##### Table of Contents











SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended February 1,
2004

Commission File No. 0-25858

Dave & Busters, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Missouri                                                           |  | 43-1532756                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. employer
    identification number)
|                                                                  
|2481 Manana Drive, Dallas, Texas                                   |  | 75220                                      
|(Address of principal executive
    offices)                       |  | (Zip Code)                                 

Registrants telephone number, including
area code

(214) 357-9588


Securities registered pursuant to
Section 12(b) of the Act:

|                              |  | 
|----------------------------- |  | 
|                             
|Title of Each Class          
|                             
|Common Stock, $0.01 par value

Securities registered pursuant to
Section 12(g) of the Act:

None


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 þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulations S-K is not contained herein, and will not be
contained, to the best of the 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.     þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12B-2 of the
Act).     Yes þ          No o

The aggregate market value of the voting common
stock held by non-affiliates of the registrant at August 3,
2003 (the last business day of the registrants second
fiscal quarter) was $128,279,275.

The number of shares of common stock outstanding
at April 12, 2004 was 13,480,784 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants Proxy Statement
for its 2003 annual meeting of Stockholders are incorporated by
reference into Part III hereof, to the extent indicated
herein.



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FORM 10-K

TABLE OF CONTENTS

|                                                  |  |                                                                                                                 |  |      |    | 
|------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                  |  |                                                                                                                 |  | Page
|                                                  |  |                                                                                                                 |  |     
|PART I                                           
|Item 1                                            |  | Business                                                                                                        |  |      | 1  | 
|Item 2                                            |  | Properties                                                                                                      |  |      | 9  | 
|Item 3                                            |  | Legal Proceedings                                                                                               |  |      | 10 | 
|Item 4                                            |  | Submission of Matters to a
    Vote of Security Holders                                                         |  |      | 10 | 
|PART II                                          
|Item 5                                            |  | Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Stock |  |      | 11 | 
|Item 6                                            |  | Selected Financial Data                                                                                         |  |      | 12 | 
|Item 7                                            |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                       |  |      | 12 | 
|Item 7A                                           |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                  |  |      | 21 | 
|Item 8                                            |  | Financial Statements and
    Supplementary Data                                                                 |  |      | 21 | 
|Item 9                                            |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                        |  |      | 21 | 
|Item 9A                                           |  | Controls and Procedures                                                                                         |  |      | 21 | 
|PART III                                         
|Item 10                                           |  | Directors and executive
    Officers of the Registrant                                                          |  |      | 22 | 
|Item 11                                           |  | Executive Compensation                                                                                          |  |      | 22 | 
|Item 12                                           |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters          |  |      | 22 | 
|Item 13                                           |  | Certain Relationships and
    Related Transactions                                                              |  |      | 22 | 
|Item 14                                           |  | Principal Accountant Fees
    and Services                                                                      |  |      | 22 | 
|PART IV                                          
|Item 15                                           |  | Exhibits, Financial
    Statements and Reports on Form 8-K                                                      |  |      | 23 | 
|Computation of Ratio of Earnings to Fixed Charges
|Subsidiaries                                     
|Independent Auditors' Consent                    
|Rule 13a-14(a)/15d-14(a) Certifications          
|Section 1350 Certifications                      



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PART I






|        |         
|------- | --------
|Item 1. | Business

Overview

Dave & Busters is a leading
operator of large format, high-volume, regional entertainment
complexes. For the past twenty-one years, we have successfully
operated our entertainment complexes under the Dave &
Busters name. Each entertainment complex offers an
extensive array of entertainment attractions such as pocket
billiards, shuffleboard, state-of-the-art interactive simulators
and virtual reality systems, plus traditional carnival-style
games of skill. In addition, our complexes offer a full menu of
high quality food and beverages. The layout of our entertainment
complexes is designed to promote easy access to, and maximize
guest crossover between, the multiple entertainment and dining
areas within each Dave & Busters. We believe that
the availability of multiple attractions in one large facility,
the high quality food, beverages and service each entertainment
complex offers, and our commitment to casual, yet sophisticated
fun for adults synergistically drive repeat usage of our
complexes and differentiate us from other regional entertainment
offerings.

As of February 1, 2004, we operated 33
entertainment complexes across the United States and in Canada,
with an average age of 6.5 years per location. Our
entertainment complexes can be separated into two categories:
mega entertainment complexes, which are typically between 50,000
and 70,000 square feet in size, and intermediate
entertainment complexes, which are typically between 40,000 and
49,000 square feet in size. Our entertainment complexes
operate seven days a week and are typically open from
11:30 a.m. to 12:00 a.m. on weekdays and
11:30 a.m. to 2:00 a.m. on weekends.

Approximately 15.1 percent of our 2003
revenues were from private parties, business gatherings and
sponsored events. Each entertainment complex has a Show Room and
other special event rooms that are designed for hosting these
types of functions. Each complex has a dedicated sales team
responsible for selling large events to corporate, as well as,
individual guests.

In order to better serve the needs of our guests,
we provide full, sit-down food service not only in the
restaurant areas, but also throughout the entire entertainment
complex. Our menu places special emphasis on quality,
well-rounded meals, including gourmet pastas, steaks, seafood,
chicken, sandwiches, salads and an outstanding selection of
desserts. We routinely update our menus to reflect current
trends and guest favorites. Each entertainment complex offers
full bar service, including over 35 different beers, an
extensive selection of wine and spirits plus a variety of
non-alcoholic beverages, throughout the entertainment and
restaurant areas.

The fiscal year ended February 1, 2004 was
filled with challenges and with many accomplishments. Revenues
continued to be soft during the year with the first half being
the weakest portion. Our business is sensitive to economic
weakness, particularly when the job market is poor. The decision
to come to a Dave & Busters is generally made
first because of the entertainment offerings. This is the most
discretionary portion of a guests budget and, thus, we
believe, makes us more susceptible to economic downturns.
Revenues in the amusement component of our business were weaker
than the food and beverage components. The trend improved during
the year as the economy began to show signs of improvement, with
comparable store revenues being down 4.7 percent for the
year, but down only 2.0 percent for the fourth quarter. We
were able to offset these revenue declines by reducing operating
costs by approximately $11.0 to $12.0 million on an
annualized basis through a number of initiatives. This enabled
us to improve our net income to $11.0 million compared to
$5.3 million last year (before a change in accounting for
goodwill).

Acquisition of Toronto
licensee.On October 6, 2003, we
completed the purchase of the Dave & Busters
licensee in Toronto, Canada from Funtime Hospitality Corp for
$3.6 million in cash plus the forgiveness of
$0.5 million in certain receivables due from Funtime for a
total purchase price of $4.1 million. The Toronto purchase
gave us the opportunity to expand our North American operations
at an attractive price in an already successful location.

Issuance of convertible
debt.On August 7, 2003 we closed
a $30 million private placement of 5.0 percent
convertible subordinated notes due 2008 and warrants to
purchase 574,691 shares of our common

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stock at $13.46 per share. The investors may
convert the notes into our common stock at any time prior to the
scheduled maturity date of August 7, 2008. The conversion
price is $12.92 per share, which represents a
20 percent premium over the closing price of our common
stock on August 5, 2003. If fully converted, the notes will
convert into 2,321,981 shares of our common stock. After
August 7, 2006, we have the right to redeem the notes and
we may also force the exercise of the warrants if our common
stock trades above a specified price during a specific period of
time. The fair value of the warrants recorded as a discount on
the notes was $1.276 million on August 7, 2003, which
is being amortized over the term of the notes. At
February 1, 2004, the effective annual interest rate on the
notes was 7.5 percent. We used the net proceeds of the
offering to reduce the outstanding balances of our term and
revolving loans under our senior bank credit facility and to
fund the purchase of the Dave & Busters complex
in Toronto, Canada.


Competition

Dave & Busters is a regional
Entertainment Complex (EC). Regional ECs offer
multiple entertainment options designed to appeal to a broad,
regional customer base. Regional ECs, such as Dave &
Busters and theme parks, compete for customers
discretionary entertainment dollars with each other as well as
with other providers of out-of-home entertainment, including
destination ECs such as Walt Disney World or Universal Studios
and localized single attraction facilities such as movie
theaters, bowling alleys, nightclubs and restaurants. These
three types of entertainment offerings can be distinguished from
each other by factors such as:



| |   |      
| | - | -----
| |  | cost;

 breadth of attractions;

 the geographic range from which they
draw customers; and

 frequency of customer visits.

Visits to destination ECs may include airfare and
hotel costs, which may make them more costly than regional ECs
to visit. Regional ECs and localized single attraction
facilities typically cost significantly less per visit and draw
a majority of their customers from within a local or extended
local radius.

Although our competitors may include any EC
located within the same region as one of our Dave &
Busters entertainment complexes, we believe that we
compete primarily against localized single attraction
facilities. Single attraction venues offer a limited
entertainment package. To the extent that regional ECs offer
multiple entertainment options that appeal to a broad spectrum
of customers, they are distinguishable from single attraction
venues. We believe that the regional EC market is underdeveloped
relative to other entertainment concepts and that attractive
unpenetrated geographic markets remain available.

Seasonality

The fourth quarter of our fiscal year achieves,
generally, the highest revenue and profitability, primarily as a
result of the significant special event business done during the
period. This special event business is impacted by the number of
holiday parties held during this time of the year. The third
quarter is normally the lowest producing quarter in terms of
revenue and profitability with first and second quarter being
somewhat similar in results.

Strategy

Continue to improve revenues and
profitability.We recently implemented
a number of strategic initiatives aimed at increasing cash flow
including maximizing capacity utilization, optimizing game
contribution and reducing expenses. In addition, in February
2004 we introduced a new marketing program with a new
advertising agency that we anticipate will, over time, have some
positive impact on revenues. We expect to increase the marketing
budget in 2004 by approximately $4 million over the amount
spent in 2003. By

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continuing our operational reviews, we expect to
continue to discover more efficient ways to run our business,
which should improve our profitability and our cash flow.


Continue focus on product
enhancement.We will continue to
emphasize guest satisfaction and promote guest loyalty by
seeking to provide quality food, beverage and entertainment
offerings in each of our complexes. We anticipate:



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) Introducing new and exciting game
    offerings by remaining on the leading edge of technology in
    concert with the game manufacturers.              
|
| | 2) Completing our Winners
    Circle conversions which we believe improves guest
    satisfaction and reduces labor costs.                              
|
| | 3) Continuing our emphasis on a
    well-rounded, quality, food and beverage menu by routine
    updates, which reflect current trends and guest favorites.

Pursue A Disciplined Growth
Strategy.As a pioneer in the regional
EC market, we will continue to evaluate attractive site
opportunities. We typically select new sites on the basis of
demographic and transportation trends. We did not open a new
complex in 2003, but acquired an existing D&B location from
our licensee in Toronto, Canada in October 2003. We will open
one new complex in October 2004 in Arcadia, California.
Depending upon the availability of capital, we anticipate
returning to more normal growth patterns by opening a minimum of
two complexes in 2005 and up to four annually thereafter.

Products

Entertainment

Traditional
Entertainment.Each Dave &
Busters entertainment complex offers a number of
traditional entertainment options. These traditional offerings
include pocket billiards, shuffleboard tables, and the Show Room
or other special event rooms, which are designed for hosting
private social parties and business gatherings as well as our
sponsored events. Traditional entertainment games are rented by
the hour.

Million Dollar Midway
Games.The largest area in each
Dave & Busters complex is the Million Dollar
Midway, which is designed to provide high-energy entertainment
through a broad selection of electronic, skill and
sports-oriented games. A Power Card activates most midway games
and can be recharged for additional play. The Power Card enables
guests to activate games more easily and encourages extended
play of games. By replacing coin-activation, the Power Card
eliminated the technical difficulties and maintenance issues
associated with coin activated equipment. Furthermore, the Power
Card feature increased our flexibility in pricing and promoting
our games.

The Million Dollar Midway includes both
fantasy/high technology games and classic midway entertainment.
High-technology attractions vary among the entertainment
complexes and may include simulation theaters, interactive
electronic battlefield games, fantasy environment attractions,
motion simulation theaters, large-screen interactive electronic
games, such as Derby Owners Club, and state-of-the-art golf
simulators.

Classic midway entertainment includes
sports-oriented games of skill, carnival-style games, which are
intended to replicate the atmosphere found in many local county
fairs, and D&B Downs, which is one of several
multiple-player race games offered in each entertainment
complex. At the Winners Circle, players can redeem coupons
won from selected games of skill for a wide variety of prizes,
many of which display the Dave & Busters logo.
The prizes include electronic equipment, sports memorabilia,
stuffed animals, clothing and small novelty items.



| |                  
| | -----------------
| | Food and Beverage

The Dave & Busters menu is offered
from early lunch until late night and features moderately priced
food designed to appeal to a wide variety of guests. This
well-rounded fare includes gourmet pastas, steaks, seafood,
chicken, sandwiches, salads and an outstanding selection of
desserts. We routinely update our menu to reflect current trends
and guest favorites. Other items among our guests
favorites are the Classic BBQ

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Ribs, the Philly Cheesesteak sandwich, Chicken
Scallopini and our Grilled Atlantic Salmon. We also feature
lunch specials with an emphasis on quality food prepared quickly
and an extensive offering of buffets for special events and
private parties. We now offer Sunday brunch with a separate menu
featuring a variety of breakfast favorites.




| |                         
| | ------------------------
| | Location and Development

We believe that the location of our entertainment
complexes is critical to our long-term success. Significant time
and resources are devoted to analyzing each prospective site. In
general, we target high-profile sites within metropolitan areas
between 500,000 and one million people for intermediate-size
models and over one million people for mega-size models. We
carefully analyze demographic information such as average income
levels for each prospective site, and we also consider other
factors including the following:



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | visibility;                                                                                                    
|
| |  | accessibility to regional highway systems;                                                                     
|
| |  | zoning; regulatory restrictions; and                                                                           
|
| |  | proximity to shopping areas, office complexes,
    tourist attractions, theaters and other high traffic venues.

We also carefully study the entertainment and
restaurant competition in prospective areas. In addition, we
must select a site of sufficient size to accommodate our
prototype facility with ample, convenient guest parking. We
continually seek to identify and evaluate new locations for
expansion. The typical cost of opening a mega-size
Dave & Busters has ranged from approximately
$7.5 million to $13.0 million, excluding pre-opening
expenses and developer allowances, depending upon the location
and condition of the premises. For intermediate-size models, the
typical cost has ranged from approximately $6.5 million to
$12.5 million, excluding pre-opening expenses and developer
allowances, depending upon the location and condition of the
premises. Our typical complex would currently range from
$8 million to $9 million excluding pre-opening
expenses and developer allowances. We base our decision of
owning or leasing a site on the projected unit economics and
availability of the site for purchase.

Opening a leased facility reduces our capital
investment in an entertainment complex because we do not incur
land and site improvement costs and may also receive a
construction allowance from the landlord for improvements. The
exterior and interior layout of an entertainment complex is
flexible and can be readily adapted to different types of
buildings. We open entertainment complexes in both new and
existing structures, and in both urban and suburban areas.

Marketing, Advertising and Promotion

We operate our marketing, advertising, and
promotional programs through our corporate marketing department
with the assistance of an external advertising agency and a
national public relations firm. Our corporate marketing
department is also responsible for controlling media and
production costs. During fiscal 2003, our expenditures for
advertising and promotions were approximately 2.2 percent
of our revenues. We anticipate this increasing to just over
3 percent in 2004.

In order to expand our guest base, we focus
marketing efforts in three key areas:



| |   |                                               
| | - | ----------------------------------------------
| |  | advertising and system-wide promotions;       
|
| |  | field marketing and local promotions; and     
|
| |  | special events for corporate and group guests.

We hired a new Senior Vice President of Marketing
in May 2003 to direct our efforts going forward. We conducted
significant quantitative and qualitative research to find out
more about our concept and our guest to better market to them.
In addition we are continuing to focus much of our efforts in
programs that are directed specifically to the local store
markets. We continue to utilize in-store promotions to increase
visit frequency and check average.

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Our corporate and group sales programs are
initiated and controlled by our business development department,
which provides direction, training, and support to our Special
Events Managers and their team within each entertainment
complex. Primary focus for the Special Events Sales team is to
identify and contact corporations, associations, organizations,
and community groups within the teams marketplace for the
purposes of booking group events. The Special Events Sales teams
pursue corporate and social group bookings through a variety of
sales initiatives including outside sales calls and cultivation
of repeat business. We develop and maintain a database of
corporate and group bookings. Each Dave & Busters
location hosts events for many multi-national, national and
regional businesses. Many of our corporate and group guests
schedule repeat events.

Foreign Operations

As of October 6, 2003, we acquired the
operations of Funtime Hospitality Corp, our Canadian
licensee located in Toronto for $4.1 million. This
acquisition generated revenue of $3.5 million in fiscal
2003 representing approximately 1.0% of our consolidated
revenue. As of February 1, 2004 we had approximately 2.1%
of our long-lived assets located outside the United States. Our
foreign activities are subject to various risks of doing
business in a foreign country, including currency fluctuations,
political changes, changes in laws and regulations and economic
stability. We do not believe there is any material risk
associated with the Canadian operations or any dependence by any
of our business segments upon the Canadian operations.

Suppliers

The principal goods used by us are games, prizes
and food and beverage products, which are available from a
number of suppliers. Federal and state mandated increases in the
minimum wage could have the repercussion of increasing our
expenses, as our suppliers may be severely impacted by higher
minimum wage standards.

Intellectual Property

We have registered the trademarks
Dave & Busters and Power
Card with the United States Patent and Trademark Office
and in various foreign countries. We have also registered and/or
applied for certain additional trademarks with the United States
Patent and Trademark Office and in various foreign countries. We
consider our trade name and our signature bulls-eye
logo to be important features of our goodwill and seek to
actively monitor and protect our interest in this property in
the various jurisdictions where we operate.

Government Regulation and Environmental
Matters

We are subject to various federal, state, and
local laws affecting our business. Each entertainment complex is
subject to licensing and regulation by a number of governmental
authorities, which may include alcoholic beverage control,
amusement, health and safety, and fire agencies in the state,
county or municipality in which the entertainment complex is
located. Each entertainment complex is required to obtain a
license to sell alcoholic beverages on the premises from a state
authority and, in certain locations, county and municipal
authorities. Typically, licenses must be renewed annually and
may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the
daily operations of each entertainment complex, including
minimum age of patrons and employees, hours of operation,
advertising, wholesale purchasing, inventory control and
handling, and storage and dispensing of alcoholic beverages. We
have not encountered any material problems relating to alcoholic
beverage licenses to date. The failure to receive or retain a
liquor license, or any other required permit or license, in a
particular location, or to continue to qualify for or renew our
licenses, could materially adversely affect our operations and
our ability to obtain such a license or permit in other
locations. The failure to comply with other applicable federal,
state or local laws, such as federal and state minimum wage and
overtime pay laws may also adversely affect our business.

We are also subject to dram-shop
statutes in the states in which our entertainment complexes are
located. These statutes generally provide a person injured by an
intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the
intoxicated individual. We

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carry liquor liability coverage as part of our
existing comprehensive general liability insurance, which we
believe is consistent with coverage carried by other entities in
our industry. Although we are covered by insurance, a judgment
against us under a dram-shop statute in excess of our liability
coverage could have a material adverse effect on our operations.


As a result of operating certain entertainment
games and attractions, including operations that offer
redemption prizes, we are subject to amusement licensing and
regulation by the states, counties and municipalities in which
we have entertainment complexes. Certain entertainment
attractions are heavily regulated and such regulations vary
significantly between communities. From time to time, existing
entertainment complexes may be required to modify certain games,
alter the mix of games, or terminate the use of specific games
as a result of the interpretation of regulations by state or
local officials. We have, in the past, had to seek changes in
state or local regulations to enable us to open a given
location. To date, we have been successful in obtaining all such
regulatory changes.

We are subject to federal and state environmental
regulations, but these have not had a materially negative effect
on our operations. More stringent and varied requirements of
local and state governmental bodies with respect to zoning, land
use, and environmental factors could delay or prevent
development of new complexes in particular locations. We are
subject to the Fair Labor Standards Act, which governs such
matters as minimum wages, overtime and other working conditions,
along with the American With Disabilities Act and various
family-leave mandates. Although we expect increases in payroll
expenses as a result of federal and state mandated increases in
the minimum wage, such increases are not expected to be
material. However, we are uncertain of the repercussion, if any,
of increased minimum wages on our other expenses, as our
suppliers may be more severely impacted by higher minimum wage
standards.

Employees

As of February 1, 2004, we employed
approximately 5,810 persons, approximately 155 of whom
served in administrative or executive capacities, approximately
395 of whom served as entertainment complex management
personnel, and the remainder of whom were hourly entertainment
complex personnel.

