DAVE & BUSTERS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2003

COMMISSION FILE NO. 0-25858

DAVE & BUSTER'S, INC.
(Exact name of registrant as specified in its charter)

MISSOURI 43-1532756
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)

2481 MANANA DRIVE, DALLAS, TEXAS 75220
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(214) 357-9588

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of the 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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12B-2 of the Act). Yes [X] No [ ]

The aggregate market value of the voting common stock held by
non-affiliates of the registrant at August 2, 2002 (the last business day of the
registrant's second fiscal quarter) was $150,600,593.

The number of shares of common stock outstanding at April 18, 2003 was
13,362,785 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for its 2003 annual meeting of
Stockholders are incorporated by reference into Part III hereof, to the extent
indicated herein.
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PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

Dave & Buster's is a leading operator of large format, high-volume,
regional entertainment complexes. For the last twenty years, we have
successfully operated our entertainment complexes under the Dave & Buster's
name. Each entertainment complex offers an extensive array of entertainment
attractions such as pocket billiards, shuffleboard, state-of-the-art interactive
simulators and virtual reality systems, plus traditional carnival-style games of
skill. In addition, our complexes offer a full menu of high quality food and
beverages. The layout of our entertainment complexes is designed to promote easy
access to, and maximize customer crossover between, the multiple entertainment
and dining areas within each Dave & Buster's. We believe that the availability
of multiple attractions in one large facility, the high quality food, beverages
and service each entertainment complex offers, and our commitment to casual, yet
sophisticated fun for adults synergistically drive repeat usage of our complexes
and differentiate us from other regional entertainment offerings.

As of February 2, 2003, we operated 32 entertainment complexes across the
United States, with an average age of 5.1 years per location. Our entertainment
complexes can be separated into two categories: mega entertainment complexes,
which are typically between 50,000 and 70,000 square feet in size, and
intermediate entertainment complexes, which are typically between 40,000 and
49,000 square feet in size.

As a result of our focus on providing customers with a differentiated
entertainment offering, a significant portion of our entertainment complexes is
dedicated to amusements. Our entertainment complexes operate seven days a week
and are typically open from 11:30 a.m. to 12:00 a.m. on weekdays and 11:30 a.m.
to 2:00 a.m. on weekends. Attractions in all of our entertainment complexes are
geared toward promoting high levels of customer participation. Attractions
include traditional games, like pocket billiards and shuffleboard tables, and a
broad selection of interactive, high-energy amusements such as electronic, skill
and sports-oriented games in what we call our Million Dollar Midway area.

We believe the Million Dollar Midway, which is the largest component of our
entertainment complexes, is a significant reason why we are able to generate
high levels of repeat customers. Approximately 13.2% of our 2002 revenues were
from private parties, business gatherings and sponsored events. Each
entertainment complex has a Show Room and other special event rooms that are
designed for hosting these types of functions.

In order to better serve the needs of our customers, we provide full,
sit-down food service not only in the restaurant areas, but also throughout the
entire entertainment complex. Our menu places special emphasis on quality,
well-rounded meals, including gourmet pastas, steaks, seafood, chicken,
sandwiches, salads and an outstanding selection of desserts. We constantly
update our menus to reflect current trends and guest favorites. Each
entertainment complex offers full bar service throughout the entertainment and
restaurant areas, including over 50 different beers, an extensive selection of
wine and spirits plus a variety of non-alcoholic beverages.

INDUSTRY OVERVIEW

Dave & Buster's is a regional Entertainment Complex ("EC"). Regional ECs
offer multiple entertainment options designed to appeal to a broad, regional
customer base. Regional ECs, such as Dave & Buster's and theme parks, compete
for customers' discretionary entertainment dollars with each other as well as
with other providers of out-of-home entertainment, including destination ECs
such as Walt Disney World or Universal Studios and localized single attraction
facilities such as movie theaters, bowling alleys, nightclubs

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and restaurants. These three types of entertainment offerings can be
distinguished from each other by factors such as:

- cost;

- breadth of attractions;

- the geographic range from which they draw customers; and

- frequency of customer visits.

Destination ECs can cost $3,000-$4,000 per family per visit including
airfare and hotel expenses. These destination ECs draw many customers from
outside of their geographic region. Regional ECs and localized single attraction
facilities typically cost significantly less per visit and draw a majority of
their customers from within a local or extended local radius. As a result, we
believe that regional ECs are typically less sensitive than destination ECs to
the national economy, fuel prices, and disturbances in the transportation
markets.

Although our competitors may include any EC located within the same region
as one of our Dave & Buster's entertainment complexes, we believe that we
compete primarily against localized single attraction facilities. Single
attraction venues offer a limited entertainment package. To the extent that
regional ECs offer multiple entertainment options that appeal to a broad
spectrum of customers, they are distinguishable from single attraction venues.
We believe that the regional EC market is underdeveloped relative to other
entertainment concepts and that attractive unpenetrated geographic markets
remain available.

OUR COMPETITIVE STRENGTHS

We attribute our leading position in the regional EC market to the
following competitive strengths:

Twenty-Year Operating History. The operation of a large-format, high
volume entertainment complex like Dave & Buster's requires significant
management expertise. We opened our first entertainment complex in Dallas, Texas
in 1982. Since then, that location, which remains popular with its customers
today, has been joined by 31 additional entertainment complexes across the
country. We have never closed any of our entertainment complexes. Our 20-year
operating history gives us strong insights into our customer base and enables us
to continue to provide a fresh entertainment environment, both at existing and
new entertainment complexes. The average tenure of our corporate managers,
regional operators and general managers are eight, eight and six years,
respectively. We believe that the experience of our employees, our expertise at
site selection and layout, our atmosphere, our employee training programs, and
our scale and reputation with game suppliers and customers give us competitive
advantages that potential competitors do not enjoy.

Distinctive, Unique Concept with Strong Brand-Name. The large scale of
each operation, together with the numerous entertainment, food and beverage
options offered, is designed to attract a diverse customer base and consolidate
multiple-destination entertainment customer spending into one location. The
scale of our operations and attendant cost to develop also provide a barrier to
entry to many would-be competitors. We believe that our distinctive concept,
widespread entertainment complex locations and recognizable name and logo
provide a strong and recurring revenue base of loyal, local customers that
drives our revenue and profitability.

Power Card System. During fiscal 1996, we introduced Dave & Buster's Power
Card, at the time, a technologically advanced card capable of storing currency
value. Power Cards are purchased by customers at all locations to activate most
of the Million Dollar Midway games. By replacing coin or token activation, the
Power Card enables customers to activate games more easily and encourages
extended play of games. Since the introduction of the Power Card, customers have
increased their initial purchases of game credits and frequency of play,
resulting in higher total revenues and an increase in the percentage of our
revenues derived from amusements, which have greater operating margins than food
and beverages revenues.

Local, Frequent-Visiting Customer Base. We target customers aged 21 to 50.
Our latest research shows that a typical Dave & Buster's customer is a male, age
25 to 44 with a $61,000 annual household income. We believe our customers to be
local residents, rather than tourists, and they tend to live within 20-25 miles
of our

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entertainment complexes. As such, we believe our business model can continue to
generate business independent of the local tourist economy. Our data shows that
our average customer visits four times a year and spends $19.00 to $21.00 per
visit on some combination of amusements, food and beverages, with our most
frequent customers visiting multiple times per week.

Commitment to Customer Satisfaction. We recognize that a differentiated
entertainment environment and customer satisfaction are critical to our ongoing
success. To that end, we make a significant investment in each entertainment
complex, and our facilities are designed with attention to detail. The customer-
participation entertainment attractions are tastefully presented in an
atmosphere that we define as "ideal playing conditions." Through intensive
personnel training, constant monitoring of operations, and stringent operational
controls, we strive to maintain a consistently high standard of amusement, food
and beverage service. Our commitment to customer service is evidenced by service
staff in each of the entertainment areas who offer assistance in playing and
enjoying the games and who provide food and beverage service. We believe our
customer service is enhanced by a strong commitment to employee motivation and
appreciation programs. We also believe that high service standards are critical
to promoting customer loyalty and to generating frequent visiting patterns and
referrals by customers. In our most recent commissioned customer survey,
approximately 75% of our customers rated each of our amusement, food and
beverage offerings as either outstanding or very good.

BUSINESS STRATEGY

Our business strategy is to:

Continue to Optimize Existing Operations. Through the use of detailed
management reports and other cost control tools, we continually monitor our
costs. In addition, we utilize performance-based compensation practices to
encourage effective cost control. We have recently undertaken a number of
strategic initiatives aimed at increasing cash flow including maximizing
capacity utilization, optimizing game contribution and reducing expenses.
Through rigorous operational reviews, we intend to implement these initiatives
and to continue to discover more efficient ways to run our business going
forward.

Some of these initiatives implemented in fiscal 2002, which will have a
continuing impact on the company's operations and performance are:

1) The elimination of certain hourly and management positions at the
store level and certain positions at the corporate level.

2) The implementation of new programs to boost corporate party and
special event business.

3) The realignment of our marketing efforts to be more cost-effective.

For 2003, we intend to:

1) Continue our focus on marketing by recruiting a new Senior Vice
President -- Marketing to direct the efforts going forward. We are
conducting both quantitative and qualitative research to increase our
knowledge about our concept and our customer base. We will test the
effectiveness of various advertising media with the intent of utilizing the
most efficient media to present our message. In addition, we expect to
institute a customer loyalty program, which we believe will increase the
frequency of visits to our entertainment complexes.

2) Undertake a thorough examination of all our operations to identify
efficiencies and cost savings. As part of this, we engaged
PriceWaterhouseCoopers to review our purchasing functions. We expect that
as we implement the recommendations of this study, we can achieve a $2 to
$3 million annualized cost savings by increasing efficiency, leveraging our
purchasing power and removing duplication in this effort.

3) Continue our management focus on labor cost by instituting our
labor scheduling initiative which we believe will enable us to realize
additional variable labor cost reductions in the range of $3 to $4 million
annually.

