty-two weeks ended June 27,
      2007.





**11.
      Discontinued Operations**





In
      June
      2007, the Company developed a plan to sell a portion of the assets and related
      liabilities of it’s ten Tahoe Joe’s Famous Steakhouse® restaurants. The Company
      is actively marketing the restaurants and expects to complete the sale within
      the next twelve months. In accordance with SFAS No, 144, *Accounting*  *for
      Impairment or Disposal of Long-Lived Assets,* the
      Company has reclassified those assets and related liabilities as held for sale
      and presented them as discontinued operations in the accompanying Consolidated
      Balance Sheets. In addition, certain financial results related to those assets
      and liabilities, including revenues, restaurant costs and related taxes, have
      been accounted for as discontinued operations in the accompanying Consolidated
      Statements of Operations for all periods presented.





Revenues
      and certain results of operations for the Tahoe Joe’s restaurants include the
      following (in thousands):





**Year
                Ended**
              **June
                29, 2005**
            
            **Year
                Ended**
              **June
                28, 2006**
            
            **Year
                Ended**
              **June
                27, 2007**Revenue
            
            $
            35,573
            
            $
            34,537
            
            $
            31,619Income
                from discontinued operations
            
            
            1,749
            
            
            2,077
            
            
            863





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





**June
                28, 2006**
            
            **June
                27, 2007**Current
                assets related to discontinued operations:Assets
                held for sale
            
            $
            —
            
            $
            13,186Inventory
                and prepaids
            
            
            795
            
            
            931Total
                current assets
            
            $
            795
            
            $
            14,117Noncurrent
                assets related to discontinued operations:Property
                and equipment
            
            $
            9,117
            
            $
            —Liquor
                licenses
            
            
            320
            
            
            412Total
                noncurrent assets
            
            $
            9,437
            
            $
            412Current
                liabilities related to discontinued operations:Gift
                card liability
            
            $
            1,178
            
            $
            1,137Total
                current liabilities
            
            $
            1,178
            
            $
            1,137




63




**12.****Shareholder’s
      Deficit**





*Stock
      Shares*





The
      Company has 3.6 million authorized shares of common stock and 1.1 million
      authorized shares of preferred stock. As of June 27, 2007, the Company had
      3,104,510 shares of common stock and no shares of preferred stock issued and
      outstanding. All outstanding shares of common stock are directly owned by
      Buffets Restaurants Holdings, Inc. (“Buffets Restaurants
      Holdings”).





*Stock
      Warrants*





On
      October 2, 2000, Buffets Holdings issued $80 million principal amount of 14%
      senior subordinated notes due September 29, 2008, with detachable warrants
      to
      purchase 173,218 shares of Buffets Holdings’ common stock and 51,965 shares of
      Buffets Holdings’ preferred stock. Contemporaneously, Buffets Holdings issued
      $15 million principal amount of 16% senior subordinated notes due September
      29,
      2008, with detachable warrants to purchase 32,478 shares of common stock and
      9,744 shares of preferred stock. Such warrants were valued collectively at
      $5.4
      million. On June 28, 2002, all preferred stock warrants were redeemed in
      conjunction with the refinancing transactions, leaving 205,696 common stock
      warrants outstanding. The common stock warrants have an exercise price of $.01
      per share and expire September 29, 2010.





*Call
      Rights and Put Rights*





The
      Company has a call right to repurchase stock held by the Company’s management at
      any time following the termination of a management stockholder’s employment with
      the Company. In the event of the death or disability of a management
      stockholder, the management stockholder’s estate has a put right, for a period
      of one year following the date of termination of employment, whereby the Company
      may be required to repurchase the stock of the management stockholder at a
      price
      that would be paid by the Company if it were exercising its call rights. The
      Company may defer payment of the put right in excess of $4.0 million per fiscal
      year per stockholder and in excess of $8.0 million per fiscal year for all
      stockholders.





*Equity
      Participation Plan*





In
        October 2000, Buffets Holdings adopted the Equity Participation Plan, a
        non-qualified stock option plan under which up to 113,750 shares of common
        stock
        are reserved for issuance to certain employees. Prior to the Merger on November
        1, 2006, the option exercise price for each option, as determined at the
        date of
        grant, was based on the four full fiscal quarters immediately preceding the
        date
        of the award using the amount by which the sum of 4.5 times earnings before
        interest, taxes, depreciation and amortization, as defined in the Credit
        Facility, and the proceeds payable to the Company upon the exercise of the
        options, exceeds the consolidated indebtedness of the Company as of the date
        of
        the award. Subsequent to the Merger, the option exercise price for each option
        has been determined, at the date of grant, based on an exercise price derived
        from an estimate of total equity value. This valuation compares the Company
        to
        other publicly-held companies and develops a market price for the Company’s
        shares of common stock. Options are fully vested upon issuance and generally
        expire fifteen years from the date of the grant or at an earlier date, as
        determined by the Board of Directors. However, options are only exercisable
        in
        the event of a liquidity event, as defined in the Stockholders’ Agreement. The
        Company reserves the right to pay the plan participant the appreciated value
        of
        the shares rather than actually issue equity. As of June 27, 2007, there
        were
        11,050 shares available to be awarded under the plan.





Activity
      under the stock option plan is summarized as follows:





**For
                the Year Ended****June
                29, 2005**
            
            **June
                28, 2006**
            
            **June
                27, 2007****Shares**
            
            **Weighted-**
              **Avg**
              **Exercise**
              **Price**
            
            **Shares**
            
            **Weighted-**
              **Avg**
              **Exercise**
              **Price**
            
            **Shares**
            
            **Weighted-**
              **Avg**
              **Exercise**
              **Price**Outstanding
                at beginning of year
            
            
            98,142
            
            $
            16.42
            
            
            97,029
            
            $
            14.51
            
            
            77,823
            
            $
            14.34Granted
            
            
            11,671
            
            
            0.11
            
            
            1,124
            
            
            0.11
            
            
            29,232
            
            
            9.17Exercised
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Canceled
            
            
            12,784
            
            
            16.05
            
            
            20,330
            
            
            14.36
            
            
            4,355
            
            
            18.33Outstanding
                at end of year
            
            
            97,029
            
            $
            14.51
            
            
            77,823
            
            $
            14.34
            
            
            102,700
            
            $
            12.70




64




The
      following table summarizes the Company’s outstanding stock options as of June
      27, 2007:





**Options
                Outstanding****Range
                of Exercise Price**
            
            **Number**
              **Outstanding**
            
            **Weighted-Avg**
              **Remaining**
              **Option
                Term**
              **(in
                years)**
            
            **Weighted-Avg**
              **Exercise
                Price**$
                0
                - $10
            
            
            34,114
            
            
            9.74
            
            $
            7.17$11
                - $20
            
            
            55,856
            
            
            13.26
            
            
            11.56$21
                - $30
            
            
            6,624
            
            
            9.31
            
            
            25.22$31
                - $40
            
            
            456
            
            
            9.53
            
            
            32.09$41
                - $50
            
            
            5,650
            
            
            9.84
            
            
            41.07$
                0
                - $50
            
            
            102,700
            
            
            11.63
            
            $
            12.70





*Cash
      and Phantom Incentive Unit Award Agreements*





On
      December 13, 2005, the Company entered into Cash and Phantom Incentive Unit
      Award Agreements (the “Award Agreements”) with certain executive and
      non-executive management employees of the Company (collectively, the “Management
      Employees”).





Pursuant
      to each award agreement, if a Realization Event (as defined in the Award
      Agreement) occurred on or prior to July 31, 2006, each of the Management
      Employees would have been entitled to a cash award. Because a Realization Event
      did not occur on or prior to July 31, 2006, the Company granted 107,425 phantom
      stock units to the Management Employees on such date and the Management
      Employees are no longer entitled to the cash bonuses described
      above.





Each
      phantom incentive unit award represents a single share of the Company’s common
      stock and the value of each phantom incentive unit award is generally related
      to
      the value of a single share of common stock. The phantom incentive units awards
      vest ratably over a five-year period, beginning on December 13, 2006, unless
      the
      Management Employee’s employment with the Company ceases for any reason, but
      will not be paid until and unless (1) a Realization Event occurs after July
      31,
      2006, (2) the Company conducts an initial public offering of its capital stock
      or (3) under certain circumstances, upon termination of the Management
      Employee’s employment. The phantom incentive units awards may be settled in
      cash, common stock or any combination of cash and common stock, at the sole
      discretion of the Company’s Board of Directors.





Subsequent
      to July 31, 2006, upon termination of any Management Employee’s employment for
      any reason other than death or disability, any unvested phantom incentive units
      awards held by such Management Employee are forfeited and the Company has the
      right, at its election and in its sole discretion, to repurchase from such
      executive any phantom incentive units awards that have vested as of the date
      of
      the termination of his employment. Pursuant to the terms of the award
      agreements, each of the Management Employees has agreed not to compete with
      the
      Company or solicit any employee of the Company or its affiliates during the
      term
      of employment and for two years thereafter.





*Accumulated
      Other Comprehensive Income*





The
      components of accumulated other comprehensive income were $58,000 related to
      unrealized gains on derivatives.





**13.
      Retirement Plan**





The
      Company has a 401(k) plan covering all employees of Buffets (excluding Ryan’s)
      with one year of service, age 21 or older, who worked at least 1,000 hours
      in
      the prior year. The Company’s discretionary contributions to the plan are
      determined annually, on a calendar year basis, by the Board of Directors and
      are
      used to match a portion of employees’ voluntary contributions. Participants are
      100% vested in their own contributions immediately and are vested in the
      Company’s contributions 20% per year of service with the Company, such that they
      are fully vested at the end of five years of service with the Company. There
      were no matching contributions for calendar year 2005 or calendar year 2006.
      As
      of June 27, 2007, there was no accrual for matching contributions for the first
      half of calendar year 2007.




65


As
      of
      November 1, 2006, the Company acquired a defined contribution retirement plan,
      which covers all Ryan’s team members who have at least one year of service and
      have attained 21 years of age. Participating team members may contribute from
      1%
      to 50% of their compensation to the plan with the first 6% of compensation
      matched in cash by the Company at a 40% rate. The Company’s match
      for
      participants with 20 or more years of service increases to 100% of the first
      6%
      contributed by team members. All plan assets are invested in a nationally
      recognized family of mutual funds. As of June 27, 2007 there was a $350,000
      accrual for company contributions to the plan.





**14.
      Postretirement Benefits**





As
      a
      result of the merger with Ryan’s, the Company acquired a Postretirement Medical
      Plan. Under this plan, the Company provides medical, dental and vision benefits
      to select executives and their spouses. The Company recorded a $2.1 million
      liability in “Other Long Term Liabilities” in the accompanying Consolidated
      Balance Sheets related to expected benefits to be paid under the plan. The
      plan
      is currently, and is expected to remain, unfunded. As such, there were no
      contributions made to the plan during fiscal 2007 and there is no expectation
      a
      contribution will be made in fiscal 2008. Certain actuarial assumptions were
      used to compute the obligation, including market interest rates, past
      experience, and management’s best estimate of future economic conditions. The
      recorded obligation assumed a discount rate of 5.53% and a medical trend rate
      of
      8.0%.





**15.
      Income Taxes**





The
      income tax (benefit) expense consisted of the following (in
      thousands):





**For
                the Year Ended****June
                29,**
              **2005**
            
            **June
                28,**
              **2006**
            
            **June
                27,**
              **2007**Federal:Current
            
            $
            2,665
            
            $
            1,776
            
            $
            (5,107
            )Deferred
            
            
            (3,308
            )
            
            (1,543
            )
            
            21,893(643
            )
            
            327
            
            
            16,786State:Current
            
            
            928
            
            
            761
            
            
            182Deferred
            
            
            (472
            )
            
            (535
            )
            
            682456
            
            
            132
            
            
            864Income
                tax (benefit) expense
            
            
            (187
            )
            
            459
            
            
            17,650Less:
                Income tax expense from discontinued operations
            
            
            1,176
            
            
            1,396
            
            
            579Income
                tax (benefit) expense from continuing operations
            
            $
            (1,363
            )
            $
            (937
            )
            $
            17,071





Deferred
      income taxes are provided to record the income tax effect of temporary
      differences that occur when transactions are reported in one period for
      financial statement purposes and in another period for tax purposes. The tax
      effect of the temporary differences giving rise to the Company’s deferred tax
      assets and liabilities was as follows (in thousands):


**June
                  28, 2006**
              
              **June
                  27, 2007****Current**
                **Asset**
              
              **Non-**
                **current**
                **Asset**
              
              **Current**
                **Asset**
              
              **Non-**
                **current**
                **Liability**Property
                  and equipment
              
              $
              —
              
              $
              1,394
              
              $
              —
              
              $
              (20,510
              )Deferred
                  rent
              
              
              —
              
              
              8,716
              
              
              —
              
              
              12,278Self-insurance
                  reserve
              
              
              1,759
              
              
              —
              
              
              4,998
              
              
              —Accrued
                  workers’ compensation
              
              
              4,481
              
              
              —
              
              
              8,355
              
              
              —Accrued
                  payroll and related benefits
              
              
              2,031
              
              
              —
              
              
              2,961
              
              
              —Accrued
                  store closing costs
              
              
              1,049
              
              
              —
              
              
              638
              
              
              —Net
                  operating loss and tax credit carryforwards
              
              
              807
              
              
              —
              
              
              —
              
              
              36,012Deferred
                  gain on sale leaseback transaction
              
              
              —
              
              
              936
              
              
              —
              
              
              2,486Merger
                  transaction costs
              
              
              —
              
              
              —
              
              
              —
              
              
              2,260Intangible
                  Assets
              
              
              —
              
              
              (2,242
              )
              
              —
              
              
              (33,279
              )Other
              
              
              197
              
              
              3,678
              
              
              788
              
              
              (1,937
              )Total
                  deferred tax assets (liabilities)
              
              
              10,324
              
              
              12,482
              
              
              17,740
              
              
              (2,690
              )Valuation
                  allowance for deferred tax assets
              
              
              —
              
              
              —
              
              
              (14,740
              )
              
              (30,766
              )Net
                  deferred tax assets (liabilities)
              
              $
              10,324
              
              $
              12,482
              
              $
              3,000
              
              $
              (33,456
              )




66





As
        of
        June 27, 2007, the Company had operating loss carryovers of approximately
        $100.9
        million (before valuation allowances), which expire after twenty years, and
        tax
        credit carryovers of approximately $4.0 million, with $3.9 million of these
        expiring after twenty years. The remaining $0.1 million of such credits can
        be
        carried forward indefinitely. Of the $100.9 million in operating loss carryovers,
        approximately $13.1 million have been reclassified to income tax receivable,
        as
        the Company expects these to be carried back to prior years and utilized
        during
        fiscal 2008. The Company has provided a $49.1 million valuation allowance
        against its deferred tax assets based on its position that it is uncertain
        that
        the tax benefits related to these assets will be realized. Approximately
        $3.6
        million of this valuation allowance relates to separate company state net
        operating losses (“NOL’s”), and is netted against the NOL’s on the net operating
        loss and tax credit carryforwards line in the table
        above.





A
      reconciliation of the Company’s income tax (benefit) expense at the federal
      statutory rate to the reported income tax (benefit) expense was as follows
      (in
      thousands):





**For
                  the Year Ended****June
                  29,**
                **2005**
              
              **June
                  28,**
                **2006**
              
              **June
                  27,**
                **2007**Federal
                  income tax benefit at statutory rate of 35%
              
              $
              (830
              )
              $
              (1,930
              )
              $
              (34,682
              )State
                  income taxes, net of federal benefit
              
              
              296
              
              
              57
              
              
              (1,317
              )General
                  business credits
              
              
              (1,591
              )
              
              (1,546
              )
              
              (2,566
              )Non-deductible
                  interest on high-yield notes
              
              
              1,316
              
              
              1,497
              
              
              635Change
                  in future deferred tax rate
              
              
              —
              
              
              337
              
              
              1,268Valuation
                  allowance for deferred tax assets
              
              
              —
              
              
              —
              
              
              45,506Gross
                  up of tax reserves
              
              
              —
              
              
              —
              
              
              7,865Other
              
              
              622
              
              
              2,044
              
              
              941Income
                  tax (benefit) expense
              
              
              (187
              )
              
              459
              
              
              17,650Less:
                  Income tax expense from discontinued operations
              
              
              1,176
              
              
              1,396
              
              
              579Income
                  tax (benefit) expense from continuing operations
              
              $
              (1,363
              )
              $
              (937
              )
              $
              17,071


The
          $0.6
          million other line item above in fiscal 2005 primarily represents an increase
          in
          the Company’s federal and state income tax reserves. The $0.3 million change in
          future deferred tax rate in fiscal 2006 related to adjusting the carrying
          value
          of the Company’s deferred tax assets to reflect a lower expected future tax
          rate. The $2.0 million other line item above in fiscal 2006 represents
          adjustments to deferred income tax items of $1.2 million, $0.3 million
          related
          to the non-deductibility of costs related to the repurchase of certain
          rights
          associated with shares of common stock previously held by management
          shareholders who separated from the Company and a $0.6 million increase
          in the
          Company’s federal and state income tax reserves. The $1.3 million change in
          future deferred tax rate in fiscal 2007 represents a cumulative charge
          to adjust
          the carrying value of a portion of the Company's deferred tax assets. The
          $45.5
          million charge in fiscal 2007 represents an establishment of a valuation
          allowance against a significant portion of the Company's deferred tax assets
          due
          to uncertainty regarding realization of the related tax benefits. Likewise,
          the
          $7.9 million gross up of tax reserves in fiscal 2007 represents the impact
          of
          the reversal of expected federal benefit from state tax reserves, due to
          the uncertainty regarding realization of those benefits. The $0.9 million
          other
          line item in fiscal 2007 primarily represents an adjustment to deferred
          income
          tax items.


**16.
      Related-Party Transactions**





In
      October 2000, the Company entered into a management agreement with an affiliate
      (the “Caxton-Iseman Party”) of Caxton-Iseman Investments L.P. Caxton-Iseman
      Investments L.P. is a majority shareholder of Buffets Restaurants Holdings,
      the
      parent company of Buffets Holdings, owning approximately 77.4% of the
      outstanding common stock. Under the management agreement, the Caxton-Iseman
      Party provides various advisory services to the Company in exchange for an
      annual advisory fee equal to 2% of the Company’s annual consolidated earnings
      before interest, taxes, depreciation and amortization. The Caxton-Iseman Party
      receives an additional fee for advisory services relating to particular
      financial transactions equal to 1% of the transaction value.





On
      November 1, 2006, Buffets entered into the Second Amended and Restated
      Management and Fee Agreement (the “Management Agreement”) with the Caxton-Iseman
      Party. In accordance with the terms of the Management Agreement, upon the
      request of Buffets, the Caxton-Iseman Party is to provide certain acquisition
      and financial advisory services to Buffets.




67


In
      consideration for the services to be provided by the Caxton-Iseman Party,
      Buffets agreed to pay the Caxton-Iseman Party (i) an annual fee equal to 2%
      of
      Buffets’ EBITDA (as defined in the Management Agreement), (ii) a transaction
      fee, payable upon the completion by Buffets of any acquisition, of 2% of the
      sale price, (iii) a transaction fee, payable upon the completion of the sale
      of
      Buffets. of 1% of the sale price, and (iv) a transaction fee, payable upon
      the
      completion of the sale by Buffets of any other divestitures, of 1% of the sale
      price. The annual fee payable in any year may not exceed the amounts permitted
      under the Company’s debt agreements, and the Caxton-Iseman Party is obligated to
      return any portion of the annual fee that has been prepaid if an event of
      default has occurred and is continuing under either the Company’s debt
      agreements. In connection with the Company’s merger transaction with Ryan’s, the
      Caxton-Iseman Party received a fee of $16.8 million.