None of our employees are covered by collective
bargaining agreements, and we have never experienced an
organized work stoppage, strike, or labor dispute. We believe
our working conditions and compensation packages are competitive
with those offered by our competitors and consider relations
with our employees to be good.

Executive Officers of the Registrant

David O. Corriveau, 52, a co-founder of the
Dave & Busters concept in 1982, has served as
President since June 1995 and as a director of the Company since
May 1995. He previously served as Co-Chief Executive Officer and
as Co-Chairman of the Board from February 1996 to April 2003.
Mr. Corriveau served as President and Chief Executive
Officer of D&B Holding (a predecessor of the Company) from
1989 through June 1995. From 1982 to 1989,
Messrs. Corriveau and Corley operated the Companys
business.

James W. Corley, 53, a co-founder of the
Dave & Busters concept in 1982, has served as
Chief Executive Officer since April 2003, as Chief Operating
Officer since June 1995, and as a director of the Company since
May 1995. He previously served as Co-Chief Executive Officer and
as Co-Chairman of the Board from February 1996 to April 2003.
Mr. Corley served as Executive Vice President and Chief
Operating Officer of D&B Holding from 1989 through June
1995. From 1982 to 1989, Messrs. Corley and Corriveau
operated the Companys business.

John S. Davis, 47, has served as Senior Vice
President of the Company since December 2002 and as General
Counsel and Secretary of the Company since April 2001.
Mr. Davis served as Vice President and General Counsel of
Cameron Ashley Building Products, Inc., a NYSE-listed
building products distributor, from 1994 to 2000 and as
Associate Counsel  Mergers and Acquisitions for
Electronic Data Systems Corp. (EDS), a technology services
firm, from 1990 to 1994. Prior to 1990, Mr. Davis was
engaged in the private practice of law.

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Nancy J. Duricic, 49, has served as Senior
Vice President  Human Resources of the Company since
December 2002. Previously, she served as Vice President of Human
Resources from December 1997 to December 2002. From June 1989 to
June 1997, she served in human resources positions of increasing
responsibilities in other companies, most recently as Vice
President of Human Resources for Eljer Industries, Inc.

William C. Hammett, Jr., age 57,
has served as Senior Vice President of the Company since
December 2002 and as Chief Financial Officer of the Company
since December 2001. He has served as Vice Chairman of the Board
of Directors of Pegasus Solutions, Inc. since March 2001
and as a Director of Pegasus since October 1995. From May 1998
to March 2001, he served as Chairman of the Board of Directors
of Pegasus. From October 1995 to May 1998, he served as Vice
Chairman of the Board of Directors of Pegasus. From August 1996
through September 1997, he served as Senior Vice President and
Chief Financial Officer of La Quinta Inns, Inc. From
June 1992 through August 1996, he served as Senior Vice
President, Accounting and Administration of La Quinta
Inns, Inc.

Deborah A. Inzer, 53, has served as Vice
President  Accounting and Controller of the Company
since January 2002. She served as Assistant Vice President,
Assistant Controller from November 2000 to January 2002 and as
Assistant Controller from July 1999 to November 2000.
Ms. Inzer served as Senior Vice President of Finance at
AmBrit Energy Corporation from 1989 to 1999.

Maria M. Miller, 47, has served as Senior
Vice President  Marketing since May of 2003. Prior to
joining Dave & Busters she was principal and
co-founder of a marketing consulting firm and engaged with an
internet start-up company. From 1998-2000, Ms. Miller
served as Senior Vice President of Marketing for Avis
Rent-A-Car. Prior to that, she held various senior management
positions with American Express from 1987 through 1996. She
began her career in brand management, spending a combined
7 years with the General Foods Corporation and The Shulton
Group.

J. Michael Plunkett, 53, has served as Senior
Vice President  Food and Beverage and Operations
Strategy since June 2003. Previously, he served as Vice
President of Kitchen Operations from November 2000 to June 2003,
Vice President of Information Systems from November 1996 to
November 2000, as Vice President, Director of Training from June
1995 until November 1996 and as Vice President and Director of
Training of D&B Holding from November 1994 to June 1995.
From 1982 to November 1994, he served in operating positions of
increasing responsibilities for the Company and its predecessors.

Sterling R. Smith, 51, has served as Senior Vice
President  Operations of the Company since December
2002. Previously, he served as Vice President of Operations from
June 1995 to December 2002 and as Vice President and Director of
Operations of D&B Holding from November 1994 to June 1995.
From 1983 to November 1994, Mr. Smith served in operating
positions of increasing responsibility for the Company and its
predecessors.

Bryan L. Spain, 55, has served as Senior Vice
President  Procurement and Development of the Company
since December 2002. Previously, he served as Vice President of
Real Estate from March 1997 to December 2002. From 1993 until
joining the Company in March 1997, Mr. Spain managed the
Real Estate Acquisition and Development Program for Incredible
Universe and Computer City Divisions of Tandy Corporation. In
addition, from 1991 to 1993, Mr. Spain served as Director,
Real Estate Financing for Tandy Corporation.

Risk Factors



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Our results of operations are dependent
    upon consumer discretionary spending.

Our results of operations are dependent upon
discretionary spending by consumers, particularly by consumers
living in communities in which the entertainment complexes are
located. A significant weakening in any of the local economies
in which we operate may cause our guests to curtail
discretionary spending, which in turn could materially affect
our profitability. The ongoing conflict in Iraq, potential for
future terrorist attacks, the national and international
responses, and other acts of war or hostility may create
economic and political uncertainties that could materially
adversely affect our business, results of operations and
financial

7



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##### Table of Contents



condition in ways we currently cannot predict. In
addition, seasonality is a factor in our results of operations
due to typically lower third quarter revenues in the fall season
and higher fourth quarter revenues associated with the year-end
holidays.




| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | We operate a small number of entertainment
    complexes and new entertainment complexes require significant
    investment.

As of February 1, 2004, we operated 33
entertainment complexes. The combination of the relatively small
number of locations and the significant investment associated
with each new entertainment complex may cause our operating
results to fluctuate significantly. Due to this relatively small
number of locations, poor results of operations at any single
entertainment complex could materially affect our profitability.
Historically, new entertainment complexes experience a drop in
revenues after their first year of operation, and we do not
expect that, in subsequent years, any increases in comparable
revenues will be meaningful. Additionally, because of the
substantial up-front financial requirements to open new
entertainment complexes, the investment risk related to any
single entertainment complex is much larger than that associated
with most other companies restaurant or entertainment
venues.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | We may not be able to compete favorably in
    the highly competitive out-of-home

|                      | 
|--------------------- | 
|entertainment market. | 

The out-of-home entertainment market is highly
competitive. There are a great number of businesses that compete
directly and indirectly with us. Many of these entities are
larger and have significantly greater financial resources and a
greater number of units than we have. Although we believe most
of our competition comes from localized single attraction
facilities that offer a limited entertainment package, we may
encounter increased competition in the future, which may have an
adverse effect on our profitability. In addition, the
legalization of casino gambling in geographic areas near any
current or future entertainment complex would create the
possibility for entertainment alternatives, which could have a
material adverse effect on our business.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Our operations are subject to many
    government regulations that could affect our
    operations.

Various federal, state and local laws and
permitting and license requirements affect our business,
including alcoholic beverage control, amusement, health and
safety and fire agencies in the state, county or municipality in
which each entertainment complex is located. For example, each
entertainment complex is required to obtain a license to sell
alcoholic beverages on the premises from a state authority and,
in certain locations, county and municipal authorities. The
failure to receive or retain a liquor license, or any other
required permit or license, in a particular location, or to
continue to qualify for or renew our licenses, could adversely
affect our operations and our ability to obtain such a license
or permit in other locations. The failure to comply with other
applicable federal, state or local laws, such as federal and
state minimum wage and overtime pay laws, may also adversely
affect our business.



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | We may face difficulties in attracting and
    retaining qualified employees for our entertainment
    complexes.

The operation of our business requires qualified
executives, managers and skilled employees. From time to time
there may be a shortage of skilled labor in certain of the
communities in which our entertainment complexes are located.
While we believe that we will continue to be able to attract,
train and retain qualified employees, shortages of skilled labor
will make it increasingly difficult and expensive to attract,
train and retain the services of a satisfactory number of
qualified employees.



| |                                                                             
| | ----------------------------------------------------------------------------
| | Our growth depends upon our ability to open
    new entertainment complexes.

We did not open a new entertainment complex in
fiscal 2003. Our ability to expand depends upon our access to
sufficient capital, locating and obtaining appropriate sites,
hiring and training additional management personnel, and
constructing or acquiring, at reasonable cost, the necessary
improvements and equipment for these complexes. We intend to
open one new complex in 2004. Based on our current liquidity and
capital resources and operating performance, we may not be able
to generate sufficient cash flow or obtain sufficient

8



---



##### Table of Contents



additional funding to open any new complexes in
fiscal 2005 or thereafter. In particular, the capital resources
required to develop each new entertainment complex are
significant. There is no assurance that we will be able to
expand or that new entertainment complexes, if developed, will
perform in a manner consistent with our most recently opened
entertainment complexes or make a positive contribution to our
operating performance.




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Local conditions, events and natural
    disasters could adversely affect our business.

Certain of the regions in which our entertainment
complexes are located, including five in California, have been,
and may in the future be, subject to adverse local conditions,
events or natural disasters, such as earthquakes. Depending upon
its magnitude, an earthquake could severely damage our
entertainment complexes, which could adversely affect our
business and operations. We currently maintain earthquake
insurance through our aggregate property policy for each of our
entertainment complexes. However there is no assurance that our
coverage will be sufficient if there is a major earthquake. In
addition, upon the expiration of our current policies, we cannot
assure you that adequate coverage will be available at
economically justifiable rates, if at all.



| |                       
| | ----------------------
| | Available Information.

We post on our website at www.daveandbusters.com
our annual report on Form 10-K, our quarterly reports on
Form 10-Q, our current reports on Form 8-K and all
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.






|        |           
|------- | ----------
|Item 2. | Properties

Dave & Busters operates a total of
33 entertainment complexes located in 14 states and in
Ontario, Canada. We are currently utilizing all available land
at our owned locations. Our real estate leases are with
unaffiliated third parties except as noted in Certain
relationships and related transactions. A list of all
domestic entertainment complexes, indicating whether such
location is owned or leased, and the term of the lease is set
forth below:

|                             |  |          |    |          |  |                 |        |                 |  |  |                |     |  |  |                | 
|---------------------------- |  | -------- | -- | -------- |  | --------------- | ------ | --------------- |  |  | -------------- | --- |  |  | -------------- | 
|                             |  | State or |    | Owned or |  | Lease           |        | Expiration Date
|Location                     |  | Province |    | Leased   |  | Expiration Date |        | with Options(1)
|                             |  |          |    |          |  |                 |        |                
|Dallas (I)                   |  |          | TX |          |  |                 | Owned  |                 |  |  |               |     |  |  |               | 
|Dallas (II)                  |  |          | TX |          |  |                 | Leased |                 |  |  | December 2007  |     |  |  |               | 
|Houston                      |  |          | TX |          |  |                 | Leased |                 |  |  | November 2021  |     |  |  | November 2041  | 
|Atlanta (I)                  |  |          | GA |          |  |                 | Leased |                 |  |  | December 2021  |     |  |  | November 2041  | 
|Philadelphia                 |  |          | PA |          |  |                 | Leased |                 |  |  | January 2015   | (2) |  |  | January 2024   | 
|Chicago (I)                  |  |          | IL |          |  |                 | Owned  |                 |  |  |               |     |  |  |               | 
|Chicago (II)                 |  |          | IL |          |  |                 | Leased |                 |  |  | January 2016   |     |  |  | January 2026   | 
|Hollywood                    |  |          | FL |          |  |                 | Leased | (3)             |  |  | April 2016     |     |  |  | April 2031     | 
|North Bethesda               |  |          | MD |          |  |                 | Leased |                 |  |  | January 2018   |     |  |  | January 2033   | 
|Ontario                      |  |          | CA |          |  |                 | Leased |                 |  |  | January 2018   |     |  |  | January 2028   | 
|Cincinnati                   |  |          | OH |          |  |                 | Leased |                 |  |  | January 2018   |     |  |  | January 2038   | 
|Denver                       |  |          | CO |          |  |                 | Leased |                 |  |  | December 2017  |     |  |  | December 2032  | 
|Utica                        |  |          | MI |          |  |                 | Leased |                 |  |  | June 2018      |     |  |  | June 2033      | 
|Irvine                       |  |          | CA |          |  |                 | Leased |                 |  |  | July 2018      |     |  |  | July 2028      | 
|Rockland County (West Nyack) |  |          | NY |          |  |                 | Leased |                 |  |  | January 2019   |     |  |  | January 2034   | 
|Orange                       |  |          | CA |          |  |                 | Leased |                 |  |  | January 2019   |     |  |  | January 2029   | 
|Columbus                     |  |          | OH |          |  |                 | Owned  |                 |  |  |               |     |  |  |               | 
|San Antonio                  |  |          | TX |          |  |                 | Leased |                 |  |  | September 2018 |     |  |  | September 2028 | 
|Atlanta (II)                 |  |          | GA |          |  |                 | Leased |                 |  |  | March 2019     |     |  |  | March 2034     | 

9



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##### Table of Contents



|                     |  |          |    |          |  |                 |        |                 |  |  |               |  |  |  |               | 
|-------------------- |  | -------- | -- | -------- |  | --------------- | ------ | --------------- |  |  | ------------- |  |  |  | ------------- | 
|                     |  | State or |    | Owned or |  | Lease           |        | Expiration Date
|Location             |  | Province |    | Leased   |  | Expiration Date |        | with Options(1)
|                     |  |          |    |          |  |                 |        |                
|St. Louis            |  |          | MO |          |  |                 | Leased |                 |  |  | June 2019     |  |  |  | June 2034     | 
|Austin               |  |          | TX |          |  |                 | Leased |                 |  |  | December 2019 |  |  |  | December 2034 | 
|Jacksonville         |  |          | FL |          |  |                 | Owned  |                 |  |  |              |  |  |  |              | 
|Providence           |  |          | RI |          |  |                 | Leased |                 |  |  | December 2019 |  |  |  | December 2034 | 
|Milpitas (San Jose)  |  |          | CA |          |  |                 | Leased |                 |  |  | January 2021  |  |  |  | January 2031  | 
|Westminster (Denver) |  |          | CO |          |  |                 | Leased |                 |  |  | January 2021  |  |  |  | January 2031  | 
|Pittsburgh           |  |          | PA |          |  |                 | Leased |                 |  |  | June 2020     |  |  |  | June 2055     | 
|San Diego            |  |          | CA |          |  |                 | Leased |                 |  |  | December 2020 |  |  |  | April 2055    | 
|Miami                |  |          | FL |          |  |                 | Leased |                 |  |  | March 2021    |  |  |  | March 2031    | 
|Frisco               |  |          | TX |          |  |                 | Leased |                 |  |  | August 2021   |  |  |  | August 2036   | 
|Honolulu             |  |          | HI |          |  |                 | Leased |                 |  |  | October 2021  |  |  |  | October 2036  | 
|Cleveland            |  |          | OH |          |  |                 | Leased | (3)             |  |  | November 2021 |  |  |  | November 2036 | 
|Islandia             |  |          | NY |          |  |                 | Leased |                 |  |  | August 2022   |  |  |  | August 2037   | 
|Toronto              |  |          | ON |          |  |                 | Leased |                 |  |  | May 2020      |  |  |  | May 2040      | 



---



|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Renewal options may be subject to certain
    conditions and prior notice requirements under the terms of each
    lease.
|   
|(2) | We also lease additional parking facilities at
    this location, which lease expires in January 2014.                   
|   
|(3) | We own the building at these locations, but lease
    the underlying real property.                                      

We also lease a 47,000 square foot office
building and 30,000 square foot warehouse facility in
Dallas, Texas, for use as our corporate headquarters and
distribution center. This lease expires in October 2021, with
options to renew until October 2041. The rent for these
facilities is $896,000 per year for the first year of the
lease and increases annually at 1.35 percent.






|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.

We are named as a defendant in routine litigation
incidental to our business, including negligence claims for
personal injury, consumer claims, claims under federal or state
laws governing access to public accommodations and
employment-related claims. We are not currently subject to any
pending legal proceedings that depart from the normal kind of
such actions or are otherwise material to our business or
financial condition.






|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders.

There were no matters submitted for a vote of
security holders during the fourth quarter ended
February 1, 2004.

10



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##### Table of Contents






PART II





|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities.

The Companys Common Stock trades on the
New York Stock Exchange (NYSE) under the symbol
DAB. The following table summarizes the high and low sales
prices per share of Common Stock for the applicable periods
indicated, as reported on the Nasdaq National Market and by the
NYSE.

|                 |  |      |       |     |  |   |       | 
|---------------- |  | ---- | ----- | --- |  | - | ----- | 
|                 |  | High |       | Low
|                 |  |      |       |    
|Fiscal Year 2003 |  |      |       |     |  |   |       | 
|Fourth Quarter   |  | $    | 14.65 |     |  | $ | 12.24 | 
|Third Quarter    |  |      | 13.15 |     |  |   | 9.73  | 
|Second Quarter   |  |      | 11.35 |     |  |   | 9.27  | 
|First Quarter    |  |      | 9.39  |     |  |   | 7.49  | 
|Fiscal Year 2002 |  |      |       |     |  |   |       | 
|Fourth Quarter   |  | $    | 8.83  |     |  | $ | 7.40  | 
|Third Quarter    |  |      | 13.23 |     |  |   | 7.90  | 
|Second Quarter   |  |      | 13.25 |     |  |   | 9.78  | 
|First Quarter    |  |      | 11.26 |     |  |   | 7.80  | 

At April 12, 2004 there were approximately
1,725 holders of record of the Common Stock.

The Company has never paid cash dividends on its
Common Stock and does not currently intend to do so as cash
flows are reinvested into the Company to further pay down debt
and fund capital expenditures for the entertainment complex
business. Payment of dividends in the future will depend upon
the Companys growth, profitability, financial condition
and such other factors that the Board of Directors may deem
relevant.

11



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##### Table of Contents








|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data.

The following table sets forth selected
consolidated financial data for the Company. This data should be
read in conjunction with the Consolidated Financial Statements
of the Company and the Notes thereto included in Item 8
hereof and Managements Discussion and Analysis of
Financial Condition and Results of Operations included in
Item 7 hereof.

|                                                                                                          |         |                                                        |         |             |  |             |         |             |   |             |         |        |  |   |         |        |  |   |         |        | 
|--------------------------------------------------------------------------------------------------------- | ------- | ------------------------------------------------------ | ------- | ----------- |  | ----------- | ------- | ----------- | - | ----------- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                          |         |                                                       
|                                                                                                          |         | Fiscal Year Ended                                     
|                                                                                                          |         |                                                       
|                                                                                                          |         | February 1,                                            |         | February 2, |  | February 3, |         | February 4, |   | January 30,
|                                                                                                          |         | 2004                                                   |         | 2003        |  | 2002        |         | 2001        |   | 2000       
|                                                                                                          |         |                                                        |         |             |  |             |         |             |   |            
|                                                                                                          |         |                                                       
|                                                                                                          |         | (In thousands except per share amounts and store data)
|Statement of Operations Data:                                                                             |         |                                                        |         |             |  |             |         |             |   |             |         |        |  |   |         |        |  |   |         |       
|Total revenues                                                                                            |         | $                                                      | 362,822 |             |  | $           | 373,752 |             |   | $           | 358,009 |        |  | $ | 332,303 |        |  | $ | 247,134 |       
|Operating income                                                                                          |         |                                                        | 23,576  |             |  |             | 15,246  |             |   |             | 19,697  |        |  |   | 27,966  |        |  |   | 18,955  |       
|Income before provision for income taxes and
    cumulative effect of a change in an accounting principle |         |                                                        | 16,650  |             |  |             | 8,103   |             |   |             | 11,877  |        |  |   | 19,254  |        |  |   | 15,616  |       
|Cumulative effect of a change in an accounting
    principle, net of income taxes                         |         |                                                        |        |             |  |             | (7,096  | )           |   |             |        |        |  |   |        |        |  |   | (4,687  | )     
|Net income (loss)                                                                                         |         |                                                        | 10,989  |             |  |             | (1,748  | )           |   |             | 7,578   |        |  |   | 12,245  |        |  |   | 5,205   |       
|Earnings per share  after cumulative
    effect  change in an accounting principle:                     |         |                                                        |         |             |  |             |         |             |   |             |         |        |  |   |         |        |  |   |         |       
|                                                                                                          | Basic   |                                                        | $       | .84         |  |             | $       | (.14        | ) |             | $       | .58    |  |   | $       | .95    |  |   | $       | .40    | 
|                                                                                                          | Diluted |                                                        |         | .80         |  |             |         | (.13        | ) |             |         | .58    |  |   |         | .94    |  |   |         | .39    | 
|Weighted average shares outstanding:                                                                      |         |                                                        |         |             |  |             |         |             |   |             |         |        |  |   |         |        |  |   |         |       
|                                                                                                          | Basic   |                                                        |         | 13,128      |  |             |         | 12,997      |   |             |         | 12,956 |  |   |         | 12,953 |  |   |         | 13,054 | 
|                                                                                                          | Diluted |                                                        |         | 14,646      |  |             |         | 13,404      |   |             |         | 13,016 |  |   |         | 12,986 |  |   |         | 13,214 | 
|Balance Sheet Data:                                                                                       |         |                                                        |         |             |  |             |         |             |   |             |         |        |  |   |         |        |  |   |         |       
|Working capital (deficit)                                                                                 |         | $                                                      | (220    | )           |  | $           | (4,231  | )           |   | $           | (4,478  | )      |  | $ | 5,126   |        |  | $ | 8,957   |       
|Total assets                                                                                              |         |                                                        | 295,889 |             |  |             | 291,212 |             |   |             | 309,134 |        |  |   | 303,875 |        |  |   | 268,184 |       
|Long-term debt, less current installments                                                                 |         |                                                        | 50,201  |             |  |             | 59,494  |             |   |             | 84,896  |        |  |   | 103,860 |        |  |   | 91,000  |       
|Stockholders equity                                                                                      |         |                                                        | 182,889 |             |  |             | 169,602 |             |   |             | 170,146 |        |  |   | 162,387 |        |  |   | 149,899 |       
|Other information:                                                                                        |         |                                                        |         |             |  |             |         |             |   |             |         |        |  |   |         |        |  |   |         |       
|Company operated complexes open at end of period                                                          |         |                                                        | 33      |             |  |             | 32      |             |   |             | 31      |        |  |   | 27      |        |  |   | 23      |       






|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations (Dollars in
    thousands).