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Continue to Refine Entertainment Offerings. We will continue to emphasize
customer satisfaction and promote customer loyalty by continuously seeking to
provide an enhanced entertainment experience. Our entertainment complexes are
regularly maintained and our entertainment is frequently evaluated and refreshed
to provide customers with the most satisfying experience. We anticipate:

1) Adding a number of new game packages as well as updated versions of
some existing games to enhance the entertainment experience for our guests.
We expect capital expenditures to be over $9 million in the amusements
portion of our business during fiscal 2003.

2) Continue to evaluate and implement our "Winner's Store" concept
where appropriate, which we believe improves guest satisfaction and reduces
labor costs.

3) Test and evaluate other initiatives in the amusements area with a
focus on guest satisfaction and profitability improvements.

Our food and drink menu places special emphasis on quality, well-rounded
fare and is updated to reflect current trends and guest favorites.

Pursue a Disciplined Growth Strategy. As a pioneer in the regional EC
market, we will continue to evaluate attractive site opportunities. We typically
select new sites on the basis of demographic and transportation trends. In
September 2002, we opened a new entertainment complex in Islandia, New York. We
do not plan to open a new complex in 2003, but with adequate capital
availability we anticipate opening a minimum of one complex in 2004. We believe
we will be able to open a minimum of two complexes annually thereafter,
depending upon the availability of capital.

ENTERTAINMENT COMPLEXES

ENTERTAINMENT

The entertainment attractions in each Dave & Buster's are geared toward
customer participation and offer both traditional entertainment and Million
Dollar Midway entertainment.

Traditional Entertainment. Each Dave & Buster's entertainment complex
offers a number of traditional entertainment options. These traditional
offerings include pocket billiards, shuffleboard tables, and the Show Room or
other special event rooms, which are designed for hosting private social parties
and business gatherings as well as our sponsored events. Traditional
entertainment games are rented by the hour.

Million Dollar Midway Games. The largest area in each Dave & Buster's
entertainment complex is the Million Dollar Midway, which is designed to provide
high-energy entertainment through a broad selection of electronic, skill and
sports-oriented games. A Power Card activates most midway games and can be
recharged for additional play. The Power Card enables customers to activate
games more easily and encourages extended play of games. By replacing
coin-activation, the Power Card has eliminated the technical difficulties and
maintenance issues associated with coin activated equipment. Furthermore, the
Power Card feature has increased our flexibility in pricing and promoting our
games.

The Million Dollar Midway includes both fantasy/high technology games and
classic midway entertainment. High-technology attractions vary among the
entertainment complexes and may include simulation theaters, interactive
electronic battlefield games, fantasy environment attractions, motion simulation
theaters, large-screen interactive electronic games and state-of-the-art golf
simulators. We also contract for exclusive games designed to build customer
loyalty and repeat customer visits.

Classic midway entertainment includes sports-oriented games of skill,
carnival-style games, which are intended to replicate the atmosphere found in
many local county fairs, and D&B Downs, which is one of several multiple-player
race games offered in each entertainment complex. At the Winner's Circle or
Winner's Store, players can redeem coupons won from selected games of skill for
a wide variety of prizes, many of which display the Dave & Buster's logo. The
prizes include stuffed animals, clothing, electronic equipment and small novelty
items.

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FOOD AND BEVERAGE

The Dave & Buster's menu is offered from early lunch until late night and
features moderately priced food designed to appeal to a wide variety of
customers. This well-rounded fare includes gourmet pastas, steaks, seafood,
chicken, sandwiches, salads and an outstanding selection of desserts. We
constantly update our menu to reflect current trends and guest favorites. It
places special emphasis on quality products such as the Nebraska Corn Fed Beef
program. All steaks and burgers are produced under these guidelines, which
ensures a consistently superior product. Other items among our guests' favorites
are the Classic BBQ Ribs, the Philly Cheesesteak sandwich, Chicken Scallopini
and our Grilled Mahi-Mahi. We also feature lunch specials with an emphasis on
quality food done quickly and an extensive offering of buffets for special
events and private parties. We now offer Sunday brunch with a separate menu
featuring a variety of breakfast favorites.

In order to better serve the needs of our customers, we provide full,
sit-down food service not only in the restaurant areas, but also throughout the
entire entertainment complex. Each entertainment complex offers full bar service
throughout the entertainment and restaurant areas, including over 50 different
beers, an extensive selection of wine and spirits and a variety of non-alcoholic
beverages.

LOCATION AND DEVELOPMENT

We believe that the location of our entertainment complexes is critical to
our long-term success. Significant time and resources are devoted to analyzing
each prospective site. In general, we target high-profile sites within
metropolitan areas between 500,000 and one million people for intermediate-size
models and over one million people for mega-size models. We carefully analyze
demographic information such as average income levels for each prospective site,
and we also consider other factors including the following:

- visibility;

- accessibility to regional highway systems;

- zoning; regulatory restrictions; and

- proximity to shopping areas, office complexes, tourist attractions,
theaters and other high traffic venues.

We also carefully study the entertainment and restaurant competition in
prospective areas. In addition, we must select a site of sufficient size to
accommodate our prototype facility with ample, convenient customer parking.

We continually seek to identify and evaluate new locations for expansion.
In October 2001, we signed a 20-year lease for our newest entertainment complex,
which opened in September 2002 in Islandia, New York; and in September 2001, we
signed a 20-year lease for an entertainment complex anticipated to open in
fiscal 2004 in Fort Worth, Texas.

The typical cost of opening a mega-size Dave & Buster's ranges from
approximately $7.5 million to $13.0 million, excluding pre-opening expenses and
developer allowances, depending upon the location and condition of the premises.
For intermediate-size models, the typical cost ranges from approximately $6.5
million to $12.5 million, excluding pre-opening expenses and developer
allowances, depending upon the location and condition of the premises. We base
our decision of owning or leasing a site on the projected unit economics and
availability of the site for purchase.

All of the entertainment complexes we opened in 2001 and 2002 are leased
facilities. Opening a leased facility reduces our capital investment in an
entertainment complex because we do not incur land and site improvement costs
and may also receive a construction allowance from the landlord for
improvements. The exterior and interior layout of an entertainment complex is
flexible and can be readily adapted to different types of buildings. We open
entertainment complexes in both new and existing structures, and in both urban
and suburban areas.

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INTERNATIONAL DEVELOPMENT

We have pursued territorial development and license agreements with
independent licensees located in various countries outside of the United States.
Under these agreements, we license the Dave & Buster's name and concept for a
specified territory in exchange for an initial development fee and a commitment
to develop a minimum number of entertainment complexes. A typical development
agreement requires the developer/ licensee to construct and open five to seven
new entertainment complexes in a specified geographic area over a several-year
period. Once a site is identified and approved, the area developer enters into a
separate license agreement for the individual property and agrees to pay an
initial license fee and continuing royalties to us based on the gross revenues
of that location. In exchange, we provide certain proprietary materials and
supervisory services to help ensure the quality of the Dave & Buster's concept.
All costs of building, opening and operating the licensed entertainment
complexes are borne by the licensees. Each license agreement also contains
strict operating covenants to promote the consistency of the menu and
entertainment offerings between international locations and the entertainment
complexes that we operate ourselves. If a licensee fails to meet the conditions
and covenants in the development and license agreements, we may terminate or
renegotiate the development and license agreements. Currently, we have executed
development and license agreements with licensees in Korea, Mexico, certain
countries in the Middle East, Canada and the Pacific Rim. At present there are
entertainment complexes open in Toronto, Canada, Taipei, Taiwan and Mexico City,
Mexico. We will continue to consider opportunities to license the "Dave &
Buster's" name and concept to qualified parties in additional foreign countries.
We do not have any current plans to invest our own capital in any foreign
operations.

MARKETING, ADVERTISING AND PROMOTION

We operate our marketing, advertising, and promotional programs through our
corporate marketing department with the assistance of an external advertising
agency, a media planning/buying service and a national public relations firm.
Our corporate marketing department is also responsible for controlling media and
production costs. During fiscal 2002, our expenditures for advertising and
promotions were approximately 3.7% of our revenues.

In order to expand our customer base, we focus marketing efforts in three
key areas:

- advertising and system-wide promotions;

- field marketing and local promotions; and

- special events for corporate and group customers.

We are currently conducting a search for a new Senior Vice President of
Marketing to direct our efforts going forward. We are doing significant
quantitative and qualitative research to find out more about our concept and our
customer to better market to them. We are testing various media to better
understand the effectiveness of each alternative in delivering our message. Our
"Serious Food, Outrageous Fun" line is being delivered through radio, movie
theatre, print and outdoor advertising in this test arena. In addition we are
continuing to focus much of our efforts in programs that are directed
specifically to the local store markets. We continue to utilize in-store
promotions to increase visit frequency and check average.

Our corporate and group sales programs are initiated and controlled by our
business development department, which provides direction, training, and support
to our Special Events Managers and their team within each entertainment complex.
Primary focus for the Special Events Sales team is to identify and contact
corporations, associations, organizations, and community groups within the
team's marketplace for the purposes of booking group events. The Special Events
Sales teams pursue corporate and social group bookings through a variety of
sales initiatives including outside sales calls and cultivation of repeat
business. We develop and maintain a database of corporate and group bookings.
Each Dave & Buster's location hosts events for many multi-national, national and
regional businesses. Many of our corporate and group customers schedule repeat
events.

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SUPPLIERS

The principal goods used by us are games, prizes and food and beverage
products, which are available from a number of suppliers. Federal and state
mandated increases in the minimum wage could have the repercussion of increasing
our expenses, as our suppliers may be severely impacted by higher minimum wage
standards.

COMPETITION

The out-of-home entertainment market is highly competitive. There are a
great number of businesses that compete directly and indirectly with us. Many of
these entities are larger and have significantly greater financial resources and
a greater number of units than we have. Although we believe most of our
competition comes from localized single attraction facilities that offer a
limited entertainment package, we may encounter increased competition in the
future, which may have an adverse effect on our profitability. In addition, the
legalization of casino gambling in geographic areas near any current or future
entertainment complex would create the possibility for entertainment
alternatives, which could have a material adverse effect on our business.

