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FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 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.

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:

      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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

      As of July 2, 2000, there were outstanding 10,375,075 shares of the Registrant’s Common Stock.

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PART I FINANCIAL INFORMATION

Item 1.  Unaudited Condensed Financial Statements

P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to unaudited condensed financial statements.

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P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to unaudited condensed financial statements.

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P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to unaudited condensed financial statements.

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P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1.  Basis of Presentation

      P.F. Chang’s China Bistro, Inc. (the “Company”) owns and operates 42 full service restaurants (as of July 2, 2000) throughout the United States under the name of “P.F. Chang’s China Bistro.”

      The accompanying condensed financial statements have been prepared by the Company without audit and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of financial position and the results of operations for the interim periods. The statements have been prepared in accordance with generally accepted accounting principles and with the regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such SEC rules and regulations. Operating results for the six month period ended July 2, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000.

      The balance sheet at January 2, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and notes thereto for the fiscal year ended January 2, 2000 included in the Company’s Form 10-K.

2.  Net Income (Loss) Per Share

      Net income (loss) per share is computed in accordance with SFAS No. 128, “Earnings per Share.” Basic net income per share is computed based on the weighted average of common shares outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares and common stock equivalents, which includes options under the Company’s stock option plans and outstanding warrants.

3.  Credit Facility

      In December of 1999, the Company entered into a credit facility with a commercial lending institution. The credit facility allowed for borrowings up to $15 million at an interest rate ranging from 150 to 225 basis points over the applicable London Interbank Offered Rate (LIBOR). In June of 2000, the Company amended the credit facility to allow for borrowings up to $45 million at an interest rate ranging from 100 to 225 basis points over the applicable LIBOR. The revolving credit facility matures on November 30, 2002 and contains certain restrictions and conditions which require the Company to: maintain a minimum tangible net worth, a leverage ratio at a maximum of 3.75: 1.00 and a fixed-charge ratio no less than 1.25: 1.00. The Company had borrowings totaling $12 million under the credit facility as of July 2, 2000.

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      The following section contains forward-looking statements concerning the Company which involve risks and uncertainties. Such forward-looking statements may be deemed to include those regarding 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. 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 matters noted elsewhere in this Form 10-Q, such as development and construction risks, potential labor shortages, fluctuations in operating results, and changes in food costs. 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.

Overview

      P.F. Chang’s owns and operates 42 full service restaurants (as of July 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 embarked on a strategic expansion of the concept targeted at major metropolitan areas throughout the United States and opened three additional restaurants in 1996, six in 1997, 10 in 1998 and 13 in 1999.

      The Company intends to open 15 new restaurants in fiscal year 2000 (six of which were open as of July 2, 2000). The units that the Company intends to develop in 2000 will be situated in approximately seven new markets across the United States. All of the remaining units planned for 2000 are currently under construction. Additionally, the Company has signed lease agreements or letters of intent for all of the units expected to open in 2001. 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 and a total capitalized investment of approximately $3.0 million per restaurant. This total 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.”

      The Company believes that there is an opportunity to leverage its knowledge and expertise in Chinese and Asian cuisine. Accordingly, the Company has dedicated a limited amount of resources (both human and capital) to develop Pei Wei Asian Diner (“Pei Wei”), a new concept that will cater to a quicker, more casual dining experience as compared to P.F. Chang’s China Bistro. Pei Wei will open its first unit in July 2000. The Company has committed to opening two Pei Wei units, both in the Phoenix area. Capital required for these two units will approximate $1.5 million in total. Additional resources may be allocated to Pei Wei in the future should the first two units demonstrate attractive unit-level return characteristics.

Results of Operations

      The following table sets forth certain unaudited quarterly information for the three months ended June 27, 1999 and July 2, 2000 and for the six months ended June 27, 1999 and July 2, 2000, expressed as a percentage of revenues, except for revenues which are expressed in thousands. This quarterly information has been prepared on a consistent basis with the audited financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. 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.