During the year ended February 1, 2004, we
continued to face challenges in the revenue area but we believe
that the steps we are taking will improve this situation in the
near term. It is important to note that we have improved the
companys earnings on a comparable quarter basis every
quarter in fiscal 2003 despite the revenue pressures. We believe
that we have responded to the soft economy by diligently
improving our operating efficiencies and strengthening our
balance sheet to be better positioned for an up-turn in our
revenues.

As we look ahead to fiscal 2004, we believe that
the most critical factors facing us are improving same store
revenue, implementing an effective marketing program, the
resumption of new store growth and continued improvement in
operational cost efficiencies.

12



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##### Table of Contents



Overview

Our management monitors and analyzes a number of
key performance indicators in order to manage our business and
evaluate our financial and operating performance. Those
indicators include:

Revenues
We derive revenues from food and beverage and amusement sales.
Comparable store sales are a key performance indicator used
within our industry and are indicative of acceptance of our
initiatives as well as local economic and consumer trends.

The food component of our business represents
approximately 35 percent of our revenue with a gross margin
(revenues less cost of revenues) of around 75 percent. We
introduced our new menu in October 2003 with selected price
adjustments and will continue to monitor the market for
potential price adjustments.

In the beverage component, we offer fully
licensed facilities, which means that we have full beverage
service throughout the complex. This component is approximately
18 percent of our revenue with a gross margin of around
78 percent. We expanded the promotional activity around the
beverage component resulting in positive same store beverage
sales in 2003. We expect to continue to leverage this component.

The amusement component offers traditional games
of skill such as billiards and shuffleboard and the million
dollar midway features high-energy technology games and classic
redemption games that dispense tickets, which may be redeemed
for prizes. This component represents approximately
47 percent of our revenue with a gross margin of around
89 percent. The amusements component of our business has
been the softest component with same store revenues down
4.7 percent in 2003. In 2003, we invested in excess of
$9 million in new games and will continue to add the latest
in new games as they become available and prove to be attractive
to our guests.

Special event business is a very important
component in that we believe over 30 percent of the guests
attending a special event are in a Dave & Busters
for the first time. This is a very advantageous way to introduce
the concept to new guests and we have been very successful in
turning this component of our business to positive same store
performance. In 2003, it represented over 15 percent of
total revenues.

Cost of
revenues Costs of revenues
includes the cost of food, beverages and Winners Circle
amusement items and averages approximately 19% of revenues. We
strive to control our cost of revenues and thereby maintain or
improve our gross margins. Our cost of revenues are driven by
product mix and pricing movements from third party suppliers. In
2004, we expect to begin purchasing a number of our
Winners Circle items direct from Asia, which should reduce
our overall amusement costs.

Operating payroll and
benefits Operating payroll
and benefits were 28.9% of revenue in 2003. Operating payroll
and benefits expenses consist of wages, employer taxes and
benefits for our store personnel. We continually review the
opportunity for cost reductions principally through scheduling
refinements.

Other store operating
expenses Other store
operating expenses consist of store-related occupancy,
restaurant expenses, utilities, repair and maintenance and
marketing costs.

Liquidity and cash
flows Our primary source
of cash flow is from net income and availability under our
revolving credit facility.

Quarterly Fluctuations, Seasonality, and
Inflation As a result of
the substantial revenues associated with each new complex, the
timing of new complex openings will result in significant
fluctuations in quarterly results. We expect seasonality to be a
factor in the operation or results of our business in the future
with anticipated lower third quarter revenues due to the fall
season and higher fourth quarter revenues associated with the
year-end holidays. The effects of supplier price increases are
expected to be partially offset by selected menu price
increases. We believe that low inflation rates in our market
areas

have contributed to stable food and labor costs
in recent years. However, there is no assurance that low
inflation rates will continue or that the Federal minimum wage
rate will not increase.


13



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##### Table of Contents



Results of Operations



| |         
| | --------
| | Revenues

The following table sets forth, for the periods
indicated, a year-over-year comparison of our revenues:

|                                     |  |                        |         |      |  |               |         |      |  |               |         |   |  |  |      |    |  |   |         |  |  |   |        |  |  |  |     |  
|------------------------------------ |  | ---------------------- | ------- | ---- |  | ------------- | ------- | ---- |  | ------------- | ------- | - |  |  | ---- | -- |  | - | ------- |  |  | - | ------ |  |  |  | --- | -
|                                     |  |                        |         |      |  |               |         |      |  |              
|                                     |  | 2003                   |         | 2002 |  | 2003 vs. 2002 |         | 2001 |  | 2002 vs. 2001
|                                     |  |                        |         |      |  |               |         |      |  |              
|                                     |  |                        |         |      |  |               |         |      |  |               |         |  
|                                     |  |                       
|                                     |  | (Dollars in thousands)
|                                     |  |                        |         | $    |  | %             |         |      |  | $             |         | %
|Food and beverage                    |  | $                      | 191,881 |      |  | $             | 192,882 |      |  | $             | (1,001  | ) |  |  | (0.5 | )% |  | $ | 181,358 |  |  | $ | 11,524 |  |  |  | 6.4 | %
|Amusement and other                  |  |                        | 170,941 |      |  |               | 180,870 |      |  |               | (9,929  | ) |  |  | (5.5 | )% |  |   | 176,651 |  |  |   | 4,219  |  |  |  | 2.4 | %
|                                     |  |                        |         |      |  |               |         |      |  |               |         |   |  |  |      |    |  |   |         |  |  |   |        |  |  |  |     |  
|Total revenues                       |  | $                      | 362,822 |      |  | $             | 373,752 |      |  | $             | (10,930 | ) |  |  | (2.9 | )% |  | $ | 358,009 |  |  | $ | 15,743 |  |  |  | 4.3 | %
|                                     |  |                        |         |      |  |               |         |      |  |               |         |   |  |  |      |    |  |   |         |  |  |   |        |  |  |  |     |  
|Number of comparable stores          |  |                        | 28      |      |  |               | 26      |      |  |               |         |   |  |  |      |    |  |   | 20      |  |  |   |        |  |  |  |     |  
|Revenue from international licensees |  | $                      | 331     |      |  | $             | 564     |      |  |               |         |   |  |  |      |    |  | $ | 537     |  |  |   |        |  |  |  |     |  

The decline in revenue in 2003 was due primarily
to the weakness in the amusement component of our business while
food and beverage declined only one half of one percent for
2003. The trend improved during the year as the economy began to
show signs of improvement, with comparable store sales down
4.7 percent for the year, but down only 2.0 percent
for the fourth quarter. Revenues from the acquisition of the
Toronto complex in October 2003 and a full years
contribution from the one new store opened in the second half of
2002 mitigated the decline in total revenues.

In 2003, our revenue mix was 53 percent for
food and beverage and 47 percent for amusements and other
revenue. This compares to 52 percent and 48 percent,
respectively, for 2002. Our recent emphasis on our special
events and party business had a positive impact with comparable
store party sales at 15.5 percent of total revenues
compared to 13.6 percent last year.

In 2002, total revenues increased due to one new
store opening during the year and a full year contribution from
the three stores opened in the second half of 2001. Revenues
from comparable store sales declined by 3.2 percent, due to
a continued weak economic environment.



| |                 
| | ----------------
| | Cost of Revenues

The following table sets forth, for the periods
indicated, a year-over-year comparison of our cost of revenues:

|                             |  |                        |        |      |  |               |        |      |  |               |      |   |  |  |      |    |  |   |        |   |  |   |       |  |  |  |     |  
|---------------------------- |  | ---------------------- | ------ | ---- |  | ------------- | ------ | ---- |  | ------------- | ---- | - |  |  | ---- | -- |  | - | ------ | - |  | - | ----- |  |  |  | --- | -
|                             |  |                        |        |      |  |               |        |      |  |              
|                             |  | 2003                   |        | 2002 |  | 2003 vs. 2002 |        | 2001 |  | 2002 vs. 2001
|                             |  |                        |        |      |  |               |        |      |  |              
|                             |  |                        |        |      |  |               |        |      |  |               |      |  
|                             |  |                       
|                             |  | (Dollars in thousands)
|                             |  |                        |        | $    |  | %             |        |      |  | $             |      | %
|Total cost of revenues       |  | $                      | 68,142 |      |  | $             | 68,752 |      |  | $             | (610 | ) |  |  | (0.9 | )% |  | $ | 66,939 |   |  | $ | 1,813 |  |  |  | 2.7 | %
|Percentage of total revenues |  |                        | 18.8   | %    |  |               | 18.4   | %    |  |               |      |   |  |  |      |    |  |   | 18.7   | % |  |   |       |  |  |  |     |  

During 2003, amusement costs were up
20 basis points, while food and beverage costs were up
70 basis points. We expanded the beverage component
promotional activity resulting in positive comparable store
sales with a corresponding increase in cost.

Cost of revenues for 2002 increased due to
opening one new store during the year and a full year of
operations on three stores opened in the second half of 2001
offset by a reduction in food costs and the impact of menu
changes. Beverage and amusement costs were constant compared to
prior year.

14



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##### Table of Contents





| |                                   
| | ----------------------------------
| | Operating Payroll and
    Benefits

The following table sets forth, for the periods
indicated, a year-over-year comparison of our operating payroll
and benefits:

|                                     |  |                        |         |      |  |               |         |      |  |               |        |   |  |  |      |    |  |   |         |   |  |   |       |  |  |  |     |  
|------------------------------------ |  | ---------------------- | ------- | ---- |  | ------------- | ------- | ---- |  | ------------- | ------ | - |  |  | ---- | -- |  | - | ------- | - |  | - | ----- |  |  |  | --- | -
|                                     |  |                        |         |      |  |               |         |      |  |              
|                                     |  | 2003                   |         | 2002 |  | 2003 vs. 2002 |         | 2001 |  | 2002 vs. 2001
|                                     |  |                        |         |      |  |               |         |      |  |              
|                                     |  |                        |         |      |  |               |         |      |  |               |        |  
|                                     |  |                       
|                                     |  | (Dollars in thousands)
|                                     |  |                        |         | $    |  | %             |         |      |  | $             |        | %
|Total operating payroll and benefits |  | $                      | 105,027 |      |  | $             | 114,904 |      |  | $             | (9,877 | ) |  |  | (8.6 | )% |  | $ | 110,478 |   |  | $ | 4,426 |  |  |  | 4.0 | %
|Percentage of total revenues         |  |                        | 29.0    | %    |  |               | 30.7    | %    |  |               |        |   |  |  |      |    |  |   | 30.8    | % |  |   |       |  |  |  |     |  

In 2003 compared to 2002, the decrease in both
absolute dollars and as a percentage of revenues is attributed
to cost reduction initiatives, consisting of a reduction in
workforce in the fourth quarter of 2002 and scheduling
refinements implemented in the first quarter of 2003.

During 2002, the increase in absolute dollars
over the prior year is attributed to opening one new store
during 2002 and a full year of operations for the three new
stores opened in the second half of 2001 offset by a reduction
in store hourly and management costs at all stores.



| |                                   
| | ----------------------------------
| | Other Store Operating
    Expenses

The following table sets forth, for the periods
indicated, a year-over-year comparison of our other store
operating expenses:

|                               |  |                        |         |      |  |               |         |      |  |               |        |   |  |  |      |    |  |   |         |   |  |   |        |  |  |  |      |  
|------------------------------ |  | ---------------------- | ------- | ---- |  | ------------- | ------- | ---- |  | ------------- | ------ | - |  |  | ---- | -- |  | - | ------- | - |  | - | ------ |  |  |  | ---- | -
|                               |  |                        |         |      |  |               |         |      |  |              
|                               |  | 2003                   |         | 2002 |  | 2003 vs. 2002 |         | 2001 |  | 2002 vs. 2001
|                               |  |                        |         |      |  |               |         |      |  |              
|                               |  |                        |         |      |  |               |         |      |  |               |        |  
|                               |  |                       
|                               |  | (Dollars in thousands)
|                               |  |                        |         | $    |  | %             |         |      |  | $             |        | %
|Other store operating expenses |  | $                      | 111,310 |      |  | $             | 117,666 |      |  | $             | (6,356 | ) |  |  | (5.4 | )% |  | $ | 106,971 |   |  | $ | 10,695 |  |  |  | 10.0 | %
|Percentage of total revenues   |  |                        | 30.7    | %    |  |               | 31.5    | %    |  |               |        |   |  |  |      |    |  |   | 29.9    | % |  |   |        |  |  |  |      |  

The 2003 decrease in both absolute dollars and as
a percentage of revenues is primarily attributed to a
$4 million reduction in the marketing costs for 2003. In
fiscal 2004, we will substantially increase our marketing budget
to just over 3 percent of revenues to implement new
initiatives.

The 2002 increase in absolute dollars and as a
percentage of revenues over the prior year is attributed to
opening one new store during 2002 and a full year of operations
for the three stores opened in the second half of 2001. An
increase in occupancy expense related to the sale-leaseback
transactions for the Houston and Atlanta locations was also a
factor.



| |                                        
| | ---------------------------------------
| | General and Administrative
    Expenses

The following table sets forth, for the periods
indicated, a year-over-year comparison of our general and
administrative expenses:

|                             |  |                        |        |      |  |               |        |      |  |               |      |   |  |  |       |    |  |   |        |   |  |   |       |   |  |  |      |   
|---------------------------- |  | ---------------------- | ------ | ---- |  | ------------- | ------ | ---- |  | ------------- | ---- | - |  |  | ----- | -- |  | - | ------ | - |  | - | ----- | - |  |  | ---- | --
|                             |  |                        |        |      |  |               |        |      |  |              
|                             |  | 2003                   |        | 2002 |  | 2003 vs. 2002 |        | 2001 |  | 2002 vs. 2001
|                             |  |                        |        |      |  |               |        |      |  |              
|                             |  |                        |        |      |  |               |        |      |  |               |      |  
|                             |  |                       
|                             |  | (Dollars in thousands)
|                             |  |                        |        | $    |  | %             |        |      |  | $             |      | %
|General and administrative   |  | $                      | 25,033 |      |  | $             | 25,640 |      |  | $             | (607 | ) |  |  | (2.4  | )% |  | $ | 20,653 |   |  | $ | 4,987 |   |  |  | 24.1 | % 
|Percentage of total revenues |  |                        | 6.9    | %    |  |               | 6.9    | %    |  |               |      |   |  |  |       |    |  |   | 5.8    | % |  |   |       |   |  |  |      |   
|Average headcount            |  |                        | 151    |      |  |               | 177    |      |  |               | (26  | ) |  |  | (14.7 | )% |  |   | 187    |   |  |   | (10   | ) |  |  | (5.3 | )%

General and administrative expenses consist
primarily of personnel, facilities and professional expenses for
the various departments at corporate headquarters. The decrease
in absolute dollars in 2003 compared to 2002 was attributed to a
reduction in workforce in the fourth quarter of 2002 offset by
higher costs from insurance premiums and employee benefits. The
increase in these costs as a percentage of revenue was due to
the revenue decline.

15



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##### Table of Contents



The increase in dollars and as a percentage of
total revenues in 2002 compared to 2001 were attributed to
higher employee compensation and benefits, occupancy costs,
transaction costs related to the proposed merger agreements,
legal and professional fees and insurance costs.



| |                                           
| | ------------------------------------------
| | Depreciation and Amortization
    Expenses

The following table sets forth, for the periods
indicated, a year-over-year comparison of our depreciation and
amortization expenses:

|                              |  |                        |        |      |  |               |        |      |  |               |      |   |  |  |      |    |  |   |        |   |  |   |        |   |  |  |      |   
|----------------------------- |  | ---------------------- | ------ | ---- |  | ------------- | ------ | ---- |  | ------------- | ---- | - |  |  | ---- | -- |  | - | ------ | - |  | - | ------ | - |  |  | ---- | --
|                              |  |                        |        |      |  |               |        |      |  |              
|                              |  | 2003                   |        | 2002 |  | 2003 vs. 2002 |        | 2001 |  | 2002 vs. 2001
|                              |  |                        |        |      |  |               |        |      |  |              
|                              |  |                        |        |      |  |               |        |      |  |               |      |  
|                              |  |                       
|                              |  | (Dollars in thousands)
|                              |  |                        |        | $    |  | %             |        |      |  | $             |      | %
|Depreciation and amortization |  | $                      | 29,734 |      |  | $             | 30,056 |      |  | $             | (322 | ) |  |  | (1.1 | )% |  | $ | 28,693 |   |  | $ | (1,363 | ) |  |  | (4.8 | )%
|Percentage of total revenues  |  |                        | 8.2    | %    |  |               | 8.0    | %    |  |               |      |   |  |  |      |    |  |   | 8.0    | % |  |   |        |   |  |  |      |   

Expenditures for new facilities and those that
substantially increase the useful lives of the property,
including interest expense during construction, are capitalized,
along with equipment purchases, at cost. Property and equipment,
excluding most games are depreciated on the straight-line method
over the estimated useful life of the assets. Games are
generally depreciated on the 150 percent
double-declining-balance method over the estimated useful life
of the assets. Property and equipment lives are estimated as
follows: buildings, 40 years; leasehold and building
improvements, shorter of 20 years or lease life; furniture,
fixtures and equipment, 5 to 10 years; games 5 years.
These costs result in a charge to depreciation and amortization
expense. Depreciation was relatively flat in 2003 compared to
2002 due to one new store opening late in 2002 and the
acquisition of Toronto late in 2003.



| |                    
| | -------------------
| | Preopening Expenses

The following table sets forth, for the periods
indicated, a year-over-year comparison of our preopening
expenses:

|                             |  |                        |   |      |  |               |       |      |  |               |        |   |  |  |        |    |  |   |       |   |  |   |        |   |  |  |       |   
|---------------------------- |  | ---------------------- | - | ---- |  | ------------- | ----- | ---- |  | ------------- | ------ | - |  |  | ------ | -- |  | - | ----- | - |  | - | ------ | - |  |  | ----- | --
|                             |  |                        |   |      |  |               |       |      |  |              
|                             |  | 2003                   |   | 2002 |  | 2003 vs. 2002 |       | 2001 |  | 2002 vs. 2001
|                             |  |                        |   |      |  |               |       |      |  |              
|                             |  |                        |   |      |  |               |       |      |  |               |        |  
|                             |  |                       
|                             |  | (Dollars in thousands)
|                             |  |                        |   | $    |  | %             |       |      |  | $             |        | %
|Preopening                   |  | $                      |  |      |  | $             | 1,488 |      |  | $             | (1,488 | ) |  |  | (100.0 | )% |  | $ | 4,578 |   |  | $ | (3,090 | ) |  |  | (67.5 | )%
|Percentage of total revenues |  |                        |  |      |  |               | 0.4   | %    |  |               |        |   |  |  |        |    |  |   | 1.3   | % |  |   |        |   |  |  |       |   
|New store openings           |  |                        |  |      |  |               | 1     |      |  |               |        |   |  |  |        |    |  |   | 4     |   |  |   |        |   |  |  |       |   

All start-up and preopening costs related to new
store openings are expensed as incurred. There were no
preopening costs in 2003 as compared to $1,488 and $4,578 in
2002 (1 new store) and 2001 (4 new stores) respectively.



| |                  
| | -----------------
| | Interest Expenses

The following table sets forth, for the periods
indicated, a year-over-year comparison of our interest expenses:

|                             |  |                        |       |      |  |               |       |      |  |               |      |   |  |  |      |    |  |   |       |   |  |   |      |   |  |  |      |   
|---------------------------- |  | ---------------------- | ----- | ---- |  | ------------- | ----- | ---- |  | ------------- | ---- | - |  |  | ---- | -- |  | - | ----- | - |  | - | ---- | - |  |  | ---- | --
|                             |  |                        |       |      |  |               |       |      |  |              
|                             |  | 2003                   |       | 2002 |  | 2003 vs. 2002 |       | 2001 |  | 2002 vs. 2001
|                             |  |                        |       |      |  |               |       |      |  |              
|                             |  |                        |       |      |  |               |       |      |  |               |      |  
|                             |  |                       
|                             |  | (Dollars in thousands)
|                             |  |                        |       | $    |  | %             |       |      |  | $             |      | %
|Interest                     |  | $                      | 6,926 |      |  | $             | 7,143 |      |  | $             | (217 | ) |  |  | (3.0 | )% |  | $ | 7,820 |   |  | $ | (677 | ) |  |  | (8.7 | )%
|Percentage of total revenues |  |                        | 1.9   | %    |  |               | 1.9   | %    |  |               |      |   |  |  |      |    |  |   | 2.2   | % |  |   |      |   |  |  |      |   

Interest expense was essentially flat in 2003 as
compared to 2002 in both absolute dollars and as a percentage of
revenues. At the end of 2003, our total outstanding debt was
$53.5 million, down $14.3 million from the end of
2002. The reduction in outstanding debt was attributed to
repayments from cash flows resulting from increased earnings and
no new store openings in 2003.