INTELLECTUAL PROPERTY

We have registered the trademarks "Dave & Buster's" and "Power Card" with
the United States Patent and Trademark Office and in various foreign countries.
We have also registered and/or applied for certain additional trademarks with
the United States Patent and Trademark Office and in various foreign countries.
We consider our trade name and our signature "bulls-eye" logo to be important
features of our goodwill and seek to actively monitor and protect our interest
in this property in the various jurisdictions where we operate.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

We are subject to various federal, state, and local laws affecting our
business. Each entertainment complex is subject to licensing and regulation by a
number of governmental authorities, which may include alcoholic beverage
control, amusement, health and safety, and fire agencies in the state, county or
municipality in which the entertainment complex is located. Each entertainment
complex is required to obtain a license to sell alcoholic beverages on the
premises from a state authority and, in certain locations, county and municipal
authorities. 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 each entertainment complex,
including minimum age of patrons and employees, hours of operation, advertising,
wholesale purchasing, inventory control and handling, and storage and dispensing
of alcoholic beverages. We have not encountered any material problems relating
to alcoholic beverage licenses to date. The failure to receive or retain a
liquor license, or any other required permit or license, in a particular
location, or to continue to qualify for or renew our licenses, could materially
adversely affect our operations and our ability to obtain such a license or
permit in other locations. The failure to comply with other applicable federal,
state or local laws, such as federal and state minimum wage and overtime pay
laws may also adversely affect our business.

We are also subject to "dram-shop" statutes in the states in which our
entertainment complexes are located. These statutes generally provide a person
injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
individual. We carry liquor liability coverage as part of our existing
comprehensive general liability insurance, which we believe is consistent with
coverage carried by other entities in our industry. Although we are covered by
insurance, a judgment against us under a dram-shop statute in excess of our
liability coverage could have a material adverse effect on our operations.

As a result of operating certain entertainment games and attractions,
including operations that offer redemption prizes, we are subject to amusement
licensing and regulation by the states, counties and municipalities in which we
have entertainment complexes. Certain entertainment attractions are heavily
regulated and such regulations vary significantly between communities. From time
to time, existing entertainment complexes may be required to modify certain
games, alter the mix of games, or terminate the
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use of specific games as a result of the interpretation of regulations by state
or local officials. We have, in the past, had to seek changes in state or local
regulations to enable us to open a given location. To date, we have been
successful in obtaining all such regulatory changes.

We are subject to federal and state environmental regulations, but these
have not had a materially negative effect on our operations. More stringent and
varied requirements of local and state governmental bodies with respect to
zoning, land use, and environmental factors could delay or prevent development
of new complexes in particular locations. We are subject to the Fair Labor
Standards Act, which governs such matters as minimum wages, overtime and other
working conditions, along with the American With Disabilities Act and various
family-leave mandates. Although we expect increases in payroll expenses as a
result of federal and state mandated increases in the minimum wage, such
increases are not expected to be material. However, we are uncertain of the
repercussion, if any, of increased minimum wages on our other expenses, as our
suppliers may be more severely impacted by higher minimum wage standards.

EMPLOYEES

As of February 2, 2003, we employed approximately 6,300 persons,
approximately 150 of whom served in administrative or executive capacities,
approximately 460 of whom served as entertainment complex management personnel,
and the remainder of whom were hourly entertainment complex personnel.

None of our employees are covered by collective bargaining agreements, and
we have never experienced an organized work stoppage, strike, or labor dispute.
We believe our working conditions and compensation packages are competitive with
those offered by our competitors and consider relations with our employees to be
good.

EXECUTIVE OFFICERS

David O. Corriveau, 51, a co-founder of the Dave & Buster's concept in
1982, has served as President since June 1995 and as a director of the Company
since May 1995. He previously served as Co-Chief Executive Officer and as
Co-Chairman of the Board from February 1996 to April 2003. Mr. Corriveau served
as President and Chief Executive Officer of D&B Holding (a predecessor of the
Company) from 1989 through June 1995. From 1982 to 1989, Messrs. Corriveau and
Corley operated the Company's business.

James W. Corley, 52, a co-founder of the Dave & Buster's concept in 1982,
has served as Chief Executive Officer since April 2003, as Chief Operating
Officer since June 1995, and as a director of the Company since May 1995. He
previously served as Co-Chief Executive Officer and as Co-Chairman of the Board
from February 1996 to April 2003. Mr. Corley served as Executive Vice President
and Chief Operating Officer of D&B Holding from 1989 through June 1995. From
1982 to 1989, Messrs. Corley and Corriveau operated the Company's business.

John S. Davis, 46, has served as Senior Vice President of the Company since
December 2002 and as General Counsel and Secretary of the Company since April
2001. Mr. Davis served as Vice President and General Counsel of Cameron Ashley
Building Products, Inc., a NYSE-listed building products distributor, from 1994
to 2000 and as Associate Counsel -- Mergers and Acquisitions for Electronic Data
Systems Corp. (EDS), a technology services firm, from 1990 to 1994. Prior to
1990, Mr. Davis was engaged in the private practice of law.

Nancy J. Duricic, 48, has served as Senior Vice President of Human
Resources of the Company since December 2002. Previously, she served as Vice
President of Human Resources from December 1997 to December 2002. From June 1989
to June 1997, she served in human resources positions of increasing
responsibilities in other companies, most recently as Vice President of Human
Resources for Eljer Industries, Inc.

William C. Hammett, Jr., age 56, has served as Senior Vice President of the
Company since December 2002 and as Chief Financial Officer of the Company since
December 2001. He has served as Vice Chairman of the Board of Directors of
Pegasus Solutions, Inc. since March 2001 and as a Director of Pegasus since
October 1995. From May 1998 to March 2001, he served as Chairman of the Board of
Directors of Pegasus.
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From October 1995 to May 1998, he served as Vice Chairman of the Board of
Directors of Pegasus. From August 1996 through September 1997, he served as
Senior Vice President and Chief Financial Officer of La Quinta Inns, Inc. From
June 1992 through August 1996, he served as Senior Vice President, Accounting
and Administration of La Quinta Inns, Inc.

Deborah A. Inzer, 52, has served as Vice President of Accounting and
Controller of the Company since January 2002. She served as Assistant Vice
President, Assistant Controller from November 2000 to January 2002 and as
Assistant Controller from July 1999 to November 2000. Ms. Inzer served as Senior
Vice President of Finance at AmBrit Energy Corporation from 1989 to 1999.

Sterling R. Smith, 50, has served as Senior Vice President of Operations of
the Company since December 2002. Previously, he served as Vice President of
Operations from June 1995 to December 2002 and as Vice President and Director of
Operations of D&B Holding from November 1994 to June 1995. From 1983 to November
1994, Mr. Smith served in operating positions of increasing responsibility for
the Company and its predecessors.

Bryan L. Spain, 54, has served as Senior Vice President of Procurement and
Development of the Company since December 2002. Previously, he served as Vice
President of Real Estate from March 1997 to December 2002. From 1993 until
joining the Company in March 1997, Mr. Spain managed the Real Estate Acquisition
and Development Program for Incredible Universe and Computer City Divisions of
Tandy Corporation. In addition, from 1991 to 1993, Mr. Spain served as Director,
Real Estate Financing for Tandy Corporation.

RISK FACTORS

OUR RESULTS OF OPERATIONS ARE DEPENDENT UPON CONSUMER DISCRETIONARY SPENDING.

Our results of operations are dependent upon discretionary spending by
consumers, particularly by consumers living in communities in which the
entertainment complexes are located. A significant weakening in any of the local
economies in which we operate may cause our customers to curtail discretionary
spending, which in turn could materially affect our profitability. Our
operations during fiscal 2001 were adversely affected by a number of factors,
including the overall decline in the U.S. economy and levels of consumer
spending. Additionally, the terrorist attacks that took place in the United
States on September 11, 2001 were unprecedented events that created economic and
business uncertainties, especially for consumer spending. The current war with
Iraq, potential for future terrorist attacks, the national and international
responses, and other acts of war or hostility may create economic and political
uncertainties that could materially adversely affect our business, results of
operations and financial condition in ways we currently cannot predict. In
addition, seasonality is a factor in our results of operations due to typically
lower third quarter revenues in the fall season and higher fourth quarter
revenues associated with the year-end holidays.

WE OPERATE A SMALL NUMBER OF ENTERTAINMENT COMPLEXES AND NEW ENTERTAINMENT
COMPLEXES REQUIRE SIGNIFICANT INVESTMENT.

As of February 2, 2003, we operated 32 entertainment complexes. The
combination of the relatively small number of locations and the significant
investment associated with each new entertainment complex may cause our
operating results to fluctuate significantly. Due to this relatively small
number of locations, poor results of operations at any single entertainment
complex could materially affect our profitability. Historically, new
entertainment complexes experience a drop in revenues after their first year of
operation, and we do not expect that, in subsequent years, any increases in
comparable revenues will be meaningful. Additionally, because of the substantial
up-front financial requirements to open new entertainment complexes, the
investment risk related to any single entertainment complex is much larger than
that associated with most other companies' restaurant or entertainment venues.

9

WE MAY NOT BE ABLE TO COMPETE FAVORABLY IN THE HIGHLY COMPETITIVE OUT-OF-HOME
ENTERTAINMENT MARKET.

The out-of-home entertainment market is highly competitive. There are a
great number of businesses that compete directly and indirectly with us. Many of
these entities are larger and have significantly greater financial resources and
a greater number of units than we have. Although we believe most of our
competition comes from localized single attraction facilities that offer a
limited entertainment package, we may encounter increased competition in the
future, which may have an adverse effect on our profitability. In addition, the
legalization of casino gambling in geographic areas near any current or future
entertainment complex would create the possibility for entertainment
alternatives, which could have a material adverse effect on our business.

OUR OPERATIONS ARE SUBJECT TO MANY GOVERNMENT REGULATIONS THAT COULD AFFECT
OUR OPERATIONS.

