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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K




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

SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 30,
2001

or



|  |                                                          
|- | ---------------------------------------------------------
|o | 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(Address of principal executive
	offices) |  | 85254(Zip Code)                      

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 þ          No o

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.     þ

Based on the closing sale price of $58.06 on
February 1, 2002, the aggregate market value of the voting
stock held by non-affiliates of the registrant was $645,452,033.

On February 1, 2002 there were outstanding
11,990,469 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 3, 2002.



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TABLE OF CONTENTS



|         |                                                                                              |  |  |  |  |  |  | 
|-------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  
|         | Item 1.Business                                                                             
|         | Item 2.Properties                                                                           
|         | Item 3.Legal Proceedings                                                                    
|         | Item 4.Submission of Matters to a Vote of Security Holders                                  
|PART II 
|         | 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 
|PART III
|         | 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                                      
|PART IV 
|         | Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|EX-10.15
|EX-10.17
|EX-21.1 
|EX-23.1 



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##### Table of Contents



TABLE OF CONTENTS

|         |     |  |  |                                                                                        |  |  |    | 
|-------- | --- |  |  | -------------------------------------------------------------------------------------- |  |  | -- | 
|Item     |     |  |  | Page                                                                                  
|         |     |  |  |                                                                                       
|PART I  
|         | 1.  |  |  | Business                                                                               |  |  | 2  | 
|         | 2.  |  |  | Properties                                                                             |  |  | 16 | 
|         | 3.  |  |  | Legal Proceedings                                                                      |  |  | 18 | 
|         | 4.  |  |  | Submission of Matters to a Vote of Security
	Holders                                   |  |  | 18 | 
|PART II 
|         | 5.  |  |  | Market for the Registrants Common Stock and
	Related Stockholder Matters              |  |  | 19 | 
|         | 6.  |  |  | Selected Financial Data                                                                |  |  | 20 | 
|         | 7.  |  |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |  |  | 22 | 
|         | 7A. |  |  | Quantitative and Qualitative Disclosures About
	Market Risks                           |  |  | 29 | 
|         | 8.  |  |  | Financial Statements and Supplementary Data                                            |  |  | 30 | 
|         | 9.  |  |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |  |  | 49 | 
|PART III
|         | 10. |  |  | Directors and Executive Officers of the Registrant                                     |  |  | 49 | 
|         | 11. |  |  | Executive Compensation                                                                 |  |  | 49 | 
|         | 12. |  |  | Security Ownership of Certain Beneficial Owners
	and Management                        |  |  | 49 | 
|         | 13. |  |  | Certain Relationships and Related Transactions                                         |  |  | 49 | 
|PART IV 
|         | 14. |  |  | Exhibits, Financial Statement Schedules, and
	Reports on Form 8-K                      |  |  | 49 | 

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PART I




Item 1.     Business

General

P.F. Changs owned and operated
65 full service, or Bistro, restaurants as of
December 30, 2001 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 Bistro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 five limited service,
or Pei Wei, restaurants as of December 30, 2001. 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, 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 and four
additional units in 2001, three in the Phoenix, Arizona area and
one in the Dallas, Texas area. We will continue to devote
additional resources to this concept as we push forward with the
development of Pei Wei units in 2002.

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 equity participation 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 Bistro restaurants offers a
harmony of taste, texture, color and aroma by balancing the
principles of fanand tsaifoods. 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 and BBQ spare ribs
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. We also offer
several vegetarian dishes for our customers who enjoy true
vegetarian items. MSG is not added to any ingredients at
P.F. Changs.

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In addition to the core menu, the Bistro menu
also offers special lunch and dinner selections. These special
selections are 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.

The Bistros entrees range in price from
$8.00 to $18.00, and our appetizers range in price from $4.00 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 18% of
revenues. Lunch and dinner contribute approximately 30% and 70%
of revenues, respectively.

The menu for our limited service concept,
Pei Wei, also offers a variety of intensely-flavored
culinary creations; however, this menu is more concise and
includes not only Chinese cuisine but other Asian dishes as
well. Our guests can enjoy some of their favorite Chinese dishes
seen at the Bistro, such as Soothing Lettuce Wraps and Orange
Peel Beef, while also sampling other items such as Vietnamese
Chicken Salad Rolls and Pad Thai. Pei Wei entrees range in
price from $6 to $9, with appetizers ranging from $3 to $5. We
do offer beer and wine at Pei Wei and these purchases
comprise approximately 3% of sales. Take-out sales comprise
approximately 35% to 40% of total revenues. The average check
per guest at Pei Wei, including take-out sales and beer and
wine sales, is approximately $8 to $9.

Operations

We have implemented a partnership structure to
facilitate the development, leadership and operation of our
restaurants. We have entered into a series of partnership
agreements with our regional managers (Market
Partners and Area Partners), certain of our
general managers (Operating Partners) and certain of
our executive chefs (Chef Partners). Each partner is
required to make a cash contribution to their respective
partnership. We do not finance any partner capital
contributions. For this capital contribution, the partner
receives an ownership interest ranging from two to seven percent
in a specific restaurant or region. Each partner shares in the
pretax income or loss of the restaurant or region they oversee.

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
Bistro 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 staff of a typical Pei Wei consists of a
general manager, one or two managers, an executive chef, and one
sous chef, as well as approximately 35 hourly employees.
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 our general managers and
executive chefs to have significant experience in the
full-service restaurant industry.

P.F. Changs has a comprehensive 8-week
management development program. This program consists of four
weeks of culinary training, including both culinary job
functions and culinary management, with the remaining four weeks
focused 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 four-week section,
each trainee must successfully complete a comprehensive
certification.

The general managers are responsible for
selecting hourly employees for their restaurants. The general
managers and regional managers are responsible for administering
our hourly staff training programs that are developed by the
training and culinary departments. The hourly employee
development program lasts between one and two weeks and focuses
on both technical and cultural knowledge.

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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.

We also advertise in in-flight magazines for
airlines that carry a high level of traffic in our markets, in
order 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. For the
Bistro, our primary competitors include mid-priced, full-service
casual dining restaurants and locally-owned and operated Chinese
restaurants. For Pei Wei, our main competitors are other
value-priced, quick-service concepts as well as 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 continued 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
maintained at a modest level. We negotiate short-term and
long-term contracts depending on demand for our

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products. These contracts range in duration from
two to twelve months. With the exception of produce, which is
purchased locally, we utilize Distribution Marketing Advantage
as the primary distributor of product to all of our restaurants.
Distribution Marketing Advantage is a cooperative of multiple
food distributors located throughout the United States. We have
a non-exclusive, short-term contract with Distribution Marketing
Advantage on terms and conditions that we believe are consistent
with those made available to similarly situated restaurant
companies. We believe that competitively priced alternative
distribution sources are available should they become necessary.
Chinese-specific ingredients are usually sourced directly from
Hong Kong, China and Taiwan. We have developed an extensive
network of importers in order to maintain an adequate supply of
items that conform to our brand and product specifications.


Employees

At December 30, 2001, P.F. Changs
employed approximately 9,500 persons, 97 of whom were executive
office personnel, 629 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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|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |      |  |        |         |         |  |           |        |       |  |   |        |    |  |   |      |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------- |  | --------------------------------------------------- | ------- | ---------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ------ | ------- | ------- |  | --------- | ------ | ----- |  | - | ------ | -- |  | - | ---- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                            |  |                                                     |         |                  |  |      |         |     
|                                                            |  | Bistro units opened in                              |         | Total Restaurant |  |      |         |     
|                                                            |  |                                                     |         |                  |  |      |         |     
|                                                            |  | Pre 1996                                            |         | 1996             |  | 1997 |         | 1998 |  | 1999 |         | 2000 |  | 2001 |         | 2002 |  | Bistro |         | Pei Wei |  | Corporate |        | Total
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |      |  |        |         |         |  |           |        |      
|                                                            |  |                                                    
|                                                            |  | (dollars in thousands, except average weekly sales)
|Fiscal 2001                                                 |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |      |  |        |         |         |  |           |        |       |  |   |        |    |  |   |      |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Units(1)                                                    |  |                                                     | 4       |                  |  |      | 3       |      |  |      | 6       |      |  |      | 10      |      |  |        | 13      |         |  |           | 16     |       |  |   | 13     |    |  |   |      |   |  |   | 65      |   |  |   | 5      |   |  |   |         |   |  |   | 70      |  
|Sales weeks                                                 |  |                                                     | 208     |                  |  |      | 156     |      |  |      | 312     |      |  |      | 520     |      |  |        | 676     |         |  |           | 832    |       |  |   | 265    |    |  |   |      |   |  |   | 2,969   |   |  |   | 101    |   |  |   |         |   |  |   | 3,070   |  
|Average weekly sales                                        |  | $                                                   | 122,532 |                  |  | $    | 141,120 |      |  | $    | 105,979 |      |  | $    | 114,641 |      |  | $      | 100,136 |         |  | $         | 94,600 |       |  | $ | 99,186 |    |  |   |      |   |  | $ | 105,377 |   |  | $ | 58,535 |   |  |   |         |   |  | $ | 103,836 |  
|Change in comparable store sales(2)                         |  |                                                     | (2.3    | )%               |  |      | 3.1     | %    |  |      | 3.1     | %    |  |      | 4.5     | %    |  |        | 6.7     | %       |  |           | 5.5    | %     |  |   |        |    |  |   |      |   |  |   | 3.8     | % |  |   |        |   |  |   |         |   |  |   |         |  
|Restaurant-level operating margin                           |  |                                                     | 22.7    | %                |  |      | 22.6    | %    |  |      | 20.6    | %    |  |      | 22.1    | %    |  |        | 20.0    | %       |  |           | 16.4   | %     |  |   | 11.8   | %  |  |   |      |   |  |   | 19.3    | % |  |   | 19.4   | % |  |   |         |   |  |   | 19.3    | %
|Revenues                                                    |  | $                                                   | 25,487  |                  |  | $    | 22,015  |      |  | $    | 33,065  |      |  | $    | 59,613  |      |  | $      | 67,692  |         |  | $         | 78,708 |       |  | $ | 26,284 |    |  | $ |     |   |  | $ | 312,864 |   |  | $ | 5,912  |   |  | $ |        |   |  | $ | 318,776 |  
|Total restaurant operating costs                            |  |                                                     | 19,694  |                  |  |      | 17,032  |      |  |      | 26,263  |      |  |      | 46,446  |      |  |        | 54,146  |         |  |           | 65,776 |       |  |   | 23,174 |    |  |   |     |   |  |   | 252,531 |   |  |   | 4,765  |   |  |   |        |   |  |   | 257,296 |  
|General and Administrative                                  |  |                                                     |        |                  |  |      |        |      |  |      |        |      |  |      |        |      |  |        |        |         |  |           |       |       |  |   |       |    |  |   |     |   |  |   |        |   |  |   |       |   |  |   | 16,359  |   |  |   | 16,359  |  
|Depreciation and Amortization                               |  |                                                     | 378     |                  |  |      | 380     |      |  |      | 796     |      |  |      | 1,800   |      |  |        | 2,425   |         |  |           | 3,385  |       |  |   | 874    |    |  |   |     |   |  |   | 10,038  |   |  |   | 190    |   |  |   | 836     |   |  |   | 11,064  |  
|Preopening expense                                          |  |                                                     |        |                  |  |      |        |      |  |      |        |      |  |      |        |      |  |        |        |         |  |           | 46     |       |  |   | 4,298  |    |  |   | 133  |   |  |   | 4,477   |   |  |   | 622    |   |  |   |        |   |  |   | 5,099   |  
|Interest (income) expense, net                              |  |                                                     |        |                  |  |      | 112     |      |  |      |        |      |  |      |        |      |  |        |        |         |  |           |       |       |  |   |       |    |  |   |     |   |  |   | 112     |   |  |   |       |   |  |   | (1,012  | ) |  |   | (900    | )
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |      |  |        |         |         |  |           |        |       |  |   |        |    |  |   |      |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Income (loss) before minority interest and
	income taxes(3) |  |                                                     | 5,415   |                  |  |      | 4,491   |      |  |      | 6,006   |      |  |      | 11,367  |      |  |        | 11,121  |         |  |           | 9,501  |       |  |   | (2,062 | )  |  |   | (133 | ) |  |   | 45,706  |   |  |   | 335    |   |  | $ | (16,183 | ) |  | $ | 29,858  |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |      |  |        |         |         |  |           |        |       |  |   |        |    |  |   |      |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Rent expense(4)                                             |  |                                                     | 1,486   |                  |  |      | 1,285   |      |  |      | 1,591   |      |  |      | 2,441   |      |  |        | 2,489   |         |  |           | 3,337  |       |  |   | 947    |    |  |   |      |   |  |   | 13,576  |   |  |   | 357    |   |  |   |         |   |  |   |         |  
|Interest expense, Net                                       |  |                                                     |        |                  |  |      | 112     |      |  |      |        |      |  |      |        |      |  |        |        |         |  |           |       |       |  |   |       |    |  |   |     |   |  |   | 112     |   |  |   |       |   |  |   |         |   |  |   |         |  
|Preopening Adjustment(5)                                    |  |                                                     |        |                  |  |      |        |      |  |      |        |      |  |      |        |      |  |        |        |         |  |           |       |       |  |   | (25    | )  |  |   | 133  |   |  |   | 108     |   |  |   | 155    |   |  |   |         |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |      |  |        |         |         |  |           |        |       |  |   |        |    |  |   |      |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Restaurant income (loss), as adjusted                       |  | $                                                   | 6,901   |                  |  | $    | 5,888   |      |  | $    | 7,597   |      |  | $    | 13,808  |      |  | $      | 13,610  |         |  | $         | 12,838 |       |  | $ | (1,140 | )  |  | $ |     |   |  | $ | 59,502  |   |  | $ | 847    |   |  |   |         |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |      |  |        |         |         |  |           |        |       |  |   |        |    |  |   |      |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Average restaurant assets employed(6)                       |  | $                                                   | 1,424   |                  |  | $    | 2,696   |      |  | $    | 5,639   |      |  | $    | 16,755  |      |  | $      | 23,466  |         |  | $         | 36,948 |       |  | $ | 10,773 |    |  |   |      |   |  | $ | 97,701  |   |  | $ | 1,261  |   |  |   |         |   |  |   |         |  
|Present value of remaining lease obligations(7)             |  |                                                     | 3,200   |                  |  |      | 3,977   |      |  |      | 6,962   |      |  |      | 12,787  |      |  |        | 13,763  |         |  |           | 19,794 |       |  |   | 6,695  |    |  |   |      |   |  |   | 67,178  |   |  |   | 817    |   |  |   |         |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |      |  |        |         |         |  |           |        |       |  |   |        |    |  |   |      |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Total restaurant invested capital                           |  | $                                                   | 4,624   |                  |  | $    | 6,673   |      |  | $    | 12,601  |      |  | $    | 29,542  |      |  | $      | 37,229  |         |  | $         | 56,742 |       |  | $ | 17,468 |    |  |   |      |   |  | $ | 164,879 |   |  | $ | 2,078  |   |  |   |         |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |      |  |        |         |         |  |           |        |       |  |   |        |    |  |   |      |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Restaurant-level return on invested capital                 |  |                                                     | 149.2   | %                |  |      | 88.2    | %    |  |      | 60.3    | %    |  |      | 46.7    | %    |  |        | 36.6    | %       |  |           | 22.6   | %     |  |   | (6.5   | )% |  |   |      |   |  |   | 36.1    | % |  |   | 40.8   | % |  |   |         |   |  |   |         |  

