##### Table of Contents









UNITED STATES

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 December 31, 2000

or



| |                                                          
| | ---------------------------------------------------------
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE

SECURITIES EXCHANGE ACT OF 1934


For the transition period from
               to

               .

Commission File Number: 0-25123

P.F. CHANGS CHINA BISTRO, INC.

(Exact name of registrant as specified in its
charter)


|                                                              |  |                                      
|------------------------------------------------------------- |  | -------------------------------------
|                                                             
|                                                             
|                                                             
|                                                             
|Delaware                                                      |  | 86-0815086                           
|State or other jurisdiction of
	incorporation or organization |  | (I.R.S. Employer
	Identification No.)
|                                                             
|15210 N. Scottsdale Rd., Ste. 300
	Scottsdale, AZ             |  | 85254
	(Zip Code)                    
|(Address of principal executive offices)                      |  |                                      

Registrants telephone number, including area
code:  (602) 957-8986

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

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

Common Stock, $.001 par value


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 report(s), and (2) has been
subject to such filing requirements for the past 90 days.
Yes    No

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

Based on the closing sale price of $37.75 on February 14,
2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $345,895,096.

On February 14, 2001 there were outstanding 11,703,144
shares of the Registrants Common Stock.

Documents Incorporated by Reference

(to the extent indicated herein)


Registrants Proxy Statement (specified portions) with
respect to the Annual Meeting of Stockholders to be held
April 25, 2001.



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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Item 1. Business                                                                             
|Item 2. Properties                                                                           
|Item 3. Legal Proceedings                                                                    
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|Item 5. Market for the Registrants Common Stock and Related Stockholder Matters             
|Item 6. Selected Financial Data                                                              
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 7A. Quantitative and Qualitative Disclosures about Market Risks                         
|Item 8. Financial Statements and Supplementary Data                                          
|Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  
|Item 10. Directors and Executive Officers of the Registrant                                  
|Item 11. Executive Compensation                                                              
|Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|Item 13. Certain Relationships and Related Transactions                                      
|Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|EX-23.1                                                                                      



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TABLE OF CONTENTS

|     |  |                                                                                        |  |      |    | 
|---- |  | -------------------------------------------------------------------------------------- |  | ---- | -- | 
|Item |  |                                                                                        |  | Page
|     |  |                                                                                        |  |     
|     |  | PART I                                                                                 |  |      |    | 
|    
|    
|    
|    
|1.   |  | Business                                                                               |  |      | 2  | 
|    
|    
|    
|    
|2.   |  | Properties                                                                             |  |      | 14 | 
|    
|    
|    
|    
|3.   |  | Legal Proceedings                                                                      |  |      | 15 | 
|    
|    
|    
|    
|4.   |  | Submission of Matters to a Vote of Security Holders                                    |  |      | 16 | 
|     |  | PART II                                                                                |  |      |    | 
|    
|    
|    
|    
|5.   |  | Market for the Registrants Common Stock and Related
	Stockholder Matters              |  |      | 16 | 
|    
|    
|    
|    
|6.   |  | Selected Financial Data                                                                |  |      | 17 | 
|    
|    
|    
|    
|7.   |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  |      | 18 | 
|    
|    
|    
|    
|7A.  |  | Quantitative and Qualitative Disclosures About Market Risks                            |  |      | 26 | 
|    
|    
|    
|    
|8.   |  | Financial Statements and Supplementary Data                                            |  |      | 27 | 
|    
|    
|    
|    
|9.   |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |  |      | 45 | 
|     |  | PART III                                                                               |  |      |    | 
|    
|    
|    
|    
|10.  |  | Directors and Executive Officers of the Registrant                                     |  |      | 45 | 
|    
|    
|    
|    
|11.  |  | Executive Compensation                                                                 |  |      | 45 | 
|    
|    
|    
|    
|12.  |  | Security Ownership of Certain Beneficial Owners and Management                         |  |      | 45 | 
|    
|    
|    
|    
|13.  |  | Certain Relationships and Related Transactions                                         |  |      | 45 | 
|     |  | PART IV                                                                                |  |      |    | 
|    
|    
|    
|    
|14.  |  | Exhibits, Financial Statement Schedules, and Reports on
	Form 8-K                      |  |      | 45 | 

1



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##### Table of Contents



PART I




Item 1.  Business

General

P.F. Changs owned and operated 52 full service restaurants
as of December 31, 2000 that feature a blend of high
quality, traditional Chinese cuisine and American hospitality in
a sophisticated, contemporary bistro setting. Our restaurants
offer intensely flavored, highly memorable culinary creations,
prepared from fresh ingredients, including premium herbs and
spices imported directly from China. Our menu is focused on
select dishes created to capture the distinct flavors and styles
of the five major culinary regions of China: Canton, Hunan,
Mongolia, Shanghai and Szechwan. By adhering to the Chinese
culinary precepts of fanand tsai, a
balancing of rice, noodles and grains with meat, seafood and
vegetables, the P.F. Changs menu offers an array of taste,
texture, color and aroma. The menu is highlighted by dishes such
as Changs Spicy Chicken, Orange Peel Beef, Peking Ravioli,
Chicken in Soothing Lettuce Wrap, Szechwan-Style Long Beans and
Dan Dan Noodles. Our traditional cuisine is complemented by a
full service bar offering an extensive selection of wines,
specialty drinks, Asian beers, cappuccino and espresso. We offer
superior customer service in a high energy atmosphere featuring
a display kitchen, exhibition wok cooking and a decor that
includes wood and slate floors, mounted life-size terra cotta
replicas of Xian warriors and narrative murals depicting
12th century China.

We also owned and operated one limited service restaurant as of
December 31, 2000. We believe that there is an opportunity
to leverage our knowledge and expertise in Chinese and Asian
cuisine. Accordingly, we have developed Pei Wei Asian Diner, or
Pei Wei, a new concept that caters to a quicker, more casual
dining experience as compared to P.F. Changs China Bistro.
Pei Wei opened its first unit in July 2000 in the Phoenix,
Arizona area. We have committed to opening two additional Pei
Wei units in the Phoenix area and two in the Dallas, Texas area
in 2001. Capital required for these units will approximate
$700,000 each. Additional resources and infrastructure will be
allocated to Pei Wei in the coming months as we prepare to push
forward with the development of the Pei Wei concept.

Concept and Strategy

P.F. Changs objectives are to develop and operate a
nationwide system of restaurants that offer guests a
sophisticated dining experience, create a loyal customer base
that generates a high level of repeat business and provide
superior returns to our investors. To achieve our objectives, we
strive to offer high quality Chinese cuisine in a memorable
atmosphere while delivering superior customer service and an
excellent dining value. Key to the our expansion strategy and
success at the restaurant level is our management philosophy
which allows regional managers, certain general managers and
certain executive chefs to become partners and participate in
the cash flows of the restaurants for which they have
responsibility. We believe we have demonstrated the viability of
the P.F. Changs concept in a wide variety of markets
across the United States. We intend to continue our expansion
program and believe the management incentives provided by our
partnership programs should position us to continue this
expansion without sacrificing P.F. Changs restaurant level
operating performance and return on investment.

Menu

The menu for our full service, or Bistro, restaurants, offers a
harmony of taste, texture, color and aroma by balancing the
principles of fanand tsai foods. Fanfoods include rice, noodles, grains and dumplings, while
vegetables, meat, poultry and seafood are tsaifoods. Our chefs are trained to produce distinctive Chinese
cuisine with traditional recipes from the five major culinary
regions of China: Canton, Hunan, Mongolia, Shanghai and
Szechwan. The intense heat of Mandarin-style wok cooking sears
in the clarity and distinct flavor of fresh ingredients. Slow
roasted Cantonese-style ducklings, chickens, BBQ spare ribs and
BBQ pork are prepared in vertical ovens, while handmade shrimp,
pork and vegetable dumplings, as well as flavorful fish and
vegetables, are prepared in custom-made steamer cabinets. MSG is
not used in any P.F. Changs menu items.

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In addition to the core menu, the Bistro menu also offers
special lunch and dinner selections. These menus offer specials
developed by our executive chefs around the country and are
changed two to three times a year. Individual items that are
well received by guests migrate to the core menu. Fresh produce,
seafood, meat, poultry and specialty items that are specific to
a certain region of the United States or to a specific season
are featured on a daily basis. Extensive research and
development, including trips to China by our corporate executive
chef, continually reinforce our commitment to training P.F.
Changs chefs and enhancing our menu offerings.

P.F. Changs entrees range in price from $8.00 to $13.00,
and our appetizers range in price from $3.00 to $8.00. The
average check per guest, including alcoholic beverages, is
approximately $17 to $18. Sales of alcoholic beverages,
featuring an extensive selection of wines, all of which are
offered by the glass, constitute approximately 20% of revenues.
Lunch and dinner contribute approximately 30% and 70% of
revenues, respectively.

Operations

In order to provide incentive to key management personnel, P.F.
Changs has entered into a series of partnership agreements
with its regional managers, certain of its general managers and
certain of its executive chefs. These partnership agreements
entitle the regional managers to a specified percentage of the
cash flows from the restaurants that regional manager has
developed and oversees. Similarly, the general manager and the
executive chef at most of our restaurants are offered the
opportunity to become partners and to receive a percentage of
the cash flows from the restaurant in which they work. Each
partner is required to purchase a specified interest in the
restaurant or region the partner is employed to manage. The
ownership interest purchased by each partner generally ranges
between two and seven percent of the restaurant or region the
partner oversees. Each partner is prohibited from selling or
transferring his interest to another party during the initial
five year period. After five years, P.F. Changs has the
right to purchase the minority partners interests in the
partners respective restaurants at fair market value, as
calculated according to the partnership agreements. We have
implemented this partnership structure to facilitate the
development and operation of our restaurants. By requiring this
level of commitment and by providing these partners with an
opportunity to invest in the success of the restaurant, we
believe that we are able to attract and retain experienced and
highly motivated managers.

Each of our regional manager partners oversees a territory that
can support seven to ten restaurants. The regional
managers role is to ensure that each restaurant within his
or her territory achieves a competitive return on investment
through the successful execution of our concept. The typical
regional manager is an individual who has previously achieved a
leadership position, such as Director of Operations, at a
multi-unit, full-service restaurant company.

P.F. Changs strives to create a sophisticated dining
experience through the careful selection, training and
supervision of personnel. The staff of a typical restaurant
consists of a general manager, two or three managers, an
executive chef, one or two sous chefs and approximately
125 hourly employees, many of whom work part-time. The
general manager of each restaurant is responsible for the
day-to-day operations of that restaurant, including hiring,
training and development of personnel, as well as operating
results. The executive chef is responsible for product quality,
purchasing, food costs and kitchen labor costs. P.F.
Changs requires its general managers and executive chefs
to have significant experience in the full-service restaurant
industry.

P.F. Changs has a comprehensive 12 week management
development program. This program consists of six weeks of
culinary training, including both culinary job functions and
culinary management. The remaining six weeks focus on service
strategies, guest relations, office management and shift
management. All management and culinary personnel are required
to successfully complete all sections of this program. Upon the
completion of each six week section each trainee must
successfully complete a comprehensive certification administered
by the regional manager partner, Director of Culinary
Development or the Director of Training.

The general managers are responsible for selecting employees for
their restaurants. The general managers and regional managers
are responsible for administering our staff training programs
that are developed by the

3



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Marketing

P.F. Changs focuses its business strategy on providing
high quality, traditional Chinese cuisine served by an attentive
staff in a distinctive environment at an affordable price. By
focusing on the food, service and ambiance of the restaurant, we
have created an environment that fosters repeat patronage and
encourages word-of-mouth recommendations. We believe that
word-of-mouth advertising is a key component in driving
guests initial trial and subsequent visits.

To attract new customers, P.F. Changs has also implemented
a local, regional and national marketing strategy through paid
advertising, public relations efforts and community involvement
to maintain and build awareness throughout each community in
which we operate. In order to increase local awareness of our
restaurants, we build relationships with local radio
personalities who provide testimonials to their listening
audiences. We select stations that are consistently among the
highest rated stations in their markets. Likewise, the radio
personalities are very well recognized in their communities, not
only on their station, but also in the market as a whole.

P.F. Changs also undertakes specialty programs such as
concierge and accommodation programs targeted to build
relationships with the local hotel concierges, who offer
personal recommendations to the guests of their establishments.
Community involvement with local organizations, participation in
non-profit benefits and auctions, chef demonstrations and
cooking classes also increase consumer awareness.

A national advertising campaign comprised of advertisements in
inflight magazines, which carry a high level of traffic in our
markets, is designed to make frequent travelers aware of our
locations across the country.

Competition

The restaurant business is intensely competitive with respect to
food quality, price-value relationships, ambiance, service and
location, and many existing restaurants compete with P.F.
Changs at each of our locations. Key competitive factors
in the industry include the quality and value of the food,
quality of service, price, dining experience, restaurant
location and the ambiance of the facilities. Our primary
competitors include mid-price, full service casual dining
restaurants and locally-owned and operated Chinese restaurants.
There are many well-established competitors with substantially
greater financial, marketing, personnel and other resources than
ours. In addition, many of our competitors are well established
in the markets where our operations are, or in which they may
be, located. While we believe that our restaurants are
distinctive in design and operating concept, other companies may
develop restaurants that operate with similar concepts.

Management Information Systems

P.F. Changs utilizes an integrated information system to
manage the flow of information within each restaurant and
between the restaurants and the corporate office. This system
includes a point-of-sales local area network that helps
facilitate the operations of the restaurant by recording sales
transactions and printing orders in the appropriate locations
within the restaurant. Additionally, the point of sales system
is utilized to authorize, batch and transmit credit card
transactions, to record employee time clock information, to
schedule labor and to produce a variety of management reports.
Select information that is captured from this system is
transmitted to the corporate office on a daily basis, which
enables senior management to continually monitor operating
results. We believe that our current point of sales system will
be an adequate platform to support our planned expansion.

Purchasing

P.F. Changs purchasing programs provide our restaurants
with high quality ingredients at competitive prices from
reliable sources. Consistent menu specifications as well as
purchasing and receiving guidelines ensure freshness and
quality. Because we utilize only fresh ingredients in all of our
menu offerings, inventory is

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Employees

At December 31, 2000, P.F. Changs employed
approximately 7,000 persons, 74 of whom were executive office
personnel, 415 of whom were unit management personnel and the
remainder of whom were hourly restaurant personnel. Our
employees are not covered by a collective bargaining agreement.
We consider our employee relations to be good.

Unit Economics

P.F. Changs believes that unit economics are critical to
the long-term success of any restaurant concept. Accordingly, we
focus on unit-level returns, over time, as a key measurement of
our success or failure. For analysis purposes, we group our
restaurants by the year in which they opened. We then compare
each class to its peers over time as well as the
performance of the entire system. These unit economics are set
forth below.

Please note that the restaurant level return on invested
capital is not a generally accepted accounting principle measure
of performance and does not represent a return on an individual
stockholders investment in P.F. Changs. Rather,
it measures the return on the capital invested in the
restaurants by P.F. Changs. The restaurant-level return on
invested capital is calculated as the quotient of the restaurant
income (loss) before minority interests, interest
(income) expense, net, income taxes, rent expense and
preopening adjustment divided by the total restaurant invested
capital. Interest (income) expense, net, income taxes and rent
expense are excluded from this calculation to provide for an
evaluation of operational results of individual restaurants
without the variability introduced by different forms of
financing and ownership, such as purchased and financed versus
leased.

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|                                                           |  |                                                     |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   |        |    |  |   |     |  
|---------------------------------------------------------- |  | --------------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | - |  | - | ------ | -- |  | - | --- | -
|                                                           |  |                                                    
|                                                           |  | Units opened in                                    
|                                                           |  |                                                    
|                                                           |  | Pre 1996                                            |         | 1996 |  | 1997 |         | 1998 |  | 1999 |         | 2000 |  | 2001
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |         |      |  |     
|                                                           |  |                                                    
|                                                           |  | (dollars in thousands, except average weekly sales)
|                                                          
|                                                          
|                                                          
|                                                          
|Fiscal 2000                                                |  |                                                     |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   |        |    |  |   |     |  
|                                                          
|                                                          
|                                                          
|                                                          
|                                                          
|Units(1)                                                   |  |                                                     | 4       |      |  |      | 3       |      |  |      | 6       |      |  |      | 10      |   |  |   | 13     |   |  |   | 16     |    |  |   |     |  
|                                                          
|                                                          
|                                                          
|                                                          
|Sales weeks                                                |  |                                                     | 208     |      |  |      | 156     |      |  |      | 312     |      |  |      | 520     |   |  |   | 676    |   |  |   | 380    |    |  |   |     |  
|                                                          
|                                                          
|                                                          
|                                                          
|Average weekly sales                                       |  | $                                                   | 125,427 |      |  | $    | 136,843 |      |  | $    | 102,782 |      |  | $    | 109,716 |   |  | $ | 93,878 |   |  | $ | 88,253 |    |  |   |     |  
|                                                          
|                                                          
|                                                          
|                                                          
|Change in comparable store sales(2)                        |  |                                                     | 9.3     | %    |  |      | 10.9    | %    |  |      | 11.0    | %    |  |      | 14.2    | % |  |   | 10.7   | % |  |   |        |    |  |   |     |  
|                                                          
|                                                          
|                                                          
|                                                          
|Restaurant-level operating margin                          |  |                                                     | 23.5    | %    |  |      | 24.3    | %    |  |      | 21.3    | %    |  |      | 21.8    | % |  |   | 18.0   | % |  |   | 9.5    | %  |  |   |     |  
|                                                          
|                                                          
|                                                          
|                                                          
|Revenues                                                   |  | $                                                   | 26,089  |      |  | $    | 21,348  |      |  | $    | 32,068  |      |  | $    | 57,052  |   |  | $ | 63,462 |   |  | $ | 33,535 |    |  | $ |    |  
|                                                          
|                                                          
|                                                          
|                                                          
|Total restaurant operating costs                           |  |                                                     | 19,960  |      |  |      | 16,169  |      |  |      | 25,240  |      |  |      | 44,624  |   |  |   | 52,009 |   |  |   | 30,336 |    |  |   |    |  
|                                                          
|                                                          
|                                                          
|                                                          
|General and administrative                                 |  |                                                     |        |      |  |      |        |      |  |      |        |      |  |      |        |   |  |   |       |   |  |   |       |    |  |   |    |  
|                                                          
|                                                          
|                                                          
|                                                          
|Depreciation and amortization                              |  |                                                     | 359     |      |  |      | 360     |      |  |      | 762     |      |  |      | 1,865   |   |  |   | 2,514  |   |  |   | 1,293  |    |  |   |    |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening expense                                         |  |                                                     |        |      |  |      |        |      |  |      |        |      |  |      |        |   |  |   | (5     | ) |  |   | 5,043  |    |  |   | 25  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest (income) expense, net                             |  |                                                     | 4       |      |  |      | 115     |      |  |      |        |      |  |      |        |   |  |   |       |   |  |   |       |    |  |   |    |  
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   |        |    |  |   |     |  
|Income (loss) before minority interest and income taxes(3) |  |                                                     | 5,766   |      |  |      | 4,704   |      |  |      | 6,066   |      |  |      | 10,563  |   |  |   | 8,944  |   |  |   | (3,137 | )  |  |   | (25 | )
|                                                          
|                                                          
|                                                          
|                                                          
|Rent expense(4)                                            |  |                                                     | 1,514   |      |  |      | 1,235   |      |  |      | 1,597   |      |  |      | 2,246   |   |  |   | 2,349  |   |  |   | 1,378  |    |  |   |    |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 4       |      |  |      | 115     |      |  |      |        |      |  |      |        |   |  |   |       |   |  |   |       |    |  |   |    |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening adjustment(5)                                   |  |                                                     |        |      |  |      |        |      |  |      |        |      |  |      |        |   |  |   |       |   |  |   | (551   | )  |  |   | 25  |  
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   |        |    |  |   |     |  
|Restaurant income (loss), as adjusted                      |  | $                                                   | 7,284   |      |  | $    | 6,054   |      |  | $    | 7,663   |      |  | $    | 12,809  |   |  | $ | 11,293 |   |  | $ | (2,310 | )  |  | $ |    |  
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   |        |    |  |   |     |  
|Average restaurant assets employed(6)                      |  | $                                                   | 1,497   |      |  | $    | 3,013   |      |  | $    | 6,278   |      |  | $    | 18,321  |   |  | $ | 25,797 |   |  | $ | 9,805  |    |  |   |     |  
|                                                          
|                                                          
|                                                          
|                                                          
|Present value of remaining lease obligations(7)            |  |                                                     | 3,715   |      |  |      | 4,072   |      |  |      | 7,315   |      |  |      | 13,150  |   |  |   | 14,193 |   |  |   | 5,146  |    |  |   |     |  
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   |        |    |  |   |     |  
|Total restaurant invested capital                          |  | $                                                   | 5,212   |      |  | $    | 7,085   |      |  | $    | 13,593  |      |  | $    | 31,471  |   |  | $ | 39,990 |   |  | $ | 14,951 |    |  |   |     |  
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   |        |    |  |   |     |  
|Restaurant-level return on invested capital                |  |                                                     | 139.8   | %    |  |      | 85.4    | %    |  |      | 56.4    | %    |  |      | 40.7    | % |  |   | 28.2   | % |  |   | (15.5  | )% |  |   |     |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                           |  |                                                     |         |         |  |           |        |       |  |    |        |   |  |   |         |  
|---------------------------------------------------------- |  | --------------------------------------------------- | ------- | ------- |  | --------- | ------ | ----- |  | -- | ------ | - |  | - | ------- | -
|                                                           |  |                                                     |         |         |  |          
|                                                           |  | Total                                               |         |         |  |          
|                                                           |  | Restaurant                                          |         |         |  |          
|                                                           |  |                                                     |         |         |  |          
|                                                           |  | Bistro                                              |         | Pei Wei |  | Corporate |        | Total
|                                                           |  |                                                     |         |         |  |           |        |      
|                                                           |  |                                                    
|                                                           |  | (dollars in thousands, except average weekly sales)
|                                                          
|                                                          
|                                                          
|                                                          
|Fiscal 2000                                                |  |                                                     |         |         |  |           |        |       |  |    |        |   |  |   |         |  
|                                                          
|                                                          
|                                                          
|                                                          
|Units(1)                                                   |  |                                                     | 52      |         |  |           | 1      |       |  |    |        |   |  |   | 53      |  
|                                                          
|                                                          
|                                                          
|                                                          
|Sales weeks                                                |  |                                                     | 2,252   |         |  |           | 23     |       |  |    |        |   |  |   | 2,275   |  
|                                                          
|                                                          
|                                                          
|                                                          
|Average weekly sales                                       |  | $                                                   | 103,710 |         |  | $         | 58,723 |       |  |    |        |   |  | $ | 103,255 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Change in comparable store sales(2)                        |  |                                                     | 11.7    | %       |  |           |        |       |  |    |        |   |  |   |         |  
|                                                          
|                                                          
|                                                          
|                                                          
|Restaurant-level operating margin                          |  |                                                     | 19.4    | %       |  |           | 16.3   | %     |  |    |        |   |  |   | 19.3    | %
|                                                          
|                                                          
|                                                          
|                                                          
|Revenues                                                   |  | $                                                   | 233,554 |         |  | $         | 1,351  |       |  | $  |       |   |  | $ | 234,905 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Total restaurant operating costs                           |  |                                                     | 188,338 |         |  |           | 1,131  |       |  |    |       |   |  |   | 189,469 |  
|                                                          
|                                                          
|                                                          
|                                                          
|General and administrative                                 |  |                                                     |        |         |  |           |       |       |  |    | 12,290 |   |  |   | 12,290  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Depreciation and amortization                              |  |                                                     | 7,153   |         |  |           | 50     |       |  |    | 671    |   |  |   | 7,874   |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening expense                                         |  |                                                     | 5,063   |         |  |           | 137    |       |  |    |       |   |  |   | 5,200   |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest (income) expense, net                             |  |                                                     | 119     |         |  |           |       |       |  |    | (80    | ) |  |   | 39      |  
|                                                           |  |                                                     |         |         |  |           |        |       |  |    |        |   |  |   |         |  
|Income (loss) before minority interest and income taxes(3) |  |                                                     | 32,881  |         |  |           | 33     |       |  | ($ | 12,881 | ) |  | $ | 20,033  |  
|                                                           |  |                                                     |         |         |  |           |        |       |  |    |        |   |  |   |         |  
|Rent expense(4)                                            |  |                                                     | 10,319  |         |  |           | 82     |       |  |    |        |   |  |   |         |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 119     |         |  |           |       |       |  |    |        |   |  |   |         |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening adjustment(5)                                   |  |                                                     | (526    | )       |  |           |       |       |  |    |        |   |  |   |         |  
|                                                           |  |                                                     |         |         |  |           |        |       |  |    |        |   |  |   |         |  
|Restaurant income (loss), as adjusted                      |  | $                                                   | 42,793  |         |  | $         | 115    |       |  |    |        |   |  |   |         |  
|                                                           |  |                                                     |         |         |  |           |        |       |  |    |        |   |  |   |         |  
|Average restaurant assets employed(6)                      |  | $                                                   | 64,711  |         |  | $         | 240    |       |  |    |        |   |  |   |         |  
|                                                          
|                                                          
|                                                          
|                                                          
|Present value of remaining lease obligations(7)            |  |                                                     | 47,591  |         |  |           | 152    |       |  |    |        |   |  |   |         |  
|                                                           |  |                                                     |         |         |  |           |        |       |  |    |        |   |  |   |         |  
|Total restaurant invested capital                          |  | $                                                   | 112,302 |         |  | $         | 392    |       |  |    |        |   |  |   |         |  
|                                                           |  |                                                     |         |         |  |           |        |       |  |    |        |   |  |   |         |  
|Restaurant-level return on invested capital                |  |                                                     | 38.1    | %       |  |           | 29.3   | %     |  |    |        |   |  |   |         |  

