SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                   FORM 10-KSB

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

For the fiscal year ended January 25, 2004
                          ----------------

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

For the Transition period from_________________to________________

                          Commission File Number 0-8513
                                                 ------

                            CHEFS INTERNATIONAL, INC.
                            -------------------------
                 [Name of small business issuer in its charter]

       DELAWARE                                          22-2058515
----------------------------------------                ------------------------
[State or other jurisdiction of                         [IRS Employer
  incorporation or organization]                          Identification Number]

62 Broadway, P.O. Box 1332
Pt. Pleasant Beach, New Jersey                           08742
----------------------------------------                ------------------------
[Address of principal executive offices]                [Zip Code]

Issuer's telephone number, including area code:         (732) 295-0350
                                                        ------------------------

Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
                                                                     ----

Securities registered pursuant to Section 12(g) of the Exchange Act:

                          Common Stock, $.01 Par Value
                          ----------------------------
                                (Title of Class)

Check  whether the issuer [1] filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months [or for such shorter
period  that the issuer was  required  to file such  reports],  and [2] has been
subject to such filing requirements for the past 90 days. YES X    NO
                                                             ---     ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of  issuer'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.

                                      [   ]

The issuer's revenues for the year ended January 25, 2004 totaled $22,283,169.

On March 30, 2004, the aggregate  market value of the voting stock of the issuer
(consisting  of  Common  Stock,  $.01  par  value)  held by  non-affiliates  was
approximately $3,285,000 based upon the last sale price for such Common Stock on
said date in the over-the-counter  market as reported by the Pink Sheets LLC. On
such date,  there were 3,926,116  shares of the issuer's Common Stock issued and
outstanding.

Transitional Small Business Disclosure Format (check one)

          YES      NO X
             ---     ---


<PAGE>

                            CHEFS INTERNATIONAL, INC.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         (a) BUSINESS  DEVELOPMENT - Chefs  International,  Inc. ("Chefs" or the
"Company") was organized  under the laws of the State of Delaware in March 1975.
The Company currently  operates ten restaurants on a year-round basis,  eight of
which are  free-standing  seafood  restaurants  in New Jersey (four) and Florida
(four);  one of which is a  free-standing  Mexican theme  restaurant  located in
Freehold,  New  Jersey,  and one of which  is a  free-standing  restaurant  also
located in Freehold, New Jersey featuring an eclectic American food menu. Six of
the  seafood  restaurants  are  operated  under the name "Jack  Baker's  Lobster
Shanty,  " one under the name  "Baker's  Wharfside"  and one under the name "Mr.
Manatee's  Casual Grille.  " The Mexican theme  restaurant is operated under the
name "Escondido's Mexican Restaurant. " The eclectic American food restaurant is
operated under the name "Moore's Tavern and Restaurant. " The Company opened its
first seafood  restaurant  in November  1978,  its Mexican  theme  restaurant in
January 2002 and "Moore's  Tavern and  Restaurant"  in February  2000.  (As used
herein,  the term the  "Company"  may at times  include  Chefs  and its  various
subsidiaries.)  See "Development Since the Beginning of the Last Fiscal Year" as
to the Company's closing in June 2003 of its Mexican theme restaurant located at
the Monmouth Mall, in Eatontown,  New Jersey and its planned  closing during the
late  spring or  summer of  calendar  year  2004 of one of its  Florida  seafood
restaurants.

         The  Company's  executive  offices  are located at 62  Broadway,  Point
Pleasant Beach, New Jersey 08742. Its telephone number is (732) 295-0350.

DEVELOPMENTS SINCE THE BEGINNING OF THE LAST FISCAL YEAR

RESTAURANT CLOSINGS

         In June  2003,  as a  result  of  continuing  operating  losses  at its
Monmouth Mall Mexican theme restaurant,  the Company closed this restaurant.  In
connection  with the  closing,  the  Company  wrote off  approximately  $230,000
attributable  to leasehold  improvements  and  equipment at the  restaurant  and
executed a Surrender  Agreement  with the Mall owner.  Pursuant to the Surrender
Agreement,  the  Company  agreed  to pay  $180,000  in  consideration  for early
cancellation  of the  restaurant  lease.  The  Company  recorded  a loss  on its
financial statements attributable to the closing of this restaurant of $410,024.
The Company is  attempting  to sell the liquor  license which it had utilized at
this  restaurant  and which can be used within the Borough of  Eatontown  in New
Jersey. See Note 11 of Notes to the Consolidated  Financial  Statements included
in this Report.

         In the first quarter of calendar year 2004,  management decided to sell
the Company's Jensen Beach,  Florida Lobster Shanty  restaurant due to declining
sales and a lack of  profitability.  The Company has executed a contract to sell
this  restaurant  for  $900,000.  The  closing is  expected to take place in the
second  quarter of  calendar  year 2004.  The Company  anticipates  that it will
recognize a gain of approximately  $400,000 from this sale. See Note 16 of Notes
to the Consolidated Financial Statements.

PROPOSED "GOING PRIVATE" TRANSACTION

         On November  21,  2003,  the Company  announced  that it had received a
proposal from the Lombardi  Restaurant  Group,  Incorporated,  a newly organized
entity owned by Robert M.  Lombardi;  Anthony M.  Lombardi;  Joseph S. Lombardi;
Michael F. Lombardi and Stephen  Lombardi (the  "Lombardi  Brothers")  and their
affiliates (collectively the "Lombardi Group") to acquire all of the outstanding
shares  of Chefs  common  stock  not  owned by the  Lombardi  Group,  for a cash
purchase  price  of  $1.75  per  share.  The  proposal   contemplated  that  the
acquisition  would be effected through a merger pursuant to which a newly formed
acquisition  corporation  owned by the  Lombardi  Group would be merged with the
Company and the  Company's


                                       2
<PAGE>

stockholders other than the members of the Lombardi Group would be paid $1.75 in
cash for each share they owned of Chefs common stock.

         The  five  Lombardi  Brothers  hold  five  of the  eight  seats  on the
Company's  board of  directors  and Robert M.  Lombardi is also  chairman of the
board. The members of the Lombardi Group  collectively own  approximately 61% of
Chefs' outstanding common stock.

         The  proposal  was  subject  to  various   conditions   including   the
requirement that the Company's board of directors  determines and recommends the
proposed  acquisition price to be fair to the Company's  minority  stockholders.
The board of directors  appointed a Special  Committee  consisting  of the three
non-Lombardi Brother directors,  Nicholas B. Boxter, Kenneth Cubelli and Raymond
L. Dademo,  to review and analyze the proposal and to determine whether in their
judgment,  they deem the proposed  acquisition price to be fair to the Company's
minority stockholders.

         On January 30, 2004, the Company  announced that the Special  Committee
had  retained  the  investment  banking  firm of Houlihan  Lokey  Howard & Zukin
Financial  Advisors,  Inc.  to  render an  opinion  to the  Committee  as to the
fairness,   from  a  financial   point  of  view,  to  the  Company's   minority
stockholders, of the consideration offered by the Lombardi Group.

         On March 8, 2004,  the Company  announced  that the Special  Committee,
after review with its financial and legal  advisors,  had voted  unanimously  to
reject the $1.75 per share offer made by the Lombardi Group, concluding that the
offer price did not adequately reflect the Company's value.

         On March 15, 2004,  the Company  announced  that the Lombardi Group had
increased its purchase offer to $2.50 per share and that the Special  Committee,
with the assistance of its financial and legal  advisors,  was in the process of
analyzing the new proposal to determine  whether in its  judgment,  the proposed
increased purchase price was fair to the Company's minority stockholders.

         On April 19, 2004, the Company  announced  that the Special  Committee,
after review with its financial and legal  advisors,  had voted  unanimously  to
reject this increased  offer of $2.50 per share,  concluding  that the new offer
price still did not adequately reflect the Company's value.

         On April 21, 2004,  the Company  announced  that the Lombardi Group had
once again increased its purchase offer,  this time to $3.00 per share, and that
this  new  proposal  was  being  analyzed  by the  Special  Committee  with  the
assistance  of its  financial  and legal  advisors to  determine  whether in its
judgment,  the proposed $3.00 purchase price was fair to the Company's  minority
stockholders.

RESIGNATION OF PRESIDENT, TREASURER, PRINCIPAL EXECUTIVE AND PRINCIPAL FINANCIAL
OFFICER

         In April 2004, Anthony C. Papalia, the Company's president,  treasurer,
principal  executive and principal financial officer requested of the board that
he be  released  from his  employment  contract  (due to expire  in March  2005)
effective  at the close of  business  on June 28,  2004  "...in  order to pursue
personal  interests...."  The  board  agreed to  release  Mr.  Papalia  from his
employment  contract  at said date and he  agreed to a one year  non-competition
agreement with the Company. No decision has been made as to who will succeed Mr.
Papalia as president and principal  executive officer but it is anticipated that
Martin  Fletcher,  the  Company's  controller,  will succeed Mr.  Papalia as the
Company's treasurer and chief financial officer.

SHARE REPURCHASE PROGRAM

         On January 21, 2003, the Company  announced a Share Repurchase  Program
to  purchase  up to 100,000  shares of Chefs  Common  Stock over the next twelve
months.  At the  conclusion  of the  Program,  the  Company had  repurchased  an
aggregate 40,000 shares


                                       3
<PAGE>

of Chefs' Common Stock in the  over-the-counter  market at a repurchase price of
$1.48 per share.

         The Company's  Board of Directors  believed that Chefs common stock was
undervalued  in  the  public  market  and  that  the  Repurchase  Program  would
constitute   an   appropriate   investment  to  the  benefit  of  the  Company's
stockholders.  All repurchases  were effected at prices per share  substantially
below the Company's per share book value.  The Company  utilized  available cash
reserves to effect each of its stock repurchases.

BANK LOANS

         At January  26,  2003,  the Company  had a $500,000  revolving  line of
credit  ("L/C  line") from First Union Bank  (subsequently  acquired by Wachovia
Bank),  expiring on June 30,  2003 and  secured by a first  mortgage on its Toms
River, New Jersey Lobster Shanty  restaurant.  No borrowings had been made under
the L/C line at said date. The L/C line was renewed in June 2003 and extended to
June 30, 2005.  During fiscal year 2004 through  January 25, 2004, no borrowings
were made under the L/C line. All  subsequent  references to Wachovia Bank shall
refer to Wachovia  Bank as well as to First Union Bank prior to its  acquisition
by Wachovia Bank.

         The Company is indebted  to  Wachovia  Bank under a $500,000  Term Loan
made in May 2002,  the  proceeds of which were  applied to the  repayment of the
balance under an outstanding  L/C line.  Principal  payments under the Term Loan
are due in amounts varying from $5,000 to $25,000 in the months of March through
November through 2007 together with interest at the LIBOR Market Index Rate plus
2%.  Indebtedness  under the Term Loan is secured by a mortgage on the Company's
Toms River,  New Jersey  Lobster  Shanty  restaurant.  At January 25, 2004,  the
outstanding principal balance under this Term Loan was approximately $315,000.

         In September  2001,  the Company  borrowed  $600,000 from Wachovia Bank
secured  by a first  mortgage  on its  Baker's  Wharfside  restaurant  in  Point
Pleasant  Beach,  New Jersey and borrowed an  additional  $600,000 from the Bank
secured by a first  mortgage on its Jack Baker's  Lobster  Shanty  restaurant in
Point Pleasant Beach. Each of these two loans have a ten year maturity providing
for annual principal payments of approximately $60,000 commencing in fiscal 2003
together  with  interest on the unpaid  balance at an annual  rate of 7.57%.  At
January 25, 2004, the outstanding  principal  balance of each of these loans was
$477,500.

         The Company  applied  the  $1,200,000  of loan  proceeds as part of the
$1,300,000 it utilized to renovate, decorate and equip (kitchen, bar, furniture,
fixtures)  its  Escondido's  Mexican  Restaurant  in Freehold,  New Jersey which
opened in January 2002.