In
      October 2000, the Company entered a management agreement with Sentinel Capital
      Partners, L.L.C., a minority shareholder of Buffets Restaurants Holdings owning
      approximately 7.0% of the outstanding common stock, under which Sentinel Capital
      Partners, L.L.C. provides various advisory services to the Company for an annual
      advisory fee of $200,000. In connection with the Company’s merger transaction
      with Ryan’s, Sentinel Capital Partners, L.L.C. received a fee of $0.5 million.





Roe
      H.
      Hatlen, a founder of Buffets and a current member on the Boards of Directors
      of
      Buffets and Buffets Holdings, entered into an advisory arrangement with Buffets
      Holdings on September 28, 2000 (the “Advisory Agreement”), that had an original
      term expiring in December 2005. On December 13, 2005, the Advisory Agreement
      was
      amended to extend the term through June 30, 2006 at an annualized rate of
      compensation of $200,000. The Advisory Agreement was further amended in July
      2006 to extend the term through December 31, 2006 at the same annualized rate
      of
      compensation. The Company is currently paying Mr. Hatlen an annualized rate
      of
      compensation of $200,000. In addition, Mr. Hatlen is entitled to (1) the use
      of
      certain company-provided facilities during the term of the agreement, (2)
      business expense (including auto expense) reimbursement arrangements during
      the
      term of the agreement, and (3) health, welfare, disability and life insurance
      benefits, on the same basis provided to senior executives of Buffets until
      December 31, 2010. All costs are recognized as incurred in “General and
      Administrative” expenses in the consolidated Statement of Operations. Mr. Hatlen
      owns approximately 6.0% of the outstanding common stock of Buffets Restaurants
      Holdings. In connection with the Company’s merger transaction with Ryan’s, Mr.
      Hatlen received a fee of $0.5 million.





**17.
      Commitments and Contingencies**





*Litigation*





On
      January 22, 2008, the Company and each of its subsidiaries (collectively, the
      “Debtors”) filed a voluntary petition for relief under Chapter 11 of the
      Bankruptcy Code with the United States Bankruptcy Court for the District of
      Delaware, Case Number 08-10141. Under the Bankruptcy Code, the filing of a
      petition automatically stays most litigation pending against the Debtors. For
      a
      further description of the bankruptcy filing, see Note 21 - “Subsequent Events”
to the accompanying consolidated financial statements.





On
      November 12, 2004, two former restaurant managers of the Company’s wholly-owned
      subsidiary, HomeTown Buffet, Inc. (“HomeTown Buffet”), individually and on
      behalf of all others similarly situated, filed a class action lawsuit against
      HomeTown Buffet in California Superior Court in San Francisco County. The
      lawsuit alleges that HomeTown Buffet violated California wage and hour laws
      by
      failing to pay all of its California managers and assistant managers overtime,
      and for making deductions from bonus compensation based on the company’s
      workers’ compensation costs. In March 2006, the plaintiffs amended the complaint
      in the lawsuit to add OCB Restaurant Company, LLC as a defendant, and to limit
      the claims to those managers below the level of restaurant General Manager.
      In
      April 2006, the defendants removed the lawsuit to the United States District
      Court for the Northern District of California. The plaintiffs seek compensatory
      damages, penalties, restitution of unpaid overtime and deductions, pre-judgment
      interest, costs of suit and reasonable attorneys’ fees. The complaint does not
      make a specific monetary demand.





During
        the course of discovery, but prior to a motion for certification of a class,
        the
        parties reached a settlement of this action in mediation in late February
        2007.
        The settlement received preliminary court approval on September 12, 2007.
        While
        the Company is currently not able to predict the outcome of this action,
        the
        Company estimates that, should the court provide final approval of the
        settlement, the Company will pay approximately $7.2 million to resolve this
        matter. This amount has been recorded in the Company’s accrued litigation
        reserve and is included in “Accrued Liabilities” in the Company’s accompanying
        Consolidated Balance Sheets and “Loss on Litigation Settlement” in the fiscal
        2007 Company’s Consolidated Statements of Operations. Also included in the Loss
        on Litigation Settlement is approximately $0.4 million to be paid in attorney
        fees paid to the Company’s external counsel for services rendered through June
        27, 2007 specifically related to negotiating the settlement.




68





With
      regard to the previously disclosed 2002 class action lawsuit filed in the United
      States District Court, Middle District of Tennessee, Nashville Division, related
      to alleged wage and hour violations, all terms of the consensual settlement
      between the parties have been satisfied and the matter is considered
      closed.





In
      June
      2006, a lawsuit was filed in the Berkeley County (West Virginia) circuit court
      on behalf of three plaintiffs alleging wage and hour violations similar to
      the
      Tennessee collective-action case discussed in the preceding paragraph. This
      case
      seeks class-action status, but pertains only to West Virginia employees who
      worked for Ryan’s during the five years ending July 2006. In July 2006,
      Defendants removed the lawsuit to the United States District Court for the
      Northern District of West Virginia. In February 2007, the Court denied
      Plaintiffs motion to remand the matter back to West Virginia state court. The
      plaintiffs seek compensatory damages, penalties, restitution of unpaid wages
      and
      deductions, pre-judgment interest, costs of suit and reasonable attorneys’ fees.
      The complaint does not make a specific monetary demand. This action is in a
      preliminary stage, and the Company is currently not able to predict the outcome
      of this action or reasonably estimate a range of possible loss. The Company
      is
      vigorously defending this action.


On
          August
          29, 2007, the Greenville County, South Carolina Circuit Court overseeing
          the
          2006 putative shareholder class action — Marjorie Fretwell v. Ryan’s Restaurant
          Group, Inc. — entered a final order approving the consensual settlement
          agreement between the parties, as previously disclosed.





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





*Operating
      Leases*





The
      Company conducts most of its operations from leased restaurant facilities,
      all
      of which are classified as operating leases. As a result of the Chapter 11
      filings, the Company’s obligations under these lease agreements may
      significantly change in the future. See Note 21 - “Subsequent Events” for
      further discussion.





The
      following is a schedule of future minimum lease payments required under
      noncancellable operating leases as of June 27, 2007 (in thousands):





2008
            
            $
            113,0822009
            
            
            111,8732010
            
            
            106,3922011
            
            
            100,3702012
            
            
            94,472Thereafter
            
            
            1,247,324Total
                future minimum lease payments
            
            $
            1,773,513





Minimum
      payments have not been reduced by minimum sublease rentals of approximately
      $8.5
      million.





Certain
      of these leases require additional rent based on a percentage of net sales
      and
      may require additional payments for real estate taxes and common area
      maintenance on the properties. Many of these leases also contain renewal options
      exercisable at the election of the Company. Under the provisions of certain
      leases, there are certain escalations in payments over the base lease term
      as
      well as renewal periods which have been reflected in rent expense on a
      straight-line basis over the life of the anticipated terms. Differences between
      minimum lease payments and straight-line rent expense are reflected as “Deferred
      Lease Obligations” in the accompanying Consolidated Balance Sheets.




69


Rent
      expense was as follows (in thousands):





**For
                the Year Ended****June
                29,**
              **2005**
            
            **June
                28,**
              **2006**
            
            **June
                27,**
              **2007**Minimum
                rents
            
            $
            50,111
            
            $
            50,192
            
            $
            89,066Contingent
                rents
            
            
            3,522
            
            
            3,708
            
            
            3,251Less:
                Sublease rents
            
            
            (2,844
            )
            
            (2,357
            )
            
            (2,082
            )Deferred
                rents
            
            
            1,482
            
            
            1,123
            
            
            8,862Percentage
                rents
            
            
            1,617
            
            
            2,296
            
            
            1,958$
            53,888
            
            $
            54,962
            
            $
            101,055





*VISA
      Settlement*





The
      terms
      of a significant portion of the Visa Check/MasterMoney antitrust litigation
      settlement were finalized during fiscal 2006. In the fourth quarter of fiscal
      2006, the Company sold its claim related to this portion of the settlement
      to a
      third party for approximately $0.7 million and recorded a gain of that amount.
      The gain was recorded in “Direct and Occupancy Costs” in the Consolidated
      Statement of Operations.





**18.
      Condensed Consolidating Financial Statements**





The
        following condensed consolidating financial statements are presented pursuant
        to
        Rule 3-10 of Regulation S-X and give effect to the restatement discussed
        in Note
        20 - “Restatement” to the accompanying consolidated financial statements.
        Buffets is an issuer (the “Subsidiary Issuer”) of 12 1/2% Senior Notes that are
        fully and unconditionally guaranteed by its parent, Buffets Holdings (the
        “Parent”), as well as each of its current and future domestic subsidiaries
        including HomeTown Buffet, Inc., OCB Restaurant Company, LLC, OCB Purchasing
        Co., Tahoe Joe’s, Inc., Buffets Leasing Company, LLC, HomeTown Leasing Company,
        LLC, OCB Leasing Company, LLC, Tahoe Joe’s Leasing Company, LLC, Ryan’s
        Restaurant Group, Inc., Big R Procurement Company, LLC, Fire Mountain
        Restaurants, LLC, Ryan’s Restaurant Leasing Company, LLC, Ryan’s Restaurant
        Management Group, LLC, Fire Mountain Leasing Company, LLC, Fire Mountain
        Management Group, LLC, and Buffets Franchise Holdings, LLC (collectively,
        the
“Subsidiary Guarantors”). All guarantees are joint and several and Buffets and
        the subsidiary guarantors are 100% owned by Buffets Holdings.





There
      are
      certain restrictions on the ability of the Company to obtain funds from its
      subsidiaries. Pursuant to the terms of the Company’s debt agreements, the
      Company and its subsidiaries have restrictions on their ability to make certain
      payments. The types of payments that are restricted include dividends or other
      equity distributions to equity holders, payments to repurchase the Company’s
      capital stock, repayment of subordinated debt prior to scheduled repayment
      or
      maturity and certain investments (collectively referred to as “Restricted
      Payments”). The restrictions do not allow the Company and its subsidiaries,
      directly or indirectly, to make a Restricted Payment if at the time the Company
      or a subsidiary makes such Restricted Payment: (1) a default has occurred and
      is
      continuing, (2) certain debt covenant ratios of the Company exceed a specified
      threshold, or (3) the aggregate amount of such Restricted Payment and all other
      Restricted Payments exceeds certain thresholds.




70


**Condensed
      Consolidating Balance Sheet**


**As
      of June 28, 2006**




**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)****ASSETS**CURRENT
                ASSETS:Cash
                  and cash equivalents
              
              $
              37
              
              $
              14,068
              
              $
              6,089
              
              $
              —
              
              $
              20,194Receivables
              
              
              1,777
              
              
              485
              
              
              278,857
              
              
              (276,240
              )
              
              4,879Income
                tax receivable
              
              
              —
              
              
              117
              
              
              —
              
              
              —
              
              
              117Inventories
              
              
              —
              
              
              845
              
              
              17,381
              
              
              —
              
              
              18,226Prepaid
                  expenses and other current assets
              
              
              3
              
              
              4,772
              
              
              539
              
              
              —
              
              
              5,314Deferred
                  income taxes
              
              
              64
              
              
              8,774
              
              
              1,486
              
              
              —
              
              
              10,324Assets
                  related to discontinued operations
              
              
              —
              
              
              —
              
              
              795
              
              
              —
              
              
              795Total
                  current assets
              
              
              1,881
              
              
              29,061
              
              
              305,147
              
              
              (276,240
              )
              
              59,849PROPERTY
                  AND EQUIPMENT, net
              
              
              —
              
              
              5,307
              
              
              126,980
              
              
              —
              
              
              132,287GOODWILL,
                  net
              
              
              —
              
              
              18,730
              
              
              293,433
              
              
              —
              
              
              312,163DEFERRED
                  INCOME TAXES
              
              
              6,140
              
              
              6,342
              
              
              —
              
              
              —
              
              
              12,482INVESTMENT
                  IN SUBSIDIARIES
              
              
              5,379
              
              
              336,744
              
              
              —
              
              
              (342,123
              )
              
              —OTHER
                  ASSETS, net
              
              
              2,203
              
              
              8,615
              
              
              376
              
              
              —
              
              
              11,194NONCURRENT
                  ASSETS related to discontinued operations
              
              
              —
              
              
              —
              
              
              9,437
              
              
              —
              
              
              9,437Total
                  assets
              
              $
              15,603
              
              $
              404,799
              
              $
              735,373
              
              $
              (618,363
              )
              $
              537,412**LIABILITIES
                  AND SHAREHOLDER’S EQUITY (DEFICIT)**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              
              —
              
              
              321,553
              
              
              2,788
              
              
              (276,240
              )
              
              48,101Accrued
                  liabilities
              
              
              —
              
              
              44,013
              
              
              23,153
              
              
              —
              
              
              67,166Income
                  taxes payable
              
              
              (36
              )
              
              7,130
              
              
              —
              
              
              —
              
              
              7,094Current
                  maturities of long-term debt
              
              
              —
              
              
              112
              
              
              1,750
              
              
              —
              
              
              1,862Liabilities
                  related to discontinued operations
              
              
              —
              
              
              —
              
              
              1,178
              
              
              —
              
              
              1,178Total
                  current liabilities
              
              
              (36
              )
              
              372,808
              
              
              28,869
              
              
              (276,240
              )
              
              125,401LONG-TERM
                  DEBT, net of current maturities
              
              
              99,991
              
              
              21,640
              
              
              339,021
              
              
              —
              
              
              460,652DEFERRED
                  LEASE OBLIGATIONS
              
              
              —
              
              
              1,948
              
              
              26,408
              
              
              —
              
              
              28,356OTHER
                  LONG-TERM LIABILITIES
              
              
              —
              
              
              3,024
              
              
              4,331
              
              
              —
              
              
              7,355Total
                  liabilities
              
              
              99,955
              
              
              399,420
              
              
              398,629
              
              
              (276,240
              )
              
              621,764COMMITMENTS
                  AND CONTINGENCIESSHAREHOLDER’S
                  EQUITY (DEFICIT)Common
                  stock
              
              
              31
              
              
              —
              
              
              —
              
              
              —
              
              
              31Additional
                  paid in capital
              
              
              5
              
              
              82,311
              
              
              199,244
              
              
              (281,555
              )
              
              5Retained
                  earnings (accumulated deficit)
              
              
              (84,388
              )
              
              (76,932
              )
              
              137,500
              
              
              (60,568
              )
              
              (84,388
              )Total
                  shareholder’ s equity (deficit)
              
              
              (84,352
              )
              
              5,379
              
              
              336,744
              
              
              (342,123
              )
              
              (84,352
              )Total
                  liabilities and shareholder’ s equity (deficit)
              
              $
              15,603
              
              $
              404,799
              
              $
              735,373
              
              $
              (618,363
              )
              $
              537,412




71


**Condensed
      Consolidating Balance Sheet**


**As
      of June 27, 2007**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)****ASSETS**CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              37
              
              $
              (1,852
              )
              $
              6,460
              
              $
              —
              
              $
              4,645Receivables
              
              
              (312
              )
              
              1,944
              
              
              337,143
              
              
              (328,556
              )
              
              10,219Income
                  tax receivable
              
              
              —
              
              
              13,324
              
              
              —
              
              
              —
              
              
              13,324Inventories
              
              
              —
              
              
              858
              
              
              31,229
              
              
              —
              
              
              32,087Prepaid
                  expenses and other current assets
              
              
              —
              
              
              6,383
              
              
              2,249
              
              
              —
              
              
              8,632Assets
                  held for sale
              
              
              —
              
              
              —
              
              
              34,959
              
              
              —
              
              
              34,959Deferred
                  income taxes
              
              
              —
              
              
              3,000
              
              
              —
              
              
              —
              
              
              3,000Assets
                  related to discontinued operations
              
              
              —
              
              
              —
              
              
              14,117
              
              
              —
              
              
              14,117Total
                  current assets
              
              
              (275
              )
              
              23,657
              
              
              426,157
              
              
              (328,556
              )
              
              120,983PROPERTY
                    AND EQUIPMENT, net
              
              
              —
              
              
              7,577
              
              
              213,515
              
              
              —
              
              
              221,092GOODWILL,
                  net
              
              
              —
              
              
              11,442
              
              
              486,050
              
              
              —
              
              
              497,492OTHER
                  INTANGIBLE ASSETS
              
              
              —
              
              
              —
              
              
              83,998
              
              
              —
              
              
              83,998DEFERRED
                  INCOME TAXES
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —INVESTMENT
                  IN SUBSIDIARIES
              
              
              (194,447
              )
              
              124,476
              
              
              —
              
              
              69,971
              
              
              —OTHER
                  ASSETS, net
              
              
              38
              
              
              183,407
              
              
              3,447
              
              
              (149,800
              )
              
              37,092NONCURRENT
                  ASSETS related to discontinued operations
              
              
              —
              
              
              —
              
              
              412
              
              
              —
              
              
              412Total
                  assets
              
              $
              (194,684
              )
              $
              350,559
              
              $
              1,213,579
              
              $
              (408,385
              )
              $
              961,069**LIABILITIES
                  AND SHAREHOLDER’S EQUITY (DEFICIT)**CURRENT
                  LIABILITIES:Accounts
                  payable
              
              
              —
              
              
              398,048
              
              
              11,598
              
              
              (328,556
              )
              
              81,090Accrued
                  liabilities
              
              
              —
              
              
              70,912
              
              
              61,871
              
              
              —
              
              
              132,783Income
                  taxes payable
              
              
              6,274
              
              
              18,062
              
              
              —
              
              
              —
              
              
              24,336Current
                  maturities of long-term debt
              
              
              —
              
              
              451
              
              
              19,174
              
              
              —
              
              
              19,625Liabilities
                  related to discontinued operations
              
              
              —
              
              
              —
              
              
              1,137
              
              
              —
              
              
              1,137Total
                  current liabilities
              
              
              6,274
              
              
              487,473
              
              
              93,780
              
              
              (328,556
              )
              
              258,971LONG-TERM
                  DEBT, net of current maturities
              
              
              —
              
              
              18,907
              
              
              952,943
              
              
              (149,800
              )
              
              822,050DEFERRED
                  INCOME TAXES
              
              
              —
              
              
              33,456
              
              
              —
              
              
              —
              
              
              33,456DEFERRED
                  LEASE OBLIGATIONS
              
              
              —
              
              
              2,328
              
              
              35,881
              
              
              —
              
              
              38,209OTHER
                  LONG-TERM LIABILITIES
              
              
              —
              
              
              2,842
              
              
              6,499
              
              
              —
              
              
              9,341Total
                  liabilities
              
              
              6,274
              
              
              545,006
              
              
              1,089,103
              
              
              (478,356
              )
              
              1,162,027COMMITMENTS
                  AND CONTINGENCIESSHAREHOLDER’S
                  EQUITY (DEFICIT)Common
                  stock
              
              
              31
              
              
              —
              
              
              —
              
              
              —
              
              
              31Additional
                  paid in capital
              
              
              82
              
              
              —
              
              
              —
              
              
              —
              
              
              82Retained
                  earnings (accumulated deficit)
              
              
              (201,129
              )
              
              (194,505
              )
              
              124,476
              
              
              70,029
              
              
              (201,129
              )Accumulated
                  other comprehensive income
              
              
              58
              
              
              58
              
              
              —
              
              
              (58
              )
              
              58Total
                  shareholder’ s equity (deficit)
              