6



---



##### Table of Contents



|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |   |  |   |        |    |  |   |      |   |  |   |   | 
|---------------------------------------------------------- |  | --------------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -- |  | - | ---- | - |  | - | - | 
|                                                           |  |                                                    
|                                                           |  | Units opened in                                    
|                                                           |  |                                                    
|                                                           |  | Pre 1996                                            |         | 1996 |  | 1997 |         | 1998 |  | 1999 |        | 2000 |  | 2001
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |     
|                                                           |  |                                                    
|                                                           |  | (dollars in thousands, except average weekly sales)
|                                                          
|                                                          
|                                                          
|                                                          
|Fiscal 1999                                                |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |   |  |   |        |    |  |   |      |   |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                          
|Units(1)                                                   |  |                                                     | 4       |      |  |      | 3       |      |  |      | 6      |      |  |      | 10     |   |  |   | 13     |    |  |   |      |   |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Sales weeks                                                |  |                                                     | 212     |      |  |      | 159     |      |  |      | 318    |      |  |      | 530    |   |  |   | 330    |    |  |   |      |   |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Average weekly sales                                       |  | $                                                   | 115,119 |      |  | $    | 123,509 |      |  | $    | 92,685 |      |  | $    | 96,119 |   |  | $ | 87,378 |    |  |   |      |   |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Change in comparable store sales(2)                        |  |                                                     | 9.5     | %    |  |      | 11.5    | %    |  |      | 15.2   | %    |  |      | 13.4   | % |  |   |        |    |  |   |      |   |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Restaurant-level operating margin                          |  |                                                     | 23.8    | %    |  |      | 23.4    | %    |  |      | 20.8   | %    |  |      | 19.6   | % |  |   | 11.5   | %  |  |   |      |   |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Revenues                                                   |  | $                                                   | 24,405  |      |  | $    | 19,638  |      |  | $    | 29,474 |      |  | $    | 50,943 |   |  | $ | 28,835 |    |  | $ |     |   |  | $ |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Total restaurant operating costs                           |  |                                                     | 18,605  |      |  |      | 15,044  |      |  |      | 23,344 |      |  |      | 40,972 |   |  |   | 25,512 |    |  |   |     |   |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|General and administrative                                 |  |                                                     |        |      |  |      |        |      |  |      |       |      |  |      |       |   |  |   |       |    |  |   |     |   |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Depreciation and amortization                              |  |                                                     | 347     |      |  |      | 369     |      |  |      | 827    |      |  |      | 1,852  |   |  |   | 1,020  |    |  |   |     |   |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening expense                                         |  |                                                     |        |      |  |      |        |      |  |      |       |      |  |      | (33    | ) |  |   | 3,826  |    |  |   | 551  |   |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Interest (income) expense, net                             |  |                                                     | 7       |      |  |      | 163     |      |  |      |       |      |  |      |       |   |  |   |       |    |  |   |     |   |  |   |  | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |   |  |   |        |    |  |   |      |   |  |   |   | 
|Income (loss) before minority interest and income taxes(3) |  |                                                     | 5,446   |      |  |      | 4,062   |      |  |      | 5,303  |      |  |      | 8,152  |   |  |   | (1,523 | )  |  |   | (551 | ) |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Rent expense(4)                                            |  |                                                     | 1,404   |      |  |      | 1,044   |      |  |      | 1,463  |      |  |      | 1,986  |   |  |   | 1,013  |    |  |   |     |   |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 7       |      |  |      | 163     |      |  |      |       |      |  |      |       |   |  |   |       |    |  |   |     |   |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening adjustment(5)                                   |  |                                                     |        |      |  |      |        |      |  |      |       |      |  |      |       |   |  |   | (405   | )  |  |   | 551  |   |  |   |  | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |   |  |   |        |    |  |   |      |   |  |   |   | 
|Restaurant income (loss), as adjusted                      |  | $                                                   | 6,857   |      |  | $    | 5,269   |      |  | $    | 6,766  |      |  | $    | 10,138 |   |  | $ | (915   | )  |  | $ |     |   |  | $ |  | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |   |  |   |        |    |  |   |      |   |  |   |   | 
|Average restaurant assets employed(6)                      |  | $                                                   | 1,507   |      |  | $    | 3,342   |      |  | $    | 6,981  |      |  | $    | 19,729 |   |  | $ | 12,797 |    |  |   |      |   |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Present value of remaining lease obligations(7)            |  |                                                     | 4,171   |      |  |      | 4,156   |      |  |      | 7,621  |      |  |      | 13,440 |   |  |   | 6,600  |    |  |   |      |   |  |   |   | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |   |  |   |        |    |  |   |      |   |  |   |   | 
|Total restaurant invested capital                          |  | $                                                   | 5,678   |      |  | $    | 7,498   |      |  | $    | 14,602 |      |  | $    | 33,169 |   |  | $ | 19,397 |    |  |   |      |   |  |   |   | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |   |  |   |        |    |  |   |      |   |  |   |   | 
|Restaurant-level return on invested capital                |  |                                                     | 120.8   | %    |  |      | 70.3    | %    |  |      | 46.3   | %    |  |      | 30.6   | % |  |   | (4.7   | )% |  |   |      |   |  |   |   | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                           |  |                                                     |         |         |  |           |   |       |  |   |        |   |  |   |         |  
|---------------------------------------------------------- |  | --------------------------------------------------- | ------- | ------- |  | --------- | - | ----- |  | - | ------ | - |  | - | ------- | -
|                                                           |  |                                                     |         |         |  |          
|                                                           |  | Total                                               |         |         |  |          
|                                                           |  | Restaurant                                          |         |         |  |          
|                                                           |  |                                                     |         |         |  |          
|                                                           |  | Bistro                                              |         | Pei Wei |  | Corporate |   | Total
|                                                           |  |                                                     |         |         |  |           |   |      
|                                                           |  |                                                    
|                                                           |  | (dollars in thousands, except average weekly sales)
|                                                          
|                                                          
|                                                          
|                                                          
|Fiscal 1999                                                |  |                                                     |         |         |  |           |   |       |  |   |        |   |  |   |         |  
|                                                          
|                                                          
|                                                          
|                                                          
|Units(1)                                                   |  |                                                     | 36      |         |  |           |   |       |  |   |        |   |  |   | 36      |  
|                                                          
|                                                          
|                                                          
|                                                          
|Sales weeks                                                |  |                                                     | 1,549   |         |  |           |   |       |  |   |        |   |  |   | 1,549   |  
|                                                          
|                                                          
|                                                          
|                                                          
|Average weekly sales                                       |  | $                                                   | 98,964  |         |  |           |   |       |  |   |        |   |  | $ | 98,964  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Change in comparable store sales(2)                        |  |                                                     | 12.0    | %       |  |           |   |       |  |   |        |   |  |   | 12.0    | %
|                                                          
|                                                          
|                                                          
|                                                          
|Restaurant-level operating margin                          |  |                                                     | 19.5    | %       |  |           |   |       |  |   |        |   |  |   | 19.5    | %
|                                                          
|                                                          
|                                                          
|                                                          
|Revenues                                                   |  | $                                                   | 153,295 |         |  | $         |  |       |  | $ |       |   |  | $ | 153,295 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Total restaurant operating costs                           |  |                                                     | 123,477 |         |  |           |  |       |  |   |       |   |  |   | 123,477 |  
|                                                          
|                                                          
|                                                          
|                                                          
|General and administrative                                 |  |                                                     |        |         |  |           |  |       |  |   | 9,648  |   |  |   | 9,648   |  
|                                                          
|                                                          
|                                                          
|                                                          
|Depreciation and amortization                              |  |                                                     | 4,415   |         |  |           |  |       |  |   | 560    |   |  |   | 4,975   |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening expense                                         |  |                                                     | 4,344   |         |  |           |  |       |  |   |       |   |  |   | 4,344   |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest (income) expense, net                             |  |                                                     | 170     |         |  |           |  |       |  |   | (602   | ) |  |   | (432    | )
|                                                           |  |                                                     |         |         |  |           |   |       |  |   |        |   |  |   |         |  
|Income (loss) before minority interest and income taxes(3) |  |                                                     | 20,889  |         |  |           |  |       |  | $ | (9,606 | ) |  | $ | 11,283  |  
|                                                           |  |                                                     |         |         |  |           |   |       |  |   |        |   |  |   |         |  
|Rent expense(4)                                            |  |                                                     | 6,910   |         |  |           |  |       |  |   |        |   |  |   |         |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 170     |         |  |           |  |       |  |   |        |   |  |   |         |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening adjustment(5)                                   |  |                                                     | 146     |         |  |           |  |       |  |   |        |   |  |   |         |  
|                                                           |  |                                                     |         |         |  |           |   |       |  |   |        |   |  |   |         |  
|Restaurant income (loss), as adjusted                      |  | $                                                   | 28,115  |         |  | $         |  |       |  |   |        |   |  |   |         |  
|                                                           |  |                                                     |         |         |  |           |   |       |  |   |        |   |  |   |         |  
|Average restaurant assets employed(6)                      |  | $                                                   | 44,356  |         |  |           |   |       |  |   |        |   |  |   |         |  
|                                                          
|                                                          
|                                                          
|                                                          
|Present value of remaining lease obligations(7)            |  |                                                     | 35,988  |         |  |           |   |       |  |   |        |   |  |   |         |  
|                                                           |  |                                                     |         |         |  |           |   |       |  |   |        |   |  |   |         |  
|Total restaurant invested capital                          |  | $                                                   | 80,344  |         |  |           |   |       |  |   |        |   |  |   |         |  
|                                                           |  |                                                     |         |         |  |           |   |       |  |   |        |   |  |   |         |  
|Restaurant-level return on invested capital                |  |                                                     | 35.0    | %       |  |           |   |       |  |   |        |   |  |   |         |  

7



---



##### Table of Contents



|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |    |  |   |      |   |  |   |   |  |  |   |   | 
|---------------------------------------------------------- |  | --------------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | -- |  | - | ---- | - |  | - | - |  |  | - | - | 
|                                                           |  |                                                    
|                                                           |  | Units opened in                                    
|                                                           |  |                                                    
|                                                           |  | Pre 1996                                            |         | 1996 |  | 1997 |         | 1998 |  | 1999 |        | 2000 |  | 2001
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |     
|                                                           |  |                                                    
|                                                           |  | (dollars in thousands, except average weekly sales)
|                                                          
|                                                          
|                                                          
|                                                          
|Fiscal 1998                                                |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |    |  |   |      |   |  |   |   |  |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                          
|Units(1)                                                   |  |                                                     | 4       |      |  |      | 3       |      |  |      | 6      |      |  |      | 10     |    |  |   |      |   |  |   |   |  |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Sales weeks                                                |  |                                                     | 208     |      |  |      | 156     |      |  |      | 312    |      |  |      | 149    |    |  |   |      |   |  |   |   |  |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Average weekly sales                                       |  | $                                                   | 104,637 |      |  | $    | 110,374 |      |  | $    | 80,171 |      |  | $    | 94,207 |    |  |   |      |   |  |   |   |  |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Change in comparable store sales(2)                        |  |                                                     | 10.6    | %    |  |      | 17.7    | %    |  |      | 7.8    | %    |  |      |        |    |  |   |      |   |  |   |   |  |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Restaurant-level operating Margin                          |  |                                                     | 24.3    | %    |  |      | 22.6    | %    |  |      | 16.8   | %    |  |      | 10.6   | %  |  |   |      |   |  |   |   |  |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Revenues                                                   |  | $                                                   | 21,765  |      |  | $    | 17,218  |      |  | $    | 25,013 |      |  | $    | 14,037 |    |  | $ |     |   |  | $ |  |  |  | $ |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Total restaurant operating costs                           |  |                                                     | 16,479  |      |  |      | 13,324  |      |  |      | 20,823 |      |  |      | 12,552 |    |  |   |     |   |  |   |  |  |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|General and administrative                                 |  |                                                     |        |      |  |      |        |      |  |      |       |      |  |      |       |    |  |   |     |   |  |   |  |  |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Depreciation and amortization                              |  |                                                     | 301     |      |  |      | 393     |      |  |      | 798    |      |  |      | 383    |    |  |   |     |   |  |   |  |  |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening expense                                         |  |                                                     |        |      |  |      |        |      |  |      | 82     |      |  |      | 3,696  |    |  |   | 405  |   |  |   |  |  |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 12      |      |  |      | 207     |      |  |      |       |      |  |      |       |    |  |   |     |   |  |   |  |  |  |   |  | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |    |  |   |      |   |  |   |   |  |  |   |   | 
|Income (loss) before minority interest and income taxes(3) |  |                                                     | 4,973   |      |  |      | 3,294   |      |  |      | 3,310  |      |  |      | (2,594 | )  |  |   | (405 | ) |  |   |  |  |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Rent expense(4)                                            |  |                                                     | 1,241   |      |  |      | 872     |      |  |      | 1,297  |      |  |      | 604    |    |  |   |     |   |  |   |  |  |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 12      |      |  |      | 207     |      |  |      |       |      |  |      |       |    |  |   |     |   |  |   |  |  |  |   |  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening adjustment(5)                                   |  |                                                     |        |      |  |      |        |      |  |      | 82     |      |  |      | (191   | )  |  |   | 405  |   |  |   |  |  |  |   |  | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |    |  |   |      |   |  |   |   |  |  |   |   | 
|Restaurant income (loss), as adjusted                      |  | $                                                   | 6,226   |      |  | $    | 4,373   |      |  | $    | 4,689  |      |  | $    | (2,181 | )  |  | $ |     |   |  | $ |  |  |  | $ |  | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |    |  |   |      |   |  |   |   |  |  |   |   | 
|Average restaurant assets employed(6)                      |  | $                                                   | 1,648   |      |  | $    | 3,681   |      |  | $    | 7,598  |      |  | $    | 5,642  |    |  |   |      |   |  |   |   |  |  |   |   | 
|                                                          
|                                                          
|                                                          
|                                                          
|Present value of remaining lease obligations(7)            |  |                                                     | 4,568   |      |  |      | 4,232   |      |  |      | 7,876  |      |  |      | 3,623  |    |  |   |      |   |  |   |   |  |  |   |   | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |    |  |   |      |   |  |   |   |  |  |   |   | 
|Total restaurant invested capital                          |  | $                                                   | 6,216   |      |  | $    | 7,913   |      |  | $    | 15,474 |      |  | $    | 9,265  |    |  |   |      |   |  |   |   |  |  |   |   | 
|                                                           |  |                                                     |         |      |  |      |         |      |  |      |        |      |  |      |        |    |  |   |      |   |  |   |   |  |  |   |   | 
|Restaurant-level return on invested capital                |  |                                                     | 100.2   | %    |  |      | 55.3    | %    |  |      | 30.3   | %    |  |      | (23.5  | )% |  |   |      |   |  |   |   |  |  |   |   | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                           |  |                                                     |        |         |  |           |   |       |  |   |        |   |  |   |        |  
|---------------------------------------------------------- |  | --------------------------------------------------- | ------ | ------- |  | --------- | - | ----- |  | - | ------ | - |  | - | ------ | -
|                                                           |  |                                                     |        |         |  |          
|                                                           |  | Total                                               |        |         |  |          
|                                                           |  | Restaurant                                          |        |         |  |          
|                                                           |  |                                                     |        |         |  |          
|                                                           |  | Bistro                                              |        | Pei Wei |  | Corporate |   | Total
|                                                           |  |                                                     |        |         |  |           |   |      
|                                                           |  |                                                    
|                                                           |  | (dollars in thousands, except average weekly sales)
|                                                          
|                                                          
|                                                          
|                                                          
|Fiscal 1998                                                |  |                                                     |        |         |  |           |   |       |  |   |        |   |  |   |        |  
|                                                          
|                                                          
|                                                          
|                                                          
|Units(1)                                                   |  |                                                     | 23     |         |  |           |   |       |  |   |        |   |  |   | 23     |  
|                                                          
|                                                          
|                                                          
|                                                          
|Sales weeks                                                |  |                                                     | 825    |         |  |           |   |       |  |   |        |   |  |   | 825    |  
|                                                          
|                                                          
|                                                          
|                                                          
|Average weekly sales                                       |  | $                                                   | 94,586 |         |  |           |   |       |  |   |        |   |  | $ | 94,586 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Change in comparable store sales(2)                        |  |                                                     | 12.8   | %       |  |           |   |       |  |   |        |   |  |   | 12.8   | %
|                                                          
|                                                          
|                                                          
|                                                          
|Restaurant-level operating Margin                          |  |                                                     | 19.1   | %       |  |           |   |       |  |   |        |   |  |   | 19.1   | %
|                                                          
|                                                          
|                                                          
|                                                          
|Revenues                                                   |  | $                                                   | 78,033 |         |  | $         |  |       |  | $ |       |   |  | $ | 78,033 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Total restaurant operating costs                           |  |                                                     | 63,178 |         |  |           |  |       |  |   |       |   |  |   | 63,178 |  
|                                                          
|                                                          
|                                                          
|                                                          
|General and administrative                                 |  |                                                     |       |         |  |           |  |       |  |   | 6,245  |   |  |   | 6,245  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Depreciation and amortization                              |  |                                                     | 1,875  |         |  |           |  |       |  |   | 509    |   |  |   | 2,384  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening expense                                         |  |                                                     | 4,183  |         |  |           |  |       |  |   |       |   |  |   | 4,183  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 219    |         |  |           |  |       |  |   | 958    |   |  |   | 1,177  |  
|                                                           |  |                                                     |        |         |  |           |   |       |  |   |        |   |  |   |        |  
|Income (loss) before minority interest and income taxes(3) |  |                                                     | 8,578  |         |  |           |  |       |  | $ | (7,712 | ) |  | $ | 866    |  
|                                                           |  |                                                     |        |         |  |           |   |       |  |   |        |   |  |   |        |  
|Rent expense(4)                                            |  |                                                     | 4,014  |         |  |           |  |       |  |   |        |   |  |   |        |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 219    |         |  |           |  |       |  |   |        |   |  |   |        |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening adjustment(5)                                   |  |                                                     | 296    |         |  |           |  |       |  |   |        |   |  |   |        |  
|                                                           |  |                                                     |        |         |  |           |   |       |  |   |        |   |  |   |        |  
|Restaurant income (loss), as adjusted                      |  | $                                                   | 13,107 |         |  | $         |  |       |  |   |        |   |  |   |        |  
|                                                           |  |                                                     |        |         |  |           |   |       |  |   |        |   |  |   |        |  
|Average restaurant assets employed(6)                      |  | $                                                   | 18,569 |         |  |           |   |       |  |   |        |   |  |   |        |  
|                                                          
|                                                          
|                                                          
|                                                          
|Present value of remaining lease obligations(7)            |  |                                                     | 20,299 |         |  |           |   |       |  |   |        |   |  |   |        |  
|                                                           |  |                                                     |        |         |  |           |   |       |  |   |        |   |  |   |        |  
|Total restaurant invested capital                          |  | $                                                   | 38,868 |         |  |           |   |       |  |   |        |   |  |   |        |  
|                                                           |  |                                                     |        |         |  |           |   |       |  |   |        |   |  |   |        |  
|Restaurant-level return on invested capital                |  |                                                     | 33.7   | %       |  |           |   |       |  |   |        |   |  |   |        |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Units include all restaurants opened in the period indicated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | A unit becomes comparable in the eighteenth month of operation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(3) | For purposes of this calculation, restaurant income
	(loss) before minority interest and income taxes represents
	restaurant revenues less all restaurant-specific operating
	costs, depreciation and amortization, preopening expenses and
	interest (income) expense, net. Preopening costs are
	aggregated in the month in which a restaurant opens. General and
	administrative expense, interest expense on general corporate
	debt, depreciation on general corporate assets and amortization
	of goodwill are excluded from the calculation.
|   
|(4) | Rent expense consists of minimum contractual rents plus
	contingent percentage rents.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(5) | Preopening adjustment represents preopening costs incurred in a
	fiscal year other than the fiscal year in which a restaurant
	opened. As noted in footnote (3) above, for purposes of
	this calculation, preopening costs are aggregated and expensed
	in the month in which a restaurant opens rather than in the
	fiscal year in which the costs were incurred and expensed for
	financial statement purposes.                                                                                                                                  
|   
|(6) | Average restaurant assets employed represents the 12 month
	average of all restaurant-specific long-term assets, net of any
	accumulated depreciation and amortization, determined on a
	prorated basis for restaurants opened within the period.                                                                                                                                                                                                                                                                                                  
|   
|(7) | Present value of remaining lease obligations represents the
	12 month average discounted present value of restaurant
	lease payments to the date of lease expiration, using a
	10 percent discount rate, determined on a prorated basis
	for restaurants opened within the period.                                                                                                                                                                                                                                                                 

8



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##### Table of Contents



Risk Factors



| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Failure of our existing or new restaurants to achieve
	predicted results could have a negative impact on our revenues
	and performance results.