6



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##### Table of Contents



|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |        |  |         |        |           |  |       |        |    |  |   |     |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------- |  | --------------------------------------------------- | ------- | ---------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ------ |  | ------- | ------ | --------- |  | ----- | ------ | -- |  | - | --- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                            |  |                                                     |         |                  |  |      |         |     
|                                                            |  | Units opened in                                     |         | Total Restaurant |  |      |         |     
|                                                            |  |                                                     |         |                  |  |      |         |     
|                                                            |  | Pre 1996                                            |         | 1996             |  | 1997 |         | 1998 |  | 1999 |         | 2000 |  | 2001 |         | Bistro |  | Pei Wei |        | Corporate |  | Total
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |        |  |         |        |           |  |      
|                                                            |  |                                                    
|                                                            |  | (dollars in thousands, except average weekly sales)
|Fiscal 2000                                                 |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |        |  |         |        |           |  |       |        |    |  |   |     |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Units(1)                                                    |  |                                                     | 4       |                  |  |      | 3       |      |  |      | 6       |      |  |      | 10      |        |  |         | 13     |           |  |       | 16     |    |  |   |     |   |  |   | 52      |   |  |   | 1      |   |  |   |         |   |  |   | 53      |  
|Sales weeks                                                 |  |                                                     | 208     |                  |  |      | 156     |      |  |      | 312     |      |  |      | 520     |        |  |         | 676    |           |  |       | 380    |    |  |   |     |   |  |   | 2,252   |   |  |   | 23     |   |  |   |         |   |  |   | 2,275   |  
|Average weekly sales                                        |  | $                                                   | 125,427 |                  |  | $    | 136,843 |      |  | $    | 102,782 |      |  | $    | 109,716 |        |  | $       | 93,878 |           |  | $     | 88,253 |    |  |   |     |   |  | $ | 103,710 |   |  | $ | 58,723 |   |  |   |         |   |  | $ | 103,255 |  
|Change in comparable store sales(2)                         |  |                                                     | 9.3     | %                |  |      | 10.9    | %    |  |      | 11.0    | %    |  |      | 14.2    | %      |  |         | 10.7   | %         |  |       |        |    |  |   |     |   |  |   | 11.7    | % |  |   |        |   |  |   |         |   |  |   |         |  
|Restaurant-level operating margin                           |  |                                                     | 23.5    | %                |  |      | 24.3    | %    |  |      | 21.3    | %    |  |      | 21.8    | %      |  |         | 18.0   | %         |  |       | 9.5    | %  |  |   |     |   |  |   | 19.4    | % |  |   | 16.3   | % |  |   |         |   |  |   | 19.3    | %
|Revenues                                                    |  | $                                                   | 26,089  |                  |  | $    | 21,348  |      |  | $    | 32,068  |      |  | $    | 57,052  |        |  | $       | 63,462 |           |  | $     | 33,535 |    |  | $ |    |   |  | $ | 233,554 |   |  | $ | 1,351  |   |  | $ |        |   |  | $ | 234,905 |  
|Total restaurant operating costs                            |  |                                                     | 19,960  |                  |  |      | 16,169  |      |  |      | 25,240  |      |  |      | 44,624  |        |  |         | 52,009 |           |  |       | 30,336 |    |  |   |    |   |  |   | 188,338 |   |  |   | 1,131  |   |  |   |        |   |  |   | 189,469 |  
|General and Administrative                                  |  |                                                     |        |                  |  |      |        |      |  |      |        |      |  |      |        |        |  |         |       |           |  |       |       |    |  |   |    |   |  |   |        |   |  |   |       |   |  |   | 12,290  |   |  |   | 12,290  |  
|Depreciation and Amortization                               |  |                                                     | 359     |                  |  |      | 360     |      |  |      | 762     |      |  |      | 1,865   |        |  |         | 2,514  |           |  |       | 1,293  |    |  |   |    |   |  |   | 7,153   |   |  |   | 50     |   |  |   | 671     |   |  |   | 7,874   |  
|Preopening expense                                          |  |                                                     |        |                  |  |      |        |      |  |      |        |      |  |      |        |        |  |         | (5     | )         |  |       | 5,043  |    |  |   | 25  |   |  |   | 5,063   |   |  |   | 137    |   |  |   |        |   |  |   | 5,200   |  
|Interest (income) expense, net                              |  |                                                     | 4       |                  |  |      | 115     |      |  |      |        |      |  |      |        |        |  |         |       |           |  |       |       |    |  |   |    |   |  |   | 119     |   |  |   |       |   |  |   | (80     | ) |  |   | 39      |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |        |  |         |        |           |  |       |        |    |  |   |     |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Income (loss) before minority interest and
	income taxes(3) |  |                                                     | 5,766   |                  |  |      | 4,704   |      |  |      | 6,066   |      |  |      | 10,563  |        |  |         | 8,944  |           |  |       | (3,137 | )  |  |   | (25 | ) |  |   | 32,881  |   |  |   | 33     |   |  | $ | (12,881 | ) |  | $ | 20,033  |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |        |  |         |        |           |  |       |        |    |  |   |     |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Rent expense(4)                                             |  |                                                     | 1,514   |                  |  |      | 1,235   |      |  |      | 1,597   |      |  |      | 2,246   |        |  |         | 2,349  |           |  |       | 1,378  |    |  |   |    |   |  |   | 10,319  |   |  |   | 82     |   |  |   |         |   |  |   |         |  
|Interest expense, Net                                       |  |                                                     | 4       |                  |  |      | 115     |      |  |      |        |      |  |      |        |        |  |         |       |           |  |       |       |    |  |   |    |   |  |   | 119     |   |  |   |       |   |  |   |         |   |  |   |         |  
|Preopening adjustment(5)                                    |  |                                                     |        |                  |  |      |        |      |  |      |        |      |  |      |        |        |  |         |       |           |  |       | (551   | )  |  |   | 25  |   |  |   | (526    | ) |  |   |       |   |  |   |         |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |        |  |         |        |           |  |       |        |    |  |   |     |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Restaurant income (loss), as adjusted                       |  | $                                                   | 7,284   |                  |  | $    | 6,054   |      |  | $    | 7,663   |      |  | $    | 12,809  |        |  | $       | 11,293 |           |  | $     | (2,310 | )  |  | $ |    |   |  | $ | 42,793  |   |  | $ | 115    |   |  |   |         |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |        |  |         |        |           |  |       |        |    |  |   |     |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Average restaurant assets employed(6)                       |  | $                                                   | 1,497   |                  |  | $    | 3,013   |      |  | $    | 6,278   |      |  | $    | 18,321  |        |  | $       | 25,797 |           |  | $     | 9,805  |    |  |   |     |   |  | $ | 64,711  |   |  | $ | 240    |   |  |   |         |   |  |   |         |  
|Present value of remaining lease obligations(7)             |  |                                                     | 3,715   |                  |  |      | 4,072   |      |  |      | 7,315   |      |  |      | 13,150  |        |  |         | 14,193 |           |  |       | 5,146  |    |  |   |     |   |  |   | 47,591  |   |  |   | 152    |   |  |   |         |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |        |  |         |        |           |  |       |        |    |  |   |     |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Total restaurant invested capital                           |  | $                                                   | 5,212   |                  |  | $    | 7,085   |      |  | $    | 13,593  |      |  | $    | 31,471  |        |  | $       | 39,990 |           |  | $     | 14,951 |    |  |   |     |   |  | $ | 112,302 |   |  | $ | 392    |   |  |   |         |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |         |      |  |      |         |        |  |         |        |           |  |       |        |    |  |   |     |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |         |  
|Restaurant-level return on invested capital                 |  |                                                     | 139.8   | %                |  |      | 85.4    | %    |  |      | 56.4    | %    |  |      | 40.7    | %      |  |         | 28.2   | %         |  |       | (15.5  | )% |  |   |     |   |  |   | 38.1    | % |  |   | 29.3   | % |  |   |         |   |  |   |         |  

7



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##### Table of Contents



|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |        |           |  |       |      |   |  |   |   |  |  |   |         |   |  |   |   |  |  |   |        |   |  |   |         |  
|----------------------------------------------------------- |  | --------------------------------------------------- | ------- | ---------------- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ------ |  | ------- | ------ | --------- |  | ----- | ---- | - |  | - | - |  |  | - | ------- | - |  | - | - |  |  | - | ------ | - |  | - | ------- | -
|                                                            |  |                                                     |         |                  |  |      |         |     
|                                                            |  | Units opened in                                     |         | Total Restaurant |  |      |         |     
|                                                            |  |                                                     |         |                  |  |      |         |     
|                                                            |  | Pre 1996                                            |         | 1996             |  | 1997 |         | 1998 |  | 1999 |        | 2000 |  | 2001 |        | Bistro |  | Pei Wei |        | Corporate |  | Total
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |        |           |  |      
|                                                            |  |                                                    
|                                                            |  | (dollars in thousands, except average weekly sales)
|Fiscal 1999                                                 |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |        |           |  |       |      |   |  |   |   |  |  |   |         |   |  |   |   |  |  |   |        |   |  |   |         |  
|Units(1)                                                    |  |                                                     | 4       |                  |  |      | 3       |      |  |      | 6      |      |  |      | 10     |        |  |         | 13     |           |  |       |      |   |  |   |   |  |  |   | 36      |   |  |   |   |  |  |   |        |   |  |   | 36      |  
|Sales weeks                                                 |  |                                                     | 212     |                  |  |      | 159     |      |  |      | 318    |      |  |      | 530    |        |  |         | 330    |           |  |       |      |   |  |   |   |  |  |   | 1,549   |   |  |   |   |  |  |   |        |   |  |   | 1,549   |  
|Average weekly sales                                        |  | $                                                   | 115,119 |                  |  | $    | 123,509 |      |  | $    | 92,685 |      |  | $    | 96,119 |        |  | $       | 87,378 |           |  |       |      |   |  |   |   |  |  | $ | 98,964  |   |  |   |   |  |  |   |        |   |  | $ | 98,964  |  
|Change in comparable store sales(2)                         |  |                                                     | 9.5     | %                |  |      | 11.5    | %    |  |      | 15.2   | %    |  |      | 13.4   | %      |  |         |        |           |  |       |      |   |  |   |   |  |  |   | 12.0    | % |  |   |   |  |  |   |        |   |  |   | 12.0    | %
|Restaurant-level operating margin                           |  |                                                     | 23.8    | %                |  |      | 23.4    | %    |  |      | 20.8   | %    |  |      | 19.6   | %      |  |         | 11.5   | %         |  |       |      |   |  |   |   |  |  |   | 19.5    | % |  |   |   |  |  |   |        |   |  |   | 19.5    | %
|Revenues                                                    |  | $                                                   | 24,405  |                  |  | $    | 19,638  |      |  | $    | 29,474 |      |  | $    | 50,943 |        |  | $       | 28,835 |           |  | $     |     |   |  | $ |  |  |  | $ | 153,295 |   |  | $ |  |  |  | $ |       |   |  | $ | 153,295 |  
|Total restaurant operating costs                            |  |                                                     | 18,605  |                  |  |      | 15,044  |      |  |      | 23,344 |      |  |      | 40,972 |        |  |         | 25,512 |           |  |       |     |   |  |   |  |  |  |   | 123,477 |   |  |   |  |  |  |   |       |   |  |   | 123,477 |  
|General and Administrative                                  |  |                                                     |        |                  |  |      |        |      |  |      |       |      |  |      |       |        |  |         |       |           |  |       |     |   |  |   |  |  |  |   |        |   |  |   |  |  |  |   | 9,648  |   |  |   | 9,648   |  
|Depreciation and Amortization                               |  |                                                     | 347     |                  |  |      | 369     |      |  |      | 827    |      |  |      | 1,852  |        |  |         | 1,020  |           |  |       |     |   |  |   |  |  |  |   | 4,415   |   |  |   |  |  |  |   | 560    |   |  |   | 4,975   |  
|Preopening expense                                          |  |                                                     |        |                  |  |      |        |      |  |      |       |      |  |      | (33    | )      |  |         | 3,826  |           |  |       | 551  |   |  |   |  |  |  |   | 4,344   |   |  |   |  |  |  |   |       |   |  |   | 4,344   |  
|Interest (income) expense, net                              |  |                                                     | 7       |                  |  |      | 163     |      |  |      |       |      |  |      |       |        |  |         |       |           |  |       |     |   |  |   |  |  |  |   | 170     |   |  |   |  |  |  |   | (602   | ) |  |   | (432    | )
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |        |           |  |       |      |   |  |   |   |  |  |   |         |   |  |   |   |  |  |   |        |   |  |   |         |  
|Income (loss) before minority interest and
	income taxes(3) |  |                                                     | 5,446   |                  |  |      | 4,062   |      |  |      | 5,303  |      |  |      | 8,152  |        |  |         | (1,523 | )         |  |       | (551 | ) |  |   |  |  |  |   | 20,889  |   |  |   |  |  |  | $ | (9,606 | ) |  | $ | 11,283  |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |        |           |  |       |      |   |  |   |   |  |  |   |         |   |  |   |   |  |  |   |        |   |  |   |         |  
|Rent expense(4)                                             |  |                                                     | 1,404   |                  |  |      | 1,044   |      |  |      | 1,463  |      |  |      | 1,986  |        |  |         | 1,013  |           |  |       |     |   |  |   |  |  |  |   | 6,910   |   |  |   |  |  |  |   |        |   |  |   |         |  
|Interest expense, net                                       |  |                                                     | 7       |                  |  |      | 163     |      |  |      |       |      |  |      |       |        |  |         |       |           |  |       |     |   |  |   |  |  |  |   | 170     |   |  |   |  |  |  |   |        |   |  |   |         |  
|Preopening adjustment(5)                                    |  |                                                     |        |                  |  |      |        |      |  |      |       |      |  |      |       |        |  |         | (405   | )         |  |       | 551  |   |  |   |  |  |  |   | 146     |   |  |   |  |  |  |   |        |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |        |           |  |       |      |   |  |   |   |  |  |   |         |   |  |   |   |  |  |   |        |   |  |   |         |  
|Restaurant income (loss), as adjusted                       |  | $                                                   | 6,857   |                  |  | $    | 5,269   |      |  | $    | 6,766  |      |  | $    | 10,138 |        |  | $       | (915   | )         |  | $     |     |   |  | $ |  |  |  | $ | 28,115  |   |  | $ |  |  |  |   |        |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |        |           |  |       |      |   |  |   |   |  |  |   |         |   |  |   |   |  |  |   |        |   |  |   |         |  
|Average restaurant assets employed(6)                       |  | $                                                   | 1,507   |                  |  | $    | 3,342   |      |  | $    | 6,981  |      |  | $    | 19,729 |        |  | $       | 12,797 |           |  |       |      |   |  |   |   |  |  | $ | 44,356  |   |  |   |   |  |  |   |        |   |  |   |         |  
|Present value of remaining lease obligations(7)             |  |                                                     | 4,171   |                  |  |      | 4,156   |      |  |      | 7,621  |      |  |      | 13,440 |        |  |         | 6,600  |           |  |       |      |   |  |   |   |  |  |   | 35,988  |   |  |   |   |  |  |   |        |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |        |           |  |       |      |   |  |   |   |  |  |   |         |   |  |   |   |  |  |   |        |   |  |   |         |  
|Total restaurant invested capital                           |  | $                                                   | 5,678   |                  |  | $    | 7,498   |      |  | $    | 14,602 |      |  | $    | 33,169 |        |  | $       | 19,397 |           |  |       |      |   |  |   |   |  |  | $ | 80,344  |   |  |   |   |  |  |   |        |   |  |   |         |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |        |           |  |       |      |   |  |   |   |  |  |   |         |   |  |   |   |  |  |   |        |   |  |   |         |  
|Restaurant-level return on invested capital                 |  |                                                     | 120.8   | %                |  |      | 70.3    | %    |  |      | 46.3   | %    |  |      | 30.6   | %      |  |         | (4.7   | )%        |  |       |      |   |  |   |   |  |  |   | 35.0    | % |  |   |   |  |  |   |        |   |  |   |         |  