              
              (200,958
              )
              
              (194,447
              )
              
              124,476
              
              
              69,971
              
              
              (200,958
              )Total
                  liabilities and shareholder’ s equity (deficit)
              
              $
              (194,684
              )
              $
              350,559
              
              $
              1,213,579
              
              $
              (408,385
              )
              $
              961,069




72


**Condensed
      Consolidating Statement of Operations**


**For
      the Year Ended June 29, 2005**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**RESTAURANT
                  SALES
              
              $
              —
              
              $
              40,550
              
              $
              850,658
              
              $
              —
              
              $
              891,208RESTAURANT
                  COSTS:Food
              
              
              —
              
              
              14,594
              
              
              279,954
              
              
              —
              
              
              294,548Labor
              
              
              —
              
              
              12,618
              
              
              255,012
              
              
              —
              
              
              267,630Direct
                  and occupancy
              
              
              —
              
              
              7,169
              
              
              205,138
              
              
              —
              
              
              212,307Total
                  restaurant costs
              
              
              —
              
              
              34,381
              
              
              740,104
              
              
              —
              
              
              774,485ADVERTISING
                  EXPENSES
              
              
              —
              
              
              1,057
              
              
              23,109
              
              
              —
              
              
              24,166GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              5
              
              
              1,912
              
              
              39,989
              
              
              —
              
              
              41,906CLOSED
                  RESTAURANT COSTS
              
              
              —
              
              
              —
              
              
              2,909
              
              
              —
              
              
              2,909IMPAIRMENT
                  OF ASSETS
              
              
              —
              
              
              —
              
              
              3,609
              
              
              —
              
              
              3,609OPERATING
                  INCOME (LOSS)
              
              
              (5
              )
              
              3,200
              
              
              40,938
              
              
              —
              
              
              44,133INTEREST
                  EXPENSE
              
              
              11,453
              
              
              2,199
              
              
              34,448
              
              
              —
              
              
              48,100INTEREST
                  INCOME
              
              
              —
              
              
              (515
              )
              
              —
              
              
              —
              
              
              (515
              )LOSS
                  RELATED TO REFINANCING
              
              
              856
              
              
              —
              
              
              —
              
              
              —
              
              
              856LOSS
                  RELATED TO EARLY EXTINGUISHMENT OF DEBT
              
              
              —
              
              
              1,923
              
              
              —
              
              
              —
              
              
              1,923OTHER
                  INCOME
              
              
              —
              
              
              (935
              )
              
              —
              
              
              —
              
              
              (935
              )INCOME
                  (LOSS) BEFORE INCOME TAXES and Equity in net loss of
                  subsidiaries
              
              
              (12,314
              )
              
              528
              
              
              6,490
              
              
              —
              
              
              (5,296
              )INCOME
                  TAX (BENEFIT) EXPENSE
              
              
              (3,237
              )
              
              162
              
              
              1,712
              
              
              —
              
              
              (1,363
              )Net
                  income (loss) before equity in earnings
                of
                  subsidiaries
              
              
              (9,077
              )
              
              366
              
              
              4,778
              
              
              —
              
              
              (3,933
              )Equity
                  in earnings of subsidiaries
              
              
              6,893
              
              
              6,527
              
              
              —
              
              
              (13,420
              )
              
              —Net
                  income (loss) from continuing operations
              
              
              (2,184
              )
              
              6,893
              
              
              4,778
              
              
              (13,420
              )
              
              (3,933
              )Net
                  income (loss) from discontinued operations, net of tax of
                  $1,176
              
              
              —
              
              
              —
              
              
              1,749
              
              
              —
              
              
              1,749Net
                  income (loss)
              
              $
              (2,184
              )
              $
              6,893
              
              $
              6,527
              
              $
              (13,420
              )
              $
              (2,184
              )


73




**Condensed
      Consolidating Statement of Operations**


**For
      the Year Ended June 28, 2006**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**RESTAURANT
                  SALES
              
              $
              —
              
              $
              44,287
              
              $
              884,337
              
              $
              —
              
              $
              928,624RESTAURANT
                  COSTS:Food
              
              
              —
              
              
              15,788
              
              
              300,252
              
              
              —
              
              
              316,040Labor
              
              
              —
              
              
              13,194
              
              
              250,685
              
              
              —
              
              
              263,879Direct
                  and occupancy
              
              
              —
              
              
              6,335
              
              
              214,379
              
              
              —
              
              
              220,714Total
                  restaurant costs
              
              
              —
              
              
              35,317
              
              
              765,316
              
              
              —
              
              
              800,633ADVERTISING
                  EXPENSES
              
              
              —
              
              
              1,409
              
              
              29,228
              
              
              —
              
              
              30,637GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              6
              
              
              2,032
              
              
              40,039
              
              
              —
              
              
              42,077SHAREHOLDERS’
                  RIGHTS REPURCHASE
              
              
              757
              
              
              —
              
              
              —
              
              
              —
              
              
              757CLOSED
                  RESTAURANT COSTS
              
              
              —
              
              
              —
              
              
              6,023
              
              
              —
              
              
              6,023IMPAIRMENT
                  OF ASSETS
              
              
              —
              
              
              —
              
              
              5,964
              
              
              —
              
              
              5,964OPERATING
                  INCOME (LOSS)
              
              
              (763
              )
              
              5,529
              
              
              37,767
              
              
              —
              
              
              42,533INTEREST
                  EXPENSE
              
              
              12,907
              
              
              2,360
              
              
              36,975
              
              
              —
              
              
              52,242INTEREST
                  INCOME
              
              
              —
              
              
              (375
              )
              
              —
              
              
              —
              
              
              (375
              )LOSS
                  RELATED TO REFINANCING
              
              
              —
              
              
              647
              
              
              —
              
              
              —
              
              
              647OTHER
                  INCOME
              
              
              —
              
              
              (994
              )
              
              —
              
              
              —
              
              
              (994
              )INCOME
                  (LOSS) BEFORE INCOME TAXES and Equity in net loss of
                  subsidiaries
              
              
              (13,670
              )
              
              3,891
              
              
              792
              
              
              —
              
              
              (8,987
              )INCOME
                  TAX (BENEFIT) EXPENSE
              
              
              (3,261
              )
              
              1,775
              
              
              549
              
              
              —
              
              
              (937
              )Net
                  income (loss) before equity in earnings
                of
                  subsidiaries
              
              
              (10,409
              )
              
              2,116
              
              
              243
              
              
              —
              
              
              (8,050
              )Equity
                  in earnings of subsidiaries
              
              
              4,436
              
              
              2,320
              
              
              —
              
              
              (6,756
              )
              
              —Net
                  income (loss) from continuing operations
              
              
              (5,973
              )
              
              4,436
              
              
              243
              
              
              (6,756
              )
              
              (8,050
              )Net
                  income (loss) from discontinued operations, net of tax of
                  $1,396
              
              
              —
              
              
              —
              
              
              2,077
              
              
              —
              
              
              2,077Net
                  income (loss)
              
              $
              (5,973
              )
              $
              4,436
              
              $
              2,320
              
              $
              (6,756
              )
              $
              (5,973
              )





74


**Condensed
      Consolidating Statement of Operations**


**For
      the Year Ended June 27, 2007**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**RESTAURANT
                  SALES
              
              $
              —
              
              $
              43,242
              
              $
              1,344,247
              
              $
              —
              
              $
              1,387,489RESTAURANT
                  COSTS:Food
              
              
              —
              
              
              15,617
              
              
              465,069
              
              
              —
              
              
              480,686Labor
              
              
              —
              
              
              13,075
              
              
              401,391
              
              
              —
              
              
              414,466Direct
                  and occupancy
              
              
              —
              
              
              3,631
              
              
              352,508
              
              
              (2,531
              )
              
              353,608Total
                  restaurant costs
              
              
              —
              
              
              32,323
              
              
              1,218,968
              
              
              (2,531
              )
              
              1,248,760ADVERTISING
                  EXPENSES
              
              
              —
              
              
              1,033
              
              
              32,863
              
              
              —
              
              
              33,896GENERAL
                  AND ADMINISTRATIVE EXPENSES
              
              
              434
              
              
              1,888
              
              
              58,740
              
              
              (657
              )
              
              60,405CLOSED
                  RESTAURANT COSTS
              
              
              —
              
              
              —
              
              
              3,822
              
              
              —
              
              
              3,822IMPAIRMENT
                  OF ASSETS
              
              
              —
              
              
              —
              
              
              415
              
              
              —
              
              
              415MERGER
                  INTEGRATION COSTS
              
              
              —
              
              
              7,304
              
              
              3,634
              
              
              —
              
              
              10,938LOSS
                  ON LITIGATION SETTLEMENT
              
              
              —
              
              
              7,641
              
              
              —
              
              
              —
              
              
              7,641LOSS
                  ON SALE LEASEBACK TRANSACTIONS
              
              
              —
              
              
              —
              
              
              2,498
              
              
              —
              
              
              2,498OPERATING
                  INCOME (LOSS)
              
              
              (434
              )
              
              (6,947
              )
              
              23,307
              
              
              3,188
              
              
              19,114INTEREST
                  EXPENSE
              
              
              5,455
              
              
              4,453
              
              
              69,195
              
              
              561
              
              
              79,664INTEREST
                  INCOME
              
              
              —
              
              
              346
              
              
              —
              
              
              (561
              )
              
              (215
              )LOSS
                  RELATED TO REFINANCING
              
              
              18,044
              
              
              23,090
              
              
              —
              
              
              —
              
              
              41,134OTHER
                  INCOME
              
              
              —
              
              
              (1,593
              )
              
              —
              
              
              657
              
              
              (936
              )INCOME
                  (LOSS) BEFORE INCOME TAXES and Equity in net loss of
                  subsidiaries
              
              
              (23,933
              )
              
              (33,243
              )
              
              (45,888
              )
              
              2,531
              
              
              (100,533
              )INCOME
                  TAX (BENEFIT) EXPENSE
              
              
              6,275
              
              
              5,204
              
              
              5,592
              
              
              —
              
              
              17,071Net
                    income (loss) before equity in net loss
                  of
                    subsidiaries
              
              
              (30,208
              )
              
              (38,447
              )
              
              (51,480
              )
              
              2,531
              
              
              (117,604
              )Equity
                  in net loss of subsidiaries
              
              
              (86,533
              )
              
              (48,086
              )
              
              —
              
              
              134,619
              
              
              —Net
                  income (loss) from continuing operations
              
              
              (116,741
              )
              
              (86,533
              )
              
              (51,480
              )
              
              137,150
              
              
              (117,604
              )Net
                  income (loss) from discontinued operations, net of tax of
                  $579
              
              
              —
              
              
              —
              
              
              863
              
              
              —
              
              
              863Net
                  income (loss)
              
              $
              (116,741
              )
              $
              (86,533
              )
              $
              (50,617
              )
              $
              137,150
              
              $
              (116,741
              )




75


**Condensed
      Consolidating Statement of Cash Flows**


**For
      the Year Ended June 29, 2005**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**OPERATING
                  ACTIVITIES:Net
                  income (loss)
              
              $
              (2,184
              )
              $
              6,893
              
              $
              6,527
              
              $
              (13,420
              )
              $
              (2,184
              )Adjustments
                  to reconcile net income (loss) to net cash provided by (used in)
                  operating
                  activities:Depreciation
                  and amortization
              
              
              —
              
              
              3,214
              
              
              29,033
              
              
              —
              
              
              32,247Amortization
                  of debt issuance costs
              
              
              315
              
              
              64
              
              
              1,007
              
              
              —
              
              
              1,386Accretion
                  of original issue discount
              
              
              11,139
              
              
              46
              
              
              721
              
              
              —
              
              
              11,906Loss
                  related to early extinguishment of debt
              
              
              —
              
              
              1,923
              
              
              —
              
              
              —
              
              
              1,923Impairment
                  of assets
              
              
              —
              
              
              —
              
              
              3,609
              
              
              —
              
              
              3,609Deferred
                  income taxes
              
              
              (2,979
              )
              
              (48
              )
              
              (753
              )
              
              —
              
              
              (3,780
              )Loss
                  on disposal of assets
              
              
              —
              
              
              —
              
              
              2,280
              
              
              —
              
              
              2,280Equity earnings
                  of subsidiaries
              
              
              (6,893
              )
              
              (6,527
              )
              
              —
              
              
              13,420
              
              
              —Changes
                  in assets and liabilities:Receivables
              
              
              —
              
              
              40,610
              
              
              (39,643
              )
              
              (636
              )
              
              331Inventories
              
              
              —
              
              
              (38
              )
              
              (645
              )
              
              —
              
              
              (683
              )Prepaid
                  expenses and other assets
              
              
              (4
              )
              
              (1,274
              )
              
              204
              
              
              —
              
              
              (1,074
              )Accounts
                  payable
              
              
              (180
              )
              
              1,544
              
              
              340
              
              
              —
              
              
              1,704Accrued
                  and other liabilities
              
              
              —
              
              
              1,787
              
              
              764
              
              
              —
              
              
              2,551Income
                  taxes payable/ refundable
              
              
              (258
              )
              
              4,336
              
              
              (1,619
              )
              
              —
              
              
              2,459Net
                  cash provided by (used in) operating activities
              
              
              (1,044
              )
              
              52,530
              
              
              1,825
              
              
              (636
              )
              
              52,675INVESTING
                  ACTIVITIES:Purchase
                  of property and equipment
              
              
              —
              
              
              (1,601
              )
              
              (27,530
              )
              
              —
              
              
              (29,131
              )Collections
                  on notes receivable
              
              
              —
              
              
              733
              
              
              —
              
              
              —
              
              
              733Corporate
                  cash advances (payments)
              
              
              —
              
              
              (53,499
              )
              
              52,863
              
              
              636
              
              
              —(Purchase)
                  sale of other assets
              
              
              32
              
              
              (733
              )
              
              628
              
              
              —
              
              
              (73
              )Net
                  cash provided by (used in) investing activities
              
              
              32
              
              
              (55,100
              )
              
              25,961
              
              
              636
              
              
              (28,471
              )FINANCING
                  ACTIVITIES:Repayment
                  of debt
              
              
              —
              
              
              (1,787
              )
              
              (27,994
              )
              
              —
              
              
              (29,781
              )Repurchase
                  of common stock
              
              
              (284
              )
              
              —
              
              
              —
              
              
              —
              
              
              (284
              )Proceeds
                  from issuance of common stock
              
              
              15
              
              
              —
              
              
              —
              
              
              —
              
              
              15Reduction
                  of restricted cash available for early extinguishment of
                  debt
              
              
              —
              
              
              974
              
              
              15,254
              
              
              —
              
              
              16,228Use
                  of restricted cash for early extinguishment of debt
              
              
              —
              
              
              (944
              )
              
              (14,792
              )
              
              —
              
              
              (15,736
              )Dividends
              
              
              1,290
              
              
              (1,290
              )
              
              —
              
              
              —
              
              
              —Debt
                  issuance costs
              
              
              (56
              )
              
              —
              
              
              —
              
              
              —
              
              
              (56
              )Net
                  cash provided by (used in) investing activities
              
              
              965
              
              
              (3,047
              )
              
              (27,532
              )
              
              —
              
              
              (29,614
              )NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              (47
              )
              
              (5,617
              )
              
              254
              
              
              —
              
              
              (5,410
              )CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              96
              
              
              19,771
              
              
              6,180
              
              
              —
              
              
              26,047CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              49
              
              $
              14,154
              
              $
              6,434
              
              $
              —
              
              $
              20,637




76


**Condensed
      Consolidating Statement of Cash Flows**


**For
      the Year Ended June 28, 2006**





**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**OPERATING
                  ACTIVITIES:Net
                  income (loss)
              
              $
              (5,973
              )
              $
              4,436
              
              $
              2,320
              
              $
              (6,756
              )
              $
              (5,973
              )Adjustments
                  to reconcile net income (loss) to net cash provided by (used in)
                  operating
                  activities:Depreciation
                  and amortization
              
              
              —
              
              
              2,907
              
              
              29,160
              
              
              —
              
              
              32,067Amortization
                  of debt issuance costs
              
              
              354
              
              
              71
              
              
              1,107
              
              
              —
              
              
              1,532Accretion
                  of original issue discount
              
              
              12,552
              
              
              47
              
              
              737
              
              
              —
              
              
              13,336Impairment
                  of assets
              
              
              —
              
              
              —
              
              
              5,964
              
              
              —
              
              
              5,964Deferred
                  income taxes
              
              
              (3,225
              )
              
              69
              
              
              1,078
              
              
              —
              
              
              (2,078
              )Loss
                  on disposal of assets
              
              
              —
              
              
              —
              
              
              1,218
              
              
              —
              
              
              1,218Equity
                  in earnings of subsidiaries
              
              
              (4,436
              )
              
              (2,320
              )
              
              —
              
              
              6,756
              
              
              —Changes
                  in assets and liabilities:Receivables
              
              
              (1,885
              )
              
              52,985
              
              
              (50,568
              )
              
              1,221
              
              
              1,753Inventories
              
              
              —
              
              
              (18
              )
              
              (685
              )
              
              —
              
              
              (703
              )Prepaid
                  expenses and other assets
              
              
              1
              
              
              1,562
              
              
              (280
              )
              
              —
              
              
              1,283Accounts
                  payable
              
              
              —
              
              
              4,137
              
              
              (71
              )
              
              (1,877
              )
              
              2,189Accrued
                  and other liabilities
              
              
              —
              
              
              (1,547
              )
              
              277
              
              
              —
              
              
              (1,270
              )Income
                  taxes payable/refundable
              
              
              1,841
              
              
              (1,854
              )
              
              —
              
              
              —
              
              
              (13
              )Net
                  cash provided by (used in) operating activities
              
              
              (771
              )
              
              60,475
              
              
              (9,743
              )
              
              (656
              )
              
              49,305INVESTING
                  ACTIVITIES:Purchase
                  of property and equipment
              
              
              —
              
              
              (1,721
              )
              
              (29,625
              )
              
              —
              
              
              (31,346
              )Collection
                  on notes receivable
              
              
              —
              
              
              1,062
              
              
              —
              
              
              —
              
              
              1,062Corporate
                  cash advances (payments)
              
              
              —
              
              
              (56,764
              )
              
              56,108
              
              
              656
              
              
              —Purchase
                  of other assets
              
              
              (1
              )
              
              (1,347
              )
              
              (1,090
              )
              
              —
              
              
              (2,438
              )Net
                  cash provided by (used in) investing activities
              
              
              (1
              )
              
              (58,770
              )
              
              25,393
              
              
              656
              
              
              (32,722
              )FINANCING
                  ACTIVITIES:Repayment
                  of debt
              
              
              —
              
              
              (1,021
              )
              
              (15,995
              )
              
              —
              
              
              (17,016
              )Repurchase
                  of common stock
              
              
              (10
              )
              
              —
              
              
              —
              
              
              —
              
              
              (10
              )Dividends
              
              
              770
              
              
              (770
              )
              
              —
              
              
              —
              
              
              —Net
                  cash provided by (used in) investing activities
              
              
              760
              
              
              (1,791
              )
              
              (15,995
              )
              
              —
              
              
              (17,026
              )NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              (12
              )
              
              (86
              )
              
              (345
              )
              
              —
              
              
              (443
              )CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              49
              
              
              14,154
              
              
              6,434
              
              
              —
              
              
              20,637CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              37
              
              $
              14,068
              
              $
              6,089
              
              $
              —
              
              $
              20,194




77


**Condensed
      Consolidating Statement of Cash Flows**


**For
      the Year Ended June 27, 2007**




**Parent**
              
              **Subsidiary**
                **Issuer**
              
              **Subsidiary**
                **Guarantors**
              
              **Eliminations**
              
              **Consolidated****(In
                  thousands)**OPERATING
                  ACTIVITIES:Net
                  income (loss)
              