         In May 1998,  the  Company  borrowed  $124,000  from  Wachovia  Bank to
partially  fund the purchase of property  adjoining  its Toms River,  New Jersey
Lobster Shanty  restaurant.  The loan was repayable in monthly  installments  of
principal with interest at LIBOR plus 2 1/4% through May 2003 and was secured by
a first mortgage on the property. At January 26, 2003,  approximately $8,300 was
outstanding under this loan. This loan was repaid in full during fiscal 2004.

         In October 1998,  the Company  borrowed  $880,000 from Wachovia Bank to
fund the $1,100,000 purchase of its Vero Beach, Florida seafood restaurant. This
loan is repayable in monthly  installments of $8,319  comprised of principal and
interest at an annual rate of 7.82%  through  November  2008 and is secured by a
first mortgage on the Vero Beach  property.  At January 25, 2004,  approximately
$690,400  was  outstanding  under  this  loan  (which  provides  for a  $431,429
"balloon" payment in November 2008).

         Repayment of the Company's term loans and of borrowings  under its line
of credit is guaranteed by each of the Company's subsidiaries.


                                       4
<PAGE>

         Pursuant to its principal  Loan  Agreements,  the Company has agreed to
certain affirmative and negative covenants,  violation of which without Wachovia
Bank's waiver would constitute a default under the Loan Agreements. Included are
affirmative  covenants  by the  Company  to  maintain  its  properties  in  good
condition and repair; maintain adequate insurance coverage; conduct its business
in the  manner  and at the  locations  where it is  currently  being  conducted;
maintain  a Funds  Flow  Coverage  of not less  than  1.20 to 1.00;  maintain  a
Tangible  Net  Worth  at  fiscal  2004  year end of not  less  than  $12,600,000
increasing by not less than $50,000 in each subsequent year; maintain a ratio of
Senior  Liabilities to Effective Tangible Net Worth of not more than .50 to 1.00
measured  semi-annually;  and  maintain  liquid  assets  (cash,  time  deposits,
marketable  securities)  of not less than  $500,000.  Also included are negative
covenants of the Company not to permit or effect a material  change in ownership
or in management;  not to create or permit certain liens or  encumbrances on its
assets; not to guarantee third party obligations; and not to retire or otherwise
acquire any of its capital stock (without receiving a waiver from the Bank.) The
Company  received  waivers from the Bank for its stock  repurchases  effected in
fiscal years  2001-2003 as well as for its  repurchases  pursuant to its January
2003 Stock  Repurchase  Program  described  above. The Company was in compliance
with all material  covenants  under the Loan Agreements at January 25, 2004. The
Company subsequently  received a waiver from Wachovia Bank of any claim that the
resignation  and  departure  of  Anthony  C.  Papalia  at June  28,  2004 as the
Company's  principal executive and principal financial officer might be deemed a
violation of the covenant regarding material change in management.

         (b)  BUSINESS OF ISSUER - The Company is engaged in one  business;  the
operation of ten restaurants in New Jersey and Florida on a year-round basis but
has  decided  to close one of the  Florida  seafood  restaurants  in the  second
quarter of calendar 2004.

                              RESTAURANT OPERATIONS

         The Company  currently  operates ten restaurants on a year-round basis,
eight of which are  free-standing  seafood  restaurants in New Jersey (four) and
Florida (four); one of which is a free-standing Mexican theme restaurant located
in Freehold,  New Jersey,  and one of which is a  free-standing  restaurant also
located in Freehold, New Jersey featuring an eclectic American food menu. Six of
the  seafood  restaurants  are  operated  under the name "Jack  Baker's  Lobster
Shanty,"  one under  the name  "Baker's  Wharfside"  and one under the name "Mr.
Manatee's  Casual  Grille." The Mexican theme  restaurant is operated  under the
name "Escondido's  Mexican Restaurant." The eclectic American food restaurant is
operated under the name "Moore's Tavern and  Restaurant." The Company opened its
first seafood  restaurant  in November  1978,  its Mexican  theme  restaurant in
January  2002  and  "Moore's  Tavern  and  Restaurant"  in  February  2000.  See
"Developments  Since the  Beginning of the Last Fiscal Year" as to the Company's
closing in June 2003 of its Mexican  theme  restaurant  located at The  Monmouth
Mall in Eatontown,  New Jersey and its planned closing during the second quarter
of  calendar  2004 of one of its  Florida  seafood  restaurants.  The  Company's
restaurants, all of which are operated on a year-round basis, are as follows:

                                         Date of Opening Under
     Location                            The Company's Management
     --------                            ------------------------

SEAFOOD RESTAURANTS
-------------------

Jack Baker's Lobster Shanty
---------------------------

Vero Beach, Florida                      December 1979
Pt. Pleasant Beach, New Jersey           October 1980
Toms River, New Jersey                   October 1980
Jensen Beach, Florida                    December 1980*
Cocoa Beach, Florida                     September 1981
Hightstown, New Jersey                   December 1981


                                       5
<PAGE>

Baker's Wharfside
-----------------

Pt. Pleasant Beach, New Jersey           October 1980

Mr. Manatee's Casual Grille Restaurant
--------------------------------------

Vero Beach, Florida                      April 2002

ESCONDIDO'S MEXICAN RESTAURANT
------------------------------

Freehold, New Jersey                     January 2002

MOORE'S TAVERN AND RESTAURANT
-----------------------------

Freehold, New Jersey                     February 2000

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

* The Company  plans to close on its sale of this  restaurant  during the second
quarter of calendar year 2004.

SEAFOOD RESTAURANTS

         The Company's seafood  restaurants  provide a variety of seafood dishes
including shellfish such as lobster,  scallops,  shrimp,  oysters and clams, and
other fish  including  red snapper,  bluefish,  grouper and other  varieties.  A
limited  selection of non-seafood  entrees is also offered  including  steak and
chicken  as  well  as  a  dessert  selection.  Most  of  the  Company's  seafood
restaurants have a nautical decor.

         JACK BAKER'S LOBSTER SHANTY RESTAURANTS

         VERO BEACH,  FLORIDA - This  restaurant,  consisting  of  approximately
6,900 square feet, is free standing in Vero Beach,  Florida on the  intracoastal
waterway, and seats approximately 200. It opened in December, 1979 pursuant to a
lease from a partnership,  the principal partner of which was the Company's then
principal  stockholder.  During fiscal 1998, the Company  constructed an outdoor
deck  with  a bar  and  dining  facilities  at  this  restaurant  at a  cost  of
approximately  $125,000. At August 31, 1998, the Company was continuing to lease
this restaurant on a  month-to-month  "net" basis at a monthly rental of $10,000
with the Company also paying personal  property taxes and insurance  thereunder.
On that date, the United States  Bankruptcy Court for the District of New Jersey
ordered the  acceptance  of the Company's bid of $1,100,000 to purchase the Vero
Beach restaurant property from the partnership. On October 30, 1998, the Company
completed the purchase of the property for $1,100,000. To fund the purchase, the
Company  obtained an $880,000  first  mortgage loan from its  principal  lending
bank,  and paid the balance of the  purchase  price from  working  capital.  The
Company's successful bid was based upon an independent appraisal of the property
and was  equal  to the  appraised  value.  See  "Bank  Loans"  herein  as to the
repayment terms of this loan.

         During  fiscal  2002,  the Company was assessed and paid $62,674 as its
share for the  development  by the City of Vero Beach of the Royal  Palm  Pointe
project.  This project is a city park  development  contiguous  to the Company's
Jack  Baker's  Lobster  Shanty and its Mr.  Manatee's  restaurants.  Among other
amenities, it provides municipal parking which the Company believes has enhanced
its restaurant business at those locations.

         PT.  PLEASANT  BEACH,  NEW  JERSEY  - This  restaurant,  consisting  of
approximately 17,000 square feet, is free standing with a waterfront location on
Channel Drive in Pt. Pleasant Beach, New Jersey and seats  approximately 750. It
shares parking with the Baker's Wharfside  restaurant in Pt. Pleasant Beach with
space for approximately  250 automobiles.  The Company purchased this restaurant
and three others  (including the land,  buildings,  improvements  and businesses


                                       6
<PAGE>

including  personal  property  and  fixtures,  liquor  licenses  and  all of the
outstanding stock of the four corporations operating these restaurants) from its
then  principal  stockholder,  and from  three  partnerships  owned  by him,  in
October,  1980 for an aggregate $7,750,000 less a subsequent $250,000 prepayment
discount.

         TOMS RIVER, NEW JERSEY - This  restaurant,  consisting of approximately
10,750  square  feet,  is free  standing on Robbins  Parkway  with a  waterfront
location  on the Toms River in Toms  River,  New Jersey and seats  approximately
375.  Municipal parking  facilities are available nearby.  The Company purchased
this restaurant and three others (including the land,  buildings,  improvements,
and businesses including personal property and fixtures, liquor licenses and all
of the outstanding stock of the four corporations  operating these  restaurants)
from its then principal  stockholder,  and from three partnerships owned by him,
in  October  1980  for  an  aggregate  $7,750,000  less  a  subsequent  $250,000
prepayment  discount.  During  fiscal  1998,  the Company  commenced an interior
renovation  of this  restaurant,  the bulk of which was completed in fiscal 1998
with the  balance  completed  early  in  fiscal  1999.  The  total  cost of this
renovation was approximately  $338,000.  In fiscal 1999, the Company constructed
an  outdoor  deck with a bar and dining  facilities  at this  restaurant  adding
approximately 125 seats at a cost of approximately $188,000.

         In May 1998,  the Company spent $166,000 to purchase a lot and building
with a  waterfront  location  adjacent  to the Toms River  Lobster  Shanty.  The
Company  partially  funded  the  purchase  price  with the bank loan  previously
described.  The Company has obtained the permits and variances  necessary for it
to develop an outdoor  patio  dining area with  seating for 125 on this site but
delayed  construction pending resolution of a lawsuit initiated by a neighboring
landowner  attempting to prevent  construction.  The landowner's  time to appeal
from the  granting  of the  permits and  variances  to the Company has  expired.
Management  assumes  there  will  be  no  further  objection  to  the  Company's
construction  of the planned  patio dining area.  As a result of the delay,  the
board of  directors  has  deferred  its  decision on whether to proceed with the
construction  of the  patio.  If the board  determines  to  proceed  in the next
several  months,  the  Company  estimates  the total  cost of  construction  and
outfitting  at  approximately  $350,000 for an opening which could take place in
fiscal 2006.

         JENSEN  BEACH,  FLORIDA  - This  200  seat  restaurant,  consisting  of
approximately  4,500 square feet, is located in a free standing  building on the
intracoastal  waterway in Jensen Beach,  Martin County,  approximately  50 miles
north of Palm Beach. The restaurant has parking for 100 automobiles. Acquired in
October 1980 were two lots, the restaurant with furnishings and a liquor license
from an  unaffiliated  party for  $975,000.  The  Company  made a $295,000  down
payment and paid the balance over a ten year period through  September 1990. See
"Developments  Since the  Beginning  of the Last Fiscal  Year"  herein as to the
planned  closing of the Company's sale of this  restaurant in the second quarter
of calendar year 2004.