We operated 52 full service, or Bistro, restaurants and one
limited service, or Pei Wei, restaurant as of December 31,
2000, 17 of which have been opened within the last twelve
months. The results achieved by these restaurants may not be
indicative of longer term performance or the potential market
acceptance of restaurants in other locations. We cant
assure you that any new restaurant which we open will have
similar operating results to those of prior restaurants. We
anticipate that our new restaurants will commonly take several
months to reach planned operating levels due to inefficiencies
typically associated with new restaurants, including lack of
market awareness, inability to hire sufficient staff and other
factors. The failure of our existing or new restaurants to
perform as predicted could negatively impact our revenues and
results of operations.

If we do not expand our restaurant
operations, our operating revenue could decline.

Critical to our future success is our ability to successfully
expand our operations. We have expanded from seven restaurants
at the end of 1996 to 53 restaurants as of December 31,
2000. We expect to open 14 Bistros and four Pei Wei restaurants
in 2001. Our ability to expand successfully will depend on a
number of factors, including:



| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | identification and availability of suitable locations;                                              
|
| |  | competition for restaurant sites;                                                                   
|
| |  | negotiation of favorable lease arrangements;                                                        
|
| |  | timely development of commercial, residential, street or highway
	construction near our restaurants;
|
| |  | management of the costs of construction and development of new
	restaurants;                        
|
| |  | securing required governmental approvals and permits;                                               
|
| |  | recruitment of qualified operating personnel, particularly
	managers and chefs;                     
|
| |  | weather conditions                                                                                  
|
| |  | competition in new markets; and                                                                     
|
| |  | general economic conditions.                                                                        

The opening of additional restaurants in the future will depend
in part upon our ability to generate sufficient funds from
operations or to obtain sufficient equity or debt financing on
favorable terms to support our expansion. We may not be able to
open our planned new operations on a timely basis, if at all,
and, if opened, these restaurants may not be operated
profitably. We have experienced, and expect to continue to
experience, delays in restaurant openings from time to time.
Delays or failures in opening planned new restaurants could have
an adverse effect on our business, financial condition, results
of operations or cash flows.



| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Implementing our growth strategy may strain our management
	resources and negatively impact our competitive position.

Our growth strategy may strain our management, financial and
other resources. We must maintain a high level of quality and
service at our existing and future restaurants, continue to
enhance our operational, financial and management capabilities
and locate, hire, train and retain experienced and dedicated
operating personnel, particularly managers and chefs. We may not
be able to effectively manage these and other factors necessary
to permit us to achieve our expansion objectives, and any
failure to do so could negatively impact our competitive
position.

9



---



##### Table of Contents





| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The inability to develop and construct our restaurants within
	projected budgets and time periods will adversely affect our
	business and financial condition.

Each P.F. Changs full service and limited service
restaurant is distinctively designed to accommodate particular
characteristics of each location and to blend local or regional
design themes with our principal trade dress and other common
design elements. This presents each location with its own
development and construction risks. Many factors may affect the
costs associated with the development and construction of our
restaurants, including:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | labor disputes;                                                                                  
|
| |  | shortages of materials and skilled labor;                                                        
|
| |  | weather interference;                                                                            
|
| |  | unforeseen engineering problems;                                                                 
|
| |  | environmental problems;                                                                          
|
| |  | construction or zoning problems;                                                                 
|
| |  | local government regulations;                                                                    
|
| |  | modifications in design to the size and scope of the projects;
	and                              
|
| |  | other unanticipated increases in costs, any of which could give
	rise to delays or cost overruns.

If we are not able to develop additional P.F. Changs and
Pei Wei restaurants within anticipated budgets or time periods,
our business, financial condition, results of operations or cash
flows will be adversely affected.

Potential labor shortages may delay
planned openings or damage customer relations.

Our success will continue to be dependent on our ability to
attract and retain a sufficient number of qualified employees,
including kitchen staff and waitstaff, to keep pace with our
expansion schedule. Qualified individuals needed to fill these
positions are in short supply in certain areas. Our inability to
recruit and retain qualified individuals may delay the planned
openings of new restaurants while high employee turnover in
existing restaurants may negatively impact customer service and
customer relations resulting in an adverse effect on our
revenues or results of operations.

Fluctuations in operating results may
cause the market price of our common stock to decline.

Our operating results may fluctuate significantly as a result of
a variety of factors, including:



| |   |                                    
| | - | -----------------------------------
| |  | general economic conditions;       
|
| |  | consumer confidence in the economy;
|
| |  | changes in consumer preferences;   

  competitive factors;



| |   |                                                          
| | - | ---------------------------------------------------------
| |  | weather conditions;                                      
|
| |  | timing of new restaurant openings and related expenses   
|
| |  | revenues contributed by new restaurants;                 
|
| |  | increases or decreases in comparable restaurant revenues.

Historically, we have experienced variability in the amount and
percentage of revenues attributable to preopening expenses. We
typically incur the most significant portion of preopening
expenses associated with a given restaurant within the two
months immediately preceding and the month of the opening of the
restaurant. Our experience to date has been that labor and
operating costs associated with a newly opened restaurant for
the first several months of operation are materially greater
than what can be expected after that time, both in

10



---



##### Table of Contents







| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Intense competition in the restaurant industry could prevent
	us from increasing or sustaining our revenues and
	profitability.

The restaurant industry is intensely competitive with respect to
food quality, price-value relationships, ambiance, service and
location, and many restaurants compete with us at each of our
locations. Our competitors include mid-price, full-service
casual dining restaurants and locally owned and operated Chinese
restaurants. There are many well-established competitors with
substantially greater financial, marketing, personnel and other
resources than ours, and many of our competitors are well
established in the markets where we have restaurants, or in
which we intend to locate restaurants. Additionally, other
companies may develop restaurants that operate with similar
concepts.

The restaurant business is often affected by changes in:



| |   |                                                        
| | - | -------------------------------------------------------
| |  | consumer tastes;                                       
|
| |  | national, regional or local economic conditions;       
|
| |  | demographic trends;                                    
|
| |  | consumer confidence in the economy;                    
|
| |  | discretionary spending priorities;                     
|
| |  | weather conditions;                                    
|
| |  | tourist travel;                                        
|
| |  | traffic patterns; and                                  
|
| |  | the type, number and location of competing restaurants.

Changes in these factors could prevent us from increasing or
sustaining our revenues and profitability and result in a
material adverse effect on our business, financial condition,
results of operations or cash flows. We may also need to modify
or refine elements of our restaurant system to evolve our
concept in order to compete with popular new restaurant formats
or concepts that develop from time to time. We cannot assure you
that we will be successful in implementing these modifications.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Increases in the minimum wage may have a material adverse
	effect on our business and financial results.

A number of our employees are subject to various minimum wage
requirements. The federal minimum wage has remained at $5.15 per
hour since September 1, 1997. However, many of our
employees work in restaurants located in California and receive
salaries equal to the California minimum wage, which rose from
$5.75 per hour effective March 1, 1998 to $6.25 per hour
effective January 1, 2001. There may be similar increases
implemented in other jurisdictions in which we operate or seek
to operate. The possibility exists that the federal minimum wage
will be increased within the next 12 months. These minimum
wage increases may have a material adverse effect on the
Companys business, financial condition, results of
operations or cash flows.

Our inability to retain key personnel
could negatively impact our business.

Our success will continue to be highly dependent on our key
operating officers and employees, including Richard Federico,
our Chief Executive Officer, Robert Vivian, our President and
Chief Financial Officer, and Frank Ziska, our Chief Development
Officer. We must continue to attract, retain and motivate a
sufficient

11



---



##### Table of Contents





Changes in food costs could negatively
impact our revenues and results of operations.

Our profitability is dependent in part on our ability to
anticipate and react to changes in food costs. Other than for
produce, which is purchased locally by each restaurant, we rely
on Distributors Marketing Alliance as the primary distributor of
our product. Distributors Marketing Alliance is a cooperative of
multiple food distributors located throughout the nation. We
have a non-exclusive short-term contract with Distributors
Marketing Alliance on terms and conditions which we believe are
consistent with those made available to similarly situated
restaurant companies. Although we believe that alternative
distribution sources are available, any increase in distribution
prices or failure to perform by the Distributors Marketing
Alliance could cause our food costs to fluctuate. Additional
factors beyond our control, including adverse weather conditions
and governmental regulation, may affect our food costs. We may
not be able to anticipate and react to changing food costs
through our purchasing practices and menu price adjustments in
the future, and failure to do so could negatively impact our
revenues and results of operations.

Rising energy costs in several of our
significant markets may continue to effect profitability.

Our success depends in part on our ability to absorb increases
in utility costs. Several regions of the United States in which
we operate multiple restaurants, particularly California, have
recently experienced significant increases in utility prices. If
these increases continue it will have an adverse effect on our
profitability.

Failure to comply with governmental
regulations could harm our business and our reputation.

We are subject to regulation by federal agencies and to
licensing and regulation by state and local health, sanitation,
building, zoning, safety, fire and other departments relating to
the development and operation of restaurants. These regulations
include matters relating to:



| |   |                                                          
| | - | ---------------------------------------------------------
| |  | environmental;                                           
|
| |  | building construction;                                   
|
| |  | zoning requirements; and                                 
|
| |  | the preparation and sale of food and alcoholic beverages.

Our facilities are licensed and subject to regulation under
state and local fire, health and safety codes. The development
and construction of additional restaurants will be subject to
compliance with applicable zoning, land use and environmental
regulations. We may not be able to obtain necessary licenses or
other approvals on a cost-effective and timely basis in order to
construct and develop restaurants in the future. Various federal
and state labor laws govern our operations and our relationship
with our employees, including minimum wage, overtime, working
conditions, fringe benefit and citizenship requirements. In
particular, we are subject to the regulations of the INS. Given
the location of many of our restaurants, even if we operate
those restaurants in strict compliance with INS requirements,
our employees may not all meet federal citizenship or residency
requirements, which could lead to disruptions in our work force.

Approximately 20% of our revenues at the Bistro and 5% at Pei
Wei are attributable to the sale of alcoholic beverages. We are
required to comply with the alcohol licensing requirements of
the federal government, states and municipalities where our
restaurants are located. Alcoholic beverage control regulations
require applications to state authorities and, in certain
locations, county and municipal authorities for a

12



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##### Table of Contents





The federal Americans With Disabilities Act prohibits
discrimination on the basis of disability in public
accommodations and employment. We are required to comply with
the Americans With Disabilities Act and regulations relating to
accommodating the needs of the disabled in connection with the
construction of new facilities and with significant renovations
of existing facilities.

Failure to comply with these regulations could negatively impact
our business and our reputation.

Litigation could have a material adverse
effect on our business.

We are from time to time the subject of complaints or litigation
from guests alleging illness, injury or other food quality,
health or operational concerns. We may be adversely affected by
publicity resulting from such allegations, regardless of whether
such allegations are valid or whether we are liable. We are also
subject to complaints or allegations from former or prospective
employees from time to time. A lawsuit or claim could result in
an adverse decision against us that could have a materially
adverse affect on our business.

We are subject to state dram shop laws and
regulations, which generally provide that a person injured by an
intoxicated person may seek to recover damages from an
establishment that wrongfully served alcoholic beverages to such
person. While we carry liquor liability coverage as part of our
existing comprehensive general liability insurance, we may still
be subject to a judgment in excess of our insurance coverage and
we may not be able to obtain or continue to maintain such
insurance coverage at reasonable costs, or at all.

Special Note Regarding Forward-Looking Statements

Some of the statements in this Form 10-K and the documents
we incorporate by reference constitute forward-looking
statements. In some cases, you can identify forward-looking
statements by terms such as may, will, should, expect, plan,
intend, forecast, anticipate, believe, estimate, predict,
potential, continue or the negative of these terms or other
comparable terminology. The forward-looking statements contained
in this document involve known and unknown risks, uncertainties
and situations that may cause our or our industrys actual
results, level of activity, performance or achievements to be
materially different from any future results, levels of
activity, performance or achievements expressed or implied by
these statements. Factors that might cause actual events or
results to differ materially from those indicated by these
forward-looking statements may include the matters listed under
Risk Factors and elsewhere in this Form 10-K, including,
but not limited to, anticipated restaurant openings, anticipated
costs and sizes of future restaurants and the adequacy of
anticipated sources of cash to fund our future capital
requirements. Because we cannot guarantee future results, levels
of activity, performance or achievements, you should not place
undue reliance on these forward-looking statements.

13



---



##### Table of Contents






Item 2.  Properties

The following table depicts existing Bistros as of the date of
this 10-K.

|                                      |  |                 |  |                    |       |          |  |  |     | 
|------------------------------------- |  | --------------- |  | ------------------ | ----- | -------- |  |  | --- | 
|                                      |  |                 |  | Approximate Square |       | Interior
|Existing Locations                    |  | Opening Date    |  | Footage            |       | Seating*
|                                      |  |                 |  |                    |       |         
|Scottsdale, AZ (Fashion Square)       |  | July 1993       |  |                    | 6,050 |          |  |  | 177 | 
|Newport Beach, CA (Fashion Island)    |  | June 1994       |  |                    | 5,050 |          |  |  | 155 | 
|La Jolla, CA (UTC)                    |  | August 1995     |  |                    | 7,400 |          |  |  | 257 | 
|Irvine, CA (Spectrum Center)          |  | November 1995   |  |                    | 7,000 |          |  |  | 208 | 
|Las Vegas, NV (Paradise & Flamingo)   |  | October 1996    |  |                    | 7,000 |          |  |  | 220 | 
|Houston, TX (Highland Village)        |  | December 1996   |  |                    | 6,500 |          |  |  | 182 | 
|Littleton, CO (Park Meadows)          |  | December 1996   |  |                    | 7,600 |          |  |  | 245 | 
|Metarie, LA (Lakeside)                |  | April 1997      |  |                    | 5,850 |          |  |  | 201 | 
|Miami, FL (The Falls)                 |  | September 1997  |  |                    | 5,800 |          |  |  | 206 | 
|Charlotte, NC (Phillips Place)        |  | October 1997    |  |                    | 6,900 |          |  |  | 211 | 
|N. Miami, FL (Aventura)               |  | October 1997    |  |                    | 7,000 |          |  |  | 244 | 
|Tempe, AZ (Centerpoint)               |  | December 1997   |  |                    | 6,600 |          |  |  | 228 | 
|McLean, VA (Tysons Corner)            |  | December 1997   |  |                    | 6,500 |          |  |  | 204 | 
|Dallas, TX (North Tollway)            |  | March 1998      |  |                    | 6,900 |          |  |  | 192 | 
|El Segundo, CA (Manhattan Beach)      |  | June 1998       |  |                    | 6,950 |          |  |  | 220 | 
|Austin, TX (Jollyville Road)          |  | July 1998       |  |                    | 7,000 |          |  |  | 196 | 
|Dallas, TX (NorthPark)                |  | August 1998     |  |                    | 6,100 |          |  |  | 178 | 
|Atlanta, GA (Ashwood & Perimeter)     |  | October 1998    |  |                    | 7,000 |          |  |  | 225 | 
|Birmingham, AL (The Summit)           |  | October 1998    |  |                    | 7,150 |          |  |  | 230 | 
|Denver, CO (LoDo)                     |  | October 1998    |  |                    | 7,150 |          |  |  | 230 | 
|Northbrook, IL (Northbrook Court)     |  | November 1998   |  |                    | 7,000 |          |  |  | 210 | 
|Troy, MI (Somerset)                   |  | November 1998   |  |                    | 7,000 |          |  |  | 217 | 
|West Hollywood, CA (Beverly Center)   |  | December 1998   |  |                    | 6,600 |          |  |  | 212 | 
|Boston, MA (CityPlace)                |  | January 1999    |  |                    | 5,750 |          |  |  | 182 | 
|Winter Park, FL (Winter Park Village) |  | March 1999      |  |                    | 6,900 |          |  |  | 212 | 
|Westbury, NY (The Source)             |  | April, 1999     |  |                    | 7,600 |          |  |  | 239 | 
|Raleigh, NC (Crabtree Valley)         |  | June, 1999      |  |                    | 6,700 |          |  |  | 174 | 
|Scottsdale, AZ (Kierland Commons)     |  | June, 1999      |  |                    | 7,000 |          |  |  | 211 | 
|Salt Lake City, UT (Bandaloops)       |  | June, 1999      |  |                    | 7,000 |          |  |  | 242 | 
|Santa Monica, CA (Wilshire Blvd.)     |  | July, 1999      |  |                    | 6,700 |          |  |  | 200 | 
|Las Vegas, NV (Summerlin)             |  | July, 1999      |  |                    | 7,000 |          |  |  | 211 | 
|Walnut Creek, CA (Broadway Plaza)     |  | August, 1999    |  |                    | 6,400 |          |  |  | 197 | 
|Columbus, OH (Easton Town Center)     |  | September, 1999 |  |                    | 7,300 |          |  |  | 232 | 
|Alpharetta, GA (Mauel Road)           |  | September, 1999 |  |                    | 6,900 |          |  |  | 224 | 
|Kansas City, MO (Country Club Plaza)  |  | November, 1999  |  |                    | 7,000 |          |  |  | 287 | 
|Bethesda, MD (White Flint)            |  | November, 1999  |  |                    | 6,300 |          |  |  | 199 | 
|Chicago, IL (Downtown)                |  | January, 2000   |  |                    | 9,500 |          |  |  | 220 | 
|Buford, GA (Mall of Georgia)          |  | January, 2000   |  |                    | 5,600 |          |  |  | 142 | 
|Tucson, AZ (Joesler Village)          |  | February, 2000  |  |                    | 6,600 |          |  |  | 197 | 
|Memphis, TN (Park Place Centre)       |  | May, 2000       |  |                    | 7,200 |          |  |  | 163 | 
|San Diego, CA (Fashion Valley)        |  | June, 2000      |  |                    | 7,000 |          |  |  | 189 | 
|Lombard, IL (Fountain Square)         |  | June, 2000      |  |                    | 7,500 |          |  |  | 217 | 
|Woodland Hills, CA (Promenade)        |  | July, 2000      |  |                    | 7,000 |          |  |  | 197 | 
|White Plains, NY (The Westchester)    |  | July, 2000      |  |                    | 6,700 |          |  |  | 213 | 

14



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##### Table of Contents



|                                          |  |                 |  |                    |        |          |  |  |     | 
|----------------------------------------- |  | --------------- |  | ------------------ | ------ | -------- |  |  | --- | 
|                                          |  |                 |  | Approximate Square |        | Interior
|Existing Locations                        |  | Opening Date    |  | Footage            |        | Seating*
|                                          |  |                 |  |                    |        |         
|Broomfield, CO (Flatiron Crossing)        |  | August, 2000    |  |                    | 6,600  |          |  |  | 225 | 
|Nashville, TN (West End)                  |  | September, 2000 |  |                    | 7,000  |          |  |  | 192 | 
|Norwood, OH (Rookwood Commons)            |  | September, 2000 |  |                    | 6,900  |          |  |  | 236 | 
|Beachwood, OH (Enterprise Plaza)          |  | September, 2000 |  |                    | 7,000  |          |  |  | 239 | 
|Roseville, CA (Creekside Town Center)     |  | September, 2000 |  |                    | 7,000  |          |  |  | 238 | 
|Indianapolis, IN (Circle Centre Mall)     |  | October, 2000   |  |                    | 7,000  |          |  |  | 216 | 
|Las Vegas, NV (Aladdin Casino and Resort) |  | November, 2000  |  |                    | 15,200 |          |  |  | 345 | 
|Mission Viejo, CA (Mission Viejo Mall)    |  | December, 2000  |  |                    | 6,700  |          |  |  | 179 | 




|  |                                                                               
|- | ------------------------------------------------------------------------------
|* | Many of our restaurants have outdoor seating in addition to
	interior seating.

Additionally, we have opened one Pei Wei limited service
restaurant in Chandler, Arizona in approximately 2,800 square
feet.

In 2001, P.F. Changs intends to open 14 Bistros in
approximately 7 new markets and four Pei Weis.

Expansion Strategy and Site Selection

P.F. Changs is actively developing restaurants in both new
and existing markets and has planned an expansion strategy
targeted at major metropolitan areas throughout the United
States. Within each targeted metropolitan area, we identify
specific trade areas with high traffic patterns and suitable
demographic characteristics, including population density,
consumer attitudes and affluence. Within an appropriate trade
area, we evaluate specific sites that provide visibility,
accessibility and exposure to traffic volume. Our site criteria
are flexible, as is evidenced by the variety of environments and
facilities in which we currently operate. These facilities
include freestanding buildings, regional malls, urban properties
and entertainment centers. Each restaurant is designed to convey
a unique expression of local styles incorporated into the
P.F. Changs decor that maximizes the value and
visibility of the site.

We intend to continue to develop Bistros that typically range in
size from 6,000 square feet to 7,000 square feet, and that
require, on average, a total capitalized investment of between
$2.8 million and $3.4 million per restaurant. This total
investment includes the capitalized lease value of the property,
which can vary greatly depending on the specific trade area. We
expect that our planned future restaurants will require, on
average, a total cash investment per restaurant of approximately
$2.1 million. Preopening expenses are expected to average
approximately $325,000 per restaurant. Capital required for the
Pei Wei units will approximate $700,000 each with preopening
expenses expected to average $80,000 per location. We currently
lease the sites for all of our restaurants and do not intend to
purchase real estate for our sites in the future.

Current restaurant leases have expiration dates ranging from
2004 to 2021, with the majority of the leases providing for
five-year options to renew for at least one additional term.
Generally, our leases provide for a minimum annual rent, and
most leases require additional percentage rent based on sales
volume in excess of minimum levels at the particular location.
Most of the leases require us to pay the costs of insurance,
taxes, and a portion of the lessors operating costs. We do
not anticipate any difficulties renewing existing leases as they
expire.

P.F. Changs executive offices are currently located in
approximately 10,000 square feet of leased space in Scottsdale,
Arizona.




Item 3.  Legal Proceedings

P.F. Changs was not involved in any material legal
proceedings as of December 31, 2000.

15



---



##### Table of Contents






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

P.F. Changs Annual Meeting of Stockholders was held on
April 26, 2000. There were three proposals up for approval.
The results of the voting are as follows:



| |                                                   
| | --------------------------------------------------
| | 1)  The election of the entire Board of Directors:

|                      |  |           |           |         |  |         |  |  |  |  |       | 
|--------------------- |  | --------- | --------- | ------- |  | ------- |  |  |  |  | ----- | 
|                      |  |           |           | Total   |  |        
|                      |  | Total     |           | Votes   |  |        
|                      |  | Votes For |           | Against |  | Abstain
|                      |  |           |           |         |  |        
|Richard L. Federico   |  |           | 7,510,319 |         |  |         |  |  |  |  | 1,635 | 
|                     
|                     
|                     
|                     
|Paul M. Fleming       |  |           | 7,510,414 |         |  |         |  |  |  |  | 1,540 | 
|                     
|                     
|                     
|                     
|J. Michael Chu        |  |           | 7,502,674 |         |  |         |  |  |  |  | 9,280 | 
|                     
|                     
|                     
|                     
|R. Michael Welborn    |  |           | 7,510,414 |         |  |         |  |  |  |  | 1,540 | 
|                     
|                     
|                     
|                     
|James G. Shennan, Jr  |  |           | 7,510,319 |         |  |         |  |  |  |  | 1,635 | 
|                     
|                     
|                     
|                     
|F. Lane Cardwell, Jr. |  |           | 7,510,019 |         |  |         |  |  |  |  | 1,935 | 



| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | 2)  The amendment to the 1998 Stock Option Plan to increase
	the number of shares reserved for issuance thereunder by 400,000
	shares:

|          |           |         |  |           |  |  |       | 
|--------- | --------- | ------- |  | --------- |  |  | ----- | 
|          |           | Total   |  |          
|Total     |           | Votes   |  |          
|Votes For |           | Against |  | Abstain  
|          |           |         |  |          
|          | 6,039,853 |         |  | 1,462,521 |  |  | 9,580 | 



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | 3)  The ratification of the appointment of Ernst &
	Young LLP as the Companys independent auditors:

|          |           |         |  |         |  |  |     | 
|--------- | --------- | ------- |  | ------- |  |  | --- | 
|          |           | Total   |  |        
|Total     |           | Votes   |  |        
|Votes For |           | Against |  | Abstain
|          |           |         |  |        
|          | 7,505,119 |         |  | 5,985   |  |  | 850 | 

PART II




Item 5.  Market for the Registrants
Common Stock and Related Stockholder Matters

P.F. Changs common stock is traded on the Nasdaq Stock
Market under the symbol PFCB.