Various federal, state and local laws and permitting and license
requirements affect our business, including alcoholic beverage control,
amusement, health and safety and fire agencies in the state, county or
municipality in which each entertainment complex is located. For example, each
entertainment complex is required to obtain a license to sell alcoholic
beverages on the premises from a state authority and, in certain locations,
county and municipal authorities. The failure to receive or retain a liquor
license, or any other required permit or license, in a particular location, or
to continue to qualify for or renew our licenses, could adversely affect our
operations and our ability to obtain such a license or permit in other
locations. The failure to comply with other applicable federal, state or local
laws, such as federal and state minimum wage and overtime pay laws, may also
adversely affect our business.

WE MAY FACE DIFFICULTIES IN ATTRACTING AND RETAINING QUALIFIED EMPLOYEES FOR
OUR ENTERTAINMENT COMPLEXES.

The operation of our business requires qualified executives, managers and
skilled employees. From time to time there may be a shortage of skilled labor in
certain of the communities in which our entertainment complexes are located.
While we believe that we will continue to be able to attract, train and retain
qualified employees, shortages of skilled labor will make it increasingly
difficult and expensive to attract, train and retain the services of a
satisfactory number of qualified employees.

OUR GROWTH DEPENDS UPON OUR ABILITY TO OPEN NEW ENTERTAINMENT COMPLEXES.

We opened one new entertainment complex in fiscal 2002. Our ability to
expand depends upon our access to sufficient capital, locating and obtaining
appropriate sites, hiring and training additional management personnel, and
constructing or acquiring, at reasonable cost, the necessary improvements and
equipment for these complexes. We do not intend to open any new complexes in
2003. Based on our current liquidity and capital resources and operating
performance, we may not be able to generate sufficient cash flow or obtain
sufficient additional funding to open any new complexes in fiscal 2004 or
thereafter. In particular, the capital resources required to develop each new
entertainment complex are significant. There is no assurance that we will be
able to expand or that new entertainment complexes, if developed, will perform
in a manner consistent with our most recently opened entertainment complexes or
make a positive contribution to our operating performance.

LOCAL CONDITIONS, EVENTS AND NATURAL DISASTERS COULD ADVERSELY AFFECT OUR
BUSINESS.

Certain of the regions in which our entertainment complexes are located,
including five in California, have been, and may in the future be, subject to
adverse local conditions, events or natural disasters, such as earthquakes.
Depending upon its magnitude, an earthquake could severely damage our
entertainment complexes, which could adversely affect our business and
operations. We currently maintain earthquake insurance through our aggregate
property policy for each of our entertainment complexes. However there is no
assurance that our coverage will be sufficient if there is a major earthquake.
In addition, upon the expiration of our current policies, we cannot assure you
that adequate coverage will be available at economically justifiable rates, if
at all.

10

AVAILABLE INFORMATION

We post on our website at www.daveandbusters.com our annual report on Form
10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and
all amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.

ITEM 2. PROPERTIES

Dave & Buster's operates a total of 32 entertainment complexes located in
14 states. We are currently utilizing all available land at our owned locations.
Our real estate leases are with unaffiliated third parties except as noted in
"Certain relationships and related transactions." A list of all domestic
entertainment complexes, indicating whether such location is owned or leased,
and the term of the lease is set forth below:

11

- ---------------

(1) Renewal options may be subject to certain conditions and prior notice
requirements under the terms of each lease.

(2) We also lease additional parking facilities at this location, which lease
expires in January 2014.

(3) We own the building at these locations, but lease the underlying real
property.

We also lease a 47,000 square foot office building and 30,000 square foot
warehouse facility in Dallas, Texas, for use as our corporate headquarters and
distribution center. This lease expires in October 2021, with options to renew
until October 2041. The rent for these facilities is $896,000 per year for the
first year of the lease and increases annually at 1.35%. In addition, we lease a
15,000 square foot warehouse facility in Dallas, Texas. This lease expires in
March 2004, with two one-year options to renew until March 2006. The rent for
this facility is $44,250 per year.

ITEM 3. LEGAL PROCEEDINGS

EBS LITIGATION (UPDATE)

In March 2000, the former shareholders of Edison Brothers Stores, Inc.
brought a third-party action against us and certain of our directors in Federal
district court in Delaware. The third-party plaintiff class consists of former
shareholders of EBS who received stock in our company following its spin-off
from EBS in 1995. Within five months after the spin-off, EBS filed for
protection under the bankrupt laws. The bankruptcy trustee of EBS (through an
entity named EBS Litigation LLC) is pursuing fraudulent conveyance claims on
behalf of unsecured creditors of EBS against a defendant class of former
shareholders arising out of the spin-off distribution of our stock. The former
shareholders' third-party action against us alleges that, if it is determined
that the distribution of our stock to the former shareholders rendered EBS
insolvent and was therefore a fraudulent conveyance, then we and certain of our
directors (who were our directors at the time of the spin-off) aided and abetted
the fraud and are liable for contribution and/or indemnification. We dispute the
former shareholders' third-party allegations against us and our directors and
are vigorously defending this litigation.

In March 2001, the trial court dismissed all of the third-party claims
against us and rendered judgment in our favor based on a statute of limitations
defense. The third-party plaintiffs appealed this ruling. In September 2002, the
Third Circuit appellate court reversed the judgment of the district court and
remanded the case for further proceedings. In November 2002, our petition for
limited rehearing was denied by the Third Circuit.

The underlying case brought by EBS Litigation LLC against the defendant
shareholder class was tried before the district court in January 2002, but no
verdict has yet been rendered by the court. The trial court judge recently ruled
that the third-party action should be stayed pending the court reaching a
verdict in the underlying action. The court conducted a mandatory mediation
session among the parties on March 28, 2003, and although no resolution was
achieved, the court has set a date for further discussions in late April. While
we do not believe the plaintiff in this case will be successful, if the
plaintiff in the underlying case is successful in its case against the former
shareholders and we are ultimately unsuccessful in our defense of the
shareholders third-party litigation against us on the merits, the outcome could
have a material adverse effect on us and our operations.

SHAREHOLDER LITIGATION (UPDATE)

We previously reported the filing of a purported class action on behalf of
our stockholders in state district court in Dallas County, Texas and the filing
of four similar actions in the State of Missouri. All of such actions have been
dismissed without prejudice by the plaintiffs.

DOWNCITY ENERGY COMPANY LLC V. DAVE & BUSTER'S, INC. (UPDATE)

In September 2002, we were served with a Complaint filed in the Providence,
Rhode Island Superior Court against us by DownCity Energy Company LLC, a
provider of energy services to our store in the

12

Providence Place Mall. DownCity is seeking damages for breach of contract,
services rendered and open account in the amount of $2.3 million, plus interest,
costs and attorney's fees. The claims relate to unpaid invoices for HVAC charges
for a period from approximately January 2001 through September 2002. In January
2003, we filed a counterclaim against DownCity and a Third-Party Complaint
against Providence Place Group, L.L., our landlord, alleging, among other
things, fraudulent inducement, conspiracy, breach of contract and breach of duty
of good faith. We have disputed the excessive HVAC billings from inception and
believe the plaintiff's claims to be without merit, based primarily on our
assertion that we exercised a right under our lease with Providence Place Group,
L.P. in January 2001 to opt out of the alleged HVAC charges and put DownCity on
notice thereof. Nevertheless, in order to forestall a threat by DownCity to
interrupt utility services to our store, in December 2002, we entered into an
Interim Agreement with DownCity, pursuant to which we agreed to pay a lump sum
of $450,000 plus the "actual costs" of monthly HVAC services billed by DownCity
from January 2003 forward. Such agreement did not settle the pending litigation,
but did provide for such payments to offset any potential settlement or judgment
in favor of DownCity. DownCity answered our counterclaim and Providence Place
answered our third-party claim in March 2003, but there have been no other
recent developments in the case. We also believe that we have meritorious
counterclaims against DownCity and third party claims against the Landlord to
counter any further action by DownCity for damages.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted for a vote of security holders during the
fourth quarter ended February 2, 2003.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock trades on the New York Stock Exchange ("NYSE")
under the symbol DAB. The following table summarizes the high and low sales
prices per share of Common Stock for the applicable periods indicated, as
reported on the Nasdaq National Market and by the NYSE.

At April 18, 2003 there were approximately 1,834 holders of record of the Common
Stock.

The Company has never paid cash dividends on its Common Stock and does not
currently intend to do so as cash flows are reinvested into the Company to
further pay down debt and fund capital expenditures for the entertainment
complex business. Payment of dividends in the future will depend upon the
Company's growth, profitability, financial condition and other factors, which
the Board of Directors may deem relevant.

13

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data for the
Company. This data should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto included in Item 8 hereof and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 hereof.

INCOME STATEMENT DATA

BALANCE SHEET DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS)

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles. The
preparation of these financial statements requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. On an ongoing basis, management evaluates its
estimates and judgments, including those that relate to depreciable lives,
goodwill and debt covenants. The estimates and judgments made by management are
based on historical data and on various other factors believed to be reasonable
under the circumstances.

The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain items reflected in our consolidated
statements of operations:

Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.

Depreciable lives -- expenditures for new facilities and those that
substantially increase the useful lives of the property, including interest
during construction, are capitalized along with equipment purchases at cost.
These costs are depreciated over various methods based on an estimate of the
depreciable life, resulting in a charge to the operating results of the Company.
The actual results may differ from these estimates under different assumptions
or conditions. The depreciable lives are as follows:

Property and Equipment
Games................................................ 5 years
Buildings............................................ 40 years
Furniture, fixtures and equipment.................... 5 to 10 years
Leasehold and building improvements.................. Shorter of 20 years or lease life
Intangible Assets
Trademarks........................................... Over statutory lives
Lease Rights......................................... Over remaining lease term

Goodwill -- The Company applied the Financial Accounting Standards Board
Statements of Financial Accounting Standards No. 141, Business Combinations and
No. 142, Goodwill and Other Intangible Assets ("Statements"), effective for
fiscal years beginning after December 15, 2001 in the first quarter of 2002.
Under the new rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests
in accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives. Applying the new standards resulted in a
one-time charge of $7,100, representing the cumulative effect of a change in
accounting principle. The write-off of goodwill resulted in a charge to earnings
of $.53 per diluted share for the year. Our adoption of SFAS 142 resulted in
approximately $349 less gross amortization expense for fiscal 2002. See the
discussion in Note 1 of the Consolidated Financial Statements for additional
information about the effect of adopting SFAS 142. The remaining intangible
asset, the trademark, is insignificant.