         COCOA  BEACH,   FLORIDA  -  This  approximately  240  seat  restaurant,
consisting  of  approximately  9,600 square feet,  is located in a free standing
building on Highway A1A in Cocoa  Beach and has  parking  for  approximately  90
cars. The Company  acquired this  restaurant as well as a seafood  restaurant in
Titusville, Florida in September 1981 through the purchase from two unaffiliated
individuals of the outstanding capital stock of two corporations  engaged in the
ownership  and  operation  of a Florida  seafood  restaurant  at each of the two
sites.  The  corporations  owned the land on which the restaurants were located,
the restaurant buildings,  the restaurant businesses including personal property
and fixtures and liquor licenses for each restaurant, all of which were included
in the sale.  The  purchase  price paid by the  Company for the stock of the two
corporations  (prior to closing  adjustments) was $3,370,000,  the bulk of which
was  represented  by 20-year  promissory  notes  payable  monthly and secured by
mortgages on the restaurants.  The Company sold the Titusville  restaurant to an
unaffiliated  third  party in January  1988  realizing  a loss of  approximately
$942,000.  The Company


                                       7
<PAGE>

prepaid the balance of the remaining  indebtedness  under the notes in July 1993
using the net proceeds from the sale in June 1993 of another Florida  restaurant
property.

         HIGHTSTOWN,  NEW JERSEY - This restaurant,  consisting of approximately
4,600 square feet, is free standing on State Highway 33 approximately  two miles
east of Hightstown and seats  approximately  175. The restaurant has parking for
approximately  100 automobiles.  The Company purchased this restaurant and three
others  (including the land,  buildings,  improvements and businesses  including
personal property and fixtures, liquor licenses and all of the outstanding stock
of the four  corporations  operating these  restaurants) from its then principal
stockholder  and from three  partnerships  owned by him, in October  1980 for an
aggregate $7,750,000 less a subsequent $250,000 prepayment discount.

         BAKER'S WHARFSIDE RESTAURANT

         PT.  PLEASANT  BEACH,  NEW  JERSEY  - This  restaurant,  consisting  of
approximately  7,500 square feet, is free standing with a waterfront location on
Channel Drive in Pt. Pleasant Beach, New Jersey and seats  approximately 500. It
shares  parking with the Lobster  Shanty  restaurant in Pt.  Pleasant Beach with
space for approximately  250 automobiles.  The Company purchased this restaurant
and three others  (including the land,  buildings,  improvements  and businesses
including  personal  property  and  fixtures,  liquor  licenses  and  all of the
outstanding stock of the four corporations operating these restaurants) from its
then  principal  stockholder,  and from  three  partnerships  owned  by him,  in
October,  1980 for an aggregate $7,750,000 less a subsequent $250,000 prepayment
discount.

         MR. MANATEE'S CASUAL GRILLE RESTAURANT

         VERO BEACH,  FLORIDA - This  restaurant,  consisting  of  approximately
4,000  square feet,  is free  standing at 30 Royal Palm Pointe in Vero Beach and
seats  approximately  165. It has parking for  approximately  40 automobiles but
there are additional  municipal parking spaces available at the contiguous Royal
Palm Pointe municipal park. Pursuant to a January 2002 asset purchase agreement,
the Company purchased the furnishings,  fixtures and equipment,  liquor license,
goodwill,  right  to the  name  and  the  business  of  Mr.  Manatee's  from  an
unaffiliated third party for $800,000. The Company paid $300,000 of the purchase
price from its available cash reserves and borrowed the $500,000  balance (which
it repaid in fiscal  2003)  under its  available  Line of Credit.  See Note 5 of
Notes to the Company's Consolidated Financial Statements as to the write down of
the goodwill associated with Mr. Manatee's in the amount of $583,922 as a result
of the aggregate  capitalization  of the Company being less than its book value.
This amount is included as an operating  expense in the  Company's  Consolidated
Statement of Operations for fiscal 2003. On April 1, 2002,  the Company  entered
into a five year lease of the restaurant  property at a monthly rental of $8,000
under a triple "net-net" Lease. The Lease provides the Company with an option to
renew the lease for up to three  additional  five  year  terms  with the  rental
increasing by ten percent for each additional  five-year renewal term. The Lease
also provides the Company with the right to purchase the Property for $1,075,000
at the expiration of the initial five year term of the Lease.

         Mr.  Manatee's  Casual Grille opened under the Company's  management on
April 1, 2002.  It is a casual  theme  restaurant  primarily  featuring  seafood
items,  serving lunch meals,  dinner meals and sandwiches.  To date, the average
check at Mr.  Manatee's has been  approximately  15% to 20% lower than the check
average at the Company's other seafood restaurants.

MEXICAN THEME RESTAURANTS

         At January  26,  2003,  the  Company was  operating  two Mexican  theme
restaurants,  each under the name  "Escondido's  Mexican  Restaurant." One was a
free-standing  restaurant located in Freehold, New Jersey. The other was located
at The Monmouth Shopping Mall in Eatontown,  New Jersey. See "Developments Since
the Beginning of the Last Fiscal Year" as to the Company's  closing in June 2003


                                       8
<PAGE>

of its Escondido's  Mexican Restaurant at The Monmouth Shopping Mall. At January
25, 2004,  the Company was  operating  only one Mexican  theme  restaurant;  its
free-standing "Escondido's Mexican Restaurant" in Freehold, New Jersey.

         The  Company's  Mexican  theme  restaurant   features  Mexican  cuisine
including  fajitas,  tortillas,  burritos  and  enchiladas  with  cheese,  beef,
chicken, pork and seafood fillings. The menus also include appetizers, soups and
salads  and a limited  number of  American  style  offerings  such as steaks and
burgers.  Alcoholic  offerings such as margaritas and tequilas  complement fruit
drinks and other soft drinks.

         FREEHOLD,  NEW JERSEY - The  Company  opened its  Freehold,  New Jersey
"Escondido's  Mexican  Restaurant"  located on West Main  Street  (Route 537) in
January 2002. This free-standing  restaurant,  consisting of approximately 5,000
square feet of leased  space,  is  decorated in a bright  multi-colored  Mexican
motif.  The  restaurant  has a bar and tables and booths  which can  accommodate
approximately  225  patrons and shares  parking  facilities  with the  adjoining
Moore's  Tavern  and  Restaurant.   It  has  a  liquor  license  permitting  the
consumption of wine and alcoholic  beverages on the premises.  The restaurant is
open for lunch and dinner seven days per week.

         The Company  leased the facility  ("Building  B") from  Moore's  Realty
(whose partners are members of the controlling  Lombardi Group and other members
of the Lombardi family). The lease is a "triple-net" lease pursuant to which the
Company is  required  to pay real estate  taxes,  insurance  and heating and air
conditioning  costs.  The lease is for a five-year term through January 2007 and
contains  provisions for three consecutive  five-year  renewals at the Company's
option which are automatically effective unless the Company gives written notice
at least  six  months  before  the end of the  applicable  term that it does not
intend that such option be exercised. The Company has the right to terminate the
lease upon six months'  written  notice  during the initial  lease term provided
that such notice cannot be given until 18 months after the  commencement  of the
initial  lease term and upon twelve  months  written  notice  during any renewal
term.

         The lease  provides for a minimum  annual rental of $90,000 during each
year of the  initial  five-year  term,  $100,000  during  each year of the first
five-year  renewal  period,  $112,500  during each year of the second  five-year
renewal  period and  $125,500  during each year of the third  five-year  renewal
period.  In addition to the minimum annual rental,  the Company is also required
to pay an amount to Moore's  Realty  equal to (i) 6% of the total gross sales of
food and  beverages  etc.  at the  facility  in each year  (excluding  taxes and
gratuities)  (the "gross annual rental") less (ii) the minimum annual rental for
that year.  The Company  paid the minimum  annual  rental with respect to fiscal
2004.  Moore's  Realty has the right to terminate the lease upon twelve  months'
prior written  notice if, for the preceding  lease year, the gross annual rental
did not exceed the minimum annual rental for that year.

         The Company expended approximately $1,300,000 to renovate, decorate and
equip (kitchen, bar, furniture,  fixtures) its Escondido's Mexican Restaurant in
Freehold,  New Jersey.  The bulk of the costs were paid from the proceeds of two
bank loans from Wachovia Bank aggregating  $1,200,000.  See "Developments  Since
the  Beginning  of the Last Fiscal Year - Bank Loans" in this Item 1. During the
renovation of this restaurant, the Company paid an aggregate $15,000 in rents to
Moore's  Realty with respect to Building B. The Company had no  additional  cost
for the liquor  license for these  premises,  the license being  permitted as an
expansion of the license on the adjoining "Moore's Tavern and Restaurant."

         See "Moore's Tavern and Restaurant" herein as to the Company's lease of
the Building C pad site to provide  additional  parking for both this restaurant
and Moore's Tavern and Restaurant.


                                       9
<PAGE>

MOORE'S TAVERN AND RESTAURANT

         In February  2000,  the Company  executed a lease with  Moore's  Realty
(whose partners are members of the controlling  Lombardi Group and other members
of the Lombardi  family).  The lease was of premises on West Main Street  (Route
537) in  Freehold,  New Jersey  (Building  A), where an entity  affiliated  with
Moore's  Realty,  Moore's Inn, Inc. was operating a restaurant  and tavern under
the  name  "Moore's  Inn."  The  Company  provided  consulting  services  to the
operators  of Moore's Inn from  January 3, 2000 until  February 23, 2000 when it
executed the following  described lease and purchase agreements and commenced to
operate the facility under the name "Moore's Tavern and Restaurant."

         The  lease was for a  five-year  term  through  February  22,  2005 and
contains  provisions for three consecutive  five-year  renewals at the Company's
option which are automatically effective unless the Company gives written notice
at least six months  before the end of the  initial  term or at least six months
before the end of the  applicable  renewal  period  that it does not intend that
such option be exercised.  After 18 months,  the Company can terminate the lease
upon six months'  written  notice  provided  that  during each of the  five-year
renewal periods,  the Company must provide at least twelve months' prior written
notice to terminate.

         The lease is a  "triple-net"  lease  pursuant to which the Company will
pay real estate taxes,  insurance and heating and air  conditioning  costs.  The
lease  provides for a minimum  annual rental of $90,000  during each year of the
initial five-year term, $100,000 during each year of the first five-year renewal
period,  $112,500  during each year of the second  five-year  renewal period and
$125,500 during each year of the third five-year  renewal period. In addition to
the minimum  annual  rental,  the  Company is also  required to pay an amount to
Moore's  Realty  equal to (i) 6% of the total gross sales of food and  beverages
etc. at the facility in each year (excluding  taxes and gratuities)  (the "gross
annual  rental")  less (ii) the  minimum  annual  rental for that year.  For the
fiscal year ended  January  25,  2004,  the gross  rental  aggregated  $149,763.
Moore's  Realty has the right to terminate  the lease upon twelve  months' prior
written notice if, for the preceding lease year, the gross annual rental did not
exceed the minimum annual rental for that year.

         During the lease term, the Company has been granted the exclusive right
to the use of the names  "Moore's Inn" and "Moore's  Tavern" within the State of
New Jersey.  Moore's Realty has agreed not to operate,  lease, rent or permit to
be operated as a restaurant or tavern during the lease term, any premises owned,
leased or  occupied  by it or  members of the  Lombardi  family  (not  presently
occupied as such), located within ten miles of Moore's Tavern and Restaurant.

         In connection with the lease, the Company purchased a New Jersey liquor
license from Moore's Inn,  Inc. for $350,000 and agreed to sell the license back
to the Seller or to Moore's Realty at the  termination of the lease for the same
$350,000.  In addition,  the Company purchased existing furniture,  fixtures and
equipment at Moore's Inn from Moore's Inn,  Inc. for $250,000  agreeing to leave
all of the furniture, fixtures and equipment at the premises "...in good working
condition, reasonable wear and tear excepted... " upon termination of the lease.

         The lease of the Moore's Inn and the purchase of the liquor license and
the  furniture,   fixtures  and  equipment   cannot  be  deemed  "arm's  length"
transactions due to the interest therein of the Lombardi Group and other members
of the Lombardi  family.  The  transactions  were  negotiated for the Company by
Anthony C. Papalia,  its president and chief executive  officer.  In negotiating
the  transactions,  Mr.  Papalia  took into  account his  experience  in similar
restaurant  leases, the prices at which liquor licenses were sold in neighboring
areas (finding such prices to be comparable to the liquor license purchase price
paid by the Company) and the condition of the furniture, fixtures and equipment.
The bulk of the  furniture,  fixtures and  equipment  had been  purchased by the
Seller during the twelve months ended June 30, 1999 at a price of $621,893.  Mr.
Papalia  and the  non-interested  directors  concluded  that  the  terms  of the
transaction were fair and in the best interests of the Company.


