FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                   For the fiscal year ended January 31, 2004

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                  For the transition period from           to

                         Commission File No. 33-4460-NY
                         ------------------------------
              TASTY FRIES, INC. (FORMERLY ADELAIDE HOLDINGS, INC.)
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

               NEVADA                               65-0259052
      ---------------------------           ------------------------
      State or other jurisdiction               (I.R.S. Employer
    incorporation or organization              Identification No.)

                          650 SENTRY PARKWAY, SUITE ONE
                               BLUE BELL, PA 19422
          -------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (610) 941-2109
                             -----------------------
        Securities registered pursuant to Section 12(b) of the Act: None
        Securities registered pursuant to Section 12(g) of the Act: None

      Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the  Securities  Exchange Act of 1934 during the past 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  [   ]

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained  to the  best  of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]

State issuer's revenues for its most recent fiscal year:  None
The aggregate market value of the common voting stock held by  non-affiliates as
of January 2004: Not Determinable.

Shares  outstanding  of the  registrant's  common  stock as of January 31, 2004:
102,330,228 shares.

<PAGE>

PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

(A) GENERAL BUSINESS DEVELOPMENT

      Tasty Fries,  Inc. (the "Company") was incorporated  under the laws of the
State of Nevada on October  18,  1985,  under the name Y.O.  Systems,  Ltd.  The
Company  was  organized  to raise  capital  and then seek out,  investigate  and
acquire any suitable assets,  property or other business potential.  No specific
business or industry was  originally  contemplated.  The Company was formed as a
"blank check" company for the purpose of seeking a business  acquisition without
regard to any specific industry or business.

      The Company  was  unsuccessful  in certain  business  proposals  and began
actively looking for a business acquisition during 1990.

      Effective  July  29,  1991,  the  Company  issued   13,500,000  shares  of
restricted  common stock (after giving effect to a 1 for 50 reverse stock split)
to the stockholders of Adelaide Holdings,  Inc., a private Delaware  corporation
incorporated  in April,  1990 (hereafter  referred to as "AHI").  The 13,500,000
shares represented approximately 80% of the 16,845,370 shares of common stock of
the Company outstanding after the acquisition.

      The Company  also  amended  its  Articles  of  Incorporation  to include a
provision  that officers and directors of the Company are not liable for damages
as a result of a breach of fiduciary duty except in certain specified  instances
under  Nevada law.  In  September  1993,  the  Company  amended its  Articles of
Incorporation changing its name to Tasty Fries, Inc.

(B) BUSINESS OF THE COMPANY

      GENERAL

      The Company  has  developed a patented  French fry  vending  machine  (the
"Machine").  The Company  intends to manufacture  and market the machine in both
domestic and  international  markets  through  traditional  sales to established
vending  companies.  The Company may also own and operate machines  itself.  The
Machines  are  expected  to be  located  in  high-traffic  locations  that  have
historically  been  successful  for  vending  operators,  such as  universities,
airports,  bus and train  stations,  high schools,  military  bases,  industrial
locations and recreational venues.

      The Company has also  developed a related  proprietary  potato product for
the production of French fries in the Machine (the "Potato  Product").  Although
the Company has developed its own potato product,  the Company presently intends
to purchase a comparable  potato product,  for use in the machine,  from a third
party. This strategic  determination is driven by the high costs associated with
establishing a production line to produce its own,  proprietary  Potato Product.
At such time as the  economics  of the  business  and the success of the machine
warrant the capital investment of a production line, the Company may manufacture
its own,  proprietary  Potato  Product  or  license  the  product  to a contract
manufacturer.

      The Company's  basic  business  strategy is to market the machines and the
ancillary  products  that are required to prepare each serving of French  fries.
These ancillary  products include the potato product,  cooking oil, serving cups
and condiments. The Company's long-term profitability and success will be driven
primarily by the revenue and accompanying  profit to the Company associated with
each and every vended portion sold from its installed base of Machines.

      The Company had previously received a federally  registered  trademark for
its former name and logo,  "Adelaide."  The Company has  subsequently  federally
registered  its name and logo,  "Tasty  Fries,"  as a federal  trademark  on the
Supplemental  Register and has been marketing the Machine and its products under
that name.


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<PAGE>

DESIGN AND MANUFACTURING HISTORY

      In 1992,  persons then  associated  with the Company  filed a U.S.  patent
application  with  respect to a device for the  vending  of fresh  French  fried
potatoes (the original machine), which was assigned to the Company on October 9,
1992. In January 1993, the Company entered into a  manufacturing  agreement with
Premier Design, Ltd.  ("Premier") for the production of its vending machine (the
"Premier  Agreement").  The Premier Agreement provided that Premier would refine
and manufacture the original  machine.  The Agreement called for the Company and
Premier  to share the  development  costs of the  project;  such  costs  were to
include design,  engineering and initial  manufacturing costs projected over the
initial quantity of production machines. The Agreement also provided for Premier
to manufacture any additional or similar  machines for the Company.  The Premier
Agreement  could not be terminated  by either party so long as Premier  provided
the  Machines as required by the  Company.  Pursuant to the terms of the Premier
Agreement,  the first initial production of machines was to be delivered by June
15, 1993.

      As one element of the process undertaken by Premier, an engineering review
of the machine was to be  performed.  Mr. Harry  Schmidt,  president of Premier,
retained the  services of Mr.  Edward C. Kelly to perform  said  evaluation.  In
February 1993, Mr. Kelly submitted the findings of his  evaluation.  Mr. Kelly's
study  found the  device  failing  to  perform  as  anticipated  and his  review
identified  significant and numerous  mechanical and design problems.  Mr. Kelly
and Premier's  recommendation  to prior management was that the existing machine
should be abandoned  completely.  Prior  management,  none of whom are presently
connected  with the Company,  believed  they had  developed a viable  production
model French fry vending  machine.  They decided to abandon the original device.
The Company retained Premier Design to design and develop a machine based on new
and different technology. Kelly and Premier began the process of designing a new
machine in March 1993.

      Premier  is a  private  company  owned by Mr.  Schmidt.  Mr.  Schmidt  was
subsequently  appointed to the Company's Board of Directors in May 1993, but did
not stand for  reelection  to the Board in  September  1995.  At the time of the
original  Premier  Agreement,   neither  Mr.  Schmidt  nor  Mr.  Kelly  had  any
affiliation  with the  Company.  Edward C. Kelly joined the Company as Executive
Vice President in January 1994 and was  subsequently  appointed to the Company's
Board of Directors in February 1994. In June of 1994, he was named  President of
the Company.

      In December 1994,  having  completed much of the design and development of
the new Machine,  the parties amended the original  manufacturing  contract (the
"Premier  Amendment").  The Premier  Amendment  described  the terms under which
Premier would  manufacture the 10 prototype  models of the new machine and begin
manufacture of the production units.

      In July  1996,  a U.S.  patent  was  issued  in Mr.  Kelly's  name for the
Machine.  Mr. Kelly  assigned the patent rights for the Machine to Premier based
upon the terms of the Premier  Amendment and the express  understanding  between
Premier, the Company and Mr. Kelly  (individually) that: (i) upon issuance,  the
patent would be assigned 100% to Premier as  consideration  for the  significant
funds expended by Premier in the development of the machine;  (ii) Premier would
immediately  assign the Company a 50%  interest  in the patent  upon  payment to
Premier by the Company of one-half of the total development costs.

      The Company's 50% share of the development  costs were later determined to
be  $650,000.  The Company  agreed to pay $50,000 in interest  raising the total
debt to $700,000. The Company has paid $450,000 to Premier towards its 50% share
of  the  development   costs.   Premier  will  also  receive  $250  per  machine
manufactured by the third party.

      In the spring of 1996,  the Company and Premier  agreed that Premier would
be unable to manufacture the Machines under the terms of the Premier  Amendment.
On June 17, 1996, the Company announced its intention to award the manufacturing
contract for the Machine to S&H Electronics of Robesonia,  Pennsylvania ("S&H"),
an  unaffiliated  third party,  and  subsequently  entered into a  non-exclusive
manufacturing    agreement    with   S&H   for   such   purpose.    S&H   is   a
contract-manufacturer,   which  specializes  in  the  assembly  and  testing  of
electro-mechanical  assemblies  and  equipment.  Subsequently  the  contract was
cancelled.  In  January  2000,  the  Company  opened  an  assembly  facility  in
Portsmouth,  New  Hampshire  and  hired  sub-contractors  to  produce  the first
twenty-five  units.  However,  in November 2001 the Company  ceased all business
dealings in New  Hampshire,  pulled its machines from the field and  transported
them along with the  Company's  manufacturing  equipment to ACE Metal  Products,
Inc. in Turlock,  California.  Ace Metal Products was hired to  incorporate  the
manufacturing/engineering  phase of the  machine  project.  All of the  existing
subassemblies,  which were sound in engineering and design concept, required the
final phase of incorporating  high volume production  methods and cost reduction
procedures.  Ace Metal


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<PAGE>

Products hired Propagon, Inc., located in Santa Cruz, California, to convert the
existing  electronics  package to a  proprietary  hard  control  system.  All of
Propagon's  attempts  to  operate  our  machine  with their  technology  failed.
Propagon's system proved to be slow and incapable of generating sufficient power
to complete the cycles needed to operate the machine. In March 2003 all business
dealings with Propagon were terminated. The Company contacted Siemens Energy and
Automation,  Inc.,  located in Pleasanton,  California.  The Company requested a
replacement  control system that would satisfy the Company's  requirements  of a
rugged, off the shelf system. Siemens was able to provide the requested hardware
and recommended Syllogistix Integration,  of Fair Oaks, California.,  to provide
engineering   support  for  the  new  hardware.   The  Company  contracted  with
Syllogistix in March 2003. Syllogistix could not get the system working properly
and the Company  decided to deal directly with Siemens.  Siemens  brought in E&M
Electronics,  located in  Healdsburg,  California.,  to correct and finalize the
system.  With the system  finalized  the  Company  is  currently  negotiating  a
manufacturing  contract  with  Lintelle  Engineering,  Inc.,  located  in Scotts
Valley, California, for the production of the Company's machines.

PRE-PRODUCTION TOOLING

      The pre-production  tooling stage for the machine is a critical element of
the process of getting the machine into commercial  production.  The Tasty Fries
device is  comprised  of many  individual  parts.  A portion of these  parts are
basic,  "off-the-shelf"  manufacturing components such as hardware, lighting and
electrical  components.   However,  approximately  50%  of  the  components  are
customized parts that require a subcontract supplier to manufacture specifically
for Tasty  Fries.  Because  of the costs  associated  with  manufacturing  these
custom-designed  parts,  the most critical  components  have been designed to be
tooled,  molded  or  cast  by the  various  suppliers.  While  very  costly  and
time-consuming  in the front-end of a project,  the tooling of various component
parts will:  (a) ensure the  consistency  and quality of the machine's  critical
parts and (b) greatly reduce the unit costs of both the individual parts and the
overall machine,  as production volume  increases.  As with the overall business
plan,  the tooling  process  itself has been  delayed due to the lack of capital
available, however, the pre-production tooling stage is now complete.

      The Company will also produce a tabletop model of the machine.  Customized
parts will be marketed to operators  of the machine,  be they owners or lessees.
No third parties will have any interest in the sale of the parts. The Company is
unable  to  estimate  when sale of the parts  might  commence  but when they do,
revenues are not expected to be significant.