8



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|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   |        |   |  |   |   |  |  |   |        |   |  |   |        |  
|----------------------------------------------------------- |  | --------------------------------------------------- | ------- | ---------------- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ------ |  | ------- | ---- | --------- |  | ----- | - |  |  | - | - |  |  | - | ------ | - |  | - | - |  |  | - | ------ | - |  | - | ------ | -
|                                                            |  |                                                     |         |                  |  |      |         |     
|                                                            |  | Units opened in                                     |         | Total Restaurant |  |      |         |     
|                                                            |  |                                                     |         |                  |  |      |         |     
|                                                            |  | Pre 1996                                            |         | 1996             |  | 1997 |         | 1998 |  | 1999 |        | 2000 |  | 2001 |        | Bistro |  | Pei Wei |      | Corporate |  | Total
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |      |           |  |      
|                                                            |  |                                                    
|                                                            |  | (dollars in thousands, except average weekly sales)
|Fiscal 1998                                                 |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   |        |   |  |   |   |  |  |   |        |   |  |   |        |  
|Units(1)                                                    |  |                                                     | 4       |                  |  |      | 3       |      |  |      | 6      |      |  |      | 10     |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   | 23     |   |  |   |   |  |  |   |        |   |  |   | 23     |  
|Sales weeks                                                 |  |                                                     | 208     |                  |  |      | 156     |      |  |      | 312    |      |  |      | 149    |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   | 825    |   |  |   |   |  |  |   |        |   |  |   | 825    |  
|Average weekly sales                                        |  | $                                                   | 104,637 |                  |  | $    | 110,374 |      |  | $    | 80,171 |      |  | $    | 94,207 |        |  |         |      |           |  |       |   |  |  |   |   |  |  | $ | 94,586 |   |  |   |   |  |  |   |        |   |  | $ | 94,586 |  
|Change in comparable store sales(2)                         |  |                                                     | 10.6    | %                |  |      | 17.7    | %    |  |      | 7.8    | %    |  |      |        |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   | 12.8   | % |  |   |   |  |  |   |        |   |  |   | 12.8   | %
|Restaurant-level operating Margin                           |  |                                                     | 24.3    | %                |  |      | 22.6    | %    |  |      | 16.8   | %    |  |      | 10.6   | %      |  |         |      |           |  |       |   |  |  |   |   |  |  |   | 19.1   | % |  |   |   |  |  |   |        |   |  |   | 19.1   | %
|Revenues                                                    |  | $                                                   | 21,765  |                  |  | $    | 17,218  |      |  | $    | 25,013 |      |  | $    | 14,037 |        |  | $       |     |           |  | $     |  |  |  | $ |  |  |  | $ | 78,033 |   |  | $ |  |  |  | $ |       |   |  | $ | 78,033 |  
|Total restaurant operating costs                            |  |                                                     | 16,479  |                  |  |      | 13,324  |      |  |      | 20,823 |      |  |      | 12,552 |        |  |         |     |           |  |       |  |  |  |   |  |  |  |   | 63,178 |   |  |   |  |  |  |   |       |   |  |   | 63,178 |  
|General and administrative                                  |  |                                                     |        |                  |  |      |        |      |  |      |       |      |  |      |       |        |  |         |     |           |  |       |  |  |  |   |  |  |  |   |       |   |  |   |  |  |  |   | 6,245  |   |  |   | 6,245  |  
|Depreciation and amortization                               |  |                                                     | 301     |                  |  |      | 393     |      |  |      | 798    |      |  |      | 383    |        |  |         |     |           |  |       |  |  |  |   |  |  |  |   | 1,875  |   |  |   |  |  |  |   | 509    |   |  |   | 2,384  |  
|Preopening expense                                          |  |                                                     |        |                  |  |      |        |      |  |      | 82     |      |  |      | 3,696  |        |  |         | 405  |           |  |       |  |  |  |   |  |  |  |   | 4,183  |   |  |   |  |  |  |   |       |   |  |   | 4,183  |  
|Interest expense, net                                       |  |                                                     | 12      |                  |  |      | 207     |      |  |      |       |      |  |      |       |        |  |         |     |           |  |       |  |  |  |   |  |  |  |   | 219    |   |  |   |  |  |  |   | 958    |   |  |   | 1,177  |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   |        |   |  |   |   |  |  |   |        |   |  |   |        |  
|Income (loss) before minority interest and
	income taxes(3) |  |                                                     | 4,973   |                  |  |      | 3,294   |      |  |      | 3,310  |      |  |      | (2,594 | )      |  |         | (405 | )         |  |       |  |  |  |   |  |  |  |   | 8,578  |   |  |   |  |  |  | $ | (7,712 | ) |  | $ | 866    |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   |        |   |  |   |   |  |  |   |        |   |  |   |        |  
|Rent expense(4)                                             |  |                                                     | 1,241   |                  |  |      | 872     |      |  |      | 1,297  |      |  |      | 604    |        |  |         |     |           |  |       |  |  |  |   |  |  |  |   | 4,014  |   |  |   |  |  |  |   |        |   |  |   |        |  
|Interest expense, net                                       |  |                                                     | 12      |                  |  |      | 207     |      |  |      |       |      |  |      |       |        |  |         |     |           |  |       |  |  |  |   |  |  |  |   | 219    |   |  |   |  |  |  |   |        |   |  |   |        |  
|Preopening adjustment(5)                                    |  |                                                     |        |                  |  |      |        |      |  |      | 82     |      |  |      | (191   | )      |  |         | 405  |           |  |       |  |  |  |   |  |  |  |   | 296    |   |  |   |  |  |  |   |        |   |  |   |        |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   |        |   |  |   |   |  |  |   |        |   |  |   |        |  
|Restaurant income (loss), as adjusted                       |  | $                                                   | 6,226   |                  |  | $    | 4,373   |      |  | $    | 4,689  |      |  | $    | (2,181 | )      |  | $       |     |           |  | $     |  |  |  | $ |  |  |  | $ | 13,107 |   |  | $ |  |  |  |   |        |   |  |   |        |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   |        |   |  |   |   |  |  |   |        |   |  |   |        |  
|Average restaurant assets employed(6)                       |  | $                                                   | 1,648   |                  |  | $    | 3,681   |      |  | $    | 7,598  |      |  | $    | 5,642  |        |  |         |      |           |  |       |   |  |  |   |   |  |  | $ | 18,569 |   |  |   |   |  |  |   |        |   |  |   |        |  
|Present value of remaining lease obligations(7)             |  |                                                     | 4,568   |                  |  |      | 4,232   |      |  |      | 7,876  |      |  |      | 3,623  |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   | 20,299 |   |  |   |   |  |  |   |        |   |  |   |        |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   |        |   |  |   |   |  |  |   |        |   |  |   |        |  
|Total restaurant invested capital                           |  | $                                                   | 6,216   |                  |  | $    | 7,913   |      |  | $    | 15,474 |      |  | $    | 9,265  |        |  |         |      |           |  |       |   |  |  |   |   |  |  | $ | 38,868 |   |  |   |   |  |  |   |        |   |  |   |        |  
|                                                            |  |                                                     |         |                  |  |      |         |      |  |      |        |      |  |      |        |        |  |         |      |           |  |       |   |  |  |   |   |  |  |   |        |   |  |   |   |  |  |   |        |   |  |   |        |  
|Restaurant-level return on invested capital                 |  |                                                     | 100.2   | %                |  |      | 55.3    | %    |  |      | 30.3   | %    |  |      | (23.5  | )%     |  |         |      |           |  |       |   |  |  |   |   |  |  |   | 33.7   | % |  |   |   |  |  |   |        |   |  |   |        |  

9



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---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                                                                                                                                                                                                                                                 

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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 65 full service, or Bistro,
restaurants and five limited service, or Pei Wei,
restaurants as of December 30, 2001, 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 that 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 70 restaurants as of
December 30, 2001. We expect to open 13 to 15 Bistros
and 8 to 10 Pei Wei restaurants in 2002. 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 restaurants 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.

11



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##### 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.



| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | Changes in general economic and political
	conditions affect consumer spending and may harm our revenues
	and operating results.

Our country currently is in a recession and we
believe that these weak general economic conditions will
continue through 2002. As the economy struggles we are concerned
that our customers may become more apprehensive about the
economy and reduce their level of discretionary spending. We
believe that a decrease in discretionary spending could impact
the frequency with which our customers choose to dine out or the
amount they spend on meals while dining out, thereby decreasing
our revenues. Additionally, the recent terrorist attacks on the
United States, the continued military responses to the attacks
and possible future terrorist attacks may exacerbate current
economic conditions and lead to further weakening in the
economy. Adverse economic conditions and any related decrease in
discretionary spending by our customers could have an adverse
effect on our revenues and operating results.



| |                                                                       
| | ----------------------------------------------------------------------
| | Fluctuations in operating results may cause
	profitability 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;   

12



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##### Table of Contents





| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | competitive factors, including the performance of
	restaurant stocks;
|
| |  | 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 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 and labor and operating costs.
Therefore, results for any one quarter are not necessarily
indicative of results to be expected for any other quarter or
for a full fiscal year, and, from time to time in the future,
our results of operations may be below the expectations of
public market analysts and investors. This discrepancy could
cause the market price of our common stock to decline. See
Managements Discussion and Analysis if Financial
Condition and Results of Operations.



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | 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.

Any inability to successfully compete with the
other restaurants in our markets will 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 $6.25 per hour effective January 1, 2001 to $6.75
per hour effective January 1, 2002. 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 in the near future. 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. We must continue to
attract, retain and motivate a sufficient number of qualified
management and operating personnel, including regional managers
(market partners), general managers (operating partners) and
executive chefs

13



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##### Table of Contents



(chef partners), to keep pace with an aggressive
expansion schedule. Individuals of this caliber are historically
in short supply and this shortage may limit our ability to
effectively penetrate new market areas. Additionally, the
ability of these key personnel to maintain consistency in the
quality and atmosphere of our restaurants is a critical factor
in our success. Any failure to do so may harm our reputation and
result in a loss of business.




| |                                                                                       
| | --------------------------------------------------------------------------------------
| | 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 Distribution Marketing Advantage as the primary
distributor of our product. Distribution Marketing Advantage is
a cooperative of multiple food distributors located throughout
the nation. We have a non-exclusive short-term contract with
Distribution Marketing Advantage on terms and conditions that 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 Distribution
Marketing Advantage 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 affect 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 experienced significant increases in utility
prices over the past year. If these increases continue it will
have an adverse effect on our profitability.



| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Rising workers compensation and health
	insurance costs could negatively impact profitability.

The cost of workers compensation insurance,
general liability insurance and health insurance have risen
significantly in the past year and are expected to continue to
increase in 2002. These increases could have a negative impact
on our profitability if we are not able to negate the effect of
such increases by continuing to improve upon on operating
efficiencies.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | 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.

14



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##### Table of Contents



Approximately 18% of our revenues at the Bistro
and 3% 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 license and permit to sell alcoholic
beverages. Typically, licenses must be renewed annually and may
be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the
daily operations of the restaurants, including minimum age of
guests and employees, hours of operation, advertising, wholesale
purchasing, inventory control and handling, storage and
dispensing of alcoholic beverages. If we fail to comply with
federal, state or local regulations our licenses may be revoked
and we may be forced to terminate the sale of alcoholic
beverages at one or more of our restaurants.

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.

15



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##### Table of Contents






Item 2.     Properties

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

|                                      |  |              |                 |                |  |          |       |  |  |  |     | 
|------------------------------------- |  | ------------ | --------------- | -------------- |  | -------- | ----- |  |  |  | --- | 
|                                      |  |              |                 | Approximate    |  | Interior
|Existing Locations                    |  | Opening Date |                 | Square 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 (Mansell 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 | 

16



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##### Table of Contents



|                                                  |  |              |                 |                |  |          |        |  |  |  |     | 
|------------------------------------------------- |  | ------------ | --------------- | -------------- |  | -------- | ------ |  |  |  | --- | 
|                                                  |  |              |                 | Approximate    |  | Interior
|Existing Locations                                |  | Opening Date |                 | Square Footage |  | Seating*
|                                                  |  |              |                 |                |  |         
|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 | 
|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 | 
|Bellevue, WA (Bellevue Square)                    |  |              | April, 2001     |                |  |          | 6,300  |  |  |  | 199 | 
|Indianapolis, IN (Keystone Crossing)              |  |              | April, 2001     |                |  |          | 7,000  |  |  |  | 155 | 
|Columbia, MD (Columbia Mall)                      |  |              | May, 2001       |                |  |          | 7,200  |  |  |  | 219 | 
|Boca Raton, FL (University Commons)               |  |              | May, 2001       |                |  |          | 7,200  |  |  |  | 199 | 
|Austin, TX (San Jacinto)                          |  |              | June, 2001      |                |  |          | 7,000  |  |  |  | 287 | 
|Chandler, AZ (Chandler Fashion Square)            |  |              | August, 2001    |                |  |          | 7,000  |  |  |  | 215 | 
|Sunnyvale, CA (Olson Cherry Orchard)              |  |              | September, 2001 |                |  |          | 6,800  |  |  |  | 205 | 
|West Homestead, PA (The Stacks at the Waterfront) |  |              | September, 2001 |                |  |          | 7,200  |  |  |  | 207 | 
|Pasadena, CA (Paseo Colorado)                     |  |              | September, 2001 |                |  |          | 6,100  |  |  |  | 148 | 
|Houston, TX (Westchase)                           |  |              | September, 2001 |                |  |          | 6,800  |  |  |  | 215 | 
|Edina, MN (Southdale Mall)                        |  |              | November, 2001  |                |  |          | 7,200  |  |  |  | 216 | 
|Rancho Mirage, CA (The River)                     |  |              | November, 2001  |                |  |          | 6,900  |  |  |  | 213 | 
|Marlton, NJ (The Promenade at Sagemore)           |  |              | December, 2001  |                |  |          | 7,100  |  |  |  | 207 | 
|Sherman Oaks (Sherman Oaks Galleria)              |  |              | January, 2002   |                |  |          | 6,400  |  |  |  | 192 | 



---



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

The following table depicts existing Pei Wei
locations as of the date of this 10-K.

|                              |  |              |                |                |  |          |       |  |  |  |    | 
|----------------------------- |  | ------------ | -------------- | -------------- |  | -------- | ----- |  |  |  | -- | 
|                              |  |              |                | Approximate    |  | Interior
|Existing Locations            |  | Opening Date |                | Square Footage |  | Seating*
|                              |  |              |                |                |  |         
|Chandler, AZ (Casa Paloma)    |  |              | July, 2000     |                |  |          | 2,800 |  |  |  | 78 | 
|Phoenix, AZ (Arcadia)         |  |              | April, 2001    |                |  |          | 2,900 |  |  |  | 80 | 
|Scottsdale, AZ (Gainey Ranch) |  |              | December, 2001 |                |  |          | 2,900 |  |  |  | 71 | 
|Dallas, TX (The Arbors)       |  |              | December, 2001 |                |  |          | 3,200 |  |  |  | 77 | 
|Scottsdale, AZ (Grayhawk)     |  |              | December, 2001 |                |  |          | 3,000 |  |  |  | 78 | 
|Chandler, AZ (Ocotillo)       |  |              | January, 2002  |                |  |          | 3,200 |  |  |  | 75 | 



---



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

In 2002, P.F. Changs intends to open 13 to
15 Bistros (five in existing markets) and 8 to 10 Pei Weis.

Expansion Strategy and Site
Selection

P.F. Changs is actively developing Bistro
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

17



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##### Table of Contents



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 approximately $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 $2.3 million. Preopening expenses are
expected to average approximately $325,000 per restaurant. We
currently lease the sites for all of our restaurants and do not
intend to purchase real estate for our sites in the future.

We intend to initially develop our Pei Wei
restaurants in markets in which the Bistro has a strong presence
in an effort to leverage the Bistros established brand identity.
The restaurants will be approximately 2,800 to 3,200 square feet
in size and will require, on average, a total capitalized
investment of approximately $1.3 million per restaurant.
This total investment cost includes the capitalized lease value
of the property, which can vary greatly depending on the
specific trade area. We expect the cash investment to
approximate $750,000 per restaurant. Preopening expenses for our
Pei Wei restaurants are expected to total approximately $110,000
per restaurant. 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 2022, 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 16,000 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 30, 2001.