                                       10
<PAGE>

         At the time of execution  of the lease,  Moore's  Realty  agreed not to
sell or lease a building  ("Building  B")  adjacent  to the  Moore's  Inn or the
nearby pad site for a proposed building ("Building C") for a period of one year.
If during the first year,  the Company  entered into an agreement to purchase or
lease  Building B,  Moore's  Realty  agreed not to sell or lease the pad site to
anyone other than the Company for an additional  one-year  period.  See "Mexican
Theme  Restaurants"  herein as to the Company's lease of Building B from Moore's
Realty in fiscal 2002, renovation of the facility and opening of an "Escondido's
Mexican  Restaurant"  at the  facility  in  January  2002.  At the  time  of the
Company's  leasing of Building B, the  Company  and Moore's  Realty  executed an
amendment to their January 21, 2000 lease  agreement  extending the initial term
of the earlier lease to the termination date provided for in the later lease and
similarly  extending  the renewal  periods of the earlier lease to coincide with
the renewal periods of the Building B lease.

         The Moore's Tavern and Restaurant,  consisting of  approximately  7,700
square feet,  is free standing and is located on West Main Street (Route 537) in
Freehold,  New Jersey.  The restaurant seats  approximately 260 (with an outdoor
patio for warm weather use that can seat an additional approximately 40 persons)
and accommodates  parking for approximately  200 automobiles,  the parking to be
shared with any businesses operated from Building B (now operated by the Company
as an Escondido's  Mexican  Restaurant),  and proposed Building C. See "Building
Pad C Parking  Lot" as to the  Company's  leasing of the  Building C pad site to
provide  additional  parking  for  patrons  of  its  two  Freehold,  New  Jersey
restaurants.  The tavern  portion of this  restaurant  is of an historic  nature
having  been  initially  constructed  in the late 18th  century  and owned by an
officer in the American  Revolutionary  Army. The entire restaurant is decorated
in a revolutionary period decor.

         The  Moore's  Tavern and  Restaurant  is open for lunch and dinner on a
year-round   basis.  It  features  an  eclectic   American  food  menu  offering
sandwiches,  burgers,  steak  and  other  meats,  chicken  and  fish,  potatoes,
vegetables and desserts, and alcoholic beverages.

BUILDING PAD C PARKING LOT

         In connection  with the February 2000 execution of the lease of Moore's
Inn to the  Company,  Moore's  Realty  agreed  not to sell or  lease a  building
("Building  B")  adjacent  to Moore's  Inn or the nearby pad site for a proposed
building  ("Building  C") to a third  party for a period  of one  year.  Moore's
Realty  also  agreed that if during the  initial  one-year  period,  the Company
entered into an agreement to purchase or lease  Building B, it would not sell or
lease the Building C pad site to anyone other than the Company for an additional
one-year  period.  In October 2001, the Company  leased  Building B from Moore's
Realty and in January 2002,  opened its Mexican  theme  restaurant in Building B
under the name "Escondido's Mexican Restaurant."

         In  September  2002,  the Company  leased the  Building C pad site from
Moore's  Realty for use as a parking lot for its  Freehold,  New Jersey  Moore's
Tavern and Restaurant and its Escondido's Mexican Restaurant. The lease is for a
five-year  term  through   January  2007  and  contains   provisions  for  three
consecutive  five-year  renewals at the Company's  option.  Either party has the
right to  terminate  the lease upon  twelve  (12) months  written  notice  after
conclusion  of the  initial  five (5) year term  provided  that if the  Landlord
elects to  terminate  the lease,  it must offer the Tenant the right to lease an
adjoining paved parking area sufficient to park at least fifty (50)  automobiles
on terms and conditions  similar to those contained in the lease. The lease also
provides that if the Company is leasing  either  Building A (Moore's  Tavern and
Restaurant)  or  Building  B  (Escondido's  Mexican  Restaurant)  at the time of
termination by Moore's Realty, Moore's Realty will not permit a restaurant to be
developed on the Building C pad site.

         The lease is a  "triple-net"  lease  pursuant to which the Company pays
real  estate  taxes,  insurance,  electricity  charges,  snow  and ice  removal,
cleaning  and


                                       11
<PAGE>

maintenance.  The lease provides for a minimum rent at an annual rate of $40,000
during each year of the initial five-year term,  $44,000 during each year of the
first five-year renewal period; $50,000 during each year of the second five-year
renewal  period and  $55,000  during  each year of the third  five-year  renewal
period.  In addition to the minimum  annual rent, the Company is required to pay
an amount to Moore's Realty equal to (i) 1% of the total gross sales of the food
and beverages etc. at the Moore's  Tavern and Restaurant and at the  Escondido's
Mexican  restaurant in each year (excluding  taxes and  gratuities)  (the "gross
annual rent"),  less (ii) the minimum  annual rent for such year.  During fiscal
2003, the Company installed  curbing,  paving and other improvements to the site
at a  cost  of  approximately  $134,000.  The  site  now  provides  parking  for
approximately  65  automobiles  for  patrons  of the two  Freehold  restaurants.
Moore's  Realty has agreed to reimburse  the  Company's  costs.  Moore's  Realty
reimbursement  obligation  will be applied as a credit  against the minimum rent
and the gross annual rent, if any, due under the lease.

         The lease  for the  Building  C pad site  cannot be deemed as an "arm's
length"  transaction due to the interest therein of the Lombardi Group and other
members of the  Lombardi  family.  The lease was  negotiated  for the Company by
Anthony C. Papalia,  its president and chief executive officer.  Mr. Papalia and
the non-interested  directors  concluded that the terms of the transactions were
fair and in the best interests of the Company.

SOURCES OF FOOD PRODUCTS

         The food  products  used by the Company in the operation of its seafood
restaurants,  its Moore's  Tavern and  Restaurant  and its  Escondido's  Mexican
Restaurant are readily  available from a variety of sources  including  national
distributors and local sources on an order basis when needed.

SEASONAL ASPECTS

         The Company's New Jersey seafood  restaurants  experience a significant
portion of their sales from May through  September  whereas its Florida  seafood
restaurants experience a significant portion of their sales from January through
April.  Moore's  Tavern and  Restaurant  and the  Freehold  Escondido's  Mexican
Restaurant have experienced a seasonality  factor similar to but not as dramatic
as the seasonality factor of the Company's New Jersey seafood  restaurants.  Mr.
Manatee's Casual Grille follows the seasonality pattern of the Company's Florida
restaurants.

TRADEMARKS

         The  Company  has  no  patents,  trademarks,  licenses,  franchises  or
concessions  which it regards as material to its  restaurant  business  with the
exception of the service mark "Jack Baker's Lobster Shanty"  registered for a 20
year period with the U.S. Patent and Trademark Office in February, 1989, and its
rights to use of the names  "Moore's  Inn" and  "Moore's  Tavern"  as  described
above.  The  Company  also  believes  its use of the service  mark  "Escondido's
Mexican Restaurant" is material to its restaurant business.  The Company applied
to the United States  Commissioner  of Trademarks and effective  September 2002,
obtained registration of the service mark "Escondido's Mexican Restaurant."

COMPETITION

         The restaurant  business is highly  competitive  and the success of any
restaurant  depends to a great  extent upon the  services  it  supplies  and its
location.  The Company's seafood  restaurants compete primarily with other local
seafood  restaurants and to a lesser extent,  with local  restaurants  serving a
more general fare. The principal  national  competition to the Company's seafood
restaurants is the Red Lobster  restaurant  chain.  This chain has substantially
greater resources than the Company.  The Company's  Florida seafood  restaurants
also face competition from Shells seafood  restaurants  operating in their area.
There are other restaurants in the vicinity of the location where the Company is


                                       12
<PAGE>

now  operating  its  Escondido's  Mexican   Restaurant,   all  of  which  supply
competition to the Company's  Mexican theme restaurant.  In addition,  there are
other  Mexican  style  restaurants  including  an outlet of Chevy's,  a national
chain,  in the area. The Moore's Tavern and Restaurant  faces  competition  from
local  restaurants  as well as from  national  chains  including TGI Fridays and
Chili's  restaurants  in the area.  Typical  "chain"  competitors  to all of the
Company's  restaurants,  which are affiliated  with better  established and more
prominent  national chains,  are Ruby Tuesdays and TGI Fridays.  There can be no
assurance that the Company's units will be able to successfully compete with any
of such other restaurants.

GOVERNMENT REGULATION

         The  Company  is  subject  to  various  Federal,  state and local  laws
affecting the operation of its restaurants,  including  licensing and regulation
by  health,  sanitation,  safety and fire  departments  and  alcoholic  beverage
control  authorities.  The Company is also  subject to the Fair Labor  Standards
Act,  which  governs such matters as minimum  wages,  overtime and other working
conditions.  While such regulations  have not had a material  negative impact on
the Company's  operations to date,  difficulties in obtaining necessary licenses
or  permits  could  result in  delays or  cancellations  in the  opening  of new
restaurants and increases in the minimum wage could increase the Company's labor
costs.

         Each of the Company's New Jersey and Florida  restaurants holds a state
liquor  license  and is subject to the  liquor  licensing  laws of New Jersey or
Florida (depending on location).  Management regards the aggregate and per claim
liability  insurance  which it  carries  to be  adequate  for the  nature of its
operations taking into account the fact that it serves liquor at each location.

EMPLOYEES

         The Company  maintains  its  administrative  employees at its executive
offices  including  its principal  officers (see "Item 9 - Directors,  Executive
Officers,  Promoters and Control  Persons;  Compliance with Section 16(a) of the
Exchange Act"),  secretarial and  bookkeeping  personnel.  Each of the Company's
seafood  restaurant units employs a general manager,  two assistant managers and
between 40 and 130 other  employees to serve as  waitresses,  waiters,  busboys,
bartenders, cooks, dishwashers,  kitchen help, hostesses and cashiers (some on a
part-time basis). The Company's Escondido's Mexican Restaurant in Freehold,  New
Jersey employs between 30 and 60 employees and its Moore's Tavern and Restaurant
employs approximately 60 employees, in each case serving similar functions.  The
Company also presently  employs three area  supervisors,  each  responsible  for
certain of the Company's  restaurants.  Managerial  candidates are recruited for
the  Company's   restaurants  from  hotel  and  restaurant  management  schools,
restaurant  recruiting  agencies,  through advertising in restaurant  management
magazines  and by  promotion  from within the  Company's  own  organization.  At
January 25,  2004,  the  Company  had  approximately  550  employees  (including
part-time  workers).  The  Company is not a party to any  collective  bargaining
agreements and has enjoyed satisfactory employee relations since inception.

ITEM 2.  DESCRIPTION OF PROPERTY

     The  Company's  executive  and  administrative  offices  are  located in an
approximately 4,000 square foot two story Company owned building of cinder block
construction at 62 Broadway, Point Pleasant Beach, New Jersey.

         See  Item  1  herein  for a  description  of  the  Company's  operating
restaurants.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is not a party to any material legal proceeding.


                                       13
<PAGE>

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

         No matters were submitted to a vote of the Company's  security  holders
during the quarter ended January 25, 2004.












                            CHEFS INTERNATIONAL, INC.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS

         The common stock was listed on the NASDAQ Stock Market Small Cap System
under the symbol "CHEF" until the close of business on December 16, 1998 when it
was  delisted  because of the failure of the common  stock to maintain a closing
bid price at or above $1.00 per share.  Commencing December 17, 1998, the common
stock has been traded in the  over-the-counter  market under the symbol  "CHEF."
The following  chart sets forth the range of high and low closing bid prices for
the common  stock in the  over-the-counter  market for the periods  indicated as
obtained from the Pink Sheets LLC.

