UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K



|    |                                                     
|--- | ----------------------------------------------------
|[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended January 2, 2000

or



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

SECURITIES EXCHANGE ACT OF 1934


For the transition period from
               to

               .

Commission File Number: 0-25123

P.F. CHANGS CHINA BISTRO, INC.

(Exact name of registrant as specified in its
charter)


|                                                              |  |                                      
|------------------------------------------------------------- |  | -------------------------------------
|                                                             
|                                                             
|                                                             
|                                                             
|Delaware                                                      |  | 86-0815086                           
|State or other jurisdiction of
	incorporation or organization |  | (I.R.S. Employer
	Identification No.)
|                                                             
|5090 North 40th Street, Suite #160                            |  | 85018                                
|(Address of principal executive offices)                      |  | (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  [X]  No  [   ]

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

Based on the closing sale price of $25.69 on February 15,
2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $223,262,002.

On February 15, 2000 there were outstanding 10,265,257 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 26, 2000.



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TABLE OF CONTENTS

|     |  |                                                                                        |  |      |     | 
|---- |  | -------------------------------------------------------------------------------------- |  | ---- | --- | 
|Item |  |                                                                                        |  | Page
|     |  |                                                                                        |  |     
|     |  | PART I                                                                                 |  |      |     | 
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|1.   |  | Business                                                                               |  |      | 2   | 
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|2.   |  | Properties                                                                             |  |      | 13  | 
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|3.   |  | Legal Proceedings                                                                      |  |      | 14  | 
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|4.   |  | Submission of Matters to a Vote of Security Holders                                    |  |      | 14  | 
|     |  | PART II                                                                                |  |      |     | 
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|5.   |  | Market for the Registrants Common Stock and Related
	Stockholder Matters              |  |      | 15  | 
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|6.   |  | Selected Financial Data                                                                |  |      | 16  | 
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|7.   |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  |      | 17  | 
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|7A.  |  | Quantitative and Qualitative Disclosures About Market Risks                            |  |      | 25  | 
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|8.   |  | Financial Statements and Supplementary Data                                            |  |      | F-1 | 
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|    
|9.   |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |  |      | 26  | 
|     |  | PART III                                                                               |  |      |     | 
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|    
|    
|    
|10.  |  | Directors and Executive Officers of the Registrant                                     |  |      | 26  | 
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|11.  |  | Executive Compensation                                                                 |  |      | 26  | 
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|12.  |  | Security Ownership of Certain Beneficial Owners and Management                         |  |      | 26  | 
|    
|    
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|    
|13.  |  | Certain Relationships and Related Transactions                                         |  |      | 26  | 
|     |  | PART IV                                                                                |  |      |     | 
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|    
|    
|    
|14.  |  | Exhibits, Financial Statement Schedules, and Reports on
	Form 8-K                      |  |      | 26  | 

1



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PART I

Item 1.  Business

The following Business section contains forward-looking
statements which involve risks and uncertainties. Such
forward-looking statements may be deemed to include anticipated
restaurant openings, anticipated costs and sizes of future
restaurants and the adequacy of anticipated sources of cash to
fund the Companys future capital requirements. Words such
as believes, anticipates,
expects, intends, plans and
similar expressions are intended to identify forward-looking
statements, but are not the exclusive means of identifying such
statements. The Companys actual results may differ
materially from those discussed in the forward-looking
statements. Factors that might cause actual events or results to
differ materially from those indicated by such forward-looking
statements may include the matters set forth under Risk
Factors and elsewhere in this Form 10-K, such as
development and construction risks, potential labor shortages,
fluctuations in operating results, and changes in food costs.

General

P.F. Changs owns and operates 36 full service
restaurants (as of January 2, 2000) that feature a blend of
high quality, traditional Chinese cuisine and American
hospitality in a sophisticated, contemporary bistro setting. The
Companys restaurants offer intensely flavored, highly
memorable culinary creations, prepared from fresh ingredients,
including premium herbs and spices imported directly from China.
The 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 fan and tsai,
a balancing of rice, noodles and grains with meat, seafood and
vegetables, the P.F. Changs menu offers an array of
taste, texture, color and aroma. The menu is highlighted by
dishes such as Changs Spicy Chicken, Orange Peel Beef,
Peking Ravioli, Chicken in Soothing Lettuce Wrap, Szechwan-Style
Long Beans and Dan Noodles. The traditional cuisine is
complemented by a full service bar offering an extensive
selection of wines, specialty drinks, Asian beers, cappuccino and
 espresso. The Company offers 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.

Concept and Strategy

The Companys objectives are to (i) develop and operate
 a nationwide system of restaurants that offer guests a
sophisticated dining experience, (ii) create a loyal
customer base that generates a high level of repeat business and
(iii) provide superior returns to its investors. To achieve
its objectives, the Company strives to offer high quality Chinese
 cuisine in a memorable atmosphere while delivering superior
customer service and an excellent dining value. Key to the
Companys expansion strategy and success at the restaurant
level is the Companys management philosophy pursuant to
which regional managers (Market Partners), certain
general managers (Operating Partners) and certain
executive chefs (Culinary Partners) are allowed to
participate in the cash flows of the restaurants for which they
have responsibility. The Company believes it has demonstrated the
 viability of the P.F. Changs concept in a wide variety of
markets across the United States. The Company intends to continue
 its expansion program and believes the management incentives
provided by its Market, Operating and Culinary Partners
programs should position the Company to continue this expansion
without sacrificing the Companys restaurant level operating
 performance and return on investment.

Menu

The P.F. Changs menu offers a harmony of taste,
texture, color and aroma by balancing the principles of fan and
tsai foods. Fan foods include rice, noodles, grains and
dumplings, while vegetables, meat, poultry and seafood are
tsai foods. The Companys chefs are trained to produce
 distinctive Chinese cuisine with traditional recipes from the
five major culinary regions of China: Canton, Hunan, Mongolia,
Shanghai and Szechwan. The intense heat of Mandarin-style wok
cooking sears in the clarity and distinct flavor of fresh
ingredients. Slow roasted Cantonese-style ducklings, chickens,
BBQ spare ribs and BBQ pork are prepared in

2



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In addition to the core menu, P.F. Changs also offers
special lunch and dinner selections. These menus offer specials
developed by the Companys Culinary Partners around the
country and are changed two to three times a year. Individual
items that are received well by guests migrate to the core menu.
The 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 annual trips to China by the
P.F. Changs corporate executive chef, continually
reinforce the Companys commitment to training the P.F.
Changs chefs and enhancing the menu offerings.

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

Operations

In order to provide incentive to key management personnel, the
Company has entered into a series of partnership agreements with
its regional managers (Market Partners), certain of
its general managers (Operating Partners) and certain
 of its executive chefs (Culinary Partners). These
partnership agreements entitle the Market Partner to a specified
percentage of the cash flows from the restaurants that partner
has developed and oversees as the regional manager. Similarly,
the general manager and the executive chef at most of the
Companys restaurants are offered the opportunity to become
Operating Partners and Culinary Partners, respectively, and to
receive a percentage of the cash flows from the restaurant in
which they work. Each partner is required, as a condition of
employment, to sign a five-year employment agreement and is
required to purchase a specified interest in the restaurant or
region the partner is employed to manage. The ownership interest
purchased by each partner generally ranges between two and seven
percent of the restaurant or region the partner oversees. During
the five-year employment term, each partner is prohibited from
selling or transferring his interest to another party. At the
termination of the employment agreement, the Company has the
right to purchase the minority partners interests in the
partners respective restaurants at fair market value, as
calculated according to the partnership agreements. The Company
has implemented this partnership structure to facilitate the
development and operation of its restaurants. By requiring this
level of commitment and by providing the Market, Operating and
Culinary Partners with a significant stake in the success of the
restaurant, the Company believes that it is able to attract and
retain experienced and highly motivated managers.

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

The Company strives to create a sophisticated dining experience
through the careful selection, training and supervision of
personnel. The staff of a typical restaurant consists of an
Operating Partner, two or three managers, a Culinary Partner, one
 or two sous chefs and approximately 125 hourly employees, many
of whom work part-time. The Operating Partner 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 Culinary Partner is responsible for
product quality, purchasing, food costs and kitchen labor costs.
The Company requires its Operating Partners and Culinary Partners
 to have significant experience in the full-service restaurant
industry.

The Company has a comprehensive 12 week management
development program. This program consists of six weeks of
culinary training, including both culinary job functions and
culinary management. The remaining six weeks focus on service
strategies, guest relations, office management and shift
management. All

3



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The Operating Partners and Culinary Partners are responsible for
selecting employees for their restaurants. The Partners are
responsible for administering the Companys staff training
programs that are developed by the training and culinary
departments. The employee development program lasts between one
and two weeks and focuses on both technical and cultural
knowledge.

Marketing

The Company 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, the Company
 has created an environment that fosters repeat patronage and
encourages word-of-mouth recommendations. The Company believes
that word-of-mouth advertising is a key component in driving
guest trial and usage.

To attract new customers, the Company 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 it operates. In order to increase local awareness of its
restaurants, the Company builds relationships with local radio
personalities who provide testimonials to their listening
audiences. The partnered stations 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.

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

A national advertising campaign comprised of advertisements in
inflight magazines, which carry a high level of traffic in the
Companys markets, is designed to make frequent travelers
aware of P.F. Changs 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 the Company
at each of its 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. The Companys primary competitors include
mid-price, full service casual dining restaurants and
locally-owned and operated Chinese restaurants. There are many
well-established competitors with substantially greater
financial, marketing, personnel and other resources than the
Company. In addition, many of the Companys competitors are
well established in the markets where the Companys
operations are, or in which they may be, located. While the
Company believes that its restaurants are distinctive in design
and operating concept, other companies may develop restaurants
that operate with similar concepts.

Management Information Systems

The Company 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 (POS) 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 POS 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 the POS system is transmitted to the corporate
office on a daily basis, which enables senior

4



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The Company uses software and hardware developed by reputable
vendors and commonly used in the restaurant industry. These
systems are integrated to provide senior management with daily
and weekly sales and cost analysis, monthly detailed profit
statements and comparisons between actual and budgeted operating
results.

Purchasing

The Companys purchasing programs provide its 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
the Company utilizes only fresh ingredients in all of its menu
offerings, inventory is maintained at a modest level. The Company
 negotiates short-term and long-term contracts depending on
demand for its products. These contracts range in duration from
two to twelve months. With the exception of produce, which is
purchased locally, the Company utilizes Distributors Marketing
Alliance as the primary distributor of product to all of its
restaurants. Distributors Marketing Alliance is a cooperative of
multiple food distributors located throughout the nation. The
Company has a non-exclusive short term contract with Distributors
 Marketing Alliance on terms and conditions which the Company
believes are consistent with those made available to similarly
situated restaurant companies. The Company believes that
competitively priced alternative distribution sources are
available should such channels be necessary. Chinese-specific
ingredients are usually sourced directly from Hong Kong, China
and Taiwan. The Company has developed an extensive network of
importers in order to maintain an adequate supply of items that
conform to the Companys brand and product specifications.

Employees

At January 2, 2000, the Company employed approximately 5,000
 persons, 47 of whom were executive office personnel, 305 of whom
 were unit management personnel and the remainder of whom were
hourly restaurant personnel. The Companys employees are not
 covered by a collective bargaining agreement. The Company
considers its employee relations to be good.

5



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Unit Economics

The Company believes that, in addition to other important
information concerning the Company (i.e., uniqueness of concept,
quality of management, rate of unit openings and earnings growth,
 etc.), investors and restaurant industry analysts focus on three
 major factors in their evaluation of a restaurants unit
economics. These three factors are: (1) restaurant sales
(average weekly sales and change in comparable restaurant sales);
 (2) restaurant-level operating margin; and
(3) restaurant-level return on invested capital. 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 THE COMPANY. Rather, it measures
 the return on the capital invested in the restaurants by the
Company. 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 (i.e., purchased and
financed versus leased).

|                                                           |  |                                                     |         |            |  |      |         |      |  |      |        |      |  |            |        |           |  |       |        |    |  |   |      |   |  |   |         |   |  |   |       |   |  |   |         |  
|---------------------------------------------------------- |  | --------------------------------------------------- | ------- | ---------- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---------- | ------ | --------- |  | ----- | ------ | -- |  | - | ---- | - |  | - | ------- | - |  | - | ----- | - |  | - | ------- | -
|                                                           |  |                                                     |         |            |  |      |         |     
|                                                           |  | Units opened in                                     |         | Total      |  |      |         |     
|                                                           |  |                                                     |         | Restaurant |  |      |         |     
|                                                           |  | Pre 1996                                            |         | 1996       |  | 1997 |         | 1998 |  | 1999 |        | 2000 |  | Operations |        | 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    | % |  |   |       |   |  |   |         |  