The following table sets forth the high and low price per share
of our common stock on the Nasdaq Stock Market for each
quarterly period for our two most recent fiscal years.

|                                 |  |      |       |     |  |  |       | 
|-------------------------------- |  | ---- | ----- | --- |  |  | ----- | 
|                                 |  | High |       | Low
|                                 |  |      |       |    
|Quarter Ended March 28, 1999.    |  |      | 29.50 |     |  |  | 19.50 | 
|                                
|                                
|                                
|                                
|Quarter Ended June 27, 1999.     |  |      | 30.50 |     |  |  | 21.88 | 
|                                
|                                
|                                
|                                
|Quarter Ended September 26, 1999 |  |      | 24.00 |     |  |  | 20.38 | 
|                                
|                                
|                                
|                                
|Quarter Ended January 2, 2000.   |  |      | 26.63 |     |  |  | 18.56 | 
|                                
|                                
|                                
|                                
|Quarter Ended April 2, 2000.     |  |      | 35.06 |     |  |  | 23.13 | 
|                                
|                                
|                                
|                                
|Quarter Ended July 2, 2000.      |  |      | 38.50 |     |  |  | 26.88 | 
|                                
|                                
|                                
|                                
|Quarter Ended October 1, 2000.   |  |      | 34.56 |     |  |  | 27.69 | 
|                                
|                                
|                                
|                                
|Quarter Ended December 31, 2000. |  |      | 45.75 |     |  |  | 28.69 | 

P.F. Changs intends to retain earnings for use in the
operation and expansion of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future.

On February 9, 2001, there were 65 holders of record of
P.F. Changs common stock.

16



---



##### Table of Contents






Item 6.  Selected Financial Data

The following selected consolidated financial data should be
read in conjunction with the consolidated financial statements
and notes thereto and Item 7, Managements Discussion
and Analysis of Financial Condition and Results of Operations.

SELECTED CONSOLIDATED FINANCIAL DATA

(In thousands, except per share data)


|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |   |        |         | 
|-------------------------------------------------------------------------------------- | --------------------------- | ----------------------------- | -------------------------------- | ---------- | --- | ------- | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------- | - | ------ | ------- | ------- | - | ------ | ------- | 
|                                                                                       |                             | Predecessors(1)               |                                  |           
|                                                                                       |                             | Company                       |                                  | Company   
|                                                                                       |                             |                               |                                  |           
|                                                                                       |                             | Period                        |                                  | Period     |     |        
|                                                                                       |                             | From                          |                                  | From       |     | Total   |        | Fiscal |       | Fiscal |        | Fiscal |       | Fiscal
|                                                                                       |                             | 1/1/96 to                     |                                  | 2/29/96 to |     | Year    |        | Year   |       | Year   |        | Year   |       | Year  
|                                                                                       |                             | 2/28/96                       |                                  | 12/29/96   |     | 1996(2) |        | 1997   |       | 1998   |        | 1999   |       | 2000  
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |       
|Statements of Operations Data:                                                         |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Revenues                                                                               |                             | $                             | 2,815                            |            |     | $       | 15,630 |        |       | $      | 18,445 |        |       | $      | 39,768 |   |        | $      | 78,033 |   |        | $      | 153,295 |   |        | $       | 234,905 |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Costs and expenses:                                                                    |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Restaurant operating costs: |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |   |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Cost of sales                 |                                  |            | 772 |         |        |        | 4,454 |        |        |        | 5,226 |        |        |   | 11,317 |        |        |   | 21,709 |        |         |   | 42,136 |         |         |   | 64,720 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Labor                         |                                  |            | 918 |         |        |        | 4,736 |        |        |        | 5,654 |        |        |   | 11,683 |        |        |   | 22,721 |        |         |   | 45,569 |         |         |   | 69,685 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Operating                     |                                  |            | 527 |         |        |        | 2,944 |        |        |        | 3,471 |        |        |   | 6,727  |        |        |   | 13,319 |        |         |   | 25,907 |         |         |   | 40,312 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Occupancy                     |                                  |            | 205 |         |        |        | 1,279 |        |        |        | 1,484 |        |        |   | 2,743  |        |        |   | 5,429  |        |         |   | 9,865  |         |         |   | 14,752 |        
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|                                                                                       |                             |                               | Total restaurant operating costs |            |     | 2,422   |        |        |       | 13,413 |        |        |       | 15,835 |        |   |        | 32,470 |        |   |        | 63,178 |         |   |        | 123,477 |         |   |        | 189,469 | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | General and administrative    |                                  |            | 17  |         |        |        | 1,368 |        |        |        | 1,385 |        |        |   | 4,276  |        |        |   | 6,245  |        |         |   | 9,648  |         |         |   | 12,290 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Depreciation and amortization |                                  |            | 82  |         |        |        | 352   |        |        |        | 434   |        |        |   | 1,102  |        |        |   | 2,384  |        |         |   | 4,975  |         |         |   | 7,874  |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Preopening expense            |                                  |            | 17  |         |        |        | 765   |        |        |        | 782   |        |        |   | 1,922  |        |        |   | 4,183  |        |         |   | 4,344  |         |         |   | 5,200  |        
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Income (loss) from operations                                                          |                             |                               | 277                              |            |     |         | (268   | )      |       |        | 9      |        |       |        | (2     | ) |        |        | 2,043  |   |        |        | 10,851  |   |        |         | 20,072  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Interest income (expense), net                                                         |                             |                               | (4                               | )          |     |         | (127   | )      |       |        | (131   | )      |       |        | (317   | ) |        |        | (1,177 | ) |        |        | 432     |   |        |         | (39     | )
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Income (loss) before elimination of minority interests and
	provision for income taxes |                             |                               | 273                              |            |     |         | (395   | )      |       |        | (122   | )      |       |        | (319   | ) |        |        | 866    |   |        |        | 11,283  |   |        |         | 20,033  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Elimination of minority interests                                                      |                             |                               |                                 |            |     |         | (720   | )      |       |        | (993   | )      |       |        | (1,308 | ) |        |        | (669   | ) |        |        | (2,469  | ) |        |         | (4,317  | )
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Income (loss) before provision for income taxes                                        |                             |                               | 273                              |            |     |         | (1,115 | )      |       |        | (1,115 | )      |       |        | (1,627 | ) |        |        | 197    |   |        |        | 8,814   |   |        |         | 15,716  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Provision for income taxes                                                             |                             |                               |                                 |            |     |         | (30    | )      |       |        | (30    | )      |       |        | (69    | ) |        |        | (48    | ) |        |        | (2,778  | ) |        |         | (5,987  | )
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Net income (loss)                                                                      |                             | $                             | 273                              |            |     |         | (1,145 | )      |       |        | (1,145 | )      |       |        | (1,696 | ) |        |        | 149    |   |        |        | 6,036   |   |        |         | 9,729   |  
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Convertible Redeemable Preferred Stock accretion                                       |                             |                               |                                  |            |     |         | (504   | )      |       |        | (504   | )      |       |        | (876   | ) |        |        | (888   | ) |        |        |        |   |        |         |        |  
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Net income (loss) available to common stockholders                                     |                             |                               |                                  |            |     | $       | (1,649 | )      |       | $      | (1,649 | )      |       | $      | (2,572 | ) |        | $      | (739   | ) |        | $      | 6,036   |   |        | $       | 9,729   |  
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Basic net income (loss) per share                                                      |                             |                               |                                  |            |     | $       | (0.66  | )      |       |        |        |        |       | $      | (1.03  | ) |        | $      | (0.25  | ) |        | $      | 0.59    |   |        | $       | 0.94    |  
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Diluted net income (loss) per share                                                    |                             |                               |                                  |            |     | $       | (0.66  | )      |       |        |        |        |       | $      | (1.03  | ) |        | $      | (0.25  | ) |        | $      | 0.54    |   |        | $       | 0.86    |  
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Shares used in calculation of basic net income (loss) per
	share(3)                    |                             |                               |                                  |            |     |         | 2,500  |        |       |        |        |        |       |        | 2,500  |   |        |        | 2,986  |   |        |        | 10,217  |   |        |         | 10,376  |  
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  
|Shares used in calculation of diluted net income (loss) per
	share(3)                  |                             |                               |                                  |            |     |         | 2,500  |        |       |        |        |        |       |        | 2,500  |   |        |        | 2,986  |   |        |        | 11,155  |   |        |         | 11,354  |  
|                                                                                       |                             |                               |                                  |            |     |         |        |        |       |        |        |        |       |        |        |   |        |        |        |   |        |        |         |   |        |         |         |  

17



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##### Table of Contents



|                                       |  |              |        |              |  |              |        |            |  |              |        |  |  |   |        |  |  |   |         | 
|-------------------------------------- |  | ------------ | ------ | ------------ |  | ------------ | ------ | ---------- |  | ------------ | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                       |  | As of        |        | As of        |  | As of        |        | As of      |  | As of       
|                                       |  | December 29, |        | December 28, |  | December 27, |        | January 2, |  | December 31,
|                                       |  | 1996         |        | 1997         |  | 1998         |        | 2000       |  | 2000        
|                                       |  |              |        |              |  |              |        |            |  |             
|Balance Sheet Data:                    |  |              |        |              |  |              |        |            |  |              |        |  |  |   |        |  |  |   |         | 
|                                      
|                                      
|                                      
|                                      
|Cash and cash equivalents              |  | $            | 1,877  |              |  | $            | 2,739  |            |  | $            | 18,857 |  |  | $ | 5,333  |  |  | $ | 6,390   | 
|                                      
|                                      
|                                      
|                                      
|Total assets                           |  |              | 13,044 |              |  |              | 28,489 |            |  |              | 69,187 |  |  |   | 81,707 |  |  |   | 115,926 | 
|                                      
|                                      
|                                      
|                                      
|Short- and long-term debt              |  |              | 1,763  |              |  |              | 8,372  |            |  |              | 2,352  |  |  |   | 1,829  |  |  |   | 16,692  | 
|                                      
|                                      
|                                      
|                                      
|Deferred Purchase Price Liability      |  |              |       |              |  |              | 2,426  |            |  |              |       |  |  |   |       |  |  |   |        | 
|                                      
|                                      
|                                      
|                                      
|Convertible Redeemable Preferred Stock |  |              | 10,517 |              |  |              | 17,808 |            |  |              |       |  |  |   |       |  |  |   |        | 
|                                      
|                                      
|                                      
|                                      
|Common stockholders equity (deficit)  |  |              | (1,874 | )            |  |              | (4,446 | )          |  |              | 58,229 |  |  |   | 64,790 |  |  |   | 77,342  | 

|                                       |  |              |        |              |  |              |       |            |  |              |      |   |  |  |      |   |  |  |       |  
|-------------------------------------- |  | ------------ | ------ | ------------ |  | ------------ | ----- | ---------- |  | ------------ | ---- | - |  |  | ---- | - |  |  | ----- | -
|                                       |  | Year Ended   |        | Year Ended   |  | Year Ended   |       | Year Ended |  | Year Ended  
|                                       |  | December 29, |        | December 28, |  | December 27, |       | January 2, |  | December 31,
|                                       |  | 1996         |        | 1997         |  | 1998         |       | 2000       |  | 2000        
|                                       |  |              |        |              |  |              |       |            |  |             
|Consolidated Financial Ratios:         |  |              |        |              |  |              |       |            |  |              |      |   |  |  |      |   |  |  |       |  
|                                      
|                                      
|                                      
|                                      
|Return on Total Average Assets         |  |              | (14.28 | )%           |  |              | (8.17 | )%         |  |              | 0.31 | % |  |  | 8.00 | % |  |  | 9.85  | %
|                                      
|                                      
|                                      
|                                      
|Return on Average Stockholders Equity |  |              | N/A    |              |  |              | N/A   |            |  |              | 0.55 | % |  |  | 9.81 | % |  |  | 13.69 | %




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Information for the period from January 1, 1996 to
	February 28, 1996 relates to our predecessors.
	P.F. Changs was formed in January 1996, and in
	February 1996 purchased majority interests in the four
	corporations then operating P.F.  Changs restaurants.
	The acquisitions of the ownership interests in these predecessor
	corporations were accounted for under the purchase method of
	accounting for business combinations.
|   
|(2) | Total year 1996 information reflects the combined results of the
	predecessors for the period from January 1, 1996 to
	February 28, 1996 and of P.F. Changs for the
	period beginning February 29, 1996 to December 29,
	1996.                                                                                                                                                                                                           
|   
|(3) | See Notes 1, 5 and 8 of Notes to Consolidated Financial
	Statements.                                                                                                                                                                                                                                                                                                                                                                      




Item 7.  Managements Discussion and
Analysis of Financial Condition and Results of Operations

OVERVIEW

As of December 31, 2000, we owned and operated 52 full
service restaurants, or Bistros, that combine a distinctive
blend of high quality, traditional Chinese cuisine and American
hospitality in a sophisticated, contemporary bistro setting.
P.F. Changs was formed in early 1996 with the
acquisition of the four original P.F. Changs
restaurants and the hiring of an experienced management team,
led by Richard Federico and Robert Vivian,
P.F. Changs Chief Executive Officer and Chief
Financial Officer, respectively, to support
P.F. Changs founder, Paul Fleming. Utilizing a
partnership management philosophy, we embarked on a strategic
expansion of the concept targeted at major metropolitan areas
throughout the United States and opened three additional
restaurants in 1996, six in 1997, 10 in 1998, 13 in 1999 and 16
in 2000.

We also owned and operated one limited service restaurant as of
December 31, 2000. We believe that there is an opportunity
to leverage our knowledge and expertise in Chinese and Asian
cuisine. Accordingly, we have developed Pei Wei Asian Diner, or
Pei Wei, a new concept that will cater to a quicker, more casual
dining experience as compared to P.F. Changs China
Bistro. Pei Wei opened its first unit in July 2000 in the
Phoenix, Arizona area. We have committed to opening two
additional Pei Wei units in the Phoenix area and two in the
Dallas, Texas area in 2001. Capital required for these units
will approximate $700,000 each. Additional resources and
infrastructure will be allocated to Pei Wei in the coming months
as we prepare to push forward with the development of the Pei
Wei concept.

18



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##### Table of Contents



We intend to open 14 new Bistros and four new Pei Wei
restaurants in 2001. The full service units that we intend to
develop in 2001 will be located in approximately seven new
cities across the United States. The four Pei Wei units that we
intend to develop in 2001 will be in the Phoenix and Dallas
markets. We have signed lease agreements or letters of intent
for all of our development planned for fiscal 2001. We intend to
continue to develop full service restaurants that typically
range in size from 6,000 square feet to 7,000 square feet, and
that require, on average, a total cash investment of
approximately $2.1 million and total invested capital of between
$2.8 million and $3.4 million per restaurant. Preopening
expenses are expected to average approximately $325,000 per
restaurant. This total capitalized investment includes the
capitalized lease value of the property, which can vary greatly
depending on the specific trade area. Capital required for the
Pei Wei units will approximate $700,000 each.

Elimination of minority interests represents the portion of our
net earnings or losses which are attributable to the collective
ownership interests of our partners. Elimination of minority
interests for all periods subsequent to 1996 includes the effect
of our partnership management structure. P.F. Changs
has entered into a series of partnership agreements with each of
our regional managers, certain general managers and certain
executive chefs. These partnership agreements typically provide
that the regional manager partner is entitled to a specified
percentage of the cash flows from the restaurants that partner
has invested in, developed and oversees as the regional manager.
Similarly, the general manager partners and executive chef
partners receive a percentage of the cash flows from the
restaurant in which they work.

RESULTS OF OPERATIONS

The operating results of P.F. Changs for the fiscal years
ended December 27, 1998 (fiscal year 1998), January 2,
2000 (fiscal year 1999) and December 31, 2000 (fiscal year
2000), expressed as a percentage of revenues, were as follows:

|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |   |      |      | 
|---------------------------------------- | --------------------------- | ----------------------------- | -------------------------------- | ----------- | ---- | ----------- | ----- | - | ---- | ---- | ----- | - | ---- | ---- | 
|                                         |                             | Fiscal Year                   |                                  | Fiscal Year |      | Fiscal Year
|                                         |                             | 1998                          |                                  | 1999        |      | 2000       
|                                         |                             |                               |                                  |             |      |            
|Statements of Operations Data:           |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|                                        
|                                        
|                                        
|                                        
|Revenues                                 |                             |                               | 100.0                            | %           |      |             | 100.0 | % |      |      | 100.0 | %
|                                        
|                                        
|                                        
|                                        
|Costs and expenses:                      |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|                                        
|                                        
|                                        
|                                        
|                                         | Restaurant operating costs: |                               |                                  |             |      |             |       |   |      |      |       |   |     
|                                        
|                                        
|                                        
|                                        
|                                         |                             | Cost of sales                 |                                  |             | 27.8 |             |       |   | 27.5 |      |       |   | 27.6 |     
|                                        
|                                        
|                                        
|                                        
|                                         |                             | Labor                         |                                  |             | 29.1 |             |       |   | 29.7 |      |       |   | 29.7 |     
|                                        
|                                        
|                                        
|                                        
|                                         |                             | Operating                     |                                  |             | 17.1 |             |       |   | 16.9 |      |       |   | 17.2 |     
|                                        
|                                        
|                                        
|                                        
|                                         |                             | Occupancy                     |                                  |             | 7.0  |             |       |   | 6.4  |      |       |   | 6.3  |     
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|                                         |                             |                               | Total restaurant operating costs |             |      | 81.0        |       |   |      | 80.5 |       |   |      | 80.8 | 
|                                        
|                                        
|                                        
|                                        
|                                         |                             | General and administrative    |                                  |             | 8.0  |             |       |   | 6.3  |      |       |   | 5.2  |     
|                                        
|                                        
|                                        
|                                        
|                                         |                             | Depreciation and amortization |                                  |             | 3.0  |             |       |   | 3.3  |      |       |   | 3.4  |     
|                                        
|                                        
|                                        
|                                        
|                                         |                             | Preopening expense            |                                  |             | 5.4  |             |       |   | 2.8  |      |       |   | 2.2  |     
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Income from operations                   |                             |                               | 2.6                              |             |      |             | 7.1   |   |      |      | 8.4   |  
|                                        
|                                        
|                                        
|                                        
|Interest income (expense), net           |                             |                               | (1.5                             | )           |      |             | 0.3   |   |      |      | 0.0   |  
|                                        
|                                        
|                                        
|                                        
|Elimination of minority interests        |                             |                               | (0.8                             | )           |      |             | (1.6  | ) |      |      | (1.8  | )
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Income before provision for income taxes |                             |                               | 0.3                              |             |      |             | 5.8   |   |      |      | 6.6   |  
|                                        
|                                        
|                                        
|                                        
|Provision for income taxes               |                             |                               | (0.1                             | )           |      |             | (1.8  | ) |      |      | (2.5  | )
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Net income                               |                             |                               | 0.2                              | %           |      |             | 4.0   | % |      |      | 4.1   | %
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  

P.F. Changs operates on a 52/53 week year, with the
fiscal year ending on the Sunday closest to December 31.
Fiscal years 1998 and 2000 include 52 weeks and fiscal year
1999 includes 53 weeks.

19



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##### Table of Contents



Year Ended December 31, 2000 Compared to Year Ended
January 2, 2000

Revenues

P.F. Changs revenues are derived entirely from food and
beverage sales. Revenues increased by $81.6 million, or 53.2%,
to $234.9 million in the year ended December 31, 2000 from
$153.3 million in the year ended January 2, 2000. The
increase was primarily attributable to revenues of $34.9 million
generated by new restaurants opened in 2000, a $34.6 million
increase in revenues in 2000 for restaurants that opened in 1999
and a $12.1 million increase in revenues for restaurants opened
prior to 1999. Additionally, the prior fiscal year included one
additional week of sales (a 53 week year in 1999 versus a
52 week year in 2000). Increased customer visits produced
comparable restaurant sales gains of 11.7% in 2000. We
implemented a modest price increase in the fourth quarter of
2000 of approximately 1% of sales. There were no price increases
implemented in fiscal 1999.

Costs and Expenses

Cost of sales.Cost of sales is composed of the cost of
food and beverages. Cost of sales increased nominally as a
percentage of revenues to 27.6% in the year ended
December 31, 2000 from 27.5% in the year ended January 2,
2000. This increase was primarily the result of slightly higher
commodity prices offset by cost efficiencies achieved through
the improved management of product purchasing, food preparation
and waitstaff performance as our restaurants mature.

Labor.Labor expenses consist of restaurant management
salaries, hourly staff payroll costs and other payroll-related
items. Labor expenses as a percentage of revenues remained
consistent at 29.7% in the years ended December 31, 2000 and
January 2, 2000. Our experience to date has been that labor
costs associated with a newly opened restaurant, for
approximately its first four to six months of operation, are
materially greater than what can be expected after that time,
both in aggregate dollars and as a percentage of revenues.
Additionally as a result of tightening labor markets around the
country, and increases in certain state minimum wages, such as
California, we continue to experience an increase on labor costs
across the system. We expect that tighter labor markets and
higher wage rates will continue to exert upward pressure on our
labor costs on a year-over-year basis in 2001.

Operating.Operating expenses consist primarily of
various restaurant-level costs, which are generally variable and
are expected to fluctuate with revenues. In addition, our
experience to date has been that operating costs associated with
a newly opened restaurant, for approximately its first four to
six months of operation, are materially greater than what can be
expected after that time, both in aggregate dollars and as a
percentage of revenues. Operating expenses increased as a
percentage of revenues to 17.2% in the year ended
December 31, 2000 from 16.9% in the year ended
January 2, 2000. The increase was primarily attributable to
higher utility costs across our system, particulary in the
California market. We expect utility costs to remain high for at
least the first half of 2001 resulting in higher operating costs
on a year-over-year basis.

Occupancy.Occupancy costs include both fixed and
variable portions of rent, common area maintenance charges,
property insurance and property taxes. Occupancy costs decreased
nominally as a percentage of revenues to 6.3% in the year ended
December 31, 2000 from 6.4% in the year ended
January 2, 2000. The decrease in occupancy was primarily
the result of the increased revenue base and, to a lesser
extent, more favorable lease terms associated with new
restaurants.