                                                    Bid Prices
            Quarter                        --------------------------
            Ended                            High              Low
            -----                            ----              ---

            April 26, 2002                  $ 2.10            $ 1.42
            July 26, 2002                     1.72              1.42
            October 25, 2002                  1.46              1.33
            January 24, 2003                  1.50              1.35

            April 27, 2003                    1.42              1.35
            July 27, 2003                     1.38              1.35
            October 26, 2003                  1.40              1.38
            January 25, 2004                  1.85              1.40

         The  above  quotations  represent  prices  between  dealers  and do not
include retail  mark-ups,  mark-downs or  commissions.  They do not  necessarily
represent actual transactions.

         At January 25, 2004,  the number of record  holders of the Common Stock
was 6,345.  Such number of record  holders  was  determined  from the  Company's
shareholder records and does not include beneficial owners whose shares are held
in nominee accounts with brokers, dealers, banks and clearing agencies.


                                       14
<PAGE>

         The Company did not sell any of its equity securities during the fiscal
year ended January 25, 2004.

ITEM 6.  MANAGEMENT'S DISCUSSION AND
         ANALYSIS OR PLAN OF OPERATION

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

         Certain  statements  regarding future performance in this Annual Report
on  Form  10-KSB  constitute   forward-looking   statements  under  the  Private
Securities  Litigation  Reform Act of 1995.  No assurance  can be given that the
future results covered by the forward-looking  statements will be achieved.  The
Company cautions readers that important  factors may affect the Company's actual
results  and  could  cause  those   results  to  differ   materially   from  the
forward-looking  statements.  Such  factors  include,  but are not  limited  to,
changing  market  conditions,  weather,  the state of the  economy,  substantial
increases  in  insurance  costs,  the  impact of  competition  to the  Company's
restaurants, pricing and acceptance of the Company's food products. In addition,
the Company's  performance  may be adversely  affected if it is unable to find a
satisfactory successor to its president and principal executive officer, Anthony
C. Papalia, who is leaving the Company's employ at the end of June 2004.

FINANCIAL REPORTING

         Note 1 to the consolidated  financial  statements includes a summary of
significant  accounting  policies  and methods  used in the  preparation  of the
Company's  consolidated  financial  statements.   However,  in  the  opinion  of
management,  the Company does not have any individual  accounting policy that is
critical to the preparation of its consolidated  financial  statements.  This is
due  principally to the nature of the accounting  requirements  of the Company's
business.  The following is a review of the more significant accounting policies
and methods used by the Company.

         Depreciation and Amortization: The Company depreciates its property and
equipment and amortizes its definite life intangible assets using  straight-line
methods over the estimated useful lives of the assets. As discussed in Note 4 to
the Consolidated Financial Statements, on January 28, 2002 the Company adopted a
new  accounting  standard.  This new  standard  required  an initial  impairment
assessment  involving  a  comparison  of the fair  value of  goodwill  and other
intangible  assets to their current carrying value.  Upon adoption,  the Company
recorded a loss for the cumulative  effect of an accounting  change of $430,403.
The loss, attributable to a write-down of goodwill, was based solely on the fact
that the aggregate market  capitalization  of the Company was less than its book
value.  The Company is also required to conduct  annual  reviews of goodwill and
liquor  licenses for  potential  impairment.  The  Company's  fiscal 2003 annual
impairment test required the Company to write down the goodwill  associated with
its April 2002  acquisition  of Mr.  Manatee's  Casual Grille (see Note 5 to the
Consolidated Financial Statements).  Again, the write down was solely the result
of the market  capitalization of the Company being less than its book value. The
write down of goodwill  associated with Mr.  Manatee's Casual Grille of $583,922
is included as an operating  expense in the fiscal 2003 Statement of Operations.
The Company has also tested for  impairment of its other definite and indefinite
life intangible  assets and no impairment  charges were necessary  during fiscal
2003 or fiscal 2004.

         Income Taxes:  The Company accounts for income taxes in accordance with
statement of Financial  Accounting  Standards ("SFAS") No. 109,  "Accounting for
Income  Taxes."  Under SFAS No. 109,  deferred  tax assets and  liabilities  are
determined based on the difference  between book and tax assets and liabilities,
using  enacted  tax rates in effect  for the year in which the  differences  are
expected to reverse.  The  recognition  of the  deferred  tax assets is based on
management's  best  assumptions  and  estimates  of future  income.  A valuation
allowance is recorded when management determines that it is more likely than not
that some  portion  of the  deferred  tax  assets  will not be  realized.  These


                                       15
<PAGE>

assumptions  and  estimates  will  be  periodically  reviewed  and,  if  needed,
adjustments will be made as required. During fiscal 2004, the Company determined
that sales of certain of its  tangible  and  intangible  assets  will  result in
sufficient taxable income so that a valuation allowance against the deferred tax
assets is no longer warranted.

         Hedging  Instruments:  The Company has  interest  rate swap  agreements
relating to a portion of its variable rate debt. The Company  accounts for these
hedging  instruments  under SFAS No. 133 "Accounting for Derivative  Instruments
and Hedging Activities," and its related amendment, SFAS No. 138 "Accounting for
Certain  Derivative  Instruments and Certain Hedging  Activities"  (collectively
referred to as "SFAS No. 133"). The interest rate swap agreements are designated
as cash flow hedges and are reflected at fair value in the Consolidated  Balance
Sheet and the related  losses on these  contracts are deferred in  shareholders'
equity as a component of accumulated other comprehensive loss.

OVERVIEW

         The Company's principal source of revenue is from the operations of its
restaurants.  The  Company's  cost of  sales  includes  food and  liquor  costs.
Operating  expenses include labor costs,  supplies and occupancy costs (rent and
utilities), marketing and maintenance costs. General and administrative expenses
include costs incurred for corporate support and  administration,  including the
salaries  and  related  expenses of  personnel  and the costs of  operating  the
corporate  office at the Company's  headquarters  in Point Pleasant  Beach,  New
Jersey.

         The Company  currently  operates ten restaurants on a year-round basis.
See Item 1, "Developments Since the Beginning of the Last Fiscal Year" as to the
Company's closing of one of its restaurants,  its Escondido's Mexican Restaurant
in the Monmouth  Mall,  in June 2003,  and as to the planned sale of its Lobster
Shanty Restaurant in Jensen Beach, Florida during the second quarter of calendar
2004.  The Company  opened its first  seafood  restaurant  in November  1978 and
currently has seven free-standing  seafood restaurants in New Jersey and Florida
operating under the names "Jack Baker's Lobster Shanty" or "Baker's  Wharfside."
The Company opened its first Mexican theme restaurant, located in New Jersey, in
April 1996, under the name  "Garcia's." In February 2000, the Company  commenced
the  operation  of  the  ninth   restaurant,   Moore's  Tavern  and  Restaurant,
("Moore's"),  a  free-standing  restaurant  in Freehold,  New Jersey  serving an
eclectic  American  food type menu. On January 29, 2002,  the Company  commenced
operation of its tenth restaurant,  Escondido's Mexican Restaurant ("Freehold"),
a Mexican theme restaurant located in Freehold, New Jersey, adjacent to Moore's.
On February 1, 2002,  Garcia's began to operate under the trade name Escondido's
("Monmouth").  On April 1, 2002,  the  Company  acquired  the  operations  of an
eleventh restaurant,  Mr. Manatee's Casual Grille ("Manatee's"),  a casual theme
restaurant  primarily  featuring seafood items,  located in Vero Beach,  Florida
near the  Company's  Vero  Beach,  Florida  Lobster  Shanty.  The closing of the
Escondido's  (Monmouth)  restaurant  during the second  quarter of calendar year
2003, has reduced the number of restaurants operated by the Company to ten.

         Generally,  the  Company's  New  Jersey  seafood  restaurants  derive a
significant  portion of their sales from May through  September.  The  Company's
Florida  seafood  restaurants  derive a significant  portion of their sales from
January through April.  Moore's  experiences a seasonality factor similar to but
not as dramatic as the seasonality factor of the New Jersey seafood restaurants.
The Company's Freehold  Escondido's  experiences a seasonality factor similar to
Moore's.  Manatee's  follows  the  seasonality  pattern  of  the  other  Florida
restaurants.

         The Company operated eleven  restaurants  during the year ended January
26, 2003.

      The  statements of operations  are comprised of a 52-week  period for both
the year ended January 25, 2004  ("fiscal  2004") and the year ended January 26,
2003 ("fiscal 2003").


                                       16
<PAGE>

RESULTS OF OPERATIONS

SALES.

         Sales for the year ended January 25, 2004 were $22,283,200,  a decrease
of $670,700 or 2.9%, as compared to  $22,953,900  for the year ended January 26,
2003.  Increased  sales of $509,000 for the year at  Manatee's,  which opened on
April 1, 2002 and therefore,  was in operation during ten months of last year as
compared to twelve months of operation this year, were offset by decreased sales
of $599,400 at the Monmouth Escondido's which was closed in June 2003. The other
nine  restaurants  combined had decreased  sales of $580,300 or 2.8% versus last
year. The three Florida  restaurants that operated during the comparable periods
realized  increased  sales of  $36,100  or .6%  versus  last  year  despite  the
continued softness in air travel,  including a substantial  reduction in foreign
visitation and the Columbia Space Shuttle tragedy which negatively  impacted the
Cocoa Beach location. The six New Jersey restaurants had lower sales of $616,400
or 4.2% compared to last year  primarily  due to the dismal winter  weather that
included a major snow storm over the  Valentine's/Presidents' Day weekend and an
extremely  rainy summer,  whereby  beginning  with the Memorial Day holiday,  it
rained  ten  out  of  eleven  weekends.  Additionally,  traffic  at  all  of the
restaurants was negatively impacted by the slow economy, terrorism concerns post
9/11 and the Iraq war.  However,  both the  Florida  and New Jersey  restaurants
realized  positive  sales gains in the third and fourth  quarters in fiscal 2004
due to  favorable  weather and a positive  uptick in the national  economy.  The
number of customers  served in the nine  restaurants  which operated  during the
comparable  periods,  fell by 4.6% while the  average  check  paid per  customer
increased by 1.9% versus last year.  The check average at Manatee's is less than
at the  other  nine  restaurants  and is less  than it was last  year due to the
introduction of lower priced dinner specials.

GROSS PROFIT; GROSS MARGIN.

         Gross profit was $15,248,300 or 68.4% of sales for fiscal 2004 compared
to  $15,802,700  or 68.8% for fiscal 2003.  The primary  reasons for the decline
were  the  substantial  increase  in the  cost of beef  and the  closing  of the
Monmouth Escondido's restaurant with its lower cost Mexican fare.

OPERATING EXPENSES.

         Total operating  expenses decreased by 5.9% from $16,286,300 for fiscal
2003 to $15,318,500 for fiscal 2004.  Payroll and related expenses were 31.1% of
sales  for  fiscal  2004  compared  to 32.2%  of  sales  for  fiscal  2003.  The
improvement  is  directly  attributable  to  productivity  improvements  at  the
restaurants and lower health and worker's  compensation  insurance costs.  Other
operating  expenses  were 22.2% of sales for fiscal  2004  compared  to 22.4% of
sales for fiscal 2003 primarily  attributable  to higher  occupancy costs due to
increases  in real  estate  taxes and rent costs  offset by  decreases  in costs
directly attributable to the closing of the Monmouth Escondido's in June 2003.

         Depreciation  and  amortization  expenses  in fiscal 2004 were lower by
approximately $76,600 versus last year despite the inclusion for the entire year
of depreciation expenses associated with the purchase of furniture, fixtures and
equipment of Manatee's due to the expiration of fully depreciated  assets at the
other restaurants and the closing of Monmouth in fiscal 2004.