THE MACHINE

      The Machine is  designed to produce  quality,  freshly-made  French  fries
utilizing  a unique  method  that  automatically  converts a  dehydrated  potato
product into rehydrated potato mix, delivers this mix into a proprietary forming
and cooking cycle, and finally into complete, high-quality,  freshly-made French
fries. The potato product can be stored at room temperature, has a shelf-life of
between  12 and  24  months  (depending  on  storage  conditions),  requires  no
refrigeration  or freezing,  and occupies  less storage space than frozen fries,
thereby offering greater storage capacity than competing  technologies which use
frozen French fries. The French fries are delivered to the consumer in a 4-ounce
serving of 32 French fries. From the time currency is deposited,  the total vend
time for an order of fries from the final  production model Machine is estimated
to  be   approximately   one  and  one-half   minutes.   The  utilization  of  a
state-of-the-art combination of computer driven mechanics makes this possible.

      The design of the Machine involves the use of a vegetable oil enabling the
process to deliver a cholesterol-free  product.  Each vend contains French fries
which are crisp and golden  brown.  The quality of the  product is  consistently
uniform in each vend.  The Machine has the  capacity to produce 500 vends before
any refill of potato  product or other  ingredient  is required.  The Machine is
computer-controlled  and communicates  with the consumer from the time the money
is  deposited  into it until the time the  vended cup of fresh  French  fries is
delivered.  The  Machine  can  accept  dollar  bills,  coins or any  combination
thereof, depending on the vend charge, which can be changed at anytime by simply
reprogramming the currency mechanism.

      The Machine  requires a 110-volt  connection  and is equipped  with modern
computer  technology using  microprocessors and sensors. If the machine operator
desires, the Machine can communicate with a central database, via modem, to make
available  immediate  information on product levels,  service issues or currency
levels.  The


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<PAGE>

machine's cash management program enables it to monitor the cash position at any
time and the amount of vends,  which allows for  spontaneous  and immediate cash
reporting to the vending operator.

      The Machine has been designed to be repaired on-site without the necessity
of  being  returned  to  the  manufacturer.   It  is  anticipated  that  ongoing
maintenance   will  be  limited,   and  the  majority  of  an  operator's  labor
expenditures  will involve the  replenishment of products into the Machines.  At
such time, oil and water will be replaced,  additional  cups and condiments will
be  restocked.  Water will also be changed  at such time  unless the  Machine is
directly attached to a plumbing supply, which is not necessary for the Machine's
operation.  The  frequency  with which the  Machine  must be  restocked  depends
completely upon the number of vends dispensed daily.

      The Machine has received Underwriter's  Laboratory ("UL") approval for the
United States and Canada.  The Company is committed to placing in the market,  a
reliable vending machine which will dispense our French fry product. We plan for
improvements to the machine at costs which are not material.  These improvements
to the machine  will  require  re-certification  by UL, which may cause delay in
installation of the improved  machine.  The machine also received  certification
from the  National  Automatic  Merchandising  Association  ("NAMA") and from the
Federal Communications Commission ("FCC").

THE POTATO PRODUCT

      The  Company's  proprietary  Potato  Product  for use in the  Machine  was
developed  jointly by Tasty Fries,  Inc. and Nestle  Netherlands BV.  Management
estimates that the cost to establish its own  manufacturing  line to produce the
Potato Product is significant.  Due to the  considerable  costs involved and the
current  availability of another potato product,  the Company does not currently
intend to establish a manufacturing  line for the production of its own product.
SEE "AVAILABILITY OF RAW MATERIALS."

MARKETING

      The  Company has  historically  marketed  the  Machines  and the  products
exclusively through territorial distributorships.  The Company currently intends
to market its  products  in both  domestic  and  international  markets  through
traditional sales to established companies in the vending industry.  The Company
may also own and operate machines itself.

      The existing  distributorship  agreements  essentially require an up-front
payment and  minimum  annual  payments  usually  over the life of the  contract.
Distributors  must also pay a specified  sum per Machine  purchased  as a credit
toward the minimum annual payments.  Most  distributorship  agreements require a
minimum number of Machines to be purchased per year.

      The  Company  has  sold  or  granted  an  aggregate   of  15   territorial
distributorships.   In  the   course   of   normal   business,   some  of  these
distributorships  have been  reacquired  by the  Company  and  others  have been
terminated  due to default on behalf of the  distributor  or by the  distributor
themselves. There is currently 1 distributorship,  which has not been terminated
or reacquired.  The  distributor's  obligation to make further  payments,  after
tendering the initial  deposit  required upon  execution of the  distributorship
agreement,  is  conditioned  on the  Company's  ability to ship its Machines and
related  products.  Management  believes  that  once  commercial  production  of
Machines is  commenced  and the  distributor  is notified  and required to place
orders for Machines,  it may be financially  unable to do so or may simply elect
not to purchase  Machines and effectuate its respective  agreement.  The Company
appointed Ahmad Zohbi, as a Regional  Representative  for Tasty Fries,  Inc. for
the Middle East and Northern Africa, excluding Israel, Moracco and Turkey.

      In February,  2002 the Company  entered into a Master Sales and  Marketing
Agreement with SilverLeaf,  LLC. The Agreement granted  SilverLeaf the exclusive
distribution  rights  for the sale and  marketing  of the  Tasty  Fries  vending
machine excluding certain existing  territories.  The Agreement was subsequently
cancelled by the Company. See LEGAL PROCEDINGS.

      The Company  hired IC Ads,  Inc. to develop and maintain the Company's web
site (www.tastyfries.com).


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<PAGE>

COMPETITION

      The  technology  in Tasty  Fries'  machine has been  awarded  U.S.  patent
#5,537,916  issued June 23, 1996.  Other  attempts to bring a French fry vending
machine to market have not utilized the  Company's  patented  technology.  Tasty
Fries process of using dehydrated potato  distinguishes it from the competition.
Most  attempts  use  either a frozen  or  pre-cooked  potato  and are  heated by
microwave  or  convection  oven.  Tasty  Fries'  patented  process is unique and
management  believes  produces  the best  tasting  product.  The  Company  faces
competition  from other suppliers of French fries,  including fast food outlets.
The Company is aware of other  companies,  which have test  marketed  French fry
vending  machines or are in the process of developing such machines.  Certain of
the  companies may be viewed as  competitors  or may become  competitors  in the
future.

      Management believes, although no assurances are given, that due to current
demand for French fried  potatoes,  that there may be additional  competition in
the future in the area of French fry vending.

AVAILABILITY OF RAW MATERIALS

      The raw materials or inputs used by the machine in the  production of each
serving of fries are:  potato  product,  cooking  oil,  water,  serving cups and
condiments.  Management  believes that the oil, condiments and serving cups used
in the  dispensing  of  French  fries are  readily  available  from its  current
suppliers.  In the  event  that  one or  more  of  these  materials  were  to be
unavailable  from a current  supplier,  the Company is confident that comparable
substitute  products  would be  available  from  other  suppliers.  The  Company
presently  purchases  potato product from Nestle  Netherlands BV and has entered
into a contract  with them for the purchase of the product.  At such time in the
future as may be warranted by the success of the business, the Company may elect
to  enter  into  the  production  of its own  proprietary  potato.  SEE  "POTATO
PRODUCT."

PATENTS AND PROPRIETARY RIGHTS

      The Machine's  inventor,  Edward C. Kelly,  is Tasty Fries'  President and
Chief Executive Officer and was issued a patent by the U.S. Patent and Trademark
office in July  1996.  In  addition,  the  Company is  seeking,  but has not yet
received,  patent  protection in Canada,  Japan,  and the European Patent office
(which currently represents 17 European countries).  The Company has applied and
has received  patent  protection  in Canada,  Israel and Brazil;  the Company is
awaiting examinations of the European and Japanese applications.

      The Company intends to seek patent, trademark and related legal protection
in the  future  where  it  deems  the  same  to be  beneficial.  However,  legal
protections  and   precautions  do  not  prevent  third  party   development  of
competitive  products or technologies.  There can be no assurance that the legal
precautions  and other measures taken by the Company will be adequate to prevent
misappropriation of our proprietary  technology.  Notwithstanding the foregoing,
the Company does not intend to be solely  dependent  upon patent  protection for
any  competitive  advantage.  The Company  expects to rely on its  technological
expertise  and the early entry into the  marketplace  of its products to further
enhance its position as a leader in the field and protect its technologies.

GOVERNMENTAL APPROVALS AND REGULATIONS

      The Machine was designed  and  developed in  consideration  of  applicable
governmental  and industry rules and regulations.  Management  believes that the
Machine's design complies with National Sanitation Foundation ("NSF") guidelines
as well as Underwriter's  Laboratory ("UL") standards.  The Machine has received
UL  (Underwriter's   Laboratory),   NAMA  (  National  Automated   Merchandising
Association)   approval  and  will  receive  NSF  approval  prior  to  sale  and
installation.  The  Company has  requested  that the  Machine be  inspected  and
expects to have the Machine inspected by various regulatory  agencies during the
production  process  but prior to sale and  installation.  Management  believes,
although  no  assurance  is given,  that the  required  approvals  from  various
regulatory  agencies are obtainable and are not currently aware of anything that
will delay the  necessary  approvals.  The machine has also  received  F.C.C.  (
Federal Communications Certification) approval.


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<PAGE>

      Management  is not  aware of and  does  not  believe  that  there  are any
specifically   applicable   compliance   requirements  under  state  or  federal
environmental  or related laws relating to the  manufacture and operation of the
machine.

RESEARCH AND DEVELOPMENT COSTS

      For the fiscal years ended January 31, 2004 and 2003, the Company incurred
$771,168  and  $586,611,  respectively,  in costs and  expenses  relating to the
research and development of its machine.

      The Company could incur additional research and development costs over the
next year  should a counter  top model of our  French  fry  vending  machine  be
introduced.  Projected  costs to design and develop this model should not exceed
$300,000 as much of the technology can be transferred  from the standard vending
machine.

PERSONNEL

      As of  January  31,  2004,  the  Company  had a total  of  four  full-time
employees.  Additional  employees  are  expected to be hired  during the next 12
months if the Company's  proposed  plan of operation is successful  and there is
sufficient  cash flow from  operations to support such  additional  expense.  If
hired,  such additional  employees may include a director of marketing,  a chief
financial  officer,  and sales and  marketing  personnel.  At the present  time,
management  is unable to estimate how many  employees  will be needed during the
next 12 months.

ITEM 2.   PROPERTIES.

      The Company  owns no  properties.  In December  2002,  the Company  leased
executive office space at the premises located at 650 Sentry Parkway, Suite One,
Blue Bell,  Pennsylvania  19422. The Company's  current lease  commitments total
approximately  $5,582.92 per month until October 31, 2004. In November 2002, the
Company leased 1,000 square feet of warehouse space located at Ambler Warehouse,
North Maple Street,  Ambler,  PA. The current lease  commitment on the warehouse
space is $450 per month on a month to month basis.

ITEM 3.  LEGAL PROCEEDINGS.

      SilverLeaf, LLC v. Tasty Fries, Inc.: United States District Court for the
District of New Jersey

On February 1, 2002 the  Company  entered  into an  exclusive  Master  Sales and
Marketing  Agreement with SilverLeaf LLC. The Agreement  granted  SilverLeaf the
exclusive  distribution  rights for the sale and  marketing  of the Tasty  Fries
vending  machine  excluding  certain  existing  territories.  The  Agreement was
subsequently   cancelled  by  the   Company.   In  May  2002,   SilverLeaf   LLC
("SilverLeaf")  sued  the  Company  in New  Jersey  State  Court  requesting  an
injunction  preventing the  termination of the February 1, 2002 Master Sales and
Marketing Agreement (" Agreement").  Without the Company's knowledge,  the State
Court  Judge  entered an "Order to Show Cause With  Temporary  Restraints"  (the
"OSC"),  which  purported to prevent the Company from  terminating the Agreement
until a hearing on SilverLeaf's motion for Preliminary Injunction.

