Filed by Bowne Pure Compliance

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended September 30, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____ .

Commission file number: 0-25123

P.F. Chang’s China Bistro, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		86-0815086 (I.R.S. Employer Identification No.)

7676 East Pinnacle Peak Road Scottsdale, Arizona (Address of principal executive offices)		85255 (Zip Code)

Registrant’s telephone number, including area code:
(480) 888-3000

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of September 30, 2007, there were 26,000,154 outstanding shares of the registrant’s Common Stock.

PART I
FINANCIAL INFORMATION


Item 1.		*Unaudited Consolidated Financial Statements*

P.F. CHANG’S CHINA BISTRO, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)


	September 30,			December 31,
	2007			2006
	(Unaudited)			(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	4,624		$	31,589
Inventories		4,406			4,232
Prepaids and other current assets		24,502			28,995

Total current assets		33,532			64,816
Property and equipment, net		502,463			421,770
Goodwill		6,819			6,819
Intangible assets, net		21,751			12,644
Other assets		10,887			7,996

Total assets	$	575,452		$	514,045


LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	16,145		$	15,255
Construction payable		11,302			9,075
Accrued expenses		53,320			55,848
Unearned revenue		13,794			18,226
Current portion of long-term debt, including $3,480 and $3,542 due to related parties at September 30, 2007 and December 31, 2006, respectively		6,844			5,487

Total current liabilities		101,405			103,891
Long-term debt, including $3,048 and $588 due to related parties at September 30, 2007 and December 31, 2006, respectively		35,247			13,723
Lease obligations		83,479			71,682
Other liabilities		3,041			1,909
Minority interest		18,184			33,315
Commitments and contingencies (Note 9)		—			—
Common stockholders’ equity:
Common stock, $0.001 par value, 40,000,000 shares authorized: 26,000,154 shares and 25,373,019 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively		27			27
Additional paid-in capital		193,655			174,101
Treasury stock, at cost, 1,397,261 shares outstanding at both September 30, 2007 and December 31, 2006		(46,373	)		(46,373	)
Retained earnings		186,787			161,770

Total common stockholders’ equity		334,096			289,525

Total liabilities and common stockholders’ equity	$	575,452		$	514,045

See accompanying notes to unaudited consolidated financial statements.

P.F. CHANG’S CHINA BISTRO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,			October 1,			September 30,			October 1,
	2007			2006			2007			2006
	(In thousands, except per share amounts)

Revenues	$	270,880		$	231,024		$	802,695		$	685,618
Costs and expenses:
Cost of sales		74,092			62,954			220,018			187,679
Labor		92,127			76,209			272,026			228,526
Operating		43,999			36,382			127,629			107,433
Occupancy		16,025			13,371			46,548			38,589
General and administrative		17,375			14,641			49,903			41,930
Depreciation and amortization		14,855			11,584			41,140			32,504
Preopening expense		4,939			3,792			10,775			8,303
Partner investment expense		(71	)		1,487			(1,940	)		2,612

Total costs and expenses		263,341			220,420			766,099			647,576

Income from operations		7,539			10,604			36,596			38,042
Interest and other income (expense), net		(10	)		344			512			1,404

Income before minority interest and provision for income taxes		7,529			10,948			37,108			39,446
Minority interest		(808	)		(1,948	)		(3,576	)		(6,003	)

Income before provision for income taxes		6,721			9,000			33,532			33,443
Provision for income taxes		(1,446	)		(2,414	)		(8,515	)		(8,955	)

Net income	$	5,275		$	6,586		$	25,017		$	24,488


Net income per share:
Basic	$	0.20		$	0.25		$	0.98		$	0.93

Diluted	$	0.20		$	0.25		$	0.96		$	0.91


Weighted average shares used in computation:
Basic		25,773			26,000			25,656			26,344

Diluted		26,105			26,558			26,093			27,019

See accompanying notes to unaudited consolidated financial statements.

P.F. CHANG’S CHINA BISTRO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Nine Months Ended
	September 30,			October 1,
	2007			2006
	(In thousands)
Operating Activities:
Net income	$	25,017		$	24,488
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		41,140			32,504
Share-based compensation		7,390			7,409
Minority interest		3,576			6,003
Partner bonus expense, imputed		932			1,438
Deferred income taxes		339			(6,529	)
Partner investment expense		(1,940	)		2,612
Tax benefit from disqualifying stock option dispositions credited to equity		(4,465	)		(1,685	)
Other		68			—
Changes in operating assets and liabilities:
Inventories		(174	)		(378	)
Prepaids and other current assets		8,920			1,698
Other assets		(2,774	)		(1,667	)
Accounts payable		890			(1,768	)
Accrued expenses		(2,528	)		7,863
Lease obligations		11,914			6,957
Unearned revenue		(4,432	)		(5,223	)
Other liabilities		368			—

Net cash provided by operating activities		84,241			73,722

Investing Activities:
Capital expenditures		(115,948	)		(78,601	)
Purchase of minority interests		(11,716	)		(1,579	)
Capitalized interest		(1,249	)		(640	)
Purchase of short-term investments		—			(12,660	)
Sale of short-term investments		—			55,070

Net cash used in investing activities		(128,913	)		(38,410	)

Financing Activities:
Borrowings on credit facility		41,000			—
Repayments of long-term debt		(30,006	)		(4,999	)
Proceeds from stock options exercised and employee stock purchases		7,699			4,605
Tax benefit from disqualifying stock option dispositions credited to equity		4,465			1,685
Distributions to minority partners		(5,428	)		(7,781	)
Proceeds from minority partners’ contributions		337			770
Payments of capital lease obligation		(117	)		(108	)
Debt issuance costs		(243	)		—
Purchase of treasury stock		—			(39,515	)
Purchase of subsidiary common stock		—			(7,345	)

Net cash provided by (used in) financing activities		17,707			(52,688	)

Net decrease in cash and cash equivalents		(26,965	)		(17,376	)
Cash and cash equivalents at the beginning of the period		31,589			31,948

Cash and cash equivalents at the end of the period	$	4,624		$	14,572


Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	1,341		$	812
Cash paid for income taxes, net of refunds		4,524			10,341

Supplemental Disclosure of Non-Cash Items:
Purchase of minority interests through issuance of long-term debt and conversion to members’ capital	$	11,268		$	1,405
Change in construction payable		2,227			5,972

See accompanying notes to unaudited consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Basis of Presentation

As of September 30, 2007, P.F. Chang’s China Bistro, Inc. (the “Company”) owned and operated 162 full service restaurants throughout the United States under the name of P.F. Chang’s China Bistro (the “Bistro”). The Company also owned and operated 137 quick casual restaurants under the name of Pei Wei Asian Diner (“Pei Wei”) and one full service restaurant under the name “Taneko Japanese Tavern.”

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 30, 2007.

The consolidated balance sheet at December 31, 2006 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Use of Estimates

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

Share-Based Compensation

The Company grants stock options for a fixed number of shares to certain employees and directors with an exercise price equal to or greater than the fair value of the shares at the date of grant. The Company also grants restricted stock with a fair value determined based on the Company’s closing stock price on the date of grant. On January 2, 2006, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 123 (revised 2004) (SFAS 123R), Share-Based Payment, and SEC Staff Accounting Bulletin No. 107, Share-Based Payment, requiring the measurement and recognition of all share-based compensation under the fair value method. The Company implemented SFAS 123R using the modified prospective transition method, which does not result in the restatement of previously issued financial statements.

The fair value for options granted during the three and nine months ended September 30, 2007 and October 1, 2006 was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:


	Three Months Ended						Nine Months Ended
	September 30,			October 1,			September 30,			October 1,
	2007			2006			2007			2006

Weighted average risk-free interest rate		4.7	%		4.9	%		4.7	%		4.9	%
Expected life of options (years)		5.5			5.5			5.5			5.7
Expected stock volatility		35.0	%		35.0	%		35.0	%		35.0	%
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%

The estimated fair value of share-based compensation plans and other options is amortized to expense over the vesting period. See Note 6 to the consolidated financial statements for further discussion of the Company’s share-based employee compensation.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The standard expands required disclosures about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 157 on its consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that the Company recognize the impact of a tax position in the Company’s financial statements if that position is more likely than not to be sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The adoption of FIN 48 did not have a material impact on the Company’s consolidated financial statements.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (“the FSP”). The FSP provides guidance about how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Under the FSP, a tax position could be effectively settled on completion of examination by a taxing authority if the entity does not intend to appeal or litigate the result and it is remote that the taxing authority would examine or re-examine the tax position. Application of the FSP shall be upon the initial adoption date of FIN 48.