         General  and  administrative  expenses  for  fiscal  2004 were lower by
approximately  $71,300  versus last year due primarily to reductions in salaries
and payroll taxes, an approximate  $10,000  settlement with an insurance carrier
pertaining  to a business  interruption  claim  stemming from the closure of the
main  access  road near the Cocoa  Beach,  Florida  restaurant  due to  security
concerns at the nearby Air Force base subsequent to 9/11/01, and lower insurance
costs of  approximately  $32,500.  Salaries  for fiscal  2004  included  $51,000
attributed to the Company's  Executive  Incentive Bonus Plan ("Bonus Plan") (see
note 8


                                       17
<PAGE>

to the  Consolidated  Financial  Statements),  while  salaries  in  fiscal  2003
attributed to the Bonus Plan were $32,900.

         As a result of continuing operating losses at its Monmouth Mall Mexican
theme  restaurant  (see  Note  11 to  the  Consolidated  Financial  Statements),
management  decided  to close this  restaurant.  On April 30,  2003,  management
executed a Surrender  Agreement  with the mall  landlord to terminate  the lease
prior to its expiration  date at a total cost of $180,000 and agreed to give the
landlord an option to purchase the  restaurant's  liquor  license at a specified
price until  October 31, 2003,  subsequently  extended to March 15, 2004,  after
which the liquor license could be sold to any  independent  purchaser.  On March
15,  2004,  the Company paid  $120,000 to the mall  landlord,  representing  the
balance due as per the Surrender Agreement and the landlord declined to purchase
the liquor  license.  Management  is currently  in the process of marketing  the
liquor  license to all  interested  parties.  Management  believes  that the net
proceeds  from the sale of the liquor  license will exceed the $180,000  paid to
the landlord for the early  termination of the lease.  However,  any gain on the
sale of the liquor license will not be recognized until realized.  The Company's
Monmouth Mall Mexican theme  restaurant  was closed in June 2003 and the Company
recorded a loss of  approximately  $410,000 on the closing  which  included  the
early termination fee of $180,000 and disposal of unusable assets.

OTHER INCOME AND EXPENSE.

         Interest expense was $19,000 lower in fiscal 2004 due to debt reduction
and lower  interest  rates which  reduced the interest  expense on the Company's
variable debt. During the second quarter of fiscal 2004, the Company's  $500,000
bank line of credit was renewed for two years at a variable  interest rate equal
to the monthly LIBOR Market Index Rate plus 2%. The entire $500,000 is currently
available  for use through June 2005.  Investment  income was $45,500  higher in
fiscal 2004 due to an increase of $64,000 in capital gains  realized on the sale
of investments (see Note 6 to the Consolidated Financial Statements).

NET INCOME (LOSS).

         For the year ended January 25, 2004, the Company realized net income of
$39,000 or $.01 per share compared to a net loss, before a $430,400 charge for a
cumulative effect of accounting change (see Note 4 to the Consolidated Financial
Statements),  of $683,900 or $.17 per share for the year ended January 26, 2003.
Net income for the current  year  includes a charge of $410,000  for the loss on
closing  the  Monmouth  restaurant  (see Note 10 to the  Consolidated  Financial
Statements)  and a credit  of  $57,000  for  income  taxes  (see  Note 14 to the
Consolidated Financial Statements).  The loss in fiscal 2003 included a $583,900
charge for the write down of the Manatee  restaurant's  goodwill  (see Note 5 to
the Consolidated Financial Statements).

Liquidity and Capital Resources.

         The Company has financed its operations primarily from revenues derived
from its restaurants.

         The Company's ratio of current assets to current liabilities was 2.56:1
at January 25, 2004, compared to 1.98:1 at January 26, 2003. Working capital was
$3,686,800 at the end of fiscal 2004, an increase of $1,595,000 versus the prior
year.  During fiscal 2004,  there was an increase in cash of $341,000.  Net cash
provided from operating  activities was $1,402,000.  The primary components were
net income, after adjustment for depreciation, deferred income taxes, and a loss
on closing of the Monmouth Escondido's restaurant, of $1,502,300; an increase in
inventories  of $111,100  primarily  related to bulk purchases of shrimp to take
advantage  of market  conditions;  an  increase  in prepaid  expenses of $90,000
primarily related to a different  financing plan for the Company's  property and
casualty insurance program;  an increase in the current portion of the Company's
deferred tax assets based on the amount  expected to be utilized in fiscal 2005;
and an  increase of $120,400  in  accounts  payable  due to  increased  sales in
January and the inventory purchases.


                                       18
<PAGE>

         Investing  activities during fiscal 2004 resulted in a net cash outflow
of $732,300. Capital expenditures were $449,100, including approximately $31,400
to renovate the bar at the Escondido's  restaurant in Freehold,  and the balance
of approximately $417,700 for routine restaurant  improvements.  Other investing
activities included the purchase of various investments totaling $534,300 offset
by $453,100  realized from the proceeds of maturing  certificates of deposit and
the sale of investments which resulted in a realized gain of $69,200. At January
25,  2004,  the  fair  value of the  Company's  holdings  of  available-for-sale
securities  resulted  in net  unrealized  gains of  $183,800  (see Note 1 to the
Consolidated Financial Statements), primarily due to the resurgent stock market.
The  resulting  gains are  reported in  stockholder's  equity as a component  of
accumulated other comprehensive income.

         Financing  activities for fiscal 2004 resulted in a net cash outflow of
$328,700 and included debt repayment of $271,500 and treasury stock purchases of
$59,200 (see Note 12 to the  Consolidated  Financial  Statements)  to repurchase
40,000 shares of the  Company's  outstanding  stock  pursuant to a December 2002
Stock Repurchase Plan authorized by the Board of Directors.

         During fiscal 2003, net cash  decreased by $338,200.  Net cash provided
from  operating  activities  was  $1,261,100.  The primary  components  were net
income,   after  adjustment  for  depreciation  and  deferred  income  taxes,  a
cumulative effect of an accounting  change and the goodwill  impairment loss, of
$1,283,900;  an increase in  miscellaneous  receivables  of $117,300  due to the
construction  of  a  paved  parking  area  for  the  two  Freehold,  New  Jersey
restaurants (see Note 10 to the Consolidated Financial Statements);  an increase
of $90,000 in accrued expenses and other liabilities  resulting from an increase
of $50,300 in the amount of  unredeemed  gift  certificates  and an  increase of
$30,300 in accrued health insurance costs.  Investing activities for fiscal 2003
resulted in a net outflow of $1,736,600.  Capital  expenditures  were $1,916,200
with the major components  including $417,100  associated with the renovation at
the Escondido's restaurant in Freehold,  $893,500 for the purchase of assets for
the Manatee's restaurant,  and $605,600 for restaurant  improvements and Company
vehicles.   Other  investing   activities   included  the  purchase  of  various
investments  totaling  $244,100  offset by $409,800  primarily from the proceeds
from  maturing  certificates  of deposit.  Financing  activities  in fiscal 2003
generated a net cash flow of $137,300  and included  debt  repayment of $362,700
and bank loan  proceeds of  $500,000  which were used to  partially  finance the
purchase of assets for the Manatee's restaurant.

         At the end of fiscal 2004,  the Company was in  compliance  with all of
the  financial  covenants  under  its loan  agreements  with its  primary  bank,
Wachovia Bank, National Association.  The Company was also in full compliance at
the year ended January 26, 2003.

RECENT DEVELOPMENTS

         In  February  2004,  the  Company  entered  into a contract to sell the
restaurant  and  property  located in Jensen  Beach,  Florida for $900,000 to an
unrelated  party.  The closing is anticipated to occur during the second quarter
of fiscal 2005 and should result in a gain of approximately $400,000.

         In March 2004,  the Company paid $120,000 to the Monmouth Mall ("Mall")
representing  the balance due as per terms of the Lease Surrender  Agreement the
Company  executed in April 2003 to terminate its lease with the Mall  associated
with the operations of the Escondido's  Monmouth  restaurant which was closed in
June 2003.  The Mall declined to exercise its right to purchase the  Escondido's
liquor  license and the Company is currently  marketing  the license for sale to
all interested parties.

         In April 2004,  management  negotiated  the annual  renewals  for group
health ("health") and property and casualty  ("property")  insurance  coverages.
The


                                       19
<PAGE>

health plan was renewed at an  increase of  approximately  8.5% versus the prior
year.  The  property  plan  coverage  was  renewed  at an  overall  decrease  of
approximately 6 % reflecting a softening in the insurance market.

         Management anticipates that funds from operations will be sufficient to
meet the  Company's  obligations  in fiscal 2005,  including  projected  capital
expenditures of $485,000.



INFLATION

         It is not  possible  for the Company to predict  with any  accuracy the
effect of  inflation  upon the results of its  operations  in future  years.  In
general,  the Company is able to increase menu prices to counteract the majority
of the  inflationary  effects  of  increasing  costs with the  exception  of the
substantial  increase in insurance costs that the Company has had to absorb over
the last several years.


ITEM 7.   FINANCIAL STATEMENTS





CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

Financial Report

January 25, 2004


<PAGE>

CONTENTS


--------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT                                                 F-1
--------------------------------------------------------------------------------

Financial Statements:

   Consolidated Balance Sheet                                              F-2-3

   Consolidated Statements of Operations                                     F-4

   Consolidated Statements of Stockholders' Equity                           F-5

   Consolidated Statements of Cash Flows                                     F-6

   Notes to Consolidated Financial Statements                             F-7-19

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


<PAGE>

[LETTERHEAD OF MCGLADREY & PULLEN]




INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Chefs International, Inc. and Subsidiaries
Point Pleasant, New Jersey


We  have  audited  the   accompanying   consolidated   balance  sheet  of  Chefs
International,  Inc. and  subsidiaries  as of January 25, 2004,  and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the two  fiscal  years in the  period  ended  January  25,  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 audits 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 consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Chefs International,
Inc.  and  subsidiaries  as of  January  25,  2004,  and the  results  of  their
operations  and their cash flows for each of the two fiscal  years in the period
ended  January 25,  2004 in  conformity  with  accounting  principles  generally
accepted in the United States of America.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and
Other Intangible Assets," effective January 28, 2002.


                                                     /s/ MCGLADREY & PULLEN, LLP


New York, New York
March 25, 2004





McGladrey & Pullen, LLP is an
independent  member firm of RSM
International, an affiliation of
independent accounting and
consulting firms.


                                       F-1
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
JANUARY 25, 2004


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

ASSETS

Current Assets:
     Cash and cash equivalents                                      $  1,410,899
     Available-for-sale securities                                     2,435,090
     Miscellaneous receivables                                            79,076
     Receivable -- related party                                          40,000
     Inventories                                                       1,240,054
     Deferred income taxes                                               654,000
     Prepaid expenses and other                                          197,976
                                                                    ------------

             TOTAL CURRENT ASSETS                                      6,057,095
                                                                    ------------


Property and Equipment, at cost                                       20,076,717
     Less: Accumulated depreciation                                    8,714,945
                                                                    ------------

             PROPERTY AND EQUIPMENT, NET                              11,361,772
                                                                    ------------

Other Assets:
     Asset held for sale                                                  50,181
     Receivable -- related party                                          38,523
     Intangibles                                                         879,712
     Equity in life insurance policies                                   641,024
     Deferred income taxes                                               370,000
     Other                                                               138,656
                                                                    ------------

             TOTAL OTHER ASSETS                                        2,118,096
                                                                    ------------

                                                                    $ 19,536,963
                                                                    ============



See notes to consolidated financial statements.


