UNITED STATES

FORM 10-K

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

For the Fiscal Year Ended January 2, 2000

or

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

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 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

      Registrant’s Proxy Statement (specified portions) with respect to the Annual Meeting of Stockholders to be held April 26, 2000.

TABLE OF CONTENTS

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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

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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

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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

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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.

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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).

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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.

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  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.

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  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

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      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.

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Item 2.  Properties

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

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

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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:

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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.

      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:

      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.

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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