Debt Covenants -- The Company's credit facility requires compliance with
certain financial covenants including a minimum consolidated tangible net worth
level, maximum leverage ratio, minimum fixed charge coverage and maximum level
of capital expenditures. On March 18, 2003, Amendment No. 4 was executed to
provide revised financial covenants, thereby enabling the Company to remain in
compliance with the agreement. The Amendment further amended the fixed charge
coverage ratio for the remaining term of the agreement.

The Company believes the results of operations for the fiscal year ending
February 1, 2004 and thereafter would enable the Company to remain in compliance
with the existing covenants absent any material negative event affecting the
U.S. economy as a whole. However, the Company's expectations of future operating
results and continued compliance with the debt covenants cannot be assured and
the lenders' actions are not controllable by the Company. If the projections of
future operating results are not achieved and the debt is placed in default, the
Company would experience a material adverse impact on its reported financial
position and results of operations.

16

FISCAL 2002 COMPARED TO FISCAL 2001

Total revenues increased from $358,009 for fiscal 2001 to $373,752 for
fiscal 2002, an increase of $15,743 or 4.4%. New stores opened in fiscal 2002
increased revenues by $4,029 and three stores opened in the second half of 2001
were up $22,597 on prior year revenues. Revenues from comparable stores
decreased by 3.2% in fiscal 2002. The decrease in comparable stores revenues is
primarily attributed to a continued weak economic environment. Total revenues
from licensing agreements were $564.

Costs of revenues were $68,752 in fiscal 2002 and $66,939 in fiscal 2001,
an increase of $1,813 or 2.7%. During fiscal 2002, the increase in absolute
dollars over prior year was due to opening one new store during fiscal 2002 and
a full year of operations on three stores opened in second half of fiscal 2001
mitigated by a reduction in food costs and the impact of menu changes. As a
percentage of revenues, cost of revenues were down .3% to 18.4% for fiscal 2002
versus 18.7% in fiscal 2001 attributed to a 1.6% reduction in food costs with
beverage and amusement costs constant on the prior year.

Operating payroll and benefits were $114,904 in fiscal 2002 and $110,478 in
fiscal 2001, representing 30.7% and 30.9% of revenues respectively, an increase
of $4,426 or 4.0%. During fiscal 2002, the increase in absolute dollars over
prior year is attributed to opening one new store during fiscal 2002 and a full
year of operations for the three stores opened in the second half of fiscal 2001
offset by reduction in store hourly and management costs at all stores. As a
percentage of revenue, operating payroll and benefits were 30.7% in fiscal 2002,
down .2% from 30.9% in fiscal 2001. The Company adjusted its staffing levels in
response to the current economic environment and eliminated certain store hourly
and management positions in the third quarter of 2002. During the fourth quarter
of fiscal 2002, these adjustments resulted in a labor savings of approximately
0.7% as a percent of revenues.

Other store operating expenses were $117,666 in fiscal 2002 and $106,971 in
fiscal 2001, representing 31.5% and 29.9% respectively, an increase of $10,695
or 10.0%. During fiscal 2002, the increase in absolute dollars over prior year
is attributed to opening one new store during fiscal 2002 and a full year of
operations for the three stores opened in the second half of fiscal 2001 and
increase in occupancy expense related to sales-leaseback transactions of the
Houston and Atlanta locations. The 1.6% increase in other store operating
expenses as a percentage of revenues can be attributed to higher occupancy
costs, additional equipment leases (games, IT and kitchen equipment for the last
four stores opened in 2001-2002) along with decline in comparable store sales.

General and administrative expenses were $25,640 in fiscal 2002 and $20,653
in fiscal 2001, representing 6.9% of total revenues in fiscal year 2002 and 5.8%
of total revenues in fiscal year 2001, an increase of $4,987 or 24.1%. The
increase in absolute dollars in fiscal 2002, can be attributed to employee
compensation and benefits (particularly medical and dental costs), occupancy
costs, transaction costs related to the proposed merger agreements with D&B
Holdings and D&B Acquisition Sub, legal and professional fees other than those
related to the transaction costs and an increase in director and officer
insurance coverage. The 1.1% increase in general and administrative expenses as
a percentage of revenues is due to higher costs coupled with the decline in
comparable store sales.

Depreciation and amortization expense increased $1,363 to $30,056 in fiscal
2002 from $28,693 in fiscal 2001. As a percentage of revenues, depreciation and
amortization remained constant at 8.0%. The increase in depreciation expense
from the 2002 capital expenditures was offset by the asset retirements from the
fourth quarter 2001 sale-leaseback of Houston and Atlanta.

Preopening costs decreased to $1,488 for fiscal 2002 from $4,578 for fiscal
2001, a decrease of $3,090 or 67.5%. As a percentage of revenues, preopening
costs were .4% for fiscal 2002 as compared to 1.3% for fiscal 2001. This
decrease is due to the Company opening only one store in fiscal 2002 compared to
four store openings in fiscal 2001.

Interest expense -- net decreased to $7,143 for fiscal 2002 from $7,820 for
fiscal 2001. The decrease was due to a lower outstanding debt balance in fiscal
year 2002.

17

The effective tax rate for fiscal 2002 was 34.0% as compared to 36.2% for
fiscal 2001 and was the result of a lower effective state tax rate.

FISCAL 2001 COMPARED TO FISCAL 2000

Total revenues increased to $358,009 for fiscal 2001 from $332,303 for
fiscal 2000, an increase of $25,706, or 7.7%. New stores opened in fiscal 2001
increased revenues by $28,431. Revenues from comparable stores decreased by 2.8%
in fiscal 2001. The decrease in comparable store revenues is primarily
attributed to the attack on New York and Washington, D.C. on September 11, 2001
resulting in a decline in corporate events of 15.4%. Total revenues from
licensing agreements were $537.

Costs of revenues increased to $66,939 for fiscal 2001 from $61,547 for
fiscal 2000, an increase of $5,392, or 8.8%. The increase was principally
attributed to opening four new stores during the year. As a percentage of
revenues, cost of revenues were up .2% to 18.7% for fiscal 2001 versus 18.5% in
fiscal 2000 due to freight costs and higher amusement costs associated with
redemption, offset by lower food costs.

Operating payroll and benefits increased to $110,478 for fiscal 2001 from
$101,143 for fiscal 2000, an increase of $9,335, or 9.2%. As a percentage of
revenue, operating payroll and benefits were 30.9% in fiscal 2001, up .5% from
30.4% in fiscal 2000 due to higher store fixed labor and benefits.

Other store operating expenses increased to $106,971 for fiscal 2001 from
$90,581 for fiscal 2000, an increase of $16,390, or 18.1%. As a percentage of
revenues, other store operating expenses were 29.9% in fiscal 2001 as compared
to 27.3% in fiscal 2000. The increase in other store operating expenses is due
to increases in utilities, marketing and occupancy costs.

General and administrative expenses increased to $20,653 in fiscal 2001
from $20,019 for fiscal 2000, an increase of $634, or 3.2%. As a percentage of
revenues, general and administrative expenses were 5.8% and 6.0% for fiscal 2001
and fiscal 2000, respectively.

Depreciation and amortization expense increased $2,977 to $28,693 in fiscal
2001 from $25,716 in fiscal 2000. As a percentage of revenues, depreciation and
amortization increased to 8.0% from 7.7% for the comparable period due to new
store openings.

Preopening costs decreased to $4,578 for fiscal 2001 from $5,331 for fiscal
2000, a decrease of $753, or 14.1%. As a percentage of revenues, preopening
costs were 1.3% for fiscal 2001 as compared to 1.6% for fiscal 2000. This
decrease is due to timing of store openings and only one store scheduled to open
in fiscal 2002.

Interest expense -- net decreased to $7,820 for fiscal 2001 from $8,712 for
fiscal 2000. The decrease was due to lower interest rates in fiscal year 2001.

The effective tax rate for fiscal 2001 was 36.2% as compared to 36.4% for
fiscal 2000 and was the result of a lower effective state tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities decreased to $40,604 in 2002
compared to $49,701 in 2001 and $36,778 in 2000. Operating cash flows in 2002
decreased due to reduced revenue per store, one time transaction costs related
to our proposed merger agreement with an affiliate of Investcorp and the timing
of accounts payable disbursements at the end of the year. The increase in 2001
was affected by the opening of three stores late in the year.

Cash used in investing activities was $20,970 in 2002 and $30,813 in 2001
compared to $53,674 in 2000. All investing expenditures for 2002 are related to
the opening of one new store and normal recurring maintenance capital
expenditures at previously existing stores. The 2001 expenditures of $49,761
included four new stores opened during the year and normal and recurring
maintenance capital expenditures at previously existing stores, which were
offset by $18,948 proceeds from the sales/leasebacks and sales of equipment.

Financing activities use of cash was $21,625 in 2002 and $17,546 in 2001
compared to providing cash of $16,984 in 2000. Net use of cash by financing
activities in 2002 and 2001 was directly attributed to repayment
18

of long-term debt in excess of borrowings from long-term debt. In 2000,
borrowings under long-term debt exceeded any repayments during the year.

The Company has a $110,000 senior secured revolving credit and term loan
facility. The facility includes a five-year revolver and five and seven-year
term debt. The facility agreement calls for quarterly payments of principal on
the term debt through maturity and is secured by all assets of the company.
Borrowing under the facility bears interest at a floating rate based on LIBOR
(1.35% at February 2, 2003) or, at the Company's option, the bank's prime rate
(4.25% at February 2, 2003) plus, in each case, a margin based upon financial
performance. The facility has certain financial covenants including a minimum
consolidated tangible net worth level, a maximum leverage ratio, minimum fixed
charge coverage and maximum level of capital expenditures. At February 2, 2003,
$16,995 was available under this facility.