In March 2006, the FASB Emerging Issues Task Force issued Issue 06-3 (“EITF 06-3”), How Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement. A tentative consensus was reached that a company should disclose its accounting policy (i.e., gross or net presentation) regarding presentation of taxes within the scope of EITF 06-3. If taxes are significant and reported on a gross basis, a company should disclose the amount of such taxes for each period for which an income statement is presented. The guidance is effective for periods beginning after December 15, 2006. The Company presents sales tax on a net basis in its consolidated financial statements.

2. Net Income Per Share

Net income per share is computed in accordance with SFAS 128, Earnings per Share. Basic net income per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed based on the weighted average number of shares of common stock and potentially dilutive securities, which includes options outstanding under the Company’s stock option plans. For the three months ended September 30, 2007 and October 1, 2006, 1.6 million and 1.8 million, respectively, of the Company’s shares were excluded from the calculation due to their anti-dilutive effect. For both the nine months ended September 30, 2007 and October 1, 2006, 1.6 million of the Company’s shares were excluded from the calculation due to their anti-dilutive effect.

3. Intangible Assets

Intangible assets consist of the following (in thousands):


	September 30,			December 31,
	2007			2006

Intangible assets, gross	$	24,720		$	14,343
Accumulated amortization		(2,969	)		(1,699	)

Intangible assets, net	$	21,751		$	12,644

Intangible assets as of September 30, 2007 include additional intangible assets recognized upon the Company’s buyout of minority partner interests when the Company’s purchase price exceeded the imputed fair value at the time of the original investment.

4. Accrued Expenses

Accrued expenses consist of the following (in thousands):


	September 30,		December 31,
	2007		2006

Accrued payroll	$	15,637	$	18,099
Sales and use tax payable		5,923		6,531
Property tax payable		3,991		3,159
Accrued insurance		14,557		13,701
Accrued rent		4,296		3,708
Other accrued expenses		8,916		10,650

Total accrued expenses	$	53,320	$	55,848

5. Credit Facility

On August 31, 2007, the Company entered into a senior credit facility (“Credit Facility”) with several commercial financial institutions which allows for borrowings of up to $150.0 million. Borrowings under the Credit Facility bear interest, at the Company’s option, at a rate equal to either (i) LIBOR plus an applicable margin as defined in the Credit Facility or (ii) the higher of (a) the Federal Funds Effective Rate plus one-half of 1.0% or (b) the Prime Rate as announced by JPMorgan Chase Bank. The Credit Facility bears a commitment fee on the unused portion of the revolver at an annual rate of 0.125%.

The Credit Facility expires on August 30, 2013 and contains customary representations, warranties, negative and affirmative covenants, including a requirement for the Company to maintain a maximum leverage ratio of 2.5:1 and a minimum fixed charge coverage ratio of 1.25:1, as well as customary events of default and certain default provisions that could result in acceleration of the Credit Facility. The Company was in compliance with these restrictions and conditions as of September 30, 2007.

The Credit Facility is guaranteed by the Company’s material existing and future domestic subsidiaries.

As of September 30, 2007, the Company had borrowings outstanding under the Credit Facility totaling $30.0 million at an average interest rate of 6.50% as well as $9.7 million committed for the issuance of letters of credit, which is required by insurance companies for the Company’s workers’ compensation and general liability insurance programs. Available borrowings under the Credit Facility were $110.3 million at September 30, 2007.

6. Share-Based Compensation

Share-based compensation expense includes compensation expense, recognized over the applicable vesting periods, for share-based awards granted after January 2, 2006 and for share-based awards granted prior to, but not yet vested as of the Company’s adoption of SFAS 123R on January 2, 2006. At September 30, 2007, non-vested share-based compensation, net of estimated forfeitures, totaled $18.9 million for stock options and $5.3 million for restricted stock. This expense will be recognized over the remaining weighted average vesting period which is approximately 2.4 years for both stock options and restricted stock.

During the three months ended September 30, 2007, in conjunction with its annual corporate grant, the Company issued 240,260 stock options and 124,972 restricted stock awards with weighted average grant date fair values of $13.76 and $33.57, respectively.

Share-based compensation is classified as follows (in thousands):


	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30,			October 1,			September 30,			October 1,
	2007			2006			2007			2006
Labor	$	197		$	332		$	606		$	1,048
General and administrative		2,396			2,326			6,784			6,361

Total share-based compensation		2,593			2,658			7,390			7,409
Less: tax benefit		(681	)		(731	)		(1,940	)		(2,037	)

Total share-based compensation, net of tax	$	1,912		$	1,927		$	5,450		$	5,372

7. Income Taxes

The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation, the Company recognized no material adjustment to the liability for unrecognized income tax benefits that existed as of December 31, 2006. At the date of adoption, the Company had $2.1 million of unrecognized tax benefits, all of which would impact the Company’s effective tax rate if recognized. As of September 30, 2007, the Company had $1.6 million of unrecognized tax benefits.

It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in income tax expense. As of both the date of adoption and September 30, 2007, the Company had accrued $0.2 million of interest and $0.1 million of penalties related to uncertain tax positions.

8. Segment Reporting

The Company operates exclusively in the food service industry and has determined that its reportable segments are those that are based on the Company’s methods of internal reporting and management structure. The Company’s reportable segments are Bistro and Pei Wei. During fiscal 2006, the Company opened Taneko Japanese Tavern, a new full service restaurant located in Scottsdale, Arizona, which is reported within Shared Services and Other. There were no material amounts of revenues or transfers among reportable segments.

The table below presents information about reportable segments (in thousands):


			Shared Services
	Total		and Other			Bistro		Pei Wei
For the Three Months Ended September 30, 2007:
Revenues	$	270,880	$	598		$	208,544	$	61,738
Income (loss) before provision for income taxes		6,721		(8,773	)		16,904		(1,410	)
Capital expenditures		51,577		84			40,340		11,153
Depreciation and amortization		14,855		577			10,861		3,417

For the Three Months Ended October 1, 2006:
Revenues	$	231,024	$	—		$	184,914	$	46,110
Income (loss) before provision for income taxes		9,000		(7,733	)		17,528		(795	)
Capital expenditures		36,819		1,654			25,930		9,235
Depreciation and amortization		11,584		299			8,831		2,454

For the Nine Months Ended September 30, 2007:
Revenues	$	802,695	$	1,906		$	623,746	$	177,043
Income (loss) before provision for income taxes		33,532		(24,310	)		58,960		(1,118	)
Capital expenditures		115,948		219			85,816		29,913
Depreciation and amortization		41,140		1,338			30,398		9,404

For the Nine Months Ended October 1, 2006:
Revenues	$	685,618	$	—		$	555,543	$	130,075
Income (loss) before provision for income taxes		33,443		(19,480	)		52,959		(36	)
Capital expenditures		78,601		2,992			53,140		22,469
Depreciation and amortization		32,504		860			25,147		6,497

As of September 30, 2007:
Total assets	$	575,452	$	37,011		$	426,395	$	112,046
Goodwill		6,819		—			6,566		253

As of December 31, 2006:
Total assets	$	514,045	$	29,755		$	395,263	$	89,027
Goodwill		6,819		—			6,566		253

9. Commitments and Contingencies

The Company is engaged in various legal actions, which arise in the ordinary course of its business. The Company is also currently under examination by various taxing authorities for years not closed by the statute of limitations. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of the Company’s management, based upon the information available at this time, that the outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations, liquidity or financial condition of the Company.


Item 2.		*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

This information should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2006 contained in our 2006 Annual Report on Form 10-K.

Some of the statements in this section contain forward—looking statements, which involve risks and uncertainties. In some cases, you can identify forward-looking statements by terms such as may, will, should, expect, plan, intend, forecast, anticipate, believe, estimate, predict, potential, continue or the negative of these terms or other comparable terminology. The forward-looking statements contained in this section involve known and unknown risks, uncertainties and situations that may cause our or our industry’s actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. Factors that might cause actual events or results to differ materially from those indicated by these forward-looking statements may include the matters listed under “Risk Factors” in Item 1A (a detailed description of which can be found under the caption “Risk Factors” in our most recently filed form 10-K) and elsewhere in this Form 10-Q, including, but not limited to, failure of our existing or new restaurants to achieve predicted results, the inability to develop and construct our restaurants within projected budgets and time periods and our ability to successfully expand our operations. Because we cannot guarantee future results, levels of activity, performance or achievements, you should not place undue reliance on these forward-looking statements.