6



---



|                                                           |  |                                                     |         |            |  |      |         |      |  |      |        |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------------------------------- |  | --------------------------------------------------- | ------- | ---------- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---------- | ------ | --------- |  | ----- | ---- | - |  | - | - |  |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                           |  |                                                     |         |            |  |      |         |     
|                                                           |  | Units opened in                                     |         | Total      |  |      |         |     
|                                                           |  |                                                     |         | Restaurant |  |      |         |     
|                                                           |  | Pre 1996                                            |         | 1996       |  | 1997 |         | 1998 |  | 1999 |        | 2000 |  | Operations |        | 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   | % |  |   |        |   |  |   |        |  
|                                                          
|                                                          
|                                                          
|                                                          
|Fiscal 1997                                                |  |                                                     |         |            |  |      |         |      |  |      |        |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   |        |   |  |   |        |   |  |   |        |  
|                                                          
|                                                          
|                                                          
|                                                          
|                                                          
|Units(1)                                                   |  |                                                     | 4       |            |  |      | 3       |      |  |      | 6      |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   | 13     |   |  |   |        |   |  |   | 13     |  
|                                                          
|                                                          
|                                                          
|                                                          
|Sales weeks                                                |  |                                                     | 208     |            |  |      | 156     |      |  |      | 76     |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   | 440    |   |  |   |        |   |  |   | 440    |  
|                                                          
|                                                          
|                                                          
|                                                          
|Average weekly sales                                       |  | $                                                   | 94,578  |            |  | $    | 92,930  |      |  | $    | 73,675 |      |  |            |        |           |  |       |      |   |  |   |   |  |  | $ | 90,383 |   |  |   |        |   |  | $ | 90,383 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Change in comparable store sales(2)                        |  |                                                     | 13.8    | %          |  |      |         |      |  |      |        |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   | 13.8   | % |  |   |        |   |  |   | 13.8   | %
|                                                          
|                                                          
|                                                          
|                                                          
|Restaurant-level operating margin                          |  |                                                     | 23.7    | %          |  |      | 16.9    | %    |  |      | 3.2    | %    |  |            |        |           |  |       |      |   |  |   |   |  |  |   | 18.4   | % |  |   |        |   |  |   | 18.4   | %
|                                                          
|                                                          
|                                                          
|                                                          
|Revenues                                                   |  | $                                                   | 19,672  |            |  | $    | 14,497  |      |  | $    | 5,599  |      |  | $          |       |           |  | $     |     |   |  | $ |  |  |  | $ | 39,768 |   |  | $ |       |   |  | $ | 39,768 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Total restaurant operating costs                           |  |                                                     | 15,000  |            |  |      | 12,051  |      |  |      | 5,419  |      |  |            |       |           |  |       |     |   |  |   |  |  |  |   | 32,470 |   |  |   |       |   |  |   | 32,470 |  
|                                                          
|                                                          
|                                                          
|                                                          
|General and administrative                                 |  |                                                     |        |            |  |      |        |      |  |      |       |      |  |            |       |           |  |       |     |   |  |   |  |  |  |   |       |   |  |   | 4,276  |   |  |   | 4,276  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Depreciation and amortization                              |  |                                                     | 308     |            |  |      | 362     |      |  |      | 148    |      |  |            |       |           |  |       |     |   |  |   |  |  |  |   | 818    |   |  |   | 284    |   |  |   | 1,102  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening expense                                         |  |                                                     |        |            |  |      | 25      |      |  |      | 1,706  |      |  |            | 191    |           |  |       |     |   |  |   |  |  |  |   | 1,922  |   |  |   |       |   |  |   | 1,922  |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 21      |            |  |      | 193     |      |  |      |       |      |  |            |       |           |  |       |     |   |  |   |  |  |  |   | 214    |   |  |   | 103    |   |  |   | 317    |  
|                                                           |  |                                                     |         |            |  |      |         |      |  |      |        |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   |        |   |  |   |        |   |  |   |        |  
|Income (loss) before minority interest and income taxes(3) |  |                                                     | 4,343   |            |  |      | 1,866   |      |  |      | (1,674 | )    |  |            | (191   | )         |  |       |     |   |  |   |  |  |  |   | 4,344  |   |  | $ | (4,663 | ) |  | $ | (319   | )
|                                                           |  |                                                     |         |            |  |      |         |      |  |      |        |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   |        |   |  |   |        |   |  |   |        |  
|Rent expense(4)                                            |  |                                                     | 1,125   |            |  |      | 717     |      |  |      | 282    |      |  |            |       |           |  |       |     |   |  |   |  |  |  |   | 2,124  |   |  |   |        |   |  |   |        |  
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense, net                                      |  |                                                     | 21      |            |  |      | 193     |      |  |      |       |      |  |            |       |           |  |       |     |   |  |   |  |  |  |   | 214    |   |  |   |        |   |  |   |        |  
|                                                          
|                                                          
|                                                          
|                                                          
|Preopening adjustment(5)                                   |  |                                                     |        |            |  |      |        |      |  |      | (53    | )    |  |            | 191    |           |  |       |     |   |  |   |  |  |  |   | 138    |   |  |   |        |   |  |   |        |  
|                                                           |  |                                                     |         |            |  |      |         |      |  |      |        |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   |        |   |  |   |        |   |  |   |        |  
|Restaurant income (loss), as adjusted                      |  | $                                                   | 5,489   |            |  | $    | 2,776   |      |  | $    | (1,445 | )    |  | $          |       |           |  | $     |     |   |  | $ |  |  |  | $ | 6,820  |   |  |   |        |   |  |   |        |  
|                                                           |  |                                                     |         |            |  |      |         |      |  |      |        |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   |        |   |  |   |        |   |  |   |        |  
|Average restaurant assets employed(6)                      |  | $                                                   | 1,953   |            |  | $    | 4,060   |      |  | $    | 2,230  |      |  |            |        |           |  |       |      |   |  |   |   |  |  | $ | 8,243  |   |  |   |        |   |  |   |        |  
|                                                          
|                                                          
|                                                          
|                                                          
|Present value of remaining lease obligations(7)            |  |                                                     | 4,910   |            |  |      | 4,294   |      |  |      | 2,068  |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   | 11,272 |   |  |   |        |   |  |   |        |  
|                                                           |  |                                                     |         |            |  |      |         |      |  |      |        |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   |        |   |  |   |        |   |  |   |        |  
|Total restaurant invested capital                          |  | $                                                   | 6,863   |            |  | $    | 8,354   |      |  | $    | 4,298  |      |  |            |        |           |  |       |      |   |  |   |   |  |  | $ | 19,515 |   |  |   |        |   |  |   |        |  
|                                                           |  |                                                     |         |            |  |      |         |      |  |      |        |      |  |            |        |           |  |       |      |   |  |   |   |  |  |   |        |   |  |   |        |   |  |   |        |  
|Restaurant-level return on invested capital                |  |                                                     | 80.0    | %          |  |      | 33.2    | %    |  |      | (33.6  | )%   |  |            |        |           |  |       |      |   |  |   |   |  |  |   | 34.9   | % |  |   |        |   |  |   |        |  

7



---






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

8



---



Risk Factors

Uncertainties Associated with Expanding Operations

The Company operates 36 restaurants (as of January 2, 2000),
 13 of which have been opened within the last twelve months. The
results achieved to date by the Companys relatively small
number of restaurants may not be indicative of longer term
performance or the potential market acceptance of restaurants in
other locations. Further, there can be no assurance that any new
restaurant which the Company opens will obtain similar operating
results to those of prior restaurants. The Company anticipates
that its new restaurants will commonly take several months to
reach planned operating levels due to certain inefficiencies
typically associated with new restaurants, including lack of
market awareness, inability to hire sufficient staff and other
factors.

A critical factor in the Companys future success is its
ability to successfully expand its operations. The Company
expanded from seven restaurants at the end of 1996 to 36
restaurants as of January 2, 2000. The Company expects to
open 15 restaurants in 2000 (three of which have been opened
since January 2, 2000). The Companys ability to expand
 successfully will depend on a number of factors, including the
identification and availability of suitable locations,
competition for restaurant sites, the negotiation of favorable
lease arrangements, timely development in certain cases of
commercial, residential, street or highway construction near the
Companys 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),
the competition in new markets, general economic conditions and
other factors, some of which are beyond the control of the
Company. The opening of additional restaurants in the future will
 depend in part upon the Companys ability to generate
sufficient funds from operations or to obtain sufficient equity
or debt financing on favorable terms to support such expansion.
There can be no assurance that the Company will be successful in
addressing these risks, that the Company will be able to open its
 planned new operations on a timely basis, if at all, or, if
opened, that those operations will be operated profitably. The
Company has experienced, and expects to continue to experience,
delays in restaurant openings from time to time. Delays or
failures in opening planned new restaurants could have a material
 adverse effect on the Companys business, financial
condition, results of operations or cash flows.

The Companys growth strategy may strain the Companys
management, financial and other resources. To manage its growth
effectively, the Company must maintain a high level of quality
and service at its existing and future restaurants, continue to
enhance its operational, financial and management capabilities
and locate, hire, train and retain experienced and dedicated
operating personnel, particularly managers and chefs. There can
be no assurance that the Company will be able to effectively
manage these and other factors necessary to permit it to achieve
its expansion objectives, and any failure to do so could have a
material adverse effect on the Companys business, financial
 condition, results of operations or cash flows.

Development and Construction Risks

Because each P.F. Changs restaurant is distinctively
designed to accommodate particular characteristics of each
location and to blend local or regional design themes with the
Companys principal trade dress and other common design
elements, each location presents its own development and
construction risks. Many factors may affect the costs associated
with the development and construction of the Companys
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. There can be no assurance that the Company will be
 able to develop additional P.F. Changs restaurants
within anticipated budgets or time periods, and any such failure
could materially adversely affect the Companys business,
financial condition, results of operations or cash flows.

Potential Labor Shortages

The success of the Company will continue to be dependent on its
ability to attract and retain a sufficient number of qualified
employees, including kitchen staff and waitstaff, to keep pace
with its expansion schedule.

9



---





Fluctuations in Operating Results

The Companys operating results may fluctuate significantly
as a result of a variety of factors, including general economic
conditions, consumer confidence in the economy, changes in
consumer preferences, competitive factors, weather conditions,
the timing of new restaurant openings and related expenses,
revenues contributed by new restaurants and increases or
decreases in comparable restaurant revenues. Historically, the
Company has experienced variability in the amount and percentage
of revenues attributable to preopening expenses. The Company
typically incurs 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, the Companys 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 have a meaningful impact on preopening
expenses and labor and operating costs until such time as a
larger base of restaurants in operation mitigates such impact.
Due to the foregoing factors, 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, the Companys results of operations may be below the
 expectations of public market analysts and investors. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations.

Restaurant Industry and Competition

The restaurant industry is intensely competitive with respect to
food quality, price-value relationships, ambiance, service and
location, and many restaurants compete with the Company at each
of its locations. The Companys 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 the
Company, and many of the Companys competitors are well
established in the markets where the Companys operations
are, or in which they may be, located. Additionally, other
companies may develop restaurants that operate with similar
concepts.

The restaurant business is often affected by changes in consumer
tastes, national, regional or local economic conditions,
demographic trends, consumer confidence in the economy,
discretionary spending priorities, weather conditions, tourist
travel, traffic patterns and the type, number and location of
competing restaurants. Changes in these factors could have a
material adverse effect on the Companys business, financial
 condition, results of operations or cash flows. In the future,
changes in consumer tastes may require the Company to modify or
refine elements of its restaurant system to evolve its concept in
 order to compete with popular new restaurant formats or concepts
 that develop from time to time, and there can be no assurance
that the Company will be successful in implementing such
modifications.

Minimum Wage

A number of the Companys employees are subject to various
minimum wage requirements. The federal minimum wage increased to
$5.15 per hour effective September 1, 1997. In addition,
many of the Companys employees work in restaurants located
in California and receive salaries equal to the California
minimum wage, which rose from $5.00 per hour effective
March 1, 1997 to $5.75 per hour effective March 1,
1998. There can be no assurance that similar increases will not
be implemented in other jurisdictions in which the Company
operates or seeks to operate. The Company believes that the
federal minimum wage will be increased again within the next 12
months. Such minimum wage increases could have a material adverse
 effect on the Companys business, financial condition,
results of operations or cash flows.

10



---



Dependence on Key Personnel

The success of the Companys business will continue to be
highly dependent on its key operating officers and employees,
including Richard Federico, the Companys Chief Executive
Officer and President, Robert Vivian, the Companys Chief
Financial Officer, Greg Carey, the Companys Chief Operating
 Officer, and Frank Ziska, the Companys Chief Development
Officer. The Companys success in the future will be
dependent on its ability to attract, retain and motivate a
sufficient number of qualified management and operating
personnel, including Market Partners, Operating Partners and
Culinary Partners, to keep pace with an aggressive expansion
schedule. Such qualified individuals are historically in short
supply and any inability of the Company to attract and retain
such key employees may limit its ability to effectively penetrate
 new market areas. Additionally, the ability of these key
personnel to maintain consistency in the quality and atmosphere
of the Companys restaurants in various markets is a
critical factor in the Companys success. Any failure to do
so may harm the Companys reputation and could have a
material adverse effect on the Companys business, financial
 condition, results of operations or cash flows.

Changes in Food Costs

The Companys profitability is dependent in part on its
ability to anticipate and react to changes in food costs. Other
than for produce, which is purchased locally by each restaurant,
the Company relies on Distributors Marketing Alliance as the
primary distributor of its food. Distributors Marketing Alliance
is a cooperative of multiple food distributors located throughout
 the nation. The Company has a non-exclusive short-term contract
with Distributors Marketing Alliance on terms and conditions
which the Company believes are consistent with those made
available to similarly situated restaurant companies. Although
the Company believes that alternative distribution sources are
available, any increase in distribution prices or failure to
perform by the Distributors Marketing Alliance could cause the
Companys food costs to fluctuate. Further, various factors
beyond the Companys control, including adverse weather
conditions and governmental regulation, may affect the
Companys food costs. There can be no assurance that the
Company will be able to anticipate and react to changing food
costs through its purchasing practices and menu price adjustments
 in the future, and failure to do so could have a material
adverse effect on the Companys business, financial
condition, results of operations or cash flows.

Governmental Regulation

The Companys restaurants 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. The
Companys 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. There can be no assurance that the
Company will 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 the Companys operations and its
 relationship with its employees, including minimum wage,
overtime, working conditions, fringe benefit and citizenship
requirements. In particular, the Company is subject to the
regulations of the INS. Given the location of many of the
Companys restaurants, even if the Companys operation
of those restaurants is in strict compliance with INS
requirements, the Companys employees may not all meet
federal citizenship or residency requirements, which could lead
to disruptions in its work force.

Approximately 20% of the Companys revenues are attributable
 to the sale of alcoholic beverages. The Company is required to
comply with the alcohol licensing requirements of the federal
government, states and municipalities where its 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

11



---





The Company is 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 the Company carries liquor liability coverage as
part of its existing comprehensive general liability insurance,
there can be no assurance that it will not be subject to a
judgment in excess of such insurance coverage or that it will be
able to obtain or continue to maintain such insurance coverage at
 reasonable costs, or at all.

The federal Americans With Disabilities Act prohibits
discrimination on the basis of disability in public
accommodations and employment. The Company is 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.

Litigation

The Company is from time to time the subject of complaints or
litigation from guests alleging illness, injury or other food
quality, health or operational concerns. Adverse publicity
resulting from such allegations may materially adversely affect
the Company and its restaurants, regardless of whether such
allegations are valid or whether the Company is liable. The
Company also is the subject of complaints or allegations from
former or prospective employees from time to time. A lawsuit or
claim could result in an adverse decision against the Company
that could materially adversely affect the Company or its
business.

12



---



Item 2.  Properties

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

|                                      |  |                    |  |                    |       |          |  |  |     | 
|------------------------------------- |  | ------------------ |  | ------------------ | ----- | -------- |  |  | --- | 
|                                      |  |                    |  | Approximate Square |       | Interior
|Existing Locations                    |  | Opening Date       |  | Footage            |       | Seating*
|                                      |  |                    |  |                    |       |         
|Scottsdale, AZ (Fashion Square)       |  | July 1993          |  |                    | 6,050 |          |  |  | 177 | 
|Newport Beach, CA (Fashion Island)    |  | June 1994          |  |                    | 5,050 |          |  |  | 155 | 
|La Jolla, CA (UTC)                    |  | August 1995        |  |                    | 7,400 |          |  |  | 257 | 
|Irvine, CA (Spectrum Center)          |  | November 1995      |  |                    | 7,000 |          |  |  | 208 | 
|Las Vegas, NV (Paradise & Flamingo)   |  | October 1996       |  |                    | 7,000 |          |  |  | 220 | 
|Houston, TX (Highland Village)        |  | December 1996      |  |                    | 6,500 |          |  |  | 182 | 
|Littleton, CO (Park Meadows)          |  | December 1996      |  |                    | 7,600 |          |  |  | 245 | 
|Metarie, LA (Lakeside)                |  | April 1997         |  |                    | 5,850 |          |  |  | 201 | 
|Miami, FL (The Falls)                 |  | September 1997     |  |                    | 5,800 |          |  |  | 206 | 
|Charlotte, NC (Phillips Place)        |  | October 1997       |  |                    | 6,900 |          |  |  | 211 | 
|N. Miami, FL (Aventura)               |  | October 1997       |  |                    | 7,000 |          |  |  | 244 | 
|Tempe, AZ (Centerpoint)               |  | December 1997      |  |                    | 6,600 |          |  |  | 228 | 
|McLean, VA (Tysons Corner)            |  | December 1997      |  |                    | 6,500 |          |  |  | 204 | 
|Dallas, TX (North Tollway)            |  | March 1998         |  |                    | 6,900 |          |  |  | 192 | 
|El Segundo, CA (Manhattan Beach)      |  | June 1998          |  |                    | 6,950 |          |  |  | 220 | 
|Austin, TX (Jollyville Road)          |  | July 1998          |  |                    | 7,000 |          |  |  | 196 | 
|Dallas, TX (NorthPark)                |  | August 1998        |  |                    | 6,100 |          |  |  | 178 | 
|Atlanta, GA (Ashwood & Perimeter)     |  | October 1998       |  |                    | 7,000 |          |  |  | 225 | 
|Birmingham, AL (The Summit)           |  | October 1998       |  |                    | 7,150 |          |  |  | 230 | 
|Denver, CO (LoDo)                     |  | October 1998       |  |                    | 7,150 |          |  |  | 230 | 
|Northbrook, IL (Northbrook Court)     |  | November 1998      |  |                    | 7,000 |          |  |  | 210 | 
|Troy, MI (Somerset)                   |  | November 1998      |  |                    | 7,000 |          |  |  | 217 | 
|West Hollywood, CA (Beverly Center)   |  | December 1998      |  |                    | 6,600 |          |  |  | 212 | 
|Boston, MA (CityPlace)                |  | January 1999       |  |                    | 5,750 |          |  |  | 182 | 
|Winter Park, FL (Winter Park Village) |  | March 1999         |  |                    | 6,900 |          |  |  | 212 | 
|Westbury, NY (The Source)             |  | April 19, 1999     |  |                    | 7,600 |          |  |  | 239 | 
|Raleigh, NC (Crabtree Valley)         |  | June 14, 1999      |  |                    | 6,700 |          |  |  | 174 | 
|Scottsdale, AZ (Kierland Commons)     |  | June 21, 1999      |  |                    | 7,000 |          |  |  | 211 | 
|Salt Lake City, UT (Bandaloops)       |  | June 28, 1999      |  |                    | 7,000 |          |  |  | 242 | 
|Santa Monica, CA (Wilshire Blvd.)     |  | July 5, 1999       |  |                    | 6,700 |          |  |  | 200 | 
|Las Vegas, NV (Summerlin)             |  | July 19, 1999      |  |                    | 7,000 |          |  |  | 211 | 
|Walnut Creek, CA (Broadway Plaza)     |  | August 9, 1999     |  |                    | 6,400 |          |  |  | 197 | 
|Columbus, OH (Easton Town Center)     |  | September 6, 1999  |  |                    | 7,300 |          |  |  | 232 | 
|Alpharetta, GA (Mauel Road)           |  | September 22, 1999 |  |                    | 6,900 |          |  |  | 224 | 
|Kansas City, MO (Country Club Plaza)  |  | November 8, 1999   |  |                    | 7,000 |          |  |  | 287 | 
|Bethesda, MD (White Flint)            |  | November 30, 1999  |  |                    | 6,300 |          |  |  | 199 | 
|Chicago, IL (Downtown)                |  | January 17, 2000   |  |                    | 9,500 |          |  |  | 220 | 
|Buford, GA (Mall of Georgia)          |  | January 31, 2000   |  |                    | 5,600 |          |  |  | 142 | 
|Tucson, AZ (Joesler Village)          |  | February 7, 2000   |  |                    | 6,600 |          |  |  | 197 | 