On November 19, 2001, the Company amended the facility to allow proceeds
from sale/leaseback transactions to be applied to both the revolving credit and
the term loans for a limited period. On December 6, 2002, Amendment No. 3 was
executed to provide for revised financial covenants. The amendment also amended
the restriction on revolving credit usage, mandatory repayment of revolving
credit loans, increase in letter of credit sublimit and consent relating to new
leases on existing units.

On March 18, 2003, Amendment No. 4 was executed to provide revised
financial covenants, thereby enabling us to remain in compliance with the
agreement. The Amendment further amended the fixed charge coverage ratio for the
remaining term of the agreement.

The Company has entered into an agreement that expires in 2007, to change a
portion of its variable rate debt to fixed-rate debt. Notional amounts
aggregating $47,513 are fixed at 5.44%. The Company is exposed to credit losses
for periodic settlements of amounts due under the agreements if LIBOR decreases.
A charge of $1,803 to interest expense was incurred in fiscal 2002 under the
agreement. The market risks associated with the agreement are mitigated because
increased interest payments under the agreement resulting from reductions in
LIBOR are effectively offset by a reduction in interest expense under the debt
obligation.

The Company does not plan to open a new complex in 2003 but with adequate
capital availability, expects to open a minimum of one complex in 2004.

SALE/LEASEBACK TRANSACTIONS

During the year ended February 3, 2002, the Company completed the
sale/leaseback of two stores (Atlanta and Houston) and the corporate
headquarters in Dallas. Cash proceeds of $18,474 were received along with $5,150
in twenty-year interest bearing notes receivable at 7-7.5%. The locations were
sold to non-affiliated entities. No revenue or profit was recorded at the time
of the transaction.

Upon execution of the sale/leaseback transactions, property costs of
$27,360 and accumulated depreciation of $3,832 were removed from the Company's
books resulting in a loss of $272 that was recognized in 2001 and a gain of $713
on one facility being amortized over the term of the operating lease.

Future operating lease obligations under the lease agreements are as
follows: $3,962 in 2003, $4,002 in 2004, $4,051 in 2005, $4,184 in 2006, $4,225
in 2007 and $62,860 thereafter. Future minimum note collections and interest
income associated with the sale/leasebacks at Houston and Atlanta are as
follows: $652 in 2003, $652 in 2004, $652 in 2005, $652 in 2006 and $8,935
thereafter.

19

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following tables set forth the Company's contractual obligations and
commercial commitments (in thousands):

QUARTERLY FLUCTUATIONS, SEASONALITY, AND INFLATION

As a result of the substantial revenues associated with each new Complex,
the timing of new Complex openings will result in significant fluctuations in
quarterly results. The Company expects seasonality to be a factor in the
operation or results of its business in the future due to expected lower third
quarter revenues due to the fall season, and expects higher fourth quarter
revenues associated with the year-end holidays. The effects of supplier price
increases are not expected to be material. The Company believes low inflation
rates in its market areas have contributed to stable food and labor costs in
recent years. However, there is no assurance that low inflation rates will
continue or that the Federal minimum wage rate will not increase.

MARKET RISK

The Company's market risk exposure relates to changes in the general level
of interest rates. The Company's earnings are affected by changes in interest
rates due to the impact those changes have on its interest expense from
variable-rate debt. The Company's agreement to fix a portion of its
variable-rate debt mitigates this exposure.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

Certain statements in this Annual Report are not based on historical facts
but are "forward-looking statements" that are based on numerous assumptions made
as of the date of this report. Forward-looking statements are generally
identified by the words "believes", "expects", "intends", "anticipates",
"scheduled", and similar expressions. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance, or achievements of Dave & Buster's, Inc. to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions;
competition; availability of capital; locations and terms of sites for Complex
development; quality of management; changes in, or the failure to comply with,
government regulations; and other risks indicated in this filing.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's market risk exposure relates to changes in the general level
of interest rates. The Company's earnings are affected by changes in interest
rates due to the impact those changes have on its interest expense from
variable-rate debt. The Company's agreement to fix a portion of its
variable-rate debt mitigates this exposure.

20

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 14(a) (1).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set under the caption "Director and Nominee Information"
appearing in the Company's Proxy Statement for the 2003 Annual Meeting of
Stockholders, is incorporated herein by reference. Certain information with
respect to the executive officers of the Company is included under Item 1 of
Part I hereof under the caption "Executive Officers".

ITEM 11. EXECUTIVE COMPENSATION

The information set under the caption "Compensation of Directors and
Executive Officers" appearing in the Company's Proxy Statement for the 2003
Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth information concerning the shares of the
Company's Common Stock that may be issued upon exercise of options, warrants and
rights under all of the Company's equity compensation plans as of February 2,
2003 consisting of the Dave & Buster's, Inc. 1995 Stock Incentive Plan and the
Dave & Buster's 1996 Stock Option Plan for Outside Directors. All of such plans
have been approved by the shareholders of the Company.

The information set under the caption "Stock Ownership by Certain
Beneficial Owners" appearing in the Company's Proxy Statement for the 2003
Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set under the captions "Compensation Committee Interlocks
and Insider Participation" and "Certain Transactions" appearing in the Company's
Proxy Statement for the 2003 Annual Meeting of Stockholders is incorporated
herein by reference.

21

ITEM 14. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to provide
reasonable assurance that information required to be disclosed in the periodic
reports we file with the Securities and Exchange Commission, or SEC, is
recorded, processed, summarized and reported within the time periods specified
in the rules of the SEC. Within 90 days prior to the filing of this Annual
Report on Form 10-K, we carried out an evaluation, under the supervision and the
participation of our management, including our chief executive officer and chief
financial officer, of the design and operation of these disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, our
chief executive officer and chief financial officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to the company (including our consolidated
subsidiaries) required to be included in our periodic SEC filings.

There have been no significant changes in internal controls or other
factors that could significantly affect our internal controls subsequent to the
date of our evaluation.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Ernst & Young, LLP served as the Company's independent accountants for the
fiscal years ended February 2, 2003 and February 3, 2002 and has been selected,
subject to the ratification of such selection by the Company's stockholders, to
serve in such capacity for the current year. For the fiscal years ended February
2, 2003 and February 3, 2002, the Company paid Ernst & Young, the following
amounts:

In March 2003, the Audit Committee established a policy whereby Ernst &
Young would be required to seek pre-approval by the Committee of all tax and
other non-audit related services by providing a prior description of the
services to be performed and specific fee estimates for each such service. Prior
to the adoption of such policy, the Audit Committee pre-approved 100% of
estimated audit-related and tax fees and 0% of all other fees of Ernst & Young
for fiscal 2002 and 2001.

PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

(a)(2) Financial Statement Schedules

22

All schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related
notes.

(a)(3) Exhibits Incorporated by Reference or Filed with this Report

The exhibits listed below filed with or incorporated by reference into
this Annual Report on Form 10-K. Exhibits noted by an asterisk are filed
with this report. Exhibits denominated with numbered footnotes are
incorporated by reference to the other filings with the Commission set
forth below. Unless otherwise indicated, the exhibit number below
corresponds to the exhibit number incorporated by reference. ITEMS LISTED
IN BOLDFACE ARE MANAGEMENT CONTRACTS OR COMPENSATORY PLANS OR ARRANGEMENTS
REQUIRED TO BE FILED PURSUANT TO ITEM 16(C) OF THIS REPORT.

3.1 Restated Articles of Incorporation of the Company.(1)
3.2 Amended and restated Bylaws of the Company.*
10.1 Revolving Credit and Term Loan Agreement, dated June 30,
2000, among the Company and its subsidiaries, Fleet National
Bank (as agent) and the financial institutions named
therein.(2)
10.1.1 Amendment No. 1 to Revolving Credit and Term Loan Agreement
dated May 31, 2001 by and among the Company and its
subsidiaries, Fleet National Bank (as agent) and the
financial institutions named therein. (7)
10.1.2 Amendment No. 2 to Revolving Credit and Term Loan Agreement
dated November 19, 2001 by and among the Company and its
subsidiaries, Fleet National Bank (as agent) and the
financial institutions named therein.(8)
10.1.3 Amendment No. 3 to Revolving Credit and Term Loan Agreement
dated December 6, 2002 by and among the Company and its
subsidiaries, Fleet National Bank (as agent) and the
financial institutions named therein.(10)
10.1.4 Amendment No. 4 to Revolving Credit and Term Loan Agreement
dated March 18, 2003 by and among the Company and its
subsidiaries, Fleet National Bank (as agent) and the
financial institutions named therein.*
10.2-10.6 Intentionally omitted.
10.7 Rights Agreement between the Company and Rights Agent, dated
June 16, 1995.(1)
10.8 1995 STOCK OPTION PLAN (AS AMENDED AND RESTATED APRIL 26,
2000).(3)
10.9 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS.(4)
10.11 EMPLOYMENT AND EXECUTIVE RETENTION AGREEMENTS FOR CO-CHIEF
EXECUTIVE OFFICERS, DATED JUNE 16, 1995.(5)
10.12 FORM OF INDEMNITY AGREEMENTS WITH EXECUTIVE OFFICERS AND
DIRECTORS.(6)
10.13 Intentionally Omitted.
10.14 EXECUTIVE RETENTION AGREEMENT BETWEEN THE COMPANY AND
STERLING R. SMITH DATED JUNE 11, 2001(8)
10.15 Intentionally Omitted.
10.16 Agreement of Sale and Purchase dated October 1, 2001 between
the Company, as seller, and General Electric Capital,
Business Asset Funding Corporation, as purchaser, for the
Company's corporate headquarters in Dallas, Texas.(8)
10.17 Lease Agreement dated October 1, 2001 between General
Electric Capital Business Asset Funding Corporation, as
landlord, and the Company, as tenant for the Company's
corporate headquarters in Dallas, Texas.(8)
10.18 Agreement of Sale and Purchase dated November 12, 2001
between D&B Realty Holding, Inc., as seller, and KAZA I,
Ltd., as purchaser for Houston, Texas property.(9)
10.19 Lease Agreement dated December 14, 2001 between KAZA I L.P.
as landlord, and Dave & Buster's I, L.P. as tenant for
Houston, Texas property.(9)
10.20 Agreement of Sale and Purchase dated as of December 17, 2001
between D&B Realty Holding, Inc., as seller, and Landfair,
LLC as purchaser for Marietta, Georgia property.(9)

23

10.21 Lease Agreement dated December 17, 2001 between Landfair
LLC, as landlord, and Dave & Buster's I, L.P., as tenant,
for Marietta, Georgia property.(9)
10.22 EXECUTIVE RETENTION AGREEMENT DATED JUNE 7, 2001 BETWEEN THE
COMPANY AND JOHN S. DAVIS.(9)
10.23 EXECUTIVE RETENTION AGREEMENT DATED DECEMBER 3, 2001 BETWEEN
THE COMPANY AND W. C. HAMMETT, JR.(9)
21.1 Subsidiaries of the Company.*
23 Independent Auditors' Consent.*
24 Power of Attorney (included on the Signature page of this
report).*
99.1 Certification of CEO pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
99.2 Certification of CFO pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*

(b) Reports of Form 8-K

No reports on Form 8-K were filed during the fourth quarter ended
February 2, 2003.