General and administrative.General and administrative
expenses are composed of expenses associated with corporate and
administrative functions that support development and restaurant
operations and provide an infrastructure to support future
growth, including management and staff salaries, employee
benefits, travel, legal and professional fees, technology and
market research. General and administrative expenses increased
to $12.3 million, or 5.2% of revenues, in the year ended
December 31, 2000 from $9.6 million, or 6.3% of revenues,
in the year ended January 2, 2000, due primarily to the
addition of corporate management personnel, which resulted in
approximately $2.2 million of additional compensation and
benefits expense, as well as additional costs to support a
larger restaurant base, including an additional $470,000 in
travel and consulting

20



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##### Table of Contents





Depreciation and amortization.Depreciation and
amortization expenses include the depreciation of fixed assets
and the amortization of goodwill costs associated with the
acquisition of the ownership interests in the original
restaurants. Depreciation and amortization increased to $7.9
million in the year ended December 31, 2000 from $5.0
million in the year ended January 2, 2000. This increase
was primarily due to depreciation and amortization on
restaurants opened in 2000 totaling $1.3 million as well as a
full years depreciation and amortization on restaurants
opened in 1999.

Preopening expense.Preopening costs, which are expensed
as incurred, consist of expenses incurred prior to opening a new
restaurant and are comprised principally of manager salaries and
relocation, employee payroll and related training costs.
Preopening expenses in the year ended December 31, 2000
increased to $5.2 million from $4.3 million in the year ended
January 2, 2000 due to the greater number of restaurants
opened or under development during the 2000 period and to higher
than anticipated costs on a per unit basis resulting from
construction delays and budget overruns.

Interest income (expense), net.Net interest income
(expense) was $(39,000) in the year ended December 31,
2000 as compared to $432,000 in the year ended January 2,
2000. The shift from interest income in fiscal 1999 to interest
expense in fiscal 2000 was principally due to borrowings in 2000
on our credit facility (we did not have borrowings in 1999) and
lower cash balances throughout the year as compared to fiscal
1999.

Elimination of Minority Interests

Elimination of minority interests represents the portion of our
net earnings (losses) which are attributable to the
collective ownership interests of our partners.
P.F. Changs has provided a partnership management
structure in which we have entered into a series of partnership
agreements with our regional managers, certain of its general
managers, and certain of our executive chefs. Elimination of
minority interests for the year ended December 31, 2000
increased to $4.3 million from $2.5 million for the year ended
January 2, 2000, due primarily to the addition of new
restaurants and an increase in the operating profit of those
restaurants.

Provision for Income Taxes

The provision for income taxes increased to $6.0 million for the
year ended December 31, 2000 from $2.8 million for the year
ended January 2, 2000 due primarily to the fact that our
taxable income in fiscal 2000 increased substantially from the
prior period. Additionally, in fiscal 1999 we were able to
utilize our net operating loss carryforward, which was fully
utilized by the end of 1999. The income tax provision for 2000
differs from the expected provision for income taxes, derived by
applying the statutory income tax rate, primarily as a result of
FICA tip credits. The income tax provision for 1999 differs from
the expected provision for income taxes, derived by applying the
statutory income tax rate, as a result of our expected
utilization in 1999 of its net operating loss carryforward and
the resulting decrease in the related deferred income tax
valuation allowance.

Year Ended January 2, 2000 Compared to Year Ended
December 27, 1998

Revenues

P.F. Changs revenues are derived entirely from food and
beverage sales. Revenues increased by $75.3 million, or 96.5%,
to $153.3 million in the year ended January 2, 2000 from
$78.0 million in the year ended December 27, 1998. The
increase was primarily attributable to revenues of $28.8 million
generated by new restaurants opened in 1999, a $36.9 million
increase in revenues in 1999 for restaurants that opened in 1998
and a $9.6 million increase in revenues for restaurants opened
prior to 1998. Additionally, the current fiscal year included
one additional week of sales (a 53 week year in 1999 versus
a 52 week year in 1998). Increased customer visits produced
comparable restaurant sales gains of 12.0% in 1999. We did not
implement any meaningful price increases in fiscal 1999 or
fiscal 1998.

21



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##### Table of Contents



Costs and Expenses

Cost of sales.Cost of sales is composed of the cost of
food and beverages. Cost of sales decreased as a percentage of
revenues to 27.5% in the year ended January 2, 2000 from
27.8% in the year ended December 27, 1998. This decrease
was primarily the result of cost efficiencies achieved through
the improved management of product purchasing, food preparation
and waitstaff performance as our restaurants mature.

Labor.Labor expenses consist of restaurant management
salaries, hourly staff payroll costs and other payroll-related
items. Labor expenses as a percentage of revenues increased to
29.7% in the year ended January 2, 2000 from 29.1% in the
year ended December 27, 1998. The increase in labor
expenses was primarily due to the fact that we opened 13 new
restaurants in 1999 compared to 10 new restaurants in 1998. Our
experience to date has been that labor costs associated with a
newly opened restaurant, for approximately its first four to six
months of operation, are materially greater than what can be
expected after that time, both in aggregate dollars and as a
percentage of revenues. Additionally, as a result of tightening
labor markets around the country, we have experienced an
increase in our labor costs across the system.

Operating.Operating expenses consist primarily of
various restaurant-level costs, which are generally variable and
are expected to fluctuate with revenues. In addition, our
experience to date has been that operating costs associated with
a newly opened restaurant, for approximately its first four to
six months of operation, are materially greater than what can be
expected after that time, both in aggregate dollars and as a
percentage of revenues. Operating expenses decreased nominally
as a percentage of revenues to 16.9% in the year ended
January 2, 2000 from 17.1% in the year ended
December 27, 1998.

Occupancy.Occupancy costs include both fixed and
variable portions of rent, common area maintenance charges,
property insurance and property taxes. Occupancy costs decreased
as a percentage of revenues to 6.4% in the year ended
January 2, 2000 from 7.0% in the year ended
December 27, 1998. The decrease in occupancy was primarily
the result of the increased revenue base and, to a lesser
extent, more favorable lease terms associated with new
restaurants.

General and administrative.General and administrative
expenses are composed of expenses associated with corporate and
administrative functions that support development and restaurant
operations and provide an infrastructure to support future
growth, including management and staff salaries, employee
benefits, travel, legal and professional fees, technology and
market research. General and administrative expenses increased
to $9.6 million, or 6.3% of revenues, in the year ended
January 2, 2000 from $6.2 million, or 8.0% of revenues, in
the year ended December 27, 1998, due primarily to the
addition of corporate management personnel, which resulted in
approximately $1.7 million of additional compensation and
benefits expense, as well as additional costs to support a
larger restaurant base, including an additional $564,000 in
travel and consulting fees and an additional $623,000 in
accounting and legal fees. The decrease as a percentage of
revenues was due primarily to our expanding revenue base and our
ability to leverage the duties and responsibilities of our
regional manager partners.

Depreciation and amortization.Depreciation and
amortization expenses include the depreciation of fixed assets
and the amortization of goodwill costs associated with the
acquisition of the ownership interests in the original
restaurants. Depreciation and amortization increased to $5.0
million in the year ended January 2, 2000 from $2.4 million
in the year ended December 27, 1998. This increase was
primarily due to depreciation and amortization on restaurants
opened in 1999 totaling $1.0 million as well as a full
years depreciation and amortization on restaurants opened
in 1998.

Preopening expense.Preopening costs, which are expensed
as incurred, consist of expenses incurred prior to opening a new
restaurant and are comprised principally of manager salaries and
relocation, employee payroll and related training costs.
Preopening expenses in the year ended January 2, 2000
increased to $4.3 million from $4.2 million in the year ended
December 27, 1998 due to the greater number of restaurants
opened or under development during the 1999 period, offset by
better management of costs incurred.

Interest income (expense), net.Net interest income
(expense) was $432,000 in the year ended January 2,
2000 as compared to ($1.2) million in the year ended
December 27, 1998. The decrease in the

22



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##### Table of Contents





Elimination of Minority Interests

Elimination of minority interests represents the portion of our
net earnings (losses) which are attributable to the
collective ownership interests of our partners.
P.F. Changs has provided a partnership management
structure in which we have entered into a series of partnership
agreements with our regional managers, certain of its general
managers, and certain of our executive chefs. Elimination of
minority interests for the year ended January 2, 2000
increased to $2.5 million from $669,000 for the year ended
December 27, 1998, due primarily to the addition of new
restaurants and an increase in the operating profit of those
restaurants.

Provision for Income Taxes

The provision for income taxes increased to $2.8 million for the
year ended January 2, 2000 from $48,000 for the year ended
December 27, 1998 due primarily to the fact that our
taxable income, which was in excess of our net operating loss
carryforward, increased substantially from the prior period. The
income tax provision for 1999 differs from the expected
provision for income taxes, derived by applying the statutory
income tax rate, as a result of our expected utilization in 1999
of its net operating loss carryforward and the resulting
decrease in the related deferred income tax valuation allowance.

The provision for income taxes for the year ended
December 27, 1998 represents certain minimum state taxes
based on taxable factors other than earnings. The income tax
provision for the year ended December 27, 1998 differs from
the expected provision for income taxes, derived by applying the
statutory income tax rate, as a result of a reduction in the
previously provided deferred income tax valuation allowance.

23



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##### Table of Contents



Quarterly Results

The following tables set forth certain unaudited quarterly
information for each of the eight fiscal quarters, expressed as
a percentage of revenues, except for revenues which are
expressed in thousands, in the two year period ended
December 31, 2000. This quarterly information has been
prepared on a consistent basis with the audited financial
statements and, in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for the
periods presented. Our quarterly operating results may fluctuate
significantly as a result of a variety of factors, and operating
results for any quarter are not necessarily indicative of
results for a full fiscal year.

The operating results of P.F. Changs for such eight
fiscal quarters expressed as a percentage of revenues, except
for revenues which are expressed in thousands, were as follows:

|                                                                                |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |   |      |      | 
|------------------------------------------------------------------------------- | --------------------------- | ----------------------------- | -------------------------------- | ----------- | ---- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | ---- | ---- | ------ | - | ---- | ---- | ------ | - | ---- | ---- | ------ | - | ---- | ---- | ------ | - | ---- | ---- | 
|                                                                                |                             |                               |                                  |            
|                                                                                |                             | Fiscal 1999                   |                                  | Fiscal 2000
|                                                                                |                             |                               |                                  |            
|                                                                                |                             | First                         |                                  | Second      |      | Third   |        | Fourth  |      | First   |        | Second  |      | Third   |        | Fourth 
|                                                                                |                             | Quarter                       |                                  | Quarter     |      | Quarter |        | Quarter |      | Quarter |        | Quarter |      | Quarter |        | Quarter
|                                                                                |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |        
|Revenues                                                                        |                             | $                             | 30,473                           |             |      | $       | 32,956 |         |      | $       | 40,961 |         |      | $       | 48,905 |         |      | $    | 51,414 |   |      | $    | 53,496 |   |      | $    | 61,179 |   |      | $    | 68,816 |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Costs and expenses:                                                             |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Restaurant operating costs: |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |   |     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                             | Cost of sales                 |                                  |             | 27.5 | %       |        |         | 27.6 | %       |        |         | 27.8 | %       |        |         | 27.1 | %    |        |   | 27.4 | %    |        |   | 27.5 | %    |        |   | 27.8 | %    |        |   | 27.5 | %   
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                             | Labor                         |                                  |             | 29.9 |         |        |         | 29.8 |         |        |         | 30.0 |         |        |         | 29.4 |      |        |   | 29.7 |      |        |   | 29.2 |      |        |   | 29.6 |      |        |   | 30.1 |     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                             | Operating                     |                                  |             | 16.8 |         |        |         | 17.2 |         |        |         | 17.2 |         |        |         | 16.5 |      |        |   | 17.1 |      |        |   | 17.1 |      |        |   | 17.5 |      |        |   | 17.0 |     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                             | Occupancy                     |                                  |             | 6.9  |         |        |         | 6.8  |         |        |         | 6.3  |         |        |         | 6.0  |      |        |   | 6.3  |      |        |   | 6.3  |      |        |   | 6.2  |      |        |   | 6.3  |     
|                                                                                |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|                                                                                |                             |                               | Total restaurant operating costs |             |      | 81.1    |        |         |      | 81.4    |        |         |      | 81.3    |        |         |      | 79.0 |        |   |      | 80.5 |        |   |      | 80.1 |        |   |      | 81.1 |        |   |      | 80.9 | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                             | General and administrative    |                                  |             | 7.0  |         |        |         | 6.1  |         |        |         | 6.0  |         |        |         | 6.2  |      |        |   | 5.4  |      |        |   | 5.7  |      |        |   | 5.0  |      |        |   | 4.9  |     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                             | Depreciation and amortization |                                  |             | 3.2  |         |        |         | 3.3  |         |        |         | 3.2  |         |        |         | 3.2  |      |        |   | 3.3  |      |        |   | 3.3  |      |        |   | 3.3  |      |        |   | 3.5  |     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                             | Preopening expense            |                                  |             | 2.3  |         |        |         | 4.0  |         |        |         | 3.2  |         |        |         | 2.1  |      |        |   | 1.5  |      |        |   | 2.6  |      |        |   | 3.3  |      |        |   | 1.5  |     
|                                                                                |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|Income from operations                                                          |                             |                               | 6.4                              |             |      |         | 5.2    |         |      |         | 6.3    |         |      |         | 9.5    |         |      |      | 9.3    |   |      |      | 8.3    |   |      |      | 7.3    |   |      |      | 9.2    |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Interest income (expense), net                                                  |                             |                               | 0.7                              |             |      |         | 0.4    |         |      |         | 0.1    |         |      |         | 0.1    |         |      |      | 0.0    |   |      |      | 0.0    |   |      |      | 0.0    |   |      |      | (0.2   | )
|                                                                                |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|Income before elimination of minority interests and provision
	for income taxes |                             |                               | 7.1                              |             |      |         | 5.6    |         |      |         | 6.4    |         |      |         | 9.6    |         |      |      | 9.3    |   |      |      | 8.3    |   |      |      | 7.3    |   |      |      | 9.0    |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Elimination of minority interests                                               |                             |                               | (1.4                             | )           |      |         | (1.2   | )       |      |         | (1.6   | )       |      |         | (2.0   | )       |      |      | (1.8   | ) |      |      | (1.9   | ) |      |      | (1.8   | ) |      |      | (1.8   | )
|                                                                                |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|Income before provision for income taxes                                        |                             |                               | 5.7                              |             |      |         | 4.4    |         |      |         | 4.8    |         |      |         | 7.6    |         |      |      | 7.5    |   |      |      | 6.4    |   |      |      | 5.5    |   |      |      | 7.2    |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Provision for income taxes                                                      |                             |                               | (1.6                             | )           |      |         | (1.3   | )       |      |         | (1.5   | )       |      |         | (2.6   | )       |      |      | (2.9   | ) |      |      | (2.4   | ) |      |      | (2.1   | ) |      |      | (2.7   | )
|                                                                                |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|Net income                                                                      |                             |                               | 4.1                              | %           |      |         | 3.1    | %       |      |         | 3.3    | %       |      |         | 5.0    | %       |      |      | 4.6    | % |      |      | 4.0    | % |      |      | 3.4    | % |      |      | 4.5    | %
|                                                                                |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  

Historically, P.F. Changs has experienced variability in
the amount and percentage of revenues attributable to preopening
expenses. We typically incur the most significant portion of
preopening expenses associated with a given restaurant within
the two months immediately preceding and the month of the
opening of the restaurant.

In addition, our experience to date has been that labor and
operating costs associated with a newly opened restaurant, for
approximately its first four to six months of operation, are
materially greater than what can be expected after that time,
both in aggregate dollars and as a percentage of revenues.
Accordingly, the volume and timing of new restaurant openings
has had and is expected to continue to have a meaningful impact
on preopening expenses, labor and operating costs until such
time as a larger base of restaurants in operation mitigates such
impact.

Liquidity and Capital Resources

P.F. Changs has funded its capital requirements since its
inception through sales of equity securities, debt financing and
cash flows from operations. Net cash provided by operating
activities was $5.7 million,

24



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##### Table of Contents





We use cash primarily to fund the development and construction
of new restaurants. Net cash used in investing activities in
fiscal years 1998, 1999 and 2000 was $25.6 million, $30.2
million, and $36.9 million respectively. Capital expenditures
were $24.8 million, $30.3 million and $37.4 million in fiscal
years 1998, 1999 and 2000, respectively. We intend to open 14
new Bistro restaurants and four new Pei Wei restaurants in
fiscal year 2001. We expect that our planned future Bistro
restaurants will require, on average, a total cash investment
per restaurant of approximately $2.1 million. Preopening
expenses are expected to average approximately $325,000 per
restaurant. Total cash investment per each Pei Wei restaurant is
expected to average $700,000 with preopening expenses estimated
at $80,000 per location.

Net cash provided by (used in) financing activities in fiscal
years 1998, 1999 and 2000 was $36.0 million, ($2.2 million) and
$12.4 million, respectively. Financing activities in fiscal year
1998 consisted principally of sales of common stock, offset by
repayments under our revolving line of credit. Financing
activities in fiscal year 1999 consisted primarily of
distributions to our partners while financing activities in
fiscal year 2000 consisted primarily of borrowings under our
credit facility offset by distributions to our partners and
repayments of long-term debt.

In January of 2001, P.F. Changs raised $40.8 million
in cash through a private equity placement of 1.25 million
shares of common stock with two large mutual fund companies. We
plan to use the proceeds to repay outstanding borrowings under
our credit facility and for purposes of expanding our two
restaurant concepts.

In December of 1999, P.F. Changs entered into a
revolving credit facility with a commercial lending institution.
The credit facility allowed for borrowings up to $15 million at
an interest rate ranging from 150 to 225 basis points over the
applicable London Interbank Offered Rate. In June of 2000, the
credit facility was amended to allow for borrowings up to a
total of $45 million at an interest rate ranging from 100 to 225
basis points over the applicable London Interbank Offered Rate.
The revolving credit facility expires on November 30, 2002
and contains certain restrictions and conditions which require
us to: maintain tangible net worth, a leverage ratio at a
maximum of 3.75: 1.00, and a fixed-charge ratio no less than
1.25: 1.00. the credit facility has been collaterized by a
portion of the assets of P.F. Changs. We had $15 million
of borrowings under the credit facility as of December 31,
2000. We repaid the $15 million of borrowings under the credit
facility with the proceeds from the equity transaction noted
above.

Our capital requirements, including development costs related to
the opening of additional restaurants, have been and will
continue to be significant. Our future capital requirements and
the adequacy of its available funds will depend on many factors,
including the pace of expansion, real estate markets, site
locations and the nature of the arrangements negotiated with
landlords. We believe that our cash flow from operations
together with our current cash reserves and borrowings available
under our credit facility will be sufficient to fund our capital
requirements through 2002. In the event that additional capital
is required, we may seek to raise such capital through public or
private equity or debt financings. Future capital funding
transactions may result in dilution to current shareholders. We
can not assure you that such capital will be available on
favorable terms, if at all.

Partnership Agreements

P.F. Changs has implemented a partnership structure to
facilitate the development and operation of its restaurants.
Each partner is required to purchase a specified interest in the
restaurant or region the partner is employed to manage. The
ownership interest purchased by each partner generally ranges
between two and seven percent of the restaurant or region the
partner oversees. Each partner is prohibited from selling or
transferring his interest to another party during the initial
five year term. At the end of five years, we have the right to
purchase the partners interests in their respective
restaurants at fair market value, as calculated according to the
partnership agreements.

25



---



##### Table of Contents



Preferred Stock and Accretion

In February 1996 and September 1996, we sold shares of our
Series A preferred stock convertible into 2,677,135 shares
of common stock at $4.00 per common share, and in May 1997, we
sold shares of our Series B preferred stock convertible
into 758,565 shares of common stock at $8.70 per common share.
The Series A preferred stock had an annual six percent
dividend payable quarterly in shares of Series A preferred
stock on a cumulative basis beginning January 1, 1998. The
Series B preferred stock had an annual six percent dividend
payable quarterly in shares of Series B preferred stock on
a cumulative basis beginning April 1, 1999. Dividend
accretion on the Series A and Series B preferred stock
was approximately $876,000 and $888,000 for the fiscal years
1997 and 1998, respectively. At the time of our public offering,
each two shares of Series A preferred stock were converted
into one share of common stock and each two shares of
Series B preferred stock were converted into one share of
common stock.

New Accounting Standards

In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 137,
Accounting for Derivatives and Hedging
Activities  Deferral of the effective date of FASB
Statement No. 133. This statement defers the
effective date of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, SFAS
No. 133, to all fiscal years beginning after June 15,
2000. SFAS No. 133 standardizes the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, by recognition of those items as
assets or liabilities in the statements of financial position
and measurements of fair value. SFAS No. 133 will have no
impact on our financial position and results of operations.

Inflation

The primary inflationary factors affecting our operations are
food and labor costs. A large number of our restaurant personnel
are paid at rates based on the applicable minimum wage, and
increases in the minimum wage directly affect our labor costs.
To date, inflation has not had a material impact on our results
of operations.




Item 7A.  Quantitative and Qualitative
Disclosures about Market Risks

Management believes that the market risk associated with P.F.
Changs market risk sensitive instruments as of
December 31, 2000 is not material, and therefore,
disclosure is not required.

26



---



##### Table of Contents






Item 8.  Financial Statements and
Supplementary Data

P.F. CHANGS CHINA BISTRO, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                                                                  |  |      |    | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                                                                  |  | Page
|                                                                                                                                                                                  |  |     
|Report of Independent Auditors                                                                                                                                                    |  |      | 28 | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Consolidated Financial Statements:                                                                                                                                                |  |      |    | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Consolidated Balance Sheets at January 2, 2000 and
	December 31, 2000                                                                                                             |  |      | 29 | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Consolidated Statements of Operations for the Years Ended
	December 27, 1998, January 2, 2000 and
	December 31, 2000                                                              |  |      | 30 | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Consolidated Statements of Convertible Redeemable Preferred
	Stock and Common Stockholders Equity for the Years Ended
	December 27, 1998, January 2, 2000 and
	December 31, 2000 |  |      | 31 | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Consolidated Statements of Cash Flows for the Years Ended
	December 27, 1998, January 2, 2000 and
	December 31, 2000                                                              |  |      | 32 | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Notes to Consolidated Financial Statements                                                                                                                                        |  |      | 33 | 

27



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders



We have audited the accompanying consolidated balance sheets of
P.F. Changs China Bistro, Inc. (the Company)
as of January 2, 2000 and December 31, 2000, and the
related consolidated statements of operations, convertible
redeemable preferred stock and common stockholders equity,
and cash flows for each of the three years in the period ended
December 31, 2000. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the 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 P.F. Changs China Bistro, Inc. at
January 2, 2000 and December 31, 2000 and the results
of its operations and its cash flows for each of the three years
in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.