Overview

We own and operate three restaurant concepts in the Asian niche: P.F. Chang’s China Bistro (“Bistro”), Pei Wei Asian Diner (“Pei Wei”) and Taneko Japanese Tavern (“Taneko”).

Bistro

As of September 30, 2007, we owned and operated 162 full service Bistro restaurants that feature a blend of high quality, traditional Chinese cuisine with attentive service and American hospitality in a sophisticated, contemporary bistro setting. P.F. Chang’s was formed in early 1996 with the acquisition of the four original Bistro restaurants and the hiring of an experienced management team. Utilizing a partnership management philosophy, we embarked on a strategic expansion of the concept targeted at major metropolitan areas throughout the United States. We own and operate all of our restaurants with the exception of a Bistro restaurant located in Honolulu, Hawaii which opened in September 2006 under a joint venture arrangement in which we own a minority interest.

We intend to open 20 new Bistros during fiscal 2007, 10 of which were open by the end of the third quarter of 2007. We will continue our development in existing markets and plan to enter eight new markets in 2007. We have signed lease agreements for all of our development planned for fiscal 2007. We intend to continue to develop Bistro restaurants that typically range in size from 6,000 to 7,500 square feet, and that require, on average, a total cash investment of approximately $2.8 million to $3.0 million and total invested capital of approximately $4.0 million per restaurant (net of estimated landlord reimbursements). This total capitalized investment includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. Preopening expenses are expected to average approximately $415,000 per restaurant during 2007, which includes approximately $50,000 per restaurant in preopening rent.

Pei Wei

As of September 30, 2007, we owned and operated 137 quick casual Pei Wei restaurants that offer a modest menu of freshly prepared, high quality Asian cuisine served in a relaxed, warm environment offering attentive counter service and take-out flexibility. Pei Wei opened its first unit in July 2000 in the Phoenix, Arizona area and has expanded significantly since then.

We intend to open 37 Pei Wei restaurants in 2007, 30 of which were open by the end of the third quarter of 2007. We will continue our development in existing markets and plan to enter nine new markets in 2007. We have signed lease agreements for all of our development planned for fiscal 2007. Our Pei Wei restaurants are generally 2,800 to 3,400 square feet in size and require an average total cash investment of approximately $750,000 to $850,000 and total invested capital of approximately $1.4 million per restaurant (net of estimated landlord reimbursements). Preopening expenses are expected to average approximately $140,000 per restaurant during 2007, which includes approximately $27,000 per restaurant in preopening rent.

Taneko

On October 2, 2006, we opened our first Taneko restaurant in Scottsdale, Arizona, featuring natural, organic and seasonal ingredients highlighting the diverse cooking styles of Japan. Inspired by izakayas, or local taverns, Taneko offers an extensive variety of food and beverages in a comfortable atmosphere.

Change in Partnership Structure

We utilize a partnership philosophy to facilitate the development, leadership and operation of our restaurants. Historically, this philosophy was embodied in a traditional legal partnership structure, which included capital contributions from our partners in exchange for an ownership stake in the profits and losses of our restaurants. Effective January 2007 for new store openings, the Bistro began employing a different structure to achieve the same goal. At the restaurant level, our Operating and Culinary Partners (still “partners” in the philosophical, but not legal sense) no longer have a direct ownership stake in the profits and losses of a restaurant, but are instead eligible to receive monthly incentive payments based upon the profitability of the restaurant, as well as participate in an incentive program that rewards long-term improvements in the operating performance of the restaurant. As a result of these changes, awards made to the individuals participating in the new plan are classified as compensation rather than as minority interest expense. Accordingly, compensation expense for our Operating and Culinary Partners is reflected in the consolidated income statement as Labor Expense. Additionally, a similar structure exists for our Market Partners and Regional Vice Presidents, with related compensation reflected as General and Administrative Expense in the consolidated income statement. Partner investment expense is no longer recognized for new Bistro restaurant openings beginning in 2007 as a result of this change. Additionally, many existing legal partners have requested an early buyout of their partnership interest as a result of their desire to participate in the new plan, the financial impact of which is discussed under “Partner Investment Expense” in Results of Operations.

The Pei Wei partnership structure is not affected by the changes at the Bistro and the traditional partnership structure remains in effect for new Pei Wei restaurant openings during 2007.

Critical Accounting Policies

Our critical accounting policies are those that require significant judgment. There have been no material changes to the critical accounting policies previously reported in our 2006 Annual Report on Form 10-K.

Results of Operations

The following tables set forth certain unaudited quarterly information for the three and nine-month periods ended September 30, 2007 and October 1, 2006, respectively. This quarterly information has been prepared on a basis consistent with the audited financial statements and, in the opinion of management, includes all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. Our quarterly operating results may fluctuate significantly as a result of a variety of factors, and operating results for any quarter are not necessarily indicative of results for a full fiscal year.

One of the factors that has in the past caused fluctuations in our operating results is preopening expenses. Historically, we have experienced variability in the amount and percentage of revenues attributable to preopening expenses. We typically incur the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding, and the month of, the opening of the restaurant. Additionally, there may be variability in the amount and percentage of revenues attributable to partner investment expense as a result of the timing of opening new Pei Wei restaurants and the timing of purchasing partner interests. Partner investment expense generally represents the difference between the imputed fair value of our partners’ ownership interests and our partners’ cash capital contribution for these interests.

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

Results for the three months ended September 30, 2007 and October 1, 2006

Our consolidated operating results for the three months ended September 30, 2007 and October 1, 2006 were as follows (dollars in thousands):


	Three months ended
	September 30,			% of			October 1,			% of						%
	2007			Revenues			2006			Revenues			Change			Change

Revenues	$	270,880			100.0	%	$	231,024			100.0	%	$	39,856			17.3	%
Costs and expenses:
Cost of sales		74,092			27.4	%		62,954			27.2	%		11,138			17.7	%
Labor		92,127			34.0	%		76,209			33.0	%		15,918			20.9	%
Operating		43,999			16.2	%		36,382			15.7	%		7,617			20.9	%
Occupancy		16,025			5.9	%		13,371			5.8	%		2,654			19.8	%
General and administrative		17,375			6.4	%		14,641			6.3	%		2,734			18.7	%
Depreciation and amortization		14,855			5.5	%		11,584			5.0	%		3,271			28.2	%
Preopening expense		4,939			1.8	%		3,792			1.6	%		1,147			30.2	%
Partner investment expense		(71	)		(0.0	%)		1,487			0.6	%		(1,558	)		—

Total costs and expenses		263,341			97.2	%		220,420			95.4	%		42,921			19.5	%

Income from operations		7,539			2.8	%		10,604			4.6	%		(3,065	)		(28.9	%)
Interest and other income, net		(10	)		(0.0	%)		344			0.1	%		(354	)		—
Minority interest		(808	)		(0.3	%)		(1,948	)		(0.8	%)		1,140			58.5	%

Income before provision for income taxes		6,721			2.5	%		9,000			3.9	%		(2,279	)		(25.3	%)
Provision for income taxes		(1,446	)		(0.5	%)		(2,414	)		(1.0	%)		968			40.1	%

Net income	$	5,275			1.9	%	$	6,586			2.9	%	$	(1,311	)		(19.9	%)

Certain percentage amounts may not sum to total due to rounding. Percentages over 100% not displayed.