(c) Exhibits.

The Index of Exhibits filed or incorporated by reference pursuant to
Item 601 of Regulation S-K and the Exhibits being filed with this Report
are included following the financial statement pages of this Form 10-K.

(d) Financial Statements of Subsidiaries or Affiliates.

Not applicable.
- ---------------

(1) Filed as an Exhibit to the registrant's Form 10-Q for the 13-week period
ended April 30, 1995.

(2) Filed as an Exhibit to the registrant's Form 10-Q for the 13-week period
ended July 30, 2000.

(3) Filed as an Exhibit to the registrant's Schedule 14A definitive Proxy
Statement dated April 28, 2000.

(4) Filed as an Exhibit to the registrant's Form 10-K for the fiscal year ended
February 1, 1997.

(5) Filed as an Exhibit to the registrants Form 10-K for the fiscal year ended
February 4, 2001.

(6) Filed as an Exhibit to the registrant's Form 10 filed April 11, 1995.

(7) Filed as an Exhibit to the registrant's Form 10-Q for the 13 week period
ended August 5, 2001.

(8) Filed as an Exhibit to the registrant's Form 10-Q for the 13 week period
ended November 4, 2001.

(9) Filed as an Exhibit to the registrant's Form 10-K for the fiscal year ended
February 3, 2002.

(10) Filed as an Exhibit to the registrant's Form 10-Q for the 13 week period
ended November 3, 2002.

* Filed herewith

24

SIGNATURES

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

DAVE & BUSTER'S, INC.
A MISSOURI CORPORATION

By: /s/ W. C. HAMMETT, JR.
------------------------------------
W. C. Hammett, Jr.,
Senior Vice President and
Chief Financial Officer

Date: April 23, 2003

25

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints W. C. Hammett, Jr. and John S. Davis, jointly and
severally, his attorneys-in-fact, each with full power of substitution, for him
in any and all capacities, to sign any amendments to this Annual Report on Form
10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 23, 2003.

26

CERTIFICATIONS

I, James W. Corley, Chief Executive Officer of Dave & Buster's, Inc., certify
that:

1. I have reviewed this annual report on Form 10-K of Dave & Buster's,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ JAMES W. CORLEY
--------------------------------------
James W. Corley
Chief Executive Officer

Date: April 23, 2003

27

I, W. C. Hammett, Jr., Chief Financial Officer of Dave & Buster's, Inc., certify
that:

1. I have reviewed this annual report on Form 10-K of Dave & Buster's,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ W. C. HAMMETT, JR.
--------------------------------------
W. C. Hammett, Jr.
Chief Financial Officer

Date: April 23, 2003

28

DAVE & BUSTER'S, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.
F-1

DAVE & BUSTER'S, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.
F-2

DAVE & BUSTER'S, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See accompanying notes to consolidated financial statements.
F-3

DAVE & BUSTER'S, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.
F-4

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS EXCEPT PER SHARE AMOUNTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation -- The consolidated financial statements include the
accounts of Dave & Buster's, Inc. and all wholly-owned subsidiaries (the
"Company"). All material intercompany accounts and transactions have been
eliminated in consolidation. The Company's one industry segment is the ownership
and operation of restaurant/entertainment complexes (a "Complex" or "Store")
under the name "Dave & Buster's," which are principally located in the United
States. Certain prior period amounts have been reclassified to conform to the
current period presentation.

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

Fiscal Year -- The Company's fiscal year ends on the Sunday after the
Saturday closest to January 31. References to 2002, 2001 and 2000 are to the 52
weeks ended February 2, 2003 and February 3, 2002 and to the 53 weeks ended
February 4, 2001, respectively.

Inventories -- Food, beverage and merchandise, are reported at the lower of
cost or market determined on a first-in, first-out method. Static supplies
inventories are capitalized at the store opening date and reviewed periodically
for valuation. Static supplies inventories were $16,274 and $15,553 for 2002 and
2001, respectively.

Preopening Costs -- All start-up and preopening costs are expensed as
incurred.

Property and Equipment -- Expenditures for new facilities and those that
substantially increase the useful lives of the property, including interest
during construction, are capitalized. Interest capitalized in 2002, 2001 and
2000 was $361, $892 and $1,555, respectively. Equipment purchases are
capitalized at cost. Property and equipment lives are estimated as follows:
buildings, 40 years; leasehold and building improvements, shorter of 20 years or
lease life; furniture, fixtures and equipment, 5 to 10 years; games, 5 years.

Reviews are regularly performed to determine whether facts or circumstances
exist that indicate the carrying values of our fixed assets are impaired. We
assess the recoverability of our assets by comparing the projected undiscounted
net cash flows associated with those assets to their respective carrying
amounts. Impairment, if any, is based on the excess of the carrying amount over
the fair market value of those assets.

Long-Lived Assets and Goodwill -- Prior to January 1, 2002, we reviewed all
of our long-lived assets, including identifiable intangible assets, for
impairment when changes in circumstances indicated that the carrying amount of
an asset may not be recoverable. If we determined that such indicators were
present, we prepared an undiscounted future net cash flow projection for the
asset. If our projection of undiscounted future net cash flows was in excess of
the carrying value of the recorded asset, no impairment was recorded. If the
carrying value of the asset exceeded the projected undiscounted net cash flows,
an impairment was recorded. The amount of the impairment charge was determined
by discounting the projected net cash flows.

Through the end of 2001, we evaluated goodwill for impairment based on
undiscounted projected future cash flows. If the carrying value of the goodwill
was less than the undiscounted projected future cash flows, no impairment would
be recognized. Upon adoption of Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets ("SFAS No. 142") on January 1, 2002,
we began to evaluate our goodwill for impairment on an annual basis or whenever
indicators of impairment exist. The evaluation is based upon a comparison of the
estimated fair value of the unit of our business to which the goodwill has been
assigned to the sum of the carrying value of the assets and liabilities of that
unit. The fair values used in this evaluation are estimated based upon
discounted future cash flow projections for the unit. These cash flow

F-5

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

projections are based upon a number of assumptions, as discussed above. Other
tangible assets will continue to be amortized over their useful lives.

As a result of applying the new standards, the initial assessment of fair
value of the Company resulted in a one-time charge for the entire write off of
goodwill of $7,100. This was recorded as a cumulative effect of a change in
accounting principle. The write off of goodwill resulted in a negative $.53 per
diluted share for the year. The remaining intangible (trademark) is
insignificant.

Upon adoption of SFAS 142, we no longer amortize goodwill. Other intangible
assets continue to be amortized over their useful lives. The following table
reflects income from continuing operations and net income adjusted to exclude
amortization expense (including related tax effects) recognized in the periods
presented related to goodwill (in thousands):

Depreciation and Amortization -- Property and equipment, excluding most
games, are depreciated on the straight-line method over the estimated useful
life of the assets. Games are generally depreciated on the 150%-
F-6

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

double-declining-balance method over the estimated useful lives of the assets.
Intangible assets are amortized on the straight-line method over estimated
useful lives as follows: trademarks over statutory lives and lease rights over
remaining lease terms.

Income Taxes -- The Company uses the liability method which recognizes the
amount of current and deferred taxes payable or refundable at the date of the
financial statements as a result of all events that are recognized in the
financial statements and as measured by the provisions of enacted tax laws.

Stock Option Plan -- We have elected to follow Accounting Principles Board,
or APB, Opinion No. 25, Accounting for Stock Issued to Employees, in accounting
for our employee stock options. Under APB 25, if the exercise price of an
employee's stock options equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense is recognized. At February
2, 2003, we had two stock-based compensation plans covering employees and
directors. These plans are described more fully in Note 7.

Although SFAS 123 allows us to continue to follow the present APB 25
guidelines, we are required to disclose pro forma net income (loss) and net
income (loss) per share as if we had adopted SFAS 123. The pro forma impact of
applying SFAS 123 in fiscal 2002, 2001 and 2000 will not necessarily be
representative of the pro forma impact in future years. Our pro forma
information is as follows (in thousands, except per share data):

Inputs used for the fair value method for our employee stock options are as
follows:

Revenue Recognition -- Food, beverage and amusement revenues are recorded
at point of service. Foreign license revenues are deferred until the Company
fulfills its obligations under license agreements, which is upon the opening of
the Complex. The license agreements provide for continuing royalty fees based on
a percentage of gross revenues and are recognized when assured.

Advertising Costs -- Advertising costs are recorded as expense in the
period in which the costs are incurred or the first time the advertising takes
place. These expenses are 3.7%, 3.7% and 3.3% of revenue for 2002, 2001 and
2000, respectively.

F-7

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Treasury Stock -- During fiscal 1999, the Company's Board of Directors
approved a plan to repurchase up to 1,000 shares of the Company's common stock.
Pursuant to the plan, as of February 2, 2003, the Company is authorized to
purchase an additional 825 shares.