16



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##### Table of Contents





| |                           
| | --------------------------
| | Provision for Income Taxes

The following table sets forth, for the periods
indicated, a year-over-year comparison of our provision for
income taxes:

|                             |  |                        |       |      |  |               |       |      |  |               |       |   |  |  |       |   |  |   |       |   |  |   |        |   |  |  |       |   
|---------------------------- |  | ---------------------- | ----- | ---- |  | ------------- | ----- | ---- |  | ------------- | ----- | - |  |  | ----- | - |  | - | ----- | - |  | - | ------ | - |  |  | ----- | --
|                             |  |                        |       |      |  |               |       |      |  |              
|                             |  | 2003                   |       | 2002 |  | 2003 vs. 2002 |       | 2001 |  | 2002 vs. 2001
|                             |  |                        |       |      |  |               |       |      |  |              
|                             |  |                        |       |      |  |               |       |      |  |               |       |  
|                             |  |                       
|                             |  | (Dollars in thousands)
|                             |  |                        |       | $    |  | %             |       |      |  | $             |       | %
|Income tax expense           |  | $                      | 5,661 |      |  | $             | 2,755 |      |  | $             | 2,906 |   |  |  | 105.5 | % |  | $ | 4,299 |   |  | $ | (1,544 | ) |  |  | (35.9 | )%
|Percentage of total revenues |  |                        | 1.6   | %    |  |               | 0.7   | %    |  |               |       |   |  |  |       |   |  |   | 1.2   | % |  |   |        |   |  |  |       |   
|Effective tax rate           |  |                        | 34.0  | %    |  |               | 34.0  | %    |  |               |       |   |  |  |       |   |  |   | 36.2  | % |  |   |        |   |  |  |       |   

In 2003 and 2002 our effective tax rate differed
from the 35 percent statutory rate primarily due to the
deduction for FICA tip credits.



| |                                      
| | -------------------------------------
| | Change in an Accounting
    Principle

Pursuant to SFAS No. 142, we changed
our accounting policy related to goodwill effective
January 1, 2002. SFAS No. 142 requires that
goodwill no longer be amortized to earnings, but instead should
be reviewed for impairment at least annually. Under
SFAS No. 142, impairment is deemed to exist when the
carrying value of goodwill is greater that its implied
fair value. This methodology differs from our previous policy,
as permitted under accounting standards existing before SFAS
No. 142, of using undiscounted cash flows of the businesses
acquired over its estimated life.

As a result of applying the new standards, the
initial assessment of fair value of the Company resulted in a
one-time charge for the entire write off of goodwill of $7,096.
Recorded as a cumulative effect of a change in accounting
principle, the write off of goodwill resulted in a negative
$0.53 per diluted share for the year. The remaining
intangible (trademark) is insignificant and continues to be
amortized over its useful life.



| |                  
| | -----------------
| | Net income (loss)

The following table sets forth, for the periods
indicated, a year-over-year comparison of our net income (loss):

|                                                                   |  |                        |        |      |  |               |        |      |  |               |        |   |  |  |       |   |  |   |       |   |  |   |        |   |  |  |        |   
|------------------------------------------------------------------ |  | ---------------------- | ------ | ---- |  | ------------- | ------ | ---- |  | ------------- | ------ | - |  |  | ----- | - |  | - | ----- | - |  | - | ------ | - |  |  | ------ | --
|                                                                   |  |                        |        |      |  |               |        |      |  |              
|                                                                   |  | 2003                   |        | 2002 |  | 2003 vs. 2002 |        | 2001 |  | 2002 vs. 2001
|                                                                   |  |                        |        |      |  |               |        |      |  |              
|                                                                   |  |                        |        |      |  |               |        |      |  |               |        |  
|                                                                   |  |                       
|                                                                   |  | (Dollars in thousands)
|                                                                   |  |                        |        | $    |  | %             |        |      |  | $             |        | %
|Net income before cumulative change in an
    accounting principle |  | $                      | 10,989 |      |  | $             | 5,348  |      |  | $             | 5,641  |   |  |  | 105.5 | % |  | $ | 7,578 |   |  | $ | (2,230 | ) |  |  | (29.4  | )%
|Percentage of total revenues                                       |  |                        | 3.0    | %    |  |               | 1.4    | %    |  |               |        |   |  |  |       |   |  |   | 2.1   | % |  |   |        |   |  |  |        |   
|Net income (loss)                                                  |  | $                      | 10,989 |      |  | $             | (1,748 | )    |  | $             | 12,737 |   |  |  | 728.7 | % |  | $ | 7,578 |   |  | $ | (9,326 | ) |  |  | (123.1 | )%
|Percentage of total revenues                                       |  |                        | 3.0    | %    |  |               | (0.5   | )%   |  |               |        |   |  |  |       |   |  |   | 2.1   | % |  |   |        |   |  |  |        |   

Net income in absolute dollars and as a
percentage of total revenue increased primarily due to our
initiatives taken to control labor and operating expenses.

Liquidity and Capital Resources

|                     |  |                        |        |      |  |               |        |      |  |               |       |   |  |  |      |   |  |   |        |  |  |   |        |   |  |  |       |   
|-------------------- |  | ---------------------- | ------ | ---- |  | ------------- | ------ | ---- |  | ------------- | ----- | - |  |  | ---- | - |  | - | ------ |  |  | - | ------ | - |  |  | ----- | --
|                     |  |                        |        |      |  |               |        |      |  |              
|                     |  | 2003                   |        | 2002 |  | 2003 vs. 2002 |        | 2001 |  | 2002 vs. 2001
|                     |  |                        |        |      |  |               |        |      |  |              
|                     |  |                        |        |      |  |               |        |      |  |               |       |  
|                     |  |                       
|                     |  | (Dollars in thousands)
|                     |  |                        |        | $    |  | %             |        |      |  | $             |       | %
|Operating cash flows |  | $                      | 45,517 |      |  | $             | 40,604 |      |  | $             | 4,913 |   |  |  | 12.1 | % |  | $ | 49,701 |  |  | $ | (9,097 | ) |  |  | (18.3 | )%

The increase in 2003 is attributed to the higher
level of net income, partially offset by movements in working
capital requirements. The decrease in 2002 to 2001 is due to
reduced revenue per store, one time

17



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##### Table of Contents



transaction costs related to our proposed merger
agreement in 2002 and the timing of accounts payable
disbursements at the end of the year.


|                     |  |                        |         |      |  |               |         |      |  |               |        |   |  |  |      |   |  |   |         |   |  |   |       |  |  |  |       |   
|-------------------- |  | ---------------------- | ------- | ---- |  | ------------- | ------- | ---- |  | ------------- | ------ | - |  |  | ---- | - |  | - | ------- | - |  | - | ----- |  |  |  | ----- | --
|                     |  |                        |         |      |  |               |         |      |  |              
|                     |  | 2003                   |         | 2002 |  | 2003 vs. 2002 |         | 2001 |  | 2002 vs. 2001
|                     |  |                        |         |      |  |               |         |      |  |              
|                     |  |                        |         |      |  |               |         |      |  |               |        |  
|                     |  |                       
|                     |  | (Dollars in thousands)
|                     |  |                        |         | $    |  | %             |         |      |  | $             |        | %
|Investing cash flows |  | $                      | (27,421 | )    |  | $             | (20,970 | )    |  | $             | (6,451 | ) |  |  | 30.8 | % |  | $ | (30,813 | ) |  | $ | 9,843 |  |  |  | (31.9 | )%

The investing activities for 2003 included over
$9 million in games, the acquisition of the Toronto complex
from a licensee and normal capital expenditures at previously
existing stores. The investing expenditures for 2002 are related
to the opening of one new store and normal capital expenditures
at existing stores, while in 2001 the investing expenditures
represented the opening of four new stores as well as recurring
capital expenditures at existing stores.

|                     |  |                        |         |      |  |               |         |      |  |               |       |   |  |  |       |    |  |   |         |   |  |   |        |   |  |  |      |  
|-------------------- |  | ---------------------- | ------- | ---- |  | ------------- | ------- | ---- |  | ------------- | ----- | - |  |  | ----- | -- |  | - | ------- | - |  | - | ------ | - |  |  | ---- | -
|                     |  |                        |         |      |  |               |         |      |  |              
|                     |  | 2003                   |         | 2002 |  | 2003 vs. 2002 |         | 2001 |  | 2002 vs. 2001
|                     |  |                        |         |      |  |               |         |      |  |              
|                     |  |                        |         |      |  |               |         |      |  |               |       |  
|                     |  |                       
|                     |  | (Dollars in thousands)
|                     |  |                        |         | $    |  | %             |         |      |  | $             |       | %
|Financing cash flows |  | $                      | (16,729 | )    |  | $             | (21,625 | )    |  | $             | 4,896 |   |  |  | (22.6 | )% |  | $ | (17,546 | ) |  | $ | (4,079 | ) |  |  | 23.3 | %

Cash used in financing activities was used to
reduce outstanding debt balances and payment of debt fee costs.

On August 7, 2003 we closed a
$30 million private placement of 5.0 percent
convertible subordinated notes due 2008 and warrants to
purchase 574,691 shares of our common stock at
$13.46 per share. The investors may convert the notes into
our common stock at any time prior to the scheduled maturity
date of August 7, 2008. The conversion price is
$12.92 per share, which represents a 20 percent
premium over the closing price of our common stock on
August 5, 2003. If fully converted, the notes will convert
into 2,321,981 shares of our common stock. After
August 7, 2006, we have the right to redeem the notes and
we may also force the exercise of the warrants if our common
stock trades above a specified price during a specific period of
time. The fair value of the warrants of $1,276 was recorded as a
discount on the notes, which is amortized over the term of the
notes. As a result, the effective annual interest rate on the
notes is 7.5 percent. We used the net proceeds of the
offering to reduce the outstanding balances of our term and
revolving loans under our senior bank credit facility. We agreed
with the bank that up to $4,000 of the repaid balance could be
borrowed to fund the purchase of the complex in Toronto.

On October 29, 2003, we amended our senior
bank credit facility. The current facility includes a $45,000
revolving credit facility and a $15,000 term debt facility.
Borrowings under the revolving credit facility bear interest at
a floating rate based on the banks prime interest rate
(4 percent at February 1, 2004) or the one-month
EuroDollar (1.13 percent at February 1, 2004), plus in
each case a margin based on financial performance. The interest
rate on the revolving credit facility was 3.87 percent at
February 1, 2004. Borrowings on the term debt facility bear
interest at a floating rate based on the three month EuroDollar
(1.13 percent at February 1, 2004), or at our option,
the banks prime interest rate (4.0 percent at
February 1, 2004), plus in each case a margin based on
financial performance. The interest rate on the term debt
facility was 3.91 percent at February 1, 2004. The
amended facility is secured by all assets of the Company. The
amended facility has certain financial covenants including a
consolidated tangible net worth, a maximum leverage ratio and a
minimum fixed charge coverage ratio. Any outstanding borrowings
under the revolving credit facility are due at maturity on
April 29, 2008. Borrowings under the term debt facility are
repayable in 17 consecutive quarterly payments of $833 with the
final payment due on April 29, 2008. At February 1,
2004, $28,720 was available under the revolving credit facility.
The fair market value of our long-term debt approximates its
carrying value.

In 2001, we entered into an interest rate swap
agreement that expires in 2007, to change a portion of our
variable rate debt to fixed-rate debt. Pursuant to the swap
agreement, the interest rate on notional amounts aggregating
$40,633 at February 1, 2004 is fixed at 5.44 percent.
We are exposed to credit losses for periodic settlements of
amounts due under the agreements if LIBOR decreases. As a result
of the swap agreement, we recorded additional interest expense
of $1,863, $1,803, and $858 in 2003, 2002 and 2001, respectively.

18



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##### Table of Contents



The market risks associated with the amended
agreements are mitigated because increased interest payments
under the agreement resulting from reductions in the EuroDollar
are partially offset by a reduction in interest expense under
the debt obligation.

The previous credit facility restricted us from
opening any new complexes in fiscal 2003 or in any fiscal year
thereafter without meeting certain financial covenants as
described in the previous amended facility. We used the net
proceeds of the October 29, 2003 offering to reduce the
outstanding balances of our term and revolving loans under our
senior bank credit facility. We agreed with the bank that up to
$4,000 of the repaid debt balance could be borrowed to fund the
purchase of the Dave & Busters complex in
Toronto, Canada, from our Canadian licensee. We plan to
construct one new complex in 2004 and we will continue to reduce
debt and strategically reinvest capital in our stores through
game replacement and other projects, which we expect to yield
benefits over the long term.

We believe that available cash and cash flow from
operations, together with borrowings under the credit facility,
will be sufficient to cover our working capital, capital
expenditures and debt service needs in the foreseeable future.
Our ability to make scheduled payments of principal or interest
on, or to refinance, our indebtedness, or to fund planned
capital expenditures, will depend on our future performance,
which is subject to general economic conditions, competitive
environment and other factors. We may not generate sufficient
cash flow from operations, realize anticipated revenue growth
and operating improvements or obtain future capital in a
sufficient amount or on acceptable terms, to enable us to
service our indebtedness or to fund our other liquidity needs.

Sale/Leaseback Transactions

During the year ended February 3, 2002, the
Company completed the sale/leaseback of two stores (Atlanta and
Houston) and the corporate headquarters in Dallas. Cash proceeds
of $18,474 were received along with $5,150 in twenty-year
interest bearing notes receivable at 7-7.5 percent. The
locations were sold to non-affiliated entities. No revenue or
profit was recorded at the time of the transaction.

Upon execution of the sale/leaseback
transactions, property costs of $28,396 and accumulated
depreciation of $4,388 were removed from the Companys
books resulting in a loss of $272 that was recognized in 2001
and a gain of $232 on one facility being amortized over the term
of the operating lease.

Future operating lease obligations under the
sale/leaseback agreements are as follows:

|      |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|----- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|Total |        | 2004 |  | 2005 |       | 2006 |  | 2007 |       | 2008 |  | Thereafter
|      |        |      |  |      |       |      |  |      |       |      |  |           
|$     | 79,317 |      |  | $    | 4,002 |      |  | $    | 4,051 |      |  | $          | 4,183 |  |  | $ | 4,225 |  |  | $ | 4,267 |  |  | $ | 58,589 | 

Future minimum note payments and interest income
associated with the sale/leasebacks at San Diego, Houston
and Atlanta are as follows:

|      |        |      |  |      |     |      |  |      |     |      |  |            |     |  |  |   |     |  |  |   |     |  |  |   |       | 
|----- | ------ | ---- |  | ---- | --- | ---- |  | ---- | --- | ---- |  | ---------- | --- |  |  | - | --- |  |  | - | --- |  |  | - | ----- | 
|Total |        | 2004 |  | 2005 |     | 2006 |  | 2007 |     | 2008 |  | Thereafter
|      |        |      |  |      |     |      |  |      |     |      |  |           
|$     | 11,543 |      |  | $    | 652 |      |  | $    | 652 |      |  | $          | 652 |  |  | $ | 652 |  |  | $ | 652 |  |  | $ | 8,283 | 

19



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##### Table of Contents



Contractual Obligations and Commercial
Commitments

The following tables set forth the Companys
contractual obligations and commercial commitments (in
thousands):

|                                                   |  |       |         |                        |  |       |        |       |  |         |        |  |  |   |        |  |  |   |         | 
|-------------------------------------------------- |  | ----- | ------- | ---------------------- |  | ----- | ------ | ----- |  | ------- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                                   |  |       |         |                       
|                                                   |  |       |         | Payments Due by Period
|                                                   |  |       |         |                       
|                                                   |  |       |         | 1 Year                 |  | 2-3   |        | 4-5   |  | After 5
|Contractual Obligations                            |  | Total |         | or Less                |  | Years |        | Years |  | Years  
|                                                   |  |       |         |                        |  |       |        |       |  |        
|Long-term debt                                     |  | $     | 53,534  |                        |  | $     | 3,333  |       |  | $       | 6,666  |  |  | $ | 43,535 |  |  | $ |        | 
|Operating leases under sale/leaseback transactions |  |       | 79,317  |                        |  |       | 4,002  |       |  |         | 8,234  |  |  |   | 8,492  |  |  |   | 58,589  | 
|Other operating leases                             |  |       | 327,673 |                        |  |       | 21,948 |       |  |         | 41,507 |  |  |   | 39,466 |  |  |   | 224,752 | 
|Other                                              |  |       | 341     |                        |  |       | 246    |       |  |         | 95     |  |  |   |       |  |  |   |        | 
|                                                   |  |       |         |                        |  |       |        |       |  |         |        |  |  |   |        |  |  |   |         | 
|Total                                              |  | $     | 460,865 |                        |  | $     | 29,529 |       |  | $       | 56,502 |  |  | $ | 91,493 |  |  | $ | 283,341 | 
|                                                   |  |       |         |                        |  |       |        |       |  |         |        |  |  |   |        |  |  |   |         | 

The payments on long-term debt for years 4-5
include the conversion of the $30,000 convertible debt at
maturity in August 2008. As of February 1, 2004, we have
$5,780 in Letters of Credit commitments associated with our
insurance policies.

Management believes the following critical
accounting policies, among others, affect its more significant
judgments and estimates used in the preparation of its
consolidated financial statements.

Accounting Policies

Depreciable
lives expenditures for new
facilities and those that substantially increase the useful
lives of the property, including interest during construction,
are capitalized along with equipment purchases at cost. These
costs are depreciated over various methods based on an estimate
of the depreciable life, resulting in a charge to the operating
results of the Company. The actual results may differ from these
estimates under different assumptions or conditions. The
depreciable lives are as follows:

|                       |                                     |  |  |                                   | 
|---------------------- | ----------------------------------- |  |  | --------------------------------- | 
|Property and Equipment |                                     |  |  |                                  
|                       | Buildings                           |  |  | 40 years                          | 
|                       | Leasehold and building improvements |  |  | Shorter of 20 years or lease term | 
|                       | Furniture, fixtures and equipment   |  |  | 5 to 10 years                     | 
|                       | Games                               |  |  | 5 years                           | 

Reviews are performed regularly to determine
whether facts or circumstances exist that indicate the carrying
values of our property and equipment are impaired. We assess the
recoverability of our property and equipment by comparing the
projected future undiscounted net cash flows associated with
these assets to their respective carrying amounts. Impairment,
if any, is based on the excess of the carrying amount over the
estimated fair market value of the assets.

Debt
Covenants The
Companys credit facility requires compliance with certain
financial covenants including a minimum consolidated tangible
net worth level, maximum leverage ratio and minimum fixed charge
coverage. The Company believes the results of operations for the
fiscal year ending February 1, 2004 and thereafter would
enable the Company to remain in compliance with the existing
covenants absent any material negative event affecting the
U.S. economy as a whole. However, the Companys
expectations of future operating results and continued
compliance with the debt covenants cannot be assured and the
lenders actions are not controllable by the Company. If
the projections of future operating results are not achieved and
the debt is placed in default, the Company would experience a
material adverse impact on its reported financial position and
results of operations.