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

P.F. Changs Annual Meeting of Stockholders
was held on April 25, 2001. There were two proposals up for
approval. The results of the voting are as follows:



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

|                      |  |           |           |         |  |  |           | 
|--------------------- |  | --------- | --------- | ------- |  |  | --------- | 
|                      |  | Total     |           |        
|                      |  | Votes For |           | Abstain
|                      |  |           |           |        
|Richard L. Federico   |  |           | 7,879,777 |         |  |  | 1,157,270 | 
|Paul M. Fleming       |  |           | 9,030,411 |         |  |  | 6,636     | 
|Kenneth J. Wessels    |  |           | 9,029,236 |         |  |  | 7,811     | 
|R. Michael Welborn    |  |           | 9,030,411 |         |  |  | 6,636     | 
|James G. Shennan, Jr. |  |           | 9,030,336 |         |  |  | 6,711     | 
|F. Lane Cardwell, Jr. |  |           | 9,030,411 |         |  |  | 6,636     | 



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | 2) The ratification of the appointment of
	Ernst & Young LLP as the Companys independent
	auditors:

|            |           |             |  |         |         |  |  |  |     | 
|----------- | --------- | ----------- |  | ------- | ------- |  |  |  | --- | 
|Total Votes |           | Total Votes |  |        
|For         |           | Against     |  | Abstain
|            |           |             |  |        
|            | 8,057,072 |             |  |         | 979,785 |  |  |  | 190 | 

18



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##### Table of Contents






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 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 | 
|Quarter Ended April 1, 2001      |  |      | 40.00 |     |  |  | 30.06 | 
|Quarter Ended July 1, 2001       |  |      | 40.93 |     |  |  | 32.25 | 
|Quarter Ended September 30, 2001 |  |      | 44.91 |     |  |  | 32.92 | 
|Quarter Ended December 30, 2001  |  |      | 49.49 |     |  |  | 35.90 | 

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 15, 2002, there were 70 holders
of record of P.F. Changs common stock.

In January 2001, we sold 1.25 million shares of
our common stock to two institutional buyers for an aggregate
purchase price of approximately $40.8 million in cash. We
relied on the exemption from registration for the sale provided
in Section 4(2) of the Securities Act of 1933, as amended,
based on the financial status of the buyers. We subsequently
registered the shares sold on a Form S-3 filed in March
2001. We used $15 million of the proceeds of the sale to
repay outstanding borrowings under our credit facility and will
continue to use the remainder for restaurant expansion and
general corporate purposes.

19



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##### 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

|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |   |        |         | 
|-------------------------------------------------------------------------------------- | --------------------------- | ------------------------------------- | -------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------- | - | ------ | ------- | ------- | - | ------ | ------- | ------- | - | ------ | ------- | 
|                                                                                       |                             |                                      
|                                                                                       |                             | Company                              
|                                                                                       |                             |                                      
|                                                                                       |                             | Fiscal                                |                                  | Fiscal |        | Fiscal |        | Fiscal |        | Fiscal
|                                                                                       |                             | Year                                  |                                  | Year   |        | Year   |        | Year   |        | Year  
|                                                                                       |                             | 1997                                  |                                  | 1998   |        | 1999   |        | 2000   |        | 2001  
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |       
|                                                                                       |                             |                                      
|                                                                                       |                             | (In thousands, except per share data)
|Statements of Operations Data:                                                         |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Revenues                                                                               |                             | $                                     | 39,768                           |        |        | $      | 78,033 |        |        | $      | 153,295 |   |        | $       | 234,905 |   |        | $       | 318,776 |  
|Costs and expenses:                                                                    |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|                                                                                       | Restaurant operating costs: |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |   |       
|                                                                                       |                             | Cost of sales                         |                                  |        | 11,317 |        |        |        | 21,709 |        |         |   | 42,136 |         |         |   | 64,720 |         |         |   | 86,368 |        
|                                                                                       |                             | Labor                                 |                                  |        | 11,683 |        |        |        | 22,721 |        |         |   | 45,569 |         |         |   | 69,685 |         |         |   | 97,094 |        
|                                                                                       |                             | Operating                             |                                  |        | 6,727  |        |        |        | 13,319 |        |         |   | 25,907 |         |         |   | 40,312 |         |         |   | 53,932 |        
|                                                                                       |                             | Occupancy                             |                                  |        | 2,743  |        |        |        | 5,429  |        |         |   | 9,865  |         |         |   | 14,752 |         |         |   | 19,902 |        
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|                                                                                       |                             |                                       | Total restaurant operating costs |        |        | 32,470 |        |        |        | 63,178 |         |   |        | 123,477 |         |   |        | 189,469 |         |   |        | 257,296 | 
|                                                                                       |                             | General and administrative            |                                  |        | 4,276  |        |        |        | 6,245  |        |         |   | 9,648  |         |         |   | 12,290 |         |         |   | 16,359 |        
|                                                                                       |                             | Depreciation and amortization         |                                  |        | 1,102  |        |        |        | 2,384  |        |         |   | 4,975  |         |         |   | 7,874  |         |         |   | 11,064 |        
|                                                                                       |                             | Preopening expense                    |                                  |        | 1,922  |        |        |        | 4,183  |        |         |   | 4,344  |         |         |   | 5,200  |         |         |   | 5,099  |        
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Income (loss) from operations                                                          |                             |                                       | (2                               | )      |        |        | 2,043  |        |        |        | 10,851  |   |        |         | 20,072  |   |        |         | 28,958  |  
|Interest income (expense), net                                                         |                             |                                       | (317                             | )      |        |        | (1,177 | )      |        |        | 432     |   |        |         | (39     | ) |        |         | 900     |  
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Income (loss) before elimination of minority
	interests and provision for income taxes |                             |                                       | (319                             | )      |        |        | 866    |        |        |        | 11,283  |   |        |         | 20,033  |   |        |         | 29,858  |  
|Elimination of minority interests                                                      |                             |                                       | (1,308                           | )      |        |        | (669   | )      |        |        | (2,469  | ) |        |         | (4,317  | ) |        |         | (5,550  | )
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Income (loss) before provision for income
	taxes                                       |                             |                                       | (1,627                           | )      |        |        | 197    |        |        |        | 8,814   |   |        |         | 15,716  |   |        |         | 24,308  |  
|Provision for income taxes                                                             |                             |                                       | (69                              | )      |        |        | (48    | )      |        |        | (2,778  | ) |        |         | (5,987  | ) |        |         | (8,689  | )
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Net income (loss)                                                                      |                             |                                       | (1,696                           | )      |        |        | 149    |        |        |        | 6,036   |   |        |         | 9,729   |   |        |         | 15,619  |  
|Convertible redeemable preferred stock accretion                                       |                             |                                       | (876                             | )      |        |        | (888   | )      |        |        |        |   |        |         |        |   |        |         |        |  
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Net income (loss) available to common
	stockholders                                    |                             | $                                     | (2,572                           | )      |        | $      | (739   | )      |        | $      | 6,036   |   |        | $       | 9,729   |   |        | $       | 15,619  |  
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Basic net income (loss) per share                                                      |                             | $                                     | (1.03                            | )      |        | $      | (0.25  | )      |        | $      | 0.59    |   |        | $       | 0.94    |   |        | $       | 1.32    |  
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Diluted net income (loss) per share                                                    |                             | $                                     | (1.03                            | )      |        | $      | (0.25  | )      |        | $      | 0.54    |   |        | $       | 0.86    |   |        | $       | 1.23    |  
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Shares used in calculation of basic net income
	(loss) per share                       |                             |                                       | 2,500                            |        |        |        | 2,986  |        |        |        | 10,217  |   |        |         | 10,376  |   |        |         | 11,864  |  
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  
|Shares used in calculation of diluted net income
	(loss) per share                     |                             |                                       | 2,500                            |        |        |        | 2,986  |        |        |        | 11,155  |   |        |         | 11,354  |   |        |         | 12,735  |  
|                                                                                       |                             |                                       |                                  |        |        |        |        |        |        |        |         |   |        |         |         |   |        |         |         |  

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##### Table of Contents



|                                       |  |              |        |              |  |            |        |              |  |              |        |  |  |   |         |  |  |   |         | 
|-------------------------------------- |  | ------------ | ------ | ------------ |  | ---------- | ------ | ------------ |  | ------------ | ------ |  |  | - | ------- |  |  | - | ------- | 
|                                       |  | As of        |        | As of        |  | As of      |        | As of        |  | As of       
|                                       |  | December 28, |        | December 27, |  | January 2, |        | December 31, |  | December 30,
|                                       |  | 1997         |        | 1998         |  | 2000       |        | 2000         |  | 2001        
|                                       |  |              |        |              |  |            |        |              |  |             
|Balance Sheet Data:                    |  |              |        |              |  |            |        |              |  |              |        |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents              |  | $            | 2,739  |              |  | $          | 18,857 |              |  | $            | 5,333  |  |  | $ | 6,390   |  |  | $ | 20,799  | 
|Total assets                           |  |              | 28,489 |              |  |            | 69,187 |              |  |              | 81,707 |  |  |   | 115,926 |  |  |   | 173,030 | 
|Short- and long-term debt              |  |              | 8,372  |              |  |            | 2,352  |              |  |              | 1,829  |  |  |   | 16,692  |  |  |   | 2,092   | 
|Deferred purchase price liability      |  |              | 2,426  |              |  |            |       |              |  |              |       |  |  |   |        |  |  |   |        | 
|Convertible redeemable preferred stock |  |              | 17,808 |              |  |            |       |              |  |              |       |  |  |   |        |  |  |   |        | 
|Common stockholders equity (deficit)  |  |              | (4,446 | )            |  |            | 58,229 |              |  |              | 64,790 |  |  |   | 77,342  |  |  |   | 136,835 | 

|                                       |  |              |       |              |  |            |      |              |  |              |      |   |  |  |       |   |  |  |       |  
|-------------------------------------- |  | ------------ | ----- | ------------ |  | ---------- | ---- | ------------ |  | ------------ | ---- | - |  |  | ----- | - |  |  | ----- | -
|                                       |  | Year         |       | Year         |  | Year       |      | Year         |  | Year        
|                                       |  | Ended        |       | Ended        |  | Ended      |      | Ended        |  | Ended       
|                                       |  | December 28, |       | December 27, |  | January 2, |      | December 31, |  | December 30,
|                                       |  | 1997         |       | 1998         |  | 2000       |      | 2000         |  | 2001        
|                                       |  |              |       |              |  |            |      |              |  |             
|Consolidated Financial Ratios:         |  |              |       |              |  |            |      |              |  |              |      |   |  |  |       |   |  |  |       |  
|Return on Total Average Assets         |  |              | (8.17 | )%           |  |            | 0.31 | %            |  |              | 8.00 | % |  |  | 9.85  | % |  |  | 10.81 | %
|Return on Average Stockholders Equity |  |              | N/A   |              |  |            | 0.55 | %            |  |              | 9.81 | % |  |  | 13.69 | % |  |  | 14.59 | %



---

See Notes 1, 5 and 8 of Notes to
Consolidated Financial Statements.

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##### Table of Contents






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

Overview

As of December 30, 2001, we owned and
operated 65 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 President,
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.

We also owned and operated five limited service
restaurants as of December 30, 2001. 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 and four
additional units in 2001, three in the Phoenix, Arizona area and
one in the Dallas, Texas area. We will continue to commit
additional resources to this concept as we push forward with the
development of the additional Pei Wei units in 2002.

We intend to open 13 to 15 new Bistros in 2002.
The majority of full service units that we intend to develop in
2002 will be located in new markets across the United States. We
have signed lease agreements or letters of intent for all of our
development planned for fiscal 2002. 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
$2.3 million and total invested capital of approximately
$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. See Risk Factors 
Development and Construction Risks.

We also intend to develop 8 to 10 Pei Wei
restaurants in 2002. The Pei Wei units that we intend to develop
in 2002 will primarily be in the Phoenix, Dallas and Southern
California markets. Our Pei Wei sites are generally around 2,800
to 3,200 square feet in size and require an average total cash
investment of approximately $750,000 and total invested capital
of approximately $1.3 million per restaurant. Preopening
expenses at Pei Wei are expected to total approximately $110,000
per restaurant.

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##### Table of Contents



Results of Operations

The operating results of P.F. Changs for
the fiscal years ended January 2, 2000 (fiscal year 1999),
December 31, 2000 (fiscal year 2000) and December 30,
2001 (fiscal year 2001), expressed as a percentage of revenues,
were as follows:

|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |   |      |      | 
|---------------------------------------- | --------------------------- | ----------------------------- | -------------------------------- | ----------- | ---- | ----------- | ----- | - | ---- | ---- | ----- | - | ---- | ---- | 
|                                         |                             | Fiscal Year                   |                                  | Fiscal Year |      | Fiscal Year
|                                         |                             | 1999                          |                                  | 2000        |      | 2001       
|                                         |                             |                               |                                  |             |      |            
|Statements of Operations Data:           |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Revenues                                 |                             |                               | 100.0                            | %           |      |             | 100.0 | % |      |      | 100.0 | %
|                                         | Costs and expenses:         |                               |                                  |             |      |             |       |   |      |      |       |   |     
|                                         | Restaurant operating costs: |                               |                                  |             |      |             |       |   |      |      |       |   |     
|                                         |                             | Cost of sales                 |                                  |             | 27.5 |             |       |   | 27.6 |      |       |   | 27.1 |     
|                                         |                             | Labor                         |                                  |             | 29.7 |             |       |   | 29.7 |      |       |   | 30.5 |     
|                                         |                             | Operating                     |                                  |             | 16.9 |             |       |   | 17.2 |      |       |   | 16.9 |     
|                                         |                             | Occupancy                     |                                  |             | 6.4  |             |       |   | 6.3  |      |       |   | 6.2  |     
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|                                         |                             |                               | Total restaurant operating costs |             |      | 80.5        |       |   |      | 80.8 |       |   |      | 80.7 | 
|                                         |                             | General and administrative    |                                  |             | 6.3  |             |       |   | 5.2  |      |       |   | 5.1  |     
|                                         |                             | Depreciation and amortization |                                  |             | 3.3  |             |       |   | 3.4  |      |       |   | 3.5  |     
|                                         |                             | Preopening expense            |                                  |             | 2.8  |             |       |   | 2.2  |      |       |   | 1.6  |     
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Income from operations                   |                             |                               | 7.1                              |             |      |             | 8.4   |   |      |      | 9.1   |  
|Interest income (expense), net           |                             |                               | 0.3                              |             |      |             | 0.0   |   |      |      | 0.2   |  
|Elimination of minority interests        |                             |                               | (1.6                             | )           |      |             | (1.8  | ) |      |      | (1.7  | )
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Income before provision for income taxes |                             |                               | 5.8                              |             |      |             | 6.6   |   |      |      | 7.6   |  
|Provision for income taxes               |                             |                               | (1.8                             | )           |      |             | (2.5  | ) |      |      | (2.7  | )
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Net income                               |                             |                               | 4.0                              | %           |      |             | 4.1   | % |      |      | 4.9   | %
|                                         |                             |                               |                                  |             |      |             |       |   |      |      |       |  

P.F. Changs operates on a
52/53 week year, with the fiscal year ending on the Sunday
closest to December 31. Fiscal year 1999 includes
53 weeks and fiscal years 2000 and 2001 include
52 weeks.

Year Ended December 30, 2001 Compared to
Year Ended December 31, 2000

Revenues

P.F. Changs revenues are derived entirely
from food and beverage sales. Revenues increased by
$83.9 million, or 35.7%, to $318.8 million in the year
ended December 30, 2001 from $234.9 million in the
year ended December 31, 2000. The increase was primarily
attributable to revenues of $28.7 million generated by new
restaurants opened in 2001, a $47.3 million increase in
revenues in 2001 for restaurants that opened in 2000 and a
$7.9 million increase in revenues for restaurants opened
prior to 2000. Increased customer visits as well as a modest
price increase in the fourth quarter of 2000 and the last half
of the second quarter of 2001 produced comparable restaurant
sales gains of 3.8% in 2001.

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 27.1% in the year
ended December 30, 2001 from 27.6% in the year ended
December 31, 2000. This decrease was primarily the result
of lower commodity prices in seafood, offset by a slight
increase in beef prices.

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 30.5% in the year ended

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December 30, 2001 from 29.7% in the year
ended December 31, 2000. The increase in labor expenses was
primarily due to higher workers compensation and health
insurance costs as well as an increase in Californias
hourly minimum wage from $5.75 to $6.25 effective
January 1, 2001. We continue to experience pressure on
labor costs across the system due to continued increases in
workers compensation and health insurance costs as well as
increases in certain state minimum wages, such as in California.
We expect that higher insurance costs will continue to exert
upward pressure on our labor costs on a year-over-year basis in
2002.