Operating results for the Bistro for the three months ended September 30, 2007 and October 1, 2006 were as follows (dollars in thousands):


	Three months ended
	September 30,			% of			October 1,			% of						%
	2007			Revenues			2006			Revenues			Change			Change

Revenues	$	208,544			100.0	%	$	184,914			100.0	%	$	23,630			12.8	%
Costs and expenses:
Cost of sales		56,943			27.3	%		50,131			27.1	%		6,812			13.6	%
Labor		69,946			33.5	%		59,959			32.4	%		9,987			16.7	%
Operating		32,981			15.8	%		28,306			15.3	%		4,675			16.5	%
Occupancy		11,739			5.6	%		10,307			5.6	%		1,432			13.9	%
General and administrative		5,990			2.9	%		4,773			2.6	%		1,217			25.5	%
Depreciation and amortization		10,861			5.2	%		8,831			4.8	%		2,030			23.0	%
Preopening expense		2,974			1.4	%		2,355			1.3	%		619			26.3	%
Partner investment expense		(433	)		(0.2	%)		956			0.5	%		(1,389	)		—

Total costs and expenses		191,001			91.6	%		165,618			89.6	%		25,383			15.3	%

Income from operations		17,543			8.4	%		19,296			10.4	%		(1,753	)		(9.1	%)
Interest and other income, net		(40	)		(0.0	%)		(51	)		(0.0	%)		11			21.6	%
Minority interest		(599	)		(0.3	%)		(1,717	)		(0.9	%)		1,118			65.1	%

Income before provision for income taxes	$	16,904			8.1	%	$	17,528			9.5	%	$	(624	)		(3.6	%)

Certain percentage amounts may not sum to total due to rounding. Percentages over 100% not displayed.

Operating results for Pei Wei for the three months ended September 30, 2007 and October 1, 2006 were as follows (dollars in thousands):


	Three months ended
	September 30,			% of			October 1,			% of						%
	2007			Revenues			2006			Revenues			Change			Change

Revenues	$	61,738			100.0	%	$	46,110			100.0	%	$	15,628			33.9	%
Costs and expenses:
Cost of sales		16,922			27.4	%		12,823			27.8	%		4,099			32.0	%
Labor		21,843			35.4	%		16,250			35.2	%		5,593			34.4	%
Operating		10,835			17.5	%		8,076			17.5	%		2,759			34.2	%
Occupancy		4,231			6.9	%		3,064			6.6	%		1,167			38.1	%
General and administrative		3,342			5.4	%		2,276			4.9	%		1,066			46.8	%
Depreciation and amortization		3,417			5.5	%		2,454			5.3	%		963			39.2	%
Preopening expense		1,965			3.2	%		1,204			2.6	%		761			63.2	%
Partner investment expense		362			0.6	%		531			1.2	%		(169	)		(31.8	%)

Total costs and expenses		62,917			—			46,678			—			16,239			34.8	%

Income from operations		(1,179	)		(1.9	%)		(568	)		(1.2	%)		(611	)		—
Interest and other income, net		(22	)		(0.0	%)		4			0.0	%		(26	)		—
Minority interest		(209	)		(0.3	%)		(231	)		(0.5	%)		22			(9.5	%)

Income before provision for income taxes	$	(1,410	)		(2.3	%)	$	(795	)		(1.7	%)	$	(615	)		77.4	%

Certain percentage amounts may not sum to total due to rounding. Percentages over 100% not displayed.

Revenues

Our revenues are derived primarily from food and beverage sales. Each segment contributed to current year revenue growth as follows:

Bistro: The increase in revenues was attributable to revenues of $22.0 million generated by 20 new Bistro restaurants that opened during the first three quarters of 2007 and the last quarter of 2006 combined with a full quarter of revenues for those stores that opened during the third quarter of 2006. Revenue for stores that opened prior to the third quarter of 2006 experienced a decline in overall guest traffic which resulted in lower sales volumes despite the benefit of a two to three percent effective price increase.

Pei Wei: The increase in revenues was attributable to revenues of $14.6 million generated by the 40 new Pei Wei restaurants that opened during the first three quarters of 2007 and the last quarter of 2006 combined with a full quarter of revenues for those stores that opened during the third quarter of 2006. Revenue for stores that opened prior to the third quarter of 2006 experienced a decline in overall guest traffic which resulted in lower sales volumes.

In addition to the revenues earned by Bistro and Pei Wei, consolidated revenues include $0.6 million of revenues generated by our Taneko concept.

Costs and Expenses

Cost of Sales

Cost of sales is comprised of the cost of food and beverages. Each segment contributed as follows:

Bistro: Cost of sales as a percentage of revenues at the Bistro increased slightly primarily due to higher dry food expenses as well as the impact of our new grill menu items. The increases were partially offset by lower seafood and pork expenses resulting from favorable pricing, improved yields and increased purchasing through national distribution contracts.

Pei Wei: Cost of sales as a percentage of revenues at Pei Wei decreased primarily due to lower produce expense resulting from the increase in product availability, favorable yields and the number of products covered by contract pricing, as well as lower pork expense resulting from favorable pricing and yields, partially offset by increased dry food expense.

Labor

Labor expenses consist of restaurant management salaries, hourly staff payroll costs, other payroll-related items and imputed partner bonus expense. Imputed partner bonus expense represents the portion of restaurant level operating results that are allocable to minority partners, but are presented as bonus expense for accounting purposes. Each segment contributed as follows:

Bistro: Labor expenses as a percentage of revenues at the Bistro increased primarily due to wage rate pressure impacting all hourly labor categories, the impact of decreased leverage resulting from lower average weekly sales on the portion of labor costs that are fixed by nature, higher management incentive costs principally resulting from the 2007 change in the Bistro partnership structure and increased health insurance costs. The impact of these factors was partially offset by the benefit of reduced workers’ compensation insurance liabilities resulting from lower than anticipated claims development.

Pei Wei: Labor expenses as a percentage of revenues at Pei Wei increased primarily due to the impact of wage rate pressure in culinary positions, increased management incentive costs and the impact of decreased leverage resulting from lower average weekly sales on the portion of labor costs that are fixed by nature. The impact of these factors was partially offset by the benefit of reduced workers’ compensation insurance liabilities resulting from lower than anticipated claims development and decreased management salaries expense resulting from operational efficiencies.

Operating

Operating expenses consist primarily of various restaurant-level costs such as repairs and maintenance, utilities and marketing, certain of which are variable and fluctuate with revenues. Our experience to date has been that operating costs during the first four to nine months of a newly opened restaurant are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Each segment contributed as follows:

Bistro: Operating expenses as a percentage of revenues at our Bistro restaurants increased primarily due to higher repair and maintenance costs (including the impact of repair costs related to a fire at our Nashville restaurant), higher disposable supplies expenses and to a lesser extent, the impact of decreased leverage resulting from lower average weekly sales on the portion of operating costs that are fixed by nature.

Pei Wei: Operating expenses as a percentage of revenues at our Pei Wei restaurants were consistent with the prior year primarily due to the impact of decreased leverage resulting from lower average weekly sales on the portion of operating costs that are fixed by nature and an increase in marketing spending, partially offset by a decrease in cleaning supply costs and utilities expense.

Occupancy

Occupancy costs include both fixed and variable portions of rent, common area maintenance charges, property and general liability insurance and property taxes. Each segment contributed as follows:

Bistro: Occupancy costs as a percentage of revenues at the Bistro increased slightly primarily due to higher general liability insurance costs and the impact of decreased leverage resulting from lower average weekly sales, partially offset by a slight decrease in property tax expense.

Pei Wei: Occupancy costs as a percentage of revenues at Pei Wei increased primarily due to the impact of decreased leverage resulting from lower average weekly sales and higher general liability insurance costs, partially offset by a slight decrease in property tax expense.

General and Administrative

General and administrative expenses are comprised of costs associated with corporate and administrative functions that support restaurant development and operations and provide infrastructure to support future growth, including management and staff salaries, employee benefits, travel, legal and professional fees, technology and market research. Each segment contributed as follows:

Bistro: General and administrative costs at the Bistro increased primarily due to an increase in health insurance costs, increased travel-related expenses and, to a lesser extent, increased management salaries due to the addition of regional partners and our new Bistro Chief Operating Officer position, and higher management incentive accruals due to the impact of the 2007 change in the Bistro partnership structure.

Pei Wei: General and administrative costs at Pei Wei increased primarily due to an increase in compensation expense related to the addition of development and operating partners as well as our new Pei Wei Chief Operating Officer position, increased health insurance costs and, to a lesser extent, higher management incentive accruals, increased travel-related expenses and higher share-based compensation expense.

Shared Services and Other: General and administrative costs for Shared Services and Other increased $0.5 million principally due to higher compensation and benefits expense primarily related to the addition of corporate management personnel, increased health and other employee benefits costs, and, to a lesser extent, higher share-based compensation expense. The increase was offset by the absence of incentive accruals in fiscal 2007.