20



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##### Table of Contents



Market Risk

Our market risk exposure relates to changes in
the general level of interest rates. The Companys earnings
are affected by changes in interest rates due to the impact
those changes have on its interest expense from variable-rate
debt. Our agreement to fix a portion of its variable-rate debt
mitigates this exposure.

Safe Harbor Statement Under the
Private Securities Litigation Reform Act of 1995

Certain information contained in this 10-K
includes forward-looking statements. Forward-looking statements
include statements regarding our expectations, beliefs,
intentions, plans, projections, objectives, goals, strategies,
future events or performance and underlying assumptions and
other statements which are other than statements of historical
facts. These statements may be identified, without limitations,
by the use of forward looking terminology such as
may, will, anticipates,
expects, projects, believes,
intends, should, or comparable terms or
the negative thereof. All forward-looking statements included in
this press release are based on information available to us on
the date hereof. Such statements speak only as of the date
hereof. These statements involve risks and uncertainties that
could cause actual results to differ materially from those
described in the statements. These risks and uncertainties
include, but are not limited to, the following: our ability to
open new high-volume restaurant/entertainment complexes; our
ability to raise and access sufficient capital in the future;
changes in consumer preferences, general economic conditions or
consumer discretionary spending; the outbreak or continuation of
war or other hostilities involving the United States; potential
fluctuation in our quarterly operating results due to
seasonality and other factors; the continued service of key
management personnel; our ability to attract, motivate and
retain qualified personnel; the impact of federal, state or
local government regulations relating to our personnel or the
sale of food or alcoholic beverages; the impact of litigation;
the effect of competition in our industry; additional costs
associated with compliance with the Sarbanes-Oxley Act and
related regulations and requirements; and other risk factors
described from time to time in our reports filed with the SEC.




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk.

The Companys market risk exposure relates
to changes in the general level of interest rates. The
Companys earnings are affected by changes in interest
rates due to the impact those changes have on its interest
expense from variable-rate debt. The Companys agreement to
fix a portion of its variable-rate debt mitigates this exposure.

We are also subject to market risk related to our
complex in Canada. We have $5,300 debt denominated in Canadian
dollars and have market risk exposure to fluctuations in foreign
exchange rates, but that risk has not been material. The result
of an immediate 10 percent devaluation of the
U.S. dollar in 2004 from February 1, 2004 levels
relative to our foreign currency translation would result in a
decrease in the U.S. dollar equivalent of foreign currency
denominated net income and would be insignificant.




Item 8.     Financial
Statements and Supplementary Data.

See Item 14(a) (1).




Item 9.     Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.




Item 9A.     Controls
and Procedures.

Our Chief Executive Officer, James W.
Corley, and our Chief Financial Officer, William C.
Hammett, Jr. have reviewed and evaluated the disclosure
controls and procedures that we have in place with respect to
the accumulation and communication of information to management
and the recording, processing, summarizing and recording thereof
for the purpose of preparing and filing this Annual Report on
Form 10-K. Such review was made as of February 1,
2004. Based upon their review, these executive officers have

21



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##### Table of Contents



concluded that we have an effective system of
disclosure controls and procedures and an effective means for
timely communication of information required to be disclosed in
this Report.


As of February 1, 2004, Mr. Corley and
Mr. Hammett also evaluated whether there were any material
changes in the Companys internal control over financial
reporting that may have occurred during the Companys
fourth fiscal quarter ended February 1, 2004. Based on such
evaluation, such officers have determined that there was no
change that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.




PART III




Item 10.     Directors
and Executive Officers of the Registrant.

The information set forth under the captions
Director and Nominee Information, Committees
of the Board of Directors, Nomination Process,
Section 16(a) Beneficial Ownership Reporting
Compliance and Code of Ethics appearing in the
Companys Proxy Statement for the 2004 Annual Meeting of
Stockholders, is incorporated herein by reference. Certain
information with respect to the executive officers of the
Company is included under Item 1 of Part I hereof
under the caption Executive Officers.




Item 11.     Executive
Compensation.

The information set forth under the caption
Compensation of Directors and Executive Officers
appearing in the Companys Proxy Statement for the 2004
Annual Meeting of Stockholders is incorporated herein by
reference.






|         |                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters.

The information set forth under the captions
Stock Ownership by Certain Beneficial Owners and
Equity Compensation Plans appearing in the
Companys Proxy Statement for the 2004 Annual Meeting of
Stockholders is incorporated herein by reference.




Item 13.     Certain
Relationships and Related Transactions.

The information set under the captions
Compensation Committee Interlocks and Insider
Participation and Certain Transactions
appearing in the Companys Proxy Statement for the 2004
Annual Meeting of Stockholders is incorporated herein by
reference.




Item 14.     Principal
Accountant Fees and Services.

Information called for by Item 14 will be
included under the caption Proposal 3, Ratification
of Selection of Independent Auditors in our Proxy
Statement for the 2004 Annual Meeting of Stockholders, which
information is incorporated in the Annual Report by reference.

22



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##### Table of Contents






PART IV






|         |                                                            
|-------- | -----------------------------------------------------------
|Item 15. | Exhibits, Financial Statements and Reports
    on Form 8-K.



| |                            
| | ---------------------------
| | (a)(1) Financial Statements

|                                                                                                                                     |  |      |                  | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------------- | 
|                                                                                                                                     |  | Page
|                                                                                                                                     |  |     
|Consolidated Balance Sheets 
    February 1, 2004 and February 2, 2003                                                              |  |      | F-1              | 
|Consolidated Statement of Operations 
    Fiscal years ended February 1, 2004, February 2, 2003
    and February 3, 2002            |  |      | F-2              | 
|Consolidated Statements of Stockholders
    Equity  Fiscal years ended February 1, 2004,
    February 2, 2003 and February 3, 2002 |  |      | F-3              | 
|Consolidated Statements of Cash Flows 
    Fiscal years ended February 1, 2004, February 2, 2003
    and February 3, 2002           |  |      | F-4              | 
|Notes to Consolidated Financial Statements                                                                                           |  |      | F-5 through F-15 | 
|Report of Independent Auditors                                                                                                       |  |      | F-16             | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a)(2) Financial Statement Schedules                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | All schedules are omitted as the required
    information is inapplicable or the information is presented in
    the financial statements or related notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (a)(3) Exhibits Incorporated by
    Reference or Filed with this Report                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | The exhibits listed below filed with or
    incorporated by reference into this Annual Report on
    Form 10-K. Exhibits noted by an asterisk are filed with
    this report. Exhibits denominated with numbered footnotes are
    incorporated by reference to the other filings with the
    Commission set forth below. Unless otherwise indicated, the
    exhibit number below corresponds to the exhibit number
    incorporated by reference. Items listed in boldface are
    management contracts or compensatory plans or arrangements
    required to be filed pursuant to Item 15(c) of this
    Report.

|              |  |                                                                                                                                                                                                                                 
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1           |  | Restated Articles of Incorporation of the
    Company.(1)                                                                                                                                                                       
|3.2           |  | Amended and Restated Bylaws of the Company.(10)                                                                                                                                                                                 
|4.1           |  | Form of 5.0 percent Convertible Subordinated
    Note Due 2008.(13)                                                                                                                                                             
|4.2           |  | Form of Warrant to Purchase Common Stock.(13)                                                                                                                                                                                   
|4.3           |  | Registration Rights Agreement dated as of
    August 6, 2003 by and between Dave and
    Busters, Inc., U.S. Bancorp Piper
    Jaffray, Inc. and the Buyers as defined therein.(13)                                            
|4.4           |  | Form of Indenture dated as of August 7, 2003
    between Dave & Busters, Inc. and Bank of
    New York.(13)                                                                                                                    
|4.5           |  | Form of Warrant Agent Agreement dated as of
    August 7, 2003 between Dave and Busters, Inc.
    and U.S. Bancorp Piper Jaffray, Inc.(13)                                                                                     
|10.1          |  | Securities Purchase Agreement dated as of
    August 6, 2003 by and between the Company,
    U.S. Bancorp Piper Jaffray, Inc. and the buyers as
    defined therein.(13)                                                        
|10.1.1-10.1.5 |  | Intentionally omitted                                                                                                                                                                                                           
|10.1.6        |  | Amended and Restated Revolving Credit and Term
    Loan Agreement dated October 29, 2003 by and among the
    Company and its subsidiaries, Fleet National Bank (as agent) and
    the financial institutions named therein.(12)
|10.2-10.6     |  | Intentionally omitted                                                                                                                                                                                                           
|10.7          |  | Rights Agreement between the Company and Rights
    Agent, dated June 16, 1995.(1)                                                                                                                                              
|10.8          |  | 1995 Stock Option Plan (As Amended and
    Restated April 26, 2000).(3)                                                                                                                                                         
|10.9          |  | Stock Option Plan for Outside
    Directors.(4)                                                                                                                                                                                 
|10.11         |  | Employment and Executive Retention Agreements
    for Co-Chief Executive Officers, dated June 16,
    1995.(5)                                                                                                                  

23



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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                   
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.12 |  | Form of Indemnity Agreements with Executive
    Officers and Directors.(6)                                                                                                                                                                        
|10.13 |  | Intentionally Omitted.                                                                                                                                                                                                                            
|10.14 |  | Executive Retention Agreement between the
    Company and Sterling R. Smith dated June 11,
    2001(7)                                                                                                                                            
|10.15 |  | Intentionally Omitted.                                                                                                                                                                                                                            
|10.16 |  | Agreement of Sale and Purchase dated
    October 1, 2001 between the Company, as seller, and General
    Electric Capital, Business Asset Funding Corporation, as
    purchaser, for the Companys corporate headquarters in
    Dallas, Texas.(8)
|10.17 |  | Lease Agreement dated October 1, 2001
    between General Electric Capital Business Asset Funding
    Corporation, as landlord, and the Company, as tenant for the
    Companys corporate headquarters in Dallas, Texas.(8)                      
|10.18 |  | Agreement of Sale and Purchase dated
    November 12, 2001 between D&B Realty
    Holding, Inc., as seller, and KAZA I, Ltd., as
    purchaser for Houston, Texas property.(9)                                                                    
|10.19 |  | Lease Agreement dated December 14, 2001
    between KAZA I L.P. as landlord, and Dave &
    Busters I, L.P. as tenant for Houston, Texas
    property.(9)                                                                                        
|10.20 |  | Agreement of Sale and Purchase dated as of
    December 17, 2001 between D&B Realty
    Holding, Inc., as seller, and Landfair, LLC as purchaser
    for Marietta, Georgia property.(9)                                                           
|10.21 |  | Lease Agreement dated December 17, 2001
    between Landfair LLC, as landlord, and Dave &
    Busters I, L.P., as tenant, for Marietta,
    Georgia property.(9)                                                                                 
|10.22 |  | Executive Retention Agreement dated
    June 7, 2001 between the Company and John S.
    Davis.(9)                                                                                                                                                
|10.23 |  | Executive Retention Agreement dated
    December 3, 2001 between the Company and William C.
    Hammett, Jr.(9)                                                                                                                                   
|10.24 |  | Asset Purchase Agreement dated July 25, 2003
    by and among Funtime Hospitality Corp. and the Company.(11)                                                                                                                                      
|12    |  | Computation of Ratio of Earnings to Fixed
    Charges.*                                                                                                                                                                                           
|21.1  |  | Subsidiaries of the Company.*                                                                                                                                                                                                                     
|23    |  | Independent Auditors Consent.*                                                                                                                                                                                                                   
|24    |  | Power of Attorney (included on the Signature page
    of this report).*                                                                                                                                                                           
|31    |  | Rule 13a-14(a)/15d-14(a) Certifications.*                                                                                                                                                                                                         
|32    |  | Section 1350 Certifications.*                                                                                                                                                                                                                     



| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) Reports of Form 8-K                                                                                                                                                                                                          
|
| | We filed the following report on Form 8-K
    during the fourth quarter ended February 1, 2004:                                                                                                                                  
|
| | Form 8-K dated January 19, 2004
    reporting the Companys issuance of a news release with
    fiscal 2004 guidance and updated guidance for the 2003 fourth
    quarter.                                                       
|
| | (c) Exhibits.                                                                                                                                                                                                                    
|
| | The Index of Exhibits filed or incorporated by
    reference pursuant to Item 601 of Regulation S-K and
    the Exhibits being filed with this Report are included following
    the financial statement pages of this Form 10-K.
|
| | (d) Financial Statements of Subsidiaries
    or Affiliates.                                                                                                                                                                      
|
| | Not applicable.                                                                                                                                                                                                                  



---



| |   |                
| | - | ---------------
| | * | Filed herewith.



|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Filed as an Exhibit to the registrants
    Form 10-Q for the 13-week period ended April 30, 1995.           
|   
|(2) | Filed as an Exhibit to the registrants
    Form 10-Q for the 13-week period ended July 30, 2000.            
|   
|(3) | Filed as an Exhibit to the registrants
    Schedule 14A definitive Proxy Statement dated
    April 28, 2000.

24



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##### Table of Contents





| |     |                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------
| | (4) | Filed as an Exhibit to the registrants
    Form 10-K for the fiscal year ended February 1, 1997.       
|
| | (5) | Filed as an Exhibit to the registrants
    Form 10-K for the fiscal year ended February 4, 2001.        
|
| | (6) | Filed as an Exhibit to the registrants
    Form 10 filed April 11, 1995.                               
|
| | (7) | Filed as an Exhibit to the registrants
    Form 10-Q for the 13 week period ended August 5,
    2001.  
|
| | (8) | Filed as an Exhibit to the registrants
    Form 10-Q for the 13 week period ended
    November 4, 2001.
|
| | (9) | Filed as an Exhibit to the registrants
    Form 10-K for the fiscal year ended February 3, 2002.       



|     |                                                                                                         
|---- | --------------------------------------------------------------------------------------------------------
|(10) | Filed as an Exhibit to the registrants
    Form 10-K for the fiscal year ended February 2, 2003.       
|    
|(11) | Filed as an Exhibit to the registrants
    Form 10-Q for the 13-week period ended August 3, 2003.      
|    
|(12) | Filed as an Exhibit to the registrants
    Form 10-Q for the 13-week period ended November 2,
    2003.
|    
|(13) | Filed as an Exhibit to the registrants
    Form 8-K filed on August 7, 2003.                           

25



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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.



| |                       
| | ----------------------
| | DAVE & BUSTERS, INC. 
| | a Missouri corporation



| |     |                            
| | --- | ---------------------------
| | By: | /s/ WILLIAM C. HAMMETT, JR.

| |                          
| | -------------------------
| |                          
| | William C. Hammett, Jr., 
| | Senior Vice President and
| | Chief Financial Officer  

Date: April 14, 2004

26



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##### Table of Contents



POWER OF ATTORNEY

KNOW ALL MEN BY THESE
PRESENTS,that each person whose
signature appears below constitutes and appoints William C.
Hammett, Jr. and John S. Davis, jointly and severally, his
attorneys-in-fact, each with full power of substitution, for him
in any and all capacities, to sign any amendments to this Annual
Report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities indicated on April 14, 2004.

|                                                   |  |                                                                                         |  | 
|-------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | 
|                                                   |  |                                                                                        
|Name                                               |  | Title                                                                                  
|                                                   |  |                                                                                        
|                                                  
|/s/ PETER A. EDISONPeter A. Edison                 |  | Chairman of the Board                                                                  
|                                                  
|/s/ JAMES W. CORLEYJames W. Corley                 |  | Chief Executive Officer and Director
    (Principal Executive Officer)                 
|                                                  
|/s/ DAVID O. CORRIVEAUDavid O. Corriveau           |  | President and Director                                                                 
|                                                  
|/s/ WILLIAM C. HAMMETT, JR.William C. Hammett, Jr. |  | Senior Vice President and Chief Financial
    Officer
    (Principal Financial Officer)
|                                                  
|/s/ DEBORAH A. INZERDeborah A. Inzer               |  | Vice President and Controller
    (Principal Accounting Officer)                       
|                                                  
|/s/ ALLEN J. BERNSTEINAllen J. Bernstein           |  | Director                                                                               
|                                                  
|/s/ WALTER J. HUMANNWalter J. Humann               |  | Director                                                                               
|                                                  
|/s/ MARK A. LEVYMark A. Levy                       |  | Director                                                                               
|                                                  
|/s/ CHRISTOPHER C. MAGUIREChristopher C. Maguire   |  | Director                                                                               
|                                                  
|/s/ DAVID B. PITTAWAYDavid B. Pittaway             |  | Director                                                                               
|                                                  
|/s/ PATRICIA P. PRIESTPatricia P. Priest           |  | Director                                                                               

27



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##### Table of Contents



DAVE &
BUSTERS, INC.

CONSOLIDATED BALANCE SHEETS

|                                                       |                                                                                                                                                                                     |                                            |         |             |         |  |         |         |         | 
|------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------- | ------- |  | ------- | ------- | ------- | 
|                                                       |                                                                                                                                                                                     | February 1,                                |         | February 2,
|                                                       |                                                                                                                                                                                     | 2004                                       |         | 2003       
|                                                       |                                                                                                                                                                                     |                                            |         |            
|                                                       |                                                                                                                                                                                     |                                           
|                                                       |                                                                                                                                                                                     | (In thousands)                            
|ASSETS                                                
|Current assets:                                        |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                       | Cash and cash equivalents                                                                                                                                                           |                                            | $       | 3,897       |         |  | $       | 2,530   |        
|                                                       | Inventories                                                                                                                                                                         |                                            |         | 26,233      |         |  |         | 26,634  |        
|                                                       | Prepaid expenses                                                                                                                                                                    |                                            |         | 2,709       |         |  |         | 2,049   |        
|                                                       | Other current assets                                                                                                                                                                |                                            |         | 2,518       |         |  |         | 2,136   |        
|                                                       |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                       |                                                                                                                                                                                     | Total current assets                       |         |             | 35,357  |  |         |         | 33,349  | 
|Property and equipment, net (Note 2)                   |                                                                                                                                                                                     |                                            | 247,161 |             |         |  | 249,451 |        
|Other assets and deferred charges                      |                                                                                                                                                                                     |                                            | 13,371  |             |         |  | 8,412   |        
|                                                       |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                       |                                                                                                                                                                                     | Total assets                               |         | $           | 295,889 |  |         | $       | 291,212 | 
|                                                       |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                      
|LIABILITIES AND STOCKHOLDERS
    EQUITY              
|                                                      
|Current liabilities:                                   |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                       | Current installments of long-term debt
    (Note 4)                                                                                                                                 |                                            | $       | 3,333       |         |  | $       | 8,300   |        
|                                                       | Accounts payable                                                                                                                                                                    |                                            |         | 13,346      |         |  |         | 14,952  |        
|                                                       | Accrued liabilities (Note 3)                                                                                                                                                        |                                            |         | 12,898      |         |  |         | 12,201  |        
|                                                       | Income taxes payable (Note 5)                                                                                                                                                       |                                            |         | 2,889       |         |  |         | 325     |        
|                                                       | Deferred income taxes (Note 5)                                                                                                                                                      |                                            |         | 3,111       |         |  |         | 1,802   |        
|                                                       |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                       |                                                                                                                                                                                     | Total current liabilities                  |         |             | 35,577  |  |         |         | 37,580  | 
|Deferred income taxes (Note 5)                         |                                                                                                                                                                                     |                                            | 13,620  |             |         |  | 14,065  |        
|Other liabilities                                      |                                                                                                                                                                                     |                                            | 13,602  |             |         |  | 10,471  |        
|Long-term debt, less current installments
    (Note 4) |                                                                                                                                                                                     |                                            | 50,201  |             |         |  | 59,494  |        
|Commitments and contingencies (Notes 4, 6
    and 11)  |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|Stockholders equity (Note 7):                         |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                       | Preferred stock, 10,000,000 authorized; none
    issued                                                                                                                             |                                            |         |            |         |  |         |        |        
|                                                       | Common stock, $0.01 par value, 50,000,000
    authorized; 13,181,284 and 13,080,117 shares issued and
    outstanding as of February 1, 2004 and February 2,
    2003, respectively |                                            |         | 132         |         |  |         | 132     |        
|                                                       | Paid-in capital                                                                                                                                                                     |                                            |         | 118,669     |         |  |         | 116,678 |        
|                                                       | Restricted stock awards                                                                                                                                                             |                                            |         | 905         |         |  |         | 608     |        
|                                                       | Retained earnings                                                                                                                                                                   |                                            |         | 65,029      |         |  |         | 54,030  |        
|                                                       |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                       |                                                                                                                                                                                     |                                            | 184,735 |             |         |  | 171,448 |        
|                                                       | Less treasury stock, at cost (175,000 shares)                                                                                                                                       |                                            |         | 1,846       |         |  |         | 1,846   |        
|                                                       |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                       |                                                                                                                                                                                     | Total stockholders equity                 |         |             | 182,889 |  |         |         | 169,602 | 
|                                                       |                                                                                                                                                                                     |                                            |         |             |         |  |         |        
|                                                       |                                                                                                                                                                                     | Total liabilities and stockholders equity |         | $           | 295,889 |  |         | $       | 291,212 | 
|                                                       |                                                                                                                                                                                     |                                            |         |             |         |  |         |        

See accompanying notes to consolidated financial
statements.