The  Company  removed  the case to the  United  States  District  Court  for the
District  of New  Jersey,  and the case was  assigned  to the Chief  Judge,  the
Honorable  John W. Bissell.  Judge  Bissell  denied  SilverLeaf's"  Motion for a
Preliminary   Injunction  and  dissolved  the  OSC.  Judge  Bissell  found  that
SilverLeaf  would not be  irreparably  injured  if the  Company  terminated  the
Agreement.  Judge  Bissell's  ruling  allowed the Company's  termination  of the
Agreement to stand.

SilverLeaf  thereafter  filed an  emergency  appeal to the United  States  Third
Circuit District Court of Appeal (the "Third Circuit"). On October 20, 2002, the
Third Circuit  unanimously  affirmed Judge Bissell's Order denying  SilverLeaf's
application  for a  preliminary  injunction,  finding no abuse of  discretion in
Judge Bissell's  conclusion that "SilverLeaf  failed to demonstrate a reasonable
probability of success on the merits." The case was remanded to Judge Bissell.

SilverLeaf  amended  its  complaint  to allege  causes of action  for  breach of
contract,  infringement of exclusive license,  fraud, tortious interference with
prospective  business advantage and breach of implied covenant of good faith and


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<PAGE>

fair dealing.  The Company moved to dismiss the Complaint.  On December 5, 2002,
Judge Bissell dismissed all claims against the Company,  except for SilverLeaf's
claims  for  breach of  contract  and  tortious  interference  with  prospective
business  advantage.  As for these two remaining claims, on July 14, 2003, Judge
Bissell stayed all  proceedings in the case for ninety days to allow Silver Leaf
to file a lawsuit to establish  that Silver Leaf has the power and  authority to
prosecute its lawsuit against the Company.  To that end,  litigation between the
members  of Silver  Leaf is  pending  in the Court of  Chancery  of the State of
Delaware  in and for New Castle  County,  styled:  In re Silver Leaf  L.L.C.,  a
Delaware Limited Liability Company,  C.A. No. 20611-N.  One fifty percent member
of Silver Leaf has  requested  judicial  dissolution  of Silver  Leaf,  which if
granted,  should preclude Silver Leaf from further  prosecuting its case against
the  Company.  The  Company is not a party to those  proceedings.  Trial in that
judicial  dissolution  proceeding is expected to begin in December  2004.  Judge
Bissell's   stay  of  the  lawsuit   against  the  Company  has  been   extended
indefinitely.

Tasty Fries, Inc. v. Syndi Romanoff, SilverLeaf, LLC, Silver-Shadow Enterprises,
LLC and Leon Pirak: United States District Court for the District of New Jersey

On October 18, 2002, the Company filed a lawsuit against Syndi Romanoff,
SilverLeaf, LLC, Silver-Shadow Enterprises, LLC ("Silver Shadow") and Leon Pirak
("Pirak") for declaratory relief on whether the Company can legally issue a
restricted stock certificate for 3,000,000 shares of the Company's stock (the
"Restricted Stock") and a Warrant for 2,225,000 shares of the Company's stock
exercisable at $1.00/share (the "Warrant") in the name of Silver Shadow or
Pirak. The district court determined that Pirak is entitled to the stock and the
warrants and the Company complied with the Court's ruling in issuing same,
thereby concluding the action.

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

      A shareholder's  meeting was held on June 26, 2003 wherein a vote was held
to elect members of the Tasty Fries Board of Director's. Up for re-election were
the following Director's:  Edward C. Kelly, Leonard J. Klarich,  Jurgen Wolf and
Kurt Ziemer. The following is a summary of votes cast for the nomoniees;

                                  YES              NO                 ABSTAIN

Edward C. Kelly                 99.218%           0.00%               0.782%
                                80,926,147        0                   637,869

Leonard J. Klarich              99.240%           0.00%               0.760%
                                80,944,479        0                   619,537

Jurgen A. Wolf                  99.240%           0.00%               0.760%
                                80,944,124        0                   619,892

Kurt R. Ziemer                  99.241%           0.00%               0.759%
                                80,944,844        0                   619,172

PART II.

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.

      The common stock of the Company is quoted on the OTC Bulletin Board, under
the symbol  "TFRY."  The  following  table sets forth the highest and lowest bid
prices for the common stock for each calendar  quarter during the last two years
and subsequent interim periods as reported by the National Quotation Bureau.

      The prices set forth  below  represent  inter-dealer  quotations,  without
retail  markup,  markdown  or  commission  and may not be  reflective  of actual
transactions.


                                       7
<PAGE>

                                             High Bid            Low Bid
                                             --------            -------

          FISCAL 2002
          First Quarter                        .47                 .24
          Second Quarter                       .37                 .14
          Third Quarter                        .27                 .10
          Fourth Quarter                       .58                 .09

          FISCAL 2003
          First Quarter                        .60                 .12
          Second Quarter                       .39                 .10
          Third Quarter                        .18                 .08
          Fourth Quarter                       .38                 .09

          FISCAL 2004
          First Quarter                        .20                 .09
          Second Quarter                       .48                 .14
          Third Quarter                        .33                 .18
          Fourth Quarter                       .25                 .12

(B) HOLDERS.

      The approximate  number of record holders of the Company's common stock as
of January 31, 2004 is 1,409.

(C) DIVIDENDS.

      The  Company  has not  paid  any  cash  dividends  to date  and  does  not
anticipate or contemplate paying dividends in the foreseeable  future. It is the
present  intention  of  management  to  utilize  all  available  funds  for  the
development of the Company's business.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION.

      FORWARD-LOOKING STATEMENTS

      This document contains "forward-looking  statements" within the meaning of
the Private Securities  Litigation Reform Act of 1995. All statements other than
statements of historical fact are  "forward-looking  statements" for purposes of
federal  and  state  securities  laws,  including,   but  not  limited  to,  any
projections of earnings, revenue or other financial items; any statements of the
plans,  strategies  and  objectives of  management  for future  operations;  any
statements  concerning  proposed new services or  developments;  any  statements
regarding future economic  conditions or performance;  any statements of belief;
and  any   statements  of   assumptions   underlying   any  of  the   foregoing.
Forward-looking  statements  may  include  the  words  "may,"  "could,"  "will,"
"estimate," "intend,"  "continue,"  "believe," "expect" or "anticipate" or other
similar words. These forward-looking  statements present the Company's estimates
and  assumptions  only as of the date of this report.  Except for the  Company's
ongoing  obligation to disclose material  information as required by the federal
securities laws, the Company does not intend,  and undertakes no obligation,  to
update any  forward-looking  statements.  Although the Company believes that the
expectations reflected in any of the forward-looking  statements are reasonable,
actual results could differ materially from those projected or assumed or any of
the  Company's  forward-looking   statements.  The  Company's  future  financial
condition and results of operations, as well as any forward-looking  statements,
are subject to change and inherent risks and uncertainties.


                                       8
<PAGE>

      PLAN OF OPERATION

      The  Company's  basic  business  model is to market the  Machines  and the
ancillary  products  that are required to prepare each serving of French  fries.
These ancillary  products include the potato product,  cooking oil, serving cups
and condiments. The Company's long-term profitability and success will be driven
to a significant  degree by the revenue and  accompanying  profit to the Company
associated  with each and every vended  portion sold from its installed  base of
Machines.

      With that business model in mind, the Company's  current plan of operation
is to market its products in both domestic and  international  markets through a
combination  traditional  leases  and/or sales to  established  companies in the
vending industry and through Company owned machines.

      Management  believes that, once in full production,  the business cycle of
the Company will allow it to operate in a cash positive  fashion.  That is, with
receipt of each order the  Company  will  require  an advance  payment  from its
customers for the machine itself and the ancillary products associated with each
vend,  therefore  providing a good portion of the capital  necessary to fund the
procurement of essential component parts for machine  production.  If management
is incorrect in this assumption,  the Company's  capital needs for manufacturing
may be greater than currently  anticipated.  In this event,  the Company will be
required to raise  additional  funds.  There can be no assurances given that any
funding,  including that which may be required to be advanced, will be available
or if available, on terms satisfactory to the Company.

      In February,  2002 the Company  entered into a Master Sales and  Marketing
Agreement with SilverLeaf,  LLC. The Agreement granted  SilverLeaf the exclusive
rights for the sale and marketing of the Tasty Fries vending  machine  excluding
certain existing  territories.  The Agreement was subsequently  cancelled by the
Company. See LEGAL PROCEDINGS.

Liquidity and Capital Resources

      At January 31, 2004, the Company had approximately $1,093 in cash.

      The Company will need to raise additional capital to enter into full-scale
production.  If the  Company is unable to obtain the  desired  funding  from any
source,  it is highly  unlikely  that it will be able to  generate a  sufficient
amount of cash to support its operations during the 12 months following the date
hereof,  unless it is able to obtain the  necessary  funds from the sale of debt
and/or  equity  during  such  period.  Based upon its past  history,  management
believes  that it may be able to obtain  funding in such manner but is unable to
predict with any certainty the amount and terms thereof.

      Subsequent to January 31, 2004, the Company has issued  additional  shares
and warrants to purchase common stock to various parties as payment for services
rendered. The Company intends to continue this practice.

      Results of Operations Fiscal Year Ended January 31, 2004 and 2003

      The company is still in the  development  stage and, as a result,  has not
realized any  revenues,  which would  include the fiscal years ended January 31,
2004 and 2003.

      As a result of the company's  financial  condition,  it frequently  issues
common  stock to acquire  various  services.  When the issue  price is below the
current market price,  the company incurs stock purchase  expense.  In the years
ended January 31, 2004 and 2003, stock purchase  discount expense was $1,355,114
and $1,446,302.

      The  company  maintains a staff of several  personnel.  Salary and related
payroll tax expense for the years ended January 31, 2004 and 2003 were, $647,820
and $742,519, respectively.

      The company is dependent upon outside  consultants to provide research and
development,  financial,  and  marketing  expertise.  As a result,  expenses can
fluctuate from year to year. Consulting expenses for the years ended January 31,
2004 and 2003 were $771,168 and $586,611, respectively.


                                       9
<PAGE>

      The company incurs legal fees in connection with business negotiations and
contract preparation, as well as certain instances of litigation. Legal expenses
for the years  ended  January  31,  2004 and 2003 were  $278,867  and  $289,604,
respectively.

      The loss from operations for the years ended January 31, 2004 and 2003 was
($3,593,608) and ($3,947,644), respectively.

Consultants & Advisors

      The Company has in the past,  and will in the future,  retain  consultants
with  significant  experience  in  areas  such  as  marketing,  advertising  and
financing.

      The  Company  has in the past and  continues  to engage  the  services  of
Lancaster Ventures Corporation to provide business consulting services.

      The Company  has in the past and  continues  to engage the  services of IC
Ads, Inc. to develop and maintain the Company's web site (www.tastyfries.com).

ITEM 7.  FINANCIAL STATEMENTS.

      Audited  balance  sheets as of January 31, 2004 and 2003,  and the related
statements of operations, stockholders' deficiency, and cash flows for the years
ended  January  31,  2004 and 2003 and for the  period  from  October  18,  1985
(inception) to January 31, 2004 are included after Item 12 herein.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          NONE

ITEM 8A.  CONTROLS AND PROCEDURES

      We  carried  out  an  evaluation,  under  the  supervision  and  with  the
participation of management, including the Company's Chief Executive Officer, of
the  effectiveness  of the  design and  operation  of the  Company's  disclosure
controls and  procedures (as defined under Rules 13a-15 (e) and 15d-15 (e) under
the  Securities  Exchange  Act of 1934,  as  amended)  as of the end of the year
covered  by this  report.  Based  upon  that  evaluation,  the  Company's  Chief
Executive  Officer  concluded  that  the  Company's   disclosure   controls  and
procedures  are  effective  in  timely  alerting  them to  material  information
relating  to us  that is  required  to be  included  in the  Company's  periodic
Security  Exchange  Commission  reports.  There was no  change in the  Company's
internal  control  over  financial  reporting  that  occurred  during the period
covered by this report that has materially affected,  or is reasonably likely to
materially affect, the Company's internal control over financial reporting.