Depreciation and Amortization

Depreciation and amortization expenses include the depreciation and amortization of fixed assets, gains and losses on disposal of assets and the amortization of intangible assets and non-transferable liquor license fees. Each segment contributed as follows:

Bistro: Depreciation and amortization increased primarily due to additional depreciation and amortization on restaurants opened during the last quarter of fiscal 2006 and the first three quarters of fiscal 2007 and, to a lesser extent, costs related to our new plateware and grill menu initiatives and higher intangible and other assets. The increase was partially offset by the impact of a change in the amortization of non-transferable liquor license fees during the prior year. As a percentage of revenues, depreciation and amortization increased due to higher average capital expenditures for new restaurants and increased remodeling costs at existing restaurants.

Pei Wei: Depreciation and amortization increased primarily due to additional depreciation and amortization on restaurants opened during the last quarter of fiscal 2006 and the first three quarters of fiscal 2007. The increase was partially offset by the impact of a change in the amortization of non-transferable liquor license fees during the prior year. As a percentage of revenues, depreciation and amortization increased due to decreased leverage resulting from lower average weekly sales and higher average capital expenditures for new restaurants.

Preopening Expense

Preopening expenses, which are expensed as incurred, consist of expenses incurred prior to opening a new restaurant and are comprised principally of manager salaries and relocation costs, employee payroll and related training costs. Preopening expenses also include straight-line rent expense for the period between the possession date of leased premises and the restaurant opening date. Each segment contributed as follows:

Bistro: Preopening expense increased primarily due to the timing of expenses related to restaurants scheduled to open during the fourth quarter of 2007 and early fiscal 2008 as well as the impact of a greater number of restaurants scheduled to open during the first quarter of 2008 compared to the first quarter of 2007.

Pei Wei: Preopening expense increased primarily due to the impact of opening 11 new Pei Wei restaurants during the third quarter of 2007 compared to nine new Pei Wei restaurants during the third quarter of 2006, as well as the timing of expenses related to restaurants scheduled to open during the fourth quarter of 2007 and early fiscal 2008 compared to the fourth quarter of 2006 and greater preopening rent expense due to earlier possession of new stores in fiscal 2007 as compared to fiscal 2006.

Partner Investment Expense

Partner investment expense represents the difference between the imputed fair value of our partners’ ownership interests at the time the partners invest in their restaurants and our partners’ cash contributions for those ownership interests. Additionally, for those partners who are bought out prior to the restaurant reaching maturity (typically after five years of operation), partner investment expense includes a reversal of previously recognized expense for the difference between the fair value of the partner’s interest at inception date and the fair value at the date of repurchase, to the extent that the former is greater. Each segment contributed as follows:

Bistro: Partner investment expense at the Bistro decreased due to the change in partnership structure discussed above, which led to a significant increase in buyouts of minority partner interests during fiscal 2007. These buyouts resulted in a $0.4 million reversal during the third quarter of previously recognized partner investment expense, due to the fair value of the partner’s interest at inception date exceeding the fair value of the partner’s interest at repurchase date. Additionally, as a result of the change in partnership structure, partner investment expense is no longer recognized at the time a new restaurant opens.

Pei Wei: Partner investment expense at Pei Wei decreased primarily due to the impact in the current quarter of expense reductions related to minority partner buyouts and, to a lesser extent, the impact of a lower imputed fair value of partnership interests in new Pei Wei restaurants in 2007. These items were partially offset by the impact of opening 11 new restaurants during the third quarter of fiscal 2007 compared to opening nine new restaurants during the third quarter of fiscal 2006.

Interest and Other Income (Expense), Net

Interest expense recognized during fiscal 2007 primarily consists of accretion expense related to our conditional asset retirement obligations. Interest income earned during fiscal 2007 primarily relates to interest-bearing overnight deposits.

Consolidated interest and other income (expense), net decreased primarily due to lower interest income resulting from the sale of interest-bearing securities to finance our share repurchase program, which commenced during the third quarter of fiscal 2006 (see “Share Repurchase Program” in the Liquidity and Capital Resources section for further detail).

Minority Interest

Minority interest represents the portion of our net earnings which is attributable to the collective ownership interests of our minority partners. As previously discussed, in many of our restaurants we employ a partnership management structure whereby we have entered into a series of partnership agreements with our regional managers, certain of our general managers, and certain of our executive chefs. Each segment contributed as follows:

Bistro: Minority interest as a percentage of revenues at the Bistro decreased due to the impact of partner buyouts occurring during fiscal 2007. These buyouts reduced the number of minority interests from 349 as of October 1, 2006 to 152 as of September 30, 2007.

Pei Wei: Minority interest as a percentage of revenues at Pei Wei decreased slightly due to the impact of lower restaurant net income and partner buyouts occurring during fiscal 2007.

Provision for Income Taxes

Our effective tax rate was 21.5% for the third quarter of fiscal 2007 compared to 26.8% for the third quarter of fiscal 2006. Disregarding the impact of reserve adjustments in both periods, our effective tax rate was 26.3% and 27.5% for the first three quarters of fiscal 2007 and 2006, respectively. The income tax rates for the third quarter of fiscal 2007 and fiscal 2006 differed from the expected provision for income taxes, which is derived by applying the statutory income tax rate, primarily as a result of FICA tip credits.

See Note 7 to the consolidated financial statements for a discussion of our adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.

Results for the nine months ended September 30, 2007 and October 1, 2006

Our consolidated operating results for the nine months ended September 30, 2007 and October 1, 2006 were as follows (dollars in thousands):


	Nine months ended
	September 30,			% of			October 1,			% of						%
	2007			Revenues			2006			Revenues			Change			Change

Revenues	$	802,695			100.0	%	$	685,618			100.0	%	$	117,077			17.1	%
Costs and expenses:
Cost of sales		220,018			27.4	%		187,679			27.4	%		32,339			17.2	%
Labor		272,026			33.9	%		228,526			33.3	%		43,500			19.0	%
Operating		127,629			15.9	%		107,433			15.7	%		20,196			18.8	%
Occupancy		46,548			5.8	%		38,589			5.6	%		7,959			20.6	%
General and administrative		49,903			6.2	%		41,930			6.1	%		7,973			19.0	%
Depreciation and amortization		41,140			5.1	%		32,504			4.7	%		8,636			26.6	%
Preopening expense		10,775			1.3	%		8,303			1.2	%		2,472			29.8	%
Partner investment expense		(1,940	)		(0.2	%)		2,612			0.4	%		(4,552	)		—

Total costs and expenses		766,099			95.4	%		647,576			94.5	%		118,523			18.3	%

Income from operations		36,596			4.6	%		38,042			5.5	%		(1,446	)		(3.8	%)
Interest and other income, net		512			0.1	%		1,404			0.2	%		(892	)		(63.5	%)
Minority interest		(3,576	)		(0.4	%)		(6,003	)		(0.9	%)		2,427			40.4	%

Income before provision for income taxes		33,532			4.2	%		33,443			4.9	%		89			0.3	%
Provision for income taxes		(8,515	)		(1.1	%)		(8,955	)		(1.3	%)		440			4.9	%

Net income	$	25,017			3.1	%	$	24,488			3.6	%	$	529			2.2	%

Certain percentage amounts may not sum to total due to rounding. Percentages over 100% not displayed.

Operating results for the Bistro for the nine months ended September 30, 2007 and October 1, 2006 were as follows (dollars in thousands):


	Nine months ended
	September 30,			% of			October 1,			% of						%
	2007			Revenues			2006			Revenues			Change			Change

Revenues	$	623,746			100.0	%	$	555,543			100.0	%	$	68,203			12.3	%
Costs and expenses:
Cost of sales		170,420			27.3	%		151,712			27.3	%		18,708			12.3	%
Labor		209,085			33.5	%		183,364			33.0	%		25,721			14.0	%
Operating		96,859			15.5	%		84,856			15.3	%		12,003			14.1	%
Occupancy		34,554			5.5	%		30,094			5.4	%		4,460			14.8	%
General and administrative		17,824			2.9	%		15,209			2.7	%		2,615			17.2	%
Depreciation and amortization		30,398			4.9	%		25,147			4.5	%		5,251			20.9	%
Preopening expense		6,020			1.0	%		4,996			0.9	%		1,024			20.5	%
Partner investment expense		(3,112	)		(0.5	%)		1,952			0.4	%		(5,064	)		—

Total costs and expenses		562,048			90.1	%		497,330			89.5	%		64,718			13.0	%

Income from operations		61,698			9.9	%		58,213			10.5	%		3,485			6.0	%
Interest and other income, net		31			0.0	%		(51	)		(0.0	%)		82			—
Minority interest		(2,769	)		(0.4	%)		(5,203	)		(0.9	%)		2,434			46.8	%

Income before provision for income taxes	$	58,960			9.5	%	$	52,959			9.5	%	$	6,001			11.3	%

Certain percentage amounts may not sum to total due to rounding. Percentages over 100% not displayed.