Operating.Operating
expenses consist primarily of various restaurant-level costs,
which are generally variable and are expected to fluctuate with
revenues. 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 as a percentage of revenues to 16.9% in the year ended
December 30, 2001 from 17.2% in the year ended
December 31, 2000. The decrease was primarily attributable
to efficiencies in operating expense purchasing as well as radio
advertising efficiencies, offset by higher utility costs across
our system, particularly in the California market.

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 6.2% in the year ended December 30, 2001 from 6.3% in
the year ended December 31, 2000. The decrease in occupancy
was primarily the result of the increased revenue base offset by
higher insurance costs.

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 $16.4 million, or 5.1% of revenues, in the year ended
December 30, 2001 from $12.3 million, or 5.2% of
revenues, in the year ended December 30, 2000, due
primarily to the addition of corporate management personnel,
which resulted in approximately $2.3 million of additional
compensation and benefits expense, as well as additional costs
to support a larger restaurant base, including an additional
$440,000 in legal, occupancy and insurance costs. 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. Also, of the
total increase, approximately $900,000 related to additional
infrastructure for the Pei Wei concept.

Depreciation and amortization.Depreciation and amortization expenses
include the depreciation of fixed assets and the amortization of
intangibles associated with the acquisition of ownership
interests in our restaurants. Depreciation and amortization
increased to $11.1 million in the year ended
December 30, 2001 from $7.9 million in the year ended
December 31, 2000. This increase was primarily due to
depreciation and amortization on restaurants opened in 2001
totaling $916,000 as well as a full years depreciation and
amortization on restaurants opened in 2000.

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 30, 2001
decreased to $5.1 million from $5.2 million in the
year ended December 31, 2000 due primarily to the fact that
we opened 16 Bistros in 2000 as compared to 13 in 2001,
offset by additional preopening costs incurred at four new Pei
Wei restaurants.

Interest income (expense), net.Net interest income (expense) was
$900,000 in the year ended December 30, 2001 as compared to
$(39,000) in the year ended December 31, 2000. The increase
was due to the interest earned on cash proceeds from the private
equity placement that occurred in January of 2001. In addition,
part of this cash was used to pay off the borrowings under our
credit facility, thereby decreasing our interest expense.

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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 December 30, 2001 increased to
$5.5 million from $4.3 million for the year ended
December 31, 2000, due primarily to the addition of new
restaurants and an increase in the operating profit of many of
our existing restaurants.

Provision for
Income Taxes

The provision for income taxes increased to
$8.7 million for the year ended December 30, 2001 from
$6.0 million for the year ended December 31, 2000 due
primarily to the fact that our taxable income in fiscal 2001
increased substantially from the prior period. The income tax
provision for 2000 and 2001 differs from the expected provision
for income taxes, derived by applying the statutory income tax
rate, primarily as a result of FICA tip credits.

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

Revenues

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 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 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 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, particularly in the
California market.

Occupancy.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.

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##### Table of Contents



General and administrative.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 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
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 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.

Quarterly Results

The following tables set forth certain unaudited
quarterly information for each of the eight fiscal quarters in
the two year period ended December 30, 2001, expressed as a
percentage of revenues, except for revenues which are expressed
in thousands. 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.

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##### Table of Contents



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 2000                      |        | Fiscal 2001
|                                                                                |                             |                                  |        |            
|                                                                                |                             | First                            |        | Second      |      | Third   |        | Fourth  |      | First   |        | Second  |      | Third   |        | Fourth 
|                                                                                |                             | Quarter                          |        | Quarter     |      | Quarter |        | Quarter |      | Quarter |        | Quarter |      | Quarter |        | Quarter
|                                                                                |                             |                                  |        |             |      |         |        |         |      |         |        |         |      |         |        |        
|Revenues                                                                        |                             | $                                | 51,414 |             |      | $       | 53,496 |         |      | $       | 61,179 |         |      | $       | 68,816 |         |      | $ | 72,420 |   |      | $ | 76,457 |   |      | $ | 80,555 |   |      | $ | 89,344 |  
|Costs and expenses:                                                             |                             |                                  |        |             |      |         |        |         |      |         |        |         |      |         |        |         |      |   |        |   |      |   |        |   |      |   |        |   |      |   |        |  
|                                                                                | Restaurant operating costs: |                                  |        |             |      |         |        |         |      |         |        |         |      |         |        |         |      |   |        |   |      |   |        |   |      |   |        |   |      |   |        |   |     
|                                                                                |                             | Cost of sales                    |        |             | 27.4 | %       |        |         | 27.5 | %       |        |         | 27.8 | %       |        |         | 27.5 | % |        |   | 27.7 | % |        |   | 27.2 | % |        |   | 27.0 | % |        |   | 26.5 | %
|                                                                                |                             | Labor                            |        |             | 29.7 |         |        |         | 29.2 |         |        |         | 29.6 |         |        |         | 30.1 |   |        |   | 30.0 |   |        |   | 30.6 |   |        |   | 30.4 |   |        |   | 30.8 |  
|                                                                                |                             | Operating                        |        |             | 17.1 |         |        |         | 17.1 |         |        |         | 17.5 |         |        |         | 17.0 |   |        |   | 16.9 |   |        |   | 17.0 |   |        |   | 17.2 |   |        |   | 16.6 |  
|                                                                                |                             | Occupancy                        |        |             | 6.3  |         |        |         | 6.3  |         |        |         | 6.2  |         |        |         | 6.3  |   |        |   | 6.2  |   |        |   | 6.3  |   |        |   | 6.4  |   |        |   | 6.1  |  
|                                                                                |                             |                                  |        |             |      |         |        |         |      |         |        |         |      |         |        |         |      |   |        |   |      |   |        |   |      |   |        |   |      |   |        |  
|                                                                                |                             | Total restaurant operating costs |        |             | 80.5 |         |        |         | 80.1 |         |        |         | 81.1 |         |        |         | 80.9 |   |        |   | 80.8 |   |        |   | 81.1 |   |        |   | 81.0 |   |        |   | 80.0 |  
|                                                                                |                             | General and administrative       |        |             | 5.4  |         |        |         | 5.7  |         |        |         | 5.0  |         |        |         | 4.9  |   |        |   | 5.1  |   |        |   | 5.3  |   |        |   | 5.1  |   |        |   | 5.0  |  
|                                                                                |                             | Depreciation and amortization    |        |             | 3.3  |         |        |         | 3.3  |         |        |         | 3.3  |         |        |         | 3.5  |   |        |   | 3.5  |   |        |   | 3.5  |   |        |   | 3.5  |   |        |   | 3.5  |  
|                                                                                |                             | Preopening expense               |        |             | 1.5  |         |        |         | 2.6  |         |        |         | 3.3  |         |        |         | 1.5  |   |        |   | 0.9  |   |        |   | 1.8  |   |        |   | 2.1  |   |        |   | 1.6  |  
|                                                                                |                             |                                  |        |             |      |         |        |         |      |         |        |         |      |         |        |         |      |   |        |   |      |   |        |   |      |   |        |   |      |   |        |  
|Income from operations                                                          |                             |                                  | 9.3    |             |      |         | 8.3    |         |      |         | 7.3    |         |      |         | 9.2    |         |      |   | 9.7    |   |      |   | 8.3    |   |      |   | 8.3    |   |      |   | 9.9    |  
|Interest income (expense), net                                                  |                             |                                  | 0.0    |             |      |         | 0.0    |         |      |         | 0.0    |         |      |         | (0.2   | )       |      |   | 0.5    |   |      |   | 0.4    |   |      |   | 0.2    |   |      |   | 0.0    |  
|                                                                                |                             |                                  |        |             |      |         |        |         |      |         |        |         |      |         |        |         |      |   |        |   |      |   |        |   |      |   |        |   |      |   |        |  
|Income before elimination of minority interests
	and provision for income taxes |                             |                                  | 9.3    |             |      |         | 8.3    |         |      |         | 7.3    |         |      |         | 9.0    |         |      |   | 10.2   |   |      |   | 8.7    |   |      |   | 8.5    |   |      |   | 9.9    |  
|Elimination of minority interests                                               |                             |                                  | (1.8   | )           |      |         | (1.9   | )       |      |         | (1.8   | )       |      |         | (1.8   | )       |      |   | (1.8   | ) |      |   | (1.7   | ) |      |   | (1.7   | ) |      |   | (1.7   | )
|                                                                                |                             |                                  |        |             |      |         |        |         |      |         |        |         |      |         |        |         |      |   |        |   |      |   |        |   |      |   |        |   |      |   |        |  
|Income before provision for income taxes                                        |                             |                                  | 7.5    |             |      |         | 6.4    |         |      |         | 5.5    |         |      |         | 7.2    |         |      |   | 8.4    |   |      |   | 7.0    |   |      |   | 6.8    |   |      |   | 8.2    |  
|Provision for income taxes                                                      |                             |                                  | (2.9   | )           |      |         | (2.4   | )       |      |         | (2.1   | )       |      |         | (2.7   | )       |      |   | (3.1   | ) |      |   | (2.5   | ) |      |   | (2.4   | ) |      |   | (2.9   | )
|                                                                                |                             |                                  |        |             |      |         |        |         |      |         |        |         |      |         |        |         |      |   |        |   |      |   |        |   |      |   |        |   |      |   |        |  
|Net income                                                                      |                             |                                  | 4.6    | %           |      |         | 4.0    | %       |      |         | 3.4    | %       |      |         | 4.5    | %       |      |   | 5.3    | % |      |   | 4.5    | % |      |   | 4.4    | % |      |   | 5.3    | %
|                                                                                |                             |                                  |        |             |      |         |        |         |      |         |        |         |      |         |        |         |      |   |        |   |      |   |        |   |      |   |        |   |      |   |        |  

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 $18.8 million,
$25.6 million and $43.3 million for fiscal years 1999,
2000 and 2001, respectively. Net cash provided by operating
activities exceeded the net income for the periods due
principally to the effect of depreciation and amortization, an
increase in operating liabilities and the effect of minority
interest.

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We use cash primarily to fund the development and
construction of new restaurants. Net cash used in investing
activities in fiscal years 1999, 2000 and 2001 was
$30.2 million, $36.9 million, and $51.9 million,
respectively. Investment activities consisted of capital
expenditures of $30.3 million, $37.4 million and
$35.9 million in fiscal years 1999, 2000 and 2001,
respectively, as well as investments in short-term instruments
of $13.3 million and in long-term instruments of
$1.7 million in fiscal 2001. We intend to open
13-15 new Bistro restaurants and 8-10 new Pei Wei
restaurants in fiscal year 2002. We expect that our planned
future Bistro restaurants will require, on average, a total cash
investment per restaurant of approximately $2.3 million.
Preopening expenses are expected to average approximately
$325,000 per restaurant. Total cash investment per each Pei Wei
restaurant is expected to average $750,000 with preopening
expenses estimated at $110,000 per location.

Net cash provided by (used in) financing
activities in fiscal years 1999, 2000 and 2001 was
($2.2 million), $12.4 million and $23.0 million,
respectively. Financing activities in fiscal year 1999 consisted
principally of distributions to our partners. Financing
activities in fiscal year 2000 consisted primarily of borrowings
under our credit facility offset by distributions to our
partners. Financing activities in fiscal year 2001 consisted
principally of the proceeds from our private equity placement,
offset by the subsequent repayment of the borrowings under our
credit facility and distributions to our partners.

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 used $15 million of the proceeds to
repay outstanding borrowings under our credit facility and will
continue to use the remainder 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. A portion of the assets of
P.F. Changs serves as collateral for the credit
facility. We had no borrowings under the credit facility as of
December 30, 2001.

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, leadership
and operation of its restaurants. Each partner is required to
make a capital contribution in exchange for 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. At the end of a specific term (generally
five years), P.F. Changs has the right, but not the
obligation, to purchase the minority partners interest in
the partners respective restaurant or region at fair
market value. An estimated fair value is determined by reference
to current industry purchase metrics as well as the discounted
cash flows of the subject restaurants/ regions
financial results. We have the option to pay the agreed upon
purchase price in cash or common stock of the company over a
period of time not to exceed five years.

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As of December 30, 2001, there were
90 partners within the P.F. Changs China Bistro,
Inc. system. During 2001, we purchased the interests of 11 of
our minority partners for a total of approximately
$1.9 million, of which the majority was recorded as
intangibles in accordance with accounting principles generally
accepted in the United States. Approximately $924,000 of the
total purchase price was paid in cash while the remaining
balance has been recorded as amounts due to related parties on
the balance sheet at December 30, 2001. In 2002, we will
have the opportunity to purchase five additional partnership
interests. If all of these interests were fully purchased, the
total purchase price would approximate $5.0 to
$6.0 million based upon the estimated fair value of the
respective interests at December 30, 2001. Such amounts are
subject to change based upon changes in the estimated fair value
of the respective interests from December 30, 2001 through
the date of purchase.

New Accounting Standards

In June 2001, the Financial Accounting Standards
Board issued SFAS No. 141, Business
Combinations, and No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer
be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. For fiscal
2001, the amortization provisions of SFAS No. 142 apply to
goodwill and other intangible assets acquired after
June 30, 2001. For fiscal 2002, the provision will apply to
all goodwill and other intangible assets. The Company will apply
the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002, including the
required impairment tests. The Company recorded approximately
$503,000 in amortization of its intangible assets during 2001
that is being evaluated by management to determine which portion
will be subject to no future amortization under FAS 142.

In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, which
addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supersedes SFAS
No. 121, Accounting for the Impairment or Disposal of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of
Operations for a disposal of a segment of a business.
SFAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The
Company expects to adopt SFAS 144 as of December 31,
2001 and it does not expect that the adoption of the Statement
will have a significant impact on the Companys financial
position and results of operations.

Inflation

The primary inflationary factors affecting our
operations are food, labor, insurance and utility costs. A large
number of our restaurant personnel are paid at rates based on
the applicable minimum wage, and increases in the minimum wage
can affect our labor costs. Additionally, further increases in
workers compensation and health insurance costs could also
affect our labor costs.




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 30, 2001 is not material, and
therefore, disclosure is not required.

29



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##### 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                                                                                                        |  |      | 31 | 
|Consolidated Financial Statements:                                                                                                    |  |      |    | 
|Consolidated Balance Sheets at December 31,
	2000 and December 30, 2001                                                               |  |      | 32 | 
|Consolidated Statements of Operations for the
	Years Ended January 2, 2000, December 31, 2000 and
	December 30, 2001                  |  |      | 33 | 
|Consolidated Statements of Common
	Stockholders Equity for the Years Ended January 2,
	2000, December 31, 2000 and December 30, 2001 |  |      | 34 | 
|Consolidated Statements of Cash Flows for the
	Years Ended January 2, 2000, December 31, 2000 and
	December 30, 2001                  |  |      | 35 | 
|Notes to Consolidated Financial Statements                                                                                            |  |      | 36 | 

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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

P.F. Changs China Bistro, Inc.


We have audited the accompanying consolidated
balance sheets of P.F. Changs China Bistro, Inc. (the
Company) as of December 31, 2000 and
December 30, 2001, and the related consolidated statements
of operations, common stockholders equity, and cash flows
for each of the three years in the period ended
December 30, 2001. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of P.F. Changs China
Bistro, Inc. at December 31, 2000 and December 30,
2001 and the results of its operations and its cash flows for
each of the three years in the period ended December 30,
2001, in conformity with accounting principles generally
accepted in the United States.