NOTE 2: PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

NOTE 3: ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

NOTE 4: LONG-TERM DEBT

In 2000, the Company secured a $110,000 senior secured revolving credit and
term loan facility. The senior secured revolving credit and term loan facility
as amended provides for the proceeds from sale/leaseback transactions to be
applied to both the revolving credit and term loans. The facility includes a
five-year revolver and five and seven-year term debt. The facility agreement
calls for quarterly payments of principal on the term debt through the maturity
date and is secured by all assets of the company. At February 2, 2003 long-term
debt payments under the debt agreement are $8,300 in 2003; $11,400 in 2004;
$18,351 in 2005; $19,200 in 2006; $10,543 in 2007 and none thereafter.

Borrowing under the facility bears interest at a floating rate based on
LIBOR (1.35% at February 2, 2003) or, at the Company's option, the bank's prime
rate (4.25% at February 2, 2003) plus, in each case, a margin based upon
financial performance. The facility is secured by all assets of the Company. The
facility has certain financial covenants including a minimum consolidated
tangible net worth level, a maximum leverage ratio, minimum fixed charge
coverage and maximum level of capital expenditures. At February 2, 2003,

F-8

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$16,995 was available under this facility. The fair value of the Company's
long-term debt approximates its carrying value.

The Company has entered into an agreement that expires in 2007, to change a
portion of its variable rate debt to fixed-rate debt. Notional amounts
aggregating $47,513 are fixed at 5.44%. The Company is exposed to credit losses
for periodic settlements of amounts due under the agreements if LIBOR decreases.
A charge of $1,803 to interest expense was incurred in 2002 under the agreement.

NOTE 5: INCOME TAXES

The provision for income taxes is as follows (in thousands):

As a result of the 2001 tax act, the Company amended its 2001 tax return,
which resulted in a tax refund of approximately $2,900. The changes have been
reflected in the current year.

Significant components of the deferred tax liabilities and assets in the
consolidated balance sheets are as follows (in thousands):

F-9

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reconciliation of federal statutory rates to effective income tax rates:

NOTE 6: LEASES

The Company leases certain properties and equipment under operating leases.
Some of the leases include options for renewal or extension on various terms.
Most leases require the Company to pay property taxes, insurance and maintenance
of the leased assets. Some leases have provisions for additional percentage
rentals based on revenues, which we classify as contingent rentals. For 2002,
2001 and 2000, rent expense for operating leases was $23,828, $19,469 and
$14,295, respectively including contingent rentals of $624, $1,448 and $1,210,
respectively. At February 2, 2003, future minimum lease payments required under
operating leases (including the sale/leaseback transactions described below) are
$25,776 in 2003; $24,825 in 2004; $23,589 in 2005; $23,164 in 2006; $22,554 in
2007 and $287,749 thereafter.

During the year ended February 3, 2002, the Company completed the
sale/leaseback of two stores (Atlanta and Houston) and the corporate
headquarters in Dallas. Cash proceeds of $18,474 were received along with $5,150
in twenty year interest bearing notes receivable at 7-7.5%. The locations were
sold to non-affiliated entities. Upon execution of the sale/leaseback
transactions for Atlanta and Houston, property costs of $27,360 and accumulated
depreciation of $3,832 were removed from the Company's books resulting in a loss
of $272 which was recognized in 2001 and a gain of $713 on one facility being
amortized over the term of the operating lease.

Future operating lease obligations under the sale/leaseback agreements are
as follows: $3,962 in 2003, $4,002 in 2004, $4,051 in 2005, $4,184 in 2006,
$4,225 in 2007 and $62,860 thereafter. Future minimum note payments and interest
income associated with the sale/leasebacks at San Diego, Houston and Atlanta are
as follows: $652 in 2003, $652 in 2004, $652 in 2005, $652 in 2006, $652 in 2007
and $8,935 thereafter.

NOTE 7: COMMON STOCK

In 1995, the Company adopted the Dave & Buster's, Inc. 1995 Stock Option
Plan (the "Plan") covering 675 shares of common stock. In 1997, 1998 and 2001,
the Company increased the shares of common stock covered by the Plan to 1,350,
2,350 and 2,950 respectively. The Plan provides that incentive stock options may
be granted at option prices not less than fair market value at date of grant
(110% in the case of an incentive stock option granted to any person who owns
more than 10% of the total combined voting power of all classes of stock of the
Company). Non-qualified stock options may not be granted for less than 85% of
the fair market value of the common stock at the time of grant and are primarily
exercisable over a three to five year period from the date of the grant.

In 1996, the Company adopted a stock option plan for outside directors (the
"Directors' Plan"), covering a total of 150 shares of common stock. The options
granted under the Directors' Plan vest ratably over a three

F-10

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

year period. In 2001, the Company increased the shares of common stock subject
to the Directors' Plan from 150 shares to 190 shares.

In 2000, the Company amended and restated the Dave & Buster's, Inc. 1995
Stock Incentive Plan to allow the Company to grant restricted stock awards.
These restricted stock awards will fully vest at the end of the vesting period
or the attainment of one or more performance targets established by the Company.
Recipients are not required to provide consideration to the Company other than
render service and have the right to vote the shares and to receive dividends.
The Company issued in 2001 and 2000, 63.5 and 267 shares of restricted stock at
a market value of $6.45-$7.90 and $6.75, respectively, which vest at the earlier
of attaining certain performance targets or seven years. The total market value
of the restricted shares, as determined at the date of issuance, is treated as
unearned compensation and is charged to expense over the vesting period. The
charge to expense for the unearned compensation was $226, $139 and $243 in 2002,
2001 and 2000, respectively.

A summary of the Company's stock option activity and related information is
as follows (in thousands except share data):

As of February 2, 2003, exercise prices for 2,638 options ranged from $6.10
to $8.38 for 1,429 options and $8.39 to $25.32 for 1,209 options. The
weighted-average remaining contractual life of the options is 6.8 years.

Under a Shareholder Protection Rights Plan adopted by the Company, each
share of outstanding common stock includes a right which entitles the holder to
purchase one one-hundredth of a share of Series A Junior Participating Preferred
Stock for seventy five dollars. Rights attach to all new shares of commons stock
whether newly issued or issued from treasury stock and become exercisable only
under certain conditions involving actual or potential acquisitions of the
Company's common stock. Depending on the circumstances, all holders except the
acquiring person may be entitled to 1) acquire such number of shares of Company
common stock as have a market value at the time of twice the exercise price of
each right, or 2) exchange a right for one share of Company common stock or one
one-hundredth of a share of the Series A Junior Participating Preferred Stock,
or 3) receive shares of the acquiring company's common stock having a market
value equal to twice the exercise price of each right. The rights remain in
existence until ten years after the Distribution, unless they are redeemed (at
one cent per right).

F-11

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8: EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share (in thousands except share data):

Options to purchase 992, 1,529 and 1,346 shares of common stock for 2002,
2001 and 2000, respectively, were not included in the computation of diluted net
income per share because the options would have been antidilutive.

NOTE 9: RELATED PARTY ACTIVITY

Pursuant to a consulting agreement between the Company and Mr. Henrion, the
Company pays consulting fees of $12.5 per month to Mr. Henrion, a director of
the Company, for advisory services relating to international licensing
activities, expansion and site selection, marketing analysis, improvement and
enhancement of the Company's business and other similar activities. The
consulting agreement expires in January 2005.

On December 29, 2000, the Company entered into a sale/leaseback transaction
with Cypress Equities, Inc. for its San Diego, California location, whereby the
Company received $8,000 in exchange for committing to lease payments of
approximately $22,300 over 20 years with options for renewal. A director of the
Company is the managing member of Cypress Equities, Inc. Lease payments to
Cypress Equities, Inc. in 2002, 2001 and 2000 were $1,000, $1,000 and $83,
respectively.

As of February 2, 2003 and February 3, 2002 the balance due Cypress
Equities, Inc. was $20,235 and $21,235, respectively.

In addition, the Company from time to time has engaged Cypress Equities,
Inc. to provide brokerage services in connection with the sale and leaseback of
other properties owned by the Company. The amount of broker's commissions paid
to Cypress Equities for such services in fiscal 2001 was $332.

Hallett & Perrin, P.C. provides legal services to the Company from time to
time. Mr. Hallett, a shareholder of Hallett & Perrin, is a director of the
Company. Total fees paid by the Company to Hallett & Perrin in fiscal 2002 were
$158.

As of February 2, 2003, an officer owed the Company $100, under the terms
of a personal loan, which is non-interest bearing and payable on demand. The
loan was paid down to $50 in March of 2003.

F-12

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10: EMPLOYEE BENEFIT PLAN

The Company sponsors a plan to provide retirement benefits under the
provision of Section 401(k) of the Internal Revenue Code (the "401(k) Plan") for
all employees who have completed a specified term of service. Company
contributions may range from 0% to 100% of employee contributions, up to a
maximum of 6% of eligible employee compensation, as defined. Employees may elect
to contribute up to 15% of their eligible compensation on a pretax basis.
Benefits under the 401(k) Plan are limited to the assets of the 401(k) Plan.

NOTE 11: CONTINGENCIES

The Company is subject to certain legal proceedings and claims that arise
in the ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to all actions will not materially affect the
consolidated results of operations or financial condition of the Company.

NOTE 12: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

F-13

DAVE & BUSTER'S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------

(1) In the first quarter, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, which resulted in a
one-time charge of $7,100 representing the cumulative effect of a change in
accounting principle.

(2) In the second quarter, as part of general and administrative expenses, the
Company incurred $1,200 of transaction costs related to a proposed merger
agreement with D&B Holdings and D&B Acquisition Sub.

F-14

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Dave & Buster's, Inc.

We have audited the accompanying consolidated balance sheets of Dave &
Buster's, Inc. as of February 2, 2003 and February 3, 2002, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended February 2, 2003. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dave &
Buster's, Inc. at February 2, 2003 and February 3, 2002 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended February 2, 2003, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.

ERNST & YOUNG LLP

Dallas, Texas
March 25, 2003

F-15

INDEX OF EXHIBITS