Operating results for Pei Wei for the nine months ended September 30, 2007 and October 1, 2006 were as follows (dollars in thousands):


	Nine months ended
	September 30,			% of			October 1,			% of						%
	2007			Revenues			2006			Revenues			Change			Change

Revenues	$	177,043			100.0	%	$	130,075			100.0	%	$	46,968			36.1	%
Costs and expenses:
Cost of sales		48,843			27.6	%		35,967			27.7	%		12,876			35.8	%
Labor		61,874			34.9	%		45,162			34.7	%		16,712			37.0	%
Operating		30,221			17.1	%		22,577			17.4	%		7,644			33.9	%
Occupancy		11,830			6.7	%		8,495			6.5	%		3,335			39.3	%
General and administrative		9,250			5.2	%		7,060			5.4	%		2,190			31.0	%
Depreciation and amortization		9,404			5.3	%		6,497			5.0	%		2,907			44.7	%
Preopening expense		4,754			2.7	%		2,933			2.3	%		1,821			62.1	%
Partner investment expense		1,172			0.7	%		660			0.5	%		512			77.6	%

Total costs and expenses		177,348			—			129,351			99.4	%		47,997			37.1	%

Income from operations		(305	)		(0.2	%)		724			0.6	%		(1,029	)		—
Interest and other income, net		(6	)		(0.0	%)		40			0.0	%		(46	)		—
Minority interest		(807	)		(0.5	%)		(800	)		(0.6	%)		(7	)		0.9	%

Income before provision for income taxes	$	(1,118	)		(0.6	%)	$	(36	)		(0.0	%)	$	(1,082	)		—

Certain percentage amounts may not sum to total due to rounding. Percentages over 100% not displayed.

Revenues

Each segment contributed to current year revenue growth as follows:

Bistro: The increase in revenues was attributable to revenues of $53.7 million generated by 20 new Bistro restaurants that opened during the first three quarters of 2007 and the last quarter of 2006 combined with a full three quarters of revenues for those stores that opened during the first three quarters of 2006. Revenue for stores that opened prior to 2006 experienced a decline in overall guest traffic which resulted in lower sales volumes despite the benefit of a two to three percent effective price increase.

Pei Wei: The increase in revenues was attributable to revenues of $31.7 million generated by the 40 new Pei Wei restaurants that opened during the first three quarters of 2007 and the last quarter of 2006 combined with a full three quarters of revenues for those stores that opened during the first three quarters of 2006. Revenue for stores that opened prior to 2006 experienced a decline in overall guest traffic which resulted in lower sales volumes despite the benefit of a one to two percent effective price increase.

In addition to the revenues earned by Bistro and Pei Wei, consolidated revenues include $1.9 million of revenues generated by our Taneko concept.

Costs and Expenses

Cost of Sales

Each segment contributed as follows:

Bistro: Cost of sales as a percentage of revenues at the Bistro remained consistent primarily due to lower seafood and pork expense resulting from favorable pricing, improved yields and increased purchasing through national distribution contracts partially offset by higher produce expense.

Pei Wei: Cost of sales as a percentage of revenues at Pei Wei decreased slightly primarily due to lower pork expense resulting from favorable pricing and yields and lower produce expense resulting from the increase in product availability. This impact was partially offset by increased dry food expense and the impact of an adjustment recorded during the second quarter of 2006 resulting from a modification of our accounting policy related to rebate accruals.

Labor

Each segment contributed as follows:

Bistro: Labor expenses as a percentage of revenues at the Bistro increased primarily due to higher management incentive costs principally resulting from the 2007 change in the Bistro partnership structure, wage rate pressure impacting all hourly labor categories and decreased leverage on lower average weekly sales on the portion of labor costs that are fixed by nature. The impact of these factors was partially offset by the benefit of reduced workers’ compensation insurance liabilities resulting from lower than anticipated claims development.

Pei Wei: Labor expenses as a percentage of revenues at Pei Wei increased primarily due to continued wage rate pressure in culinary positions, increased management incentive costs, and the impact of decreased leverage resulting from lower average weekly sales on the portion of labor costs that are fixed by nature, partially offset by the benefit of reduced workers’ compensation insurance liabilities resulting from lower than anticipated claims development.

Operating

Each segment contributed as follows:

Bistro: Operating expenses as a percentage of revenues at our Bistro restaurants increased slightly when considering an adjustment resulting from a modification of our accounting policy related to utility accruals during the second quarter of 2006. Excluding the impact of this adjustment, operating expenses as a percentage of revenues increased primarily due to higher repair and maintenance costs (including the impact of repair costs related to a fire during the third quarter at our Nashville restaurant), and disposable supplies expense as well as the impact of decreased leverage resulting from lower average weekly sales on the portion of operating costs that are fixed by nature.

Pei Wei: Operating expenses as a percentage of revenues at our Pei Wei restaurants decreased slightly including an adjustment resulting from a modification of our accounting policy related to utility accruals during the second quarter of 2006. Excluding the impact of this adjustment, operating expenses as a percentage of revenues increased primarily due to the impact of decreased leverage resulting from lower average weekly sales on the portion of operating costs that are fixed by nature, and increase in marketing spending, partially offset by reduced take-out supplies costs and other restaurant expenses.

Occupancy

Each segment contributed as follows:

Bistro: Occupancy costs as a percentage of revenues at the Bistro increased slightly primarily due to higher general liability insurance costs combined with the impact of decreased leverage resulting from lower average weekly sales.

Pei Wei: Occupancy costs as a percentage of revenues at Pei Wei increased primarily due to the impact of decreased leverage resulting from lower average weekly sales combined with higher general liability insurance costs.

General and Administrative

Each segment contributed as follows:

Bistro: General and administrative costs at the Bistro increased primarily due to higher management incentive accruals due to the impact of the 2007 change in the Bistro partnership structure, an increase in health insurance costs, increased travel-related expenses and increased management salaries due to the addition of regional partners and our new Bistro Chief Operating Officer position.

Pei Wei: General and administrative costs at Pei Wei increased primarily due to an increase in compensation and expense related to the addition of development and operating partners as well as our new Pei Wei Chief Operating Officer position, increased health insurance costs, higher management incentive accruals, and increased share-based compensation expense. As a percentage of revenues, Pei Wei’s general and administrative costs decreased compared to the prior year due primarily to the impact of a greater number of store openings in 2007.

Shared Services and Other: General and administrative costs for Shared Services and Other increased $3.2 million principally due to higher compensation and benefits expense primarily related to the addition of corporate management personnel, increased share-based compensation expense and, to a lesser extent, higher consulting and marketing spending. The increase was partially offset by the absence of incentive compensation accruals in fiscal 2007.

Depreciation and Amortization

Each segment contributed as follows:

Bistro: Depreciation and amortization increased primarily due to additional depreciation and amortization on restaurants opened during the last quarter of fiscal 2006 and the first three quarters of fiscal 2007 and, to a lesser extent, higher intangible and other assets and costs related to our new plateware and grill menu initiatives. As a percentage of revenues, depreciation and amortization increased due to higher average capital expenditures for new restaurants and remodels as well as the impact of decreased leverage resulting from lower average weekly sales.

Pei Wei: Depreciation and amortization increased primarily due to additional depreciation and amortization on restaurants opened during the last quarter of fiscal 2006 and the first three quarters of fiscal 2007. As a percentage of revenues, depreciation and amortization increased due to the impact of decreased leverage resulting from lower average weekly sales, and higher average capital expenditures for new restaurants.

Preopening Expense

Each segment contributed as follows:

Pei Wei: Preopening expense increased primarily due to the impact of opening 30 new Pei Wei restaurants during the first three quarters of fiscal 2007 compared to 20 new Pei Wei restaurants during the first three quarters of fiscal 2006, as well as an increase in preopening expense related to unopened stores through the third quarter of each fiscal year.