              $
              (116,741
              )
              $
              (86,533
              )
              $
              (50,617
              )
              $
              137,150
              
              $
              (116,741
              )Adjustments
                  to reconcile net income (loss) to net cash provided by (used in)
                  operating
                  activities:Depreciation
                  and amortization
              
              
              —
              
              
              2,840
              
              
              37,996
              
              
              —
              
              
              40,836Amortization
                  of debt issuance costs
              
              
              140
              
              
              90
              
              
              3,802
              
              
              —
              
              
              4,032Loss
                  related to refinancing:Write-off
                  of debt issuance costs
              
              
              1,992
              
              
              154
              
              
              6,540
              
              
              —
              
              
              8,686Premium
                  expensed
              
              
              16,052
              
              
              358
              
              
              15,189
              
              
              —
              
              
              31,599Accretion
                  of original issue discount
              
              
              5,315
              
              
              7
              
              
              301
              
              
              —
              
              
              5,623Impairment
                  of assets
              
              
              —
              
              
              —
              
              
              415
              
              
              —
              
              
              415Deferred
                  income taxes
              
              
              6,204
              
              
              (178
              )
              
              (7,559
              )
              
              —
              
              
              (1,533
              )Loss
                  on disposal of assets
              
              
              —
              
              
              (2,825
              )
              
              6,682
              
              
              (2,531
              )
              
              1,326Stock-based
                  compensation
              
              
              77
              
              
              —
              
              
              —
              
              
              —
              
              
              77Loss
                  on sale leaseback transaction
              
              
              —
              
              
              2,498
              
              
              —
              
              
              —
              
              
              2,498Equity
                  in net loss of subsidiaries
              
              
              86,533
              
              
              48,086
              
              
              —
              
              
              (134,619
              )
              
              —Changes
                  in assets and liabilities:Receivables
              
              
              320
              
              
              206,287
              
              
              (211,485
              )
              
              3,987
              
              
              (891
              )Inventories
              
              
              —
              
              
              (13
              )
              
              (750
              )
              
              —
              
              
              (763
              )Prepaid
                  expenses and other assets
              
              
              3
              
              
              (3,291
              )
              
              23,582
              
              
              —
              
              
              20,294Due
                  from parent
              
              
              (108
              )
              
              —
              
              
              108
              
              
              —
              
              
              —Accounts
                  payable
              
              
              1,877
              
              
              22,245
              
              
              (8,734
              )
              
              —
              
              
              15,388Accrued
                  and other liabilities
              
              
              —
              
              
              28,109
              
              
              (21,912
              )
              
              —
              
              
              6,197Income
                  taxes payable/ refundable
              
              
              6,310
              
              
              (32,494
              )
              
              15,110
              
              
              —
              
              
              (11,074
              )Net
                  cash provided by (used in) operating activities
              
              
              7,974
              
              
              185,340
              
              
              (191,332
              )
              
              3,987
              
              
              5,969INVESTING
                  ACTIVITIES:Proceeds
                  from sale leaseback transactions
              
              
              —
              
              
              8,608
              
              
              —
              
              
              —
              
              
              8,608Proceeds
                  from sale of assets held for sale
              
              
              —
              
              
              —
              
              
              18,113
              
              
              —
              
              
              18,113Issuance
                  of notes receivable to Ryan’s
              
              
              —
              
              
              (149,800
              )
              
              —
              
              
              149,800
              
              
              —Acquisition,
                  net of liabilities assumed and cash acquired
              
              
              —
              
              
              (165,430
              )
              
              (3,418
              )
              
              —
              
              
              (168,848
              )Purchase
                  of property and equipment
              
              
              —
              
              
              (1,593
              )
              
              (39,282
              )
              
              —
              
              
              (40,875
              )Collection
                  on notes receivable
              
              
              —
              
              
              1,753
              
              
              —
              
              
              —
              
              
              1,753Corporate
                  cash advances (payments)
              
              
              —
              
              
              353,768
              
              
              (349,781
              )
              
              (3,987
              )
              
              —Purchase
                  of other assets
              
              
              33
              
              
              —
              
              
              608
              
              
              —
              
              
              641Net
                  cash provided by (used in) investing activities
              
              
              33
              
              
              47,306
              
              
              (373,760
              )
              
              145,813
              
              
              (180,608
              )FINANCING
                  ACTIVITIES:Repayment
                  of previous term loan facility
              
              
              —
              
              
              (4,187
              )
              
              (177,866
              )
              
              —
              
              
              (182,053
              )Repurchase
                  of 11 1/4% senior subordinated notes
              
              
              —
              
              
              (4,158
              )
              
              (176,620
              )
              
              —
              
              
              (180,778
              )Repurchase
                  of 13 7/8% senior discount notes
              
              
              (105,306
              )
              
              —
              
              
              —
              
              
              —
              
              
              (105,306
              )Repayment
                  of Ryan’s debt
              
              
              —
              
              
              (145,000
              )
              
              —
              
              
              —
              
              
              (145,000
              )Proceeds
                  from new term loan funding
              
              
              —
              
              
              12,190
              
              
              517,810
              
              
              —
              
              
              530,000Payments
                  on new term loan funding
              
              
              —
              
              
              (30
              )
              
              (1,295
              )
              
              —
              
              
              (1,325
              )Proceeds
                  from new revolver facility
              
              
              —
              
              
              299
              
              
              12,701
              
              
              —
              
              
              13,000Proceeds
                  from 12 1/2% senior note issuance
              
              
              —
              
              
              6,900
              
              
              293,100
              
              
              —
              
              
              300,000Debt
                  issuance costs
              
              
              —
              
              
              (849
              )
              
              (36,045
              )
              
              —
              
              
              (36,894
              )Payment
                  of refinancing premiums
              
              
              (16,052
              )
              
              (380
              )
              
              (16,122
              )
              
              —
              
              
              (32,554
              )Dividends
              
              
              113,351
              
              
              (113,351
              )
              
              —
              
              
              —
              
              
              —Issuance
                  of notes receivable from parent
              
              
              —
              
              
              —
              
              
              149,800
              
              
              (149,800
              )
              
              —Net
                  cash provided by (used in) investing activities.
              
              
              (8,007
              )
              
              (248,566
              )
              
              565,463
              
              
              (149,800
              )
              
              159,090NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              —
              
              
              (15,920
              )
              
              371
              
              
              —
              
              
              (15,549
              )CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              37
              
              
              14,068
              
              
              6,089
              
              
              —
              
              
              20,194CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              37
              
              $
              (1,852
              )
              $
              6,460
              
              $
              —
              
              $
              4,645




78


**19.
      Interim Financial Results (Unaudited)**





The
      following table sets forth certain unaudited quarterly information for each
      of
      the four fiscal quarters for the years ended June 28, 2006 and June 27, 2007,
      respectively (in thousands) and gives effect to the restatement discussed in
      Note 20 - “Restatement” to the accompanying consolidated financial statements.
      In management’s opinion, this unaudited quarterly information has been prepared
      on a consistent basis with the audited consolidated financial statements and
      includes all necessary adjustments, consisting only of normal recurring
      adjustments, that management considers necessary for a fair presentation of
      the
      unaudited quarterly results when read in conjunction with the consolidated
      financial statements and related notes. The Company believes that
      quarter-to-quarter comparisons of its financial results are not necessarily
      indicative of future performance.


**For
                    the Year Ended June 27,
                    2007****First**
                  **Quarter**
                
                **Second**
                  **Quarter**
                
                **Third**
                  **Quarter**
                
                **As
                    Previously Reported Fourth Quarter**
                
                **As
                    Restated Fourth**
                  **Quarter**Revenues
                
                $
                213,904
                
                $
                291,005
                
                $
                499,234
                
                $
                383,346
                
                $
                383,346Operating
                    income
                
                
                9,889
                
                
                307
                
                
                5,128
                
                
                3,790
                
                
                3,790Loss
                    before income taxes
                
                
                (3,352
                )
                
                (56,775
                )
                
                (23,838
                )
                
                (16,568
                )
                
                (16,568
                )Net
                    Loss from continuing operations
                
                
                (1,449
                )
                
                (35,135
                )
                
                (14,717
                )
                
                (55,085
                )
                
                (66,303
                )Net
                    income (loss) from discontinued operations
                
                
                309
                
                
                199
                
                
                320
                
                
                35
                
                
                35Net
                    loss
                
                
                (1,140
                )
                
                (34,936
                )
                
                (14,397
                )
                
                (55,050
                )
                
                (66,268
                )




**For
                    the Year Ended June 28, 2006****First**
                  **Quarter**
                
                **Second**
                  **Quarter**
                
                **Third**
                  **Quarter**
                
                **As
                    Previously Reported Fourth Quarter**
                
                **As
                    Restated Fourth**
                  **Quarter**Revenues
                
                $
                218,806
                
                $
                210,690
                
                $
                281,375
                
                $
                217,753
                
                $
                217,753Operating
                    income
                
                
                16,460
                
                
                5,071
                
                
                9,778
                
                
                11,224
                
                
                11,224Income
                    (loss) before income taxes
                
                
                4,224
                
                
                (6,434
                )
                
                (6,113
                )
                
                (664
                )
                
                (664
                )Net
                    income (loss) from continuing operations
                
                
                2,659
                
                
                (4,322
                )
                
                (2,133
                )
                
                (3,053
                )
                
                (4,254
                )Net
                    income from discontinued operations
                
                
                465
                
                
                403
                
                
                844
                
                
                365
                
                
                365Net
                    income (loss)
                
                
                3,124
                
                
                (3,919
                )
                
                (1,289
                )
                
                (2,688
                )
                
                (3,889
                )




Net
      income (loss) for fiscal years 2007 and 2006 was impacted by certain unusual
      and
      infrequent transactions as follows:





Net
        loss
        for the fourth quarter of fiscal 2007 included pretax charges of $3.9 million
        related to the merger with Ryan’s and North’s and the integration of the two
        companies and $0.9 million related to closed restaurant costs. In addition,
        the
        fourth quarter of fiscal 2007 included pretax charges of approximately $0.4
        million related to the impairment of long lived assets related to one restaurant
        and $45.5 million to establish a valuation allowance against our deferred
        tax
        assets. Net loss for the fourth quarter of fiscal 2006 included pretax charges
        of $4.6 million for the impairment of long-lived assets and $0.5 million
        in
        closed restaurant costs. There amounts were offset by a gain of approximately
        $0.7 million related to the Visa Check/MasterMoney antitrust litigation
        settlement. The settlement was recorded in direct and occupancy costs within
        the
        restaurant costs section of the consolidated statement of
        operations.





Net
      loss
      for the third quarter of fiscal 2007 included pretax charges of $1.4 million
      for
      closed restaurant costs as compared to $4.4 million for the comparable prior
      year period. The decrease was due in large part to the closing of one
      underperforming restaurant in fiscal 2007 compared to the closure of sixteen
      under performing restaurants in fiscal 2006. Net loss for the third quarter
      of
      fiscal 2007 also included pretax charges of approximately $3.5 million and
      $6.0
      million related to the Ryan’s and North’s acquisitions that commenced during
      fiscal 2007 and the expected settlement of certain lawsuits, respectively.
      In
      addition to the $4.4 million related to closed restaurant costs, the third
      quarter of fiscal 2006 also included a charge of approximately $0.7 million
      related to the repurchase of certain rights associated with shares of common
      stock previously held by former management shareholders who separated from
      the
      Company.





The
      net
      loss for the second quarter for both fiscal 2007 and 2006 included pretax
      charges of approximately $0.8 million in closed restaurant costs as two stores
      were closed during each period. The second quarter of 2007 also included a
      pretax charge of approximately $3.1 million related to the Ryan’s and North’s
      acquisitions that commenced during fiscal 2007.


79


Net
      loss
      for the first quarter of fiscal 2007 included a pretax charge of approximately
      $0.7 million for closed restaurant costs as compared to $0.3 million for the
      comparable prior year period. The increase was due in large part to the closure
      of three underperforming stores in the first quarter of fiscal 2007 compared
      to
      zero in the comparable prior year. The first quarter of 2007 also included
      a
      pretax charge of approximately $0.4 related to the Ryan’s acquisition that
      commenced in the second quarter of fiscal 2007. Net income for the first quarter
      of fiscal 2006 included a pretax charge of approximately $0.6 million
      representing transaction fees related to an amendment to Buffets’ credit
      agreement.





**20.
      Restatement**





Subsequent
        to the issuance of the Company’s 2007 consolidated financial statements, the
        Company identified certain tax accounting errors related to the merger with
        Ryan’s Restaurant Group, Inc. on November 1, 2006 (the “Merger”), as well as the
        Company’s deferred tax balances and related valuation allowance and the
        classification of income tax refund receivables. As a result, the Company
        has
        restated the accompanying consolidated financial statements as of and for
        the
        fiscal years ended June 28, 2006 and June 27, 2007. The effects of the
        restatement are as follows:





**Effects
      on Consolidated Balance Sheet as of June 28, 2006**





**As
                  Previously****Reported**
              
              **As
                  Restated**Income
                  Tax Receivable
              
              $
              —
              
              $
              117Total
                  Current Assets
              
              
              59,732
              
              
              59,849Deferred
                  Income Taxes - Current
              
              
              13,683
              
              
              12,482Total
                  Assets
              
              
              538,496
              
              
              537,412Accumulated
                  Deficit
              
              
              (83,187
              )
              
              (84,388
              )Total
                  Shareholders’ Deficit
              
              
              (83,151
              )
              
              (84,352
              )Total
                  Liabilities and Shareholders’ Deficit
              
              
              538,496
              
              
              537,412





**Effects
      on Consolidated Statement of Operations for the fiscal year ended June 28,
      2006**





**As
                Previously****Reported**
            
            **As
                Restated**Income
                Tax Benefit
            
            $
            (2,138
            )
            $
            (937
            )Loss
                from Continuing Operations
            
            
            (6,849
            )
            
            (8,050
            )Net
                Loss
            
            
            (4,772
            )
            
            (5,973
            )





**Effects
      on Consolidated Statement of Cash Flows for the fiscal year ended June 28,
      2006**





**As
                Previously****Reported**
            
            **As
                Restated**Net
                Loss
            
            $
            (4,772
            )
            $
            (5,973
            )Deferred
                Tax Benefit
            
            
            (3,279
            )
            
            (2,078
            )





**Effects
      on Consolidated Balance Sheet as of June 27, 2007**





**As
                  Previously****Reported**
              
              **As
                  Restated**Income
                  Tax Receivable
              
              $
              —
              
              $
              13,324Total
                  Current Assets
              
              
              107,659
              
              
              120,983Goodwill
              
              
              502,046
              
              
              497,492Total
                  Assets
              
              
              952,299
              
              
              961,069Income
                  Taxes Payable
              
              
              3,147
              
              
              24,336Total
                  Current Liabilities
              
              
              237,782
              
              
              258,971Total
                  Liabilities
              
              
              1,140,838
              
              
              1,162,027Accumulated
                  Deficit
              
              
              (188,710
              )
              
              (201,129
              )Total
                  Shareholders’ Deficit
              
              
              (188,539
              )
              
              (200,958
              )Total
                  Liabilities and Shareholders’ Deficit
              
              
              952,299
              
              
              961,069




80




**Effects
      on Consolidated Statement of Operations for the fiscal year ended June 27,
      2007**




**As
                  Previously****Reported**
              
              **As
                  Restated**Income
                  Tax (Benefit)/Expense
              
              $
              5,853
              
              $
              17,071Loss
                  from Continuing Operations
              
              
              (106,386
              )
              
              (117,604
              )Net
                  Loss
              
              
              (105,523
              )
              
              (116,741
              )




**Effects
      on Consolidated Statement of Cash Flows for the fiscal year ended June 27,
      2007**





**As
                Previously****Reported**
            
            **As
                Restated**Net
                Loss
            
            $
            (105,523
            )
            $
            (116,741
            )Deferred
                Tax Benefit
            
            
            (4,886
            )
            
            (1,533
            )Income
                Taxes Payable
            
            
            (18,939
            )
            
            (11,074
            )


Additionally,
          the Company’s management determined that it had not appropriately applied the
          equity method of accounting in the condensed consolidating financial statements
          presented in Note 12. Accordingly, the accompanying supplemental financial
          information for the Parent Company and Guarantor and Non-Guarantor subsidiaries
          presented in Note 18 has been restated.


**21.
      Subsequent Events**





*12
1⁄2%
      Senior Notes*





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





The
      Chapter 11 filing triggered the immediate acceleration of, and events of default
      to occur under, the 12 1/2% Senior Notes and the Credit Facility. However,
      the
      ability of the Company’s creditors to seek remedies to enforce their rights
      under these obligations is automatically stayed as a result of the Bankruptcy
      Cases and their rights to enforcement are subject to the applicable provisions
      of the Bankruptcy Code.





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





*Forbearance
      Agreement*





On
      January 10, 2008, Buffets entered into a Forbearance Agreement and Second
      Amendment to the Credit Facility (the “Forbearance Agreement”) with its Credit
      Facility Lenders relating to the Company’s Credit Agreement, dated November 1,
      2006. The Forbearance Agreement provided that the Administrative Agent and
      the
      lenders party to the Credit Agreement would forbear from exercising their
      default-related rights and remedies with respect to certain, at that time
      anticipated, defaults under the Credit Agreement, including the failure by
      the
      Company to maintain a minimum interest coverage ratio and a maximum leverage
      ratio and the failure by the Company to make the January 2, 2008 interest
      payment due on the Company’s 12 1⁄2% Senior Notes within the applicable 30-day
      grace period. As part of the conditions to the Forbearance Agreement, the
      Company had to refrain from paying amounts owed with respect to any indebtedness
      other than the obligations under the Loan Documents during the Forbearance
      Period. This includes refraining from paying amounts owed under the terms of
      the
      Management Agreement with the Caxton-Iseman Party.




81


*Departure
      of Directors or Certain Officers*





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





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





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





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





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





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





*DIP
      Credit Agreement*





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





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





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





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




82


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





*Interest
      Rate Swap*





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





*Store
      Closures*





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




In
          regard to the 52
          closed stores, cash charges incurred were approximately $2.1 million. These
          charges included approximately $0.7 million related to lease termination
          costs
          and obligations, $1.2 million related to employee termination costs and
          approximately $0.2 million related to other associated costs. Non-cash
          charges
          related to these closures were approximately $7.5 million. These charges
          were
          expensed as incurred pursuant to SFAS 146.
 *Third
            Amendment to the Pre-Petition Credit Facility*
 
 On
            March
            12, 2008, we received final approval from the Bankruptcy Court for the
            Third
            Amendment (the “Third Amendment”) to the Pre-Petition Credit Facility. In
            accordance with the Third Amendment, we may continue to renew letters
            of credit
            originally issued under the Pre-Petition Credit Facility notwithstanding
            the
            fact that we filed a petition for relief under Chapter 11 of the Bankruptcy
            Code.