                                       F-2
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (CONTINUED)
JANUARY 25, 2004


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

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
     Notes and mortgages payable, current maturities               $    266,346
     Accounts payable                                                   822,590
     Accrued payroll                                                    124,293
     Accrued expenses                                                   633,863
     Gift certificates                                                  523,167
                                                                   ------------

             TOTAL CURRENT LIABILITIES                                2,370,259
                                                                   ------------


Notes and Mortgages Payable                                           1,694,092
                                                                   ------------

Other Liabilities:
     Accrued retirement                                                 589,720
     Interest rate swap agreements                                      149,602
                                                                   ------------

             OTHER LIABILITIES                                          739,322
                                                                   ------------

Stockholders' Equity:
     Capital stock -- common $.01 par value,
         Authorized 15,000,000 shares,
         Issued and outstanding 3,926,116                                39,261
     Additional paid-in capital                                      31,488,831
     Accumulated deficit                                            (16,815,013)
     Accumulated other comprehensive income                              20,211
                                                                   ------------

             TOTAL STOCKHOLDERS' EQUITY                              14,733,290
                                                                   ------------

                                                                   $ 19,536,963
                                                                   ============



See notes to consolidated financial statements.


                                      F-3
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 25, 2004 AND JANUARY 26, 2003

<TABLE>
<CAPTION>
                                                                                 2004                2003
---------------------------------------------------------------------------------------------------------------

<S>                                                                        <C>                 <C>
Sales                                                                       $   22,283,169      $   22,953,925


Cost of Goods Sold                                                               7,034,878           7,151,181
                                                                           ----------------    ----------------

         GROSS PROFIT                                                           15,248,291          15,802,744
                                                                           ----------------    ----------------

Operating Expenses:
     Payroll and related expenses                                                6,924,219           7,390,019
     Other operating expenses                                                    4,956,505           5,136,653
     Depreciation and amortization                                               1,116,291           1,192,910
     General and administrative expenses                                         1,911,472           1,982,785
     Loss on closing restaurant                                                    410,024                  --
     Goodwill impairment loss                                                           --             583,922
                                                                           ----------------    ----------------

         TOTAL OPERATING EXPENSES                                               15,318,511          16,286,289
                                                                           ----------------    ----------------

         (LOSS) FROM OPERATIONS                                                    (70,220)           (483,545)
                                                                           ----------------    ----------------

Other Income (Expense):
     Interest expense                                                             (159,042)           (178,041)
     Investment income                                                             211,259             165,719
                                                                           ----------------    ----------------

         OTHER INCOME (EXPENSE), NET                                                52,217             (12,322)
                                                                           ----------------    ----------------

         (LOSS) FROM OPERATIONS BEFORE INCOME TAXES                                (18,003)           (495,867)


Provision (Credit) for Income Taxes                                                (57,000)            188,082
                                                                           ----------------    ----------------

         INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE             38,997            (683,949)

Cumulative Effect of an Accounting Change -- Goodwill
     Accounting Method                                                                  --            (430,403)
                                                                           ----------------    ----------------

         NET INCOME (LOSS)                                                  $       38,997      $   (1,114,352)
                                                                           ================    ================

Income (Loss) Per Common Share Before Cumulative Effect
     of an Accounting Change                                                $         0.01      $        (0.17)



Cumulative Effect of an Accounting Change -- Goodwill
     Accounting Method                                                                  --               (0.11)
                                                                           ----------------    ----------------

Basic and Diluted Income (Loss) Per Common Share                            $         0.01      $        (0.28)
                                                                           ================    ================
</TABLE>



See notes to consolidated financial statements.


                                      F-4
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 25, 2004 AND JANUARY 26, 2003

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Accumulated
                                                        Capital     Additional                     Other                  Total
                                             Number      Stock       Paid-in      Accumulated  Comprehensive Treasury  Stockholders'
                                           of Shares    Par Value    Capital        Deficit    Income (Loss)  Stock       Equity
                                          ------------ ---------- -------------- ------------- ------------- -------- --------------

<S>                                        <C>          <C>        <C>            <C>            <C>         <C>       <C>
Balance at January 28, 2002                 3,969,508   $ 39,695   $ 31,549,492   $(15,739,658)  $ (89,199)  $(3,885)  $ 15,756,445
                                                                                                                       ------------

Comprehensive (Loss):
 Net loss                                        --         --             --       (1,114,352)       --        --       (1,114,352)

 Net unrealized (loss) on available-for-
     sale securities arising during period,
     net of $58,000 of taxes                     --         --             --             --      (186,273)     --         (186,273)

 Reclassification adjustment for gains
     realized on available-for-sale
     securities                                  --         --             --             --        (3,244)     --           (3,244)

 Change in fair value of derivatives
     accounted for as hedges, net of
     $31,000 of taxes                            --         --             --             --      (100,556)     --         (100,556)
                                                                                                                       ------------

 TOTAL COMPREHENSIVE LOSS                         --         --             --             --          --        --      (1,404,425)
                                                                                                                       ------------

Fractional shares conversion                       32       --             --             --          --        --             --
                                           ----------   --------   ------------   ------------   ---------   -------   ------------

BALANCE AT JANUARY 26, 2003                 3,969,540     39,695     31,549,492    (16,854,010)   (379,272)   (3,885)    14,352,020
                                                                                                                       ------------

Comprehensive Income:
 Net income                                      --         --             --           38,997        --        --           38,997

 Net unrealized gains on available-for-
     sale securities arising during period,
     net of $109,000 of taxes                    --         --             --             --       425,282      --          425,282

 Reclassification adjustment for gains
     realized on available-for-sale
     securities, net of $14,000 of taxes         --         --             --             --       (55,175)     --          (55,175)

 Change in fair value of derivatives
     accounted for as hedges, net of
     $8,000 of taxes                             --         --             --             --        29,376      --           29,376
                                                                                                                       ------------

 TOTAL COMPREHENSIVE INCOME                       --         --             --             --          --        --         438,480
                                                                                                                       ------------

Stock repurchase program                      (40,000)      (400)       (58,800)          --          --        --          (59,200)
                                                                                                                       ------------

Retirement of treasury stock                   (3,550)       (36)        (3,849)          --          --       3,885           --
                                                                                                                       ------------

Fractional shares conversion and other            126          2          1,988           --          --        --            1,990
                                           ----------   --------   ------------   ------------   ---------   -------   ------------

BALANCE AT JANUARY 25, 2004                 3,926,116   $ 39,261   $ 31,488,831   $(16,815,013)  $  20,211   $  --     $ 14,733,290
                                           ==========   ========   ============   ============   =========   =======   ============
</TABLE>



See notes to consolidated financial statements.


                                      F-5
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 25, 2004 AND JANUARY 26, 2003

<TABLE>
<CAPTION>
                                                                                                     2004                   2003
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                              <C>                    <C>
Cash Flows From Operating Activities:
    Net income (loss)                                                                            $    38,997            $(1,114,352)
    Adjustments to reconcile net income (loss) to net
       cash provided by operating activities:
          Depreciation and amortization                                                            1,116,291              1,192,910
          Deferred income taxes                                                                      (63,000)               191,000
          Gain on sale of investments                                                                (69,175)                (5,154)
          Loss on closing of restaurant                                                              410,024                   --
          Cumulative effect of an accounting change                                                     --                  430,403
          Goodwill impairment loss                                                                      --                  583,922
          Changes in assets and liabilities:
             (Increase) decrease in:
                Miscellaneous receivables                                                             22,137               (117,268)
                Inventories                                                                         (111,062)                39,672
                Prepaid expenses                                                                     (89,988)                73,471
             Increase (decrease) in:
                Accounts payable                                                                     120,357                (53,109)
                Accrued expenses and other liabilities                                                27,421                 90,041
                Income taxes payable                                                                    --                  (50,394)
                                                                                                 -----------            -----------

             NET CASH PROVIDED BY OPERATING ACTIVITIES                                             1,402,002              1,261,142
                                                                                                 -----------            -----------

Cash Flows From Investing Activities:
    Purchase of property and equipment                                                              (449,129)            (1,022,694)
    Closing of restaurant                                                                            (60,000)                  --
    Acquisition of restaurant assets                                                                    --                 (893,536)
    Sale and redemption of investments                                                               453,066                409,820
    Purchase of investments                                                                         (534,343)              (244,087)
    Equity in life insurance policies                                                                (38,202)               (12,960)
    Other                                                                                           (103,652)                26,856
                                                                                                 -----------            -----------

             NET CASH (USED IN) INVESTING ACTIVITIES                                                (732,260)            (1,736,601)
                                                                                                 -----------            -----------

Cash Flows From Financing Activities:
    Proceeds from debt                                                                                  --                  500,000
    Repayment of debt                                                                               (271,490)              (362,746)
    Purchase and retirement of treasury stock                                                        (59,200)                  --
    Other                                                                                              1,990                   --
                                                                                                 -----------            -----------

             NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                    (328,700)               137,254
                                                                                                 -----------            -----------

             NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    341,042               (338,205)

Cash and Cash Equivalents:
    Beginning                                                                                      1,069,857              1,408,062
                                                                                                 -----------            -----------

    Ending                                                                                       $ 1,410,899            $ 1,069,857
                                                                                                 ===========            ===========

Supplemental Disclosure of Cash Flow Information:
    Cash payment for:
       Interest                                                                                  $   160,453            $   178,753
                                                                                                 ===========            ===========

       Income taxes                                                                              $     4,000            $    34,273
                                                                                                 ===========            ===========

Noncash Transactions:
    Increase (decrease) in fair value of securities available for sale                           $   465,107            $  (247,517)
                                                                                                 ===========            ===========

    Change in fair value of derivatives accounted for as hedges                                  $    29,576            $  (100,556)
                                                                                                 ===========            ===========
</TABLE>



See notes to consolidated financial statements.


                                      F-6
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.       NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Business:

         Chefs International,  Inc. and its subsidiaries (the "Company") operate
         ten restaurants.  Seven of these  restaurants are seafood  restaurants,
         located in New  Jersey and  Florida,  generally  under the trade  name,
         "Lobster  Shanty".   The  Company  also  operates  Escondido's  Mexican
         Restaurant,   Moore's  Tavern  and  Restaurant,  an  eclectic  American
         restaurant,  and Mr. Manatee's Casual Grille, a casual theme restaurant
         primarily  featuring seafood items.  Escondido's and Moore's Tavern are
         located in New Jersey;  Mr.  Manatee's  is located in Florida.  Segment
         information  is not  presented  since all of the  Company's  revenue is
         attributable to a single reportable segment.

         Principles of Consolidation:

         The accompanying consolidated financial statements include the accounts
         of the Company and all of its wholly-owned  subsidiaries.  Intercompany
         transactions and balances have been eliminated in consolidation.

         Concentrations of Credit Risk:

         The Company maintains cash balances at several  financial  institutions
         in New Jersey and  Florida.  The  balances  are  insured by the Federal
         Deposit  Insurance   Corporation  up  to  $100,000  at  each  financial
         institution.  Uninsured  cash  balances  at January  25,  2004  totaled
         approximately $1,293,000.

         Cash and Cash Equivalents:

         Cash  equivalents  are comprised of certain  highly liquid  investments
         with a maturity of three months or less when purchased.

         Available-for-Sale Securities:

         At  January  25,  2004,   available-for-sale   securities   consist  of
         convertible    bonds,    mutual   funds,    and   equity    securities.
         Available-for-sale securities are carried at fair value with unrealized
         gains or losses  reported  in a  separate  component  of  stockholders'
         equity.  Realized gains or losses are determined  based on the specific
         identification method.

         Revenue Recognition:

         Sales from  restaurants  are  recognized as revenue at the point of the
         delivery  of meals  and  services.  Gift  certificates  are sold in the
         ordinary course of business.  Proceeds from gift certificate  sales are
         recorded as deferred revenue at the time a gift certificate is sold and
         are not recognized as revenue until a gift certificate is redeemed.