PART III.

ITEM 9.  DIRECTORS,   EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

AUDIT COMMITTEE FINANCIAL EXPERT

      The  Company  does  not  have  a  separately   designated  standing  audit
committee. Pursuant to Section 3(a)(58)(B) of the Exchange Act, the entire Board
of  Directors  acts as an audit  committee  for the  purpose of  overseeing  the
accounting and financial  reporting  processes,  and our audits of the financial
statements.  The Commission  recently adopted new regulations  relating to audit
committee composition and functions,  including disclosure requirements relating
to the presence of an "audit  committee  financial  expert" serving on its audit


                                       10
<PAGE>

committee.  In connection  with these new  requirements,  our Board of Directors
examined the Commission's  definition of "audit committee  financial expert" and
concluded  that we do not  currently  have a person  that  qualifies  as such an
expert. Presently,  there are only three (3) directors serving on our Board, and
we are  not in a  position  at this  time  to  attract,  retain  and  compensate
additional  directors in order to acquire a director who  qualifies as an "audit
committee financial expert",  but we intend to retain an additional director who
will qualify as such an expert as soon as reasonably practicable.  While neither
of our  current  directors  meets  the  qualifications  of an  "audit  committee
financial  expert"  each of our  directors,  by  virtue  of his past  employment
experience has  considerable  knowledge of financial  statements,  finance,  and
accounting  and  has  significant   employment  experience  involving  financial
oversight  responsibilities.  Accordingly, we believe that our current directors
capably  fulfill the duties and  responsibilities  of an audit  committee in the
absence of such an expert.

(A) IDENTIFICATION OF DIRECTORS & EXECUTIVE OFFICERS

      The current  directors of the Company will serve until the next meeting of
shareholders  at which directors are elected and qualified.  Names,  age, period
served and positions held with the Company are as follows:

                                            Positions with
          Name                 Age              Company
          ----                 ---          --------------
      Edward C. Kelly           68          President, Chief Executive Officer,
                                            Treasurer and Chairman of the Board*

      Leonard J. Klarich        70          Secretary and Director*

      Jurgen A. Wolf            70          Director*

      Kurt R. Ziemer            49          Director

      * Member of the Executive Committee of the Board of Directors. Mr. Klarich
        was also appointed Secretary by the Board of Directors on June 3, 1996.

      EDWARD C. KELLY - Mr. Kelly has been  President of the Company  since June
10,  1994,  and a director  since April 1994.  He was  appointed a member of the
Executive  Committee  on  September  18,  1995,  and  Chairman  of the  Board of
Directors after the removal of Mr. Arzt (by a 2/3 majority vote of shareholders)
in June  1996.  From  January  1994 until June 10,  1994 he was  Executive  Vice
President of the Company.  Mr. Kelly has been  involved in the  engineering  and
design of the machine since 1993 and was awarded a U.S. patent in July 1996. Mr.
Kelly owned and operated Mega Products Corporation,  a subcontract manufacturing
company,  from 1970 through 1994.  Mega serviced  companies  including  IBM, GE,
Dupont, Gulf & Western and Kulick & Soffa.

      LEONARD J. KLARICH - Since September 1995, Mr. Klarich has been a director
of the Company and also was a consultant  to  management  from March through May
1996.  Mr.  Klarich was retained as Executive  Vice  President of the Company in
June 1996 to assist in the day-to-day  operations of the Company,  with specific
emphasis on distribution networks, distributors and marketing. In June 1997, his
title was changed to Vice  President.  He was also  appointed  Secretary in June
1996. Mr.  Klarich was Chairman of the Board of K&D, a high-tech  graphic design
company  located in Woodland  Hills,  California  until early 1996. From 1976 to
1989 he owned and operated Avecor, Inc., a plastics  manufacturing  company with
revenue in excess of $40 million upon his sale of the company. Prior thereto, he
spent a number of years as a chief  operating  officer of  companies  in need of
turnaround due to financial concerns. Mr. Klarich passed way in April, 2004.

      JURGEN A. WOLF - Mr.  Wolf has been a director of the Company and a member
of the Executive  Committee of the Board of Directors  since September 18, 1995.
Since  1983,  he has been  President  of J.A.  Wolf  Projects,  Ltd.,  a private
Vancouver company engaged in commercial and industrial contracting.  From August
1992 to  March  1993,  Mr.  Wolf  was a  director  of Yukon  Spirit  Mines  Ltd.
(currently  known as Gainey Resources Ltd.). Mr. Wolf is also a director of four
Canadian public  companies,  which include:  Consolidated  Gulfside  Industries,
Ltd., Shoreham Resources, Ltd., U.S. Oil Inc. and Key Capital Group, Inc.


                                       11
<PAGE>

      KURT R. ZIEMER - Mr.  Ziemer was  appointed  to the Board of  Directors on
October 4, 1996 as the board designee of Whetstone  Ventures  Corporation,  Inc.
pursuant to the April 30, 1996 Stock Purchase Agreement with the Company.  Since
1989 he has owned and operated Ziemer  Buick-Pontiac-GMC  Truck, Inc. located in
New Holland, Pennsylvania. From 1977 until 1989, he served in several capacities
for the auto dealership.

(B) DIRECTORSHIPS.

      The current  directors hold no other  directorships  in any Company with a
class of  securities  registered  pursuant to Section 12 of the  Exchange Act or
subject  to the  requirements  of  Section  15(d)  of  such  Act or any  Company
registered as an investment  Company under the  Investment  Company Act of 1940,
except as disclosed herein.

(C)   IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES.

      None.

(D)   FAMILY RELATIONSHIPS.

      Louis M. Kelly,  Esquire was hired by the company as  Operations  Manager.
      Mr.  Kelly has served as outside  counsel to the Company and has a working
      knowledge  of the  business.  Mr.  Kelly is the son of  Edward  C.  Kelly,
      President and CEO of the Company.

ITEM 10.EXECUTIVE COMPENSATION

(A) GENERAL

(B) SUMMARY COMPENSATION TABLE

                                          ANNUAL COMPENSATON (1)
                            ----------------------------------------------------
   Name & Ended             Fiscal Year                               Restricted
Principal Position          January 31,      Salary        Bonus        Stock
------------------          -----------      ------        -----        -----
Edward C. Kelly                2004         $240,000         $0       $50,400(4)
President, CEO                 2003         $240,000         $0       $81,708(3)
& Chairman (2)                 2002         $240,000         $0

(1)   There were no long-term  incentive payments made in the year-ended January
      31, 2003.

(2)   Mr. Kelly has served as President  and Treasurer of the Company since June
      10, 1994, a director since April 1994, Chairman of the Board since June 3,
      1996, and was Executive Vice President from January 1994 to June 10, 1994.
      This table does not include: (i) an option granted for 3,500,000 shares of
      common  stock  exercisable  for two years at .50 per  share  (ii)1,000,000
      post-split  shares of common  stock  exercisable  for two years at .50 per
      share (iii) options granted  pursuant to Mr. Kelly's  employment  contract
      (iv)  options  granted to the Board of  Directors.


                                       12
<PAGE>

(3)   544,720  shares of  restricted  stock @ .15 were  issued in lieu of salary
      increase pursuant to Employment Contract.

(4)   252,000 shares of restricted common stock at $.20 per share were issued in
      lieu of salary increase pursuant to the Employment Contract.

The following table summarizes information regarding the Company's stock option
plan and stock warrant issuances.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                                                             Number of Securities
                                                                                              remaining available
                                   Number of securities           Weighted-average            for future issuance
                                     to be issued upon            exercise price of        under equity compensation
                                  exercise of outstanding            outstanding          plans (excluding securities
Category                              Options/Warrants            Options/Warrants          reflected in column (a))

                                   Options     Warrants         Options    Warrants          Options       Warrants
                                   -------     --------         -------    --------          -------       --------
<S>                              <C>          <C>                <C>        <C>                         <C>
Approved by security holders
--------------------------------------------------------------------------------------------------------------------
Not approved by Security
  holders                        15,990,000   33,419,167         $0.47      $.86               See note (1) below
--------------------------------------------------------------------------------------------------------------------
Total                            15,990,000   33,419,167         $0.47      $.86               See note (1) below
--------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company does not currently have a plan approved by shareholders  for the
issuance of options or warrants  therefore  there is  currently  no limit to the
number of options or number of warrants available for future issuance's.

OPTION GRANTS IN THE FISCAL YEAR ENDED JANUARY 31, 2004

Each  Director  of the Company  received a seven year option to purchase  50,000
shares of our common stock at an exercise price of $.18.

Edward Kelly,  Jurgen Wolf and Leonard Klarich each received a seven year option
to purchase 100,000 shares of our common stock at an exercise price of $.22.

Edward C. Kelly received a seven year option to purchase 1,000,000 shares of our
common  stock at an exercise  price of $ .18 per share  pursuant  to  employment
contract.

Louis M. Kelly  received a two year  option to  purchase  200,000  shares of our
common  stock at an exercise  price of $.22 per share and a seven year option to
purchase  1,250,000  shares of our common stock at an exercise price of $.15 per
share.

Irene T. Kelly  received a seven year  option to purchase  30,000  shares of our
common stock at an exercise price of $.22.

(E) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUE TABLE.

      As of Jan 31, 2004 Edward C. Kelly,  President & Chief  Executive  Officer
held 11,150,000 total stock options in the Company.  The exercise price of these
options was above the quoted  market  price for the  Company's  common  stock at
January 31, 2004.  No options were  exercised  during the year ended January 31,
2004 and 2003.

(F) LONG TERM INCENTIVE PLAN (`LTIP") AWARDS TABLE.

    None.


                                       13
<PAGE>

(F)   COMPENSATON OF DIRECTORS.

      Directors are  compensated  by payment of an annual fee and grant of stock
      options.  Each director  receives an annual fee of $10,000.  Each director
      also  receives an option  exercisable  for seven  years to acquire  50,000
      shares of Tasty  Fries  common  stock for each year of service  commencing
      June 10, 1994. The exercise price is equal to the closing bid price of our
      stock on June 9th proceeding  each year of service.  Exercise prices range
      from $.17 to $1.25 per share.

(G)   EMPLOYMENT  CONTRACTS AND  TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
      ARRANGEMENTS

      In July, 2001, the Board of Directors  approved the terms of an Employment
      Agreement  for the  Company's  Chief  Executive  Officer.  The  Employment
      Agreement  is for a period of ten years  from its date of  execution.  The
      Employment Agreement provides for an annual salary, to be increased by 10%
      each year. In addition,  the Chief Executive  Officer is granted the right
      to acquire up to 1,000,000 shares of the Company's restricted Common Stock
      for each full year of his employment with the Company, commencing with the
      year beginning June 10, 1994. The  acquisition  price for such stock shall
      be the closing  price of the stock on June 9 (or the closest  business day
      thereto) of each such full year.  He has the right to exercise this option
      at any time up to seven  years  from the date his right to  acquire  stock
      vests.  The agreement  also provides for  compensation  arrangement in the
      case of temporary disability,  death and permanent  disability.  The Chief
      Executive  Officer  can  earn  additional  compensation  in  the  form  of
      commissions at a rate of $250 per French fry vending machine  manufactured
      and placed into commercial use.

      On  January  4,  2004 the  Board of  Directors  approved  the  terms of an
      Employment Agreement for Louis M. Kelly. The Employment Agreement is for a
      period of three years from its date of execution. The Employment Agreement
      provides for an annual base salary, bonus and stock options.

      (H) REPORT ON REPRICING OF OPTIONS/SARS

      None

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

(A)   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.