|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|* | Many of the Companys restaurants have outdoor seating in
	addition to interior seating.

In 2000, the Company intends to open 15 new restaurants (three of
 which have opened since January 2, 2000) in approximately
seven new markets.

13



---



Expansion Strategy and Site Selection

The Company is actively developing restaurants in both new and
existing markets and has planned an expansion strategy targeted
at major metropolitan areas throughout the United States. Within
each targeted metropolitan area, the Company identifies specific
trade areas with high traffic patterns and suitable demographic
characteristics, including population density, consumer attitudes
 and affluence. Within an appropriate trade area, the Company
evaluates specific sites that provide visibility, accessibility
and exposure to traffic volume. The Companys site criteria
are flexible, as is evidenced by the variety of environments and
facilities in which the Company currently operates. 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.

The Company intends to continue to develop restaurants that
typically range in size from 6,000 square feet to 7,000 square
feet, and that require, on average, a total capitalized
investment of between $2.8 million and $3.3 million per
 restaurant. This total investment includes the capitalized lease
 value of the property, which can vary greatly depending on the
specific trade area. The Company expects that its planned future
restaurants will require, on average, a total cash investment per
 restaurant, exclusive of landlord contributions, of
approximately $2.0 million. Preopening expenses are expected
 to average approximately $300,000 per restaurant. The Company
currently leases the sites for all of its restaurants and does
not intend to purchase real estate for its sites in the future.

Current restaurant leases have expiration dates ranging from 2004
 to 2020, with the majority of the leases providing for five-year
 options to renew for at least one additional term. Generally,
the Companys 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 the Company to pay the costs of
insurance, taxes, and a portion of the lessors operating
costs. The Company does not anticipate any difficulties renewing
existing leases as they expire.

The Companys executive offices are currently located in
approximately 4,400 square feet of leased space in Phoenix,
Arizona. In order to support the growth in operations, the
Company will relocate its executive offices to a larger lease
space in April, 2000.

Item 3.  Legal Proceedings

The Company was not involved in any material legal proceedings as
 of January 2, 2000.

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

The Companys Annual Meeting of Stockholders was held on
May 18, 1999. The election of seven directors was presented
for stockholder approval. The results are listed below:

|                      |  |           |           |         |  |  |       | 
|--------------------- |  | --------- | --------- | ------- |  |  | ----- | 
|                      |  |           |           | Total  
|                      |  | Total     |           | Votes  
|                      |  | Votes For |           | Against
|                      |  |           |           |        
|Richard L. Federico   |  |           | 7,811,307 |         |  |  | 4,205 | 
|                     
|                     
|                     
|                     
|Paul M. Fleming       |  |           | 7,811,307 |         |  |  | 4,205 | 
|                     
|                     
|                     
|                     
|J. Michael Chu        |  |           | 7,811,837 |         |  |  | 3,675 | 
|                     
|                     
|                     
|                     
|Gerald R. Gallagher   |  |           | 7,811,687 |         |  |  | 3,825 | 
|                     
|                     
|                     
|                     
|R. Michael Welborn    |  |           | 7,811,157 |         |  |  | 4,355 | 
|                     
|                     
|                     
|                     
|James G. Shennan, Jr. |  |           | 7,811,687 |         |  |  | 3,825 | 
|                     
|                     
|                     
|                     
|Yves Sisteron         |  |           | 7,811,307 |         |  |  | 4,205 | 

14



---



PART II

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

The Companys Common Stock is traded on the Nasdaq Stock
Market under the symbol PFCB. Public trading of the
Common Stock commenced on December 4, 1998. Prior to that,
there was no public market for the Common Stock. The following
table sets forth for the period indicated the high and low price
per share of the Common Stock on the Nasdaq Stock Market.

|                                                  |  |        |  |       
|------------------------------------------------- |  | ------ |  | ------
|                                                  |  | High   |  | Low   
|                                                  |  |        |  |       
|Period from December 4, 1998 to December 27, 1998 |  | $18.50 |  | $12.00
|                                                 
|                                                 
|                                                 
|                                                 
|Quarter Ended March 28, 1999                      |  | 30.12  |  | 19.25 
|                                                 
|                                                 
|                                                 
|                                                 
|Quarter Ended June 27, 1999                       |  | 31.12  |  | 21.50 
|                                                 
|                                                 
|                                                 
|                                                 
|Quarter Ended September 26, 1999                  |  | 24.62  |  | 20.12 
|                                                 
|                                                 
|                                                 
|                                                 
|Quarter Ended January 2, 2000                     |  | 27.62  |  | 18.12 

The Company presently 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, 2000, there were 71 holders of record of the
 Companys Common Stock.

Changes in Securities and Use of Proceeds

The Company registered and sold 3,922,500 shares of Common Stock,
 par value $0.001 (the Shares) on registration
statement No. 333-59749 at an aggregate offering price of
$47,070,000 (or $12.00 per share), which was declared effective
on December 4, 1998 (the Offering).

The co-managing underwriters of the Offering were Donaldson,
Lufkin & Jenrette, NationsBanc Montgomery Securities
LLC, and Dain Rauscher Wessels.

The Company incurred the following expenses in connection with
the Offering:

|                                       |                |            |           
|-------------------------------------- | -------------- | ---------- | ----------
|                                      
|                                      
|                                      
|                                      
|Underwriting discounts and commissions |                | $3,294,900
|                                      
|                                      
|                                      
|                                      
|Other expenses (audit, legal, etc.)    |                | 1,100,000 
|                                       |                |           
|                                       | Total expenses |            | $4,394,900
|                                       |                |           

The net offering proceeds to the Company after deducting the
total expenses above were $42,675,100.

The Companys use of proceeds conformed to the intended use
of proceeds described in the Companys prospectus related to
 the Offering. The Companys intended use of proceeds as
stated in its prospectus was the repayment of all amounts
outstanding under its revolving line of credit as well as the
development of new restaurants in 1999 and for general corporate
purposes. In December 1998, the Company used $25,000,000 of
its net proceeds to repay the entire balance outstanding under
its revolving line of credit, which has now expired.
Additionally, the Company used the balance of the net proceeds
from December 1998 through the end of 1999 for the
development of its restaurants opened during 1999 or currently
under construction, as well as for general corporate purposes.

15



---



Item 6.  Selected Financial Data

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

SELECTED CONSOLIDATED FINANCIAL DATA

(In thousands, except per share data)


|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |   |        |         | 
|-------------------------------------------------------------------------------------- | --------------------------- | ----------------------------- | -------------------------------- | --------- | ----- | ---------- | ----- | ------- | --- | ------ | ------ | ------ | ----- | ------ | ------ | - | ----- | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------- | - | ------ | ------- | 
|                                                                                       |                             |                               |                                  |          
|                                                                                       |                             | Predecessors(1)               |                                  | Company  
|                                                                                       |                             |                               |                                  |          
|                                                                                       |                             |                               |                                  | Period    |       | Period     |       |        
|                                                                                       |                             | Fiscal                        |                                  | From      |       | From       |       | Total   |     | Fiscal |        | Fiscal |       | Fiscal
|                                                                                       |                             | Year                          |                                  | 1/1/96 to |       | 2/29/96 to |       | Year    |     | Year   |        | Year   |       | Year  
|                                                                                       |                             | 1995                          |                                  | 2/28/96   |       | 12/29/96   |       | 1996(2) |     | 1997   |        | 1998   |       | 1999  
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |       
|Statements of Operations Data:                                                         |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Revenues                                                                               |                             | $                             | 10,465                           |           |       | $          | 2,815 |         |     | $      | 15,630 |        |       | $      | 18,445 |   |       | $      | 39,768 |   |        | $      | 78,033 |   |        | $      | 153,295 |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Costs and expenses:                                                                    |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Restaurant operating costs: |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |   |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Cost of sales                 |                                  |           | 2,957 |            |       |         | 772 |        |        |        | 4,454 |        |        |   | 5,226 |        |        |   | 11,317 |        |        |   | 21,709 |        |         |   | 42,136 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Labor                         |                                  |           | 3,347 |            |       |         | 918 |        |        |        | 4,736 |        |        |   | 5,654 |        |        |   | 11,683 |        |        |   | 22,721 |        |         |   | 45,569 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Operating                     |                                  |           | 1,528 |            |       |         | 527 |        |        |        | 2,944 |        |        |   | 3,471 |        |        |   | 6,727  |        |        |   | 13,319 |        |         |   | 25,907 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Occupancy                     |                                  |           | 1,059 |            |       |         | 205 |        |        |        | 1,279 |        |        |   | 1,484 |        |        |   | 2,743  |        |        |   | 5,429  |        |         |   | 9,865  |        
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|                                                                                       |                             |                               | Total restaurant operating costs |           |       | 8,891      |       |         |     | 2,422  |        |        |       | 13,413 |        |   |       | 15,835 |        |   |        | 32,470 |        |   |        | 63,178 |         |   |        | 123,477 | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | General and administrative    |                                  |           | 192   |            |       |         | 17  |        |        |        | 1,368 |        |        |   | 1,385 |        |        |   | 4,276  |        |        |   | 6,245  |        |         |   | 9,648  |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Depreciation and amortization |                                  |           | 322   |            |       |         | 82  |        |        |        | 352   |        |        |   | 434   |        |        |   | 1,102  |        |        |   | 2,384  |        |         |   | 4,975  |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Preopening expense            |                                  |           | 400   |            |       |         | 17  |        |        |        | 765   |        |        |   | 782   |        |        |   | 1,922  |        |        |   | 4,183  |        |         |   | 4,344  |        
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Income (loss) from operations                                                          |                             |                               | 660                              |           |       |            | 277   |         |     |        | (268   | )      |       |        | 9      |   |       |        | (2     | ) |        |        | 2,043  |   |        |        | 10,851  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Interest income (expense), net                                                         |                             |                               | (13                              | )         |       |            | (4    | )       |     |        | (127   | )      |       |        | (131   | ) |       |        | (317   | ) |        |        | (1,177 | ) |        |        | 432     |  
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Income (loss) before elimination of minority interests and
	provision for income taxes |                             |                               | 647                              |           |       |            | 273   |         |     |        | (395   | )      |       |        | (122   | ) |       |        | (319   | ) |        |        | 866    |   |        |        | 11,283  |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Elimination of minority interests                                                      |                             |                               |                                 |           |       |            |      |         |     |        | (720   | )      |       |        | (993   | ) |       |        | (1,308 | ) |        |        | (669   | ) |        |        | (2,469  | )
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Income (loss) before provision for income taxes                                        |                             |                               | 647                              |           |       |            | 273   |         |     |        | (1,115 | )      |       |        | (1,115 | ) |       |        | (1,627 | ) |        |        | 197    |   |        |        | 8,814   |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Provision for income taxes                                                             |                             |                               |                                 |           |       |            |      |         |     |        | (30    | )      |       |        | (30    | ) |       |        | (69    | ) |        |        | (48    | ) |        |        | (2,778  | )
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Net income (loss)                                                                      |                             | $                             | 647                              |           |       | $          | 273   |         |     |        | (1,145 | )      |       |        | (1,145 | ) |       |        | (1,696 | ) |        |        | 149    |   |        |        | 6,036   |  
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Convertible Redeemable Preferred Stock accretion                                       |                             |                               |                                  |           |       |            |       |         |     |        | (504   | )      |       |        | (504   | ) |       |        | (876   | ) |        |        | (888   | ) |        |        |        |  
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Net income (loss) available to common stockholders                                     |                             |                               |                                  |           |       |            |       |         |     | $      | (1,649 | )      |       | $      | (1,649 | ) |       | $      | (2,572 | ) |        | $      | (739   | ) |        | $      | 6,036   |  
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Basic net income (loss) per share                                                      |                             |                               |                                  |           |       |            |       |         |     | $      | (0.66  | )      |       |        |        |   |       | $      | (1.03  | ) |        | $      | (0.25  | ) |        | $      | 0.59    |  
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Diluted net income (loss) per share                                                    |                             |                               |                                  |           |       |            |       |         |     | $      | (0.66  | )      |       |        |        |   |       | $      | (1.03  | ) |        | $      | (0.25  | ) |        | $      | 0.54    |  
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Shares used in calculation of basic net income (loss) per
	share(3)                    |                             |                               |                                  |           |       |            |       |         |     |        | 2,500  |        |       |        |        |   |       |        | 2,500  |   |        |        | 2,986  |   |        |        | 10,217  |  
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  
|Shares used in calculation of diluted net income (loss) per
	share(3)                  |                             |                               |                                  |           |       |            |       |         |     |        | 2,500  |        |       |        |        |   |       |        | 2,500  |   |        |        | 2,986  |   |        |        | 11,155  |  
|                                                                                       |                             |                               |                                  |           |       |            |       |         |     |        |        |        |       |        |        |   |       |        |        |   |        |        |        |   |        |        |         |  