Partner Investment Expense

Each segment contributed as follows:

Bistro: Partner investment expense at the Bistro decreased due to the change in partnership structure discussed above, which led to a significant increase in early buyouts of minority partner interests during fiscal 2007. These early buyouts resulted in a $3.1 million reversal of previously recognized partner investment expense due to the fair value of the partner’s interest at inception date exceeding the fair value of the partner’s interest at repurchase date. Additionally, as a result of the change in partnership structure, partner investment expense is no longer recognized at the time a new restaurant opens.

Pei Wei: Partner investment expense at Pei Wei increased primarily due to the impact of opening 30 new restaurants during the first three quarters of fiscal 2007 compared to opening 20 new restaurants during the first three quarters of fiscal 2006, as well as higher expense reductions related to minority partner buyouts. These increases were partially offset by the impact of a lower imputed fair value of partnership interests in new Pei Wei restaurants in fiscal 2007.

Interest and Other Income (Expense), Net

Minority Interest

Each segment contributed as follows:

Pei Wei: Minority interest as a percentage of revenues at Pei Wei decreased due to the impact of lower restaurant net income and partner buyouts occurring during the first three quarters of fiscal 2007.

Provision for Income Taxes

Our effective tax rate was 25.4 % for the first three quarters of fiscal 2007 compared to 26.8% for the first three quarters of fiscal 2006. Disregarding the impact of reserve adjustments in both periods, our effective tax rate was 26.3% and 27.5% for the first three quarters of fiscal 2007 and 2006, respectively. The income tax rates for the first three quarters of fiscal 2007 and fiscal 2006 differed from the expected provision for income taxes, which is derived by applying the statutory income tax rate, primarily as a result of FICA tip credits.

Liquidity and Capital Resources

Cash Flow

Our primary source of liquidity is cash provided by operations, though we also borrow under our credit facility from time to time. Historically, our need for capital resources has primarily resulted from our construction of new restaurants. Our need for capital resources was also driven by the purchase of minority interests in fiscal 2007 and the repurchase of our common stock and Pei Wei minority interests in fiscal 2006

The following table presents a summary of our cash flows for the nine months ended September 30, 2007 and October 1, 2006 (in thousands):


	September 30,			October 1,
	2007			2006
Net cash provided by operating activities	$	84,241		$	73,722
Net cash used in investing activities		(128,913	)		(38,410	)
Net cash provided by (used in) financing activities		17,707			(52,688	)

Net decrease in cash and cash equivalents	$	(26,965	)	$	(17,376	)

Operating Activities

We have funded our capital requirements since inception through sales of equity securities, debt financing and cash flows from operations. Net cash provided by operating activities was $84.2 million and $73.7 million for the first three quarters of fiscal 2007 and 2006, respectively. Net cash provided by operating activities exceeded net income for the periods due principally to the effect of depreciation and amortization, an increase in operating liabilities, share-based compensation, the effect of minority interest and partnership-related non-cash expenses.

Investing Activities

We use cash primarily to fund the development and construction of new restaurants. Net cash used in investing activities during the first three quarters of fiscal 2007 and 2006 was $128.9 million and $38.4 million, respectively. Included in investing activities were capital expenditures of $115.9 million and $78.6 million for the first three quarters of fiscal 2007 and fiscal 2006, respectively. Capital expenditures during the current year increased compared to the prior year primarily due to a higher number of new restaurant openings.

We intend to open 20 new Bistro restaurants, and 37 new Pei Wei restaurants in fiscal year 2007, of which 10 Bistro and 30 Pei Wei restaurants were open by the end of the third quarter. We expect that our planned future Bistro restaurants will require, on average, a total cash investment per restaurant of approximately $2.8 million to $3.0 million. We expect to spend approximately $365,000 per restaurant for preopening costs, which excludes non-cash preopening rent expense of approximately $50,000. Total cash investment per each Pei Wei restaurant is expected to average $750,000 to $850,000 and we expect to spend $113,000 per restaurant for preopening costs, which excludes non-cash preopening rent expense of approximately $27,000. The anticipated total cash investment per restaurant is based on recent historical averages which have increased over prior years due to increases in construction related costs of steel, aluminum and lumber. We expect total capital expenditures for fiscal 2007 to approximate $135.0 million.

Investment activities also include purchases of minority interests of $11.7 million and $1.6 million during the first three quarters of fiscal 2007 and 2006. We purchased 230 partnership interests during the first three quarters of 2007. This represents a significant increase in the historical rate of purchases resulting primarily from the implementation of our new Bistro partnership structure at the beginning of the current year and the corresponding desire of many of our existing partners to sell their partnership interest and instead participate in our new management incentive compensation program.

Additionally, investment activities in the first three quarters of fiscal 2006 included the impact of net sales of short-term investments totaling $42.4 million.

Financing Activities

Financing activities during the first three quarters of fiscal 2007 and 2006 included proceeds from stock options exercised and employee stock purchases, distributions to minority partners, debt repayments and the tax benefit from disqualifying stock option dispositions. Additionally, financing activities during the first three quarters of fiscal 2007 included $41.0 million of credit line borrowings and $30.0 million of debt repayments, including $23.0 million related to our credit line and $7.0 million related to debt resulting from prior minority interest purchases. Financing activities during the first three quarters of fiscal 2006 included $39.5 million in treasury stock purchases and $7.3 million related to the purchase of Pei Wei minority interests.

Future capital requirements

Our capital requirements, including development costs related to the opening of additional restaurants, have been and will continue to be significant. Our future capital requirements and the adequacy of our available funds will depend on many factors, including the pace of expansion, real estate markets, site locations, the nature of the arrangements negotiated with landlords and any potential repurchases of our common stock. We believe that our cash flow from operations, together with our current cash reserves and available credit lines, will be sufficient to fund our projected capital requirements through 2008 and the foreseeable future. In the unlikely event that additional capital is required, we may seek to raise such capital through public or private equity or debt financing. Future capital funding transactions may result in dilution to current shareholders. We cannot ensure that such capital will be available on favorable terms, if at all.

Credit Facility

On August 31, 2007, we entered into a senior credit facility (“Credit Facility”) with several commercial financial institutions, which allows for borrowings of up to $150.0 million. Borrowings under the Credit Facility bear interest, at our option, at a rate equal to either (i) LIBOR plus an applicable margin as defined in the Credit Facility or (ii) the higher of (a) the Federal Funds Effective Rate plus one-half of 1.0% or (b) the Prime Rate as announced by JPMorgan Chase Bank. The Credit Facility bears a commitment fee on the unused portion of the revolver at an annual rate of 0.125%.

The Credit Facility expires on August 30, 2013 and contains customary representations, warranties, negative and affirmative covenants, including a requirement to maintain a maximum leverage ratio of 2.5:1 and a minimum fixed charge coverage ratio of 1.25:1, as well as customary events of default and certain default provisions that could result in acceleration of the Credit Facility. We were in compliance with these restrictions and conditions as of September 30, 2007.

The Credit Facility is guaranteed by our material existing and future domestic subsidiaries.

As of September 30, 2007, we had borrowings outstanding under the Credit Facility totaling $30.0 million at an average interest rate of 6.50% as well as $9.7 million committed for the issuance of letters of credit, which is required by insurance companies for our workers’ compensation and general liability insurance programs. Available borrowings under the Credit Facility were $110.3 million at September 30, 2007.

Share Repurchase Program

In July 2006, our Board of Directors authorized a program to repurchase up to $50.0 million of our outstanding shares of common stock from time to time in the open market or in private at prevailing market prices over a one-year period. We repurchased 1.4 million shares of our common stock for $46.4 million during fiscal 2006 and we did not repurchase any shares of our common stock during fiscal 2007. The remaining $3.6 million available under this share repurchase authorization expired in July 2007.

In July 2007, our Board of Directors authorized a subsequent program to repurchase up to $50.0 million of our outstanding shares of common stock from time to time in the open market or in private at prevailing market prices over the next two years. We intend to use cash on hand and available credit lines to repurchase shares. We did not repurchase any shares under this authorization during the third quarter of fiscal 2007.