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

Phoenix, Arizona



28



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |        |    | 
|------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------- | ------ | ------------ | -- | - | ------- | ------ | -- | 
|                                                                                                                                |                                                                                                                                                  | January 2,                                                                                                      |        | December 31,
|                                                                                                                                |                                                                                                                                                  | 2000                                                                                                            |        | 2000        
|                                                                                                                                |                                                                                                                                                  |                                                                                                                 |        |             
|                                                                                                                                |                                                                                                                                                  |                                                                                                                
|                                                                                                                                |                                                                                                                                                  | (In thousands)                                                                                                 
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|ASSETS                                                                                                                          |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Current assets:                                                                                                                 |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Cash and cash equivalents                                                                                                                        |                                                                                                                 | $      | 5,333        |    |   | $       | 6,390  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Receivables                                                                                                                                      |                                                                                                                 |        | 1,275        |    |   |         | 1,671  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Inventories                                                                                                                                      |                                                                                                                 |        | 1,085        |    |   |         | 1,683  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Current portion of notes receivable from related parties                                                                                         |                                                                                                                 |        | 386          |    |   |         | 72     |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Prepaids and other current assets                                                                                                                |                                                                                                                 |        | 1,204        |    |   |         | 2,161  |   
|                                                                                                                                |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|Total current assets                                                                                                            |                                                                                                                                                  |                                                                                                                 | 9,283  |              |    |   | 11,977  |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Construction-in-progress                                                                                                        |                                                                                                                                                  |                                                                                                                 | 7,041  |              |    |   | 2,213   |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Property and equipment, net                                                                                                     |                                                                                                                                                  |                                                                                                                 | 56,395 |              |    |   | 92,284  |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Goodwill, net of accumulated amortization of $1,270,000 and
	$1,712,000 at January 2, 2000 and December 31, 2000,
	respectively |                                                                                                                                                  |                                                                                                                 | 7,438  |              |    |   | 7,386   |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Notes receivable from related parties, less current portion                                                                     |                                                                                                                                                  |                                                                                                                 | 251    |              |    |   | 20      |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Other assets                                                                                                                    |                                                                                                                                                  |                                                                                                                 | 1,299  |              |    |   | 2,046   |       
|                                                                                                                                |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|Total assets                                                                                                                    |                                                                                                                                                  | $                                                                                                               | 81,707 |              |    | $ | 115,926 |       
|                                                                                                                                |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                            |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Current liabilities:                                                                                                            |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Accounts payable                                                                                                                                 |                                                                                                                 | $      | 2,545        |    |   | $       | 3,128  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Construction payable                                                                                                                             |                                                                                                                 |        | 1,244        |    |   |         | 2,356  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Accrued payroll                                                                                                                                  |                                                                                                                 |        | 2,148        |    |   |         | 3,269  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Sales and use tax payable                                                                                                                        |                                                                                                                 |        | 1,317        |    |   |         | 1,792  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Property tax payable                                                                                                                             |                                                                                                                 |        | 641          |    |   |         | 1,474  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Other accrued expenses                                                                                                                           |                                                                                                                 |        | 2,735        |    |   |         | 3,711  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Unearned revenue                                                                                                                                 |                                                                                                                 |        | 1,676        |    |   |         | 2,793  |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Current portion of long-term debt, including $71,000 and $29,000
	due to related parties at January 2, 2000 and
	December 31, 2000, respectively |                                                                                                                 |        | 281          |    |   |         | 207    |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Income tax payable                                                                                                                               |                                                                                                                 |        | 1,687        |    |   |         |       |   
|                                                                                                                                |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|Total current liabilities                                                                                                       |                                                                                                                                                  |                                                                                                                 | 14,274 |              |    |   | 18,730  |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Long-term debt, including $115,000 due to related parties at
	December 31, 2000.                                                |                                                                                                                                                  |                                                                                                                 | 1,548  |              |    |   | 1,485   |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Short-term credit facility expected to be refinanced                                                                            |                                                                                                                                                  |                                                                                                                 |       |              |    |   | 15,000  |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Deferred income tax liability                                                                                                   |                                                                                                                                                  |                                                                                                                 | 601    |              |    |   | 2,318   |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Interests of minority partners in consolidated partnerships                                                                     |                                                                                                                                                  |                                                                                                                 | 494    |              |    |   | 1,051   |       
|Commitments and contingencies                                                                                                   |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Stockholders equity:                                                                                                           |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Common stock, $0.001 par value, 20,000,000 shares authorized:                                                                                    |                                                                                                                 |        |              |    |   |         |        |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                |                                                                                                                                                  | 10,254,856 and 10,453,144 shares issued and outstanding at
	January 2, 2000 and December 31, 2000, respectively |        |              | 10 |   |         |        | 10 | 
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Additional paid-in capital                                                                                                                       |                                                                                                                 |        | 63,934       |    |   |         | 66,757 |   
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                                | Retained earnings                                                                                                                                |                                                                                                                 |        | 846          |    |   |         | 10,575 |   
|                                                                                                                                |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|Total stockholders equity                                                                                                      |                                                                                                                                                  |                                                                                                                 | 64,790 |              |    |   | 77,342  |       
|                                                                                                                                |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       
|Total liabilities and stockholders equity                                                                                      |                                                                                                                                                  | $                                                                                                               | 81,707 |              |    | $ | 115,926 |       
|                                                                                                                                |                                                                                                                                                  |                                                                                                                 |        |              |    |   |         |       

See accompanying notes.

29



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |        |        |         | 
|------------------------------------------------------------------------------- | ----------------------------- | ------------------------------- | -------------------------------- | ---------- | ------ | ------------ | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | 
|                                                                                |                               | Year Ended                      |                                  | Year Ended |        | Year Ended  
|                                                                                |                               | December 27,                    |                                  | January 2, |        | December 31,
|                                                                                |                               | 1998                            |                                  | 2000       |        | 2000        
|                                                                                |                               |                                 |                                  |            |        |             
|                                                                                |                               |                                
|                                                                                |                               | (In thousands, except share and
|                                                                                |                               | per share amounts)             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Revenues                                                                        |                               | $                               | 78,033                           |            |        | $            | 153,295 |        |        | $       | 234,905 |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Costs and expenses:                                                             |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Restaurant operating costs:   |                                 |                                  |            |        |              |         |        |        |         |         |        |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                               | Cost of sales                   |                                  |            | 21,709 |              |         |        | 42,136 |         |         |        | 64,720 |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                               | Labor                           |                                  |            | 22,721 |              |         |        | 45,569 |         |         |        | 69,685 |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                               | Operating                       |                                  |            | 13,319 |              |         |        | 25,907 |         |         |        | 40,312 |        
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                |                               | Occupancy                       |                                  |            | 5,429  |              |         |        | 9,865  |         |         |        | 14,752 |        
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|                                                                                |                               |                                 | Total restaurant operating costs |            |        | 63,178       |         |        |        | 123,477 |         |        |        | 189,469 | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | General and administrative    |                                 |                                  | 6,245      |        |              |         | 9,648  |        |         |         | 12,290 |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Depreciation and amortization |                                 |                                  | 2,384      |        |              |         | 4,975  |        |         |         | 7,874  |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Preopening expense            |                                 |                                  | 4,183      |        |              |         | 4,344  |        |         |         | 5,200  |       
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|Income from operations                                                          |                               |                                 | 2,043                            |            |        |              | 10,851  |        |        |         | 20,072  |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Interest income (expense):                                                      |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Interest expense              |                                 |                                  | (1,406     | )      |              |         | (228   | )      |         |         | (399   | )     
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Interest income               |                                 |                                  | 229        |        |              |         | 660    |        |         |         | 360    |       
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|Income before elimination of minority interests and provision
	for income taxes |                               |                                 | 866                              |            |        |              | 11,283  |        |        |         | 20,033  |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Elimination of minority interests                                               |                               |                                 | (669                             | )          |        |              | (2,469  | )      |        |         | (4,317  | )     
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|Income before provision for income taxes                                        |                               |                                 | 197                              |            |        |              | 8,814   |        |        |         | 15,716  |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Provision for income taxes                                                      |                               |                                 | (48                              | )          |        |              | (2,778  | )      |        |         | (5,987  | )     
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|Net income                                                                      |                               |                                 | 149                              |            |        |              | 6,036   |        |        |         | 9,729   |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Redeemable Preferred Stock accretion                                            |                               |                                 | (888                             | )          |        |              |        |        |        |         |        |       
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|Net income available to common stockholders                                     |                               | $                               | (739                             | )          |        | $            | 6,036   |        |        | $       | 9,729   |       
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|Net income per share:                                                           |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Basic                         |                                 | $                                | (0.25      | )      |              | $       | 0.59   |        |         | $       | 0.94   |       
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|                                                                                | Diluted                       |                                 | $                                | (0.25      | )      |              | $       | 0.54   |        |         | $       | 0.86   |       
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|Weighted average shares used in computation:                                    |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                                | Basic                         |                                 |                                  | 2,986      |        |              |         | 10,217 |        |         |         | 10,376 |       
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       
|                                                                                | Diluted                       |                                 |                                  | 2,986      |        |              |         | 11,155 |        |         |         | 11,354 |       
|                                                                                |                               |                                 |                                  |            |        |              |         |        |        |         |         |       

See accompanying notes.

30



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE

PREFERRED STOCK AND COMMON STOCKHOLDERS EQUITY


|                                                                |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  
|--------------------------------------------------------------- |  | -------------------------------------- | ------ | -------- |  | ------ | ------- | ------ |  |  | ------ | - |  | - | ------ | -
|                                                                |  |                                       
|                                                                |  | Convertible Redeemable Preferred Stock
|                                                                |  |                                       
|                                                                |  |                                        |        |         
|                                                                |  | Series A                               |        | Series B
|                                                                |  |                                        |        |         
|                                                                |  | Shares                                 |        | Amount   |  | Shares |         | Amount
|                                                                |  |                                        |        |          |  |        |         |       
|                                                                |  |                                       
|                                                                |  | (In thousands)                        
|                                                               
|                                                               
|                                                               
|                                                               
|Balances, December 28, 1997                                     |  |                                        | 5,354  |          |  | $      | 11,175  |        |  |  | 1,517  |   |  | $ | 6,633  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Series A preferred stock dividend paid                          |  |                                        | 329    |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Redeemable preferred stock accretion                            |  |                                        |       |          |  |        | 587     |        |  |  |       |   |  |   | 301    |  
|                                                               
|                                                               
|                                                               
|                                                               
|Conversion of preferred stock to common stock                   |  |                                        | (5,683 | )        |  |        | (11,762 | )      |  |  | (1,517 | ) |  |   | (6,934 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Conversion of deferred purchase price liability to common stock |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock, net of issuance costs of $4,394,900   |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Net income                                                      |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  
|Balances, December 27, 1998                                     |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock under stock option plan                |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock under employee stock purchase plan     |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Net income                                                      |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  
|Balances, January 2, 2000                                       |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock under stock option plan                |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock under employee stock purchase plan     |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Benefit from disqualifying stock option dispositions            |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Net income                                                      |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  
|Balances, December 31, 2000                                     |  |                                        |       |          |  | $      |        |        |  |  |       |   |  | $ |       |  
|                                                                |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                |  |                             |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  
|--------------------------------------------------------------- |  | --------------------------- | ------ | ---------- |  | -------- | -- | --------- |  | ----- | ------ |  |  | - | ------ | - |  | - | ------ | -
|                                                                |  |                            
|                                                                |  | Common Stockholders Equity
|                                                                |  |                            
|                                                                |  |                             |        |           
|                                                                |  | Common Stock                |        | Additional |  | Retained |    |          
|                                                                |  |                             |        | Paid-In    |  | Earnings |    |          
|                                                                |  | Shares                      |        | Amount     |  | Capital  |    | (Deficit) |  | Total
|                                                                |  |                             |        |            |  |          |    |           |  |      
|                                                                |  |                            
|                                                                |  | (In thousands)             
|                                                               
|                                                               
|                                                               
|                                                               
|Balances, December 28, 1997                                     |  |                             | 2,500  |            |  | $        | 3  |           |  | $     | 2      |  |  | $ | (4,451 | ) |  | $ | (4,446 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Series A preferred stock dividend paid                          |  |                             |       |            |  |          |   |           |  |       |       |  |  |   |       |   |  |   |       |  
|                                                               
|                                                               
|                                                               
|                                                               
|Redeemable preferred stock accretion                            |  |                             |       |            |  |          |   |           |  |       |       |  |  |   | (888   | ) |  |   | (888   | )
|                                                               
|                                                               
|                                                               
|                                                               
|Conversion of preferred stock to common stock                   |  |                             | 3,600  |            |  |          | 3  |           |  |       | 18,693 |  |  |   |       |   |  |   | 18,696 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Conversion of deferred purchase price liability to common stock |  |                             | 170    |            |  |          |   |           |  |       | 2,043  |  |  |   |       |   |  |   | 2,043  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock, net of issuance costs of $4,394,900   |  |                             | 3,923  |            |  |          | 4  |           |  |       | 42,671 |  |  |   |       |   |  |   | 42,675 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Net income                                                      |  |                             |       |            |  |          |   |           |  |       |       |  |  |   | 149    |   |  |   | 149    |  
|                                                                |  |                             |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  
|Balances, December 27, 1998                                     |  |                             | 10,193 |            |  |          | 10 |           |  |       | 63,409 |  |  |   | (5,190 | ) |  |   | 58,229 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock under stock option plan                |  |                             | 37     |            |  |          |   |           |  |       | 266    |  |  |   |       |   |  |   | 266    |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock under employee stock purchase plan     |  |                             | 25     |            |  |          |   |           |  |       | 259    |  |  |   |       |   |  |   | 259    |  
|                                                               
|                                                               
|                                                               
|                                                               
|Net income                                                      |  |                             |       |            |  |          |   |           |  |       |       |  |  |   | 6,036  |   |  |   | 6,036  |  
|                                                                |  |                             |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  
|Balances, January 2, 2000                                       |  |                             | 10,255 |            |  |          | 10 |           |  |       | 63,934 |  |  |   | 846    |   |  |   | 64,790 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock under stock option plan                |  |                             | 177    |            |  |          |   |           |  |       | 1,203  |  |  |   |       |   |  |   | 1,203  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Issuance of common stock under employee stock purchase plan     |  |                             | 21     |            |  |          |   |           |  |       | 411    |  |  |   |       |   |  |   | 411    |  
|                                                               
|                                                               
|                                                               
|                                                               
|Benefit from disqualifying stock option dispositions            |  |                             |       |            |  |          |   |           |  |       | 1,209  |  |  |   |       |   |  |   | 1,209  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Net income                                                      |  |                             |       |            |  |          |   |           |  |       |       |  |  |   | 9,729  |   |  |   | 9,729  |  
|                                                                |  |                             |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  
|Balances, December 31, 2000                                     |  |                             | 10,453 |            |  | $        | 10 |           |  | $     | 66,757 |  |  | $ | 10,575 |   |  | $ | 77,342 |  
|                                                                |  |                             |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  

See accompanying notes.

31



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                            |                                              |                                   |         |            |       |              |         |       |       |   |         |       |       |  
|----------------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------- | ------- | ---------- | ----- | ------------ | ------- | ----- | ----- | - | ------- | ----- | ----- | -
|                                                                                                            |                                              | Year Ended                        |         | Year Ended |       | Year Ended  
|                                                                                                            |                                              | December 27,                      |         | January 2, |       | December 31,
|                                                                                                            |                                              | 1998                              |         | 2000       |       | 2000        
|                                                                                                            |                                              |                                   |         |            |       |             
|                                                                                                            |                                              |                                  
|                                                                                                            |                                              | (In thousands)                   
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Operating Activities:                                                                                       |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Net income                                                                                                  |                                              | $                                 | 149     |            |       | $            | 6,036   |       |       | $ | 9,729   |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Adjustments to reconcile net income to net cash provided by
	operating activities:                          |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Depreciation and amortization                |                                   |         | 1,948      |       |              |         | 4,539 |       |   |         | 7,432 |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Amortization of goodwill                     |                                   |         | 436        |       |              |         | 436   |       |   |         | 442   |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred income taxes                        |                                   |         |           |       |              |         | 601   |       |   |         | 1,717 |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Minority interests                           |                                   |         | 669        |       |              |         | 2,469 |       |   |         | 4,317 |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Changes in operating assets and liabilities: |                                   |         |            |       |              |         |       |       |   |         |       |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Receivables                       |         |            | (730  | )            |         |       | 1,517 |   |         |       | (396  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Inventories                       |         |            | (310  | )            |         |       | (412  | ) |         |       | (598  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Prepaids and other current assets |         |            | (214  | )            |         |       | (573  | ) |         |       | (957  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Other assets                      |         |            | (410  | )            |         |       | (582  | ) |         |       | (747  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Accounts payable                  |         |            | 1,233 |              |         |       | 68    |   |         |       | 583   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Accrued payroll                   |         |            | 729   |              |         |       | 205   |   |         |       | 1,121 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Sales and use tax payable         |         |            | 324   |              |         |       | 698   |   |         |       | 475   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Property tax payable              |         |            | 145   |              |         |       | 487   |   |         |       | 833   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Other accrued expenses            |         |            | 1,341 |              |         |       | 710   |   |         |       | 976   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Unearned revenue                  |         |            | 439   |              |         |       | 932   |   |         |       | 1,117 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Income tax payable                |         |            |      |              |         |       | 1,687 |   |         |       | (478  | )
|                                                                                                            |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|Net cash provided by operating activities                                                                   |                                              |                                   | 5,749   |            |       |              | 18,818  |       |       |   | 25,566  |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Investing Activities:                                                                                       |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Capital expenditures                                                                                        |                                              |                                   | (24,770 | )          |       |              | (30,319 | )     |       |   | (37,381 | )    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Decrease (increase) in notes receivable from related parties                                                |                                              |                                   | (478    | )          |       |              | 133     |       |       |   | 545     |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Purchase of minority interests                                                                              |                                              |                                   | (397    | )          |       |              |        |       |       |   | (63     | )    
|                                                                                                            |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|Net cash used in investing activities                                                                       |                                              |                                   | (25,645 | )          |       |              | (30,186 | )     |       |   | (36,899 | )    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Financing Activities:                                                                                       |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from revolving credit facility, net of repayments                                                  |                                              |                                   | (5,500  | )          |       |              |        |       |       |   | 15,000  |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Repayments of long-term debt                                                                                |                                              |                                   | (520    | )          |       |              | (523    | )     |       |   | (281    | )    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from issuance of common stock                                                                      |                                              |                                   | 42,675  |            |       |              |        |       |       |   |        |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from stock options exercised and employee stock
	purchases                                         |                                              |                                   |        |            |       |              | 525     |       |       |   | 1,614   |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from minority interest contributions                                                               |                                              |                                   | 506     |            |       |              | 455     |       |       |   | 442     |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Distributions to minority interests                                                                         |                                              |                                   | (1,147  | )          |       |              | (2,613  | )     |       |   | (4,385  | )    
|                                                                                                            |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|Net cash provided by (used in) financing activities                                                         |                                              |                                   | 36,014  |            |       |              | (2,156  | )     |       |   | 12,390  |      
|                                                                                                            |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|Net increase (decrease) in cash and cash equivalents                                                        |                                              |                                   | 16,118  |            |       |              | (13,524 | )     |       |   | 1,057   |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Cash and cash equivalents at the beginning of the year                                                      |                                              |                                   | 2,739   |            |       |              | 18,857  |       |       |   | 5,333   |      
|                                                                                                            |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|Cash and cash equivalents at the end of the year                                                            |                                              | $                                 | 18,857  |            |       | $            | 5,333   |       |       | $ | 6,390   |      
|                                                                                                            |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|Supplemental Disclosures of Cash Flow Information:                                                          |                                              |                                   |         |            |       |              |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Cash paid for interest                                                                                      |                                              | $                                 | 1,475   |            |       | $            | 231     |       |       | $ | 896     |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Cash paid for income taxes                                                                                  |                                              |                                   | 48      |            |       |              | 490     |       |       |   | 6,960   |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Purchase of minority interests through issuance of long-term
	debt and conversion to members capital        |                                              |                                   |        |            |       |              |        |       |       |   | 346     |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Benefit from disqualifying stock option dispositions credited to
	equity                                    |                                              |                                   |        |            |       |              |        |       |       |   | 1,209   |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Purchase of members and partners interest through
	deferred purchase price and conversion to common stock |                                              |                                   | 2,043   |            |       |              |        |       |       |   |        |      

See accompanying notes.

32



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000


1.  Summary of Significant Accounting Policies

Organization and Nature of Operations

P.F. Changs China Bistro, Inc. (the Company)
operates two restaurant concepts in a single segment consisting
of restaurants throughout the United States under the name of
P.F. Changs China Bistro and Pei Wei
Asian Diner. The Company successfully completed an initial
public offering (the Offering) on December 9,
1998, in which 3,922,500 new shares of common stock were issued
at a price of $12 per share. Proceeds from the offering were
$42,675,100, net of issuance costs totaling $4,394,900.

Upon completion of the Offering, all outstanding shares of
preferred stock were converted to shares of common stock at a
ratio of one share of common stock for each two shares of
preferred stock. Additionally, the deferred purchase price
liability, resulting from the Companys acquisition of
substantially all of the remaining minority interests in the
three original restaurants in 1997, was converted into common
stock. The number of shares issued relating to the deferred
purchase price liability was determined by dividing the
remaining purchase price liability by the price per share of the
common stock sold.

Fiscal Year

The Companys fiscal year ends on the Sunday closest to the
end of December and includes 52 weeks in 1998 and 2000 and
53 weeks in 1999.

Use of Estimates

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

Principles of Consolidation

The Companys consolidated financial statements include the
accounts and operations of the Company and its subsidiaries and
partnerships in which it owns more than a 50 percent
interest. All material balances and transactions between the
consolidated entities have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a
maturity date of three months or less when purchased to be cash
equivalents.

Receivables

Receivables consist primarily of amounts due from landlords or
other parties for the reimbursement of leasehold improvements
paid by the Company.

Inventories

Inventories consist of food and beverages and are stated at the
lower of cost or market using the first-in, first-out method.

33



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


Notes Receivable From Related Parties

Notes receivable from related parties represent amounts due the
Company from limited partners of consolidated partnerships.
Payments of principal, amortized over five years, with interest
at 11.0%, are due monthly, with a balloon payment for the
outstanding principal and interest due at the end of two years.

Property and Equipment

Property and equipment are stated at cost, which includes
capitalized interest during the construction and development
period. Furniture, fixtures and equipment are depreciated on a
straight-line basis over the estimated useful service lives of
the related assets, which approximates seven years. Leasehold
improvements are amortized over the shorter of the useful life
of the asset or the length of the related lease term. China and
smallwares are depreciated over two years up to 50 percent
of their original cost, and subsequent additions are expensed as
purchased.

The Company follows Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flow estimated
to be generated by those assets are less than the assets
carrying amount. The Companys policy is to evaluate
long-lived assets for impairment at a store level.

Goodwill

Goodwill represents the excess of cost over net assets acquired
in the purchase of interests in various restaurants and is being
amortized over 20 years on a straight-line basis. The Company
assesses the recoverability of goodwill based upon expected
future undiscounted cash flows resulting from the acquired
interests in the restaurants.

Unearned Revenue

Unearned revenue represents gift certificates sold but not yet
redeemed. Revenues are recognized upon redemption of the gift
certificates.

Revenue Recognition

Revenue from food, beverage and alcohol sales are recognized as
products are sold.

Advertising

The Company expenses advertising as incurred. Advertising
expense for the years ended December 27, 1998,
January 2, 2000 and December 31, 2000 was
approximately $1,255,000, $2,004,000 and $2,442,000 respectively.

Preopening Expense

Preopening expenses, consisting primarily of manager salaries
and relocation expense, employee payroll and related training
costs incurred prior to the opening of a restaurant, are
expensed as incurred.

Income Taxes

The Company utilizes the liability method of accounting for
income taxes as set forth in SFAS No. 109, Accounting
for Income Taxes. Under the liability method, deferred
taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities
using enacted tax rates in

34



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


effect in the years in which the differences are expected to
reverse. Recognition of deferred tax assets is limited to
amounts considered by management to be more likely than not of
realization in future periods.