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

Phoenix, Arizona

February 8, 2002


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P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                     |                                                                                                                                                                                   |                |         |              |  |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------------ |  | - | ------- | ------- | 
|                                                                                                                                     |                                                                                                                                                                                   | December 31,   |         | December 30,
|                                                                                                                                     |                                                                                                                                                                                   | 2000           |         | 2001        
|                                                                                                                                     |                                                                                                                                                                                   |                |         |             
|                                                                                                                                     |                                                                                                                                                                                   |               
|                                                                                                                                     |                                                                                                                                                                                   | (In thousands)
|ASSETS                                                                                                                               |                                                                                                                                                                                   |                |         |              |  |   |         |        
|Current assets:                                                                                                                      |                                                                                                                                                                                   |                |         |              |  |   |         |        
|                                                                                                                                     | Cash and cash equivalents                                                                                                                                                         |                | $       | 6,390        |  |   | $       | 20,799  | 
|                                                                                                                                     | Short-term investments                                                                                                                                                            |                |         |             |  |   |         | 13,300  | 
|                                                                                                                                     | Receivables                                                                                                                                                                       |                |         | 1,671        |  |   |         | 1,960   | 
|                                                                                                                                     | Inventories                                                                                                                                                                       |                |         | 1,683        |  |   |         | 2,066   | 
|                                                                                                                                     | Current portion of notes receivable from related
	parties                                                                                                                         |                |         | 72           |  |   |         | 145     | 
|                                                                                                                                     | Prepaids and other current assets                                                                                                                                                 |                |         | 2,161        |  |   |         | 1,346   | 
|                                                                                                                                     |                                                                                                                                                                                   |                |         |              |  |   |         |        
|Total current assets                                                                                                                 |                                                                                                                                                                                   |                | 11,977  |              |  |   | 39,616  |        
|Construction-in-progress                                                                                                             |                                                                                                                                                                                   |                | 2,213   |              |  |   | 6,137   |        
|Property and equipment, net                                                                                                          |                                                                                                                                                                                   |                | 92,284  |              |  |   | 114,020 |        
|Intangibles, net of accumulated amortization of
	$1,712,000 and $2,215,000 at December 31, 2000 and
	December 30, 2001, respectively |                                                                                                                                                                                   |                | 7,386   |              |  |   | 8,592   |        
|Notes receivable from related parties, less
	current portion                                                                         |                                                                                                                                                                                   |                | 20      |              |  |   | 100     |        
|Other assets                                                                                                                         |                                                                                                                                                                                   |                | 2,046   |              |  |   | 4,565   |        
|                                                                                                                                     |                                                                                                                                                                                   |                |         |              |  |   |         |        
|Total assets                                                                                                                         |                                                                                                                                                                                   | $              | 115,926 |              |  | $ | 173,030 |        
|                                                                                                                                     |                                                                                                                                                                                   |                |         |              |  |   |         |        
|LIABILITIES AND STOCKHOLDERS
	EQUITY                                                                                                |                                                                                                                                                                                   |                |         |              |  |   |         |        
|Current liabilities:                                                                                                                 |                                                                                                                                                                                   |                |         |              |  |   |         |        
|                                                                                                                                     | Accounts payable                                                                                                                                                                  |                | $       | 3,128        |  |   | $       | 5,764   | 
|                                                                                                                                     | Construction payable                                                                                                                                                              |                |         | 2,356        |  |   |         | 2,656   | 
|                                                                                                                                     | Accrued payroll                                                                                                                                                                   |                |         | 3,269        |  |   |         | 4,396   | 
|                                                                                                                                     | Sales and use tax payable                                                                                                                                                         |                |         | 1,792        |  |   |         | 2,244   | 
|                                                                                                                                     | Property tax payable                                                                                                                                                              |                |         | 1,474        |  |   |         | 2,157   | 
|                                                                                                                                     | Accrued insurance                                                                                                                                                                 |                |         | 807          |  |   |         | 2,023   | 
|                                                                                                                                     | Accrued rent                                                                                                                                                                      |                |         | 1,350        |  |   |         | 2,171   | 
|                                                                                                                                     | Other accrued expenses                                                                                                                                                            |                |         | 1,554        |  |   |         | 2,101   | 
|                                                                                                                                     | Unearned revenue                                                                                                                                                                  |                |         | 2,793        |  |   |         | 4,150   | 
|                                                                                                                                     | Current portion of long-term debt, including
	$72,000 and $264,000 due to related parties at December 31,
	2000 and December 30, 2001, respectively                               |                |         | 207          |  |   |         | 448     | 
|                                                                                                                                     | Income tax payable                                                                                                                                                                |                |         |             |  |   |         | 1,190   | 
|                                                                                                                                     |                                                                                                                                                                                   |                |         |              |  |   |         |        
|Total current liabilities                                                                                                            |                                                                                                                                                                                   |                | 18,730  |              |  |   | 29,300  |        
|Long-term debt, including $72,000 and $458,000
	due to related parties at December 31, 2000 and
	December 30, 2001, respectively     |                                                                                                                                                                                   |                | 1,485   |              |  |   | 1,644   |        
|Short-term credit facility expected to be
	refinanced                                                                                |                                                                                                                                                                                   |                | 15,000  |              |  |   |        |        
|Deferred income tax liability                                                                                                        |                                                                                                                                                                                   |                | 2,318   |              |  |   | 3,360   |        
|Interests of minority partners in consolidated
	partnerships                                                                         |                                                                                                                                                                                   |                | 1,051   |              |  |   | 1,891   |        
|Commitments and contingencies                                                                                                        |                                                                                                                                                                                   |                |         |              |  |   |         |        
|Stockholders equity:                                                                                                                |                                                                                                                                                                                   |                |         |              |  |   |         |        
|                                                                                                                                     | Common stock, $0.001 par value,
	20,000,000 shares authorized: 10,453,144 and
	11,947,783 shares issued and outstanding at
	December 31, 2000 and December 30, 2001, respectively |                |         | 10           |  |   |         | 12      | 
|                                                                                                                                     | Additional paid-in capital                                                                                                                                                        |                |         | 66,757       |  |   |         | 110,629 | 
|                                                                                                                                     | Retained earnings                                                                                                                                                                 |                |         | 10,575       |  |   |         | 26,194  | 
|                                                                                                                                     |                                                                                                                                                                                   |                |         |              |  |   |         |        
|Total stockholders equity                                                                                                           |                                                                                                                                                                                   |                | 77,342  |              |  |   | 136,835 |        
|                                                                                                                                     |                                                                                                                                                                                   |                |         |              |  |   |         |        
|Total liabilities and stockholders equity                                                                                           |                                                                                                                                                                                   | $              | 115,926 |              |  | $ | 173,030 |        
|                                                                                                                                     |                                                                                                                                                                                   |                |         |              |  |   |         |        

See accompanying notes.

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P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |        |        |         | 
|------------------------------------------------------------------------------- | ----------------------------- | ---------------------------------------- | -------------------------------- | ------------ | ------ | ------------ | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | 
|                                                                                |                               | Year Ended                               |                                  | Year Ended   |        | Year Ended  
|                                                                                |                               | January 2,                               |                                  | December 31, |        | December 30,
|                                                                                |                               | 2000                                     |                                  | 2000         |        | 2001        
|                                                                                |                               |                                          |                                  |              |        |             
|                                                                                |                               |                                         
|                                                                                |                               | (In thousands, except per share amounts)
|Revenues                                                                        |                               | $                                        | 153,295                          |              |        | $            | 234,905 |        |        | $       | 318,776 |       
|Costs and expenses:                                                             |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|                                                                                | Restaurant operating costs:   |                                          |                                  |              |        |              |         |        |        |         |         |        |       
|                                                                                |                               | Cost of sales                            |                                  |              | 42,136 |              |         |        | 64,720 |         |         |        | 86,368 |        
|                                                                                |                               | Labor                                    |                                  |              | 45,569 |              |         |        | 69,685 |         |         |        | 97,094 |        
|                                                                                |                               | Operating                                |                                  |              | 25,907 |              |         |        | 40,312 |         |         |        | 53,932 |        
|                                                                                |                               | Occupancy                                |                                  |              | 9,865  |              |         |        | 14,752 |         |         |        | 19,902 |        
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|                                                                                |                               |                                          | Total restaurant operating costs |              |        | 123,477      |         |        |        | 189,469 |         |        |        | 257,296 | 
|                                                                                | General and administrative    |                                          |                                  | 9,648        |        |              |         | 12,290 |        |         |         | 16,359 |       
|                                                                                | Depreciation and amortization |                                          |                                  | 4,975        |        |              |         | 7,874  |        |         |         | 11,064 |       
|                                                                                | Preopening expense            |                                          |                                  | 4,344        |        |              |         | 5,200  |        |         |         | 5,099  |       
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|Income from operations                                                          |                               |                                          | 10,851                           |              |        |              | 20,072  |        |        |         | 28,958  |       
|Interest income (expense):                                                      |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|                                                                                | Interest expense              |                                          |                                  | (228         | )      |              |         | (399   | )      |         |         | (302   | )     
|                                                                                | Interest income               |                                          |                                  | 660          |        |              |         | 360    |        |         |         | 1,202  |       
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|Income before elimination of minority interests
	and provision for income taxes |                               |                                          | 11,283                           |              |        |              | 20,033  |        |        |         | 29,858  |       
|Elimination of minority interests                                               |                               |                                          | (2,469                           | )            |        |              | (4,317  | )      |        |         | (5,550  | )     
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|Income before provision for income taxes                                        |                               |                                          | 8,814                            |              |        |              | 15,716  |        |        |         | 24,308  |       
|Provision for income taxes                                                      |                               |                                          | (2,778                           | )            |        |              | (5,987  | )      |        |         | (8,689  | )     
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|Net income                                                                      |                               | $                                        | 6,036                            |              |        | $            | 9,729   |        |        | $       | 15,619  |       
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|Net income per share:                                                           |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|                                                                                | Basic                         |                                          | $                                | 0.59         |        |              | $       | 0.94   |        |         | $       | 1.32   |       
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|                                                                                | Diluted                       |                                          | $                                | 0.54         |        |              | $       | 0.86   |        |         | $       | 1.23   |       
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|Weighted average shares used in computation:                                    |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|                                                                                | Basic                         |                                          |                                  | 10,217       |        |              |         | 10,376 |        |         |         | 11,864 |       
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       
|                                                                                | Diluted                       |                                          |                                  | 11,155       |        |              |         | 11,354 |        |         |         | 12,735 |       
|                                                                                |                               |                                          |                                  |              |        |              |         |        |        |         |         |       

See accompanying notes.

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P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF COMMON
STOCKHOLDERS EQUITY

|                                                                  |  |                             |        |            |  |          |    |           |  |       |         |  |  |   |        |   |  |   |         | 
|----------------------------------------------------------------- |  | --------------------------- | ------ | ---------- |  | -------- | -- | --------- |  | ----- | ------- |  |  | - | ------ | - |  | - | ------- | 
|                                                                  |  |                            
|                                                                  |  | Common Stockholders Equity
|                                                                  |  |                            
|                                                                  |  |                             |        |           
|                                                                  |  | Common Stock                |        | Additional |  | Retained |    |          
|                                                                  |  |                             |        | Paid-In    |  | Earnings |    |          
|                                                                  |  | Shares                      |        | Amount     |  | Capital  |    | (Deficit) |  | Total
|                                                                  |  |                             |        |            |  |          |    |           |  |      
|                                                                  |  |                            
|                                                                  |  | (In thousands)             
|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  | 
|Issuance of common stock, net of issuance costs
	of $66,000       |  |                             | 1,250  |            |  |          | 2  |           |  |       | 40,766  |  |  |   |       |   |  |   | 40,768  | 
|Issuance of common stock under stock option plan                  |  |                             | 171    |            |  |          |   |           |  |       | 1,333   |  |  |   |       |   |  |   | 1,333   | 
|Issuance of common stock under employee stock
	purchase plan      |  |                             | 19     |            |  |          |   |           |  |       | 537     |  |  |   |       |   |  |   | 537     | 
|Issuance of common stock through exercise of
	outstanding warrant |  |                             | 55     |            |  |          |   |           |  |       |        |  |  |   |       |   |  |   |        | 
|Benefit from disqualifying stock option
	dispositions             |  |                             |       |            |  |          |   |           |  |       | 1,236   |  |  |   |       |   |  |   | 1,236   | 
|Net income                                                        |  |                             |       |            |  |          |   |           |  |       |        |  |  |   | 15,619 |   |  |   | 15,619  | 
|                                                                  |  |                             |        |            |  |          |    |           |  |       |         |  |  |   |        |   |  |   |         | 
|Balances, December 30, 2001                                       |  |                             | 11,948 |            |  | $        | 12 |           |  | $     | 110,629 |  |  | $ | 26,194 |   |  | $ | 136,835 | 
|                                                                  |  |                             |        |            |  |          |    |           |  |       |         |  |  |   |        |   |  |   |         | 

See accompanying notes.

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P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                     |                                              |                                   |         |              |       |              |         |       |       |   |         |        |       |  
|---------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------- | ------- | ------------ | ----- | ------------ | ------- | ----- | ----- | - | ------- | ------ | ----- | -
|                                                                                                     |                                              | Year Ended                        |         | Year Ended   |       | Year Ended  
|                                                                                                     |                                              | January 2,                        |         | December 31, |       | December 30,
|                                                                                                     |                                              | 2000                              |         | 2000         |       | 2001        
|                                                                                                     |                                              |                                   |         |              |       |             
|                                                                                                     |                                              |                                  
|                                                                                                     |                                              | (In thousands)                   
|Operating Activities:                                                                                |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Net income                                                                                           |                                              | $                                 | 6,036   |              |       | $            | 9,729   |       |       | $ | 15,619  |       
|Adjustments to reconcile net income to net cash
	provided by operating activities:                   |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|                                                                                                     | Depreciation and amortization                |                                   |         | 4,539        |       |              |         | 7,432 |       |   |         | 10,561 |      
|                                                                                                     | Amortization of intangibles                  |                                   |         | 436          |       |              |         | 442   |       |   |         | 503    |      
|                                                                                                     | Deferred income taxes                        |                                   |         | 601          |       |              |         | 1,717 |       |   |         | 1,042  |      
|                                                                                                     | Minority interests                           |                                   |         | 2,469        |       |              |         | 4,317 |       |   |         | 5,549  |      
|                                                                                                     | Changes in operating assets and liabilities: |                                   |         |              |       |              |         |       |       |   |         |        |      
|                                                                                                     |                                              | Receivables                       |         |              | 1,517 |              |         |       | (396  | ) |         |        | (289  | )
|                                                                                                     |                                              | Inventories                       |         |              | (412  | )            |         |       | (598  | ) |         |        | (383  | )
|                                                                                                     |                                              | Prepaids and other current assets |         |              | (573  | )            |         |       | (957  | ) |         |        | (188  | )
|                                                                                                     |                                              | Other assets                      |         |              | (582  | )            |         |       | (747  | ) |         |        | (819  | )
|                                                                                                     |                                              | Accounts payable                  |         |              | 68    |              |         |       | 583   |   |         |        | 2,636 |  
|                                                                                                     |                                              | Accrued payroll                   |         |              | 205   |              |         |       | 1,121 |   |         |        | 1,127 |  
|                                                                                                     |                                              | Sales and use tax payable         |         |              | 698   |              |         |       | 475   |   |         |        | 452   |  
|                                                                                                     |                                              | Property tax payable              |         |              | 487   |              |         |       | 833   |   |         |        | 683   |  
|                                                                                                     |                                              | Accrued insurance                 |         |              | 338   |              |         |       | 214   |   |         |        | 1,216 |  
|                                                                                                     |                                              | Accrued rent                      |         |              | 326   |              |         |       | 571   |   |         |        | 821   |  
|                                                                                                     |                                              | Other accrued expenses            |         |              | 46    |              |         |       | 191   |   |         |        | 481   |  
|                                                                                                     |                                              | Unearned revenue                  |         |              | 932   |              |         |       | 1,117 |   |         |        | 1,357 |  
|                                                                                                     |                                              | Income tax payable                |         |              | 1,687 |              |         |       | (478  | ) |         |        | 3,429 |  
|                                                                                                     |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Net cash provided by operating activities                                                            |                                              |                                   | 18,818  |              |       |              | 25,566  |       |       |   | 43,797  |       
|Investing Activities:                                                                                |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Capital expenditures                                                                                 |                                              |                                   | (30,319 | )            |       |              | (37,381 | )     |       |   | (35,921 | )     
|Purchases of investments                                                                             |                                              |                                   |        |              |       |              |        |       |       |   | (15,000 | )     
|Decrease (increase) in notes receivable from
	related parties                                        |                                              |                                   | 133     |              |       |              | 545     |       |       |   | (93     | )     
|Purchase of minority interests                                                                       |                                              |                                   |        |              |       |              | (63     | )     |       |   | (924    | )     
|                                                                                                     |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Net cash used in investing activities                                                                |                                              |                                   | (30,186 | )            |       |              | (36,899 | )     |       |   | (51,938 | )     
|Financing Activities:                                                                                |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Proceeds from revolving credit facility, net of
	repayments                                          |                                              |                                   |        |              |       |              | 15,000  |       |       |   | (15,000 | )     
|Repayments of long-term debt                                                                         |                                              |                                   | (523    | )            |       |              | (281    | )     |       |   | (250    | )     
|Proceeds from issuance of common stock                                                               |                                              |                                   |        |              |       |              |        |       |       |   | 40,768  |       
|Proceeds from stock options exercised and
	employee stock purchases                                  |                                              |                                   | 525     |              |       |              | 1,614   |       |       |   | 1,870   |       
|Proceeds from minority interest contributions                                                        |                                              |                                   | 455     |              |       |              | 442     |       |       |   | 555     |       
|Distributions to minority interests                                                                  |                                              |                                   | (2,613  | )            |       |              | (4,385  | )     |       |   | (5,393  | )     
|                                                                                                     |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Net cash provided by (used in) financing
	activities                                                 |                                              |                                   | (2,156  | )            |       |              | 12,390  |       |       |   | 22,550  |       
|                                                                                                     |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Net increase (decrease) in cash and cash
	equivalents                                                |                                              |                                   | (13,524 | )            |       |              | 1,057   |       |       |   | 14,409  |       
|Cash and cash equivalents at the beginning of the
	year                                              |                                              |                                   | 18,857  |              |       |              | 5,333   |       |       |   | 6,390   |       
|                                                                                                     |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Cash and cash equivalents at the end of the year                                                     |                                              | $                                 | 5,333   |              |       | $            | 6,390   |       |       | $ | 20,799  |       
|                                                                                                     |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Supplemental Disclosures of Cash Flow
	Information:                                                  |                                              |                                   |         |              |       |              |         |       |       |   |         |       
|Cash paid for interest                                                                               |                                              | $                                 | 231     |              |       | $            | 896     |       |       | $ | 358     |       
|Cash paid for income taxes                                                                           |                                              |                                   | 490     |              |       |              | 6,960   |       |       |   | 4,223   |       
|Purchase of minority interests through issuance
	of long-term debt and conversion to members capital |                                              |                                   |        |              |       |              | 346     |       |       |   | 778     |       
|Benefit from disqualifying stock option
	dispositions credited to equity                             |                                              |                                   |        |              |       |              | 1,209   |       |       |   | 1,236   |       