16



---



|                                                   |  |              |       |              |  |              |        |              |  |            |        |   |  |   |        |  |  |  |        | 
|-------------------------------------------------- |  | ------------ | ----- | ------------ |  | ------------ | ------ | ------------ |  | ---------- | ------ | - |  | - | ------ |  |  |  | ------ | 
|                                                   |  |              |       |             
|                                                   |  |              |       | Company     
|                                                   |  | Predecessors |       |             
|                                                   |  | As of        |       | As of       
|                                                   |  | December 31, |       | December 29, |  | December 28, |        | December 27, |  | January 2,
|                                                   |  | 1995         |       | 1996         |  | 1997         |        | 1998         |  | 2000      
|                                                   |  |              |       |              |  |              |        |              |  |           
|Balance Sheet Data:                                |  |              |       |              |  |              |        |              |  |            |        |   |  |   |        |  |  |  |        | 
|                                                  
|                                                  
|                                                  
|                                                  
|Cash and cash equivalents                          |  | $            | 480   |              |  | $            | 1,877  |              |  | $          | 2,739  |   |  | $ | 18,857 |  |  |  | 5,333  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Total assets                                       |  |              | 2,997 |              |  |              | 13,044 |              |  |            | 28,489 |   |  |   | 69,187 |  |  |  | 81,707 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Short- and long-term debt                          |  |              | 350   |              |  |              | 1,763  |              |  |            | 8,372  |   |  |   | 2,352  |  |  |  | 1,829  | 
|                                                  
|                                                  
|                                                  
|                                                  
|Deferred Purchase Price Liability                  |  |              |      |              |  |              |       |              |  |            | 2,426  |   |  |   |       |  |  |  |       | 
|                                                  
|                                                  
|                                                  
|                                                  
|Convertible Redeemable Preferred Stock             |  |              |      |              |  |              | 10,517 |              |  |            | 17,808 |   |  |   |       |  |  |  |       | 
|                                                  
|                                                  
|                                                  
|                                                  
|Common stockholders and members equity (deficit) |  |              | 1,295 |              |  |              | (1,874 | )            |  |            | (4,446 | ) |  |   | 58,229 |  |  |  | 64,790 | 

|                                                    |  |              |       |              |  |              |        |              |  |            |       |    |  |  |      |   |  |  |      |  
|--------------------------------------------------- |  | ------------ | ----- | ------------ |  | ------------ | ------ | ------------ |  | ---------- | ----- | -- |  |  | ---- | - |  |  | ---- | -
|                                                    |  |              |       |             
|                                                    |  |              |       | Company     
|                                                    |  | Predecessors |       |             
|                                                    |  | Year Ended   |       | Year Ended  
|                                                    |  | December 31, |       | December 29, |  | December 28, |        | December 27, |  | January 2,
|                                                    |  | 1995         |       | 1996         |  | 1997         |        | 1998         |  | 2000      
|                                                    |  |              |       |              |  |              |        |              |  |           
|Consolidated Financial Ratios:                      |  |              |       |              |  |              |        |              |  |            |       |    |  |  |      |   |  |  |      |  
|                                                   
|                                                   
|                                                   
|                                                   
|Return on Total Average Assets                      |  |              | 27.60 | %            |  |              | (14.28 | )%           |  |            | (8.17 | )% |  |  | 0.31 | % |  |  | 8.00 | %
|                                                   
|                                                   
|                                                   
|                                                   
|Return on Average Stockholders and Members Equity |  |              | 51.51 | %            |  |              | N/A    |              |  |            | N/A   |    |  |  | 0.55 | % |  |  | 9.81 | %




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Information for fiscal 1995 and the period from January 1,
	1996 to February  28, 1996 relate to the Predecessors. The
	Company was formed in January 1996, and in February 1996
	purchased majority interests in four corporations operating
	restaurants (Predecessors). The acquisitions of the
	ownership interests in the various entities were accounted for
	under the purchase method of accounting for business
	combinations. Prior to February 1996, the Companys business
	 was conducted by the Predecessors.
|   
|(2) | Total year 1996 information reflects the combined results of the
	Predecessors for the period from January 1, 1996 to
	February 28, 1996 and of the Company for the period
	beginning February 29, 1996 to December 29, 1996.                                                                                                                                                                                                                                                                                                
|   
|(3) | See Notes 1, 5 and 8 of Notes to Consolidated Financial
	 Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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

The following section contains forward-looking statements which
involve risks and uncertainties. Such forward-looking statements
may be deemed to include anticipated restaurant openings,
anticipated costs and sizes of future restaurants and the
adequacy of anticipated sources of cash to fund the
Companys future capital requirements. Words such as
believes, anticipates,
expects, intends, plans and
similar expressions are intended to identify forward-looking
statements, but are not the exclusive means of identifying such
statements. The Companys actual results may differ
materially from those discussed in the forward-looking
statements. Factors that might cause actual events or results to
differ materially from those indicated by such forward-looking
statements may include the matters set forth under Risk
Factors and elsewhere in this Form 10-K, such as
development and construction risks, potential labor shortages,
fluctuations in operating results, and changes in food costs.

OVERVIEW

P.F. Changs owns and operates 36 full service
restaurants (as of January 2, 2000) that feature a
distinctive blend of high quality, traditional Chinese cuisine
and American hospitality in a sophisticated, contemporary bistro
setting. The Company 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, the Companys Chief
Executive Officer and Chief Financial Officer, respectively, to
support the Companys founder, Paul Fleming. Utilizing a
partnership management philosophy, the Company

17



---





The Company intends to open 15 new restaurants in 2000 (three of
which have opened since January 2, 2000). The 15 units
that the Company intends to develop in 2000 will be situated in
approximately 7 new cities across the United States. The
Company has signed lease agreements for all of the 15 units
planned for fiscal 2000. The Company intends to continue to
develop 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 $2.0 million, excluding
landlord contributions and total invested capital of between $2.8
 million and $3.3 million per restaurant. Preopening expenses are
 expected to average approximately $300,000 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.

Elimination of minority interests for all periods subsequent to
1996 includes the effect of the Companys partnership
management structure. The Company has entered into a series of
partnership agreements with each of its Market Partners,
Operating Partners and Culinary Partners. These partnership
agreements typically provide that the Market Partner is entitled
to a specified percentage of the cash flows from the restaurants
that partner has invested in, developed and oversees as the
regional manager. Similarly, the Operating Partners and Culinary
Partners receive a percentage of the cash flows from the
restaurant in which they work. See Business 
Operations.

RESULTS OF OPERATIONS

The operating results of the Company for the fiscal years ended
December 28, 1997 (fiscal year 1997), December 27, 1998
 (fiscal year 1998) and January 2, 2000 (fiscal year 1999),
expressed as a percentage of revenues, were as follows:

|                                                |                             |                               |                                  |             |      |             |       |   |      |      |       |   |      |      | 
|----------------------------------------------- | --------------------------- | ----------------------------- | -------------------------------- | ----------- | ---- | ----------- | ----- | - | ---- | ---- | ----- | - | ---- | ---- | 
|                                                |                             | Fiscal Year                   |                                  | Fiscal Year |      | Fiscal Year
|                                                |                             | 1997                          |                                  | 1998        |      | 1999       
|                                                |                             |                               |                                  |             |      |            
|Statements of Operations Data:                  |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|                                               
|                                               
|                                               
|                                               
|Revenues                                        |                             |                               | 100.0                            | %           |      |             | 100.0 | % |      |      | 100.0 | %
|                                               
|                                               
|                                               
|                                               
|Costs and expenses:                             |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|                                               
|                                               
|                                               
|                                               
|                                                | Restaurant operating costs: |                               |                                  |             |      |             |       |   |      |      |       |   |     
|                                               
|                                               
|                                               
|                                               
|                                                |                             | Cost of sales                 |                                  |             | 28.4 |             |       |   | 27.8 |      |       |   | 27.5 |     
|                                               
|                                               
|                                               
|                                               
|                                                |                             | Labor                         |                                  |             | 29.4 |             |       |   | 29.1 |      |       |   | 29.7 |     
|                                               
|                                               
|                                               
|                                               
|                                                |                             | Operating                     |                                  |             | 16.9 |             |       |   | 17.1 |      |       |   | 16.9 |     
|                                               
|                                               
|                                               
|                                               
|                                                |                             | Occupancy                     |                                  |             | 6.9  |             |       |   | 7.0  |      |       |   | 6.4  |     
|                                                |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|                                                |                             |                               | Total restaurant operating costs |             |      | 81.6        |       |   |      | 81.0 |       |   |      | 80.5 | 
|                                               
|                                               
|                                               
|                                               
|                                                |                             | General and administrative    |                                  |             | 10.8 |             |       |   | 8.0  |      |       |   | 6.3  |     
|                                               
|                                               
|                                               
|                                               
|                                                |                             | Depreciation and amortization |                                  |             | 2.8  |             |       |   | 3.1  |      |       |   | 3.3  |     
|                                               
|                                               
|                                               
|                                               
|                                                |                             | Preopening expense            |                                  |             | 4.8  |             |       |   | 5.4  |      |       |   | 2.8  |     
|                                                |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Income (loss) from operations                   |                             |                               |                                 |             |      |             | 2.6   |   |      |      | 7.1   |  
|                                               
|                                               
|                                               
|                                               
|Interest income (expense), net                  |                             |                               | (0.8                             | )           |      |             | (1.5  | ) |      |      | 0.3   |  
|                                               
|                                               
|                                               
|                                               
|Elimination of minority interests               |                             |                               | (3.3                             | )           |      |             | (0.9  | ) |      |      | (1.6  | )
|                                                |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Income (loss) before provision for income taxes |                             |                               | (4.1                             | )           |      |             | 0.3   |   |      |      | 5.8   |  
|                                               
|                                               
|                                               
|                                               
|Provision for income taxes                      |                             |                               | (0.2                             | )           |      |             | (0.1  | ) |      |      | (1.8  | )
|                                                |                             |                               |                                  |             |      |             |       |   |      |      |       |  
|Net income (loss)                               |                             |                               | (4.3                             | )%          |      |             | 0.2   | % |      |      | 4.0   | %
|                                                |                             |                               |                                  |             |      |             |       |   |      |      |       |  

The Company operates on a 52/53 week year, with the fiscal year
ending on the Sunday closest to December 31. Fiscal years
1997 and 1998 include 52 weeks and fiscal year 1999 includes 53
weeks.

18



---



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

Revenues

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

Costs and Expenses

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

Labor.Labor expenses consist of restaurant management
salaries, hourly staff payroll costs and other payroll-related
items. Labor expenses as a percentage of revenues increased to
29.7% in the year ended January 2, 2000 from 29.1% in the
year ended December 27, 1998. The increase in labor expenses
 was primarily due to the fact that the Company opened 13 new
restaurants in 1999 compared to 10 new restaurants in 1998. The
Companys 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, the Company has
experienced an increase in its labor costs across the system. The
 Company expects that tighter labor markets will continue to
exert upward pressure on its labor costs on a year-over-year
basis in 2000.

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

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

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

19



---



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

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

Interest income (expense), net.Net interest income
(expense) was $432,000 in the year ended January 2, 2000 as
compared to ($1.2) million in the year ended December 27,
1998. The decrease in the expense was principally due to the
payoff of the Companys revolving line of credit in December
 of 1998 from the proceeds of the Companys initial public
offering.

Elimination of Minority Interests

Elimination of minority interests represents the portion of the
Companys net earnings (losses) which are attributable to
the collective ownership interests of its partners. The Company
has provided a partnership management structure in which it has
entered into a series of partnership agreements with its regional
 managers (Market Partners), certain of its general
managers (Operating Partners), and certain of its
executive chefs (Culinary Partners).

Elimination of minority interests for the year ended
January 2, 2000 increased to $2.5 million from $669,000 for
the year ended December 27, 1998, due primarily to the
addition of new restaurants and an increase in the operating
profit of those restaurants.

Provision for Income Taxes

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

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

Year Ended December 27, 1998 Compared to Year Ended December
28, 1997

Revenues

The Companys revenues are derived entirely from food and
beverage sales. Revenues increased by $38.3 million, or 96.2%, to
 $78.0 million in the year ended December 27, 1998 from
$39.8 million in the year ended December 28, 1997. The
increase was primarily attributable to revenues of $14.0 million
generated by new restaurants opened in 1998 and a $19.4 million
increase in revenues in 1998 for restaurants that opened in 1997
and a $4.9 million increase in revenues for restaurants opened
prior to 1997. Increased customer visits produced comparable
restaurant sales gains of 12.8% in 1998. The Company did not
implement any meaningful price increases in fiscal 1998 or fiscal
 1997.

20



---



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 27.8% in the year ended December 27, 1998 from
28.4% in the year ended December 28, 1997. This decrease was
 primarily the result of cost efficiencies achieved through the
improved management of product purchasing, food preparation and
waitstaff performance as the Companys restaurants mature.

Labor. Labor expenses consist of restaurant management
salaries, hourly staff payroll costs and other payroll-related
items. Labor expenses as a percentage of revenues decreased to
29.1% in the year ended December 27, 1998 from 29.4% in the
year ended December 28, 1997. The decrease in labor expenses
 was primarily due to improvements in the management of hourly
staff levels in the restaurants as the Companys restaurants
 mature. These improved efficiencies more than offset the
increase in hourly wages mandated by the federal government and
the State of California. The Company expects that the increase in
 minimum wage will continue to exert upward pressure on its labor
 costs on a year-over-year basis for the first quarter of 1999.

Operating. Operating expenses consist primarily of various
 restaurant-level costs, which are generally variable and are
expected to fluctuate with revenues. In addition, the
Companys experience to date has been that operating costs
associated with a newly opened restaurant (for approximately its
first four to six months of operation) are materially greater
than what can be expected after that time, both in aggregate
dollars and as a percentage of revenues. Operating expenses
increased nominally as a percentage of revenues to 17.1% in the
year ended December 27, 1998 from 16.9% in the year ended
December 28, 1997.

Occupancy. Occupancy costs include both fixed and variable
 portions of rent, common area maintenance charges, property
insurance and property taxes. Occupancy costs increased nominally
 as a percentage of revenues to 7.0% in the year ended
December 27, 1998 from 6.9% in the year ended
December 28, 1997.

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
 $6.2 million (8.0% of revenues) in the year ended
December 27, 1998 from $4.3 million (10.8% of revenues) in
the year ended December 28, 1997, due primarily to the
addition of corporate management personnel which resulted in
approximately $1.2 million of additional compensation and
benefits expense as well as additional costs to support a larger
restaurant base, including an additional $400,000 in travel and
consulting fees. The decrease as a percentage of revenues was due
 primarily to the Companys expanding revenue base and its
ability to leverage the duties and responsibilities of its Market
 Partners.

Depreciation and amortization. Depreciation and
amortization expenses include the depreciation of fixed assets
and the amortization of goodwill costs associated with the
acquisition of the ownership interests in the original
restaurants. Depreciation and amortization increased to $2.4
million in the year ended December 27, 1998 from $1.1
million in the year ended December 28, 1997. This increase
was primarily due to depreciation and amortization on new
restaurants totaling $670,000, a full years depreciation
and amortization on restaurants opened in 1997 and an additional
$192,000 of amortization of the goodwill associated with the
acquisition in October 1997 of the remaining minority
interests in three of the four original restaurants.

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 27, 1998
increased to $4.2 million from $1.9 million in the year ended
December 28, 1997, due to the greater number of restaurants
opened or under development during the 1998 period, as well as
unexpected delays in the timing of restaurant openings in 1998.

Interest income (expense), net. Interest income (expense),
 net increased to $1.2 million in the year ended
December 27, 1998 from $317,000 in the year ended
December 28, 1997 principally due to borrowings under the
Companys line of credit.

21



---



Elimination of minority interests

Elimination of minority interests for the year ended
December 28, 1997 includes approximately $1.2 million
attributable to the minority interests in the Scottsdale, Newport
 Beach and La Jolla restaurants. As a result of the acquisition
of substantially all of these minority interests in
October 1997, elimination of minority interests for the year
 ended December 27, 1998 declined to $669,000. Approximately
 $110,000 and $635,000 was attributable to the collective
minority interests of Market Partners, Operating Partners and
Culinary Partners in the years ended December 28, 1997 and
December 27, 1998, respectively.