F-1



---



##### Table of Contents



DAVE &
BUSTERS, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |        |         | 
|-------------------------------------------------------------------------- | ------------------------------------------------------------------- | ---------------------------------------- | ------- | ----------- | ------- | ----------- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                           |                                                                     |                                         
|                                                                           |                                                                     | Fiscal Year Ended                       
|                                                                           |                                                                     |                                         
|                                                                           |                                                                     | February 1,                              |         | February 2, |         | February 3,
|                                                                           |                                                                     | 2004                                     |         | 2003        |         | 2002       
|                                                                           |                                                                     |                                          |         |             |         |            
|                                                                           |                                                                     |                                         
|                                                                           |                                                                     | (In thousands, except per share amounts)
|Food and beverage revenues                                                 |                                                                     | $                                        | 191,881 |             |         | $           | 192,882 |        |         | $ | 181,358 |       
|Amusement and other revenues                                               |                                                                     |                                          | 170,941 |             |         |             | 180,870 |        |         |   | 176,651 |       
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|                                                                           |                                                                     | Total revenues                           |         |             | 362,822 |             |         |        | 373,752 |   |         |        | 358,009 | 
|Cost of revenues                                                           |                                                                     |                                          | 68,142  |             |         |             | 68,752  |        |         |   | 66,939  |       
|Operating payroll and benefits                                             |                                                                     |                                          | 105,027 |             |         |             | 114,904 |        |         |   | 110,478 |       
|Other store operating expenses                                             |                                                                     |                                          | 111,310 |             |         |             | 117,666 |        |         |   | 106,971 |       
|General and administrative expenses                                        |                                                                     |                                          | 25,033  |             |         |             | 25,640  |        |         |   | 20,653  |       
|Depreciation and amortization expense                                      |                                                                     |                                          | 29,734  |             |         |             | 30,056  |        |         |   | 28,693  |       
|Preopening costs                                                           |                                                                     |                                          |        |             |         |             | 1,488   |        |         |   | 4,578   |       
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|                                                                           |                                                                     | Total costs and expenses                 |         |             | 339,246 |             |         |        | 358,506 |   |         |        | 338,312 | 
|Operating income                                                           |                                                                     |                                          | 23,576  |             |         |             | 15,246  |        |         |   | 19,697  |       
|Interest expense, net                                                      |                                                                     |                                          | 6,926   |             |         |             | 7,143   |        |         |   | 7,820   |       
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|Income before provision for income taxes                                   |                                                                     |                                          | 16,650  |             |         |             | 8,103   |        |         |   | 11,877  |       
|Provision for income taxes (Note 5)                                        |                                                                     |                                          | 5,661   |             |         |             | 2,755   |        |         |   | 4,299   |       
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|Income before cumulative effect of a change in an
    accounting principle |                                                                     |                                          | 10,989  |             |         |             | 5,348   |        |         |   | 7,578   |       
|Cumulative effect of a change in an accounting
    principle (Note 1)      |                                                                     |                                          |        |             |         |             | (7,096  | )      |         |   |        |       
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|Net income (loss)                                                          |                                                                     | $                                        | 10,989  |             |         | $           | (1,748  | )      |         | $ | 7,578   |       
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|Net income (loss) per share  basic:                                       |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|                                                                           | Before cumulative effect of a change in an
    accounting principle |                                          | $       | .84         |         |             | $       | .41    |         |   | $       | .58    |        
|                                                                           | Cumulative effect of a change in an accounting
    principle        |                                          |         |            |         |             |         | (.55   | )       |   |         |       |        
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|                                                                           |                                                                     | $                                        | .84     |             |         | $           | (.14    | )      |         | $ | .58     |       
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|Net income (loss) per share  diluted:                                     |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|                                                                           | Before cumulative effect of a change in an
    accounting principle |                                          | $       | .80         |         |             | $       | .40    |         |   | $       | .58    |        
|                                                                           | Cumulative effect of a change in an accounting
    principle        |                                          |         |            |         |             |         | (.53   | )       |   |         |       |        
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|                                                                           |                                                                     | $                                        | .80     |             |         | $           | (.13    | )      |         | $ | .58     |       
|                                                                           |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|Weighted average shares outstanding:                                       |                                                                     |                                          |         |             |         |             |         |        |         |   |         |       
|                                                                           | Basic                                                               |                                          |         | 13,128      |         |             |         | 12,997 |         |   |         | 12,956 |        
|                                                                           | Diluted                                                             |                                          |         | 14,646      |         |             |         | 13,404 |         |   |         | 13,016 |        

See accompanying notes to consolidated financial
statements.

F-2



---



##### Table of Contents



DAVE &
BUSTERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                    |  |                |        |         |  |          |     |            |  |          |         |       |  |       |        |   |  |   |     |  |  |   |        |   |  |   |         |  
|----------------------------------------------------------------------------------- |  | -------------- | ------ | ------- |  | -------- | --- | ---------- |  | -------- | ------- | ----- |  | ----- | ------ | - |  | - | --- |  |  | - | ------ | - |  | - | ------- | -
|                                                                                    |  |                |        |         |  |          |     |            |  |          |         |      
|                                                                                    |  | Common Stock   |        |         |  |          |     |            |  |          |         |      
|                                                                                    |  |                |        | Paid-in |  | Retained |     | Restricted |  | Treasury |         |      
|                                                                                    |  | Shares         |        | Amount  |  | Capital  |     | Earnings   |  | Stock    |         | Stock |  | Total
|                                                                                    |  |                |        |         |  |          |     |            |  |          |         |       |  |      
|                                                                                    |  |               
|                                                                                    |  | (In thousands)
|Balance, February 4, 2001                                                           |  |                | 12,953 |         |  | $        | 131 |            |  | $        | 115,659 |       |  | $     | 48,200 |   |  | $ | 243 |  |  | $ | (1,846 | ) |  | $ | 162,387 |  
|Net earnings                                                                        |  |                |       |         |  |          |    |            |  |          |        |       |  |       | 7,578  |   |  |   |    |  |  |   |       |   |  |   | 7,578   |  
|Stock option exercises                                                              |  |                | 6      |         |  |          |    |            |  |          | 40      |       |  |       |       |   |  |   |    |  |  |   |       |   |  |   | 40      |  
|Tax benefit related to stock option exercises                                       |  |                |       |         |  |          |    |            |  |          | 2       |       |  |       |       |   |  |   |    |  |  |   |       |   |  |   | 2       |  
|Amortization of restricted stock awards                                             |  |                |       |         |  |          |    |            |  |          |        |       |  |       |       |   |  |   | 139 |  |  |   |       |   |  |   | 139     |  
|                                                                                    |  |                |        |         |  |          |     |            |  |          |         |       |  |       |        |   |  |   |     |  |  |   |        |   |  |   |         |  
|Balance, February 3, 2002                                                           |  |                | 12,959 |         |  |          | 131 |            |  |          | 115,701 |       |  |       | 55,778 |   |  |   | 382 |  |  |   | (1,846 | ) |  |   | 170,146 |  
|Net earnings                                                                        |  |                |       |         |  |          |    |            |  |          |        |       |  |       | (1,748 | ) |  |   |    |  |  |   |       |   |  |   | (1,748  | )
|Stock option exercises                                                              |  |                | 121    |         |  |          | 1   |            |  |          | 870     |       |  |       |       |   |  |   |    |  |  |   |       |   |  |   | 871     |  
|Tax benefit related to stock option exercises                                       |  |                |       |         |  |          |    |            |  |          | 107     |       |  |       |       |   |  |   |    |  |  |   |       |   |  |   | 107     |  
|Amortization of restricted stock awards                                             |  |                |       |         |  |          |    |            |  |          |        |       |  |       |       |   |  |   | 226 |  |  |   |       |   |  |   | 226     |  
|                                                                                    |  |                |        |         |  |          |     |            |  |          |         |       |  |       |        |   |  |   |     |  |  |   |        |   |  |   |         |  
|Balance, February 2, 2003                                                           |  |                | 13,080 |         |  |          | 132 |            |  |          | 116,678 |       |  |       | 54,030 |   |  |   | 608 |  |  |   | (1,846 | ) |  |   | 169,602 |  
|Net earnings                                                                        |  |                |       |         |  |          |    |            |  |          |        |       |  |       | 10,989 |   |  |   |    |  |  |   |       |   |  |   | 10,989  |  
|Stock option exercises                                                              |  |                | 101    |         |  |          |    |            |  |          | 704     |       |  |       |       |   |  |   |    |  |  |   |       |   |  |   | 704     |  
|Tax benefit related to stock option exercises                                       |  |                |       |         |  |          |    |            |  |          | 137     |       |  |       |       |   |  |   |    |  |  |   |       |   |  |   | 137     |  
|Amortization of restricted stock awards                                             |  |                |       |         |  |          |    |            |  |          |        |       |  |       |       |   |  |   | 297 |  |  |   |       |   |  |   | 297     |  
|Fair value of warrants issued in connection with
    convertible subordinated notes |  |                |       |         |  |          |    |            |  |          | 1,150   |       |  |       |       |   |  |   |    |  |  |   |       |   |  |   | 1,150   |  
|Other                                                                               |  |                |       |         |  |          |    |            |  |          |        |       |  |       | 10     |   |  |   |    |  |  |   |       |   |  |   | 10      |  
|                                                                                    |  |                |        |         |  |          |     |            |  |          |         |       |  |       |        |   |  |   |     |  |  |   |        |   |  |   |         |  
|Balance, February 1, 2004                                                           |  |                | 13,181 |         |  | $        | 132 |            |  | $        | 118,669 |       |  | $     | 65,029 |   |  | $ | 905 |  |  | $ | (1,846 | ) |  | $ | 182,889 |  
|                                                                                    |  |                |        |         |  |          |     |            |  |          |         |       |  |       |        |   |  |   |     |  |  |   |        |   |  |   |         |  

See accompanying notes to consolidated financial
statements.

F-3



---



##### Table of Contents



DAVE &
BUSTERS, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                   |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |         |         |        |  
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | --------------------------------- | ----------- | ------- | ----------- | ------ | ------- | ------- | ------ | ----- | ------- | ------- | ------ | -
|                                                   |                                                                                                                                           |                                                                                       
|                                                   |                                                                                                                                           | Fiscal Year Ended                                                                     
|                                                   |                                                                                                                                           |                                                                                       
|                                                   |                                                                                                                                           | February 1,                                                                            |                                   | February 2, |         | February 3,
|                                                   |                                                                                                                                           | 2004                                                                                   |                                   | 2003        |         | 2002       
|                                                   |                                                                                                                                           |                                                                                        |                                   |             |         |            
|                                                   |                                                                                                                                           |                                                                                       
|                                                   |                                                                                                                                           | (In thousands)                                                                        
|Cash flows from operating
    activities:          |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|                                                   | Income before cumulative effect of a change in an
    accounting principle                                                                |                                                                                        | $                                 | 10,989      |         |             | $      | 5,348   |         |        | $     | 7,578   |        
|                                                   | Adjustments to reconcile income before cumulative
    change in an accounting principle to net cash provided by
    operating activities: |                                                                                        |                                   |             |         |             |        |         |         |        |       |         |        
|                                                   |                                                                                                                                           | Depreciation and amortization                                                          |                                   |             | 29,734  |             |        |         | 30,056  |        |       |         | 28,693  |       
|                                                   |                                                                                                                                           | Deferred income tax expense                                                            |                                   |             | 864     |             |        |         | 6,504   |        |       |         | 467     |       
|                                                   |                                                                                                                                           | Restricted stock awards                                                                |                                   |             | 297     |             |        |         | 226     |        |       |         | 139     |       
|                                                   |                                                                                                                                           | Gain on sale of assets                                                                 |                                   |             | (8      | )           |        |         | (223    | )      |       |         | (505    | )     
|                                                   |                                                                                                                                           | Changes in operating assets and liabilities, net
    of effect of business acquisition |                                   |             |         |             |        |         |         |        |       |         |         |       
|                                                   |                                                                                                                                           |                                                                                        | Inventories                       |             |         | 401         |        |         |         | (670   | )     |         |         | (4,206 | )
|                                                   |                                                                                                                                           |                                                                                        | Prepaid expenses                  |             |         | (660        | )      |         |         | (607   | )     |         |         | 2,221  |  
|                                                   |                                                                                                                                           |                                                                                        | Other current assets              |             |         | (382        | )      |         |         | 309    |       |         |         | 693    |  
|                                                   |                                                                                                                                           |                                                                                        | Other assets and deferred charges |             |         | (502        | )      |         |         | 940    |       |         |         |       |  
|                                                   |                                                                                                                                           |                                                                                        | Accounts payable                  |             |         | (1,606      | )      |         |         | (1,039 | )     |         |         | 6,700  |  
|                                                   |                                                                                                                                           |                                                                                        | Accrued liabilities               |             |         | 697         |        |         |         | 1,116  |       |         |         | 4,035  |  
|                                                   |                                                                                                                                           |                                                                                        | Income taxes payable              |             |         | 2,564       |        |         |         | (4,729 | )     |         |         | 1,487  |  
|                                                   |                                                                                                                                           |                                                                                        | Other liabilities                 |             |         | 3,129       |        |         |         | 3,373  |       |         |         | 2,399  |  
|                                                   |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|                                                   |                                                                                                                                           | Net cash provided by operating activities                                              |                                   |             | 45,517  |             |        |         | 40,604  |        |       |         | 49,701  |       
|Cash flows from investing
    activities:          |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|                                                   | Capital expenditures                                                                                                                      |                                                                                        |                                   | (24,292     | )       |             |        | (21,720 | )       |        |       | (49,761 | )      
|                                                   | Business acquisition                                                                                                                      |                                                                                        |                                   | (3,600      | )       |             |        |        |         |        |       |        |        
|                                                   | Proceeds from sales of property and equipment                                                                                             |                                                                                        |                                   | 471         |         |             |        | 750     |         |        |       | 474     |        
|                                                   | Proceeds from sales/leasebacks                                                                                                            |                                                                                        |                                   |            |         |             |        |        |         |        |       | 18,474  |        
|                                                   |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|                                                   |                                                                                                                                           | Net cash used in investing activities                                                  |                                   |             | (27,421 | )           |        |         | (20,970 | )      |       |         | (30,813 | )     
|                                                   |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|Cash flows from financing
    activities:          |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|                                                   | Borrowings under long-term debt                                                                                                           |                                                                                        |                                   | 44,825      |         |             |        | 12,000  |         |        |       | 24,060  |        
|                                                   | Repayments of long-term debt                                                                                                              |                                                                                        |                                   | (57,789     | )       |             |        | (34,602 | )       |        |       | (41,648 | )      
|                                                   | Debt fee costs                                                                                                                            |                                                                                        |                                   | (4,469      | )       |             |        |        |         |        |       |        |        
|                                                   | Proceeds from exercises of stock options                                                                                                  |                                                                                        |                                   | 704         |         |             |        | 977     |         |        |       | 42      |        
|                                                   |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|                                                   |                                                                                                                                           | Net cash used in financing activities                                                  |                                   |             | (16,729 | )           |        |         | (21,625 | )      |       |         | (17,546 | )     
|                                                   |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|Increase (decrease) in cash and cash equivalents   |                                                                                                                                           |                                                                                        | 1,367                             |             |         |             | (1,991 | )       |         |        | 1,342 |        
|Beginning cash and cash equivalents                |                                                                                                                                           |                                                                                        | 2,530                             |             |         |             | 4,521  |         |         |        | 3,179 |        
|                                                   |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|Ending cash and cash equivalents                   |                                                                                                                                           | $                                                                                      | 3,897                             |             |         | $           | 2,530  |         |         | $      | 4,521 |        
|                                                   |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|Supplemental disclosures of cash flow information: |                                                                                                                                           |                                                                                        |                                   |             |         |             |        |         |         |        |       |        
|                                                   | Cash paid for income taxes  net of
    refunds                                                                                           |                                                                                        | $                                 | 1,798       |         |             | $      | 679     |         |        | $     | 2,590   |        
|                                                   | Cash paid for interest, net of amounts capitalized                                                                                        |                                                                                        | $                                 | 5,428       |         |             | $      | 7,353   |         |        | $     | 7,261   |        

See accompanying notes to consolidated financial
statements.

F-4



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##### Table of Contents



DAVE &
BUSTERS, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

In Thousands Except Per Share
Amounts




|        |                                               
|------- | ----------------------------------------------
|Note 1: | Summary of Significant Accounting
    Policies

Basis of
Presentation The
consolidated financial statements include the accounts of
Dave & Busters, Inc. and all wholly-owned
subsidiaries (the Company). All material
intercompany accounts and transactions have been eliminated in
consolidation. The Companys one industry segment is the
ownership and operation of restaurant/entertainment complexes (a
Complex or Store) under the name
Dave & Busters, which are principally
located in the United States and Canada.

Use of
Estimates The preparation
of financial statements in conformity with generally accepted
accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.

Fiscal
Year Our fiscal year ends
on the Sunday after the Saturday closest to January 31.
References to 2003, 2002, 2001 and 2000 are to the 52 weeks
ended February 1, 2004, February 2, 2003 and
February 3, 2002 and to the 53 weeks ended
February 4, 2001, respectively.

Inventories
Food and beverage and merchandise inventories are reported at
the lower of cost or market determined on a first-in, first-out
method. Smallware supplies inventories, consisting of china,
glassware and kitchen utensils, are capitalized at the store
opening date, or when the smallware inventory is increased due
to changes in our menu, and are reviewed periodically for
valuation. Smallware replacements are expensed as incurred.
Inventories consist of the following (in thousands):

|                   |  |             |        |             |  |   |        | 
|------------------ |  | ----------- | ------ | ----------- |  | - | ------ | 
|                   |  | February 1, |        | February 2,
|                   |  | 2004        |        | 2003       
|                   |  |             |        |            
|Food and beverage  |  | $           | 1,809  |             |  | $ | 1,693  | 
|Merchandise        |  |             | 2,393  |             |  |   | 3,165  | 
|Smallware supplies |  |             | 16,715 |             |  |   | 16,274 | 
|Other              |  |             | 5,316  |             |  |   | 5,502  | 
|                   |  |             |        |             |  |   |        | 
|                   |  | $           | 26,233 |             |  | $ | 26,634 | 
|                   |  |             |        |             |  |   |        | 

Preopening
Costs All start-up and
preopening costs are expensed as incurred.

Property and
Equipment Property and
equipment are recorded at cost. Expenditures that substantially
increase the useful lives of the property and equipment are
capitalized, whereas costs incurred to maintain the appearance
and functionality of such assets are charged to repair and
maintenance expense. Interest costs capitalized during the
construction of facilities in 2003, 2002 and 2001 were $170,
$361 and $892, respectively. Property and equipment, excluding
most games are depreciated on the straight-line method over the
estimated useful life of the assets. Games are generally
depreciated on the 150 percent-double-declining-balance
method over the estimated useful life of the assets. Reviews are
performed regularly to determine whether facts or circumstances
exist that indicate the carrying values of our property and
equipment are impaired. We assess the recoverability of our
property and equipment by comparing the projected future
undiscounted net cash flows associated with these assets to
their respective carrying amounts. Impairment, if any, is based
on the excess of the carrying amount over the estimated fair
market value of the assets.

Goodwill
We adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible
Assets,effective January 1, 2002. Under
SFAS No. 142, goodwill is no longer amortized, but
instead is reviewed for impairment at least annually. Impairment
is deemed to exist when the carrying value of goodwill is
greater that its implied fair value. As a result of applying the
new standard, our initial assessment of fair value of the
Company resulted in a write off of all of our goodwill during
the first quarter of 2002 for

F-5



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##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$7,100. This was recorded as a cumulative effect
of a change in accounting principle in 2002. As a result of this
write off, we have no recorded amounts of goodwill as of
February 1, 2004 and February 2, 2003.