      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

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  Revenues

      The Company’s revenues are derived entirely from food and beverage sales. Revenues increased by $20.5 million, or 62.3%, to $53.5 million in the three months ended July 2, 2000 from $33.0 million in the three months ended June 27, 1999. Revenues increased by $41.5 million, or 65.4%, to $104.9 million in the six months ended July 2, 2000 from $63.4 million in the six months ended June 27, 1999. The increase in second quarter 2000 revenues compared to second quarter 1999 revenues was primarily attributable to revenues of $13.3 million generated by new restaurants opened subsequent to June 27, 1999 and a $7.2 million increase in revenues in the three months ended July 2, 2000 for existing restaurants. The increase in year-to-date revenues for the six months ended July 2, 2000 compared to the six months ended June 27, 1999 was primarily attributable to revenues of $25.2 million generated by new restaurants opened subsequent to June 27, 1999 and a $16.3 million increase in revenues in the six months ended July 2, 2000 for existing restaurants. Increased customer visits produced comparable restaurant sales gains of 13.9% in the three months ended July 2, 2000 and 14.3% in the six months ended July 2, 2000. The Company did not implement any meaningful price increases in either period.

  Costs and expenses

      Cost of sales. Cost of sales is composed of the cost of food and beverages. Cost of sales decreased nominally as a percentage of revenues to 27.5% in the three months ended July 2, 2000 and the six months ended July 2, 2000 from 27.6% in the three months ended June 27, 1999 and the six months ended July 2,

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      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 29.2% in the three months ended July 2, 2000 from 29.8% in the three months ended June 27, 1999. Labor expenses decreased to 29.4% in the six months ended July 2, 2000 from 29.9% in the six months ended June 27, 1999. 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. However, as a result of tightening labor markets around the country, the Company has continued to experience an increase in its hourly wage rates across its system. The Company expects that tighter labor markets will continue to exert upward pressure on its labor costs for the remainder of 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 17.1% in the three months ended July 2, 2000 from 17.2% in the three months ended June 27, 1999. Operating expenses increased nominally for the six months ended July 2, 2000 to 17.1% from 17.0% in the six months ended June 27, 1999.

      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 6.3% in the three months ended July 2, 2000 and the six months ended July 2, 2000 from 6.8% in the three months ended June 27, 1999 and the six months ended June 27, 1999. 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 $3.0 million (5.7% of revenues) in the three months ended July 2, 2000 from $2.0 million (6.1% of revenues) in the three months ended June 27, 1999. General and administrative expenses increased to $5.9 million (5.6% of revenues) in the six months ended July 2, 2000 from $4.1 million (6.5% of revenues) in the six months ended June 27, 1999. The increase was due primarily to the addition of corporate management personnel which resulted in approximately $751,000 and $1.3 million of additional compensation and benefits expense for the three months ended July 2, 2000 and the six months ended July 2, 2000 respectively, as well as additional costs to support a larger restaurant base, including additional travel expenses, consulting fees and 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 (See “Elimination of minority interests” below).

      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 $1.8 million in the three months ended July 2, 2000 from $1.1 million in the three months ended June 27, 1999. Depreciation and amortization increased to $3.5 million in the six months ended July 2, 2000 from $2.1 million in the six months ended June 27, 1999. The increase was primarily due to depreciation and amortization on fixed assets purchased for new restaurants opened subsequent to June 27, 1999 totaling $548,000 and $1.0 million for the three months ended July 2, 2000 and the six months ended July 2, 2000, respectively; as well as a full year’s depreciation and amortization on fixed assets in restaurants opened during the first half of 1999.

      Preopening. 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

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  Interest income

      Interest income decreased to $46,000 in the three months ended July 2, 2000 from $131,000 in the three months ended June 27, 1999. Interest income decreased to $65,000 in the six months ended July 2, 2000 from $349,000 in the six months ended June 27, 1999. The decrease was due to the Company’s use of its current cash reserves for restaurant development (see “Liquidity and Capital Resources” below). The Company has not recorded interest expense thus far in fiscal 2000 since all borrowings under the credit facility have been to fund the construction of new restaurants; thus interest incurred to date on the Company’s credit facility has been capitalized to the extent allocable in accordance with generally accepted accounting principles.