Provision for income taxes

The provision for income taxes for the years ended
December 27, 1998 and December 28, 1997 represents
certain minimum state taxes based on taxable factors other than
earnings. The Company did not record a tax benefit for the losses
 generated for the year ended December 28, 1997, as
utilization of such losses in future periods was deemed
uncertain. The income tax provision for the year ended
December 27, 1998 differs from the expected provision for
income taxes, derived by applying the statutory income tax rate,
as a result of a reduction in the previously provided deferred
income tax valuation allowance.

22



---



Quarterly Results

The following tables set forth certain unaudited quarterly
information for each of the eight fiscal quarters, expressed as a
 percentage of revenues, except for revenues which are expressed
in thousands, in the two year period ended January 2, 2000.
This quarterly information has been prepared on a consistent
basis with the audited financial statements and, in the opinion
of management, includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation
of the information for the periods presented. The Companys
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 the Company for such eight fiscal
quarters expressed as a percentage of revenues, except for
revenues which are expressed in thousands, were as follows:

|                                                                                       |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |   |      |      | 
|-------------------------------------------------------------------------------------- | --------------------------- | ----------------------------- | -------------------------------- | ----------- | ---- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | ---- | ---- | ------ | - | ---- | ---- | ------ | - | ---- | ---- | ------ | - | ---- | ---- | ------ | - | ---- | ---- | 
|                                                                                       |                             |                               |                                  |            
|                                                                                       |                             | Fiscal 1998                   |                                  | Fiscal 1999
|                                                                                       |                             |                               |                                  |            
|                                                                                       |                             | First                         |                                  | Second      |      | Third   |        | Fourth  |      | First   |        | Second  |      | Third   |        | Fourth 
|                                                                                       |                             | Quarter                       |                                  | Quarter     |      | Quarter |        | Quarter |      | Quarter |        | Quarter |      | Quarter |        | Quarter
|                                                                                       |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |        
|Revenues                                                                               |                             | $                             | 15,728                           |             |      | $       | 17,209 |         |      | $       | 20,239 |         |      | $       | 24,857 |         |      | $    | 30,473 |   |      | $    | 32,956 |   |      | $    | 40,961 |   |      | $    | 48,905 |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Costs and expenses:                                                                    |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Restaurant operating costs: |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |   |     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Cost of sales                 |                                  |             | 27.9 | %       |        |         | 27.4 | %       |        |         | 27.9 | %       |        |         | 28.0 | %    |        |   | 27.5 | %    |        |   | 27.6 | %    |        |   | 27.8 | %    |        |   | 27.1 | %   
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Labor                         |                                  |             | 29.0 |         |        |         | 28.1 |         |        |         | 28.8 |         |        |         | 30.2 |      |        |   | 29.9 |      |        |   | 29.8 |      |        |   | 30.0 |      |        |   | 29.4 |     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Operating                     |                                  |             | 16.4 |         |        |         | 16.6 |         |        |         | 17.1 |         |        |         | 17.8 |      |        |   | 16.8 |      |        |   | 17.2 |      |        |   | 17.2 |      |        |   | 16.5 |     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Occupancy                     |                                  |             | 7.0  |         |        |         | 7.3  |         |        |         | 7.0  |         |        |         | 6.6  |      |        |   | 6.9  |      |        |   | 6.8  |      |        |   | 6.3  |      |        |   | 6.0  |     
|                                                                                       |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|                                                                                       |                             |                               | Total restaurant operating costs |             |      | 80.3    |        |         |      | 79.4    |        |         |      | 80.8    |        |         |      | 82.6 |        |   |      | 81.1 |        |   |      | 81.4 |        |   |      | 81.3 |        |   |      | 79.0 | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | General and administrative    |                                  |             | 8.6  |         |        |         | 8.2  |         |        |         | 7.7  |         |        |         | 7.7  |      |        |   | 7.0  |      |        |   | 6.1  |      |        |   | 6.0  |      |        |   | 6.2  |     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Depreciation and amortization |                                  |             | 3.1  |         |        |         | 3.0  |         |        |         | 2.9  |         |        |         | 3.2  |      |        |   | 3.2  |      |        |   | 3.3  |      |        |   | 3.2  |      |        |   | 3.2  |     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                             | Preopening expense            |                                  |             | 2.7  |         |        |         | 4.6  |         |        |         | 5.9  |         |        |         | 7.1  |      |        |   | 2.3  |      |        |   | 4.0  |      |        |   | 3.2  |      |        |   | 2.1  |     
|                                                                                       |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|Income (loss) from operations                                                          |                             |                               | 5.3                              |             |      |         | 4.8    |         |      |         | 2.7    |         |      |         | (0.6   | )       |      |      | 6.4    |   |      |      | 5.2    |   |      |      | 6.3    |   |      |      | 9.5    |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Interest income (expense), net                                                         |                             |                               | (1.4                             | )           |      |         | (1.4   | )       |      |         | (1.5   | )       |      |         | (1.7   | )       |      |      | 0.7    |   |      |      | 0.4    |   |      |      | 0.1    |   |      |      | 0.1    |  
|                                                                                       |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|Income (loss) before elimination of minority interests and
	provision for income taxes |                             |                               | 3.9                              |             |      |         | 3.4    |         |      |         | 1.2    |         |      |         | (2.3   | )       |      |      | 7.1    |   |      |      | 5.6    |   |      |      | 6.4    |   |      |      | 9.6    |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Elimination of minority interests                                                      |                             |                               | (1.0                             | )           |      |         | (1.1   | )       |      |         | (1.0   | )       |      |         | (0.5   | )       |      |      | (1.4   | ) |      |      | (1.2   | ) |      |      | (1.6   | ) |      |      | (2.0   | )
|                                                                                       |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|Income (loss) before provision for income taxes                                        |                             |                               | 2.9                              |             |      |         | 2.3    |         |      |         | 0.2    |         |      |         | (2.8   | )       |      |      | 5.7    |   |      |      | 4.4    |   |      |      | 4.8    |   |      |      | 7.6    |  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Provision for income taxes                                                             |                             |                               |                                 |             |      |         |       |         |      |         |       |         |      |         | (0.1   | )       |      |      | (1.6   | ) |      |      | (1.3   | ) |      |      | (1.5   | ) |      |      | (2.6   | )
|                                                                                       |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  
|Net income (loss)                                                                      |                             |                               | 2.9                              | %           |      |         | 2.3    | %       |      |         | 0.2    | %       |      |         | (2.9   | )%      |      |      | 4.1    | % |      |      | 3.1    | % |      |      | 3.3    | % |      |      | 5.0    | %
|                                                                                       |                             |                               |                                  |             |      |         |        |         |      |         |        |         |      |         |        |         |      |      |        |   |      |      |        |   |      |      |        |   |      |      |        |  

Historically, the Company has experienced variability in the
amount and percentage of revenues attributable to preopening
expenses. The Company typically incurs 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, the Companys
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
have a

23



---





Liquidity and Capital Resources

The Company 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 $139,000, $5.8 million and $19.6 million for
fiscal years 1997, 1998 and 1999, respectively. Net cash provided
 by operating activities exceeded the net income and losses for
the periods due principally to the effect of minority interests,
depreciation and amortization and an increase in income tax
payable.

The Company uses cash primarily to fund the development and
construction of new restaurants. Net cash used in investing
activities in fiscal years 1997, 1998 and 1999 was $11.5 million,
 $25.7 million and $31.0 million, respectively, which included
payments of $2.5 million and $397,000 in fiscal years 1997 and
1998, respectively, made in connection with the acquisition of
minority interests. Capital expenditures were $8.7 million, $24.8
 million and $31.1 million in fiscal years 1997, 1998 and 1999,
respectively. The Company intends to open 15 restaurants in 2000
(three of which have opened since January 2, 2000). The
Company expects that its planned future restaurants will require,
 on average, a total cash investment per restaurant, exclusive of
 landlord contributions, of approximately $2.0 million.
Preopening expenses are expected to average approximately
$300,000 per restaurant.

Net cash provided by (used in) financing activities in fiscal
years 1997, 1998 and 1999 was $12.2 million, $36.0 million and
($2.2 million), respectively. Financing activities in 1997
consisted principally of sales of Preferred Stock of
$6.4 million and line of credit borrowings of $5.5 million,
while 1998 financing activities consisted primarily of sales of
common stock, offset by repayments under the Companys
revolving line of credit. Financing activities in 1999 consisted
primarily of distributions to the Companys partners.

In December of 1999, the Company entered into a revolving line of
 credit with a commercial lending institution. The line of credit
 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). The revolving line of credit
matures on November 30, 2002 and contains certain
restrictions and conditions which require the Company to:
maintain tangible net worth of $45 million, a leverage ratio at a
 maximum of 2.00: 1.00, a fixed-charge ratio no less than 1.25:
1.00 and limit annual capital expenditures to $35 million. The
line of credit has been collaterized by substantially all of the
assets of the Company. The Company had no borrowings under the
line of credit as of January 2, 2000.

The Companys capital requirements, including development
costs related to the opening of additional restaurants, have been
 and will continue to be significant. The Companys 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. Although no assurance can be given,
the Company believes that its cash flow from operations together
with its current cash reserves and borrowings available under its
 line of credit will be sufficient to fund its capital
requirements through 2000. In the event that additional capital
is required, the Company 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. There can be no assurance that such capital will be
 available on favorable terms, if at all.

Partnership Agreements

The Company has implemented a partnership structure to facilitate
 the development and operation of its restaurants. Each partner
is required, as a condition of employment, to sign a five-year
employment agreement and is required to purchase a specified
interest in the restaurant or region the partner is employed to
manage. The ownership interest purchased by each partner
generally ranges between two and seven percent of the restaurant
or region the partner oversees. During the five-year employment
term, each partner is prohibited from selling or transferring his
 interest to another party. At the termination of the employment
agreement, the Company has the right to purchase the minority
partners interests in the partners respective
restaurants at fair market value, as calculated according to the
partnership agreements.

24



---



Preferred Stock and Accretion

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

Year 2000 Compliance

The Company experienced no significant disruption to business as
a result of the rollover to year 2000.

New Accounting Standards

In June 1999, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS)
No. 137, Accounting for Derivatives and Hedging
Activities  Deferral of the effective date of FASB
Statement No. 133. This statement defers the effective
 date of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, (SFAS No. 133) to
all fiscal quarters beginning after June 15, 2000. SFAS
No. 133 standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in
 other contracts, by recognition of those items as assets or
liabilities in the statements of financial position and
measurements of fair value. The impact of SFAS No. 133 on
the Companys financial position and results of operations
has not yet been determined.

Inflation

The primary inflationary factors affecting the Companys
operations are food and labor costs. A large number of the
Companys restaurant personnel are paid at rates based on
the applicable minimum wage, and increases in the minimum wage
directly affect the Companys labor costs. To date,
inflation has not had a material impact on the Companys
results of operations. See Risk Factors  Changes
 in Food Costs.

Item 7A.  Quantitative and Qualitative
Disclosures about Market Risks

Management believes that the market risk associated with the
Companys market risk sensitive instruments as of
January 2, 2000 is not material, and therefore, disclosure
is not required.

25



---



Item 8.  Financial Statements and Supplementary
Data

P.F. CHANGS CHINA BISTRO, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                                                                             |  |      |     | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                                                             |  | Page
|                                                                                                                                                                                             |  |     
|Report of Independent Auditors                                                                                                                                                               |  |      | F-2 | 
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|Consolidated Financial Statements:                                                                                                                                                           |  |      |     | 
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|Consolidated Balance Sheets at December 27, 1998 and
	January 2, 2000                                                                                                                        |  |      | F-3 | 
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|Consolidated Statements of Operations for the Years Ended
	December 28, 1997, December 27, 1998 and
	January 2, 2000                                                                         |  |      | F-4 | 
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|Consolidated Statements of Convertible Redeemable Preferred Stock
	 and Common Stockholders Equity (Deficit) for the Years
	Ended December 28, 1997, December 27, 1998 and
	January 2, 2000 |  |      | F-5 | 
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|Consolidated Statements of Cash Flows for the Years Ended
	December 28, 1997, December 27, 1998 and
	January 2, 2000                                                                         |  |      | F-6 | 
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|Notes to Consolidated Financial Statements                                                                                                                                                   |  |      | F-7 | 

F-1



---



REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders



We have audited the accompanying consolidated balance sheets of
P.F. Changs China Bistro, Inc. (the Company) as
 of December 27, 1998 and January 2, 2000, and the
related consolidated statements of operations, convertible
redeemable preferred stock and common stockholders equity
(deficit), and cash flows for the years ended December 28,
1997, December 27, 1998 and January 2, 2000. These
financial statements are the responsibility of the Companys
 management. Our responsibility is to express an opinion on the
financial statements based on our audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of P.F. Changs China Bistro, Inc. at
December 27, 1998 and January 2, 2000 and the results
of its operations and its cash flows for the years ended
December 28, 1997, December 27, 1998 and
January 2, 2000, in conformity with accounting principles
generally accepted in the United States.



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

Phoenix, Arizona



F-2



---



P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                                     |                                                                                                                           |                                                                                                                 |        |            |    |   |        |        |    | 
|---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ------ | ---------- | -- | - | ------ | ------ | -- | 
|                                                                                                     |                                                                                                                           | December 27,                                                                                                    |        | January 2,
|                                                                                                     |                                                                                                                           | 1998                                                                                                            |        | 2000      
|                                                                                                     |                                                                                                                           |                                                                                                                 |        |           
|                                                                                                     |                                                                                                                           |                                                                                                                
|                                                                                                     |                                                                                                                           | (In thousands)                                                                                                 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|ASSETS                                                                                               |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Current assets:                                                                                      |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Cash and cash equivalents                                                                                                 |                                                                                                                 | $      | 18,857     |    |   | $      | 5,333  |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Receivables                                                                                                               |                                                                                                                 |        | 2,792      |    |   |        | 1,275  |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Inventories                                                                                                               |                                                                                                                 |        | 673        |    |   |        | 1,085  |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Current portion of notes receivable from related parties                                                                  |                                                                                                                 |        | 225        |    |   |        | 386    |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Prepaids and other current assets                                                                                         |                                                                                                                 |        | 631        |    |   |        | 1,204  |   
|                                                                                                     |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|Total current assets                                                                                 |                                                                                                                           |                                                                                                                 | 23,178 |            |    |   | 9,283  |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Construction-in-progress                                                                             |                                                                                                                           |                                                                                                                 | 4,627  |            |    |   | 7,041  |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Property and equipment, net                                                                          |                                                                                                                           |                                                                                                                 | 32,246 |            |    |   | 56,395 |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Goodwill, net of accumulated amortization of $834,000 and
	$1,270,000 in 1998 and 1999, respectively |                                                                                                                           |                                                                                                                 | 7,874  |            |    |   | 7,438  |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Notes receivable from related parties, less current portion                                          |                                                                                                                           |                                                                                                                 | 545    |            |    |   | 251    |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Other assets                                                                                         |                                                                                                                           |                                                                                                                 | 717    |            |    |   | 1,299  |       
|                                                                                                     |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|Total assets                                                                                         |                                                                                                                           | $                                                                                                               | 69,187 |            |    | $ | 81,707 |       
|                                                                                                     |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|                                                                                                    
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                 |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Current liabilities:                                                                                 |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Accounts payable                                                                                                          |                                                                                                                 | $      | 2,938      |    |   | $      | 3,789  |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Accrued payroll                                                                                                           |                                                                                                                 |        | 1,943      |    |   |        | 2,148  |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Sales and use tax payable                                                                                                 |                                                                                                                 |        | 619        |    |   |        | 1,317  |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Other accrued expenses                                                                                                    |                                                                                                                 |        | 2,179      |    |   |        | 3,376  |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Unearned revenue                                                                                                          |                                                                                                                 |        | 744        |    |   |        | 1,676  |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Current portion of long-term debt, including $268,000 and $71,000
	 due to related parties in 1998 and 1999, respectively |                                                                                                                 |        | 523        |    |   |        | 281    |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Income tax payable                                                                                                        |                                                                                                                 |        |           |    |   |        | 1,687  |   
|                                                                                                     |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|Total current liabilities                                                                            |                                                                                                                           |                                                                                                                 | 8,946  |            |    |   | 14,274 |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Long-term debt, including $340,000 due to related parties in 1998                                    |                                                                                                                           |                                                                                                                 | 1,829  |            |    |   | 1,548  |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Deferred income tax liability                                                                        |                                                                                                                           |                                                                                                                 |       |            |    |   | 601    |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Interests of minority partners in consolidated partnerships                                          |                                                                                                                           |                                                                                                                 | 183    |            |    |   | 494    |       
|Commitments and contingencies                                                                        |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Stockholders equity:                                                                                |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Common stock, $0.001 par value, 20,000,000 shares authorized:                                                             |                                                                                                                 |        |            |    |   |        |        |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     |                                                                                                                           | 10,192,769 and 10,254,856 shares issued and outstanding at
	December 27, 1998 and January 2, 2000, respectively |        |            | 10 |   |        |        | 10 | 
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Additional paid-in capital                                                                                                |                                                                                                                 |        | 63,409     |    |   |        | 63,934 |   
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                     | Retained earnings (deficit)                                                                                               |                                                                                                                 |        | (5,190     | )  |   |        | 846    |   
|                                                                                                     |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|Total stockholders equity                                                                           |                                                                                                                           |                                                                                                                 | 58,229 |            |    |   | 64,790 |       
|                                                                                                     |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       
|Total liabilities and stockholders equity                                                           |                                                                                                                           | $                                                                                                               | 69,187 |            |    | $ | 81,707 |       
|                                                                                                     |                                                                                                                           |                                                                                                                 |        |            |    |   |        |       

See accompanying notes.