      The following  table sets forth,  as of January 31, 2004, the ownership of
      common  stock by persons  known to the Company who own  beneficially  more
      than 5% of the outstanding shares of common stock:

       Name & Address of                       Amount & Nature of        Percent
        Beneficial Owner                      Beneficial Ownership      of Class
        ----------------                      --------------------      --------

      Edward C. Kelly                               2,739,832              3%
      650 Sentry Parkway, Suite One
      Blue Bell, PA  19422  (1)

      L. Eric Whetstone                             3,535,357              4%
      11 Waterfront Estates, Estates Drive
      Lancaster, PA  19601


                                       14
<PAGE>

      L. Eric & Ilona Whetstone &
      Charles Whetstone Jt Ten                      2,500,000              3%
      11 Waterfront Estates, Estates Drive
      Lancaster, PA  19601

      L. Eric & Ilona Whetstone Ten Com             2,422,727              3%
      11 Waterfront Estates, Estates Drive
      Lancaster, PA  19601

      L. Eric & Ilona Whetstone Jt Ten                734,392              --
      11 Waterfront Estates, Estates Drive
      Lancaster, PA  19601

      David Rights
      1095 Rydal Road
      Rydal, PA 19046                              12,142,222             11%

      Ahmad Zhobi
      U.A.E.                                        4,600,000              5%

      Zekra Zhobi                                   2,680,000              3%

(1)   Does not include an option  3,500,000  shares of common stock  exercisable
      for two years at .50 per share expiring  4/5/04,  200,000 shares of common
      stock at .50 per  share  expiring  11/1/04;  options  for  350,000  shares
      expiring  ratably  between  June 10,  2004 and June 10,  2010 at  exercise
      prices ranging from $.17 to $1.25 per share;  options for 7,000,000 shares
      expiring  ratably  between  June 10,  2004 and June 10,  2010 at  exercise
      prices  ranging  from $.17 per share to $1.31;  option for 100,000  shares
      expiring on November  18,  2010 at $.22 per share  pursuant to  Employment
      Contract.  SEE  "EMPLOYMENT  CONTRACTS AND  TERMINATION  OF EMPLOYMENT AND
      CHANGE IN CONTROL ARRANGEMENTS".

(B)   SECURITY OWNERSHIP OF MANAGEMENT

      The  following  table sets forth,  as of April 30,  2004,  the  beneficial
      common stock ownership of all directors,  executive  officers,  and of all
      directors and officers as group:

      Name & Address of                        Amount & Nature of      Percent
      Beneficial Owner                        Beneficial Ownership    of Class
      ----------------                        --------------------    --------
      Edward C. Kelly                              2,739,832              3%
      650 Sentry Parkway, Suite One
      Blue Bell, PA  19422  (1)

      Leonard J. Klarich                             180,000              0
      839 Claybrook Court
      Knoxville, TN  37923  (2)

      Jurgen A. Wolf                                  50,000              0
      #103 15325 17 Ave
      Surrey, B.C.
      Canada V4A1T8  (3)


                                       15
<PAGE>

      Kurt R. Ziemer                                 850,000              1%
      599 Valley View Drive
      New Holland, PA  17557  (4)

      All Officers and Directors                   3,608,000              5%
      as a group  (4 persons)

*     less than 1%

(1)   Does not include an option  3,500,000  shares of common stock  exercisable
      for two years at .50 per share expiring  4/5/04,  200,000 shares of common
      stock at .50 per  share  expiring  11/1/04;  options  for  350,000  shares
      expiring  ratably  between  June 10,  2004 and June 10,  2010 at  exercise
      prices ranging from $.17 to $1.25 per share;  options for 7,000,000 shares
      expiring  ratably  between  June 10,  2004 and June 10,  2010 at  exercise
      prices  ranging  from $.17 per share to $1.31;  option for 100,000  shares
      expiring on November  18,  2010 at $.22 per share  pursuant to  Employment
      Contract.  SEE  "EMPLOYMENT  CONTRACTS AND  TERMINATION  OF EMPLOYMENT AND
      CHANGE IN CONTROL ARRANGEMENTS".

(2)   Does not include:  (i) options for 450,000 shares expiring ratably between
      June 10, 2004 and June 10, 2010 at exercise  prices  ranging  from $.17 to
      $1.25 per share (ii) option for 200,000  shares of common stock at .50 per
      share expiring 11/1/04.

(3)   Does not include:  (i) options for 450,000 shares expiring ratably between
      June 10, 2004 and June 10, 2010 at exercise  prices  ranging  from $.17 to
      $1.25 per share (ii) option for 200,000  shares of common stock at .50 per
      share expiring 11/1/04.

(4)   Does not include:  (i) options for 550,000 shares expiring ratably between
      June 10, 2004 and June 10, 2010 at exercise  prices  ranging  from $.17 to
      $1.25 per share (ii) option for 200,000  shares of common stock at .50 per
      share expiring  11/1/04.  Mr. Ziemer's option has been prorated to reflect
      the date he was appointed to the Board of Directors on October 4, 1996.

(C)   CHANGES IN CONTROL.

      Except as described in this Report,  there are no  arrangements,  known to
      the  Company,  including  any  pledge by any person of  securities  of the
      Company  or of  any  of its  parents,  the  operation  of  which  may at a
      subsequent date result in a change in control of the Company.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

SUBSEQUENT EVENTS

REPORTS ON FORM 8-K.

      Forms 8-K dated May 19,  1999,  June 17, 1999,  July 20, 1999,  August 11,
1999,  October 14, 1999  November  20, 1999,  March 20, 2001,  July 11, 2002 and
September 9, 2002 are hereby incorporated by reference.

SIGNATURES

      In  accordance  with Section 13 or 15(d) of the Exchange  Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

TASTY FRIES, INC.
Date as of filing By: /s/ Edward C. Kelly
                      -------------------
                                                        Edward C. Kelly
                                                        President and Principal
                                                        Financial Officer


                                       16
<PAGE>

      In  accordance  with the Exchange  Act, this report has been signed by the
following  persons on behalf of the  Company  and in the  capacities  and on the
dates indicated.

                                                              April 30, 2004
/s/ Edward C. Kelly
-------------------------------------
Edward C. Kelly, Chairman, CEO
President, Treasurer & Director

                                                              April 30, 2004
/s/ Jurgen A. Wolf
-------------------------------------
Jurgen A. Wolf, Director

                                                              April 30, 2004
/s/ Kurt R. Ziemer
-------------------------------------
Kurt R. Ziemer, Director


                                       17
<PAGE>

                                  CERTIFICATION

I, Edward C. Kelly, certify that:

1. I have reviewed this annual report on Form 10-KSB of Tasty Fries, 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. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant is made known to us by others within
     the Company  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. 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 functions):

     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. I have indicated in this annual report whether there were significant changes
in internal controls or in other factors that could significantly affect
internal controls over financial reporting.

April 29, 2004

/s/ Edward C. Kelly
------------------------
Edward C. Kelly
CEO/CFO

<PAGE>

To the Board of Directors and Stockholders
Tasty Fries, Inc.
Blue Bell, Pennsylvania

We have  audited  the  accompanying  balance  sheets  of Tasty  Fries,  Inc.  (A
Development  Stage  Company) as of January  31,  2004 and 2003,  and the related
statements of operations,  changes in stockholders'  deficiency,  and cash flows
for the years then ended and for the period from October 18, 1985 (inception) to
January 31, 2004.  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 of  America.  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  financial  position  of  Tasty  Fries,  Inc.  (A
Development  Stage  Company) as of January 31, 2004 and 2003, and the results of
its  operations  and its cash  flows for the years then ended and for the period
from  October 18, 1985  (inception)  to January 31,  2004,  in  conformity  with
accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has not generated any revenues,  has incurred
net losses  since its  inception,  and has a working  capital and  stockholders'
deficiency as of January 31, 2004 and 2003. These  conditions raise  substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regard to these matters are also  described in Note 1. The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

                              Baratz & Associates, P.A.

Marlton, New Jersey
April 20, 2004

<PAGE>

                               TASTY FRIES, INC.
                          (A Development Stage Company)
                                 BALANCE SHEETS

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                 January 31,    January 31,
       ASSETS                                                       2004           2003
                                                               ------------    ------------
<S>                                                            <C>             <C>
Current assets
       Cash                                                    $      1,093    $     56,609
       Prepaid expenses                                              15,721           9,682
                                                               ------------    ------------
       Total current assets                                          16,814          66,291

Furniture and office equipment, net of
       accumulated depreciation of $78,744, January 31, 2004
       and $77,539, January 31, 2003                                  1,380           2,585

Other assets
       Royalty rights                                             1,500,000       1,500,000
                                                               ------------    ------------
Total Assets                                                   $  1,518,194    $  1,568,876
                                                               ============    ============
       LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities
       Accounts payable and accrued expenses                   $  1,132,806    $    953,480
       Current maturities of long-term debt                         211,875         810,349
                                                               ------------    ------------
       Total current liabilities                                  1,344,681       1,763,829
                                                               ------------    ------------
Long term liabilities
       Long-term debt, net of current maturities                    615,060              --
       Unearned revenue                                             320,000         320,000
                                                               ------------    ------------
       Total long term liabilities                                  935,060         320,000
                                                               ------------    ------------
Total Liabilities                                                 2,279,741       2,083,829
                                                               ------------    ------------
Commitments and contingencies

Stockholders' deficiency
       Common stock, $.001 par value
            Authorized 150,000,000 shares; issued and
            outstanding 102,330,228 shares, January 31,
            2004; issued and outstanding 80,460,991 shares,
            January 31, 2003                                        102,330          80,461

       Additional paid-in capital                                36,684,173      32,784,028
       Deficit accumulated in the development stage             (36,873,050)    (33,279,442)
                                                               ------------    ------------
                                                                    (86,547)       (414,953)
       Less: Subscriptions receivable                              (675,000)       (100,000)
                                                               ------------    ------------
       Total stockholders' deficiency                              (761,547)       (514,953)
                                                               ------------    ------------
Total Liabilities and Stockholders' Deficiency                 $  1,518,194    $  1,568,876
                                                               ============    ============
</TABLE>

See notes to financial statements

<PAGE>

                               TASTY FRIES, INC.
                          (A Development Stage Company)
                            STATEMENTS OF OPERATIONS
                  FOR THE YEARS ENDED JANUARY 31, 2004 AND 2003
              AND OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2004

<TABLE>
<CAPTION>

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

                                                        Cumulative        Years Ended January 31,
                                                           Since       ----------------------------
                                                         Inception          2004           2003
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Revenues                                               $         --    $         --    $         --
                                                       ------------    ------------    ------------
Costs and expenses
       Research, machine and product development          6,886,080         771,168         586,611
       Selling, general and administrative               22,773,914       1,443,021       1,758,742
                                                       ------------    ------------    ------------
       Total costs and expenses                          29,659,994       2,214,189       2,345,353
                                                       ------------    ------------    ------------
Loss before other income (expense)                      (29,659,994)     (2,214,189)     (2,345,353)
                                                       ------------    ------------    ------------
Other income (expense)
       Gain on debt restructuring                            70,000          70,000              --
       Interest income                                       21,274              --              --
       Forfeited distributor deposits                        15,000              --              --
       Stock purchase discount                           (5,078,969)     (1,355,115)     (1,446,302)
       Interest expense                                  (2,240,361)        (94,304)       (155,989)
                                                       ------------    ------------    ------------
       Total other income (expense)                      (7,213,056)     (1,379,419)     (1,602,291)
                                                       ------------    ------------    ------------
Net loss                                               $(36,873,050)   $ (3,593,608)   $ (3,947,644)
                                                       ============    ============    ============
Net loss per share of common stock-basic and diluted                   ($      0.04)   ($      0.06)
                                                                       ============    ============
Weighted average shares outstanding                                      92,393,260      68,533,451
                                                                       ============    ============
</TABLE>