See accompanying notes.

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P.F. CHANGS CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2000 and December 30,
2001


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
2000 and 2001 and 53 weeks in 1999.

Use of
Estimates

The preparation of the consolidated 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 consolidated 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s cash balances are not pledged
or restricted. The Companys policy is to invest cash in
excess of operating requirements in income-producing
investments. Income-producing investments with maturities of
three months or less at the time of investment are reflected as
cash equivalents. Cash equivalents at December 30, 2001
consist primarily of money market funds.

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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Investments

The Company accounts for investments in
accordance with Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. The Companys investments are classified
as available for sale. At December 30, 2001,
$13.3 million, recorded as Short-term Investments,
consisted of preferred stock investments in Dividends Received
Eligible Auction Market Stock (DREAMS) offered under private
placements by a subsidiary of Bank of America. Under the terms
of the investment arrangement, the Company participates in
periodic auctions that are generally held every 49 days and
that determine the dividend rate. The Company has the
opportunity to offer to sell its investment during such periodic
auctions subject to availability of buying bidders. The Company
may also sell the investment to certain accredited investors.
Under the prospectus it is the intention to maintain a rating
for the DREAMS at a grade of AAA by Moodys. At
December 30, 2001, the Company also had a $1.7 million
investment, recorded in Other Assets, in a municipal bond
maturing in 2031. Both instruments have a cost which equals fair
market value at December 30, 2001.

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.

Notes
Receivable From Related Parties

Notes receivable from related parties represent
amounts due the Company from employees, none of which are
officers, directors or affiliates of the Company. A significant
portion of these amounts is due from an employee of Pei Wei
Asian Diner, Inc. All notes receivable outstanding as of
December 30, 2001 will become due within the next 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. During the years ended
January 2, 2000, December 31, 2000 and
December 30, 2001, the Company capitalized $0, $533,000 and
$77,000, respectively, of interest costs.

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.

Intangibles

Intangibles consist primarily of goodwill
relating to the excess of cost over net assets acquired in the
purchase of interests in various restaurants at the formation of
the Company and the subsequent acquisition of certain minority
partnership interests in the operating rights of certain of the
Companys partnerships and/or

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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operating restaurants. The initial goodwill was
recorded at $8.7 million and the subsequently-acquired
interests in partnerships and/or operating restaurants is
$2.1 million. Intangibles are amortized over 20 years
on a straight-line basis. In accordance with the provisions of
SFAS 142, the Company will apply the new rules on accounting for
goodwill and other intangible assets beginning in the first
quarter of 2002. Also during 2002, the Company will perform the
required impairment tests of goodwill and indefinite lived
intangible assets. The Company currently anticipates that its
goodwill will no longer be amortized under SFAS 142 but will be
subjected to periodic impairment assessments as defined in that
Standard. The Company is currently assessing the treatment of
the subsequently-acquired minority interests in partnerships
and/or operating restaurants.

Unearned
Revenue

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

Revenue
Recognition

Revenues 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 January 2, 2000,
December 31, 2000 and December 30, 2001 was
approximately $2,004,000, $2,442,000 and $2,304,000 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 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.

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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Net Income
Per Share

Net income 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,
investments, 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, 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 to the current year consolidated financial statements
presentation.

Recent
Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board issued SFAS No. 141, Business
Combinations, and No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer
be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. For fiscal
2001, the amortization provisions of SFAS No. 142 apply to
goodwill and other intangible assets acquired after
June 30, 2001. For fiscal 2002, the provision will apply to
all goodwill and other intangible assets. The Company will apply
the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002, including the
required impairment tests. The Company recorded approximately
$503,000 in amortization of its intangible assets during 2001
that is being evaluated by management to determine which portion
will be subject to no future amortization under FAS 142.

In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets
(SFAS 144), which addresses financial accounting and

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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121,
Accounting for the Impairment or Disposal of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and
the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations for
a disposal of a segment of a business. SFAS 144 is
effective for fiscal years beginning after December 15,
2001, with earlier application encouraged. The Company expects
to adopt SFAS 144 as of December 31, 2001 and it does not
expect that the adoption of the Statement will have a
significant impact on the Companys financial position and
results of operations.

2.     Property and
Equipment

Property and equipment consists of the following:

|                                               |  |                |         |              |  |   |         | 
|---------------------------------------------- |  | -------------- | ------- | ------------ |  | - | ------- | 
|                                               |  | December 31,   |         | December 30,
|                                               |  | 2000           |         | 2001        
|                                               |  |                |         |             
|                                               |  |               
|                                               |  | (In thousands)
|Leasehold improvements                         |  | $              | 81,173  |              |  | $ | 105,166 | 
|Furniture, fixtures and equipment              |  |                | 23,770  |              |  |   | 30,994  | 
|China and smallwares                           |  |                | 2,672   |              |  |   | 3,454   | 
|                                               |  |                |         |              |  |   |         | 
|                                               |  |                | 107,615 |              |  |   | 139,614 | 
|Less accumulated depreciation and amortization |  |                | 15,331  |              |  |   | 25,594  | 
|                                               |  |                |         |              |  |   |         | 
|                                               |  | $              | 92,284  |              |  | $ | 114,020 | 
|                                               |  |                |         |              |  |   |         | 

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. A portion of the assets of the Company serves as
collateral for the credit facility. The Company had no
borrowings outstanding under the credit facility as of
December 30, 2001. The Company used proceeds from the
private equity placement that occurred early in 2001 to repay
the $15 million in borrowings that was outstanding as of
December 31, 2000.

40



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4.     Long-Term
Debt

Long-term debt consists of the following:

|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |              |  |   |       |     | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | -------------- | ----- | ------------ |  | - | ----- | --- | 
|                                                                                                                                                                                                                                                                                                                                                |                      | December 31,   |       | December 30,
|                                                                                                                                                                                                                                                                                                                                                |                      | 2000           |       | 2001        
|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |             
|                                                                                                                                                                                                                                                                                                                                                |                      |               
|                                                                                                                                                                                                                                                                                                                                                |                      | (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 |                      | $              | 1,030 |              |  | $ | 1,005 |    
|$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                                                                                                                         |                      |                | 280   |              |  |   | 204   |    
|$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                                                                                             |                      |                | 225   |              |  |   | 160   |    
|$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                                                                               |                      |                | 13    |              |  |   | 0     |    
|$795,000 in unsecured promissory notes, payable
	to related parties in annual installments of $530,000 plus
	interest, with rates ranging from 225 basis points over LIBOR to
	8%, until April 2004                                                                                                                                             |                      |                | 144   |              |  |   | 723   |    
|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |              |  |   |       |    
|                                                                                                                                                                                                                                                                                                                                                |                      |                | 1,692 |              |  |   | 2,092 |    
|                                                                                                                                                                                                                                                                                                                                                | Less current portion |                |       | 207          |  |   |       | 448 | 
|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |              |  |   |       |    
|                                                                                                                                                                                                                                                                                                                                                |                      | $              | 1,485 |              |  | $ | 1,644 |    
|                                                                                                                                                                                                                                                                                                                                                |                      |                |       |              |  |   |       |    

The aggregate annual payments of long-term debt
outstanding at December 30, 2001, for the next five years
and thereafter, are summarized as follows: 2002 
$448,000; 2003  $397,000; 2004  $332,000;
2005  $37,000; 2006  $42,000 and
thereafter  $836,000.

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
December 31, 2000 and December 30, 2001.

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. This warrant was exercised in the first quarter of
2001 in accordance with the cashless exercise provision
contained therein for an aggregate of 55,545 shares of common
stock.

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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Common
Stock

In January of 2001, the Company 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. The Company used $15 million of the
proceeds to repay outstanding borrowings under its credit
facility.

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
December 30, 2001 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
400,000 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.

42



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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pro forma information regarding net income 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 1999 and 2000 and
2001: risk-free interest rate of 5.5 percent; a dividend
yield of -0- percent; volatility factors of the expected
market price of the Companys common stock of .497, .559
and .433 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  
|                                             |                                                  | January 2,            |       | December 31, |  | December 30,
|                                             |                                                  | 2000                  |       | 2000         |  | 2001        
|                                             |                                                  |                       |       |              |  |             
|                                             |                                                  |                      
|                                             |                                                  | (In thousands, except
|                                             |                                                  | per share amounts)   
|Net income, as reported                      |                                                  | $                     | 6,036 |              |  | $            | 9,729 |        |  | $ | 15,619 |       
|                                             | Pro forma compensation expense for stock options |                       |       | 697          |  |              |       | 806    |  |   |        | 1,275  | 
|                                             |                                                  |                       |       |              |  |              |       |        |  |   |        |       
|Pro forma net income                         |                                                  | $                     | 5,339 |              |  | $            | 8,923 |        |  | $ | 14,344 |       
|                                             |                                                  |                       |       |              |  |              |       |        |  |   |        |       
|Pro forma net income per share:              |                                                  |                       |       |              |  |              |       |        |  |   |        |       
|                                             | Basic                                            |                       | $     | 0.52         |  |              | $     | 0.86   |  |   | $      | 1.21   | 
|                                             |                                                  |                       |       |              |  |              |       |        |  |   |        |       
|                                             | Diluted                                          |                       | $     | 0.48         |  |              | $     | 0.79   |  |   | $      | 1.13   | 
|                                             |                                                  |                       |       |              |  |              |       |        |  |   |        |       
|Weighted average shares used in computation: |                                                  |                       |       |              |  |              |       |        |  |   |        |       
|                                             | Basic                                            |                       |       | 10,217       |  |              |       | 10,376 |  |   |        | 11,864 | 
|                                             |                                                  |                       |       |              |  |              |       |        |  |   |        |       
|                                             | Diluted                                          |                       |       | 11,155       |  |              |       | 11,354 |  |   |        | 12,735 | 
|                                             |                                                  |                       |       |              |  |              |       |        |  |   |        |       

43



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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                 |                      |             |         |                     |   |           |           |          |   |   |       |       | 
|-------------------------------- | -------------------- | ----------- | ------- | ------------------- | - | --------- | --------- | -------- | - | - | ----- | ----- | 
|                                 |                      |             |         |                    
|                                 |                      |             |         | Outstanding Options
|                                 |                      |             |         |                    
|                                 |                      |             |         |                     |   | Weighted-
|                                 |                      | Shares      |         |                     |   | Average  
|                                 |                      | Available   |         |                     |   | Exercise 
|                                 |                      | for Options |         | Shares              |   | Price    
|                                 |                      |             |         |                     |   |          
|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 |      
|                                 | Authorized           |             |         | 300,000             |   |           |           |         |   |   |       |      | 
|                                 | Granted              |             |         | (321,750            | ) |           |           | 321,750  |   |   |       | 37.60 | 
|                                 | Exercised            |             |         |                    |   |           |           | (175,720 | ) |   |       | 7.87  | 
|                                 | Forfeited (canceled) |             |         | 38,631              |   |           |           | (38,631  | ) |   |       | 30.20 | 
|                                 |                      |             |         |                     |   |           |           |          |   |   |       |      
|Outstanding at December 30, 2001 |                      |             | 177,960 |                     |   |           | 1,520,870 |          |   | $ | 17.83 |      
|                                 |                      |             |         |                     |   |           |           |          |   |   |       |      

Information regarding options outstanding and
exercisable at December 30, 2001 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  $10.0  |                     |  |                     | 0 672,985 |                |  |             | 4.6 years |                |  | $ | 3.59  |  |  |  | 657,416 |  |  | $ | 3.53  | 
|                | $10.01  $20.00 |                     |  |                     | 117,138   |                |  |             | 6.9 years |                |  |   | 14.07 |  |  |  | 49,449  |  |  |   | 14.05 | 
|                | $20.01  $30.00 |                     |  |                     | 348,830   |                |  |             | 7.8 years |                |  |   | 25.69 |  |  |  | 136,044 |  |  |   | 24.82 | 
|                | $30.01  $40.00 |                     |  |                     | 381,917   |                |  |             | 9.2 years |                |  |   | 36.89 |  |  |  | 70,094  |  |  |   | 35.31 | 

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 January 2, 2000, December 31, 2000
and December 30, 2001 was $11.16, $16.91 and $17.14,
respectively. The fair value is estimated using the
Black-Scholes option-pricing model.

During 2001, Pei Wei Asian Diner,
Inc.s Board of Directors approved the Pei Wei Asian
Diner, Inc. 2001 Stock Option Plan (2001 Pei Wei Plan),
which provides for discretionary grants of incentive stock
options and nonqualified stock options to employees, consultants
and directors of Pei Wei Asian Diner, Inc. A total of
169 shares of common stock have been reserved for issuance
under the 2001 Pei Wei Plan. As of December 30, 2001,
93 options have been granted and none have been exercised.
The Company holds 960 shares of common stock of
Pei Wei Asian Diner, which at December 30, 2001
represents the only issued and outstanding shares.

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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                             
| | ----------------------------
| | 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.

6.     Partnership
Agreements

P.F. Changs has implemented a partnership
structure to facilitate the development, leadership and
operation of its restaurants. Each partner is required to make a
capital contribution in exchange for 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. At the end of a specific term (generally five
years), P.F. Changs has the right, but not the
obligation, to purchase the minority partners interest in
the partners respective restaurant or region at fair
market value. An estimated fair value is determined by reference
to current industry purchase metrics as well as the discounted
cash flows of the subject restaurants/ regions
financial results. The Company has the option to pay the agreed
upon purchase price in cash or common stock of the company over
a period of time not to exceed five years.