The following table reflects income before
cumulative effect of a change in an accounting principle and net
income adjusted to exclude amortization expense related to
goodwill (including related tax effects) recognized in the
periods presented (in thousands):

|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |       | 
|----------------------------------------------------------------------------------- | -------------------------- | ----------------- | ------ | ----------- |  | ----------- | ------ | ------ | - | - | ----- | ----- | 
|                                                                                    |                            |                  
|                                                                                    |                            | Fiscal Year Ended
|                                                                                    |                            |                  
|                                                                                    |                            | February 1,       |        | February 2, |  | February 3,
|                                                                                    |                            | 2004              |        | 2003        |  | 2002       
|                                                                                    |                            |                   |        |             |  |            
|Income (loss):                                                                      |                            |                   |        |             |  |             |        |        |   |   |       |      
|Reported income before cumulative effect of a
    change in an accounting principle |                            | $                 | 10,989 |             |  | $           | 5,348  |        |   | $ | 7,578 |      
|Goodwill amortization, net of income taxes                                          |                            |                   |       |             |  |             |       |        |   |   | 223   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Adjusted income before cumulative effect of a
    change in an accounting principle |                            | $                 | 10,989 |             |  | $           | 5,348  |        |   | $ | 7,801 |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Reported net income (loss)                                                          |                            | $                 | 10,989 |             |  | $           | (1,748 | )      |   | $ | 7,578 |      
|Goodwill amortization, net of income taxes                                          |                            |                   |       |             |  |             |       |        |   |   | 223   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|                                                                                    | Adjusted net income (loss) |                   | $      | 10,989      |  |             | $      | (1,748 | ) |   | $     | 7,801 | 
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Earnings per share:                                                                 |                            |                   |        |             |  |             |        |        |   |   |       |      
|Basic:                                                                              |                            |                   |        |             |  |             |        |        |   |   |       |      
|Reported income before cumulative effect of a
    change in an accounting principle |                            | $                 | .84    |             |  | $           | .41    |        |   | $ | .58   |      
|Goodwill amortization, net of income taxes                                          |                            |                   |       |             |  |             |       |        |   |   | .02   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Adjusted income before cumulative effect of a
    change in an accounting principle |                            | $                 | .84    |             |  | $           | .41    |        |   | $ | .60   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Reported net income (loss)                                                          |                            | $                 | .84    |             |  | $           | (.14   | )      |   | $ | .58   |      
|Goodwill amortization, net of income taxes                                          |                            |                   |       |             |  |             |       |        |   |   | .02   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Adjusted net income (loss)                                                          |                            | $                 | .84    |             |  | $           | (.14   | )      |   | $ | .60   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Diluted:                                                                            |                            |                   |        |             |  |             |        |        |   |   |       |      
|Reported income before cumulative effect of a
    change in an accounting principle |                            | $                 | .80    |             |  | $           | .40    |        |   | $ | .58   |      
|Goodwill amortization, net of income taxes                                          |                            |                   |       |             |  |             |       |        |   |   | .02   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Adjusted income before cumulative effect of a
    change in an accounting principle |                            | $                 | .80    |             |  | $           | .40    |        |   | $ | .60   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Reported net income (loss)                                                          |                            | $                 | .80    |             |  | $           | (.13   | )      |   | $ | .58   |      
|Goodwill amortization, net of income taxes                                          |                            |                   |       |             |  |             |       |        |   |   | .02   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      
|Adjusted net income (loss)                                                          |                            | $                 | .80    |             |  | $           | (.13   | )      |   | $ | .60   |      
|                                                                                    |                            |                   |        |             |  |             |        |        |   |   |       |      

Income
Taxes We use the liability
method which recognizes the amount of current and deferred taxes
payable or refundable at the date of the financial statements as
a result of all events that are recognized in the financial
statements and as measured by the provisions of enacted tax laws.

F-6



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##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Stock-Based
Compensation At
February 1, 2004, we had two stock-based compensation plans
covering employees and directors. These plans are described more
fully in Note 7. We have elected to follow recognition and
measurement principles of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees(APB No. 25), in accounting for stock-based awards to
our employees and directors. Under APB No. 25, if the
exercise price of an employees stock options equals or
exceeds the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

Although SFAS No. 123, Accounting
for Stock-Based Compensation, allows us to continue to
follow APB No. 25 guidelines, we are required to disclose
pro forma net income (loss) and net income (loss) per share as
if we had adopted the fair based method prescribed by
SFAS No. 123. The pro forma impact of applying SFAS
No. 123 in fiscal 2003, 2002 and 2001 is not necessarily
representative of the pro forma impact in future years. Our pro
forma information is as follows (in thousands, except per share
data):

|                                                                                                   |  |                   |        |             |  |             |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ----------- |  | ----------- | ------ | - |  | - | ------ | -
|                                                                                                   |  |                  
|                                                                                                   |  | Fiscal Year Ended
|                                                                                                   |  |                  
|                                                                                                   |  | February 1,       |        | February 2, |  | February 3,
|                                                                                                   |  | 2004              |        | 2003        |  | 2002       
|                                                                                                   |  |                   |        |             |  |            
|Net income (loss), as reported                                                                     |  | $                 | 10,989 |             |  | $           | (1,748 | ) |  | $ | 7,578  |  
|Stock compensation expenses recorded under the
    intrinsic method, net of income taxes           |  |                   | 196    |             |  |             | 149    |   |  |   | 92     |  
|Pro forma stock compensation expense recorded
    under the fair value method, net of income taxes |  |                   | (801   | )           |  |             | (1,288 | ) |  |   | (1,541 | )
|                                                                                                   |  |                   |        |             |  |             |        |   |  |   |        |  
|Pro forma net income (loss)                                                                        |  | $                 | 10,384 |             |  | $           | (2,887 | ) |  | $ | 6,129  |  
|                                                                                                   |  |                   |        |             |  |             |        |   |  |   |        |  
|Basic earnings (loss) per common share, as
    reported                                            |  | $                 | 0.84   |             |  | $           | (0.14  | ) |  | $ | 0.58   |  
|Diluted earnings (loss) per common share, as
    reported                                          |  | $                 | 0.80   |             |  | $           | (0.13  | ) |  | $ | 0.58   |  
|Pro forma basic earnings (loss) per common share                                                   |  | $                 | 0.79   |             |  | $           | (0.22  | ) |  | $ | 0.47   |  
|Pro forma diluted earnings (loss) per common share                                                 |  | $                 | 0.71   |             |  | $           | (0.22  | ) |  | $ | 0.47   |  

Inputs used for the fair value method for our
employee stock options are as follows:

|                                               |  |                   |      |             |  |             |      |   |  |  |      |  
|---------------------------------------------- |  | ----------------- | ---- | ----------- |  | ----------- | ---- | - |  |  | ---- | -
|                                               |  |                  
|                                               |  | Fiscal Year Ended
|                                               |  |                  
|                                               |  | February 1,       |      | February 2, |  | February 3,
|                                               |  | 2004              |      | 2003        |  | 2002       
|                                               |  |                   |      |             |  |            
|Volatility                                     |  |                   | 0.59 |             |  |             | 0.62 |   |  |  | 0.65 |  
|Weighted-average expected lives                |  |                   | 4.40 |             |  |             | 5.00 |   |  |  | 3.20 |  
|Weighted-average risk-free interest rates      |  |                   | 2.82 | %           |  |             | 3.89 | % |  |  | 4.59 | %
|Weighted-average fair value of options granted |  |                   | 9.97 |             |  |             | 8.63 |   |  |  | 6.91 |  

Foreign Currency
Translation The financial
statements related to our operations of our recently acquired
Toronto complex are prepared in Canadian dollars. Income
statement amounts are translated at average exchange rates for
each period, while the assets and liabilities are translated at
year-end exchange rates. Translation adjustments are included as
a component of stockholders equity. Total currency
adjustments recorded as of February 1, 2004 were
insignificant.

Revenue
Recognition Food, beverage
and amusement revenues are recorded at point of service. Foreign
license revenues are deferred until the Company fulfills its
obligations under license agreements, which is upon the opening
of the complex or upon resolution of any outstanding accounts
receivable from the licensee. The license agreements provide for
continuing royalty fees based on a percentage of gross revenues,
which are recognized when realization is assured. Revenue from
international licensees for 2003, 2002 and 2001 was $331, $564
and $537, respectively.

F-7



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##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Advertising
Costs Advertising costs
are recorded as expense in the period in which the costs are
incurred or the first time the advertising takes place. These
expenses were $8,023, $13,782 and $13,130 for 2003, 2002 and
2001, respectively.



|        |                       
|------- | ----------------------
|Note 2: | Property and Equipment

Property and equipment consist of the following
(in thousands):

|                                    |                             |                             |                             |             |  |             |         |         |  |   |         |         | 
|----------------------------------- | --------------------------- | --------------------------- | --------------------------- | ----------- |  | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                    |                             | Estimated Depreciable Lives |                             | February 1, |  | February 2,
|                                    |                             | (in years)                  |                             | 2004        |  | 2003       
|                                    |                             |                             |                             |             |  |            
|Land                                |                             |                             |                            |             |  | $           | 6,706   |         |  | $ | 6,706   |        
|Buildings                           |                             |                             | 40                          |             |  |             | 44,663  |         |  |   | 44,824  |        
|Leasehold and building improvements |                             |                             | shorter of 20 or lease term |             |  |             | 154,707 |         |  |   | 148,332 |        
|Furniture, fixtures and equipment   |                             |                             | 5-10                        |             |  |             | 106,009 |         |  |   | 97,635  |        
|Games                               |                             |                             | 5                           |             |  |             | 86,382  |         |  |   | 80,207  |        
|Construction in progress            |                             |                             |                             |             |  |             | 5,560   |         |  |   | 1,458   |        
|                                    |                             |                             |                             |             |  |             |         |         |  |   |         |        
|                                    | Total cost                  |                             |                             |             |  |             |         | 404,027 |  |   |         | 379,162 | 
|Less accumulated depreciation       |                             |                             |                             |             |  |             | 156,866 |         |  |   | 129,711 |        
|                                    |                             |                             |                             |             |  |             |         |         |  |   |         |        
|                                    | Property and equipment, net |                             |                             |             |  |             | $       | 247,161 |  |   | $       | 249,451 | 
|                                    |                             |                             |                             |             |  |             |         |         |  |   |         |        



|        |                    
|------- | -------------------
|Note 3: | Accrued Liabilities

Accrued liabilities consist of the following (in
thousands):

|                          |                           |             |       |             |  |   |       |        | 
|------------------------- | ------------------------- | ----------- | ----- | ----------- |  | - | ----- | ------ | 
|                          |                           | February 1, |       | February 2,
|                          |                           | 2004        |       | 2003       
|                          |                           |             |       |            
|Compensation and benefits |                           | $           | 5,297 |             |  | $ | 3,248 |       
|Sales and use taxes       |                           |             | 1,330 |             |  |   | 1,374 |       
|Real estate taxes         |                           |             | 1,143 |             |  |   | 2,551 |       
|Other                     |                           |             | 5,128 |             |  |   | 5,028 |       
|                          |                           |             |       |             |  |   |       |       
|                          | Total accrued liabilities |             | $     | 12,898      |  |   | $     | 12,201 | 
|                          |                           |             |       |             |  |   |       |       



|        |               
|------- | --------------
|Note 4: | Long-Term Debt

Long-term debt consisted of the following (in
thousands):

|                                          |  |             |        |             |  |   |        | 
|----------------------------------------- |  | ----------- | ------ | ----------- |  | - | ------ | 
|                                          |  | February 1, |        | February 2,
|                                          |  | 2004        |        | 2003       
|                                          |  |             |        |            
|Revolving credit facility                 |  | $           | 10,517 |             |  | $ | 9,250  | 
|Term loan A                               |  |             | 14,167 |             |  |   | 23,301 | 
|Term loan B                               |  |             |       |             |  |   | 35,243 | 
|Convertible subordinated notes            |  |             | 28,850 |             |  |   |       | 
|                                          |  |             |        |             |  |   |        | 
|                                          |  |             | 53,534 |             |  |   | 67,794 | 
|Less current installments                 |  |             | 3,333  |             |  |   | 8,300  | 
|                                          |  |             |        |             |  |   |        | 
|Long-term debt, less current installments |  | $           | 50,201 |             |  | $ | 59,494 | 
|                                          |  |             |        |             |  |   |        | 

On August 7, 2003 we closed a
$30 million private placement of 5.0 percent
convertible subordinated notes due 2008 and warrants to
purchase 574,691 shares of our common stock at
$13.46 per share. The

F-8



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##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

investors may convert the notes into our common
stock at any time prior to the scheduled maturity date of
August 7, 2008. The conversion price is $12.92 per
share, which represents a 20 percent premium over the
closing price of our common stock on August 5, 2003. If
fully converted, the notes will convert into
2,321,981 shares of our common stock. After August 7,
2006, we have the right to redeem the notes and we may also
force the exercise of the warrants if our common stock trades
above a specified price during a specific period of time. The
convertible subordinated notes have a maximum leverage ratio
which is significantly less restrictive than the senior bank
credit facility covenant. And in the event we were to pay a cash
dividend to common stockholders, the convertible subordinated
notes would be included in the distribution as if converted. The
fair value of the warrants of $1,276 was recorded as a discount
on the notes and is being amortized over the term of the notes.
As a result, the effective annual interest rate on the notes is
7.5 percent. We used the net proceeds of the offering to
reduce the outstanding balances of our term and revolving loans
under our senior bank credit facility. We agreed with the bank
that up to $4 million of the repaid balance could be
borrowed to fund the purchase of the Dave &
Busters complex in Toronto. See Note 12.

On October 29, 2003, we amended our senior
bank credit facility. The current facility includes a
$45 million revolving credit facility and a
$15 million term debt facility. The revolving credit
facility may be used for borrowings or letters of credit. At
February 1, 2004, we had $5,780 letters of credit
outstanding, leaving $28,703 available for additional borrowings
or letters of credit. Borrowings under the revolving credit
facility bear interest at a floating rate based on the
banks prime interest rate (4.00 percent at
February 1, 2004) or the one-month EuroDollar
(1.13 percent at February 1, 2004), plus in each case
a margin based on financial performance. The interest rate on
the revolving credit facility was 3.87 percent at
February 1, 2004. Borrowings on the term debt facility bear
interest at a floating rate based on the three month EuroDollar
(1.13 percent at February 1, 2004), or at our option,
the banks prime interest rate (4.00 percent at
February 1, 2004), plus in each case a margin based on
financial performance. The interest rate on the term debt
facility was 3.91 percent at February 1, 2004. The
amended facility is secured by all assets of the Company. The
amended facility has certain financial covenants including a
consolidated tangible net worth, a maximum leverage ratio and a
minimum fixed charge coverage ratio. Any outstanding borrowings
under the revolving credit facility are due at maturity on
April 29, 2008. Borrowings under the term debt facility are
repayable in 17 consecutive quarterly payments of $833 with
the final payment due on April 29, 2008. The fair market
value of our long-term debt approximates its carrying value.

In 2001, we entered into an interest rate swap
agreement that expires in 2007, to change a portion of our
variable rate debt to fixed-rate debt. Pursuant to the swap
agreement, the interest rate on notional amounts aggregating
$40,633 at February 1, 2004 is fixed at 5.44 percent.
The agreement has not been designated as a hedge and adjustments
are recorded to mark the instrument to its fair market value
through current operations. The fair market value adjustment at
February 1, 2004 is $443,which is included in current
liabilities. As a result of the swap agreement, we recorded
additional interest expense of $1,863, $1,803 and $858 in 2003,
2002 and 2001, respectively.

The following table sets forth the Companys
debt payment commitments (in thousands):

|               |  |       |        |                        |  |           |       |           |  |         |       |  |  |   |        |  |  |   |   | 
|-------------- |  | ----- | ------ | ---------------------- |  | --------- | ----- | --------- |  | ------- | ----- |  |  | - | ------ |  |  | - | - | 
|               |  |       |        |                       
|               |  |       |        | Payments Due by Period
|               |  |       |        |                       
|               |  |       |        | 1 Year                 |  |           |       | After    
|               |  | Total |        | or less                |  | 2-3 Years |       | 4-5 Years |  | 5 Years
|               |  |       |        |                        |  |           |       |           |  |        
|Long-term debt |  | $     | 53,534 |                        |  | $         | 3,333 |           |  | $       | 6,666 |  |  | $ | 43,535 |  |  | $ |  | 

F-9



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##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 5:     Income
Taxes

The provision for income taxes is as follows (in
thousands):

|                          |                                  |                   |     |             |  |             |       |        |   |  |     |       | 
|------------------------- | -------------------------------- | ----------------- | --- | ----------- |  | ----------- | ----- | ------ | - |  | --- | ----- | 
|                          |                                  |                  
|                          |                                  | Fiscal Year Ended
|                          |                                  |                  
|                          |                                  | February 1,       |     | February 2, |  | February 3,
|                          |                                  | 2004              |     | 2003        |  | 2002       
|                          |                                  |                   |     |             |  |            
|Current expense (benefit) |                                  |                   |     |             |  |             |       |        |   |  |     |      
|                          | Federal                          |                   | $   | 4,353       |  |             | $     | (3,876 | ) |  | $   | 3,149 | 
|                          | State and local                  |                   |     | 444         |  |             |       | 235    |   |  |     | 504   | 
|Deferred expense          |                                  |                   | 864 |             |  |             | 6,396 |        |   |  | 646 |      
|                          |                                  |                   |     |             |  |             |       |        |   |  |     |      
|                          | Total provision for income taxes |                   | $   | 5,661       |  |             | $     | 2,755  |   |  | $   | 4,299 | 
|                          |                                  |                   |     |             |  |             |       |        |   |  |     |      

As a result of a change in the tax law in 2001,
we amended our 2001 federal income tax return, which resulted in
a refund of approximately $2,900. The refund was received in
2003.

Significant components of the deferred tax
liabilities and assets in the consolidated balance sheets are as
follows (in thousands):

|                           |                                |                            |        |             |        |   |        |        |        | 
|-------------------------- | ------------------------------ | -------------------------- | ------ | ----------- | ------ | - | ------ | ------ | ------ | 
|                           |                                | February 1,                |        | February 2,
|                           |                                | 2004                       |        | 2003       
|                           |                                |                            |        |            
|Deferred tax liabilities:  |                                |                            |        |             |        |   |        |       
|Accelerated depreciation   |                                | $                          | 19,370 |             |        | $ | 15,482 |       
|Capitalized interest costs |                                |                            | 1,883  |             |        |   | 1,750  |       
|Prepaid expenses           |                                |                            | 451    |             |        |   | 18     |       
|Smallware                  |                                |                            | 355    |             |        |   | 3,313  |       
|Other                      |                                |                            | 777    |             |        |   | 451    |       
|                           |                                |                            |        |             |        |   |        |       
|                           | Total deferred tax liabilities |                            |        | 22,836      |        |   |        | 21,014 |       
|Deferred tax assets:       |                                |                            |        |             |        |   |        |       
|Preopening costs           |                                |                            | 4,184  |             |        |   | 3,298  |       
|Leasing transactions       |                                |                            | 1,351  |             |        |   | 1,365  |       
|Workers compensation      |                                |                            | 570    |             |        |   | 484    |       
|                           |                                |                            |        |             |        |   |        |       
|                           | Total deferred tax assets      |                            |        | 6,105       |        |   |        | 5,147  |       
|                           |                                |                            |        |             |        |   |        |       
|                           |                                | Net deferred tax liability |        | $           | 16,731 |   |        | $      | 15,867 | 
|                           |                                |                            |        |             |        |   |        |       

The reconciliation of the federal statutory rate
to our effective income tax rate follows:

|                                                                    |  |                   |      |             |  |             |       |    |  |  |      |   
|------------------------------------------------------------------- |  | ----------------- | ---- | ----------- |  | ----------- | ----- | -- |  |  | ---- | --
|                                                                    |  |                  
|                                                                    |  | Fiscal Year Ended
|                                                                    |  |                  
|                                                                    |  | February 1,       |      | February 2, |  | February 3,
|                                                                    |  | 2004              |      | 2003        |  | 2002       
|                                                                    |  |                   |      |             |  |            
|Federal corporate statutory rate                                    |  |                   | 35.0 | %           |  |             | 35.0  | %  |  |  | 35.0 | % 
|State and local income taxes, net of federal
    income tax benefit |  |                   | 2.2  | %           |  |             | 6.7   | %  |  |  | 3.1  | % 
|Goodwill amortization and other nondeductible
    expenses          |  |                   | 2.8  | %           |  |             | 6.0   | %  |  |  | 1.0  | % 
|FICA tip credits                                                    |  |                   | (6.6 | )%          |  |             | (15.7 | )% |  |  | (4.3 | )%
|Other                                                               |  |                   | 0.6  | %           |  |             | 2.0   | %  |  |  | 1.4  | % 
|                                                                    |  |                   |      |             |  |             |       |    |  |  |      |   
|Effective tax rate                                                  |  |                   | 34.0 | %           |  |             | 34.0  | %  |  |  | 36.2 | % 
|                                                                    |  |                   |      |             |  |             |       |    |  |  |      |   

F-10



---



##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|        |       
|------- | ------
|Note 6: | Leases

We lease certain property and equipment under
operating leases. Some of the leases include options for renewal
or extension on various terms. Most leases require the Company
to pay property taxes, insurance and maintenance of the leased
assets. Certain leases also have provisions for additional
percentage rentals based on revenues. For 2003, 2002 and 2001,
rent expense for operating leases was $24,437, $23,828 and
$19,469, respectively, including contingent rentals of $683,
$624 and $1,448, respectively. At February 1, 2004, future
minimum lease payments required under operating leases
(including the sale/leaseback transactions described below) are
(in thousands):

|     |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |         |  |  |   |         | 
|---- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- |  |  | - | ------- | 
|2004 |         | 2005 |  | 2006 |        | 2007 |  | 2008 |        | Thereafter |  | Total
|     |         |      |  |      |        |      |  |      |        |            |  |      
|     | $26,196 |      |  | $    | 25,130 |      |  | $    | 24,706 |            |  | $     | 24,062 |  |  | $ | 23,896 |  |  | $ | 283,341 |  |  | $ | 407,331 | 

During 2001, we completed the sale/leaseback of
two complexes and our corporate headquarters. Cash proceeds of
$18,474 were received along with twenty-year notes aggregating
$5,150. The notes bear interest of 7 percent to
7.5 percent. These locations were sold to non-affiliated
entities. In 2000, we entered into a sale/leaseback transaction
with Cypress San Diego I, L.P. an affiliate of Cypress
Equities, Inc. for our San Diego, California complex
pursuant to which we received $6,300 in cash and a promissory
note for $1,600. A director of the Company is the managing
member of Cypress Equities, Inc. In October 2003, Cypress
San Diego I, L.P. sold its interest in the
San Diego property to a third party unrelated to the
Company. Lease payments to Cypress Equities, Inc. in 2003,
2002 and 2001 were $667, $1,000 and $1,000, respectively. As of
February 2, 2003, the balance due Cypress
Equities, Inc. was $20,235 and no amounts were due at
February 1, 2004. The sale/leaseback transactions resulted
in a loss relating to one complex of $272, which was recognized
in 2001, and a gain related to our corporate headquarters of
$232,which is being amortized over the term of the operating
lease.