*Goodwill
      Impairment*




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




*Going
          Concern*
 
 The
          accompanying consolidated financial statements have been prepared on a
          going
          concern basis, which contemplates the realization of assets and the discharge
          of
          liabilities in the normal course of business for the foreseeable future.
          The
          Company incurred net losses of $2.2 million, $6.0 million and $116.7 million
          for
          the years ended June 29, 2005, June 28, 2006 and June 27, 2007, respectively,
          incurred a net loss of $43.4 million (unaudited) for the 24 weeks ended
          December
          12, 2007, and an accumulated deficit of $243.7 million (unaudited) and
          a working
          capital deficiency of $958.6 million (unaudited) at December 12, 2007,
          including
          $822.1 million (unaudited) of long-term debt classified as current as
          result of the events of default. During the 24 weeks ended December 12,
          2007,
          the Company had net cash used in operations of $14.2 million (unaudited)
          and
          completed asset sale transactions for proceeds totaling approximately $14.7
          million (unaudited). As
          a
          result of these liquidity issues, the Company fell out of compliance with
          certain financial covenants included in its Pre-Petition Credit Agreement
          and
          failed to make an $18.8 million interest payment, due January 2, 2008 on
          its 12
1⁄2% Senior Notes.
 
 The
          Company anticipates that substantially all of its and the other Debtor’s
          liabilities as of the date it filed for bankruptcy will be addressed under,
          and
          treated in accordance with, a plan of reorganization to be proposed to
          and voted
          on by the Company’s creditors in accordance with the provisions of the
          Bankruptcy Code. Although the Company intends to file and seek confirmation
          of
          such a plan, there can be no assurance as to when the plan will be filed
          or that
          the plan will be confirmed by the Bankruptcy Court and consummated. Nor
          can
          there be any assurance that the Company will be successful in achieving
          its
          goals, or that any measures that are achievable will result in sufficient
          improvement to the Company’s financial position. Accordingly, until the time
          that the Company emerges from bankruptcy, there will be no certainty about
          its
          ability to continue as a going concern. If a restructuring is not completed,
          the
          Company could be forced to sell a significant portion of its assets to
          retire
          outstanding indebtedness or, under certain circumstances, to cease
          operations.
 
 The
          Company’s continuation as a going concern is contingent upon, amongst other
          things, its ability (i) to comply with the terms and conditions of the
          DIP
          Credit Agreement; (ii) to obtain confirmation of a plan of reorganization
          under
          the Bankruptcy Code; (iii) to reduce administrative, operating and interest
          costs and liabilities through the bankruptcy process; (iv) to return to
          profitability and (v) to generate sufficient cash flow from operations.
          These
          matters create substantial doubt relating to the Company’s ability to continue
          as a going concern. The accompanying consolidated financial statements do
          not reflect any adjustments relating to the recoverability of assets and
          classifications of liabilities that might result from the outcome of these
          uncertainties. In addition, a plan of reorganization could materially change
          the
          amounts reported in the consolidated financial statements. The consolidated
          financial statements as of June 27, 2007 do not give effect to
          any adjustments to the carrying value of assets and liabilities that may
          become necessary as a consequence of reorganization under Chapter
          11.


83


**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND**  **FINANCIAL
      DISCLOSURE**





None.





**ITEM
      9A. CONTROLS AND PROCEDURES**





*Disclosure
      Controls and Procedures*




In
      connection with the restatements discussed above in the explanatory note to
      this
      Form 10-K/A and in Note 20 - “Restatement” to our accompanying consolidated
      financial statements, under the direction of our Chief Executive Officer and
      Chief Financial Officer, we reevaluated our disclosure controls and procedures
      (as defined in Rule 13(a)-15(c) or Rule15(d)-15(e) of the Securities Exchange
      Act of 1934). We concluded that our disclosure controls and procedures were
      not
      effective as of June 27, 2007, solely as a result of the material weakness
      described below.




A
      material weakness is a control deficiency, or combination of control
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of our annual or interim financial statements would not be
      prevented or detected. As of June 27, 2007, we did not maintain effective
      internal control over the following areas; (1) determination of deferred income
      tax balances related to a business combination, (2) determination of tax
      provision amounts related to certain timing differences such as depreciation
      and
      (3) determining the appropriate basis at which to record tax reserves, gross
      versus net. Specifically, controls over the processes and procedures in
      calculating deferred income tax liabilities related to a business combination
      were not effective to ensure that the deferred income tax liabilities and
      allocated goodwill were fairly stated in accordance with generally accepted
      accounting principles. In addition, controls over the processes and procedures
      in calculating depreciation for tax purposes were not effective to ensure the
      accuracy of the calculation and the processes and procedures in determining
      the
      basis at which to record tax reserves were not effective to ensure that the
      tax
      reserves were fairly stated in accordance with generally accepted accounting
      principles. These deficiencies resulted in the restatements herein affecting
      deferred income taxes and related valuation allowance, goodwill, income taxes
      payable and retained earnings. Additionally, this control deficiency could
      result in a misstatement in the aforementioned accounts that would result in
      a
      material misstatement to the annual or interim consolidated financial statements
      that would not be prevented or detected. Therefore, we have concluded that
      this
      control deficiency constitutes a material weakness.





*Changes
      in Internal Control Over Financial Reporting*





During
      the 52 weeks ended June 27, 2007, there were no changes in our internal control
      over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
      Securities Exchange Act of 1934) that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**ITEM
      9B. OTHER INFORMATION**





None.


84


**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**





The
      following table sets forth information regarding our directors and executive
      officers:





**Name**
            
            **Age**
            
            **Position**Frederick
                J. Iseman
            
            54
            
            Chairman
                of the Board and Director of Buffets HoldingsRoe
                H. Hatlen
            
            63
            
            Vice
                Chairman of the Board and Director of Buffets HoldingsR.
                Michael Andrews, Jr.
            
            43
            
            Chief
                Executive OfficerMario
                O. Lee
            
            47
            
            Executive
                Vice President of Operations — Buffets DivisionM.
                Richard Kirk
            
            50
            
            Executive
                Vice President of Operations — Ryan’s DivisionA.
                Keith Wall
            
            55
            
            Executive
                Vice President and Chief Financial OfficerKarlin
                A. Linhardt
            
            44
            
            Executive
                Vice President of MarketingFred
                P. Williams
            
            49
            
            Executive
                Vice President of Concept Development and Real EstateH.
                Thomas Mitchell
            
            50
            
            Executive
                Vice President, General Counsel and SecretaryJane
                L. Binzak
            
            40
            
            Executive
                Vice President of Human ResourcesLinda
                J. Allison
            
            53
            
            Executive
                Vice President of Operations ServicesSteven
                M. Lefkowitz
            
            43
            
            Director
                of Buffets HoldingsRobert
                A. Ferris
            
            65
            
            Director
                of Buffets HoldingsDavid
                S. Lobel
            
            54
            
            Director
                of Buffets HoldingsRobert
                M. Rosenberg
            
            69
            
            Director
                of Buffets HoldingsAnkur
                A. Vora
            
            30
            
            Director
                of Buffets Holdings





*Frederick
      J. Iseman* has
      served as Chairman of the Board and as a director of Buffets Holdings and as
      Chairman of the Board and as a director of Buffets since October 2000. Mr.
      Iseman is currently Chairman and Managing Partner of Caxton-Iseman Capital,
      LLC
      (“Caxton-Iseman Capital”), a private investment firm, which was founded by Mr.
      Iseman in 1993. Prior to establishing Caxton-Iseman Capital, Mr. Iseman founded
      Hambro-Iseman Capital Partners, a merchant banking firm. From 1988 to 1990,
      Mr.
      Iseman was a member of Hambro International Venture Fund. Mr. Iseman is Chairman
      of the Board and a director of Ply Gem Industries, Inc. and a member of the
      Advisory Board of Duke Street Capital and the Advisory Board of STAR Capital
      Partners Limited.





*Roe
      H. Hatlen* co-founded
      Buffets and has served as the Vice-Chairman of the Board of Buffets Holdings
      since October 2000 and as the Vice-Chairman of the Board of Buffets since June
      2002. He served as Buffets’ Chairman and Chief Executive Officer from its
      inception in 1983 through May 2000 and as President from May 1989 to September
      1992. He served as President and Chief Executive Officer of Buffets Holdings
      and
      of Buffets from November 2004 to November 2005. He is a member of the Board
      of
      Regents of Pacific Lutheran University.





*R.
      Michael Andrews, Jr.* has
      served as Chief Executive Officer of Buffets Holdings and of Buffets since
      November 2005. He served as Executive Vice President and Chief Operating Officer
      from November 2004 to November 2005. He served as Executive Vice President
      and
      Chief Financial Officer of Buffets Holdings from February 2004 to November
      2004
      and of Buffets from April 2000 to November 2004. Prior to joining us, Mr.
      Andrews served as Chief Financial Officer of Eerie World Entertainment, the
      parent company to Jekyll & Hyde Clubs, and as Chief Financial Officer of Don
      Pablo’s Restaurants. Previously, Mr. Andrews was with KPMG Peat Marwick LLP for
      approximately 12 years, serving most recently as Senior Manager.





*Mario
      O. Lee* has
      served as Executive Vice President of Operations of Buffets Holdings and of
      Buffets since January 2006. Mr. Lee has been with Buffets for 11 years,
      beginning as a General Manager and rapidly progressing to positions of greater
      responsibility. He served most recently as Regional Vice President of
      Operations, a position he held from 2001 to January 2006. Mr. Lee has over
      28
      years of restaurant industry experience including management and multi-unit
      responsibilities with other family-oriented restaurant concepts, such as Bakers
      Square, Del Taco, Church’s Chicken, and Taco Bell.





*M.
      Richard Kirk* joined
      Ryan’s in 1986 and served as a store manager until being promoted to Supervisor
      in 1988, in which position he served until 1993. From 1993 to 1994 he served
      as
      Director of Franchise Operations. He became a Regional Director of Operations
      in
      1994 and was promoted to Regional Vice President-Operations in 1999. In
      September 2004 he was promoted to Vice President-Operations. Subsequent to
      the
      Merger, he was appointed Executive Vice President of Operations for the Ryan’s
      division.




85


*A.
      Keith Wall* has
      served as Executive Vice President and Chief Financial Officer of Buffets
      Holdings and of Buffets since January 2006. Prior to joining Buffets, Mr. Wall
      served as Vice President and Chief Financial Officer of Worldwide Restaurant
      Concepts, Inc. from 2001 to 2005. Mr. Wall was also employed at Banner Holdings
      from 1996 to 2001 as Vice President and Chief Financial Officer of
      its
      Central Finance Acceptance Corporation and Central Rents, Inc. units. From
      1994
      to 1996, he served as Vice President and Controller at Thorn Americas. Mr.
      Wall
      has 31 years of experience.





*Karlin
      A. Linhardt* has
      served as Executive Vice President of Marketing of Buffets Holdings and of
      Buffets since September 2005. Prior to joining Buffets, Mr. Linhardt was with
      McDonald’s Corporation, where he managed a series of initiatives, including
      Olympics marketing, the national Dollar Menu value platform, and the Happy
      Meal/family marketing business. From 1987 to 1995, Mr. Linhardt was employed
      by
      Anheuser-Busch as Senior Manager of the Chicago and New York regions. Mr.
      Linhardt’s early career included stints with two advertising firms,
      Campbell-Ewald in Detroit and D’Arcy, Masius, Benton & Bowles in New York
      City. Mr. Linhardt has 23 years of experience.





*Fred
      P. Williams* has
      served as Executive Vice President of Concept Development and Real Estate of
      Buffets Holdings and of Buffets since November 2004. He previously worked for
      Buffets from 1985 to 1992 and rejoined our company in June 2004 as a Divisional
      Vice President of Operations. Prior to rejoining Buffets, Mr. Williams served
      as
      a restaurant consultant from 1995 to 2004. Mr. Williams has 30 years of
      restaurant industry experience.





*H.
      Thomas Mitchell* has
      served as Executive Vice President, General Counsel and Secretary of Buffets
      Holdings since January 2004 and of Buffets since 1998. He joined Buffets in
      1994
      and has 17 years of restaurant industry experience and 23 years of legal
      practice. Mr. Mitchell served in the further capacity of Chief Administrative
      Officer from 1998 until 2000.





*Jane
      L. Binzak* has
      served as Executive Vice President of Human Resources since March 2006 and
      as
      its Vice President, Human Resources from February 2004. Ms. Binzak has been
      with
      Buffets for six years, initially joining Buffets as its Senior Employment Law
      Counsel. Prior to joining Buffets, Ms. Binzak worked in private-practice law
      where she focused on employment-related issues and defended a diverse group
      of
      clients ranging from service industry to government organizations. Ms. Binzak
      has 16 years of legal experience.





*Linda
      J. Allison* has
      served as Executive Vice President of Operations Services (Purchasing, Food
      & Beverage, Quality Assurance and Training) since March 2006 and Senior Vice
      President, Operations Services since September 2005. Linda joined Buffets in
      1992 as an Operations Manager in California, became a General Manager, and
      then
      joined the training department through her promotion to Vice President of
      Training. Prior to Buffets, Ms. Allison was employed with Perry’s of Hawaii, a
      high-volume buffet chain in Waikiki, Hawaii. Ms. Allison has over 35 years
      of
      restaurant industry experience.





*Steven
      M. Lefkowitz* has
      served as a director of Buffets Holdings and of Buffets since October 2000.
      Mr.
      Lefkowitz is a Managing Director of Caxton-Iseman Capital and has been employed
      by Caxton-Iseman Capital since 1993. From 1988 to 1993, Mr. Lefkowitz was
      employed by Mancuso & Company, a private investment firm, and served in
      several positions including Vice President and as a Partner of Mancuso Equity
      Partners. Mr. Lefkowitz is a director of Ply Gem Industries, Inc.





*Robert
      A. Ferris* has
      served as a director of Buffets Holdings since October 2000 and of Buffets
      since
      June 2002. Mr. Ferris is a Managing Director of Caxton-Iseman Capital and has
      been employed by Caxton-Iseman Capital since March 1998. From 1981 to February
      1998, Mr. Ferris was a General Partner of Sequoia Associates, a private
      investment firm headquartered in Menlo Park, California. Prior to founding
      Sequoia Associates, Mr. Ferris was a Vice President of Arcata Corporation,
      a New
      York Stock Exchange-listed company. Mr. Ferris is a director of Ply Gem
      Industries, Inc.





*David
      S. Lobel* has
      served as a director of Buffets Holdings since October 2000 and of Buffets
      since
      June 2002. Mr. Lobel is currently Managing Partner of Sentinel Capital Partners,
      a private equity investment firm founded by Mr. Lobel in 1995. Mr. Lobel is
      a
      director of several private companies owned or controlled by Sentinel Capital
      Partners. Prior to establishing Sentinel Capital Partners, Mr. Lobel spent
      15
      years at First Century Partners, Smith Barney’s venture capital affiliate. Mr.
      Lobel joined First Century in 1981 and served as a general partner of funds
      managed by First Century from 1983 until his departure in 1995. From 1979 to
      1981, Mr. Lobel was a consultant at Bain & Company.





*Robert
      M. Rosenberg* has
      served as a director of Buffets Holdings since May 2001 and of Buffets since
      June 2002. He is the retired Chief Executive Officer of Dunkin’ Donuts, a
      position he held from 1963 until his retirement in 1998. He has been a member
      of
      the Board of Directors of Sonic Corp. since 1993 and a member of the Board
      of
      Directors of Domino’s Pizza since 1999.




86





*Ankur
      A. Vora has* served
      as
      a director of Buffets Holdings and as a director of Buffets since September
      2006. Mr. Vora is currently a Vice-President at Caxton-Iseman Capital, a private
      investment firm, where he has been employed since August 2000. Prior to joining
      Caxton-Iseman Capital, Mr. Vora was an analyst at Banc of America Securities
      LLC
      (previously NationsBanc Montgomery Securities
      LLC) from June 1998 to July 2000. In May 1998, Mr. Vora obtained a B. Sc. In
      Economics from the Wharton School at the University of
      Pennsylvania.





**Board
      of Directors**





Our
      eight-member Board of Directors is comprised of — Frederick J. Iseman, Roe H.
      Hatlen, Steven M. Lefkowitz, Robert A. Ferris, David S. Lobel, Robert M.
      Rosenberg, Ankur A. Vora and R. Michael Andrews, Jr. The Board typically meets
      in joint session with the Board of directors of Buffets. Our Board of Directors
      has three committees — the audit committee, the compensation committee and the
      executive committee.





Messrs.
      Ferris, Lefkowitz, Lobel and Vora serve on the compensation committee, which
      reviews the compensation of our executive officers, executive bonus allocations
      and other compensation matters. Messrs. Andrews, Iseman and Lefkowitz serve
      on
      the executive committee, which has been formed to take action on matters
      relating to the general governance of our company when the Board is not
      otherwise meeting.





The
      directors, with the exception of Robert Rosenberg, receive no cash compensation
      for serving on the Board except for reimbursement of reasonable expenses
      incurred in attending meetings. Mr. Rosenberg receives $25,000 annually for
      his
      attendance at Board meetings.





**Audit
      Committee**





For
      the
      fiscal year 2007, the Audit Committee was comprised of Messrs. Rosenberg,
      Lefkowitz, Vora and Hatlen. The Board of directors has determined that we have
      more than one audit committee financial expert serving on the audit committee.
      Steven M. Lefkowitz is the designated audit committee financial expert as
      defined in Regulation S-K promulgated under the Securities Act. Mr. Lefkowitz
      is
      not independent as that term is used in Schedule 14A of the Exchange
      Act.





**Code
      of Ethics**





We
      have
      adopted a written Code of Ethics that applies to all of our senior financial
      officers, including our principal executive officer and principal financial
      and
      accounting officer.





**ITEM
      11. EXECUTIVE COMPENSATION**





**COMPENSATION
      DISCUSSION AND ANALYSIS**





**Introduction**





We
      are
      focused on building profitable growth, and we believe that rewarding our
      executive talent is vital to our success. To accomplish this, we have designed
      a
      compensation program for our Chief Executive Officer (“CEO”), Chief Financial
      and Accounting Officer (“CFO”) and our next three most highly compensated
      executive officers (collectively, our “named executive officers”) to meet the
      following objectives:





**•**
            Align
                executive compensation and rewards with our overall business
                strategy;





**•**
            Attract
                and retain the best executive talent in the industry; and





**•**
            Promote
                the values of our company while rewarding excellent
                performance.





Overall,
      we are a pay-for-performance organization with our compensation programs based
      on the following primary elements: (i) base salaries; (ii) non-equity incentive
      compensation; (iii) equity incentive compensation; and (iv) other benefits.
      Our
      compensation program is a competitive mix of base salary and incentive
      compensation designed to reward both the performance of the individual named
      executive officer and our company as a whole. We believe an appropriate portion
      of a named executive officer’s pay should be variable and performance-based in
      order to focus the executive officer on both our short-term and long-term
      strategic objectives. However, there is no pre-established policy or target
      for
      the allocation between either cash and non-cash or short-term and long-term
      incentive compensation.




87




Base
      salaries are set roughly in the 50th percentile of the market range for each
      position using salary surveys and competitor information. Annual cash incentives
      are based on achieving annual performance goals for the company, as well as
      exceptional individual performance. Equity incentive compensation is awarded
      in
      the form of stock options and is based on desired executive ownership
      levels.





**Compensation
      Committee**





The
      Compensation Committee (the “Committee”) of the Board of Directors (the “Board”)
      annually reviews and determines compensation levels and composition for the
      CEO.
      In addition, the Committee and the CEO annually review the performance of the
      other named executive officers and jointly make decisions regarding compensation
      levels of this group, including non-equity and equity-based incentive
      compensation programs. The Committee has final approval of all amounts
      awarded.