  Elimination of minority interests

      Elimination of minority interests represents the portion of the Company’s net earnings which are attributable to the collective ownership interests of its partners. The Company has provided for 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 increased to $1.0 million for the three months ended July 2, 2000 from $399,000 for the three months ended June 27, 1999. Elimination of minority interests increased to $2.0 million for the six months ended July 2, 2000 from $816,000 for the six months ended June 27, 1999. The increase in both periods was 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 $1.3 million for the three months ended July 2, 2000 from $415,000 for the three months ended June 27, 1999 and increased to $2.8 million for the six months ended July 2,2000 from $906,000 for the six months ended June 27, 1999. The increase in both periods was due primarily to the fact that the Company’s taxable income in excess of the Company’s net operating loss carryforward increased substantially from the prior periods. The income tax provision for 2000 differs from the expected provision for income taxes, derived by applying the statutory income tax rate, due primarily to state income tax benefits. 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.

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 $8.8 million and $7.6 million for the six months ended July 2, 2000 and June 27, 1999, respectively. Net cash provided by operating activities exceeded the net income for the periods due principally to the effect of minority interest, depreciation and amortization and reductions in receivables.

      The Company uses cash primarily to fund the development and construction of new restaurants. Net cash used in investing activities for the six months ended July 2, 2000 and June 27, 1999 was $19.8 million and $13.9 million, respectively. Capital expenditures made up the majority of its investing activities in both periods. The Company intends to open 9 new restaurants for the remainder of 2000 (six new restaurants were opened during the first half of 2000) and another 13 to 15 new restaurants in 2001. The Company expects that

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      Net cash provided by financing activities for the six months ended July 2, 2000 was $10.6 million compared to net cash used in financing activities for the six months ended June 27, 1999 of $1.2 million. Financing activities in the first six months of 2000 consisted principally of proceeds on the Company’s credit facility, offset by distributions to minority partners. Financing activities in the first six months of 1999 consisted principally of distributions to minority partners.

      In December of 1999, the Company entered into a credit facility with a commercial lending institution. The credit facility allowed for borrowings up to $15 million at an interest rate ranging from 150 to 225 basis points over the applicable London Interbank Offered Rate (LIBOR). In June of 2000, the Company ammended the credit facility to allow for borrowings up to $45 million at an interest rate ranging from 100 to 225 basis points over the applicable LIBOR. The revolving credit facility matures on November 30, 2002 and contains certain restrictions and conditions which require the Company to: maintain a minimum tangible net worth, a leverage ratio at a maximum of 3.75: 1.00 and a fixed-charge ratio no less than 1.25: 1.00. The Company had borrowings totaling $12 million under the credit facility as of July 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 cash flow from operations together with its current credit facility will be sufficient to fund its capital requirements through 2001. 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.

Risk Factors

  Uncertainties Associated with Expanding Operations

      The Company operates 42 restaurants (as of July 2, 2000), 14 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 those restaurants’ long-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’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

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      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.

  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. Qualified individuals needed to fill these positions are in short supply in certain areas, and the inability to recruit and retain such individuals may delay the planned openings of new restaurants or result in high employee turnover in existing restaurants which could have a material adverse effect on the Company’s business, financial condition, cash flows or results of operations.

  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

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      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.

  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 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.

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  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 restaurants, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. Failure to comply with federal, state or local regulations could cause the Company’s licenses to be revoked or force it to terminate the sale of alcoholic beverages at one or more of its restaurants.

      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.

Item 3.  Quantitative and Qualitative Disclosures About Market Risks

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

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PART II OTHER INFORMATION

Item 1.  Legal Proceedings

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

Item 2.  Changes in Securities and Use of Proceeds

      None

Item 3.  Defaults Upon Senior Securities

      None

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

      The Company’s Annual Meeting of Stockholders was held on April 26, 2000. There were three proposals up for approval. The results of voting are as follows:

      1)  The election of the entire Board of Directors:

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

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

Item 5.  Other Information

      None

Item 6.  Exhibits and Reports on Form 8-K

      (a)  Exhibits:

      (b)  Report on Form 8-K:

      No reports on Form 8-K have been filed by the Company during the six months ended July 2, 2000.

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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 August 8, 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.

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INDEX TO EXHIBITS

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