F-3



---



P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |        |        |         | 
|-------------------------------------------------------------------------------------- | ----------------------------- | ---------------------------------------- | -------------------------------- | ------------ | ------ | ---------- | ------ | ------ | ------ | ------ | ------- | ------ | ------ | ------- | 
|                                                                                       |                               | Year Ended                               |                                  | Year Ended   |        | Year Ended
|                                                                                       |                               | December 28,                             |                                  | December 27, |        | January 2,
|                                                                                       |                               | 1997                                     |                                  | 1998         |        | 2000      
|                                                                                       |                               |                                          |                                  |              |        |           
|                                                                                       |                               |                                         
|                                                                                       |                               | (In thousands, except per share amounts)
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Revenues                                                                               |                               | $                                        | 39,768                           |              |        | $          | 78,033 |        |        | $      | 153,295 |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Costs and expenses:                                                                    |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Restaurant operating costs:   |                                          |                                  |              |        |            |        |        |        |        |         |        |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                               | Cost of sales                            |                                  |              | 11,317 |            |        |        | 21,709 |        |         |        | 42,136 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                               | Labor                                    |                                  |              | 11,683 |            |        |        | 22,721 |        |         |        | 45,569 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                               | Operating                                |                                  |              | 6,727  |            |        |        | 13,319 |        |         |        | 25,907 |        
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                               | Occupancy                                |                                  |              | 2,743  |            |        |        | 5,429  |        |         |        | 9,865  |        
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|                                                                                       |                               |                                          | Total restaurant operating costs |              |        | 32,470     |        |        |        | 63,178 |         |        |        | 123,477 | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | General and administrative    |                                          |                                  | 4,276        |        |            |        | 6,245  |        |        |         | 9,648  |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Depreciation and amortization |                                          |                                  | 1,102        |        |            |        | 2,384  |        |        |         | 4,975  |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Preopening expense            |                                          |                                  | 1,922        |        |            |        | 4,183  |        |        |         | 4,344  |       
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|Income (loss) from operations                                                          |                               |                                          | (2                               | )            |        |            | 2,043  |        |        |        | 10,851  |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Interest income (expense):                                                             |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Interest expense              |                                          |                                  | (380         | )      |            |        | (1,406 | )      |        |         | (228   | )     
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Interest income               |                                          |                                  | 63           |        |            |        | 229    |        |        |         | 660    |       
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|Income (loss) before elimination of minority interests and
	provision for income taxes |                               |                                          | (319                             | )            |        |            | 866    |        |        |        | 11,283  |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Elimination of minority interests                                                      |                               |                                          | (1,308                           | )            |        |            | (669   | )      |        |        | (2,469  | )     
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|Income (loss) before provision for income taxes                                        |                               |                                          | (1,627                           | )            |        |            | 197    |        |        |        | 8,814   |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Provision for income taxes                                                             |                               |                                          | (69                              | )            |        |            | (48    | )      |        |        | (2,778  | )     
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|Net income (loss)                                                                      |                               |                                          | (1,696                           | )            |        |            | 149    |        |        |        | 6,036   |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Redeemable Preferred Stock accretion                                                   |                               |                                          | (876                             | )            |        |            | (888   | )      |        |        |        |       
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|Net income (loss) available to common stockholders                                     |                               | $                                        | (2,572                           | )            |        | $          | (739   | )      |        | $      | 6,036   |       
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|Net income (loss) per share:                                                           |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Basic                         |                                          | $                                | (1.03        | )      |            | $      | (0.25  | )      |        | $       | 0.59   |       
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|                                                                                       | Diluted                       |                                          | $                                | (1.03        | )      |            | $      | (0.25  | )      |        | $       | 0.54   |       
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|Weighted average shares used in computation:                                           |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Basic                         |                                          |                                  | 2,500        |        |            |        | 2,986  |        |        |         | 10,217 |       
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       
|                                                                                       | Diluted                       |                                          |                                  | 2,500        |        |            |        | 2,986  |        |        |         | 11,155 |       
|                                                                                       |                               |                                          |                                  |              |        |            |        |        |        |        |         |       

See accompanying notes.

F-4



---



P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED
STOCK

AND COMMON STOCKHOLDERS EQUITY (DEFICIT)


|                                                                         |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | -------------------------------------- | ------ | -------- |  | ------ | ------- | ------ |  |  | ------ | - |  | - | ------ | -
|                                                                         |  |                                       
|                                                                         |  | Convertible Redeemable Preferred Stock
|                                                                         |  |                                       
|                                                                         |  |                                        |        |         
|                                                                         |  | Series A                               |        | Series B
|                                                                         |  |                                        |        |         
|                                                                         |  | Shares                                 |        | Amount   |  | Shares |         | Amount
|                                                                         |  |                                        |        |          |  |        |         |       
|                                                                         |  |                                       
|                                                                         |  | (In thousands)                        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Balances, December 29, 1996                                              |  |                                        | 5,354  |          |  | $      | 10,517  |        |  |  |       |   |  | $ |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Issuance of Series B preferred stock, net of issuance costs
	of $184,000 |  |                                        |       |          |  |        |        |        |  |  | 1,517  |   |  |   | 6,415  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Redeemable preferred stock accretion                                     |  |                                        |       |          |  |        | 658     |        |  |  |       |   |  |   | 218    |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net loss                                                                 |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                         |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  
|Balances, December 28, 1997                                              |  |                                        | 5,354  |          |  |        | 11,175  |        |  |  | 1,517  |   |  |   | 6,633  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Series A preferred stock dividend paid                                   |  |                                        | 329    |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Redeemable preferred stock accretion                                     |  |                                        |       |          |  |        | 587     |        |  |  |       |   |  |   | 301    |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Conversion of preferred stock to common stock                            |  |                                        | (5,683 | )        |  |        | (11,762 | )      |  |  | (1,517 | ) |  |   | (6,934 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Conversion of deferred purchase price liability to common stock          |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Issuance of common stock, net of issuance costs of $4,394,900            |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income                                                               |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                         |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  
|Balances, December 27, 1998                                              |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Issuance of common stock under stock option plan                         |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Issuance of common stock under employee stock purchase plan              |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income                                                               |  |                                        |       |          |  |        |        |        |  |  |       |   |  |   |       |  
|                                                                         |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  
|Balances, January 2, 2000                                                |  |                                        |       |          |  | $      |        |        |  |  |       |   |  | $ |       |  
|                                                                         |  |                                        |        |          |  |        |         |        |  |  |        |   |  |   |        |  

[Additional columns below]

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

|                                                                         |  |                                                    |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | -------------------------------------------------- | ------ | ---------- |  | -------- | -- | --------- |  | ----- | ------ |  |  | - | ------ | - |  | - | ------ | -
|                                                                         |  |                                                   
|                                                                         |  | Common Stockholders and Members Equity (Deficit)
|                                                                         |  |                                                   
|                                                                         |  |                                                    |        |           
|                                                                         |  | Common Stock                                       |        | Additional |  | Retained |    |          
|                                                                         |  |                                                    |        | Paid-In    |  | Earnings |    |          
|                                                                         |  | Shares                                             |        | Amount     |  | Capital  |    | (Deficit) |  | Total
|                                                                         |  |                                                    |        |            |  |          |    |           |  |      
|                                                                         |  |                                                   
|                                                                         |  | (In thousands)                                    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Balances, December 29, 1996                                              |  |                                                    | 2,500  |            |  | $        | 3  |           |  | $     | 2      |  |  | $ | (1,879 | ) |  | $ | (1,874 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Issuance of Series B preferred stock, net of issuance costs
	of $184,000 |  |                                                    |       |            |  |          |   |           |  |       |       |  |  |   |       |   |  |   |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Redeemable preferred stock accretion                                     |  |                                                    |       |            |  |          |   |           |  |       |       |  |  |   | (876   | ) |  |   | (876   | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net loss                                                                 |  |                                                    |       |            |  |          |   |           |  |       |       |  |  |   | (1,696 | ) |  |   | (1,696 | )
|                                                                         |  |                                                    |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  
|Balances, December 28, 1997                                              |  |                                                    | 2,500  |            |  |          | 3  |           |  |       | 2      |  |  |   | (4,451 | ) |  |   | (4,446 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Series A preferred stock dividend paid                                   |  |                                                    |       |            |  |          |   |           |  |       |       |  |  |   |       |   |  |   |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Redeemable preferred stock accretion                                     |  |                                                    |       |            |  |          |   |           |  |       |       |  |  |   | (888   | ) |  |   | (888   | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Conversion of preferred stock to common stock                            |  |                                                    | 3,600  |            |  |          | 3  |           |  |       | 18,693 |  |  |   |       |   |  |   | 18,696 |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Conversion of deferred purchase price liability to common stock          |  |                                                    | 170    |            |  |          |   |           |  |       | 2,043  |  |  |   |       |   |  |   | 2,043  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Issuance of common stock, net of issuance costs of $4,394,900            |  |                                                    | 3,923  |            |  |          | 4  |           |  |       | 42,671 |  |  |   |       |   |  |   | 42,675 |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income                                                               |  |                                                    |       |            |  |          |   |           |  |       |       |  |  |   | 149    |   |  |   | 149    |  
|                                                                         |  |                                                    |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  
|Balances, December 27, 1998                                              |  |                                                    | 10,193 |            |  |          | 10 |           |  |       | 63,409 |  |  |   | (5,190 | ) |  |   | 58,229 |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Issuance of common stock under stock option plan                         |  |                                                    | 37     |            |  |          |   |           |  |       | 266    |  |  |   |       |   |  |   | 266    |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Issuance of common stock under employee stock purchase plan              |  |                                                    | 25     |            |  |          |   |           |  |       | 259    |  |  |   |       |   |  |   | 259    |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net income                                                               |  |                                                    |       |            |  |          |   |           |  |       |       |  |  |   | 6,036  |   |  |   | 6,036  |  
|                                                                         |  |                                                    |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  
|Balances, January 2, 2000                                                |  |                                                    | 10,255 |            |  | $        | 10 |           |  | $     | 63,934 |  |  | $ | 846    |   |  | $ | 64,790 |  
|                                                                         |  |                                                    |        |            |  |          |    |           |  |       |        |  |  |   |        |   |  |   |        |  

See accompanying notes.

F-5



---



P.F. CHANGS CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                            |                                              |                                   |         |              |        |            |         |       |       |   |         |       |       |  
|----------------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------- | ------- | ------------ | ------ | ---------- | ------- | ----- | ----- | - | ------- | ----- | ----- | -
|                                                                                                            |                                              | Year Ended                        |         | Year Ended   |        | Year Ended
|                                                                                                            |                                              | December 28,                      |         | December 27, |        | January 2 
|                                                                                                            |                                              | 1997                              |         | 1998         |        | 2000      
|                                                                                                            |                                              |                                   |         |              |        |           
|                                                                                                            |                                              |                                  
|                                                                                                            |                                              | (In thousands)                   
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Operating Activities:                                                                                       |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Net income (loss)                                                                                           |                                              | $                                 | (1,696  | )            |        | $          | 149     |       |       | $ | 6,036   |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Adjustments to reconcile net income (loss) to net cash provided
	by operating activities:                   |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Depreciation and amortization                |                                   |         | 858          |        |            |         | 1,948 |       |   |         | 4,539 |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Amortization of goodwill                     |                                   |         | 244          |        |            |         | 436   |       |   |         | 436   |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred income taxes                        |                                   |         |             |        |            |         |      |       |   |         | 601   |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Minority interests                           |                                   |         | 1,308        |        |            |         | 669   |       |   |         | 2,469 |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Changes in operating assets and liabilities: |                                   |         |              |        |            |         |       |       |   |         |       |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Receivables                       |         |              | (1,403 | )          |         |       | (730  | ) |         |       | 1,517 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Inventories                       |         |              | (169   | )          |         |       | (310  | ) |         |       | (412  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Prepaids and other current assets |         |              | (338   | )          |         |       | (214  | ) |         |       | (573  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Other assets                      |         |              | (207   | )          |         |       | (410  | ) |         |       | (582  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Accounts payable                  |         |              | 609    |            |         |       | 1,280 |   |         |       | 851   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Accrued payroll                   |         |              | 590    |            |         |       | 729   |   |         |       | 205   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Sales and use tax payable         |         |              | 161    |            |         |       | 324   |   |         |       | 698   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Other accrued expenses            |         |              | 10     |            |         |       | 1,486 |   |         |       | 1,197 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Unearned revenue                  |         |              | 172    |            |         |       | 439   |   |         |       | 932   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                              | Income tax payable                |         |              |       |            |         |       |      |   |         |       | 1,687 |  
|                                                                                                            |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|Net cash provided by operating activities                                                                   |                                              |                                   | 139     |              |        |            | 5,796   |       |       |   | 19,601  |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Investing Activities:                                                                                       |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Capital expenditures                                                                                        |                                              |                                   | (8,696  | )            |        |            | (24,817 | )     |       |   | (31,102 | )    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Decrease (increase) in notes receivable from related parties                                                |                                              |                                   | (292    | )            |        |            | (478    | )     |       |   | 133     |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Purchase of minority interests                                                                              |                                              |                                   | (2,520  | )            |        |            | (397    | )     |       |   |        |      
|                                                                                                            |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|Net cash used in investing activities                                                                       |                                              |                                   | (11,508 | )            |        |            | (25,692 | )     |       |   | (30,969 | )    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Financing Activities:                                                                                       |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from revolving line of credit, net of repayments                                                   |                                              |                                   | 5,500   |              |        |            | (5,500  | )     |       |   |        |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from issuance of long-term debt                                                                    |                                              |                                   | 1,600   |              |        |            |        |       |       |   |        |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Repayments of long-term debt                                                                                |                                              |                                   | (491    | )            |        |            | (520    | )     |       |   | (523    | )    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from issuance of common stock                                                                      |                                              |                                   |        |              |        |            | 42,675  |       |       |   |        |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from issuance of redeemable preferred stock                                                        |                                              |                                   | 6,415   |              |        |            |        |       |       |   |        |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from stock options exercised and employee stock
	purchases                                         |                                              |                                   |        |              |        |            |        |       |       |   | 525     |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Proceeds from minority interest contributions                                                               |                                              |                                   | 441     |              |        |            | 506     |       |       |   | 455     |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Distributions to minority interests                                                                         |                                              |                                   | (1,234  | )            |        |            | (1,147  | )     |       |   | (2,613  | )    
|                                                                                                            |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|Net cash provided by (used in) financing activities                                                         |                                              |                                   | 12,231  |              |        |            | 36,014  |       |       |   | (2,156  | )    
|                                                                                                            |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|Net increase (decrease) in cash and cash equivalents                                                        |                                              |                                   | 862     |              |        |            | 16,118  |       |       |   | (13,524 | )    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Cash and cash equivalents at the beginning of the year                                                      |                                              |                                   | 1,877   |              |        |            | 2,739   |       |       |   | 18,857  |      
|                                                                                                            |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|Cash and cash equivalents at the end of the year                                                            |                                              | $                                 | 2,739   |              |        | $          | 18,857  |       |       | $ | 5,333   |      
|                                                                                                            |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|Supplemental Disclosures of Cash Flow Information:                                                          |                                              |                                   |         |              |        |            |         |       |       |   |         |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Cash paid for interest                                                                                      |                                              | $                                 | 319     |              |        | $          | 1,475   |       |       | $ | 231     |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Cash paid for income taxes                                                                                  |                                              |                                   | 69      |              |        |            | 48      |       |       |   | 490     |      
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Purchase of members and partners interest through
	deferred purchase price and conversion to common stock |                                              |                                   | 2,426   |              |        |            | 2,043   |       |       |   |        |      

See accompanying notes.