**Material
      Elements of the Compensation Program**





*Base
      Salary*





The
      Company provides named executive officers with a base salary that is intended
      to
      reward them for their performance over the past fiscal year. Generally, base
      salaries for named executive officers are set in the 50th percentile of the
      market range for each position using salary surveys and competitor information.
      In determining the market range, the Committee reviews competitive information
      contained in the annual Chain Restaurant Compensation Association (“CRCA”)
      survey. This survey provides industry specific compensation information for
      both
      base salaries and other compensation components. This information is then
      classified into categories based on company-wide revenues and number of units.
      For fiscal year 2007, the Committee used salary information for the $1-2 billion
      and over $2 billion in company-wide revenue and 400-1,500 company-wide unit
      categories contained within the survey. In an effort to verify the CRCA survey
      data, the Committee also compares named executive officer salary levels with
      those of certain competitors by reviewing available SEC filings. For fiscal
      2007, the following competitor information was used:





**•**
            Buffalo
                Wild Wings





**•**
            Bob
                Evans Farms, Inc.





**•**
            CBRL
                Group, Inc.





**•**
            CEC
                Entertainment, Inc.





**•**
            Denny’s
                Corporation





**•**
            Frisch’s
                Restaurants, Inc.





**•**
            Luby’s,
                Inc.





Other
      factors taken into consideration before final recommendations are made to the
      Committee are the results of named executive officer performance reviews,
      individual contributions to the Company, changes in position or responsibility
      and internal pay equity considerations. Recommendations on compensation matters
      for all named executive officers other than the CEO are made to the Committee by
      the CEO at the end of each fiscal year. The Committee reviews the
      recommendations, along with relevant market data, and makes the final
      determination of compensation levels for the next fiscal year for all named
      executive officers, including the CEO.





During
      the 2007 fiscal year, the Company acquired Ryan’s. This acquisition nearly
      doubled the number of restaurants and significantly increased revenues for
      the
      Company. As a result of the Merger, due to the increased responsibilities of
      the
      executives on November 1, 2006, the Board increased the annual salaries of
      Mr.
      R. Michael Andrews, Jr., CEO, Mr. A. Keith Wall, Chief Financial Officer, and
      Mr. Karlin A. Linhardt, Executive Vice President of Marketing.




88


The
      table
      below shows base salary compensation levels for our named executive officers
      during fiscal 2007, as well as those approved by the Committee at the June
      7,
      2007 Board meeting and set to become effective beginning June 28,
      2007:





**2007**
            
            **2008**R.
                Michael Andrews, Jr., CEO
            
            $
            465,385
            
            $
            535,000A.
                Keith Wall, CFO
            
            
            264,615
            
            
            286,000Karlin
                A. Linhardt, EVP of Marketing
            
            
            266,346
            
            
            286,000Fred
                P. Williams, EVP of Concept Development and Real Estate
            
            
            229,000
            
            
            240,450Mario
                O. Lee, EVP of Operations
            
            
            245,000
            
            
            259,000





*Non-Equity
      Incentive Compensation*





There
      are
      two ways in which named executive officers are rewarded with non-equity
      incentive compensation. The first is through the Enterprise Equity Value Growth
      Bonus Plan (the “bonus plan”), which is designed to reward achievements at
      specified levels of financial performance of the Company. The second is through
      a discretionary bonus program that rewards individual named executive officers
      for exceptional performance and individual contributions to the profitability
      of
      the Company.





*Enterprise
      Equity Value Growth Bonus Plan*





On
      May 9,
      2006, the Board approved an executive bonus plan intended to provide cash-based
      incentives on an annual basis for achieving specified enterprise equity value
      targets (the “Targets”), with enterprise equity value defined as EBITDA,
      multiplied by a predetermined earnings multiple, less debt, plus cash. The
      earnings multiple is determined by the Board at the time the Targets are
      established. This program is designed to align named executive officer
      compensation with the Company’s overall business strategy and performance goals
      by basing the payout on a target enterprise equity value. There is no individual
      performance or discretionary component to this award. If targets are not met,
      there are no payouts in that fiscal year.





At
      the
      end of each fiscal year, the Committee establishes the threshold enterprise
      equity value, the target enterprise equity value and each named executive
      officer’s participation percentage in the plan. The threshold enterprise equity
      value is the minimum value at which the participant pool is funded. At this
      level, the participant pool would equal approximately 50% of the participant’s
      targeted bonuses. The target enterprise equity value is the point at which
      the
      participant pool is 100% funded. The pool is funded $0.0217 for each dollar
      of
      enterprise equity value improvement over the threshold enterprise equity value.
      Therefore it is possible for the participant pool to be funded over
      100%.





Following
      the Merger, the Committee met on February 6, 2007 and approved adjustments
      to
      this plan for fiscal year 2007. These adjustments reset the threshold and target
      enterprise equity values from $30.5 million and $98.6 million prior to the
      Merger to $30.5 million and $124.1 million subsequent to the
      merger.





Subsequent
      to the end of each fiscal year, bonus payouts are calculated by multiplying
      each
      named executive officer’s participation percentage by his base salary. That
      amount is then multiplied by the percentage that the participation pool was
      funded, based on the established Targets. For example, the CEO’s participant
      percentage for fiscal 2007 was 80% of his base salary at the end of the fiscal
      year of $500,000. The fiscal 2007 threshold enterprise equity value was $30.5
      million and the target enterprise equity value was $124.1 million. If the
      Company had achieved the threshold enterprise equity value, the CEO would have
      received a bonus of $200,000. If the Company had achieve its target enterprise
      equity value, the CEO would have received a bonus of $400,000. No amounts were
      actually paid out to any of the named executive officers under this bonus plan
      for fiscal 2007 because targets were not met.





The
      Targets for this bonus plan are reset at the end of each fiscal year for the
      next fiscal year in the sole discretion of the Committee based on changes in
      the
      business objectives and goals. These new Targets are then communicated to named
      executive officers. These targets do not represent our projected results, but
      rather are targets for compensation purposes that are designed to be
      challenging, yet achievable with significant focus and satisfactory industry
      conditions. These targets do not represent estimates or projections of our
      fiscal 2008 results and it should not be assumed that we will achieve these
      results which are used for compensation purposes and you should not assume
      that
      we will achieve these Targets that are used for compensation purposes, as the
      Committee generally sets Targets above the results we have a high confidence
      of
      achieving. Our actual results will be subject to a number of factors, including
      the successful execution of our business objectives, the overall economic
      environment and the other factors discussed in the “Risk Factors” section of
      this filing.




89





The
      Targets for fiscal years 2007 and 2008 are listed below (in millions):





**2007**
            
            **2008****Threshold**
            
            **Target**
            
            **Threshold**
            
            **Target**Enterprise
                Equity Values
            
            $
            30.5
            
            $
            124.1
            
            $
            228.0
            
            $
            303.0





The
      participation percentage for each named executive officer for both fiscal years
      2007 and 2008 are listed below:





R.
                Michael Andrews, CEO
            
            
            80
            %A.
                Keith Wall, CFO
            
            
            50
            %Karlin
                A. Linhardt, EVP of Marketing
            
            
            70
            %Fred
                P. Williams, EVP of Concept Development and Real Estate
            
            
            50
            %Mario
                O. Lee, EVP of Operations
            
            
            70
            %





*Discretionary
      Bonuses*





At
      the
      discretion of the Committee, the Board will at times award cash bonuses to
      certain named executive officers as a reward for individual performance or
      for
      their part in significant events affecting the Company.





In
      fiscal
      2007, the Board granted a bonus to Messrs. Andrews, Wall, and Lee, in connection
      with the closing of the Merger. Additionally, Mr. Williams, was granted a bonus
      based on his efforts in the integration process subsequent to the
      Merger.





Discretionary
      bonus amounts granted in fiscal 2007 are listed below:





R.
                Michael Andrews, CEO
            
            $
            350,000A.
                Keith Wall, CFO
            
            
            250,000Karlin
                A. Linhardt, EVP of Marketing
            
            
            —Fred
                P. Williams, EVP of Concept Development and Real Estate
            
            
            114,500Mario
                O. Lee, EVP of Operations
            
            
            150,000





*Equity
      Incentive Compensation*





Equity
      Participation Plan





The
      Equity Participation Plan is designed to better align employee goals, including
      those of named executive officers, with those of the Company and of the
      shareholders on a long-term basis by granting them an ownership interest in
      the
      Company.





In
      October 2000, Buffets Holdings adopted the Equity Participation Plan, a
      non-qualified stock option plan under which up to 113,750 shares of Buffets
      Holdings common stock are reserved for issuance to certain employees, including
      named executive officers. Prior to the Merger on November 1, 2006, the option
      exercise price for each option, as determined at the date of grant, was based
      on
      the four full fiscal quarters immediately preceding the date of grant, using
      the
      amount by which the sum of 4.5 times EBITDA, as defined in the Credit Facility,
      plus the proceeds payable to Buffets Holdings upon the exercise of the options,
      exceeds the consolidated indebtedness of Buffets Holdings as of the date of
      the
      award. Subsequent to the Merger, the option exercise price for each option,
      has
      been determined at the date of grant, based on an exercise price derived from
      an
      equity valuation performed by a third party valuation company. This valuation
      compares our Company to other publicly-held companies and develops a market
      price for our shares of common stock. Options are fully vested upon issuance
      and
      generally expire fifteen years after the date of the grant or at an earlier
      date, as determined by the Board. Option grants have been made with an exercise
      price at or above the fair market value of the underlying stock. However,
      options are only exercisable in the event of a liquidity event, as defined
      in
      the management stockholders’ agreement. Buffets Holdings has reserved the right
      to pay the plan participant the appreciated value of the shares rather than
      issuing equity.





Decisions
      to make awards under this plan are based on desired levels of executive
      ownership of the Company. When determining these ownership levels, the Committee
      reviews the CRCA survey data and competitor information related to executive
      ownership percentages for each named executive officer. The Committee also
      takes
      into consideration the level of influence each named executive officer has
      on
      driving Company performance.




90





The
      Committee periodically reviews named executive officer ownership levels and
      industry data for adjustment. Generally, adjustments to ownership levels follow
      changes in named executive officer responsibilities. On April 5, 2007, the
      Committee approved awards under this plan to the following named executive
      officers:





R.
                Michael Andrews, Jr.
            
            
            —
            
            
            optionsA.
                Keith Wall
            
            
            —
            
            
            optionsKarlin
                A. Linhardt
            
            
            —
            
            
            optionsFred
                P. Williams
            
            
            2,500
            
            
            optionsMario
                O. Lee
            
            
            10,000
            
            
            options





*Cash
      and Phantom Incentive Unit Awards*





On
      December 13, 2005, Buffets Holdings entered into Cash and Phantom Incentive
      Unit
      Award Agreements with each of Messrs. Andrews, Linhardt, Williams, and Lee.
      The
      terms and conditions of each award agreement are substantially the same, except
      as otherwise described below.





Pursuant
      to each award agreement, if a Realization Event (as defined herein) occurred
      on
      or prior to July 31, 2006, each of the named executive officers would have
      been
      entitled to a cash award. The award agreements also provided that, if a
      Realization Event did not occur on or prior to July 31, 2006, each of Messrs.
      Andrews and Linhardt was entitled to 32,500 phantom incentive unit awards and
      Messrs. Williams and Lee were entitled to 7,500 and 2,500 phantom incentive
      unit
      awards, respectively. Because a Realization Event did not occur on or prior
      to
      July 31, 2006, Buffets Holdings granted these phantom incentive unit awards
      to
      each of Messrs. Andrews, Linhardt, Williams, and Lee on such date, and the
      executives are no longer entitled to the cash bonuses described
      above.





Each
      phantom incentive unit award represents the value of a single share of Buffets
      Holdings common stock and their value is generally related to the value of
      a
      single share of such common stock. The phantom incentive unit awards vest
      ratably over a five-year period, beginning on December 13, 2006, unless the
      executive’s employment with Buffets Holdings ceases for any reason, but will not
      be paid until and unless (i) Buffets Holdings conducts an initial public
      offering of its capital stock or (ii) under certain circumstances, upon
      termination of the executive’s employment (each, a “Realization Event”). The
      phantom incentive unit awards may be settled in cash, common stock or any
      combination of cash and common stock, in the sole discretion of the Board.
      The
      units generally expire twelve years after the date of the grant or at an earlier
      date, as determined by the Board.





Subsequent
      to July 31, 2006, upon termination of any named executive officer’s employment
      for any reason other than death or disability, any unvested phantom incentive
      unit awards held by such executives are forfeited, and Buffets Holdings has
      the
      right, at its election and in its sole discretion, to repurchase from such
      executive any phantom incentive unit awards that have vested as of the date
      of
      the termination of his employment. Pursuant to the terms of the award
      agreements, each of the named executive officers has agreed not to compete
      with
      the Company or solicit any employee of the Company or its affiliates during
      the
      term of employment and for two years thereafter.





No
      additional units were awarded in the current fiscal year.





*Other
      Benefits*





We
      provide our named executive officers and certain other key employees with
      perquisites that we believe are reasonable and consistent with our overall
      compensation program and allow us to remain competitive within the marketplace.
      The Committee will periodically review the level of perquisites offered to
      determine whether or not the benefits remain competitive and cost
      effective.





**•**
            Executive
                Physical — We provide each named executive officer the option to
                participate in an annual physical with the Mayo Clinic Executive
                Medical
                Program at no cost to the executive. Upon completion of the physical,
                the
                bills are first submitted to the Company’s medical insurance provider and
                any balance remaining following the application of pre-negotiated
                provider
                discounts is paid by the Company.





**•**
            Executive
                Life Insurance — Our named executive officers are not eligible for the
                401(k) Savings Plan because their participation could reduce the
                opportunity for other employees to participate based on ERISA standards
                for qualified plans. Instead, the Company offers executives a personally
                owned whole-life policy, with the premiums paid for by the Company.
                The
                face amount of this policy is $500,000 for each executive, and the
                premiums are treated as income to the executives. Upon the death
                of the
                named executive officer, proceeds are payable to the designated
                beneficiary of their choice.




91




**•**
            Company
                Car Allowance — We provide a car allowance to Messrs. Andrews, Williams,
                Linhardt and Lee. During fiscal 2007, the aggregate annual allowance
                did
                not exceed $25,000 for any named executive
                officer.





**•**
            Founders’
                Club Trip — On an annual basis, named executive officers participate in
                the Founders’ Club trip, which is an event to reward high-performing
                restaurant managers in the Company. The presence of these executives
                is
                required due to their activeinvolvement
                in the event. Spouse participation is optional, although the Company
                will
                pay the travel expenses of spouses choosing to attend and will reflect
                such expenses as income to the
                executives.





**•**
            Commuting
                and relocation reimbursement — We reimburse the cost of commuting and/or
                relocation expenses for our named executive officers, as applicable.
                Total
                reimbursed commuting and relocation costs to Messrs. Wall, Linhardt,
                Williams and Lee were $81,000 for fiscal
                2007.





Named
      executive officers are also eligible to participate in benefit plans available
      to all corporate office employees, such as medical, dental, vision, life
      insurance, disability coverage, flexible benefit accounts, and an employee
      assistance program. We provide no other perquisites to our
      executives.





**COMPENSATION
      COMMITTEE REPORT**





The
      Committee has reviewed and discussed the Compensation and Discussion Analysis
      section above with management and, based on the review and discussion, the
      Committee recommended to the Board of Directors that the Compensation Discussion
      and Analysis be included in this annual report.





•
            Robert
                A. Ferris





•
            Steven
                M. Lefkowitz





•
            Ankur
                A. Vora





•
            David
                S. Lobel





**COMPENSATION
      COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION**





For
      fiscal year 2007, the Compensation Committee was comprised of Messrs. Ferris,
      Lefkowitz, Vora and Lobel. No members of the Compensation Committee are current
      or past officers or employees of the Company during the fiscal year. In
      addition, no members of the Compensation Committee had any relationship
      requiring disclosure under Item 13 — “Certain Relationships and Related
      Transactions and Director Independence.”




92


**SUMMARY
      COMPENSATION TABLE FOR THE 2007 FISCAL YEAR**





The
      following table sets forth information for the fiscal year ended June 27, 2007
      concerning the compensation awarded to, earned by or paid to our named executive
      officers during fiscal 2007 for services rendered to us.





**Name
                and Principal Position**
            
            **Fiscal**
              **Year**
            
            **Salary**
            
            **(1)**
              **Bonus**
            
            **(2)**
              **Option
                Awards**
            
            **(3)**
              **Stock
                Awards**
            
            **(4)**
              **All
                Other**
              **Compensation**
            
            **Total**
              **Compensation**R.
                Michael Andrews, Jr.,
              Chief
                Executive Officer and Director
            
            
            2007
            
            $
            465,385
            
            $
            350,000
            
            $
            —
            
            $
            102
            
            $
            29,988
            
            $
            845,475A.
                Keith Wall, Executive
              Vice
                President and Chief Financial Officer
            
            
            2007
            
            
            264,615
            
            
            250,000
            
            
            —
            
            
            —
            
            
            28,877
            
            
            543,492Fred
                P. Williams, Executive
              Vice
                President of Concept Development and Real Estate
            
            
            2007
            
            
            229,000
            
            
            114,500
            
            
            6,578
            
            
            23
            
            
            62,293
            (5)
            
            412,394Karlin
                A. Linhardt Executive Vice President ofMarketing
            
            
            2007
            
            
            266,346
            
            
            —
            
            
            —
            
            
            102
            
            
            29,752
            
            
            296,200Mario
                O. Lee, Executive
              Vice
                President of Operations
            
            
            2007
            
            
            245,000
            
            
            150,000
            
            
            26,320
            
            
            8
            
            
            68,709
            (6)
            
            490,037





(1)
            Amounts
                in this column represent discretionary bonuses awarded during the
                2007
                fiscal year.





(2)
            These
                awards related to options granted during the year under the Equity
                Participation Plan. Their value is determined using the grant date
                fair
                value, as defined in SFAS 123(R). See Note 4 — “Stock-based Compensation”
                for details on the assumptions used to calculate the
                value.





(3)
            These
                awards relate to the Phantom Incentive Unit Awards discussed in the
                “Material Elements of the Compensation Program” section above. The grant
                date of the phantom incentive unit awards preceded the adoption date
                of
                SFAS 123(R). Therefore, for financial reporting purposes, they are
                accounted for based on the intrinsic value method pursuant to APB
                25.
                However, for purposes of calculating compensation for disclosure
                in the
                table above, these phantom incentive unit awards are required to
                be valued
                in accordance with the disclosure requirements of SFAS 123(R). As
                such,
                their value is determined using the grant date fair value, as defined
                in
                SFAS 123(R). See Note 4 — “Stock-based Compensation” for details on the
                assumptions used to calculate the
                value.





(4)
            Perquisites
                included in this column include executive physicals, company car
                allowances, Founders’ Club Trip, and commuting and relocation
                reimbursements. This column also includes the value of premium payments
                for death benefits under an executive whole life insurance policy.
                See the
                “Other Benefits” section for details of these perquisites. All individual
                perquisites exceeding the greater of $25,000 or 10% of the total
                amount of
                perquisites for the executive officer are quantified and disclosed
                in
                subsequent footnotes to this
                schedule.





(5)
            Amount
                includes $35,489 in commuting allowance.





(6)
            Amount
                includes $32,500 of relocation expense.