Partnership Activities

As of September 30, 2007, there were 125 partners within the P.F. Chang’s China Bistro, Inc. partnership system. During the first three quarters of fiscal 2007, we had the opportunity to purchase 31 partner interests which had reached the five-year threshold period, as well as 219 additional partner interests which had either (i) reached the end of their initial five-year term in prior years, (ii) related to partners who left the company prior to the initial five-year term or (iii) related to Bistro partners who elected an early repurchase of their minority interest by the company due to the opportunity to participate in the new Bistro management incentive compensation program. We purchased 230 of these interests in their entirety for a total of $23.0 million. Of the total purchase price, approximately $11.7 million was paid in cash, while the remaining balance has been recorded as debt, some of which is payable to related parties, on the consolidated balance sheet at September 30, 2007.

Minority Interest Purchase

On January 9, 2006, we purchased the 13 percent minority interest held by key employees in our Pei Wei Asian Diner subsidiary for a value of approximately $22.8 million, thereby making Pei Wei Asian Diner a wholly owned subsidiary. The purchase price consideration consisted of $7.3 million in cash and the conversion of outstanding options to purchase 98,100 shares of Pei Wei Asian Diner, Inc. common stock into options to purchase 306,782 shares of P.F. Chang’s common stock. There was no additional intrinsic value associated with the converted options to purchase P.F. Chang’s common stock for the key employees. The transaction did not involve any changes in management or key positions in Pei Wei.

New Accounting Standards

See Recent Accounting Pronouncements section of Note 1 to our consolidated financial statements for a summary of new accounting standards.


Item 3.		*Quantitative and Qualitative Disclosures About Market Risk*

We are exposed to market risk primarily from fluctuations in interest rates on our short-term investments and revolving credit facility. Our revolving credit facility allows for borrowings up to $150.0 million bearing interest at variables rates of LIBOR plus an applicable margin. We held no short-term investments at December 31, 2006. We had borrowings of $30.0 million outstanding under our credit facility and promissory notes totaling $12.1 million at September 30, 2007. A hypothetical 100 basis point change in interest rates would not have a material impact on our results of operations.


Item 4.		*Controls and Procedures*

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

During the last fiscal quarter, there have been no significant changes in our internal controls or in other factors that could significantly affect our internal control over financial reporting.

PART II

OTHER INFORMATION


Item 1.		*Legal Proceedings*

None


Item 1A.		*Risk Factors*

Risks that could have a negative impact on our business, revenues and performance results include risks associated with the following: failure of our existing or new restaurants to achieve predicted results; the inability to develop and construct our restaurants within projected budgets and time periods; our ability to successfully expand our operations; increases in the minimum wage; intense competition in the restaurant industry; changes in general economic and political conditions that affect consumer spending; fluctuations in operating results; our inability to retain key personnel; failure to comply with governmental regulations; future changes in financial accounting standards; changes in how we account for certain aspects of our partnership program; strain on our management resources resulting from implementing our growth strategy; potential labor shortages that may delay planned openings; changes in food costs; rising insurance costs; litigation; and expenses associated with compliance with changing regulation of corporate governance and public disclosure. A more detailed description of each of these risk factors can be found under the caption “Risk Factors” in our most recent Form 10-K, filed on February 14, 2007. There have been no material changes to these risk factors other than the change of the following.

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

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

	•		the environment;

	•		building construction;

	•		zoning requirements;

	•		the preparation and sale of food and alcoholic beverages; and

	•		employment.

Our facilities are licensed and subject to regulation under state and local fire, health and safety codes. The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations. We may not be able to obtain necessary licenses or other approvals on a cost-effective and timely basis in order to construct and develop restaurants in the future.

Various federal and state labor laws govern our operations and our relationship with our employees, including minimum wage, overtime, working conditions, fringe benefit and citizenship requirements. In particular, we are subject to the regulations of the Bureau of Citizenship and Immigration Services, or BCIS. The United States Congress has recently been considering changes to Federal immigration laws and various states are also in the process of considering or have already adopted new immigration laws. Some of these new laws may adversely affect our operations by increasing our obligations for compliance and oversight. Though we require all workers to provide us with the government-specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers. Unauthorized workers are subject to seizure and deportation and may subject us to fines, penalties or loss of our business license in certain jurisdictions. Any material disruption of our business, as a result of seizure of our workers, changes in immigration law, or significantly increased labor costs at our facilities in the future, could have a material adverse effect on our business, financial condition and operating results.

Our business can be adversely affected by negative publicity resulting from complaints or litigation alleging poor food quality, food-borne illness or other health concerns or operating issues stemming from one or a limited number of restaurants. Unfavorable publicity could taint public perception of our restaurants.

Approximately 15 percent of our revenues at the Bistro and two percent of revenues at Pei Wei are attributable to the sale of alcoholic beverages. We are required to comply with the alcohol licensing requirements of the federal government, states and municipalities where our restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. If we fail to comply with federal, state or local regulations, our licenses may be revoked and we may be forced to terminate the sale of alcoholic beverages at one or more of our restaurants.

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

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

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

Our profitability is dependent in part on our ability to anticipate and react to changes in food costs. Other than for a portion of our commodities, like produce, which is purchased locally by each restaurant and certain other specialty items that we purchase from Chinese import/export brokers, we rely on Distribution Market Advantage as the primary distributor of our ingredients. Distribution Market Advantage is a cooperative of multiple food distributors located throughout the nation. We have a non-exclusive contract with Distribution Market Advantage on terms and conditions which we believe are consistent with those made available to similarly situated restaurant companies. Although we believe that alternative distribution sources are available, any increase in distribution prices or failure to perform by the Distribution Market Advantage could cause our food costs to fluctuate. Any disruption in the supply of specialty items from China due to quality or availability issues could also cause our food costs to fluctuate. Additional factors beyond our control, including adverse weather conditions and governmental regulation, may affect our food costs. We may not be able to anticipate and react to changing food costs through our purchasing practices and menu price adjustments in the future, and failure to do so could negatively impact our revenues and results of operations.


Item 2.		*Unregistered Sales of Equity Securities and Use of Proceeds*

None


Item 3.		*Defaults Upon Senior Securities*

None


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

None


Item 5.		*Other Information*

None


Item 6.		*Exhibits*


Exhibit
Number		Description Document
3(i)(1)		Amended and Restated Certificate of Incorporation.
3(ii)(3)		Amended and Restated Bylaws.
4.1(2)		Specimen Common Stock Certificate.
4.2(2)		Amended and Restated Registration Rights Agreement dated May 1, 1997
10.27		Credit Agreement between the Company and JPMorgan Chase Bank Dated August 31, 2007.
31.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Richard L. Federico.
31.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Mark D. Mumford.
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Richard L. Federico.
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Mark D. Mumford.


(1)		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on April 25, 2002.

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

(3)		Incorporated by reference to the Registrant’s Form 8-K filed on October 25, 2007.

INDEX TO EXHIBITS


Exhibit
Number		Description Document
3(i)(1)		Amended and Restated Certificate of Incorporation.
3(ii)(3)		Amended and Restated Bylaws.
4.1(2)		Specimen Common Stock Certificate.
4.2(2)		Amended and Restated Registration Rights Agreement dated May 1, 1997.
10.27		Credit Agreement between the Company and JPMorgan Chase Bank Dated August 31, 2007.
31.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Richard L. Federico.
31.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Mark D. Mumford.
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Richard L. Federico.
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Mark D. Mumford.


(1)		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on April 25, 2002.

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

(3)		Incorporated by reference to the Registrant’s Form 8-K filed on October 25, 2007.


	P.F. CHANG’S CHINA BISTRO, INC.
	By:	/s/ RICHARD L. FEDERICO
		Richard L. Federico
		Chairman and Chief Executive Officer Principal Executive Officer


	By:	/s/ MARK D. MUMFORD
		Mark D. Mumford
		Chief Financial Officer Principal Financial and Accounting Officer

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Item		Page

PART I FINANCIAL INFORMATION

1.	Unaudited Consolidated Financial Statements		2

	Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006		2

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2007 and October 1, 2006		3

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and October 1, 2006		4

	Notes to Unaudited Consolidated Financial Statements		5

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

3.	Quantitative and Qualitative Disclosures About Market Risk		25

4.	Controls and Procedures		25

PART II OTHER INFORMATION

1.	Legal Proceedings		26

1A.	Risk Factors		26

2.	Unregistered Sales of Equity Securities and Use of Proceeds		27

3.	Defaults Upon Senior Securities		27

4.	Submission of Matters to a Vote of Security Holders		27

5.	Other Information		27

6.	Exhibits		28

	Signatures		29

	Index to Exhibits		30

Exhibit 10.27
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2