F-6



---



P.F. CHANGS CHINA BISTRO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000


1.  Summary of Significant Accounting Policies

Organization and Nature of Operations

P.F. Changs China Bistro, Inc. (the
Company) operates in a single segment consisting of
restaurants throughout the United States under the name of
P.F. Changs China Bistro. The Company
successfully completed an initial public offering (the
Offering) on December 4, 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. From the proceeds,
$25,000,000 was used to repay certain indebtedness of the Company
 outstanding under its revolving line of credit. The Company used
 the balance of the net proceeds for development of new
restaurants in 1999 and for general corporate purposes.

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 1997 and 1998 and
53 weeks in 1999.

Use of Estimates

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

Principles of Consolidation

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

Revenue Recognition

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

Cash and Cash Equivalents

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

Receivables

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

F-7



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


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 limited partners of consolidated partnerships.
Payments of principal, amortized over five years, with interest
at 11.0%, are due monthly, with a balloon payment for the
outstanding principal and interest due at the end of two years.

Property and Equipment

Property and equipment are stated at cost. 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.

Goodwill

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

Unearned Revenue

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

Advertising

The Company expenses advertising as incurred. Advertising expense
 for the years ended December 28, 1997, December 27,
1998 and January 2, 2000 was approximately $901,000,
$1,255,000 and $2,004,000, 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 Statement of Financial Accounting
Standards (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.

F-8



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


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

Stock Based Compensation

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

Net Income (Loss) Per Share

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

Fair Value of Financial Instruments

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

Concentrations of Credit Risk

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

Reclassifications

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

2.  Property and Equipment

Property and equipment consists of the following:

|                                               |  |                |        |            |  |   |        | 
|---------------------------------------------- |  | -------------- | ------ | ---------- |  | - | ------ | 
|                                               |  | December 27,   |        | January 2,
|                                               |  | 1998           |        | 2000      
|                                               |  |                |        |           
|                                               |  |               
|                                               |  | (In thousands)
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  | $              | 25,290 |            |  | $ | 47,367 | 
|                                              
|                                              
|                                              
|                                              
|Furniture, fixtures and equipment              |  |                | 9,390  |            |  |   | 15,197 | 
|                                              
|                                              
|                                              
|                                              
|China and smallwares                           |  |                | 1,012  |            |  |   | 1,782  | 
|                                               |  |                |        |            |  |   |        | 
|                                               |  |                | 35,692 |            |  |   | 64,346 | 
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |                | 3,446  |            |  |   | 7,951  | 
|                                               |  |                |        |            |  |   |        | 
|                                               |  | $              | 32,246 |            |  | $ | 56,395 | 
|                                               |  |                |        |            |  |   |        | 

F-9



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


3.  Revolving Line of Credit

In December of 1999, the Company entered into a revolving line of
 credit with a commercial lending institution. The line of credit
 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). The revolving line of credit
matures on November 30, 2002 and contains certain
restrictions and conditions which require the Company to:
maintain tangible net worth of $45 million, a leverage ratio at a
 maximum of 2.00: 1.00, a fixed-charge ratio no less than 1.25:
1.00 and limit annual capital expenditures to $35 million. The
line of credit has been collaterized by substantially all of the
assets of the Company. The Company had no borrowings under the
line of credit as of January 2, 2000.

4.  Long-Term Debt

Long-term debt consists of the following:

|                                                                                                                                                                                                                                                                                                                                                 |                      |                |       |            |  |   |       |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------- | -------------- | ----- | ---------- |  | - | ----- | --- | 
|                                                                                                                                                                                                                                                                                                                                                 |                      | December 27,   |       | January 2,
|                                                                                                                                                                                                                                                                                                                                                 |                      | 1998           |       | 2000      
|                                                                                                                                                                                                                                                                                                                                                 |                      |                |       |           
|                                                                                                                                                                                                                                                                                                                                                 |                      |               
|                                                                                                                                                                                                                                                                                                                                                 |                      | (In thousands)
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|$1,100,000 promissory note, collateralized by leasehold
	improvements, payable in monthly installments of $11,354
	including interest at 11.0 percent, until March 1,
	2017, when all remaining principal and interest is due and
	payable. Additional payments may be required under the promissory
	 note based on a percentage of gross sales |                      | $              | 1,071 |            |  | $ | 1,051 |    
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|$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                                                                                                                         |                      |                | 408   |            |  |   | 348   |    
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|$1,266,000 unsecured promissory notes, a portion of which is
	payable to related parties, in quarterly installments of $96,967
	including interest at 10.0 percent, until March 1,
	2000, when all remaining principal and interest is due and
	payable                                                                                          |                      |                | 444   |            |  |   | 93    |    
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|$421,000 equipment loan, collateralized by furniture, fixtures
	and equipment, payable in monthly installments of $7,202
	including interest at 11.0 percent, until January  1,
	2004, when all remaining principal and interest is due and
	payable                                                                                             |                      |                | 335   |            |  |   | 283   |    
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|$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                                                                                |                      |                | 94    |            |  |   | 54    |    
|                                                                                                                                                                                                                                                                                                                                                 |                      |                |       |            |  |   |       |    
|                                                                                                                                                                                                                                                                                                                                                 |                      |                | 2,352 |            |  |   | 1,829 |    
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                 | Less current portion |                |       | 523        |  |   |       | 281 | 
|                                                                                                                                                                                                                                                                                                                                                 |                      |                |       |            |  |   |       |    
|                                                                                                                                                                                                                                                                                                                                                 |                      | $              | 1,829 |            |  | $ | 1,548 |    
|                                                                                                                                                                                                                                                                                                                                                 |                      |                |       |            |  |   |       |    

The aggregate annual payments of long-term debt outstanding at
January 2, 2000, for the next five years and thereafter, are
 summarized as follows: 2000  $281,000;
2001  $178,000; 2002  $184,000;
2003  $205,000; 2004  $66,000 and
thereafter  $915,000.

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

F-10



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


those shares without any further vote or act by the common
stockholders. There is no outstanding preferred stock as of
December 27, 1998 and January 2, 2000.

In connection with the original capitalization of the Company, a
warrant to purchase 124,380 shares of preferred stock,
convertible into 62,190 shares of common stock, was issued to an
investment bank with an exercise price of $4.00 per common share.
 The warrant expires February 28, 2001.

Stock Option Plans

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

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

During 1998, the Companys Board of Directors approved the
1998 Stock Option Plan (1998 Plan) which provides for
discretionary grants of incentive stock options and nonqualified
stock options to the Companys employees, including
officers, directors, consultants, advisors, and other independent
 contractors. A total of 206,885 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 10,000 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 2,500 shares on the day
following each annual meeting of stockholders.

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

F-11



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


Pro forma information regarding net income (loss) is required by
SFAS No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock
 options granted subsequent to December 31, 1994 under the
fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions for 1997, 1998 and 1999: 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 .122, .41 and .497, 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.

Because SFAS No. 123 is applicable to options granted
subsequent to December 31, 1994, its pro forma effect will not be
 fully reflected until approximately 2002. For purposes of pro
forma disclosures, the estimated fair value of the options is
amortized to expense over the options vesting period. The
Companys pro forma information follows:

|                                             |                                                  |                                          |        |              |   |            |     |       |   |   |       |        | 
|-------------------------------------------- | ------------------------------------------------ | ---------------------------------------- | ------ | ------------ | - | ---------- | --- | ----- | - | - | ----- | ------ | 
|                                             |                                                  | Year ended                               |        | Year ended   |   | Year ended
|                                             |                                                  | December 28,                             |        | December 27, |   | January 2,
|                                             |                                                  | 1997                                     |        | 1998         |   | 2000      
|                                             |                                                  |                                          |        |              |   |           
|                                             |                                                  |                                         
|                                             |                                                  | (In thousands, except per share amounts)
|                                            
|                                            
|                                            
|                                            
|Net income (loss), as reported               |                                                  | $                                        | (1,696 | )            |   | $          | 149 |       |   | $ | 6,036 |       
|                                            
|                                            
|                                            
|                                            
|                                             | Pro forma compensation expense for stock options |                                          |        | 82           |   |            |     | 185   |   |   |       | 697    | 
|                                             |                                                  |                                          |        |              |   |            |     |       |   |   |       |       
|Pro forma net income (loss)                  |                                                  | $                                        | (1,778 | )            |   | $          | (36 | )     |   | $ | 5,339 |       
|                                             |                                                  |                                          |        |              |   |            |     |       |   |   |       |       
|Net income (loss) per share:                 |                                                  |                                          |        |              |   |            |     |       |   |   |       |       
|                                            
|                                            
|                                            
|                                            
|                                             | Basic                                            |                                          | $      | (1.06        | ) |            | $   | (0.31 | ) |   | $     | 0.52   | 
|                                             |                                                  |                                          |        |              |   |            |     |       |   |   |       |       
|                                             | Diluted                                          |                                          | $      | (1.06        | ) |            | $   | (0.31 | ) |   | $     | 0.48   | 
|                                             |                                                  |                                          |        |              |   |            |     |       |   |   |       |       
|Weighted average shares used in computation: |                                                  |                                          |        |              |   |            |     |       |   |   |       |       
|                                            
|                                            
|                                            
|                                            
|                                             | Basic                                            |                                          |        | 2,500        |   |            |     | 2,986 |   |   |       | 10,217 | 
|                                             |                                                  |                                          |        |              |   |            |     |       |   |   |       |       
|                                             | Diluted                                          |                                          |        | 2,500        |   |            |     | 2,986 |   |   |       | 11,155 | 
|                                             |                                                  |                                          |        |              |   |            |     |       |   |   |       |       

F-12



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


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

|                                 |                      |           |         |                     |   |           |           |         |   |   |      |       | 
|-------------------------------- | -------------------- | --------- | ------- | ------------------- | - | --------- | --------- | ------- | - | - | ---- | ----- | 
|                                 |                      |           |         |                    
|                                 |                      |           |         | Outstanding Options
|                                 |                      |           |         |                    
|                                 |                      | Shares    |         |                     |   | Weighted-
|                                 |                      | Available |         |                     |   | Average  
|                                 |                      | for       |         |                     |   | Exercise 
|                                 |                      | Options   |         | Shares              |   | Price    
|                                 |                      |           |         |                     |   |          
|Outstanding at December 29, 1996 |                      |           | 98,490  |                     |   |           | 791,510   |         |   | $ | 2.98 |      
|                                
|                                
|                                
|                                
|                                 | Authorized           |           |         | 196,500             |   |           |           |        |   |   |      |      | 
|                                
|                                
|                                
|                                
|                                 | Granted              |           |         | (170,000            | ) |           |           | 170,000 |   |   |      | 5.40  | 
|                                
|                                
|                                
|                                
|                                 | Exercised            |           |         |                    |   |           |           |        |   |   |      |      | 
|                                
|                                
|                                
|                                
|                                 | Forfeited (canceled) |           |         |                    |   |           |           |        |   |   |      |      | 
|                                 |                      |           |         |                     |   |           |           |         |   |   |      |      
|Outstanding at December 28, 1997 |                      |           | 124,990 |                     |   |           | 961,510   |         |   |   | 3.40 |      
|                                
|                                
|                                
|                                
|                                 | Authorized           |           |         | 206,885             |   |           |           |        |   |   |      |      | 
|                                
|                                
|                                
|                                
|                                 | Granted              |           |         | (174,125            | ) |           |           | 174,125 |   |   |      | 11.82 | 
|                                
|                                
|                                
|                                
|                                 | Exercised            |           |         |                    |   |           |           |        |   |   |      |      | 
|                                
|                                
|                                
|                                
|                                 | Forfeited (canceled) |           |         |                    |   |           |           |        |   |   |      |      | 
|                                 |                      |           |         |                     |   |           |           |         |   |   |      |      
|Outstanding at December 27, 1998 |                      |           | 157,750 |                     |   |           | 1,135,635 |         |   |   | 4.71 |      
|                                
|                                
|                                
|                                
|                                 | Authorized           |           |         | 100,000             |   |           |           |        |   |   |      |      | 
|                                
|                                
|                                
|                                
|                                 | Granted              |           |         | (257,000            | ) |           |           | 257,000 |   |   |      | 22.31 | 
|                                
|                                
|                                
|                                
|                                 | Exercised            |           |         |                    |   |           |           | (36,653 | ) |   |      | 7.17  | 
|                                
|                                
|                                
|                                
|                                 | Forfeited (canceled) |           |         | 18,225              |   |           |           | (18,225 | ) |   |      | 9.18  | 
|                                 |                      |           |         |                     |   |           |           |         |   |   |      |      
|Outstanding at January 2, 2000   |                      |           | 18,975  |                     |   |           | 1,337,757 |         |   | $ | 7.97 |      
|                                 |                      |           |         |                     |   |           |           |         |   |   |      |      

Information regarding options outstanding and exercisable at
January 2, 2000 is as follows:

|                |               |                     |  |                     |         |                |  |             |            |                |  |   |       |  |  |  |         |  |  |   |       | 
|--------------- | ------------- | ------------------- |  | ------------------- | ------- | -------------- |  | ----------- | ---------- | -------------- |  | - | ----- |  |  |  | ------- |  |  | - | ----- | 
|                |               |                     |  |                     |         |               
|                |               | Options Outstanding |  |                    
|                |               |                     |  | Options Exercisable
|                |               |                     |  | Weighted-           |         |                |  |            
|                |               |                     |  | Average             |         | Weighted-      |  |             |            | Weighted-     
|Range of        |               | Number              |  | Remaining           |         | Average        |  | Number      |            | Average       
|Exercise Prices |               | Outstanding         |  | Contractual Life    |         | Exercise Price |  | Exercisable |            | Exercise Price
|                |               |                     |  |                     |         |                |  |             |            |               
|                | $2.40-$10.00  |                     |  |                     | 933,257 |                |  |             | 4.87 years |                |  | $ | 3.42  |  |  |  | 663,953 |  |  | $ | 3.27  | 
|                | $10.01-$20.00 |                     |  |                     | 183,750 |                |  |             | 8.77 years |                |  |   | 13.39 |  |  |  | 35,380  |  |  |   | 12.13 | 
|                | $20.01-$30.00 |                     |  |                     | 220,750 |                |  |             | 9.49 years |                |  |   | 22.69 |  |  |  | 15,000  |  |  |   | 23.26 | 

Since options are generally exercisable upon date of grant,
options exercisable, included in the above table, represent
vested options that are not subject to repurchase by the Company.
 The weighted-average fair value of options granted for the years
 ended December 28, 1997, December 27, 1998 and
January 2, 2000 was $1.38, $5.27 and $11.16, respectively.