                       See notes to financial statements

<PAGE>

                                TASTY FRIES, INC.
                          (A Development Stage Company)
                STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2004

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                               Deficit
                                                                             Accumulated        Stockholders'
                                                                               in the            Deficiency
                                           Common           Additional       Development           before
                                            Stock        Paid-in Capital        Stage           Receivables
                                            -----        ---------------        -----           -----------
<S>                                      <C>              <C>                <C>                <C>
Balance, February 1, 1991                $   157,307      $  (156,307)       $        --        $     1,000

Issued 1,114,679 shares for note
     conversion                               11,147          113,853                 --            125,000

Net loss for the year ended
     January 31, 1992                             --               --           (198,425)          (198,425)
                                         -----------      -----------        -----------        -----------
Balance, January 31, 1992                    168,454          (42,454)          (198,425)           (72,425)

Issued 4,275,000 shares                       42,750          457,250                 --            500,000

Issued 150,000 shares for services             1,500           36,000                 --             37,500

Net loss for the year ended
     January 31, 1993                             --               --           (773,304)          (773,304)
                                         -----------      -----------        -----------        -----------
Balance, January 31, 1993                    212,704          450,796           (971,729)          (308,229)

Issued 7,600,000 shares                       76,000          464,000                 --            540,000

Issued 220,000 shares for services             2,200               --                 --              2,200

Redeemed 3,145,000 shares                    (31,450)          31,450                 --                 --

Net loss for the year ended
     January 31, 1994                             --               --           (658,820)          (658,820)
                                         -----------      -----------        -----------        -----------
Balance, January 31, 1994                    259,454          946,246         (1,630,549)          (424,849)

Issued 3,129,999 shares                       31,300          547,950                 --            579,250

Issued 2,151,622 shares for services          21,516          121,294                 --            142,810

Issued 1,000,000 shares for litigation
      settlement                              10,000          460,000                 --            470,000

Net loss for the year ended
     January 31, 1995                             --               --         (2,148,933)        (2,148,933)
                                         -----------      -----------        -----------        -----------
Balance, January 31, 1995
     (carried forward)                       322,270        2,075,490         (3,779,482)        (1,381,722)
</TABLE>

(continued)

                        See notes to financial statements

<PAGE>

                                TASTY FRIES, INC.
                          (A Development Stage Company)
                STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2004


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
(continued)
                                                                               Deficit
                                                                             Accumulated        Stockholders'
                                                                               in the            Deficiency
                                           Common           Additional       Development           before
                                            Stock        Paid-in Capital        Stage           Receivables
                                            -----        ---------------        -----           -----------
<S>                                          <C>            <C>               <C>                 <C>
Balance, January 31, 1995
     (brought forward)                       322,270        2,075,490        (3,779,482)         (1,381,722)

Issued 21,815,000 shares                     218,150        1,054,350                --           1,272,500

Issued 6,733,502 shares for services          67,335          381,880                --             449,215

Issued 625,000 shares for loan
     conversion                                6,250           43,750                --              50,000

Issued 1,000,000 shares for
     repurchase of distributorship            10,000           90,000                --             100,000

Reverse stock split                         (620,885)         620,885                --                  --

Net loss for the year ended
     January 31, 1996                             --               --        (1,384,488)         (1,384,488)
                                          ----------       ----------        ----------          ----------
Balance, January 31, 1996                      3,120        4,266,355        (5,163,970)           (894,495)

Issued 1,455,000 shares                        1,455        1,506,045                --           1,507,500

Issued 125,000 shares for services               125          324,875                --             325,000

Net loss for the year ended
     January 31, 1997                             --               --        (2,172,260)         (2,172,260)
                                          ----------       ----------        ----------          ----------
Balance, January 31, 1997
     (carried forward)                         4,700        6,097,275        (7,336,230)         (1,234,255)
</TABLE>

(continued)

                        See notes to financial statements

<PAGE>

                    TASTY FRIES, INC.
              (A Development Stage Company)
             STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
     OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2004

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
(continued)
                                                                               Deficit
                                                                             Accumulated        Stockholders'
                                                                               in the            Deficiency
                                           Common           Additional       Development           before
                                            Stock        Paid-in Capital        Stage           Receivables
                                            -----        ---------------        -----           -----------
<S>                                            <C>          <C>               <C>                <C>
Balance, January 31, 1997
     (brought forward)                         4,700        6,097,275         (7,336,230)        (1,234,255)

Issued 1,500,000 shares for
     non-recurring compensation                1,500        1,029,750                 --          1,031,250

Issued 167,083 shares                            167           80,650                 --             80,817

Issued 955,000 shares for services               955        1,317,545                 --          1,318,500

Issued 43,750 shares for
     litigation settlement                        44           54,644                 --             54,688

Issued 700,000 shares for
     convertible notes                           700          566,979                 --            567,679

Issued 452,772 shares for
     repayment of notes payable                  452          523,587                 --            524,039

Issued 120,000 shares for
     repayment of notes payable,
     officer/director                            120          175,830                 --            175,950

Net loss for the year ended
     January 31, 1998                             --               --         (5,074,155)        (5,074,155)
                                         -----------      -----------        -----------        -----------
Balance, January 31, 1998                      8,638        9,846,260        (12,410,385)        (2,555,487)

Issued 2,251,307 shares                        2,252        1,299,526                 --          1,301,778

Issued 5,586,150 shares for
     convertible notes                         5,586        3,129,504                 --          3,135,090

Issued 42,704 shares for
     interest on convertible notes                43           26,385                 --             26,428

Issued 1,226,815 shares for services           1,227          490,652                 --            491,879

Issued 250,000 shares for
     repurchase of distributorship               250          124,750                 --            125,000

Net loss for the year ended
     January 31, 1999                             --               --         (3,512,124)        (3,512,124)
                                         -----------      -----------        -----------        -----------
Balance, January 31, 1999
     (carried forward)                        17,996       14,917,077        (15,922,509)          (987,436)
</TABLE>

(continued)

                        See notes to financial statements

<PAGE>

                    TASTY FRIES, INC.
              (A Development Stage Company)
             STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
     OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2004

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
(continued)
                                                                               Deficit
                                                                             Accumulated        Stockholders'
                                                                               in the            Deficiency
                                           Common           Additional       Development           before
                                            Stock        Paid-in Capital        Stage           Receivables
                                            -----        ---------------        -----           -----------
<S>                                           <C>           <C>               <C>                <C>
Balance, January 31, 1999
     (as restated) (brought forward)          17,996        14,917,077       (15,922,509)          (987,436)

Issued 3,789,000 shares                        3,789         1,624,291                --          1,628,080

Issued 250,000 shares for
     litigation settlement                       250           124,750                --            125,000

Issued 6,184,405 shares for services           6,184         2,799,214                --          2,805,398

Issued 500,000 shares for
     repurchase of distributorship               500           249,500                --            250,000

Net loss for the year ended
     January 31, 2000                             --                --        (5,783,657)        (5,783,657)
                                         -----------       -----------       -----------        -----------
Balance, January 31, 2000                     28,719        19,714,832       (21,706,166)        (1,962,615)

Issued 3,660,000 shares                        3,660         1,228,140                --          1,231,800

Issued 3,155,000 shares for services           3,155         1,312,312                --          1,315,467

Issued 4,000,000 shares for
     repayment of note payable                 4,000         1,596,000                --          1,600,000

Issued 1,200,000 shares for
     payment of accrued expenses               1,200           548,800                --            550,000

Net loss for the year ended
     January 31, 2001                             --                --        (3,792,684)        (3,792,684)
                                         -----------       -----------       -----------        -----------
Balance, January 31, 2001                     40,734        24,400,084       (25,498,850)        (1,058,032)

Issued 6,200,000 shares                        6,200           835,800                --            842,000

Issued 747,500 shares for litigation
     settlement                                  747           113,928                --            114,675

Issued 10,010,247 shares for services         10,010         2,542,743                --          2,552,753

Issued 1,480,000 shares for
     repayment of note payable                 1,480           368,520                --            370,000

Net loss for the year ended
     January 31, 2002                             --                --        (3,832,948)        (3,832,948)
                                         -----------       -----------       -----------        -----------
Balance, January 31, 2002
     (carried forward)                        59,171        28,261,075       (29,331,798)        (1,011,552)
</TABLE>

(continued)

                        See notes to financial statements

<PAGE>

                                TASTY FRIES, INC.
                          (A Development Stage Company)
                STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
                OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2004

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(continued)

                                                                             Deficit
                                                                           Accumulated   Stockholders'
                                                                             in the       Deficiency                       Total
                                               Common       Additional     Development      before     Subscriptions   Stockholders'
                                                Stock    Paid-in Capital     Stage       Receivables     Receivable      Deficiency
                                                -----    ---------------     -----       -----------     ----------      ----------
<S>                                             <C>        <C>           <C>               <C>             <C>           <C>
Balance, January 31, 2002
     (brought forward)                          59,171     28,261,075    (29,331,798)     (1,011,552)            --      (1,011,552)

Issued 14,650,003 shares in
     private placements                         14,650      3,032,035             --       3,046,685       (100,000)      2,946,685

Issued 3,694,516 shares for
     services                                    3,695        820,339             --         824,034             --         824,034

Issued 1,750,000 shares for
     repayment of notes payable                  1,750        244,066             --         245,816             --         245,816

Issued 1,194,720 shares for
     employee compensation                       1,195        216,513             --         217,708             --         217,708

Proceeds from issuance of
     stock warrants                                 --        210,000             --         210,000             --         210,000

Net loss for the year ended
     January 31, 2003                               --             --     (3,947,644)     (3,947,644)            --      (3,947,644)
                                          ------------   ------------   ------------    ------------   ------------    ------------
Balance, January 31, 2003                       80,461     32,784,028    (33,279,442)       (414,953)      (100,000)       (514,953)

Issued 4,122,237 shares for
     services                                    4,122        763,615             --         767,737             --         767,737

Issued 1,177,000 shares for
     employee compensation                       1,177        310,443             --         311,620             --         311,620

Issued 16,570,000 shares and 10,226,667
     warrants in private placements             16,570      2,826,087             --       2,842,657       (575,000)      2,267,657

Net loss for the year ended
     January 31, 2004                               --             --     (3,593,608)     (3,593,608)            --       3,593,608
                                          ------------   ------------   ------------    ------------   ------------    ------------
Balance, January 31, 2004                 $    102,330   $ 36,684,173   $(36,873,050)   $    (86,547)  $   (675,000)   $   (761,547)
                                          ============   ============   ============    ============   ============    ============
</TABLE>

                        See notes to financial statements

<PAGE>

                               TASTY FRIES, INC.
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS
                  FOR THE YEARS ENDED JANUARY 31, 2004 AND 2003
              AND OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2004