93


**GRANTS
      IN PLAN-BASED AWARDS FOR THE 2007 FISCAL YEAR**





**Estimated
                Possible Payouts**
              **Under
                non-Equity Incentive**
              **Plan
                Awards**
            
            **Grant
                Date**
            
            **All
                Other**
              **Option**
              **awards:**
              **Number
                of**
              **Securities**
              **Underlying**
              **Options**
            
            **Exercise
                or Base**
              **Price
                of Option**
              **Awards
                ($/Sh)**
            
            **Grant
                Date**
              **Fair
                Value of**
              **Option
                Awards****Name**
            
            **Threshold
                ($)**
            
            **Target
                ($)**R.
                Michael Andrews, Jr.
            
            $
            200,000
            
            $
            400,000
            
            
            
            
            
            —
            
            $
            —
            
            $
            —A.
                Keith Wall
            
            
            68,750
            
            
            137,500
            
            
            
            
            
            —
            
            
            —
            
            
            —Karlin
                A. Linhardt
            
            
            96,250
            
            
            192,500
            
            
            
            
            
            —
            
            
            —
            
            
            —Mario
                O. Lee
            
            
            85,750
            
            
            171,500
            
            
            4/5/2007
            
            
            7,500
            
            
            9.17
            
            
            26,320Fred
                P. Williams
            
            
            57,250
            
            
            114,500
            
            
            
            
            
            —
            
            
            —
            
            
            —





The
      above
      table shows the payouts to named executive officers under the Enterprise Entity
      Growth Plan that would have been paid subsequent to year-end had the Targets
      been met at year-end. Under this plan, there is no maximum amount payable,
      rather the participation pool is funded $0.0217 for every dollar of enterprise
      equity value earned above the threshold. The above table also shows the grant
      of
      options under the Equity Participation Plan to named executive officers during
      the current fiscal year. The value of these options is determined using the
      grant date fair value, as defined in SFAS 123(R). All options are fully vested
      at the date of grant. For a summary of the different compensation arrangements
      in place for our named executive officers, please see the discussion in the
      “Compensation Discussion and Analysis” beginning on page 82.





**OUTSTANDING
      EQUITY AWARDS FOR THE 2007 FISCAL YEAR**


**Option**
              
              
              
              
              
              **Stock
                  Unit****Awards**
              
              
              
              
              
              **Awards****Number
                  of**
              
              
              
              
              
              
              
              **Market****Securities**
              
              
              
              
              
              **Number
                  of**
              
              **Value****Underlying**
              
              
              
              
              
              **Units
                  of**
              
              **of
                  Units****Unexercised**
              
              **Option**
              
              **Option**
              
              **Stock
                  That**
              
              **of
                  Stock That****Options**
              
              **Exercise**
              
              **Expiration**
              
              **Have**
              
              **Have
                  Not****Name**
              
              **(#)
                  Exercisable**
              
              **Price
                  ($)**
              
              **Date**
              
              **Not
                  Vested**
              
              **Vested**R.
                  Michael Andrews, Jr.
              
              
              —
              
              $
              —
              
              
              —
              
              
              26,000
              
              $
              407A.
                  Keith Wall
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Karlin
                  A. Linhardt
              
              
              —
              
              
              —
              
              
              —
              
              
              26,000
              
              
              407Mario
                  O. Lee
              
              
              500
              
              
              10.00
              
              
              1/4/2016
              
              
              2,000
              
              
              311,125
              
              
              16.33
              
              
              4/8/2019250
              
              
              41.07
              
              
              4/25/2017625
              
              
              23.72
              
              
              7/19/20167,500
              
              
              9.17
              
              
              4/5/2022Fred
                  P. Williams
              
              
              2,500
              
              
              0.11
              
              
              11/4/2019
              
              
              6,000
              
              
              94





The
      above
      table shows the number of options and phantom incentive unit awards outstanding
      for all named executive officers as of June 27, 2007. All awards issued under
      the Equity Participation Plan vest upon the date of grant, while the Phantom
      Incentive Unit Awards vest ratably over a five-year period beginning in December
      2006. The grant date of the phantom incentive unit awards preceded the adoption
      date of SFAS 123(R). Therefore, for financial reporting purposes, they are
      accounted for based on the intrinsic value method pursuant to APB 25. However,
      for purposes of calculating compensation for disclosure in the table above,
      these phantom incentive unit awards are required to be valued in accordance
      with
      the disclosure requirements of SFAS 123(R). As such, their value is determined
      using the grant date fair value, as defined in SFAS 123(R).





**OPTION
      EXERCISES AND STOCK VESTED TABLE FOR FISCAL YEAR 2007**





**Phantom
                Incentive Unit Awards****Name**
            
            **Number
                of Units Acquired**
              **on
                Vesting (#)**
            
            **Value
                Realized on**
              **Vesting
                ($)**R.
                Michael Andrews, Jr.
            
            
            6,500
            
            $
            102A.
                Keith Wall
            
            
            —
            
            
            —Karlin
                A. Linhardt
            
            
            6,500
            
            
            102Mario
                O. Lee
            
            
            1,500
            
            
            8Fred
                P. Williams
            
            
            500
            
            
            23


94


The
      above
      table shows the number of all phantom incentive unit awards vested for named
      executive officers as of June 27, 2007. All phantom incentive unit awards vest
      ratably over a five-year period, beginning on December 13, 2006. No actual
      shares of stock were granted under these awards during the 2007 fiscal year.
      The
      grant date of the phantom incentive unit awards preceded the adoption date
      of
      SFAS 123(R). Therefore, for financial reporting purposes, they are accounted
      for
      based on the intrinsic value method pursuant to APB 25. However, for purposes
      of
      calculating compensation for disclosure in the table above, these phantom
      incentive unit awards are required to be valued in accordance with the
      disclosure requirements of SFAS 123(R). As such, their value is determined
      using
      the grant date fair value, as defined in SFAS 123(R). There were no option
      exercises during fiscal year 2007.







**POTENTIAL
      PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL FOR THE 2007
      FISCAL**  **YEAR**





The
      following table shows the amounts named executive officers would receive if
      their employment were terminated on June 27, 2007.





**R.
                Michael**
              **Andrews,
                Jr.**
            
            **A.
                Keith Wall**
            
            **Fred
                P.**
              **Williams**
            
            **Karlin
                A.**
              **Linhardt**
            
            **Mario
                O. Lee**Continued
                base salary
            
            $
            500,000
            
            $
            275,000
            
            $
            229,000
            
            $
            275,000
            
            $
            245,000Continued
                medical and/or health benefits
            
            
            9,772
            
            
            7,330
            
            
            9,772
            
            
            9,772
            
            
            8,606Continued
                life insurance and long-termdisability
                coverage
            
            
            1,761
            
            
            594
            
            
            2,795
            
            
            1,909
            
            
            4,528Cash
                Incentive Bonus
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Equity
                Incentive Plan
            
            
            —
            
            
            —
            
            
            22,650
            
            
            —
            
            
            —Phantom
                Incentive Unit Awards
            
            
            58,890
            
            
            —
            
            
            13,590
            
            
            58,890
            
            
            4,530Total
                Severance Payments
            
            $
            570,423
            
            $
            282,924
            
            $
            277,807
            
            $
            345,571
            
            $
            262,664





Severance
      Protection Agreements





Each
      named executive officer has entered into a Severance Protection Agreement with
      the Company. These agreements are uniform for all named executive officers.
      Under the agreement, if an executive is terminated for reasons other than cause
      (as defined in the agreement), disability or on account of death, (s)he is
      entitled to receive the greater of (i) the executive’s current fiscal year base
      salary or (ii) the executive’s highest rate of base salary in effect at anytime
      within the one-year period prior to the date of termination. This amount is
      paid
      in equal, bi-weekly installments for a period of 12 months after the date of
      termination.





Continued
      Health and Medical Benefits





Each
      named executive officer is entitled to continued medical and/or health benefits
      during the twelve-month period covered by the Severance Protection Agreements
      discussed above. Amounts shown above are based on current year amounts paid
      by
      the Company.





Continued
      Life Insurance and Long-Term Disability Coverage





Each
      named executive officer is entitled to continued group term life insurance
      coverage and long-term disability coverage during the twelve-month period
      covered by the Severance Protection Agreements discussed above. Amounts shown
      above are based on current year amounts paid by the Company.





Cash
      Incentive Bonus





If
      the
      Targets under the Enterprise Equity Value Growth Plan are met at the end of
      a
      given fiscal year and the named executive officer was employed through the
      end
      of the fiscal year, he is entitled to receive the bonus payout. There was no
      payout under this plan during fiscal 2007.





Equity
      Incentive Plan





Under
      the
      terms of the Equity Participation Plan, in the event of an Exercise Event,
      as
      defined in the plan, the option holder shall receive, in the case of a cash
      transaction or a Board election to cash out option holders pursuant to an equity
      transaction, the actual net cash (net of taxes and other withholdings) payable
      per share of Buffets Holdings common stock pursuant to such transaction. In
      the
      case of an equity transaction where the Board elects to issue shares in lieu
      of
      a cash payment, each option holder shall receive the net shares exchanged per
      share of Buffets Holdings common stock (net of taxes and withholdings). In
      all
      cases, payment will be net of the option exercise price.




95





In
      the
      event of termination other than for cause or death, the options may be
      exercised, if an Exercise event occurs within the earlier of (i) 60 days after
      the option holder’s termination date or (ii) the date on which the options
      terminate or expire in accordance with the provisions of the plan.





In
      the
      event of an option holder’s death, any options held are passed on to the
      holder’s beneficiary and may be exercised by that beneficiary if an Exercise
      event occurs within the earlier of (i) 60 days after the option holder’s death
      or (ii) the date on which the options terminate or expire in accordance with
      the
      provisions of the plan.





For
      the
      purpose of the table above, the value shown is equal to the spread on the
      options, defined as year-end fair market value of the underlying stock, less
      the
      option price, multiplied by the number of vested options outstanding. If the
      option price is at or above the fair market value of the underlying stock,
      the
      value of those options is zero. The fair market value per share at June 27,
      2007
      was $9.17.




Phantom
      Incentive Unit Awards





Upon
      termination of any named executive officer’s employment for any reason other
      than death or disability, any unvested phantom incentive unit awards held by
      such executive are forfeited, and Buffets Holdings has the right, at its
      election and in its sole discretion, to repurchase from such executive any
      phantom incentive unit awards that have vested as of the date of the termination
      of his employment.





For
      the
      purpose of the table above, the value shown is equal to the spread on the
      phantom incentive unit awards, defined as current fair market value of the
      underlying stock, less the phantom incentive unit award price, multiplied by
      the
      number of vested phantom incentive unit awards. If the phantom incentive unit
      award price is at or above the fair market value of the underlying stock, the
      value of those phantom incentive unit awards is zero. The fair market value
      per
      share at June 27, 2007 was $9.17.





**DIRECTOR
      COMPENSATION FOR THE 2007 FISCAL YEAR**





The
      Company pays its directors who are not employees of the Company as
      follows:





**Fees
                Earned or**
            
            **All
                Other****Name**
            
            **Paid
                in Cash**
            
            **Compensation**
            
            **Total
                Compensation**Frederick
                J. Iseman (1)
            
            $
            —
            
            $
            —
            
            $
            —Roe
                H. Hatlen
            
            
            200,000
            
            
            20,721
            
            
            220,721Steven
                M. Lefkowitz (1)
            
            
            —
            
            
            —
            
            
            —Robert
                A. Ferris (1)
            
            
            —
            
            
            —
            
            
            —David
                S. Lobel (2)
            
            
            —
            
            
            —
            
            
            —Robert
                M. Rosenberg
            
            
            25,000
            
            
            —
            
            
            25,000Ankur
                A. Vora (1)
            
            
            —
            
            
            —
            
            
            —





(1)
            These
                individuals are representatives of and are compensated by Caxton-Iseman
                Capital for their director positions. Caxton-Iseman Capital receives
                amounts from us under an advisory services agreement described in
                Item 13
                of this filing.





(2)
            Mr.
                Lobel is a representative of and is compensated by Sentinel Capital
                Partners, L.L.C. for his director position. Sentinel Capital Partners,
                L.L.C. receives amounts from us under am advisory agreement described
                in
                Item 13 of this filing.





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**





Buffets
      Restaurants Holdings is the sole holder of all 3,104,510 issued and outstanding
      shares of Buffets Holdings common stock. The following table sets forth the
      number and percentage of the outstanding shares of common stock of Buffets
      Holdings beneficially owned by (1) each executive officer named in the Executive
      Compensation table above (the “named executive officers”) and each director of
      Buffets Holdings individually, (2) all executive officers and directors as
      a
      group and (3) the stockholders of Buffets Restaurant Holdings known to us to
      be
      the beneficial owner of more than 5% of Buffets Holdings’ common stock as of
      June 27, 2007. Except as noted below, the address of each principal stockholder
      of Buffets Restaurant Holdings is c/o Buffets Holdings, Inc., 1460 Buffet Way,
      Eagan, Minnesota, 55121.


96





**Name
                of Beneficial Owner**
            
            **Shares**
            
            **Percentage**Caxton-Iseman
                Investments L.P.(1)
            
            
            2,403,316
            
            
            77.4Sentinel
                Capital Partners II, L.P.(2)
            
            
            216,276
            
            
            7.0Frederick
                J. Iseman(1)
            
            
            2,403,316
            
            
            77.4David
                S. Lobel (2)
            
            
            216,276
            
            
            7.0Roe
                H. Hatlen(3)
            
            
            187,785
            
            
            6.0R.
                Michael Andrews, Jr. (4)
            
            
            101,482
            
            
            3.3A.
                Keith Wall
            
            
            31,225
            
            
            1.0Fred
                P. Williams (5)
            
            
            19,215
            
            
            0.6Mario
                O. Lee (6)
            
            
            7,206
            
            
            0.2Robert
                M. Rosenberg (7)
            
            
            4,429
            
            
            0.1Karlin
                A. Linhardt (8)
            
            
            —
            
            
            —Steven
                M. Lefkowitz
            
            
            —
            
            
            —Ankur
                A. Vora
            
            
            —
            
            
            —Robert
                A. Ferris
            
            
            —
            
            
            —All
                executive officers and directors as a group (16 persons)
            
            
            3,036,386
            
            
            97.8





(1)
            By
                virtue of Mr. Iseman’s indirect control of Caxton-Iseman Investments L.P.,
                he is deemed to beneficially own the 2,501,438 shares of common stock
                of
                Buffets Restaurant Holdings held by that entity. The address of
                Caxton-Iseman Investments L.P. and Mr. Iseman is c/o Caxton-Iseman
                Capital, LLC, 500 Park Avenue, New York, New York, 10022. By virtue
                of Mr.
                Iseman’s direct and beneficial ownership interests in Buffets Restaurants
                Holdings, Mr. Iseman is deemed to beneficially own 2,403,316 shares
                of
                Buffets Holdings.





(2)
            By
                virtue of Mr. Lobel’s indirect control of Sentinel Capital Partners II,
                L.P., he is deemed to beneficially own the 225,106 shares of common
                stock
                of Buffets Restaurant Holdings held by that entity. The address of
                Sentinel Capital Partners II, L.P. is 777 Third Avenue, 32nd Floor,
                New
                York, New York, 10017. By virtue of Mr. Lobel’s direct and beneficial
                ownership interests in Buffets Restaurants Holdings, Mr. Lobel is
                deemed
                to beneficially own 216,276 shares of Buffets
                Holdings.





(3)
            Mr.
                Hatlen has sole voting and dispositive power over 65,012 shares of
                common
                stock of Buffets Restaurants Holdings. Mr. Hatlen may be deemed to
                be the
                beneficial owner of 33,340 shares of common stock of Buffets Restaurants
                Holdings held by Kari E. Hatlen, 33,339 shares of common stock of
                Buffets
                Restaurants Holdings held by Erik R. Hatlen, 22,506 shares of common
                stock
                of Buffets Restaurants Holdings owned by Lars C. Hatlen Trust and
                10,833
                shares of common stock of Buffets Restaurants Holdings owned by Lars
                C.
                Hatlen. By virtue of Mr. Hatlen’s control over Eventyr Investments Limited
                Partnership, he is deemed to beneficially own the 30,422 shares of
                common
                stock of Buffets Restaurants Holdings held by that entity. By virtue
                of
                Mr. Hatlen’s direct and beneficial ownership interests in Buffets
                Restaurants Holdings, Mr. Hatlen is deemed to beneficially own 187,785
                shares of Buffets Holdings.





(4)
            Mr.
                Andrews also holds 32,500 phantom stock units of Buffets Holdings.





(5)
            Mr.
                Williams also owned options to purchase 2,500 shares of common stock
                of
                Buffets Holdings and holds 7,500 phantom stock units of Buffets
                Holdings.





(6)
            Mr.
                Lee also owned options to purchase 10,000 shares of common stock
                of
                Buffets Holdings and holds 2,500 phantom stock units of Buffets
                Holdings.





(7)
            Mr.
                Rosenberg also owned options to purchase 12,600 shares of common
                stock of
                Buffets Holdings.





(8)
            Mr.
                Linhardt holds 32,500 phantom stock units of Buffets Holdings.




97


The
      following table provides information about the securities authorized for
      issuance under our Equity Participation Plan as of June 28, 2006:





**Equity
                Compensation Plan Information****Plan
                Category**
            
            **Number
                of**
              **securities
                to be**
              **issued
                upon exercise**
              **of
                outstanding**
              **options,
                warrants**
              **and
                rights**
            
            **Weighted-**
              **average
                exercise**
              **price
                of**
              **outstanding**
              **options,
                warrants**
              **and
                rights**
            
            **Number
                of securities**
              **remaining
                available for**
              **future
                issuance under**
              **equity
                compensation**
              **plans
                (excluding**
              **securities
                reflected in**
              **column
                (A))**Equity
                compensation plans approved by security holders
            
            
            102,700
            
            $
            12.70
            
            
            11,050Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            102,700
            
            $
            12.70
            
            
            11,050





**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
      DIRECTOR****INDEPENDENCE**





**Policies
      and Procedures Regarding Related Party Transactions**





The
      Board
      reviews each Related Party Transaction (defined herein) and determines whether
      it will approve or ratify such transactions. To the extent that a member of
      the
      Board is involved in the related party transaction, or is the related party
      itself, that Board member will not participate in the approval process for
      that
      specific transaction.





A
      “Related Party Transaction” is any transaction, arrangement or relationship
      where the Company is a participant, the Related Party (defined herein) had,
      has
      or will have a direct or indirect material interest and the aggregate amount
      involved is expected to exceed $120,000 in any calendar year. A “Related Party”
includes (i) any person who is or was, at anytime during the fiscal year, an
      executive officer, director, or nominee for election as a director, (ii) any
      person or group who is a beneficial owner of more than 5% of the Company’s
      voting securities, (iii) any immediate family member of a person described
      in
      provisions (i) or (ii) above or (iv) any entity in which any of the foregoing
      persons is employed, is a partner or has a greater than 5% beneficial ownership
      interest.





In
      determining whether a Related Party Transaction will be approved, the Board
      may
      consider factors such as (i) the extent of the Related Party’s interest in the
      transaction, (ii) the benefit to the Company and (iii) the aggregate value
      of
      the transaction.





**Founder
      Advisory Agreements**





Roe
      H.
      Hatlen has entered into an advisory arrangement with us. Under his advisory
      agreement, Mr. Hatlen received $0.2 million in fiscal 2007. In connection with
      the Company’s merger with Ryan’s, Mr. Hatlen received a fee of $0.5 million. In
      addition, Mr. Hatlen will receive health, medical and other benefits comparable
      to those made available to our management employees through calendar 2010.
      Mr.
      Hatlen is a minority shareholder of Buffets Restaurants Holdings and controls
      approximately 6.0% of the shares of Buffets Holdings common stock.