Employee Stock Purchase Plan

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

F-13



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


6.  Partnership Agreements

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

7.  Income Taxes

Income tax expense consisted of the following:

|         |          |                |    |              |  |            |    |    |  |   |       |       | 
|-------- | -------- | -------------- | -- | ------------ |  | ---------- | -- | -- |  | - | ----- | ----- | 
|         |          | Year Ended     |    | Year Ended   |  | Year Ended
|         |          | December 28,   |    | December 27, |  | January 2,
|         |          | 1997           |    | 1998         |  | 2000      
|         |          |                |    |              |  |           
|         |          |               
|         |          | (In thousands)
|        
|        
|        
|        
|Federal: |          |                |    |              |  |            |    |    |  |   |       |      
|        
|        
|        
|        
|         | Current  |                | $  |             |  |            | $  | 21 |  |   | $     | 1,795 | 
|        
|        
|        
|        
|         | Deferred |                |    |             |  |            |    |   |  |   |       | 511   | 
|         |          |                |    |              |  |            |    |    |  |   |       |      
|         |          |                |   |              |  |            | 21 |    |  |   | 2,306 |      
|        
|        
|        
|        
|State:   |          |                |    |              |  |            |    |    |  |   |       |      
|        
|        
|        
|        
|         | Current  |                |    | 69           |  |            |    | 27 |  |   |       | 382   | 
|        
|        
|        
|        
|         | Deferred |                |    |             |  |            |    |   |  |   |       | 90    | 
|         |          |                |    |              |  |            |    |    |  |   |       |      
|         |          |                | 69 |              |  |            | 27 |    |  |   | 472   |      
|         |          |                |    |              |  |            |    |    |  |   |       |      
|         |          | $              | 69 |              |  | $          | 48 |    |  | $ | 2,778 |      
|         |          |                |    |              |  |            |    |    |  |   |       |      

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

|                                                       |  |                |      |              |  |            |      |   |  |   |       |  
|------------------------------------------------------ |  | -------------- | ---- | ------------ |  | ---------- | ---- | - |  | - | ----- | -
|                                                       |  | Year Ended     |      | Year Ended   |  | Year Ended
|                                                       |  | December 28,   |      | December 27, |  | January 2,
|                                                       |  | 1997           |      | 1998         |  | 2000      
|                                                       |  |                |      |              |  |           
|                                                       |  |               
|                                                       |  | (In thousands)
|                                                      
|                                                      
|                                                      
|                                                      
|Income tax expense (benefit) at federal statutory rate |  | $              | (553 | )            |  | $          | 67   |   |  | $ | 2,996 |  
|                                                      
|                                                      
|                                                      
|                                                      
|State taxes, net of federal expense (benefit)          |  |                | 69   |              |  |            | 19   |   |  |   | 311   |  
|                                                      
|                                                      
|                                                      
|                                                      
|Increase (decrease) in valuation allowance             |  |                | 425  |              |  |            | (288 | ) |  |   | (605  | )
|                                                      
|                                                      
|                                                      
|                                                      
|Other, net                                             |  |                | 128  |              |  |            | 250  |   |  |   | 76    |  
|                                                       |  |                |      |              |  |            |      |   |  |   |       |  
|                                                       |  | $              | 69   |              |  | $          | 48   |   |  | $ | 2,778 |  
|                                                       |  |                |      |              |  |            |      |   |  |   |       |  

F-14



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


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

|                                      |                                        |                |       |              |  |            |      |     |  |   |       |       | 
|------------------------------------- | -------------------------------------- | -------------- | ----- | ------------ |  | ---------- | ---- | --- |  | - | ----- | ----- | 
|                                      |                                        | December 28,   |       | December 27, |  | January 2,
|                                      |                                        | 1997           |       | 1998         |  | 2000      
|                                      |                                        |                |       |              |  |           
|                                      |                                        |               
|                                      |                                        | (In thousands)
|                                     
|                                     
|                                     
|                                     
|Deferred tax assets:                  |                                        |                |       |              |  |            |      |     |  |   |       |      
|                                     
|                                     
|                                     
|                                     
|                                      | Preopening expenses                    |                | $     | 267          |  |            | $    | 627 |  |   | $     | 745   | 
|                                     
|                                     
|                                     
|                                     
|                                      | Net operating loss carryforwards       |                |       | 760          |  |            |      | 235 |  |   |       |      | 
|                                     
|                                     
|                                     
|                                     
|                                      | Other                                  |                |       | 2            |  |            |      | 21  |  |   |       | 134   | 
|                                      |                                        |                |       |              |  |            |      |     |  |   |       |      
|                                      |                                        |                | 1,029 |              |  |            | 883  |     |  |   | 879   |      
|                                     
|                                     
|                                     
|                                     
|Deferred tax liabilities:             |                                        |                |       |              |  |            |      |     |  |   |       |      
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation on property and equipment |                |       |             |  |            |      | 84  |  |   |       | 1,228 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Goodwill amortization                  |                |       | 136          |  |            |      | 194 |  |   |       | 252   | 
|                                      |                                        |                |       |              |  |            |      |     |  |   |       |      
|                                      |                                        |                | 893   |              |  |            | 605  |     |  |   | 1,480 |      
|                                     
|                                     
|                                     
|                                     
|Valuation allowance                   |                                        |                | (893  | )            |  |            | (605 | )   |  |   |      |      
|                                      |                                        |                |       |              |  |            |      |     |  |   |       |      
|Net deferred tax assets (liabilities) |                                        | $              |      |              |  | $          |     |     |  | $ | (601  | )    
|                                      |                                        |                |       |              |  |            |      |     |  |   |       |      

For the years ended December 28, 1997, December 27,
1998 and January 2, 2000 the valuation allowance increased
(decreased) $425,000, $(288,000) and $(605,000), respectively.

F-15



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


8.  Net Income (Loss) Per Share

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

|                                                                                                                    |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |        |   | 
|------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ----- | ------------ | - | ---------- | ----- | ----- | - |  | ------ | ------ | - | 
|                                                                                                                    |                                                                                                                                     | Year Ended                                       |       | Year Ended   |   | Year Ended
|                                                                                                                    |                                                                                                                                     | December 28,                                     |       | December 27, |   | January 2,
|                                                                                                                    |                                                                                                                                     | 1997                                             |       | 1998         |   | 2000      
|                                                                                                                    |                                                                                                                                     |                                                  |       |              |   |           
|                                                                                                                    |                                                                                                                                     |                                                 
|                                                                                                                    |                                                                                                                                     | (In thousands, except per share amounts)        
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Numerator:                                                                                                          |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Net income (loss)                                                                                                                   |                                                  | $     | (1,696       | ) |            | $     | 149   |   |  | $      | 6,036  |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Convertible redeemable preferred stock accretion                                                                                    |                                                  |       | (876         | ) |            |       | (888  | ) |  |        |       |  
|                                                                                                                    |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|                                                                                                                    | Numerator for basic net income (loss) per share  net
	income (loss) available to common stockholders                               |                                                  |       | (2,572       | ) |            |       | (739  | ) |  |        | 6,036  |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Effect of dilutive securities:                                                                                                      |                                                  |       |              |   |            |       |       |   |  |        |        |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    |                                                                                                                                     | Convertible redeemable preferred stock accretion |       |              |  |            |       |       |  |  |        |        |  | 
|                                                                                                                    |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|                                                                                                                    | Numerator for diluted net income (loss) per share  net
	 income (loss) available to common stockholders after assumed
	conversions |                                                  | $     | (2,572       | ) |            | $     | (739  | ) |  | $      | 6,036  |  
|                                                                                                                    |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|Denominator:                                                                                                        |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Denominator for basic net income (loss) per share 
	weighted-average shares                                                        |                                                  |       | 2,500        |   |            |       | 2,986 |   |  |        | 10,217 |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Effect of dilutive securities:                                                                                      |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Employee and director stock options                                                                                                 |                                                  |       |             |   |            |       |      |   |  |        | 887    |  
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Warrants                                                                                                                            |                                                  |       |             |   |            |       |      |   |  |        | 51     |  
|                                                                                                                    |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|Denominator for diluted net income (loss) per share 
	adjusted for weighted average shares and assumed conversions |                                                                                                                                     |                                                  | 2,500 |              |   |            | 2,986 |       |   |  | 11,155 |       
|                                                                                                                    |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|Net income (loss) per share:                                                                                        |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                    | Basic                                                                                                                               |                                                  | $     | (1.03        | ) |            | $     | (0.25 | ) |  | $      | 0.59   |  
|                                                                                                                    |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       
|                                                                                                                    | Diluted                                                                                                                             |                                                  | $     | (1.03        | ) |            | $     | (0.25 | ) |  | $      | 0.54   |  
|                                                                                                                    |                                                                                                                                     |                                                  |       |              |   |            |       |       |   |  |        |       

Warrants to purchase 62,190 shares of common stock and options to
 purchase 1,392,635 shares of common stock ranging from $2.40 to
$27.38 per share were outstanding at January 2, 2000. The
preferred stock convertible to common stock is not included in
the computation of diluted net income (loss) per share for the
years ended December 28, 1997 and December 27, 1998,
because the conversions would be 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 2000 and 2020. The restaurant facility and real
property leases primarily have renewal clauses of five to
15 years exercisable at the option of the Company with rent
escalation clauses stipulating specific rent increases, some of
which are based on the consumer price index. Certain of these
leases require the payment of contingent rentals based on a
percentage of gross revenues, as defined. Rent expense for the
years ended December 28, 1997, December 27, 1998 and
January 2, 2000 was approximately $2,203,000, $4,110,000 and
 $7,006,000, respectively. Contingent rent included in rent
expense

F-16



---



P.F. CHANGS CHINA BISTRO, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 1998 and January 2, 2000  (Continued)


for the years ended December 28, 1997, December 27,
1998 and January 2, 2000 was approximately $605,000,
$1,135,000 and $1,959,000, respectively.

At January 2, 2000, the Company had entered into other lease
 agreements for restaurant facilities currently under
construction or yet to be constructed. In addition, the leases
also contain provisions for additional contingent rent based upon
 gross sales, as defined in the leases. Future minimum lease
payments under operating leases (including restaurants to be
opened after January 2, 2000) are as follows (in thousands):

|           |                              |   |        |         | 
|---------- | ---------------------------- | - | ------ | ------- | 
|          
|          
|          
|          
|2000       |                              | $ | 7,443  |        
|          
|          
|          
|          
|2001       |                              |   | 8,468  |        
|          
|          
|          
|          
|2002       |                              |   | 8,250  |        
|          
|          
|          
|          
|2003       |                              |   | 8,136  |        
|          
|          
|          
|          
|2004       |                              |   | 8,165  |        
|          
|          
|          
|          
|Thereafter |                              |   | 75,489 |        
|           |                              |   |        |        
|           | Total minimum lease payments |   | $      | 115,951 | 
|           |                              |   |        |        

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

10.  Benefit Plan

Effective July 1, 1997, the Company adopted a 401(k) Defined
 Contribution Benefit Plan (the Plan), which covers substantially
 all employees of the Company that have completed one year of
service and have attained the age of 21 years old. The Plan
permits participants to contribute to the Plan, subject to
Internal Revenue Code restrictions, and the plan also permits the
 Company to make discretionary matching contributions. During the
 years ended December 28, 1997, December 27, 1998 and
January 2, 2000, the Company did not make any contributions
to the Plan.

11.  Employment Agreement

On September 2, 1998, the Company amended the employment
agreement with its Founder, Mr. Fleming, to provide for
Mr. Flemings transition from an employee of the
Company to a consultant of the Company. Pursuant to the terms of
the employment agreement, as amended, the Company shall retain
Mr. Fleming as a consultant and shall nominate him as a
director each year during the period beginning January 1,
1999 and ending December 31, 2000. Mr. Fleming will be
compensated for services rendered as a consultant and reimbursed
for all actual, out-of-pocket expenses incurred in providing such
 services to the Company. The agreement prohibits
Mr. Fleming from competing with the Company in the area of
Chinese and Asian food concepts during the term of the agreement
and for two years after the termination thereof.

F-17



---





|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|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 1999 Annual Meeting of Stockholders to be held on
April 26, 2000 (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 as of December 27, 1998 and
	January 2, 2000;                                                                                                                    
|
| | Consolidated Statements of Operations for the years ended
	December 28, 1997, December 27, 1998, and
	January 2, 2000;                                                                       
|
| | Consolidated Statements of Convertible Redeemable Preferred Stock
	 and Common Stockholders Equity (Deficit) for the years
	ended December 28, 1997, December 27, 1998 and
	January 2, 2000.
|
| | Consolidated Statements of Cash Flows for the years ended
	December 28, 1997, December 27, 1998 and
	January 2, 2000.                                                                        
|
| | Notes to Consolidated Financial Statements.                                                                                                                                                  

26



---





| |                                      
| | -------------------------------------
| | 2.  Schedule 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.



| |                      
| | ---------------------
| | 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.
|        | 10.8*  |                      |  | Series B Preferred Stock Purchase Agreement dated
	May, 1, 1997.                                                   
|        | 10.9*  |                      |  | Amended and Restated Revolving Line of Credit Loan Agreement
	between the Company and FFCA dated November 20, 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.                                                                               
|        | 21.1*  |                      |  | List of Subsidiaries.                                                                                              
|        | 23.1   |                      |  | Consent of Independent Auditors.                                                                                   
|        | 27.1   |                      |  | Financial Data Schedule.                                                                                           




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



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

(b)  Reports on Form 8-K:

None.

27



---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 3, 2000.



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



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

| |                        
| | -----------------------
| |                        
| | Richard Federico       
| | Chief Executive Officer

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

|                                               |  |                                                                                     |  |              
|---------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | -------------
|Signature                                      |  | Title                                                                               |  | Date         
|                                               |  |                                                                                     |  |              
|/s/ RICHARD L. FEDERICORichard L. Federico     |  | Chief Executive Officer, President and Director (Principal
	Executive Officer)      |  | March 3, 2000
|                                              
|/s/ ROBERT T. VIVIANRobert T. Vivian           |  | Chief Financial Officer and Secretary (Principal Financial and
	Accounting Officer) |  | March 3, 2000
|                                              
|/s/ PAUL M. FLEMINGPaul M. Fleming             |  | Director                                                                            |  | March 3, 2000
|                                              
|/s/ J. MICHAEL CHUJ. Michael Chu               |  | Director                                                                            |  | March 3, 2000
|                                              
|/s/ GERALD R. GALLAGHERGerald R. Gallagher     |  | Director                                                                            |  | March 3, 2000
|                                              
|/s/ R. MICHAEL WELBORNR. Michael Welborn       |  | Director                                                                            |  | March 3, 2000
|                                              
|/s/ JAMES G. SHENNAN, JR.James G. Shennan, Jr. |  | Director                                                                            |  | March 3, 2000
|                                              
|/s/ LANE CARDWELLLane Cardwell                 |  | Director                                                                            |  | March 3, 2000

28