As of December 30, 2001, there were 90
partners within the P.F. Changs China Bistro, Inc. system.
During 2001, we purchased the interests of 11 of our minority
partners for a total of approximately $1.9 million, of
which the majority was recorded as intangibles in accordance
with accounting principles generally accepted in the United
States. Approximately $924,000 of the total purchase price was
paid in cash while the remaining balance has been recorded as
amounts due to related parties on the balance sheet at
December 30, 2001. In 2002, we will have the opportunity to
purchase five additional partnership interests. If all of these
interests were fully purchased, the total purchase price would
approximate $5.0 to $6.0 million based upon the estimated
fair value of the respective interests at December 30,
2001. Such amounts are subject to change based upon changes in
the estimated fair value of the respective interests from
December 30, 2001 through the date of purchase.

7.     Income
Taxes

Income tax expense consisted of the following:

|         |          |                |       |              |  |              |       |       |  |   |       |       | 
|-------- | -------- | -------------- | ----- | ------------ |  | ------------ | ----- | ----- |  | - | ----- | ----- | 
|         |          | Year Ended     |       | Year Ended   |  | Year Ended  
|         |          | January 2,     |       | December 31, |  | December 30,
|         |          | 2000           |       | 2000         |  | 2001        
|         |          |                |       |              |  |             
|         |          |               
|         |          | (In thousands)
|Federal: |          |                |       |              |  |              |       |       |  |   |       |      
|         | Current  |                | $     | 1,795        |  |              | $     | 3,676 |  |   | $     | 6,398 | 
|         | Deferred |                |       | 511          |  |              |       | 1,460 |  |   |       | 886   | 
|         |          |                |       |              |  |              |       |       |  |   |       |      
|         |          |                | 2,306 |              |  |              | 5,136 |       |  |   | 7,284 |      
|State:   |          |                |       |              |  |              |       |       |  |   |       |      
|         | Current  |                |       | 382          |  |              |       | 594   |  |   |       | 1,249 | 
|         | Deferred |                |       | 90           |  |              |       | 257   |  |   |       | 156   | 
|         |          |                |       |              |  |              |       |       |  |   |       |      
|         |          |                | 472   |              |  |              | 851   |       |  |   | 1,405 |      
|         |          |                |       |              |  |              |       |       |  |   |       |      
|         |          | $              | 2,778 |              |  | $            | 5,987 |       |  | $ | 8,689 |      
|         |          |                |       |              |  |              |       |       |  |   |       |      

45



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P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                             |  |                |       |              |  |              |        |   |  |   |       |  
|-------------------------------------------- |  | -------------- | ----- | ------------ |  | ------------ | ------ | - |  | - | ----- | -
|                                             |  | Year Ended     |       | Year Ended   |  | Year Ended  
|                                             |  | January 2,     |       | December 31, |  | December 30,
|                                             |  | 2000           |       | 2000         |  | 2001        
|                                             |  |                |       |              |  |             
|                                             |  |               
|                                             |  | (In thousands)
|Income tax expense at federal statutory rate |  | $              | 2,996 |              |  | $            | 5,500  |   |  | $ | 8,508 |  
|State taxes, net of federal expense          |  |                | 311   |              |  |              | 678    |   |  |   | 913   |  
|FICA tip credit                              |  |                |      |              |  |              | (1,744 | ) |  |   | (411  | )
|Increase (decrease) in valuation allowance   |  |                | (605  | )            |  |              | 1,516  |   |  |   | (359  | )
|Other, net                                   |  |                | 76    |              |  |              | 37     |   |  |   | 38    |  
|                                             |  |                |       |              |  |              |        |   |  |   |       |  
|                                             |  | $              | 2,778 |              |  | $            | 5,987  |   |  | $ | 8,689 |  
|                                             |  |                |       |              |  |              |        |   |  |   |       |  

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       
|                             |                                        | January 2,     |       | December 31, |  | December 30,
|                             |                                        | 2000           |       | 2000         |  | 2001        
|                             |                                        |                |       |              |  |             
|                             |                                        |               
|                             |                                        | (In thousands)
|Deferred tax assets:         |                                        |                |       |              |  |              |        |       |  |   |        |      
|                             | Preopening expenses                    |                | $     | 745          |  |              | $      | 572   |  |   | $      | 644   | 
|                             | FICA tip and AMT credit carryforward   |                |       |             |  |              |        | 1,516 |  |   |        | 1,158 | 
|                             | Other                                  |                |       | 134          |  |              |        | 100   |  |   |        | 264   | 
|                             |                                        |                |       |              |  |              |        |       |  |   |        |      
|                             |                                        |                | 879   |              |  |              | 2,188  |       |  |   | 2,066  |      
|Deferred tax liabilities:    |                                        |                |       |              |  |              |        |       |  |   |        |      
|                             | Depreciation on property and equipment |                |       | 1,228        |  |              |        | 2,688 |  |   |        | 3,902 | 
|                             | Goodwill amortization                  |                |       | 252          |  |              |        | 302   |  |   |        | 366   | 
|                             |                                        |                |       |              |  |              |        |       |  |   |        |      
|                             |                                        |                | 1,480 |              |  |              | 2,990  |       |  |   | 4,268  |      
|Valuation allowance          |                                        |                |      |              |  |              | (1,516 | )     |  |   | (1,158 | )    
|                             |                                        |                |       |              |  |              |        |       |  |   |        |      
|Net deferred tax liabilities |                                        | $              | 601   |              |  | $            | 2,318  |       |  | $ | 3,360  |      
|                             |                                        |                |       |              |  |              |        |       |  |   |        |      

The FICA tip credit carryforward begins to expire
in 2018. For the years ended January 2, 2000,
December 31, 2000 and December 30, 2001 the valuation
allowance increased (decreased) $(605,000), $1,516,000 and
$(358,000), respectively.

46



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8.     Net Income Per
Share

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

|                                                                                                              |                                                                                                     |                                          |        |              |     |              |        |        |     |  |        |        |     | 
|------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------------------------- | ------ | ------------ | --- | ------------ | ------ | ------ | --- |  | ------ | ------ | --- | 
|                                                                                                              |                                                                                                     | Year Ended                               |        | Year Ended   |     | Year Ended  
|                                                                                                              |                                                                                                     | January 2,                               |        | December 31, |     | December 30,
|                                                                                                              |                                                                                                     | 2000                                     |        | 2000         |     | 2001        
|                                                                                                              |                                                                                                     |                                          |        |              |     |             
|                                                                                                              |                                                                                                     |                                         
|                                                                                                              |                                                                                                     | (In thousands, except per share amounts)
|Numerator:                                                                                                    |                                                                                                     |                                          |        |              |     |              |        |        |     |  |        |       
|                                                                                                              | Numerator for basic and diluted net income per
	share  net income available to common stockholders |                                          | $      | 6,036        |     |              | $      | 9,729  |     |  | $      | 15,619 |    
|                                                                                                              |                                                                                                     |                                          |        |              |     |              |        |        |     |  |        |       
|Denominator:                                                                                                  |                                                                                                     |                                          |        |              |     |              |        |        |     |  |        |       
|                                                                                                              | Denominator for basic net income per
	share  weighted-average shares                               |                                          |        | 10,217       |     |              |        | 10,376 |     |  |        | 11,864 |    
|                                                                                                              | Effect of dilutive securities:                                                                      |                                          |        |              |     |              |        |        |     |  |        |        |    
|                                                                                                              |                                                                                                     | Employee and director stock options      |        |              | 887 |              |        |        | 922 |  |        |        | 865 | 
|                                                                                                              |                                                                                                     | Warrants                                 |        |              | 51  |              |        |        | 56  |  |        |        | 6   | 
|                                                                                                              |                                                                                                     |                                          |        |              |     |              |        |        |     |  |        |       
|Denominator for diluted net income per
	share  adjusted for weighted average shares and
	assumed conversions |                                                                                                     |                                          | 11,155 |              |     |              | 11,354 |        |     |  | 12,735 |       
|                                                                                                              |                                                                                                     |                                          |        |              |     |              |        |        |     |  |        |       
|Net income per share:                                                                                         |                                                                                                     |                                          |        |              |     |              |        |        |     |  |        |       
|                                                                                                              | Basic                                                                                               |                                          | $      | 0.59         |     |              | $      | 0.94   |     |  | $      | 1.32   |    
|                                                                                                              |                                                                                                     |                                          |        |              |     |              |        |        |     |  |        |       
|                                                                                                              | Diluted                                                                                             |                                          | $      | 0.54         |     |              | $      | 0.86   |     |  | $      | 1.23   |    
|                                                                                                              |                                                                                                     |                                          |        |              |     |              |        |        |     |  |        |       

Options to purchase 1,520,870 shares of common
stock ranging from $2.40 to $38.47 per share were outstanding at
December 30, 2001, all of which were included in dilutive
securities given that none were antidilutive.

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 2022.
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 January 2, 2000,
December 31, 2000 and December 30, 2001 was
approximately $7,006,000, $10,629,000 and $14,249,000,
respectively. Contingent rent included in rent expense for the
years ended January 2, 2000, December 31, 2000 and
December 30, 2001 was approximately $1,959,000, $3,225,000
and $4,246,000, respectively.

At December 30, 2001, 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 revenues, as defined in the
leases. Future minimum lease

47



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##### Table of Contents



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

payments under operating leases (including
restaurants to be opened after December 30, 2001) are as
follows (in thousands):

|           |                              |   |         |         | 
|---------- | ---------------------------- | - | ------- | ------- | 
|2002       |                              | $ | 12,762  |        
|2003       |                              |   | 13,373  |        
|2004       |                              |   | 13,176  |        
|2005       |                              |   | 12,588  |        
|2006       |                              |   | 12,287  |        
|Thereafter |                              |   | 104,120 |        
|           |                              |   |         |        
|           | Total minimum lease payments |   | $       | 168,306 | 
|           |                              |   |         |        

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 January 2, 2000,
December 31, 2000 and December 30, 2001, the Company
did not make any contributions to the Plan.

11.     Interim
Financial Results (Unaudited)

The following tables set forth certain unaudited
consolidated financial information for each of the four quarters
in fiscal 2000 and 2001. 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 December 31, 2000 |        | Year Ended December 30, 2001
|                                            |  |                              |        |                             
|                                            |  | First                        |        | Second                       |  | Third                                 |        | Fourth  |  | First   |        | Second  |  | Third   |        | Fourth 
|                                            |  | Quarter                      |        | Quarter                      |  | Quarter                               |        | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                            |  |                              |        |                              |  |                                       |        |         |  |         |        |         |  |         |        |        
|                                            |  |                              |        |                              |  |                                       |        |         |  |        
|                                            |  |                              |        |                              |  | (In thousands, except per share data) |        |         |  |        
|Revenues                                    |  | $                            | 51,414 |                              |  | $                                     | 53,496 |         |  | $       | 61,179 |         |  | $       | 68,816 |         |  | $ | 72,420 |  |  | $ | 76,457 |  |  | $ | 80,555 |  |  | $ | 89,344 | 
|Restaurant operating profit                 |  |                              | 10,035 |                              |  |                                       | 10,663 |         |  |         | 11,571 |         |  |         | 13,167 |         |  |   | 13,877 |  |  |   | 14,397 |  |  |   | 15,296 |  |  |   | 17,910 | 
|Income before provision for income taxes    |  |                              | 3,892  |                              |  |                                       | 3,416  |         |  |         | 3,425  |         |  |         | 4,983  |         |  |   | 6,124  |  |  |   | 5,295  |  |  |   | 5,532  |  |  |   | 7,357  | 
|Net income                                  |  |                              | 2,391  |                              |  |                                       | 2,128  |         |  |         | 2,120  |         |  |         | 3,090  |         |  |   | 3,890  |  |  |   | 3,390  |  |  |   | 3,568  |  |  |   | 4,771  | 
|Basic net income per share                  |  |                              | 0.23   |                              |  |                                       | 0.21   |         |  |         | 0.20   |         |  |         | 0.30   |         |  |   | 0.33   |  |  |   | 0.29   |  |  |   | 0.30   |  |  |   | 0.40   | 
|Diluted net income per share                |  |                              | 0.21   |                              |  |                                       | 0.19   |         |  |         | 0.19   |         |  |         | 0.27   |         |  |   | 0.31   |  |  |   | 0.27   |  |  |   | 0.28   |  |  |   | 0.37   | 
|Basic weighted average shares outstanding   |  |                              | 10,303 |                              |  |                                       | 10,365 |         |  |         | 10,400 |         |  |         | 10,435 |         |  |   | 11,669 |  |  |   | 11,906 |  |  |   | 11,930 |  |  |   | 11,952 | 
|Diluted weighted average shares outstanding |  |                              | 11,279 |                              |  |                                       | 11,348 |         |  |         | 11,344 |         |  |         | 11,444 |         |  |   | 12,554 |  |  |   | 12,729 |  |  |   | 12,805 |  |  |   | 12,853 | 

48



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##### Table of Contents








|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|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 2001 Annual Meeting of Stockholders to be held on
April 3, 2002 (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 December 31,
	2000 and December 30, 2001;                                                              
|
| | Consolidated Statements of Operations for the
	Years Ended January 2, 2000, December 31, 2000 and
	December 30, 2001;                 
|
| | Consolidated Statements of Common
	Stockholders Equity for the Years Ended January 2,
	2000, December 31, 2000 and December 30, 2001;
|
| | Consolidated Statements of Cash Flows for the
	Years Ended January 2, 2000, December 31, 2000 and
	December 30, 2001;                 
|
| | 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.

49



---



##### Table of Contents





| |                         
| | ------------------------
| | 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.                 
|        | 10.15      |                      |  | First Amendment to Office Lease between the
	Company and PHXAZ-Kierland Commons, LLC, dated August 22,
	2001.      
|        | 10.16#     |                      |  | Common Stock Purchase Agreement dated
	January 11, 2001.                                                           
|        | 10.17     |                      |  | Pei Wei Asian Diner, Inc. 2001 Stock Option Plan.                                                                  
|        | 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.                          
|    
|**** | Incorporated by reference to the
	Registrants Form 10-K dated March 6, 2001.                           
|    
|#    | Incorporated by reference to the
	Registrants Form 10-Q, dated April 1, 2001,
	Exhibit 10.1.           

(b) Reports
on Form 8-K:

None.

50



---



##### 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 February 15,
2002.



| |                                
| | -------------------------------
| | 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             
|                                                   |  |                                                                               |  |                  
|By: /s/ RICHARD L. FEDERICORichard L. Federico     |  | Chairman, Chief Executive Officer and Director
	(Principal Executive Officer) |  | February 15, 2002
|                                                  
|By: /s/ ROBERT T. VIVIANRobert T. Vivian           |  | President                                                                     |  | February 15, 2002
|                                                  
|By: /s/ KRISTINA K. CASHMANKristina Cashman        |  | Secretary and Chief Financial Officer                                         |  | February 15, 2002
|                                                  
|By: /s/ PAUL M. FLEMINGPaul M. Fleming             |  | Director                                                                      |  | February 15, 2002
|                                                  
|By: /s/ KENNETH J. WESSELSKenneth J. Wessels       |  | Director                                                                      |  | February 15, 2002
|                                                  
|By: /s/ R. MICHAEL WELBORNR. Michael Welborn       |  | Director                                                                      |  | February 15, 2002
|                                                  
|By: /s/ JAMES G. SHENNAN, JR.James G. Shennan, Jr. |  | Director                                                                      |  | February 15, 2002
|                                                  
|By: /s/ F. LANE CARDWELL, JR.F. Lane Cardwell, Jr. |  | Director                                                                      |  | February 15, 2002

51



---



##### Table of Contents



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.                 
|        | 10.15      |                      |  | First Amendment to Office Lease between the
	Company and PHXAZ-Kierland Commons, LLC, dated August 22,
	2001.      
|        | 10.16#     |                      |  | Common Stock Purchase Agreement dated
	January 11, 2001.                                                           
|        | 10.17     |                      |  | Pei Wei Asian Diner, Inc. 2001 Stock Option Plan.                                                                  
|        | 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.                          
|    
|**** | Incorporated by reference to the
	Registrants Form 10-K dated March 6, 2001.                           
|    
|#    | Incorporated by reference to the
	Registrants Form 10-Q, dated April 1, 2001,
	Exhibit 10.1.           

(b) Reports
on Form 8-K:

None.

52