<TABLE>
<CAPTION>

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

                                                                             Cumulative        Years Ended January 31,
                                                                                Since       ----------------------------
                                                                              Inception          2004             2003
                                                                              ---------          ----             ----
<S>                                                                         <C>             <C>             <C>
Cash flows from operating activities
      Net loss                                                              $(36,873,050)   $ (3,593,608)   $ (3,947,644)
      Adjustments to reconcile net loss to net cash used in operating
          activities
               Depreciation and amortization                                     315,600           1,205           3,477
               Common stock issued for services and employee compensation     11,922,108         976,900         741,373
               Common stock issued for litigation settlement                     764,364              --              --
               Stock purchase discount                                         5,078,969       1,355,115       1,446,302
               Common stock issued for interest on notes payable               1,145,798          16,602              --
               Common stock issued for repurchase of distributorships            250,000              --              --
               Accrued interest on notes and convertible notes payable           438,594              --              --
               Gain from debt restructuring                                      (70,000)        (70,000)             --
               (Increase) decrease in assets
                   Prepaid expenses                                              (15,721)         (6,039)         14,916
                   Other assets                                                       --              --              --
               Increase (decrease) in liabilities
                   Accounts payable and accrued expenses                       1,642,789         179,326         213,697
                   Unearned revenue                                              320,000              --              --
                                                                            ------------    ------------    ------------
      Net cash used in operating activities                                  (15,080,549)     (1,140,499)     (1,527,879)
                                                                            ------------    ------------    ------------
Cash flows from investing activities
      Purchase of furniture and office equipment                                 (80,124)             --          (2,429)
      Loan costs                                                                (236,856)             --              --
                                                                            ------------    ------------    ------------
      Net cash used in investing activities                                     (316,980)             --          (2,429)
                                                                            ------------    ------------    ------------
Cash flows from financing activities
      Proceeds from convertible notes payable                                  2,600,000              --              --
      Issuance of common stock and warrants                                   12,092,174       1,015,000       2,117,001
      Costs of raising capital                                                  (318,700)             --              --
      Notes payable and shareholder loans payable, net                         1,025,148          69,983        (650,651)
                                                                            ------------    ------------    ------------
      Net cash provided by financing activities                               15,398,622       1,084,983       1,466,350
                                                                            ------------    ------------    ------------
(Decrease) increase in cash (carried forward)                                      1,093         (55,516)        (63,958)
</TABLE>

(continued)

                        See notes to financial statements

<PAGE>

                               TASTY FRIES, INC.
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS
                  FOR THE YEARS ENDED JANUARY 31, 2004 AND 2003
              AND OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2004

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
(continued)

                                                                             Cumulative        Years Ended January 31,
                                                                                Since       ----------------------------
                                                                              Inception          2004             2003
                                                                              ---------          ----             ----
<S>                                                                         <C>             <C>             <C>
(Decrease) increase in cash (brought forward)                                      1,093         (55,516)        (63,958)

Cash, beginning of period                                                             --          56,609         120,567
                                                                            ------------    ------------    ------------
Cash, end of period                                                         $      1,093    $      1,093    $     56,609
                                                                            ============    ============    ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
      INFORMATION

          Cash paid during the period for interest                          $    143,120    $         --    $     88,317
                                                                            ============    ============    ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
      FINANCING ACTIVITIES

          Issuance of common stock for services and employee compensation   $ 11,922,108    $    976,900    $    741,373
          Issuance of common stock for conversion of note payable              2,675,000              --              --
          Issuance of common stock for repurchase of distributorship             475,000              --              --
          Issuance of common stock for litigation settlement                     764,364              --              --
          Accrued interest on notes payable                                      421,992         (16,602)             --
          Issuance of common stock to pay accrued expenses                       550,000              --              --
          Issuance of common stock to pay notes payable                        1,483,566              --         201,566
          Acquisition of royalty rights                                       (1,500,000)             --              --
          Note payable, royalty rights                                           750,000        (750,000)             --
          Issuance of common stock for subscription receivable                   675,000         575,000         100,000
          Issuance of note payable to settle debt                                696,603         696,603
</TABLE>

                        See notes to financial statements

<PAGE>

                               TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                            JANUARY 31, 2004 AND 2003

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Nature of Operations

        The Company is a  development  stage  company since it has not completed
        designing,  testing,  and  manufacturing  its sole  product,  a  vending
        machine that will cook and dispense French fries.  Over the past several
        years the Company has field  tested the  machine  and  upgraded  certain
        features to enhance its performance. The overall time frame to bring the
        product to the market  place has been  extended due to a lack of working
        capital.  The costs  associated with the production of the machines have
        been charged to research,  machine and product  development  costs. From
        the  corporation's  date of inception,  October 18, 1985, to date it has
        engaged in  various  business  activities  that were  unprofitable.  The
        Company had no revenues from the sale of its French fry vending machine.
        The  ability  to  continue  as a  going  concern  is  dependent  on  the
        continuation of financing to fund the expenses  relating to successfully
        manufacturing and marketing the vending machine. Management is currently
        in  negotiations  with  several  funding  sources to provide the working
        capital  necessary to: (i) begin commercial  production of the machines,
        and (ii) bring them to market,  at which time the Company  believes that
        sufficient cash will be generated to support its operations.  Management
        cannot assure the ultimate success of the above plan.

        Use of Estimates

        The  preparation  of  financial   statements  in  conformity  with  U.S.
        generally accepted  accounting  principles  requires  management to make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities  and disclosure of contingent  assets and liabilities at the
        date of the financial  statements,  and the reported amounts of revenues
        and expenses  during the reporting  period.  Actual results could differ
        from those estimates.

        Reclassifications

        Certain  reclassifications have been made to prior year amounts in order
        to conform to current presentations.

        Stock Issuances

        Stock  issuances  are  accounted  for as  increases  to common stock and
        additional  paid-in  capital based upon the quoted  trading price of our
        stock on the date of issuance.  In  instances  where stock is issued for
        either  cash or  services  at a price  per share  less  than the  quoted
        trading price on the date of issuance,  stock purchase  discount expense
        is charged for the  difference  between the quoted trading price and the
        issuance  price.  Commissions  paid to  brokers  who  assist in  private
        placements are expensed as incurred.

        Research, Machine and Product Development

        Research and development  costs consist of expenditures  incurred by the
        Company during the course of planned search and  investigation  aimed at
        the discovery of new


                                      (1)
<PAGE>

                               TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                            JANUARY 31, 2004 AND 2003

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        knowledge,  which will be used to develop and test a vending machine and
        potato  product  for  the  formation  of  French  fries.   Research  and
        development  costs also include costs for  significant  enhancements  or
        improvements to the machine and/or potato product.  The Company expenses
        all such research and development costs as they are incurred.

        Unearned Revenue

        Unearned revenue represents amounts received for distribution  rights of
        the  vending  machines,  which the  Company  is still in the  process of
        developing  and testing.  The Company  records these amounts as unearned
        revenue upon receipt.  These deferrals will be recognized as income over
        the life of the machine upon  commercial  production of machines or upon
        forfeiture  by  distributors  as a result of breach of  contract.  Since
        commercial  production  of the machine has not  commenced,  the unearned
        revenue is classified as a non-current liability.

        Impairment of Intangible Assets

        In accordance with Statement of Financial  Accounting Standards ("SFAS")
        No. 142,  "Goodwill and Other Intangible  Assets",  an intangible asset,
        such as acquired royalty rights,  with an indefinite  useful life is not
        amortized.  Instead,  this  intangible  asset is tested  for  impairment
        annually  or more  frequently  if events  of  changes  in  circumstances
        indicate that the asset might be impaired.  The impairment test consists
        of a comparison of the estimated fair value of the intangible asset with
        its carrying  amount.  If the  carrying  amount of an  intangible  asset
        exceeds its fair value,  an  impairment  loss shall be  recognized in an
        amount equal to the excess.  The Company has found no  impairment to the
        royalty rights intangible asset as of January 31, 2004 and 2003.

        Furniture and Office Equipment and Depreciation

        Furniture  and  office  equipment  are stated at cost.  Depreciation  is
        determined  using the  straight-line  method over the  estimated  useful
        lives  of the  furniture  and  equipment,  ranging  from  3 to 7  years.
        Depreciation  expense  for the years  ended  January  31,  2004 and 2003
        amounted to $1,205 and $3,477, respectively.

        Income Taxes

        Income taxes are provided for the tax effects of  transactions  reported
        in the  financial  statements  and consist of taxes  currently  due plus
        deferred  taxes related  primarily to  differences  between the bases of
        balance sheet items for financial and income tax reporting.  The Company
        determines  the  deferred  tax asset  generated  by net  operating  loss
        carryforwards.  All  deferred tax assets are  evaluated  and a valuation
        allowance, if necessary, is established.


                                      (2)
<PAGE>

                               TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                            JANUARY 31, 2004 AND 2003

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        Concentration of Credit Risk

        The  Company  occasionally  maintains  deposits  in banks in  excess  of
        federally  insured  limits.  The  risk is  managed  by  maintaining  all
        deposits in high quality financial institutions.

        Loss per Share

        In March, 1997, the Financial Accounting Standards Board issued SFAS No.
        128,  "Earnings  per  Share".  The  statement  requires  the  Company to
        disclose  both basic  earnings per share and diluted  earnings per share
        for annual and interim  periods  ending after  December 15, 1997.  Basic
        earnings  per share is based on the  weighted  average  number of common
        shares  outstanding,  while  diluted  earnings per share is based on the
        weighted  average  number of common shares and common share  equivalents
        that would arise from the exercise of options and warrants or conversion
        of convertible  securities.  The Company incurred losses from operations
        in 2004 and 2003;  therefore,  basic and diluted earnings per share have
        been  computed in the same manner since the exercise of warrants and the
        conversion of the convertible  notes payable would be antidilutive.  Had
        the company  reported  net income for the year ended  January 31,  2004,
        3,760,000  options  would have been in the money for the purposes of the
        computation of diluted earnings per share.

        Recent Accounting Pronouncements

        Effective January 2003, the Company adopted the disclosure provisions of
        SFAS No. 148, "Accounting for Stock-Based  Compensation - Transition and
        Disclosure."  As  permitted  by SFAS No. 148,  the Company  accounts for
        stock-based  compensation  under the  intrinsic  value  recognition  and
        measurement  principles  of APB  Opinion No. 25,  "Accounting  for Stock
        Issued to  Employees,"  and  related  Interpretations,  under  which the
        Company has recognized no compensation expense.

NOTE 2  VENDING MACHINES

        Vending  machines  are carried at the lower of market or net  realizable
        value. Net realizable value is defined as estimated selling price of the
        machines less  predictable  costs of completion and disposal.  Since the
        predictable cost of completion  exceeds the estimated  selling price the
        vending machines are stated at zero.

NOTE 3  SUBSCRIPTIONS RECEIVABLE

        As of January 31, 2004 and 2003, the Company had demand notes receivable
        resulting from the sale of common stock.  These notes total $675,000 and
        $100,000, respectively and are non-interest bearing. The notes have been
        presented in the accompanying balance sheet as subscriptions  receivable
        reducing stockholders' equity.


                                      (3)
<PAGE>

                               TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                            JANUARY 31, 2004 AND 2003

NOTE 4  UNEARNED REVENUE

        During the year ended  January  31,  2000,  the Company  issued  500,000
        shares of common stock to reacquire an existing  distributorship  valued
        at  $41,000.  The  Company  also  received  $100,000 as a deposit on the
        machines  in  production.  As of  January  31,  2004 and 2003,  unearned
        amounts  related to  distribution  rights were  $210,000 and deposits on
        machines totaled $110,000.

NOTE 5  ROYALTY RIGHTS

        At January 31, 2002, the Company acquired for $1.5 million the perpetual
        royalty rights to the French fry vending  machine ($450 per machine) and
        potato product ($0.25 per pound) from  California  Food & Vending,  Inc.
        These  rights were  subject to the  repayment  of the $1.5  million note
        issued in connection with the transaction (see note 6).

        The  Company  entered  into  an  Agreement  with  David  J.  Rights,  in
        consideration for him paying off the balance of the Company's obligation
        to California  Food and Vending,  Inc.  regarding  their Potato  Royalty
        Right, wherein the Company will pay Mr. Rights a royalty of Twenty Cents
        ($0.20) per pound of potato  product sold for a term  consisting  of the
        greater of:

        1.  Ten years,  commencing  when two  hundred  fifty  (250)  Tasty Fries
            vending machines are placed into commercial use; or

        2.  Payment in full of the $696,603 plus accrued  interest on the unpaid
            balance,  calculated  at nine (9%)  percent  per annum,  compounded,
            commencing April 24, 2003.