Future aggregating lease obligations under the
sale/leaseback agreements, which are classified as operating
leases, are as follows (in thousands):

|     |        |      |  |      |       |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |        |  |  |   |        | 
|---- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | ----- | ----- |  |  | - | ----- |  |  | - | ------ |  |  | - | ------ | 
|2004 |        | 2005 |  | 2006 |       | 2007 |  | 2008 |       | Thereafter |  | Total
|     |        |      |  |      |       |      |  |      |       |            |  |      
|     | $4,002 |      |  | $    | 4,051 |      |  | $    | 4,183 |            |  | $     | 4,225 |  |  | $ | 4,267 |  |  | $ | 58,589 |  |  | $ | 79,317 | 

At February 1, 2004 and February 2,
2003, the aggregate balance of the notes receivable due from the
lessors under the sale/leaseback agreements was $6,407 and
$6,551, respectively. Future minimum principal and interest
payments due to us under these notes are as follows (in
thousands):

|     |      |      |  |      |     |      |  |      |     |            |  |       |     |  |  |   |     |  |  |   |       |  |  |   |        | 
|---- | ---- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---------- |  | ----- | --- |  |  | - | --- |  |  | - | ----- |  |  | - | ------ | 
|2004 |      | 2005 |  | 2006 |     | 2007 |  | 2008 |     | Thereafter |  | Total
|     |      |      |  |      |     |      |  |      |     |            |  |      
|     | $652 |      |  | $    | 652 |      |  | $    | 652 |            |  | $     | 652 |  |  | $ | 652 |  |  | $ | 8,281 |  |  | $ | 11,541 | 



|        |             
|------- | ------------
|Note 7: | Common Stock

Treasury
Stock During fiscal 1999,
our Board of Directors approved a plan to repurchase up to
1,000 shares of the Companys common stock. Pursuant
to the plan, as of February 1, 2004, we are authorized to
purchase an additional 825 shares.

Stock-Based
Compensation In 1995, we
adopted the Dave & Busters, Inc. 1995 Stock
Option Plan (the Plan), which as amended covers
2,950 shares of common stock. The Plan provides that
incentive stock options may be granted at option prices not less
than fair market value at date of grant (110 percent in the
case of an incentive stock option granted to any person who owns
more than 10 percent of the total combined voting power of all
classes of stock of the Company). Non-qualified stock options
may not be granted for less than 85 percent of the fair market
value of the common stock at the time of grant and are primarily
exercisable over a three to five year period from the date of
the grant.

F-11



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##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In 1996, we adopted a stock option plan for
outside directors (the Directors Plan), for a
total of 190 shares of common stock. The options granted
under the Directors Plan vest ratably over a three-year
period.

In 2000, we amended and restated the
Dave & Busters, Inc. 1995 Stock Incentive
Plan to allow the Company to grant restricted stock awards.
Recipients are not required to provide consideration to the
Company other than render service and have the right to vote the
shares and to receive dividends. In 2003 and 2001, we issued,
23.5 and 63.5 shares of restricted stock with market values
of $9.27-$10.70 and $6.45-$7.90, respectively. The restricted
shares vest at the earlier of attaining certain performance
targets or in 2007. The total market value of the restricted
shares, as determined at the date of issuance, is treated as
unearned compensation and is charged to expense over the vesting
period. The charge to expense for the restricted stock
compensation was $333, $226 and $139 in 2003, 2002 and 2001,
respectively.

A summary of the Companys stock option
activity and related information is as follows (in thousands
except share data):

|                                                                   |  |                   |       |                  |  |                  |       |          |  |         |       |          |  |   |       |  |  |  |       |   |  |   |       | 
|------------------------------------------------------------------ |  | ----------------- | ----- | ---------------- |  | ---------------- | ----- | -------- |  | ------- | ----- | -------- |  | - | ----- |  |  |  | ----- | - |  | - | ----- | 
|                                                                   |  |                  
|                                                                   |  | Fiscal Year Ended
|                                                                   |  |                  
|                                                                   |  |                   |       |                  |  |                 
|                                                                   |  | February 1, 2004  |       | February 2, 2003 |  | February 3, 2002
|                                                                   |  |                   |       |                  |  |                 
|                                                                   |  |                   |       | Exercise         |  |                  |       | Exercise |  |         |       | Exercise
|                                                                   |  | Options           |       | Price*           |  | Options          |       | Price*   |  | Options |       | Price*  
|                                                                   |  |                   |       |                  |  |                  |       |          |  |         |       |         
|Outstanding  beginning of year                                    |  |                   | 2,498 |                  |  | $                | 11.79 |          |  |         | 2,785 |          |  | $ | 11.81 |  |  |  | 1,892 |   |  | $ | 14.69 | 
|Granted                                                            |  |                   | 256   |                  |  |                  | 9.96  |          |  |         | 112   |          |  |   | 8.62  |  |  |  | 1,133 |   |  |   | 7.30  | 
|Exercised                                                          |  |                   | (101  | )                |  |                  | 6.95  |          |  |         | (121  | )        |  |   | 7.20  |  |  |  | (6    | ) |  |   | 6.80  | 
|Forfeited                                                          |  |                   | (236  | )                |  |                  | 14.30 |          |  |         | (278  | )        |  |   | 12.76 |  |  |  | (234  | ) |  |   | 13.16 | 
|                                                                   |  |                   |       |                  |  |                  |       |          |  |         |       |          |  |   |       |  |  |  |       |   |  |   |       | 
|Outstanding  end of year                                          |  |                   | 2,417 |                  |  |                  | 11.55 |          |  |         | 2,498 |          |  |   | 11.79 |  |  |  | 2,785 |   |  |   | 11.81 | 
|Exercisable  end of year                                          |  |                   | 1,592 |                  |  |                  | 13.13 |          |  |         | 1,411 |          |  |   | 14.25 |  |  |  | 1,134 |   |  |   | 15.55 | 
|Weighted-average fair value of options granted
    during the year |  |                   |       |                  |  | $                | 5.05  |          |  |         |       |          |  | $ | 4.89  |  |  |  |       |   |  | $ | 3.40  | 



---



|  |                                
|- | -------------------------------
|* | Weighted average exercise price

As of February 1, 2004, exercise prices for
2,417 options ranged from $5.59 to $8.38 for 1,115 options,
$8.39 to $16.76 for 688 options and $16.77 to $27.94 for 614
options. The weighted-average remaining contractual life of the
options is 6.1 years.

Under a Shareholder Protection Rights Plan
adopted by the Company, each share of outstanding common stock
includes a right which entitles the holder to purchase one
one-hundredth of a share of Series A Junior Participating
Preferred Stock for seventy five dollars. Rights attach to all
new shares of commons stock whether newly issued or issued from
treasury stock and become exercisable only under certain
conditions involving actual or potential acquisitions of the
Companys common stock. Depending on the circumstances, all
holders except the acquiring person may be entitled to
1) acquire such number of shares of Company common stock as
have a market value at the time of twice the exercise price of
each right, or 2) exchange a right for one share of Company
common stock or one one-hundredth of a share of the
Series A Junior Participating Preferred Stock, or
3) receive shares of the acquiring companys common
stock having a market value equal to twice the exercise price of
each right. The rights remain in existence until ten years after
the Distribution, unless they are redeemed (at one cent per
right).

F-12



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##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|        |                   
|------- | ------------------
|Note 8: | Earnings Per Share

The following table sets forth the computation of
basic and diluted earnings per share (in thousands except share
data):

|                                                                                           |                                              |                      |                        |             |  |             |        |        |   |     |        |       |  |    | 
|------------------------------------------------------------------------------------------ | -------------------------------------------- | -------------------- | ---------------------- | ----------- |  | ----------- | ------ | ------ | - | --- | ------ | ----- |  | -- | 
|                                                                                           |                                              |                     
|                                                                                           |                                              | Fiscal Year Ended   
|                                                                                           |                                              |                     
|                                                                                           |                                              | February 1,          |                        | February 2, |  | February 3,
|                                                                                           |                                              | 2004                 |                        | 2003        |  | 2002       
|                                                                                           |                                              |                      |                        |             |  |            
|Numerator for basic earnings per common
    share  net income                             |                                              | $                    | 10,989                 |             |  | $           | (1,748 | )      |   | $   | 7,578  |      
|                                                                                           | Impact of convertible debt interest and fees |                      |                        | 662         |  |             |        |       |   |     |        |      | 
|                                                                                           |                                              |                      |                        |             |  |             |        |        |   |     |        |      
|                                                                                           | Income applicable to common shareholders     |                      | $                      | 11,651      |  |             | $      | (1,748 | ) |     | $      | 7,578 | 
|Denominator for basic earnings per common
    share  weighted average shares              |                                              |                      | 13,128                 |             |  |             | 12,997 |        |   |     | 12,956 |      
|                                                                                           |                                              | Dilutive securities: |                        |             |  |             |        |        |   |     |        |       |  |   
|                                                                                           |                                              |                      | Employee stock options |             |  | 357         |        |        |   | 407 |        |       |  | 60 | 
|                                                                                           |                                              |                      | Convertible debt       |             |  | 1,161       |        |        |   |    |        |       |  |   | 
|                                                                                           |                                              |                      |                        |             |  |             |        |        |   |     |        |      
|Denominator for diluted earnings per common
    share  adjusted weighted average shares   |                                              |                      | 14,646                 |             |  |             | 13,404 |        |   |     | 13,016 |      
|                                                                                           |                                              |                      |                        |             |  |             |        |        |   |     |        |      
|Diluted earnings (loss) per common share before
    cumulative effect of accounting change |                                              | $                    | 0.80                   |             |  | $           | 0.40   |        |   | $   | 0.58   |      
|Cumulative effect of a change in accounting
    principle                                  |                                              |                      |                       |             |  |             | (0.53  | )      |   |     |       |      
|                                                                                           |                                              |                      |                        |             |  |             |        |        |   |     |        |      
|Diluted earnings (loss) per common share                                                   |                                              | $                    | 0.80                   |             |  | $           | (0.13  | )      |   | $   | 0.58   |      
|                                                                                           |                                              |                      |                        |             |  |             |        |        |   |     |        |      

In 2003, 2002 and 2001, options to
purchase 870, 992 and 1,489 shares of common stock,
respectively, were not included in the computation of diluted
net income per share because the exercise price was greater than
the market price and the effect would have been antidilutive.



|        |                       
|------- | ----------------------
|Note 9: | Related Party Activity

In 2000, the Company entered into a
sale/leaseback transaction with Cypress San Diego I,
L.P. an affiliate of Cypress Equities, Inc. for its
San Diego, California complex. A director of the Company is
the managing member of Cypress Equities, Inc. See
Note 6.

In addition, the Company from time to time has
engaged Cypress Equities, Inc. or its affiliates to provide
brokerage services in connection with the leasing of commercial
property or with the sale and leaseback of properties formerly
owned by the Company. The amount of brokers commissions
paid to Cypress Equities for such services was $332 in 2001
(none in 2003 and 2002).

As of February 1, 2004, there were no loans
to officers. At February 2, 2003 an officer owed the
Company $100, under the terms of a personal loan, which was
non-interest bearing and payable on demand. This loan was in
existence prior to the prohibition on loans to executive
officers enacted under Section 402 of the Sarbanes-Oxley
Act of 2002 and was therefore exempt from such prohibition. The
loan was paid in full in April 2003.



|         |                      
|-------- | ---------------------
|Note 10: | Employee Benefit Plan

The Company sponsors a plan to provide retirement
benefits under the provision of Section 401(k) of the
Internal Revenue Code (the 401(k) Plan) for all
employees who have completed a specified term of service.
Company contributions may range from 0 percent to
100 percent of employee contributions, up to a

F-13



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##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

maximum of 6 percent of eligible employee
compensation, as defined. Employees may elect to contribute up
to 50 percent of their eligible compensation on a pretax
basis. Benefits under the 401(k) Plan are limited to the
assets of the 401(k) Plan.



|         |              
|-------- | -------------
|Note 11: | Contingencies

The Company is subject to certain legal
proceedings and claims that arise in the ordinary course of its
business. In the opinion of management, the amount of ultimate
liability with respect to all actions will not materially affect
the consolidated results of operations or financial condition of
the Company.



|         |                                           
|-------- | ------------------------------------------
|Note 12: | Acquisition of Toronto, Canada
    Complex

On October 6, 2003, we completed the
purchase of the Dave & Busters complex in
Toronto, Canada from a party that operated the facility under a
license agreement with us. The purchase price was $4,122,
including $3,600 in cash plus the forgiveness of $523 in certain
receivables due from the licensee. The purchase gave us the
opportunity to expand our North American operations. The
historical results of operations of the Toronto complex are not
material to our consolidated results.

Assets acquired and liabilities assumed have been
recorded at their estimated fair values as determined by
management. The following table summarizes the allocation of the
purchase price (in thousands):

|                        |  |   |        |  
|----------------------- |  | - | ------ | -
|Current assets          |  | $ | 517    |  
|Property and equipment  |  |   | 4,750  |  
|Current liabilities     |  |   | (1,145 | )
|                        |  |   |        |  
|Total acquisition price |  | $ | 4,122  |  
|                        |  |   |        |  



|         |                                                
|-------- | -----------------------------------------------
|Note 13: | Quarterly Financial Information
    (unaudited)

|                                                |  |                                           |        |        |  |       |        |        |  |   |        |   |  |   |         | 
|----------------------------------------------- |  | ----------------------------------------- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------ | - |  | - | ------- | 
|                                                |  |                                          
|                                                |  | Fiscal Year 2003  Ended February 1, 2004
|                                                |  |                                          
|                                                |  | First                                     |        | Second |  | Third |        | Fourth
|                                                |  |                                           |        |        |  |       |        |       
|                                                |  |                                          
|                                                |  | (in thousands, except per share amounts) 
|Total revenues                                  |  | $                                         | 91,587 |        |  | $     | 88,309 |        |  | $ | 82,882 |   |  | $ | 100,044 | 
|Income (loss) before provision for income taxes |  |                                           | 4,619  |        |  |       | 2,218  |        |  |   | (773   | ) |  |   | 10,586  | 
|Net income (loss)                               |  |                                           | 3,049  |        |  |       | 1,464  |        |  |   | (510   | ) |  |   | 6,986   | 
|Basic net income (loss) per share               |  | $                                         | .23    |        |  | $     | .11    |        |  | $ | (.04   | ) |  | $ | .54     | 
|Basic weighted average shares outstanding       |  |                                           | 13,090 |        |  |       | 13,116 |        |  |   | 13,144 |   |  |   | 13,161  | 
|Diluted net income per share                    |  | $                                         | .23    |        |  | $     | .11    |        |  | $ | (.04   | ) |  | $ | .46     | 
|Diluted weighted average shares outstanding     |  |                                           | 13,283 |        |  |       | 13,458 |        |  |   | 13,144 |   |  |   | 15,944  | 

F-14



---



##### Table of Contents



DAVE &
BUSTERS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                                                    |  |                                           |        |        |  |       |        |        |  |   |        |   |  |   |        | 
|------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------ | - |  | - | ------ | 
|                                                                                                                    |  |                                          
|                                                                                                                    |  | Fiscal Year 2002  Ended February 2, 2003
|                                                                                                                    |  |                                          
|                                                                                                                    |  | First                                     |        | Second |  | Third |        | Fourth
|                                                                                                                    |  |                                           |        |        |  |       |        |       
|                                                                                                                    |  |                                          
|                                                                                                                    |  | (in thousands, except per share amounts) 
|Total revenues                                                                                                      |  | $                                         | 97,242 |        |  | $     | 92,150 |        |  | $ | 84,550 |   |  | $ | 99,810 | 
|Income (loss) before provision for income taxes
    and cumulative effect of a change in an accounting principle(2) |  |                                           | 4,592  |        |  |       | 1,451  |        |  |   | (2,759 | ) |  |   | 4,820  | 
|Income (loss) before cumulative effect of a
    change in an accounting principle                                   |  |                                           | 2,916  |        |  |       | 921    |        |  |   | (1,670 | ) |  |   | 3,181  | 
|Cumulative effect of a change in an accounting
    principle                                                        |  |                                           | 7,096  |        |  |       |       |        |  |   |       |   |  |   |       | 
|Net income (loss)(1)                                                                                                |  |                                           | (4,180 | )      |  |       | 921    |        |  |   | (1,670 | ) |  |   | 3,181  | 
|Basic income (loss) per share before cumulative
    effect of a change in an accounting principle                   |  | $                                         | .22    |        |  | $     | .07    |        |  | $ | (.13   | ) |  | $ | .25    | 
|Basic net (loss) from cumulative effect of a
    change in an accounting principle                                  |  | $                                         | (.55   | )      |  |       |       |        |  |   |       |   |  |   |       | 
|Basic net income (loss)                                                                                             |  | $                                         | (.32   | )      |  | $     | .07    |        |  | $ | (.13   | ) |  | $ | .25    | 
|Basic weighted average shares outstanding                                                                           |  |                                           | 12,971 |        |  |       | 12,986 |        |  |   | 13,003 |   |  |   | 13,029 | 
|Diluted income (loss) per share before cumulative
    effect of a change in an accounting principle                 |  | $                                         | .22    |        |  | $     | .07    |        |  | $ | (.13   | ) |  | $ | .24    | 
|Diluted net (loss) from cumulative effect of a
    change in an accounting principle                                |  | $                                         | (.53   | )      |  |       |       |        |  |   |       |   |  |   |       | 
|Diluted net income (loss)                                                                                           |  | $                                         | (.31   | )      |  | $     | .07    |        |  | $ | (.13   | ) |  | $ | .24    | 
|Diluted weighted average shares outstanding                                                                         |  |                                           | 13,307 |        |  |       | 13,435 |        |  |   | 13,460 |   |  |   | 13,219 | 



---



|    |                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the first quarter of 2002, the Company adopted
    SFAS No. 142, which resulted in a charge of $7,096, to
    write off all of our recorded goodwill. The charge is presented
    as the cumulative effect of a change in accounting principle.
|   
|(2) | In the second quarter of 2002, as part of general
    and administrative expenses, the Company incurred $1,200 of
    transaction costs related to a proposed merger agreement with
    D&B Holdings and D&B Acquisition Sub.                     

F-15



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors

Dave & Busters, Inc.


We have audited the accompanying consolidated
balance sheets of Dave & Busters, Inc. as of
February 1, 2004 and February 2, 2002, and the related
consolidated statements of operations, stockholders equity
and cash flows for each of the three fiscal years in the period
ended February 1, 2004. These financial statements are the
responsibility of the companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the 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. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
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, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Dave &
Busters, Inc. at February 1, 2004 and
February 2, 2003 and the consolidated results of its
operations and its cash flows for each of the three fiscal years
in the period ended February 1, 2004, in conformity with
accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

Dallas, Texas

March 31, 2004


F-16



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##### Table of Contents



INDEX OF EXHIBITS EXHIBITNUMBER
    
    DESCRIPTION12
    
    Dave & Busters, Inc. Computation of Ratio of Earnings to Fixed Charges21.1
    
    Subsidiaries of Dave & Busters, Inc.23
    
    Independent Auditors Consent.24
    
    Power of Attorney (included on the Signature page of this report).31
    
    Rule 13a-14(a)/15d-14(a) Certifications.32
    
    Section 1350 Certifications.