Minority partners interests in income or loss of
consolidated partnerships includes no provision for income taxes
as any tax liability related thereto is the responsibility of
the individual minority partners.

Stock Based Compensation

The Company grants stock options for a fixed number of shares to
certain employees with an exercise price equal to or greater
than the fair value of the shares at the date of grant. The
Company accounts for stock option grants to employees in
accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
No. 25), and, accordingly, recognizes no compensation
expense for the stock option grants.

Net Income (Loss) Per Share

Net income (loss) per share is computed in accordance with
SFAS No. 128, Earnings per Share.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, receivables,
accounts payable, and accrued expenses approximate fair value
because of the immediate or short-term maturity of these
financial instruments. The fair value of long-term debt is
determined using current applicable rates for similar
instruments and collateral as of the balance sheet date and
approximates the carrying value of such debt.

Segment Reporting

The Company accounts for its segments in accordance with SFAS
No. 131, Disclosure About Segments of an Enterprise
and Related Information. SFAS No. 131 requires that a
public company report annual and interim financial and
descriptive information about its reportable operating segments.
Operating segments, as defined, are components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
SFAS No. 131 allows aggregation of similar operating
segments into a single operating segment if the businesses are
considered similar under the criteria established by SFAS
No. 131. The Company operates restaurants under the P.F.
Changs China Bistro and Pei Wei brands. These two brands
have similar investment criteria, customer demographics and
economic and operating characteristics. Therefore, the Company
has one reportable operating segment.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of
cash investments and receivables. The Company maintains cash and
cash equivalents, restricted funds on deposit and certain other
financial instruments with financial institutions that are
considered in the Companys investment strategy.
Concentrations of credit risk with respect to receivables are
limited as the Companys receivables are primarily with its
landlords for the reimbursement of tenant improvements.

Reclassifications

Certain amounts shown in the prior periods consolidated
financial statements have been reclassified to conform with the
current year consolidated financial statements presentation.

35



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments.
This standard is effective for fiscal years beginning after
June 15, 2000. The adoption of this standard, as amended,
will not have an impact on the consolidated financial statements
nor require additional footnote disclosure since the Company
does not currently utilize derivative instruments or participate
in structured hedging activities.

In December 1999, the SEC staff issued Staff Accounting
Bulletin (SAB) 101 Revenue Recognition in Financial
Statements which was effective in the fourth quarter of
fiscal year 2000 and provides guidance on revenue recognition
issues. The SAB did not have a material impact on the
Companys financial position, results of operations or cash
flows.

In March 2000, the FASB issued FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock
Compensation, which was effective July 2000. The
interpretation clarifies the application of existing stock
compensation accounting pronouncements for certain issues. The
interpretation did not have a material impact on the
Companys financial positions, results of operations or
cash flows.

2.  Property and Equipment

Property and equipment consists of the following:

|                                               |  |                |        |              |  |   |         | 
|---------------------------------------------- |  | -------------- | ------ | ------------ |  | - | ------- | 
|                                               |  | January 2,     |        | December 31,
|                                               |  | 2000           |        | 2000        
|                                               |  |                |        |             
|                                               |  |               
|                                               |  | (In thousands)
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  | $              | 47,367 |              |  | $ | 81,173  | 
|                                              
|                                              
|                                              
|                                              
|Furniture, fixtures and equipment              |  |                | 15,197 |              |  |   | 23,770  | 
|                                              
|                                              
|                                              
|                                              
|China and smallwares                           |  |                | 1,782  |              |  |   | 2,672   | 
|                                               |  |                |        |              |  |   |         | 
|                                               |  |                | 64,346 |              |  |   | 107,615 | 
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |                | 7,951  |              |  |   | 15,331  | 
|                                               |  |                |        |              |  |   |         | 
|                                               |  | $              | 56,395 |              |  | $ | 92,284  | 
|                                               |  |                |        |              |  |   |         | 

3.  Credit Facility

In December of 1999, the Company entered into a revolving credit
facility with a commercial lending institution. The credit
facility allows for borrowings up to $15 million at an interest
rate ranging from 150 to 225 basis points over the applicable
London Interbank Offered Rate (LIBOR). In June of 2000 the
Company amended its credit facility to allow for borrowings up
to a total of $45 million with an interest rate ranging from 100
to 225 basis points over LIBOR. The revolving credit facility
expires on November 30, 2002 and contains certain
restrictions and conditions which require the Company to:
maintain a minimum tangible net worth, a leverage ratio at a
maximum of 3.75: 1, and a fixed-charge ratio no less than 1.25:
1. The credit facility has been collaterized by a portion of the
assets of the Company. The Company had $15 million of borrowings
outstanding under the credit facility as of December 31,
2000. The Company plans to repay the balance with proceeds from
the sales of common stock (see Note 12) and accordingly,
these short-term borrowings have been classified in the
accompanying balance sheet as non-current.

36



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


4.  Long-Term Debt

Long-term debt consists of the following:

|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |              |  |   |       |     | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | -------------- | ----- | ------------ |  | - | ----- | --- | 
|                                                                                                                                                                                                                                                                                                                                                |                      | January 2,     |       | December 31,
|                                                                                                                                                                                                                                                                                                                                                |                      | 2000           |       | 2000        
|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |             
|                                                                                                                                                                                                                                                                                                                                                |                      |               
|                                                                                                                                                                                                                                                                                                                                                |                      | (In thousands)
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|$1,100,000 promissory note, collateralized by leasehold
	improvements, payable in monthly installments of $11,354
	including interest at 11.0 percent, until March 1,
	2017, when all remaining principal and interest is due and
	payable. Additional payments may be required under the
	promissory note based on a percentage of gross sales |                      | $              | 1,051 |              |  | $ | 1,030 |    
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|$500,000 promissory note, collateralized by equipment, payable
	in monthly installments of $8,561 including interest at
	11.0 percent until March 1, 2004 when all remaining
	principal and interest is due and payable                                                                                                                         |                      |                | 348   |              |  |   | 280   |    
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|$1,266,000 unsecured promissory notes, a portion of which is
	payable to related parties, in quarterly installments of $96,967
	including interest at 10.0 percent, until March 1,
	2000, when all remaining principal and interest is due and
	payable                                                                                         |                      |                | 93    |              |  |   |      |    
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|$421,000 equipment loan, collateralized by furniture, fixtures
	and equipment, payable in monthly installments of $7,202
	including interest at 11.0 percent, until January  1,
	2004, when all remaining principal and interest is due and
	payable                                                                                            |                      |                | 283   |              |  |   | 225   |    
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|$200,000 unsecured promissory note, payable in monthly
	installments of $3,333 plus interest at prime plus one percent,
	until April 2001, when all remaining principal and interest is
	due and payable. The note is guaranteed by a stockholder of the
	Company                                                                               |                      |                | 54    |              |  |   | 13    |    
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|$144,000 unsecured promissory note, payable to a related party
	in two equal annual installments of $72,000 plus interest at
	10%, until August 2002                                                                                                                                                                                            |                      |                |      |              |  |   | 144   |    
|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |              |  |   |       |    
|                                                                                                                                                                                                                                                                                                                                                |                      |                | 1,829 |              |  |   | 1,692 |    
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                | Less current portion |                |       | 281          |  |   |       | 207 | 
|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |              |  |   |       |    
|                                                                                                                                                                                                                                                                                                                                                |                      | $              | 1,548 |              |  | $ | 1,485 |    
|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |              |  |   |       |    

The aggregate annual payments of long-term debt outstanding at
December 31, 2000, for the next five years and thereafter, are
summarized as follows: 2001  $207,000;
2002  $212,000; 2003  $233,000;
2004  $94,000; 2005  $66,000 and
thereafter  $880,000. The Company incurred $932,000
in interest expense during fiscal year 2000, of which $533,000
was capitalized.

5.  Preferred Stock and Common Stockholders
Equity

Preferred Stock

The board of directors is authorized to issue up to 10,000,000
shares of preferred stock and to determine the powers,
preferences, privileges, rights, including voting rights,
qualifications, limitations and restrictions of those shares
without any further vote or act by the common stockholders.
There is no outstanding preferred stock as of January 2,
2000 and December 31, 2000.

In connection with the original capitalization of the Company, a
warrant to purchase 124,380 shares of preferred stock,
convertible into 62,190 shares of common stock, was issued to an
investment bank with an exercise price of $4.00 per common share.

37



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


Stock Option Plans

The Company has elected to follow APB No. 25 and related
Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123,
Accounting for Stock-Based Compensation, requires
use of option valuation models that were not developed for use
in valuing employee stock options. Under APB No. 25,
because the exercise price of the Companys employee stock
options equals or exceeds the fair value of the underlying stock
on the date of grant, no compensation expense is recognized.

In August 1996, the Company adopted the 1996 Stock Option Plan
(1996 Plan), and in July 1997, the Company adopted the 1997
Restaurant Management Stock Option Plan (1997 Plan). Options
under the 1996 Plan may be granted to employees, consultants and
directors to purchase the Companys common stock at an
exercise price that equals or exceeds the fair value of such
shares on the date such option is granted. Options under the
1997 Plan may be granted to key employees of the Company who are
actively engaged in the management and operation of the
Companys restaurants to purchase the Companys common
stock at an exercise price that equals or exceeds the fair value
of such shares on the date such option is granted. Vesting
periods are determined at the discretion of the board of
directors, and options currently outstanding at January 2,
2000 vest over five years. Options may be exercised immediately
upon grant, subject to a right by the Company to repurchase any
unvested shares at the exercise price. Any options granted shall
not be exercisable after ten years. Upon certain changes in
control of the Company, the 1996 and 1997 Plans provide for two
additional years of immediate vesting. The Company has reserved
a total of 1,086,500 shares of common stock for issuance under
the 1996 and 1997 Plans.

During 1998, the Companys Board of Directors approved the
1998 Stock Option Plan (1998 Plan) which provides for
discretionary grants of incentive stock options and nonqualified
stock options to the Companys employees, including
officers, directors, consultants, advisors, and other
independent contractors. A total of 606,885 additional shares of
common stock have been reserved for issuance under the 1998
Plan. The option price per share for an incentive stock option
may not be less than 100 percent of the fair market value
of a share of common stock on the grant date. The option price
per share for a nonstatutory stock option may not be less than
85 percent of the fair market value of a share of common
stock on the grant date. The Companys Compensation
Committee has the authority to, among other things, determine
the vesting schedule for each option granted. All options expire
within 10 years. The 1998 Plan includes an automatic grant
program for outside directors. Pursuant to this program, each
outside director will be granted an option to purchase 15,000
shares of common stock at the time he or she is first elected or
appointed a director of the Company. In addition, each outside
director remaining in office will be granted an option to
purchase 7,500 immediately fully vested shares on the day
following each annual meeting of stockholders.

During 1999, the Companys Board of Directors approved the
1999 Nonstatutory Stock Option Plan (1999 Plan) which provides
for discretionary grants of nonqualified stock options to the
Companys employees. The 1999 Plan prohibits grants to
officers or directors. A total of 100,000 shares of common stock
have been reserved for issuance under the 1999 Plan. The option
price per share may not be less than 85 percent of the fair
market value of a share of common stock on the grant date. The
Companys Compensation Committee has the authority to,
among other things, determine the vesting schedule for each
option granted. All options expire within 10 years.

Pro forma information regarding net income (loss) is
required by SFAS No. 123, which also requires that the
information be determined as if the Company has accounted for
its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1998, 1999 and
2000: risk-free interest rate of 5.5 percent; a dividend
yield

38



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


of -0- percent; volatility factors of the expected market price
of the Companys common stock of .41, .497 and .559,
respectively; and a weighted-average expected life of the option
of five years.

The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility.
Because changes in the subjective input assumptions can
materially affect the fair value estimate, in managements
opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.

For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options
vesting period. The Companys pro forma information follows:

|                                             |                                                  |                                 |     |            |   |              |       |        |  |   |       |        | 
|-------------------------------------------- | ------------------------------------------------ | ------------------------------- | --- | ---------- | - | ------------ | ----- | ------ |  | - | ----- | ------ | 
|                                             |                                                  | Year Ended                      |     | Year Ended |   | Year Ended  
|                                             |                                                  | December 27,                    |     | January 2, |   | December 31,
|                                             |                                                  | 1998                            |     | 2000       |   | 2000        
|                                             |                                                  |                                 |     |            |   |             
|                                             |                                                  |                                
|                                             |                                                  | (In thousands, except share and
|                                             |                                                  | per share amounts)             
|                                            
|                                            
|                                            
|                                            
|Net income, as reported                      |                                                  | $                               | 149 |            |   | $            | 6,036 |        |  | $ | 9,729 |       
|                                            
|                                            
|                                            
|                                            
|                                             | Pro forma compensation expense for stock options |                                 |     | 185        |   |              |       | 697    |  |   |       | 806    | 
|                                             |                                                  |                                 |     |            |   |              |       |        |  |   |       |       
|Pro forma net income (loss)                  |                                                  | $                               | (36 | )          |   | $            | 5,339 |        |  | $ | 8,923 |       
|                                             |                                                  |                                 |     |            |   |              |       |        |  |   |       |       
|Net income (loss) per share:                 |                                                  |                                 |     |            |   |              |       |        |  |   |       |       
|                                            
|                                            
|                                            
|                                            
|                                             | Basic                                            |                                 | $   | (0.31      | ) |              | $     | 0.52   |  |   | $     | 0.86   | 
|                                             |                                                  |                                 |     |            |   |              |       |        |  |   |       |       
|                                             | Diluted                                          |                                 | $   | (0.31      | ) |              | $     | 0.48   |  |   | $     | 0.79   | 
|                                             |                                                  |                                 |     |            |   |              |       |        |  |   |       |       
|Weighted average shares used in computation: |                                                  |                                 |     |            |   |              |       |        |  |   |       |       
|                                            
|                                            
|                                            
|                                            
|                                             | Basic                                            |                                 |     | 2,986      |   |              |       | 10,217 |  |   |       | 10,376 | 
|                                             |                                                  |                                 |     |            |   |              |       |        |  |   |       |       
|                                             | Diluted                                          |                                 |     | 2,986      |   |              |       | 11,155 |  |   |       | 11,354 | 
|                                             |                                                  |                                 |     |            |   |              |       |        |  |   |       |       

39



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


Information regarding activity for stock options outstanding
under the Plans is as follows:

|                                 |                      |           |         |                     |   |           |           |          |   |   |       |       | 
|-------------------------------- | -------------------- | --------- | ------- | ------------------- | - | --------- | --------- | -------- | - | - | ----- | ----- | 
|                                 |                      |           |         |                    
|                                 |                      |           |         | Outstanding Options
|                                 |                      |           |         |                    
|                                 |                      | Shares    |         |                     |   | Weighted-
|                                 |                      | Available |         |                     |   | Average  
|                                 |                      | for       |         |                     |   | Exercise 
|                                 |                      | Options   |         | Shares              |   | Price    
|                                 |                      |           |         |                     |   |          
|Outstanding at December 28, 1997 |                      |           | 124,990 |                     |   |           | 961,510   |          |   | $ | 3.40  |      
|                                
|                                
|                                
|                                
|                                 | Authorized           |           |         | 206,885             |   |           |           |         |   |   |       |      | 
|                                
|                                
|                                
|                                
|                                 | Granted              |           |         | (174,125            | ) |           |           | 174,125  |   |   |       | 11.82 | 
|                                
|                                
|                                
|                                
|                                 | Exercised            |           |         |                    |   |           |           |         |   |   |       |      | 
|                                
|                                
|                                
|                                
|                                 | Forfeited (canceled) |           |         |                    |   |           |           |         |   |   |       |      | 
|                                 |                      |           |         |                     |   |           |           |          |   |   |       |      
|Outstanding at December 27, 1998 |                      |           | 157,750 |                     |   |           | 1,135,635 |          |   |   | 4.71  |      
|                                
|                                
|                                
|                                
|                                 | Authorized           |           |         | 100,000             |   |           |           |         |   |   |       |      | 
|                                
|                                
|                                
|                                
|                                 | Granted              |           |         | (257,000            | ) |           |           | 257,000  |   |   |       | 22.31 | 
|                                
|                                
|                                
|                                
|                                 | Exercised            |           |         |                    |   |           |           | (36,653  | ) |   |       | 7.17  | 
|                                
|                                
|                                
|                                
|                                 | Forfeited (canceled) |           |         | 18,225              |   |           |           | (18,225  | ) |   |       | 9.18  | 
|                                 |                      |           |         |                     |   |           |           |          |   |   |       |      
|Outstanding at January 2, 2000   |                      |           | 18,975  |                     |   |           | 1,337,757 |          |   |   | 7.97  |      
|                                
|                                
|                                
|                                
|                                 | Authorized           |           |         | 400,000             |   |           |           |         |   |   |       |      | 
|                                
|                                
|                                
|                                
|                                 | Granted              |           |         | (269,000            | ) |           |           | 269,000  |   |   |       | 31.11 | 
|                                
|                                
|                                
|                                
|                                 | Exercised            |           |         |                    |   |           |           | (182,182 | ) |   |       | 6.24  | 
|                                
|                                
|                                
|                                
|                                 | Forfeited (canceled) |           |         | 11,104              |   |           |           | (11,104  | ) |   |       | 18.94 | 
|                                 |                      |           |         |                     |   |           |           |          |   |   |       |      
|Outstanding at December 31, 2000 |                      |           | 161,079 |                     |   |           | 1,413,471 |          |   | $ | 12.50 |      
|                                 |                      |           |         |                     |   |           |           |          |   |   |       |      

Information regarding options outstanding and exercisable at
December 31, 2000 is as follows:

|                |               |                     |  |                     |         |                |  |             |            |                |  |   |       |  |  |  |         |  |  |   |       | 
|--------------- | ------------- | ------------------- |  | ------------------- | ------- | -------------- |  | ----------- | ---------- | -------------- |  | - | ----- |  |  |  | ------- |  |  | - | ----- | 
|                |               |                     |  |                     |         |               
|                |               | Options Outstanding |  |                    
|                |               |                     |  | Options Exercisable
|                |               |                     |  | Weighted-           |         |                |  |            
|                |               |                     |  | Average             |         | Weighted-      |  |             |            | Weighted-     
|Range of        |               | Number              |  | Remaining           |         | Average        |  | Number      |            | Average       
|Exercise Prices |               | Outstanding         |  | Contractual Life    |         | Exercise Price |  | Exercisable |            | Exercise Price
|                |               |                     |  |                     |         |                |  |             |            |               
|                | $2.40-$10.00  |                     |  |                     | 791,268 |                |  |             | 4.42 years |                |  | $ | 3.52  |  |  |  | 707,911 |  |  | $ | 4.16  | 
|                | $10.01-$20.00 |                     |  |                     | 153,834 |                |  |             | 7.06 years |                |  |   | 13.61 |  |  |  | 42,473  |  |  |   | 27.13 | 
|                | $20.01-$30.00 |                     |  |                     | 381,890 |                |  |             | 8.85 years |                |  |   | 25.70 |  |  |  | 52,391  |  |  |   | 30.32 | 
|                | $30.01-$40.00 |                     |  |                     | 86,479  |                |  |             | 9.28 years |                |  |   | 34.54 |  |  |  |        |  |  |   |      | 

Since options are generally exercisable upon date of grant,
options exercisable, included in the above table, represent
vested options that are not subject to repurchase by the
Company. The weighted-average fair value of options granted for
the years ended December 27, 1998, January 2, 2000 and
December 31, 2000 was $5.27, $11.16 and $16.91,
respectively.

Employee Stock Purchase Plan

During 1998, the Companys Board of Directors approved the
1998 Employee Stock Purchase Plan (Purchase Plan) and reserved
400,000 shares for issuance thereunder. The Purchase Plan
permits eligible employees to purchase common stock at a
discount, but only through payroll deductions, during concurrent
24 month offering periods. Each offering period will be divided
into four consecutive 6 month purchase periods. The price
at which stock is purchased under the Purchase Plan is equal to
85 percent of the lower of the fair market value of the
common stock on the first day of the offering period and the
fair market value of the common stock on the last day of the
purchase period.

40



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


6.  Partnership Agreements

The Company has entered into a series of partnership agreements
with each of its regional managers (Market Partners), certain of
its general managers (Operating Partners) and certain of its
executive chefs (Culinary Partners). These partnership
agreements entitle the Market Partner to a specified percentage
of the cash flows from the restaurants that partner has invested
in and developed and oversees as the regional manager.
Similarly, the general manager and the executive chef at most of
the Companys restaurants are offered the opportunity to
become Operating Partners and Culinary Partners, respectively,
and to receive a percentage of the cash flows from the
restaurant in which they invested in and work. At the time an
individual becomes a Market Partner, Operating Partner or
Culinary Partner, that person is required to make an equity
investment in the partnership. The Company has the right, in its
sole discretion, to terminate the employment of any Market
Partner, Operating Partner or Culinary Partner, and, upon such
termination, to repurchase that partners interest in the
partnership at such partners then-current basis in the
partnership. If an individual continues to serve as Market
Partner, Operating Partner or Culinary Partner for five years,
then the Company has the right to repurchase that persons
interest in the partnership for a value, which is determined by
reference to trailing cash flows.