NOTE 6  NOTES PAYABLE

        On April 24,  2003,  the Company  and  California  Food & Vending,  Inc.
        ("CFV") entered into a letter agreement which modified the Agreement and
        reduced the remaining  $750,000 owed, plus accrued interest of $16, 602,
        for a one time  discounted  payment of $696,603 on April 28,  2003.  The
        Company  satisfied  the debt  (see Note 5),  and all of CFV's  remaining
        rights under the Modified  Judgement and Agreement were extinguished and
        satisfied in full.

        As of January 31, 2004, the following loans were outstanding:

               Officer, interest at 7.5%, without
                  established repayment terms                    $  30,332

               Stockholder, interest at 9%, (see Note 5)           696,603

               Stockholder, interest at 1%, term of 3 months       100,000
                                                                 ---------

                                                                 $ 826,935
                                                                 =========


                                      (4)
<PAGE>

                               TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                            JANUARY 31, 2004 AND 2003

NOTE 7  COMMITMENTS

        During the years ended January 31, 2004 and 2003,  the Company  incurred
        $73,598  and  $51,745,  respectively,  in rent  expense.  The  Company's
        current lease  commitment for rental of office space is $5,583 per month
        until October 31, 2004.  The  Company's  current  lease  commitment  for
        warehouse  space  is $450 per  month  and  operates  on a month to month
        basis.

        The Company has committed to engage a consultant through May 31, 2006 at
        a $10,000  monthly fee payable in either cash or Tasty Fries stock along
        with additional equity  compensation of 225,000 shares of stock over the
        term of the agreement.

        The Company has committed to pay Premier Design, Ltd. A $250 royalty per
        French fry vending machine manufactured and placed into commercial use.

NOTE 8  LITIGATION

        SilverLeaf,  LLC v. Tasty Fries,  Inc.: United States District Court for
        the District of New Jersey

        On February 1, 2002 the Company  entered into an exclusive  Master Sales
        and Marketing  Agreement  with  SilverLeaf  LLC. The  Agreement  granted
        SilverLeaf the exclusive  distribution rights for the sale and marketing
        of  the  Tasty  Fries  vending  machine   excluding   certain   existing
        territories. The Agreement was subsequently cancelled by the Company. In
        May 2002,  SilverLeaf LLC ("SilverLeaf")  sued the Company in New Jersey
        State Court  requesting an injunction  preventing the termination of the
        February 1, 2002 Master  Sales and  Marketing  Agreement  ("Agreement").
        Without the Company's knowledge, the State Court Judge entered an "Order
        to Show Cause With Temporary Restraints" (the "OSC"), which purported to
        prevent the Company from  terminating  the Agreement  until a hearing on
        SilverLeaf's motion for Preliminary Injunction.

        The Company removed the case to the United States District Court for the
        District of New Jersey,  and the case was  assigned to the Chief  Judge,
        the Honorable John W. Bissell. Judge Bissell denied SilverLeaf's" Motion
        for a Preliminary  Injunction and dissolved the OSC. Judge Bissell found
        that  SilverLeaf  would  not  be  irreparably  injured  if  the  Company
        terminated the Agreement.  Judge Bissell's  ruling allowed the Company's
        termination of the Agreement to stand.

        SilverLeaf  thereafter  filed an emergency  appeal to the United  States
        Third Circuit District Court of Appeal (the "Third Circuit"). On October
        20, 2002, the Third Circuit  unanimously  affirmed Judge Bissell's Order
        denying SilverLeaf's  application for a preliminary injunction,  finding
        no abuse of discretion in Judge Bissell's  conclusion  that  "SilverLeaf
        failed  to  demonstrate  a  reasonable  probability  of  success  on the
        merits." The case was remanded to Judge Bissell.

        SilverLeaf  amended its  complaint to allege causes of action for breach
        of  contract,   infringement  of  exclusive  license,   fraud,  tortious
        interference with prospective  business  advantage and breach of implied
        covenant of good faith and fair dealing. The Company


                                      (5)
<PAGE>

                               TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                            JANUARY 31, 2004 AND 2003

NOTE 8  LITIGATION (CONTINUED)

        moved to dismiss  the  Complaint.  On December  5, 2002,  Judge  Bissell
        dismissed all claims against the Company, except for SilverLeaf's claims
        for  breach of  contract  and  tortious  interference  with  prospective
        business advantage. As for these two remaining claims, on July 14, 2003,
        Judge  Bissell  stayed all  proceedings  in the case for ninety  days to
        allow  Silver Leaf to file a lawsuit to  establish  that Silver Leaf has
        the power and authority to prosecute its lawsuit against the Company. To
        that end,  litigation  between  the members of Silver Leaf is pending in
        the Court of  Chancery  of the State of  Delaware  in and for New Castle
        County,  styled:  In re Silver Leaf L.L.C., a Delaware Limited Liability
        Company,  C.A. No. 20611-N.  One fifty percent member of Silver Leaf has
        requested judicial dissolution of Silver Leaf, which if granted,  should
        preclude  Silver  Leaf from  further  prosecuting  its case  against the
        Company. The Company is not a party to those proceedings.  Trial in that
        judicial  dissolution  proceeding is expected to begin in December 2004.
        Judge  Bissell's  stay of the  lawsuit  against  the  Company  has  been
        extended indefinitely.

        Tasty Fries,  Inc. v. Syndi  Romanoff,  SilverLeaf,  LLC,  Silver-Shadow
        Enterprises,  LLC and Leon Pirak:  United States  District Court for the
        District of New Jersey

        On October 18, 2002, the Company filed a lawsuit against Syndi Romanoff,
        SilverLeaf,  LLC, Silver-Shadow  Enterprises,  LLC ("Silver Shadow") and
        Leon Pirak ("Pirak") for  declaratory  relief on whether the Company can
        legally issue a restricted stock certificate for 3,000,000 shares of the
        Company's  stock (the  "Restricted  Stock") and a Warrant for  2,225,000
        shares of the Company's stock exercisable at $1.00/share (the "Warrant")
        in the name of Silver  Shadow or Pirak.  The district  court  determined
        that Pirak is  entitled  to the stock and the  warrants  and the Company
        complied with the Court's ruling in issuing same, thereby concluding the
        action.

NOTE 9  STOCK OPTION PLAN

        Transactions in the Plan are as follows:

                                 Shares            Exercise       Avg. Exercise
                           Granted and Vested        Range       Price per Share
                           ------------------     ---------      ---------------

Balance, January 31, 2003      14,410,000        $0.10-$1.31         $0.51

Fiscal 2004 Activity

Options Granted                 3,010,000        $0.15-$0.22         $0.18
Options Expired                (1,430,000)       $0.10-$0.35         $0.23
Options Exercised                      --
                               ----------        -----------         -----
Balance, January 31, 2004      15,990,000        $0.15-$1.31         $0.47
                               ==========        ===========         =====

Stock Options expire at various dates through June 2010.


                                      (6)
<PAGE>

                               TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                            JANUARY 31, 2004 AND 2003

NOTE 9  STOCK OPTION PLAN (CONTINUED)

        If the Company had elected to recognize  compensation  cost based on the
        fair value of the options granted at grant date using the  Black-Scholes
        value method as  prescribed  by SFAS 148, net income and diluted  income
        per common  share  would have been  reduced to the pro forma  amounts as
        follows:

                                                    Year Ending January 31,
                                                 ------------------------------
                                                    2004               2003
                                                 -----------       -----------
        Net loss, as reported                    $(3,593,608)      $(3,947,644)
        Deduct:  Total stock-based employee
          compensation expense determined
          under fair value based method for
          all awards, net of tax effects             270,900           222,390
                                                 -----------       -----------
        Proforma net loss                        $(3,864,508)      $(4,170,034)
                                                 ===========       ===========
        Earnings per share:
            Basic - as reported                      (.04)            (.06)
            Basic - pro-forma                        (.04)            (.06)

            Diluted - as reported                    (.04)            (.06)
            Diluted - pro-forma                      (.04)            (.06)

        Significant  assumptions  used to calculate the fair value of the awards
        are as follows:

                                                       Year Ending January 31,
                                                       -----------------------
                                                          2004         2003
                                                       ---------    ----------
               Risk free interest rates of return           3.00%        5.00%
               Expected option life                    84 months    84 months
               Volatility                                   60.5%          50%
               Expected dividends                              --           --

NOTE 10 PREFERRED STOCK

        On July 29, 1991, the Board of Directors  authorized 5,000,000 shares of
        preferred  stock  at a par  value of  $.001  per  share.  No  shares  of
        preferred stock have been issued.

NOTE 11 STOCK WARRANTS ISSUED AND OUTSTANDING

        As of January 31, 2004, the Company had 33,419,167  warrants to purchase
        common stock  outstanding.  The warrants are exercisable at share prices
        between  $.50 and $3.00 and expire at various  dates  through  December,
        2010.


                                      (7)
<PAGE>

                               TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                            JANUARY 31, 2004 AND 2003

NOTE 12 INCOME TAXES

        The  Company  has  approximately   $21,900,000  in  net  operating  loss
        carryforwards,  which can be used to offset future taxable  income.  The
        net operating loss carryforwards expire through 2023.

        The  components of the  Company's  deferred tax assets as of January 31,
        2004 and 2003 are as follows:

                                                   2004               2003
                                               ------------      ------------
        Net operating loss carryforwards       $ 8,800,000       $ 8,600,000
        Valuation allowance                     (8,800,000)       (8,600,000)
                                               ------------      ------------
        Deferred tax asset                     $        --       $        --
                                               ===========       ===========

        The  valuation  allowance  increased by $200,000 and  $1,200,000  in the
        years ended January 31, 2004 and 2003, respectively.

        There are no  significant  differences  between  taxes  computed  at the
        federal  statutory rate and the provision for income taxes for the years
        ended January 31, 2004 and 2003.

NOTE 13 DIRECTORS' FEES

        The Company  accrued Board of Directors' fees for the year ended January
        31, 2004 in the amount of $50,000.

NOTE 14 EMPLOYMENT AGREEMENT

        In  July,  2000,  the  Board  of  Directors  approved  the  terms  of an
        Employment  Agreement for the Company's  Chief  Executive  Officer.  The
        Employment  Agreement  is for a  period  of ten  years  from its date of
        execution. The Employment Agreement provides for an annual salary, to be
        increased by 10% each year. In addition,  the Chief Executive Officer is
        granted  the right to acquire up to  1,000,000  shares of the  Company's
        restricted  Common Stock for each full year of his  employment  with the
        Company,   commencing  with  the  year  beginning  June  10,  1994.  The
        acquisition price for such stock shall be the closing price of the stock
        on June 9 (or the closest  business day thereto) of each such full year.
        He has the right to  exercise  this option at any time up to seven years
        from the date his right to  acquire  stock  vests.  The chief  executive
        officer can earn additional compensation in the form of commissions at a
        rate of $250 per French fry vending machine manufactured and placed into
        commercial use. The agreement also provides for compensation arrangement
        in the case of temporary disability, death and permanent disability.

NOTE 15 RELATED PARTY TRANSACTIONS

        At January 31, 2004,  the Company holds a $30,332 demand note payable to
        the chief executive officer as discussed in Note 6.


                                      (8)
<PAGE>

                               TASTY FRIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                            JANUARY 31, 2004 AND 2003

NOTE 15 RELATED PARTY TRANSACTIONS (CONTINUED)

        For the years ended January 31, 2004 and 2003, the company incurred
        commission expense to individuals related to the chief executive
        officer in the aggregate amounts of $2,500 and $137,000,
        respectively.

NOTE 16 ADVERTISING EXPENSE

        The Company conducts nondirect response advertising and utilizes a
        website to market its product. These costs are expensed as incurred.
        Advertising costs for the years ended January 31, 2004 and 2003 were
        $10,280 and $58,223, respectively.



                                      (9)