**Caxton-Iseman
      Capital Advisory Agreement**





We
      entered an advisory agreement with an affiliate of Caxton-Iseman Investments,
      L.P., a majority shareholder of Buffet Restaurant Holdings (approximately 77.4%
      of the outstanding common stock) under which such affiliate provides various
      advisory services to us in exchange for an annual advisory fee equal to 2%
      of
      our annual consolidated earnings before interest, taxes, depreciation and
      amortization and an additional 1% fee for advisory services relating to
      particular transactions. Under this agreement, we paid $2.2 million in fiscal
      2007. In connection with the Company’s merger with Ryan’s, such affiliate
      received a fee of $16.8 million.





**Sentinel
      Capital Advisory Agreement**





We
      entered into an advisory agreement with Sentinel Capital Partners, L.L.C.,
      a
      minority shareholder of Buffets Restaurant Holdings (approximately 7.0% of
      the
      outstanding common stock) under which Sentinel Capital provides various advisory
      services to us. Under this agreement, we paid $0.2 million in fiscal 2007.
      In
      connection with the Company’s merger with Ryan’s, Sentinel Capital Partners,
      L.L.C. received a fee of $0.5 million.




98


**Director
      Independence**





A
      director is independent if, in the opinion of the Board, he or she has no
      relationship which would interfere with the exercise of independent judgment
      in
      carrying out the responsibilities of a director and otherwise satisfies the
      independence requirements of Schedule 14A of the Exchange Act. The Board has
      reviewed the independence of its current non-employee directors and found that,
      Mr. Rosenberg, is the only independent director.





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      following table presents aggregate fees for professional services rendered
      by
      our principal independent registered public accounting firm, Deloitte &
Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective
      affiliates (collectively, “Deloitte & Touche”) for the audit of our annual
      consolidated financial statements for the years ended June 29, 2005, June 28,
      2006 and June 27, 2007.





**For
                the Year Ended****June
                29,**
              **2005**
            
            **June
                28,**
              **2006**
            
            **June
                27,**
              **2007****(In
                thousands)**Audit
                fees (1)
            
            $
            403
            
            $
            265
            
            $
            503Audit-related
                fees (2)
            
            
            10
            
            
            18
            
            
            807Tax
                fees (3)
            
            
            67
            
            
            61
            
            
            254All
                other fees
            
            
            —
            
            
            —
            
            
            —Total
                fees
            
            $
            480
            
            $
            344
            
            $
            1,564





(1)
                Audit
                    fees are comprised of annual audit fees, quarterly review fees,
                    comfort
                    letter fees, consent fees, fees associated with the review of
                    prospectuses
                    and consultation fees on accounting issues as well as an increase
                    in
                    Company activity due to the Ryan’s
                    Merger.





(2)
            Audit-related
                fees for fiscal year 2005, 2006, and 2007 related to the issuance
                of
                separate audit reports on the consolidated financial statements of
                Buffets
                and Buffets Holdings, as well as a separate report for Buffets Franchise
                Holding, LLC in fiscal 2007. Also included is due diligence work
                related
                to the Ryan’s Merger and audit work related to the subsequent refinancing
                and the filing of a registration statement on form S-4 in connection
                with
                the Exchange Offer for the Buffets 12 1/2% Senior
                Notes.





(3)
            Tax
                fees are comprised of tax compliance and consultation fees as well
                as to
                due diligence work related to the Ryan’s Merger and the Transaction Cost
                Study for the Ryan’s tax return for the stub period from December 29, 2005
                through November 1, 2006, the acquisition
                date.





The
      audit
      committee evaluates and considers whether the services rendered by Deloitte
      & Touche, except for services rendered in connection with its audit of our
      annual consolidated financial statements, are compatible with maintaining
      Deloitte & Touche’s independence pursuant to Independence Standards Board
      Standard No. 1. The audit committee has reviewed the nature of non-audit
      services provided by Deloitte & Touche and has concluded that these services
      are compatible with maintaining the firm’s ability to serve as our independent
      auditors.





We,
      and
      our audit committee, are committed to ensuring the independence of the
      Independent Registered Public Accounting Firm, both in fact and appearance.
      In
      this regard, our audit committee has established a pre-approval policy in
      accordance with the applicable rules of the Securities and Exchange Commission.
      The pre-approval policy (i) identifies specifically prohibited services by
      our
      Independent Registered Public Accounting Firm; (ii) requires the annual review
      and approval of audit services, including the annual audit and quarterly review
      of us as well as other audits required contractually; (iii) stipulates certain
      other audit-related services as “pre-approved,” including procedures performed
      in connection with issuing comfort letters and activities associated with the
      research, application and interpretation of accounting standards as well as
      those related to the Securities and Exchange Commission’s review of our security
      filings; and (iv) requires the annual review and approval of certain non-audit
      services once they exceed specified monetary levels, including income tax
      preparation, income tax consulting and debt covenant compliance testing. All
      non-audit services require pre-approval by the full audit committee, unless
      delegated to a committee member.




99


**PART
      IV**





**ITEM
      15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
      8-K**





(a)  Documents
      filed as part of this report:




1.
              The
                  following Financial Statements of the Company are included in Part
                  II,
                  Item 8 of this Annual Report on Form
                  10-K/A:
  Report
                  of Independent Registered Public Accounting
                  Firm.
  Consolidated
                    Balance Sheets as of June 28, 2006 (Restated) and June 27, 2007
                    (Restated).
  Consolidated
                    Statements of Operations for the Year Ended June 29, 2005, for
                    the Year
                    Ended June 28, 2006 (Restated) and for the Year Ended June 27,
                    2007
                    (Restated).
  Consolidated
                    Statements of Shareholder’s Deficit for the Year Ended June 29, 2005, for
                    the Year Ended June 28, 2006 (Restated) and for the Year Ended
                    June 27,
                    2007 (Restated).
  Consolidated
                    Statements of Cash Flows for the Year Ended June 29, 2005, for
                    the Year
                    Ended June 28, 2006 (Restated), and for the Year Ended June 27,
                    2007
                    (Restated).
  Notes
                    to Consolidated Financial Statements
                    (Restated).
  2.
              Schedules
                  to Financial Statements:
  All
                  financial statement schedules have been omitted because they are
                  either
                  inapplicable or the information required is provided in the Company’s
                  Consolidated Financial Statements and Notes thereto, included in
                  Part II,
                  Item 8 of this Annual Report on Form
                  10-K/A.
  3.
              See
                  Index to Exhibits on page 102 of this
                  report.




100


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.


**BUFFETS
                  HOLDINGS, INC.**Date:
                  March 31, 2008
              By:
              /s/
                  R. Michael Andrews, Jr.R.
                  Michael Andrews, Jr.Chief
                  Executive Officer(Principal
                  Executive Officer)By:
              /s/
                  A. Keith WallA.
                  Keith WallChief
                  Financial Officer(Principal
                  Financial and Accounting Officer)
  101


**INDEX
      TO EXHIBITS**





**Exhibit**
              **Number**
            
            **Description**


2.1
            
            Agreement
                and Plan of Merger dated as of July 24, 2006 among Ryan’s Restaurant
                Group, Inc., Buffets, Inc. and Buffets Southeast, Inc. (incorporated
                by
                reference to Exhibit 2.1 to Buffets Holdings, Inc.’s Current Report on
                Form 8-K, filed with the Commission on July 25, 2006 (SEC file No,
                333-116897)).3.1
            
            Amended
                Certificate of Incorporation of Buffets Holdings, Inc. (incorporated
                by
                reference to Exhibit 3.1 to Buffets Holdings, Inc.’s Registration
                Statement on Form S-4, filed with the Commission on June 25, 2004
                (SEC
                file No. 333-116897)).3.2
            
            By-Laws
                of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2
                to
                Buffets Holdings, Inc.’s Registration Statement on Form S-4, filed with
                the Commission on June 25, 2004 (SEC file No.
                333-116897)).4.1
            
            Indenture,
                dated as of November 1, 2006, by and among Buffets Inc., the guarantors
                named therein and U.S. Bank National Association, as trustee (incorporated
                by reference to Exhibit 4.1 to Buffet Holdings, Inc.’s Registration
                Statement on Form S-4 filed with the Commission on December 18, 2006
                (SEC
                file no. 333-139436)).4.2
            
            First
                Supplemental Indenture, dated as of November 1, 2006, by and among
                Buffets, Inc., the additional subsidiary guarantors named therein
                and U.S.
                Bank National Association, as trustee (incorporated by reference
                to
                Exhibit 4.2 to Buffet Holdings, Inc.’s Registration Statement on Form S-4
                filed with the Commission on December 18, 2006 (SEC file no.
                333-139436)).4.3
            
            Second
                Supplemental Indenture, dated as of November 22 , 2006, by and among
                Buffets, Inc., the guarantors named therein and U.S. Bank National
                Association, as trustee (incorporated by reference to Exhibit 4.3
                to
                Buffet Holdings, Inc.’s Registration Statement on Form S-4 filed with the
                Commission on December 18, 2006 (SEC file no.
                333-139436)).4.4
            
            Third
                Supplemental Indenture, dated as of March 14, 2007, by and among
                Buffets,
                Inc., Buffets Franchise Holdings, LLC and U.S. Bank National Association,
                as trustee (incorporated by reference to Exhibit 4.1 to Buffet Holdings,
                Inc.’s Quarterly Report on Form 10-Q filed with the Commission on May
                21,
                2007 (SEC file no. 333-116897)).4.5
            
            Form
                of Exchange Note (included as Exhibit A of Exhibit 4.1 of Buffet
                Holdings,
                Inc.’s Registration Statement on Form S-4 filed with the Commission on
                December 18, 2006 (SEC file no. 333-139436)).10.1
            
            Description
                of Material Terms of Buffets, Inc.’s fiscal 2006 Incentive Based
                Compensation Program for Executives (incorporated by reference to
                Exhibit
                10.1 to Buffets Holdings, Inc.’s Current Report on Form 8-K (SEC file No.
                333-116897)).10.2
            
            Form
                of Buffets Holdings, Inc. Cash and Phantom Incentive Unit Award Agreement
                (incorporated by reference to Exhibit 10.2 to Buffets Holdings, Inc.’s
                Current Report on Form 8-K (SEC file No. 333-116897)).10.3
            
            Form
                of Buffets Holdings, Inc. Severance Protection Agreement (incorporated
                by
                reference to Buffets Holdings, Inc.’s Current Report on Form 8-K (SEC file
                No. 333-116897)).10.4
            
            Contribution
                Agreement, dated as of December 29, 2005, among Buffets Holdings,
                Inc.,
                Caxton-Iseman Investments, L.P., Sentinel Capital Partners II, L.P.,
                members of Buffets Holdings senior management and Buffets Restaurants
                Holdings, Inc. (incorporated byreference
                to Exhibit 10.1 to Buffets Holdings, Inc.’s Current Report on Form 8-K
                (SEC file No. 333-116897)).10.5
            
            Management
                and Fee Agreement, dated October 2, 2000, by and between Buffets,
                Inc. and
                Sentinel Capital Partners, L.L.C (incorporated by reference to Exhibit
                10.3 to Buffets, Inc.’s Registration Statement on Form S-4, filed with the
                Commission on August 16, 2002 (Commission file No.
                333-98301)).10.6
            
            Advisory
                Agreement, dated September 28, 2000, by and among Buffets Holdings,
                Inc.,
                Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit
                10.4
                to Buffets, Inc.’s Registration Statement on Form S-4, filed with the
                Commission on August 16, 2002 (Commission file No.
                333-98301)).10.7
            
            Amendment
                No. 1, dated as of December 13, 2005, to the Advisory Agreement between
                Buffets Holdings, Inc. and Roe H. Hatlen, dated as of September 28,
                2000
                (incorporated by reference to Exhibit 10.1 to Buffets Holdings, Inc.’s
                Current Report on Form 8-K, filed with the Commission on December
                16, 2005
                (Commission file No. 333-116897)).10.8
            
            Second
                Amended and Restated Management and Fee Agreement, dated as of November
                1,
                2006 between Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated
                by reference to Exhibit 10.8 to Amendment No.1 to Buffet Holdings,
                Inc.’s
                Registration Statement on Form S-4 filed with the Commission on December
                22, 2006 (SEC file no.
                333-139436)).


102


10.9
            
            Credit
                Agreement, dated as of November 1, 2006, among Buffets, Inc., Buffets
                Holdings, Inc., the lenders named therein, and Credit Suisse as
                Administrative Agent (incorporated by reference to Exhibit 10.9 to
                Buffet
                Holdings, Inc.’s Registration Statement on Form S-4 filed with the
                Commission on December 18, 2006 (SEC file no.
                333-139436)).10.10
            
            Amendment
                Agreement, dated as of March 13, 2007, to the Credit Agreement, dated
                as
                of November 1, 2006, among Buffets, Inc., Buffets Holdings, Inc.,
                Buffets,
                Inc.’s subsidiaries named therein, the lenders named therein, and Credit
                Suisse as Administrative Agent (incorporated by reference to Exhibit
                10.1
                to Buffet Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the
                Commission on May 21, 2007 (SEC file no. 333-116897)).10.11
            
            Guarantee
                and Collateral Agreement, dated as of November 1, 2006, Buffets,
                Inc.,
                Buffets Holdings, Inc., Buffets, Inc.’s subsidiaries named therein and
                Credit Suisse (incorporated by reference to Exhibit 10.10 to Buffet
                Holdings, Inc.’s Registration Statement on Form S-4 filed with the
                Commission on December 18, 2006 (SEC file no.
                333-139436)).10.12
            
            Supplement
                No. 1 dated as of November 22, 2006, to the Guarantee and Collateral
                Agreement dated as of November 1, 2006, among Buffets, Inc., Buffets
                Holdings, Inc., Buffets, Inc.’s subsidiaries named therein and Credit
                Suisse (incorporated by reference to Exhibit 10.11 to Buffet Holdings,
                Inc.’s Registration Statement on Form S-4 filed with the Commission on
                December 18, 2006 (SEC file no. 333-139436)).10.13
            
            Supplement
                No. 2 dated as of March 13, 2007, to the Guarantee and Collateral
                Agreement dated as of November 1, 2006, among Buffets, Inc., Buffets
                Holdings, Inc., Buffets, Inc.’s subsidiaries named therein and Credit
                Suisse (incorporated by reference to Exhibit 10.2 to Buffet Holdings,
                Inc.’s Quarterly Report on Form 10-Q filed with the Commission on May
                21,
                2007 (SEC file no. 333-116897)).10.14
            
            Agreement
                Regarding Leasehold Mortgages and Landlord’s Purchase Option dated as of
                November 1, 2006 among the certain landlords named therein, Credit
                Suisse,
                Ryan’s Restaurant Group, Inc., FireMountain
                Restaurants, LLC, OCB Restaurant Company, LLC, HomeTown Buffet, Inc.
                and
                German American Capital Corporation (incorporated by reference to
                Exhibit
                10.12 to Buffet Holdings, Inc.’s Registration Statement on Form S-4 filed
                with the Commission on December 18, 2006 (SEC file no.
                333-139436)).10.15
            
            The
                Trademark Security Agreement, dated as of November 1, 2006, among
                Buffets,
                Inc., Buffets Holdings, Inc., Buffets, Inc.’s subsidiaries named therein
                and Credit Suisse, as Collateral Agent (incorporated by reference
                to
                Exhibit 10.13 to Buffet Holdings, Inc.’s Registration Statement on Form
                S-4 filed with the Commission on December 18, 2006 (SEC file no.
                333-139436)).10.16
            
            Master
                Land and Building Lease, dated as of November 1, 2006, by and between
                FIGRYANF LLC, as landlord, and Fire Mountain Restaurants, LLC, as
                tenant
                (“Fortress Set 1 Lease”) (incorporated by reference to Exhibit 10.14 to
                Buffet Holdings, Inc.’s Registration Statement on Form S-4 filed with the
                Commission on December 18, 2006 (SEC file no.
                333-139436)).10.17
            
            Master
                Land and Building Lease, dated as of November 1, 2006, by and among
                (x)
                FIGRYANH LLC, FIGRYANH-1 LLC, FIGRYANH-2 LLC, FIGRYANH-3 LLC, FIGRYANH-4
                LLC, FIGRYANH-5 LLC, FIGRYANH-6 LLC, FIGRYANH-7 LLC, FIGRYANH-8 LLC,
                FIGRYANH-9 LLC, FIGRYANH-10 LLC, FIGRYANH-11 LLC, FIGRYANH-12 LLC,
                FIGRYANH-13 LLC, FIGRYANH-14 LLC, FIGRYANH-15 LLC, and FIGRYANH-16
                LLC
                (the “FIGRYANH Group”), as landlord, and (y) Fire Mountain Restaurants,
                LLC, OCB Restaurant Company, LLC, and HomeTown Buffet, Inc., as tenant
                (“Fortress Set 2 Lease”) (incorporated by reference to Exhibit 10.15 to
                Buffet Holdings, Inc.’s Registration Statement on Form S-4 filed with the
                Commission on December 18, 2006 (SEC file no.
                333-139436)).10.18
            
            Guaranty
                by Buffets, Inc., dated as of November 1, 2006, for the benefit of
                FIGRYANF LLC, relating to the tenant’s obligations under the Fortress Set
                1 Lease (incorporated by reference to Exhibit 10.16 to Buffet Holdings,
                Inc.’s Registration Statement on Form S-4 filed with the Commission on
                December 18, 2006 (SEC file no. 333-139436)).10.19
            
            Guaranty
                by Buffets, Inc., dated as of November 1, 2006, for the benefit of
                the
                FIGRYANH Group, relating to the tenants’ obligations under the Fortress
                Set 2 Lease (incorporated by reference to Exhibit 10.17 to Buffet
                Holdings, Inc.’s Registration Statement on Form S-4 filed with the
                Commission on December 18, 2006 (SEC file no.
                333-139436)).10.20
            
            Purchase
                and Sale Agreement, dated as of November 1, 2006, by and among Fire
                Mountain Restaurants, LLC, Ryan’s Restaurant Group, Inc., HomeTown Buffet,
                Inc., OCB Restaurant Company, LLC, FIGRYANF LLC, and the FIGRYANH
                Group
                (incorporated by reference to Exhibit 10.18 to Buffet Holdings, Inc.’s
                Registration Statement on Form S-4 filed with the Commission on December
                18, 2006 (SEC file no. 333-139436)).10.21
            
            Agreement
                Regarding Leasehold Mortgages and Landlord’s Purchase Option dated as of
                November 1, 2006 among the certain landlords named therein, Credit
                Suisse,
                Ryan’s Restaurant Group, Inc., Fire Mountain Restaurants, LLC, OCB
                Restaurant Company, LLC, HomeTown Buffet, Inc. and German American
                Capital
                Corporation (incorporated by reference to Exhibit 10.21 to Buffet
                Holdings, Inc.’s Registration Statement on Form S-4 filed with the
                Commission on December 18, 2006 (SEC file no.
                333-139436)).


103




14.1
            
            Code
                of Ethics (incorporated by reference to Exhibit 14.1 to Buffets Holdings,
                Inc.’s Annual Report on Form 10-K for the year ended June 30, 2004 (SEC
                File No. 333-116897)).21.1
            
            List
                of Subsidiaries of Buffets Holdings, Inc. (incorporated byreference
                to Exhibit 10.1 to Buffets Holdings, Inc.’s Current Report on Form 8-K
                (SEC File No. 333-116897)).24
              31.1*
            
            Powers
                of Attorney (included on signature pages of this 10-K).
              Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2*
            
            Certification
                of Principal Financial and Accounting Officer pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.32.1*
            
            Certification
                of Principal Executive Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2*
            
            Certification
                of Principal Financial and Accounting Officer pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.





*  Provided
      within


104