7.  Income Taxes

Income tax expense consisted of the following:

|         |          |                |    |            |  |              |       |       |  |   |       |       | 
|-------- | -------- | -------------- | -- | ---------- |  | ------------ | ----- | ----- |  | - | ----- | ----- | 
|         |          | Year Ended     |    | Year Ended |  | Year Ended  
|         |          | December 27,   |    | January 2, |  | December 31,
|         |          | 1998           |    | 2000       |  | 2000        
|         |          |                |    |            |  |             
|         |          |               
|         |          | (In thousands)
|        
|        
|        
|        
|Federal: |          |                |    |            |  |              |       |       |  |   |       |      
|        
|        
|        
|        
|         | Current  |                | $  | 21         |  |              | $     | 1,795 |  |   | $     | 3,676 | 
|        
|        
|        
|        
|         | Deferred |                |    |           |  |              |       | 511   |  |   |       | 1,460 | 
|         |          |                |    |            |  |              |       |       |  |   |       |      
|         |          |                | 21 |            |  |              | 2,306 |       |  |   | 5,136 |      
|        
|        
|        
|        
|State:   |          |                |    |            |  |              |       |       |  |   |       |      
|        
|        
|        
|        
|         | Current  |                |    | 27         |  |              |       | 382   |  |   |       | 594   | 
|        
|        
|        
|        
|         | Deferred |                |    |           |  |              |       | 90    |  |   |       | 257   | 
|         |          |                |    |            |  |              |       |       |  |   |       |      
|         |          |                | 27 |            |  |              | 472   |       |  |   | 851   |      
|         |          |                |    |            |  |              |       |       |  |   |       |      
|         |          | $              | 48 |            |  | $            | 2,778 |       |  | $ | 5,987 |      
|         |          |                |    |            |  |              |       |       |  |   |       |      

The Companys effective tax rate differs from the federal
statutory rate for the following reasons:

|                                             |  |                |      |            |  |              |       |   |  |   |        |  
|-------------------------------------------- |  | -------------- | ---- | ---------- |  | ------------ | ----- | - |  | - | ------ | -
|                                             |  | Year Ended     |      | Year Ended |  | Year Ended  
|                                             |  | December 27,   |      | January 2, |  | December 31,
|                                             |  | 1998           |      | 2000       |  | 2000        
|                                             |  |                |      |            |  |             
|                                             |  |               
|                                             |  | (In thousands)
|                                            
|                                            
|                                            
|                                            
|Income tax expense at federal statutory rate |  | $              | 67   |            |  | $            | 2,996 |   |  | $ | 5,500  |  
|                                            
|                                            
|                                            
|                                            
|State taxes, net of federal expense          |  |                | 19   |            |  |              | 311   |   |  |   | 678    |  
|                                            
|                                            
|                                            
|                                            
|FICA tip credit                              |  |                |     |            |  |              |      |   |  |   | (580   | )
|                                            
|                                            
|                                            
|                                            
|FICA tip credit carryforward                 |  |                |     |            |  |              |      |   |  |   | (1,164 | )
|                                            
|                                            
|                                            
|                                            
|Increase in valuation allowance              |  |                | (288 | )          |  |              | (605  | ) |  |   | 1,516  |  
|                                            
|                                            
|                                            
|                                            
|Other, net                                   |  |                | 250  |            |  |              | 76    |   |  |   | 37     |  
|                                             |  |                |      |            |  |              |       |   |  |   |        |  
|                                             |  | $              | 48   |            |  | $            | 2,778 |   |  | $ | 5,987  |  
|                                             |  |                |      |            |  |              |       |   |  |   |        |  

41



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


The income tax effects of temporary differences that give rise
to significant portions of deferred tax assets and liabilities
are as follows:

|                                      |                                        |                |      |            |  |              |       |       |  |   |        |       | 
|------------------------------------- | -------------------------------------- | -------------- | ---- | ---------- |  | ------------ | ----- | ----- |  | - | ------ | ----- | 
|                                      |                                        | As of          |      | As of      |  | As of       
|                                      |                                        | December 27,   |      | January 2, |  | December 31,
|                                      |                                        | 1998           |      | 2000       |  | 2000        
|                                      |                                        |                |      |            |  |             
|                                      |                                        |               
|                                      |                                        | (In thousands)
|                                     
|                                     
|                                     
|                                     
|Deferred tax assets:                  |                                        |                |      |            |  |              |       |       |  |   |        |      
|                                     
|                                     
|                                     
|                                     
|                                      | Preopening expenses                    |                | $    | 627        |  |              | $     | 745   |  |   | $      | 572   | 
|                                     
|                                     
|                                     
|                                     
|                                      | Net operating loss carryforwards       |                |      | 235        |  |              |       |      |  |   |        |      | 
|                                     
|                                     
|                                     
|                                     
|                                      | FICA tip credit carryforward           |                |      |           |  |              |       |      |  |   |        | 1,516 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Other                                  |                |      | 21         |  |              |       | 134   |  |   |        | 100   | 
|                                      |                                        |                |      |            |  |              |       |       |  |   |        |      
|                                      |                                        |                | 883  |            |  |              | 879   |       |  |   | 2,188  |      
|                                     
|                                     
|                                     
|                                     
|Deferred tax liabilities:             |                                        |                |      |            |  |              |       |       |  |   |        |      
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation on property and equipment |                |      | 84         |  |              |       | 1,228 |  |   |        | 2,688 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Goodwill amortization                  |                |      | 194        |  |              |       | 252   |  |   |        | 302   | 
|                                      |                                        |                |      |            |  |              |       |       |  |   |        |      
|                                      |                                        |                | 278  |            |  |              | 1,480 |       |  |   | 2,990  |      
|                                     
|                                     
|                                     
|                                     
|Valuation allowance                   |                                        |                | (605 | )          |  |              |      |       |  |   | (1,516 | )    
|                                      |                                        |                |      |            |  |              |       |       |  |   |        |      
|Net deferred tax assets (liabilities) |                                        | $              |     |            |  | $            | (601  | )     |  | $ | (2,318 | )    
|                                      |                                        |                |      |            |  |              |       |       |  |   |        |      

For the years ended December 27, 1998, January 2, 2000
and December 31, 2000 the valuation allowance increased
(decreased) $(288,000), $(605,000) and $1,516,000, respectively.

8. Net Income (Loss) Per Share

The following table sets forth the computation of basic and
diluted net income (loss) per share:

|                                                                                                                     |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |        |     | 
|-------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | ----- | ---------- | - | ------------ | ------ | ------ | --- |  | ------ | ------ | --- | 
|                                                                                                                     |                                                                                                                    | Year Ended                               |       | Year Ended |   | Year Ended  
|                                                                                                                     |                                                                                                                    | December 27,                             |       | January 2, |   | December 31,
|                                                                                                                     |                                                                                                                    | 1998                                     |       | 2000       |   | 2000        
|                                                                                                                     |                                                                                                                    |                                          |       |            |   |             
|                                                                                                                     |                                                                                                                    |                                         
|                                                                                                                     |                                                                                                                    | (In thousands, except per share amounts)
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|Numerator:                                                                                                           |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |       
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                     | Net income                                                                                                         |                                          | $     | 149        |   |              | $      | 6,036  |     |  | $      | 9,729  |    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                     | Convertible redeemable preferred stock accretion                                                                   |                                          |       | (888       | ) |              |        |       |     |  |        |       |    
|                                                                                                                     |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |       
|                                                                                                                     | Numerator for basic and diluted net income (loss) per
	share  net income (loss) available to common
	stockholders |                                          | $     | (739       | ) |              | $      | 6,036  |     |  | $      | 9,729  |    
|                                                                                                                     |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |       
|Denominator:                                                                                                         |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |       
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                     | Denominator for basic net income (loss) per
	share  weighted-average shares                                       |                                          |       | 2,986      |   |              |        | 10,217 |     |  |        | 10,376 |    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                     | Effect of dilutive securities:                                                                                     |                                          |       |            |   |              |        |        |     |  |        |        |    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                     |                                                                                                                    | Employee and director stock options      |       |            |  |              |        |        | 887 |  |        |        | 922 | 
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                     |                                                                                                                    | Warrants                                 |       |            |  |              |        |        | 51  |  |        |        | 56  | 
|                                                                                                                     |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |       
|Denominator for diluted net income (loss) per
	share  adjusted for weighted average shares and
	assumed conversions |                                                                                                                    |                                          | 2,986 |            |   |              | 11,155 |        |     |  | 11,354 |       
|                                                                                                                     |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |       
|Net income (loss) per share:                                                                                         |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |       
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                     | Basic                                                                                                              |                                          | $     | (0.25      | ) |              | $      | 0.59   |     |  | $      | 0.94   |    
|                                                                                                                     |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |       
|                                                                                                                     | Diluted                                                                                                            |                                          | $     | (0.25      | ) |              | $      | 0.54   |     |  | $      | 0.86   |    
|                                                                                                                     |                                                                                                                    |                                          |       |            |   |              |        |        |     |  |        |       

42



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


Warrants to purchase 62,190 shares of common stock and options
to purchase 1,413,471 shares of common stock ranging from $2.40
to $35.81 per share were outstanding at December 31, 2000.

9.  Commitments and Contingencies

Operating Leases

The Company leases restaurant and office facilities and
equipment and certain real property under operating leases
having terms expiring between 2001 and 2021. The restaurant
facility and real property leases primarily have renewal clauses
of five to 15 years exercisable at the option of the
Company with rent escalation clauses stipulating specific rent
increases, some of which are based on the consumer price index.
Certain of these leases require the payment of contingent
rentals based on a percentage of gross revenues, as defined.
Rent expense for the years ended December 27, 1998,
January 2, 2000 and December 31, 2000 was
approximately $4,110,000, $7,006,000 and $10,629,000,
respectively. Contingent rent included in rent expense for the
years ended December 27, 1998, January 2, 2000 and
December 31, 2000 was approximately $1,135,000, $1,959,000
and $3,225,000, respectively.

At December 31, 2000, the Company had entered into other
lease agreements for restaurant facilities currently under
construction or yet to be constructed. In addition, the leases
also contain provisions for additional contingent rent based
upon gross sales, as defined in the leases. Future minimum lease
payments under operating leases (including restaurants to be
opened after December 31, 2000) are as follows (in
thousands):

|           |                              |   |        |         | 
|---------- | ---------------------------- | - | ------ | ------- | 
|          
|          
|          
|          
|2001       |                              | $ | 10,055 |        
|          
|          
|          
|          
|2002       |                              |   | 10,888 |        
|          
|          
|          
|          
|2003       |                              |   | 10,683 |        
|          
|          
|          
|          
|2004       |                              |   | 10,691 |        
|          
|          
|          
|          
|2005       |                              |   | 10,320 |        
|          
|          
|          
|          
|Thereafter |                              |   | 96,090 |        
|           |                              |   |        |        
|           | Total minimum lease payments |   | $      | 148,727 | 
|           |                              |   |        |        

The Company leases a building and certain furniture and
equipment from a partnership in which the Company owns an
approximate six percent interest. Annual rent payments are
contingent based on a percentage of gross revenues. The
respective period rent expense is included in the above
disclosed amounts.

10.  Benefit Plan

Effective July 1, 1997, the Company adopted a 401(k)
Defined Contribution Benefit Plan (the Plan), which covers
substantially all employees of the Company that have completed
one year of service and have attained the age of 21 years old.
The Plan permits participants to contribute to the Plan, subject
to Internal Revenue Code restrictions, and the plan also permits
the Company to make discretionary matching contributions. During
the years ended December 27, 1998, January 2, 2000 and
December 31, 2000, the Company did not make any
contributions to the Plan.

11.  Employment Agreement

On September 2, 1998, the Company amended the employment
agreement with its Founder, Mr. Fleming, to provide for
Mr. Flemings transition from an employee of the
Company to a consultant of the Company. Pursuant to the terms of
the employment agreement, as amended, the Company retained
Mr. Fleming as a consultant and nominated him as a director
each year during the period beginning January 1, 1999 and
ending December 31, 2000. Mr. Fleming was compensated
for services rendered as a consultant and

43



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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 2, 2000 and December 31, 2000 
(Continued)


reimbursed for all actual, out-of-pocket expenses incurred in
providing such services to the Company. The agreement prohibited
Mr. Fleming from competing with the Company in the area of
Chinese and Asian food concepts during the term of the agreement
and for two years after the termination thereof.

12.  Subsequent Event

On January 11, 2001, the Company sold 1.25 million shares
of its common stock at a price of $32.667. Proceeds from the
transaction amounted to $40.8 million. Of the $40.8 million in
proceeds, $15 million will be used to repay all of the
outstanding borrowings under the Companys credit facility.
The remaining proceeds will be used to fund future development
of both P.F. Changs China Bistro and Pei Wei Asian Diner.

13.  Interim Financial Results (Unaudited)

The following tables set forth certain unaudited consolidated
financial information for each of the four quarters in fiscal
1999 and 2000. In managements opinion, this unaudited
quarterly information has been prepared on the same basis as the
audited consolidated financial statements and includes all
necessary adjustments, consisting only of normal recurring
adjustments, that management considers necessary for a fair
presentation of the unaudited quarterly results when read in
conjunction with the Consolidated Financial Statements and
Notes. The Company believes that quarter-to-quarter comparisons
of its financial results are not necessarily indicative of
future performance.

|                                            |  |                                       |        |                              |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|------------------------------------------- |  | ------------------------------------- | ------ | ---------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                            |  |                                       |        |                             
|                                            |  | Year Ended January 2, 2000            |        | Year Ended December 31, 2000
|                                            |  |                                       |        |                             
|                                            |  | First                                 |        | Second                       |  | Third   |        | Fourth  |  | First   |        | Second  |  | Third   |        | Fourth 
|                                            |  | Quarter                               |        | Quarter                      |  | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                            |  |                                       |        |                              |  |         |        |         |  |         |        |         |  |         |        |        
|                                            |  |                                      
|                                            |  | (in thousands, except per share data)
|                                           
|                                           
|                                           
|                                           
|Revenues                                    |  | $                                     | 30,473 |                              |  | $       | 32,956 |         |  | $       | 40,961 |         |  | $       | 48,905 |         |  | $ | 51,414 |  |  | $ | 53,496 |  |  | $ | 61,179 |  |  | $ | 68,816 | 
|                                           
|                                           
|                                           
|                                           
|Restaurant operating profit                 |  |                                       | 5,757  |                              |  |         | 6,145  |         |  |         | 7,670  |         |  |         | 10,246 |         |  |   | 10,035 |  |  |   | 10,663 |  |  |   | 11,571 |  |  |   | 13,167 | 
|                                           
|                                           
|                                           
|                                           
|Income before provision for income taxes    |  |                                       | 1,725  |                              |  |         | 1,451  |         |  |         | 1,947  |         |  |         | 3,691  |         |  |   | 3,892  |  |  |   | 3,416  |  |  |   | 3,425  |  |  |   | 4,983  | 
|                                           
|                                           
|                                           
|                                           
|Net income                                  |  |                                       | 1,234  |                              |  |         | 1,036  |         |  |         | 1,352  |         |  |         | 2,414  |         |  |   | 2,391  |  |  |   | 2,128  |  |  |   | 2,120  |  |  |   | 3,090  | 
|                                           
|                                           
|                                           
|                                           
|Basic net income per share                  |  |                                       | 0.12   |                              |  |         | 0.10   |         |  |         | 0.13   |         |  |         | 0.24   |         |  |   | 0.23   |  |  |   | 0.21   |  |  |   | 0.20   |  |  |   | 0.30   | 
|                                           
|                                           
|                                           
|                                           
|Diluted net income per share                |  |                                       | 0.11   |                              |  |         | 0.09   |         |  |         | 0.12   |         |  |         | 0.22   |         |  |   | 0.21   |  |  |   | 0.19   |  |  |   | 0.19   |  |  |   | 0.27   | 
|                                           
|                                           
|                                           
|                                           
|Basic weighted average shares outstanding   |  |                                       | 10,196 |                              |  |         | 10,201 |         |  |         | 10,223 |         |  |         | 10,250 |         |  |   | 10,303 |  |  |   | 10,365 |  |  |   | 10,400 |  |  |   | 10,435 | 
|                                           
|                                           
|                                           
|                                           
|Diluted weighted average shares outstanding |  |                                       | 11,145 |                              |  |         | 11,162 |         |  |         | 11,149 |         |  |         | 11,167 |         |  |   | 11,279 |  |  |   | 11,348 |  |  |   | 11,344 |  |  |   | 11,444 | 

44



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

None.

PART III




Item 10.  Directors and Executive Officers
of the Registrant

The information required by Item 10 with respect to
Directors and Executive Officers is incorporated by reference
from the information under the captions Director
Nominees and Executive Officers, respectively,
contained in the Companys definitive proxy statement in
connection with the solicitation of proxies for the
Companys 2000 Annual Meeting of Stockholders to be held on
April 25, 2001 (the Proxy Statement).




Item 11.  Executive Compensation

The information required by this item is incorporated by
reference from the information under the caption Executive
Compensation contained in the Proxy Statement.




Item 12.  Security Ownership of Certain
Beneficial Owners and Management

The information required by this item is incorporated by
reference from the information under the caption Security
Ownership of Certain Beneficial Owners and Management
contained in the Proxy Statement.




Item 13.  Certain Relationships and Related
Transactions

The information required by this item is incorporated by
reference from the information under the caption Certain
Relationships and Related Transactions contained in the
Proxy Statement.

PART IV




Item 14.  Exhibits, Financial Statement
Schedules, and Reports on Form 8-K

(a)  Documents filed as part of this report:



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | 1.  The following Financial Statements of the Company are
	included in Part II, Item 8 of this Annual Report on
	Form 10-K:



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Report of Independent Auditors;                                                                                                                                                   
|
| | Consolidated Balance Sheets at January 2, 2000 and
	December 31, 2000;                                                                                                            
|
| | Consolidated Statements of Operations for the Years Ended
	December 27, 1998, January 2, 2000, and
	December 31, 2000;                                                            
|
| | Consolidated Statements of Convertible Redeemable Preferred
	Stock and Common Stockholders Equity for the Years Ended
	December 27, 1998, January 2, 2000 and
	December 31, 2000;
|
| | Consolidated Statements of Cash Flows for the Years Ended
	December 27, 1998, January 2, 2000 and
	December 31, 2000;                                                             
|
| | Notes to Consolidated Financial Statements.                                                                                                                                       



| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.  Schedules to Financial Statements:                                                                                                                                                                                                                                    
|
| | All financial statement schedules have been omitted because they
	are either inapplicable or the information required is provided
	in the Companys Consolidated Financial Statements and
	Notes thereto, included in Part II, Item 8 of this Annual Report
	on Form 10-K.

45



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| |                      
| | ---------------------
| | 3.  Index to Exhibits

|        |          |                      |  |                                                                                                                   
|------- | -------- | -------------------- |  | ------------------------------------------------------------------------------------------------------------------
|Exhibit |          |                     
|Number  |          | Description Document
|        |          |                     
|        | 3.1*     |                      |  | Certificate of Incorporation of the Company.                                                                      
|        | 3.2*     |                      |  | By-laws.                                                                                                          
|        | 4.1*     |                      |  | Specimen Common Stock Certificate.                                                                                
|        | 4.2*     |                      |  | Amended and Restated Registration Rights Agreement dated
	May 1, 1997.                                            
|        | 10.1*   |                      |  | Form of Indemnification Agreement for directors and executive
	officers.                                          
|        | 10.2*   |                      |  | 1998 Stock Option Plan and forms of agreement thereunder.                                                         
|        | 10.3*   |                      |  | 1997 Restaurant Manager Stock Option Plan and forms of Agreement
	thereunder.                                     
|        | 10.4*   |                      |  | 1996 Stock Option Plan and forms of Agreement thereunder.                                                         
|        | 10.5*   |                      |  | 1998 Employee Stock Purchase Plan.                                                                                
|        | 10.6*   |                      |  | Employment Agreement between Paul M. Fleming and the Company
	dated January 1, 1996, as amended September 2, 1998.
|        | 10.10*   |                      |  | Office Lease Between the Company and U.S. West Business
	Resources, Inc., dated February 15, 1997.                
|        | 10.11**  |                      |  | Office Lease Between the Company and PHXAZ-Kierland Commons,
	LLC, dated September 17, 1999.                      
|        | 10.12**  |                      |  | Line of Credit Agreement between the Company and Bank of America
	dated December 6, 1999.                         
|        | 10.13   |                      |  | 1999 Nonstatutory Stock Option Plan.                                                                              
|        | 10.14*** |                      |  | Amendment to Credit Agreement, dated June 26, 2000, between
	the Company and Bank of America, N.A.                
|        | 21.1*    |                      |  | List of Subsidiaries.                                                                                             
|        | 23.1     |                      |  | Consent of Independent Auditors.                                                                                  




|  |                                                                                                         
|- | --------------------------------------------------------------------------------------------------------
|* | Incorporated by reference to the Registrants Registration
	Statement on Form  S-1 (File No. 333-59749).



|  |                                         
|- | ----------------------------------------
| | Management Contract or Compensatory Plan



|   |                                                                              
|-- | -----------------------------------------------------------------------------
|** | Incorporated by reference to the Registrants
	Form 10-K dated March 3, 2000.

***  Incorporated by reference to the Registrants
Form 10-Q dated August 9, 2000.

(b)  Reports on Form 8-K:

None.

46



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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, on March 6, 2001.



| |                                
| | -------------------------------
| | P.F. CHANGS CHINA BISTRO, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ RICHARD FEDERICO

| |                                     
| | ------------------------------------
| |                                     
| | Richard Federico                    
| | Chairman and Chief Executive Officer

Pursuant to the requirement 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 and on the
dates indicated.

|                                               |  |                                                                               |  |              
|---------------------------------------------- |  | ----------------------------------------------------------------------------- |  | -------------
|Signature                                      |  | Title                                                                         |  | Date         
|                                               |  |                                                                               |  |              
|/s/ RICHARD L. FEDERICORichard L. Federico     |  | Chairman, Chief Executive Officer and Director (Principal
	Executive Officer) |  | March 6, 2001
|                                              
|/s/ ROBERT T. VIVIANRobert T. Vivian           |  | President and Chief Financial Officer                                         |  | March 6, 2001
|                                              
|/s/ FRANK ZISKAFrank Ziska                     |  | Chief Development Officer                                                     |  | March 5, 2001
|                                              
|/s/ KRISTINA K. CASHMANKristina Cashman        |  | Secretary and Director of Finance                                             |  | March 6, 2001
|                                              
|/s/ PAUL M. FLEMINGPaul M. Fleming             |  | Director                                                                      |  | March 6, 2001
|                                              
|/s/ KENNETH J. WESSELSKenneth J. Wessels       |  | Director                                                                      |  | March 6, 2001
|                                              
|/s/ R. MICHAEL WELBORNR. Michael Welborn       |  | Director                                                                      |  | March 6, 2001
|                                              
|/s/ JAMES G. SHENNAN, JR.James G. Shennan, Jr. |  | Director                                                                      |  | March 6, 2001
|                                              
|/s/ F. LANE CARDWELL, JR.F. Lane Cardwell, Jr. |  | Director                                                                      |  | March 6, 2001

47



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INDEX TO EXHIBITS

|        |          |                      |  |                                                                                                                   
|------- | -------- | -------------------- |  | ------------------------------------------------------------------------------------------------------------------
|Exhibit |          |                     
|Number  |          | Description Document
|        |          |                     
|        | 3.1*     |                      |  | Certificate of Incorporation of the Company.                                                                      
|        | 3.2*     |                      |  | By-laws.                                                                                                          
|        | 4.1*     |                      |  | Specimen Common Stock Certificate.                                                                                
|        | 4.2*     |                      |  | Amended and Restated Registration Rights Agreement dated
	May 1, 1997.                                            
|        | 10.1*   |                      |  | Form of Indemnification Agreement for directors and executive
	officers.                                          
|        | 10.2*   |                      |  | 1998 Stock Option Plan and forms of agreement thereunder.                                                         
|        | 10.3*   |                      |  | 1997 Restaurant Manager Stock Option Plan and forms of Agreement
	thereunder.                                     
|        | 10.4*   |                      |  | 1996 Stock Option Plan and forms of Agreement thereunder.                                                         
|        | 10.5*   |                      |  | 1998 Employee Stock Purchase Plan.                                                                                
|        | 10.6*   |                      |  | Employment Agreement between Paul M. Fleming and the Company
	dated January 1, 1996, as amended September 2, 1998.
|        | 10.10*   |                      |  | Office Lease Between the Company and U.S. West Business
	Resources, Inc., dated February 15, 1997.                
|        | 10.11**  |                      |  | Office Lease Between the Company and PHXAZ-Kierland Commons,
	LLC, dated September 17, 1999.                      
|        | 10.12**  |                      |  | Line of Credit Agreement between the Company and Bank of America
	dated December 6, 1999.                         
|        | 10.13   |                      |  | 1999 Nonstatutory Stock Option Plan.                                                                              
|        | 10.14*** |                      |  | Amendment to Credit Agreement, dated June 26, 2000, between
	the Company and Bank of America, N.A.                
|        | 21.1*    |                      |  | List of Subsidiaries.                                                                                             
|        | 23.1     |                      |  | Consent of Independent Auditors.                                                                                  




|  |                                                                                                         
|- | --------------------------------------------------------------------------------------------------------
|* | Incorporated by reference to the Registrants Registration
	Statement on Form  S-1 (File No. 333-59749).



|   |                                                                              
|-- | -----------------------------------------------------------------------------
|  | Management Contract or Compensatory Plan                                     
|  
|** | Incorporated by reference to the Registrants
	Form 10-K dated March 3, 2000.

***  Incorporated by reference to the Registrants
Form 10-Q dated August 9, 2000.