         Inventories:

         Inventories  consist of food,  beverages and supplies.  Inventories are
         stated  at the lower of cost  (determined  by the  first-in,  first-out
         method) or market.


                                      F-7
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.       NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

         Property and Equipment and Depreciation:

         Property and  equipment are carried at cost.  Depreciation  is computed
         over the estimated  useful lives of the assets using the  straight-line
         method.  The  estimated  useful  lives  range  from 5 to 40  years  for
         buildings and improvements, including leaseholds, and 5 to 10 years for
         furniture and equipment.

         Goodwill and Other Intangible Assets:

         Beginning  January 1, 2002,  goodwill and  indefinite  life  intangible
         assets are not amortized  but are tested  annually for  impairment,  or
         more frequently if events or changes in circumstances indicate that the
         asset might be impaired.  In assessing the  recoverability  of goodwill
         and  indefinite   life  intangible   assets,   the  Company  must  make
         assumptions  about the estimated future cash flows and other factors to
         determine the fair value of these assets.

         For goodwill,  the impairment  evaluation  includes a comparison of the
         carrying  value  of the  reporting  unit  (including  goodwill)  to the
         reporting  unit's fair value.  If the reporting  unit's  estimated fair
         value exceeds the reporting  unit's  carrying  value,  no impairment of
         goodwill  exists.  If the fair  value of the  reporting  unit  does not
         exceed  the unit's  carrying  value,  then an  additional  analysis  is
         performed  to allocate the fair value of the  reporting  unit to all of
         the assets and  liabilities of the reporting unit. If the excess of the
         fair  value  of  the  reporting   unit  over  the  fair  value  of  the
         identifiable  assets and liabilities is less than the carrying value of
         the unit's goodwill, an impairment charge is recorded.

         Similarly,  the impairment  evaluation for indefinite  life  intangible
         assets  includes the  comparison of the asset's  carrying  value to the
         asset's fair value.  When the carrying  value exceeds the fair value an
         impairment  charge is  recorded  for the amount of the  difference.  An
         intangible  asset is determined to have an indefinite  useful life when
         there are no legal, regulatory,  contractual,  competitive, economic or
         any other  factors  that may limit the  period  over which the asset is
         expected to contribute  directly or indirectly to the future cash flows
         of the Company.  In each reporting  period,  the Company also evaluates
         the  remaining  useful  life of an  intangible  asset that is not being
         amortized to determine  whether  events and  circumstances  continue to
         support an indefinite  useful life. If an intangible  asset that is not
         being  amortized is determined to have a finite useful life,  the asset
         will be amortized  prospectively  over the estimated  remaining  useful
         life and accounted for in the same manner as intangible  assets subject
         to amortization.

         The Company has determined  that the Company's  liquor licenses have an
         indefinite  life  and  these  assets  are  no  longer  being  amortized
         effective January 28, 2002.

         Intangible   assets  subject  to   amortization   are  amortized  on  a
         straight-line method over their estimated useful lives.

         Impairment of Long-Lived Assets:

         Effective   January  28,  2002,   the  Company   adopted  SFAS  No.144,
         "Accounting for the Impairment or Disposal of Long-Lived  Assets." SFAS
         No. 144  provides  updated  guidance  concerning  the  recognition  and
         measurement  of an  impairment  loss for  certain  types of  long-lived
         assets.  The  adoption  of this new  standard  did not have a  material
         impact on the consolidated financial statements.


                                      F-8
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.       NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

         Impairment of Long-Lived Assets: (Continued)

         The Company reviews long-lived assets for impairment whenever events or
         changes in business  circumstances indicate that the carrying amount of
         the  assets  may  not  be  fully  recoverable.   The  Company  performs
         undiscounted  operating  cash flow  analyses to determine if impairment
         exists. If impairment exists, any related impairment loss is calculated
         based on fair value.  Impairment losses on assets to be disposed of, if
         any, are based on the  estimated  proceeds to be received less costs of
         disposal.

         Income Taxes:

         Deferred taxes are provided on a liability  method whereby deferred tax
         assets  are  recognized  for  deductible   temporary   differences  and
         operating   loss  and  tax  credit   carryforwards   and  deferred  tax
         liabilities are recognized for taxable temporary differences. Temporary
         differences are the differences  between the reported amounts of assets
         and liabilities and their tax bases. Deferred tax assets are reduced by
         a valuation  allowance  when, in the opinion of management,  it is more
         likely  than not that some  portion or all of the  deferred  tax assets
         will not be realized.  Deferred tax assets and liabilities are adjusted
         for the  effects  of  changes  in tax  laws  and  rates  on the date of
         enactment.

         Derivative Financial Instruments:

         The  Company's  interest  rate swap  agreements  are  recognized on the
         balance sheet at their value.  On the date the  derivative  contract is
         entered into,  the Company  designates  the  derivative as a hedge of a
         forecasted  transaction  or of the  variability  of  cash  flows  to be
         received or paid related to a recognized asset or liability "cash flow"
         hedge.  Changes  in the  fair  value  of a  derivative  that is  highly
         effective as - and that is  designated  and  qualifies as - a cash-flow
         hedge are recorded in other  comprehensive  income,  until earnings are
         affected  by  the  variability  of  cash  flows  (e.g.,  when  periodic
         settlements  on a  variable-rate  asset or  liability  are  recorded in
         earnings).

         The  Company  formally  documents  all  relationships  between  hedging
         instruments and hedged items, as well as its risk-management  objective
         and strategy for undertaking various hedged transactions.  This process
         includes  linking all  derivatives  that are  designated  as  cash-flow
         hedges to  specific  assets and  liabilities  on the  balance  sheet or
         forecasted  transactions.  The Company also formally assesses,  both at
         the hedge's inception and on an ongoing basis,  whether the derivatives
         that  are  used  in  hedging   transactions  are  highly  effective  in
         offsetting changes in cash flows of hedged items. When it is determined
         that a  derivative  is not highly  effective  as a hedge or that it has
         ceased to be a highly effective hedge, the Company  discontinues  hedge
         accounting prospectively, as discussed below.

         The Company discontinues hedge accounting  prospectively when (1) it is
         determined  that the  derivative  is no longer  effective in offsetting
         changes  in the  cash  flows  of a hedged  item  (including  forecasted
         transactions);  (2) the derivative expires or is sold,  terminated,  or
         exercised;  (3) the  derivative is  designated  as a hedge  instrument,
         because it is unlikely that a forecasted transaction will occur; or (4)
         management  determines  that  designation  of the derivative as a hedge
         instrument is no longer appropriate.


                                      F-9
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.       NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

         Derivative Financial Instruments (Continued):

         When hedge  accounting  is  discontinued  because it is probable that a
         forecasted  transaction will not occur, the derivative will continue to
         be carried on the balance sheet at its fair value, and gains and losses
         that were accumulated in other comprehensive  income will be recognized
         immediately  in  earnings.  In all  other  situations  in  which  hedge
         accounting is discontinued,  the derivative will be carried at its fair
         value on the balance sheet,  with subsequent  changes in its fair value
         recognized in current-period earnings.

         Advertising:

         The Company expenses  advertising costs as incurred.  Advertising costs
         for fiscal 2004 and 2003 were $516,679 and $593,055, respectively.

         Use of Estimates:

         The  preparation of financial  statements in conformity with accounting
         principles  generally accepted in the United States of America 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.

         Accounting for Consolidation of Variable Interest Entities:

         In January  2003,  the FASB issued FIN 46,  "Consolidation  of Variable
         Interest Entities, an interpretation of ARB No. 51." FIN 46 was subject
         to significant interpretation by the FASB, and was revised and reissued
         in December  2003 ("FIN  46R").  FIN 46R states that if an entity has a
         controlling  financial  interest  in a variable  interest  entity,  the
         assets,  the  liabilities  and results of  activities  of the  variable
         interest  entity  should  be  included  in the  consolidated  financial
         statements  to the  entity.  The  provisions  of FIN 46 and FIN 46R are
         applicable  for small  business  issuers  that have  variable  interest
         entities  (VIE) by the end of the first  reporting  period ending after
         December 15, 2004.  The adoption of FIN 46 and FIN 46R did not have any
         effect  on the  Company's  consolidated  financial  statements,  as the
         Company does not have any VIEs.

         52-53 Week Period:

         The Company's year-end is the last Sunday in January. The statements of
         operations  are comprised of a 52-week  period both for fiscal 2004 and
         2003.


                                      F-10
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2.       AVAILABLE-FOR-SALE SECURITIES

         Details as to available-for-sale  securities at January 25, 2004 are as
         follows:

<TABLE>
<CAPTION>
                                                                                                                Fair Value of
                                                            Gross             Gross                            Securities with
                                                          Unrealized       Unrealized                             Unrealized
                                        Gross Cost          Gains           (Losses)          Fair Value           (Losses)
                                     ----------------   -------------    ----------------   ----------------   ---------------

<S>                                     <C>               <C>               <C>                 <C>               <C>
         Convertible bonds              $   30,680        $  18,930         $      --           $   49,610        $   --
         Mutual funds                    1,558,036           94,717             (94,040)         1,558,713         489,053
         Equity securities                 662,561          212,794             (48,588)           826,767          65,566
                                        ----------        ---------         -----------         ----------        --------

                                        $2,251,277        $ 326,441         $  (142,628)        $2,435,090        $554,619
                                        ==========        =========         ===========         ==========        ========
</TABLE>

         All of the investments with unrealized losses have been in a continuous
         unrealized  loss  position for more than one year.  The severity of the
         impairments  in  relation  to the  carrying  amounts of the  individual
         investments  (fair value average  approximately  24% less than cost) is
         consistent with current market  conditions.  The Company  evaluated the
         near-term  prospects  of the issuers in relation  to the  severity  and
         duration of the impairment.  Based on that evaluation and the Company's
         ability and intent to hold these investments for a reasonable period of
         time  sufficient for a forecasted  recovery of fair value,  the Company
         does  not  consider  these  investments  to  be  other-than-temporarily
         impaired at January 25, 2004.

3.       INVENTORIES

         Inventories consist of the following:

              Food                                                  $    644,547
              Beverages                                                  149,243
              Supplies                                                   446,264
                                                                    ------------

                                                                    $  1,240,054
                                                                    ============

4.       PROPERTY AND EQUIPMENT

         Property and equipment consist of the following:

              Land                                                  $  3,270,041
              Buildings and improvements, including leaseholds        14,420,620
              Furniture and equipment                                  2,154,760
              Construction in progress                                   134,295
              China, glassware and utensils (a)                           97,001
                                                                    ------------

                                                                    $ 20,076,717
                                                                    ============


                                      F-11
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4.       PROPERTY AND EQUIPMENT (Continued)

         (a) Carried at original cost for each restaurant. All replacement
         purchases are charged to expense as incurred.

         Depreciation  expense was $1,103,666 and $1,182,389 for fiscal 2004 and
         2003, respectively.

5.       INTANGIBLE ASSETS

         In June 2001, the Financial  Accounting  Standards  Board (FASB) issued
         SFAS No.'s 141 and 142, "Business Combinations" and "Goodwill and Other
         Intangible Assets." Under the new rules,  goodwill and other intangible
         assets deemed to have indefinite  useful lives are no longer  amortized
         but  are  subject  to  impairment  tests  at  least  annually,  or more
         frequently if  circumstances  occur that indicate  impairment  may have
         occurred.  Management has determined that the Company's liquor licenses
         have an indefinite life and these assets are no longer being amortized.

         During  the  required  transitional   impairment  testing  of  goodwill
         required by SFAS 142, the Company determined that the carrying value of
         the  Company's  reporting  unit  was less  than  the fair  value of the
         identifiable   assets   (including   goodwill)  and  liabilities.   The
         determination  of the fair  value  was  based on the  aggregate  market
         capitalization of the Company as compared to book value. As a result of
         the Company's market capitalization being less that its book value, the
         Company  reduced the carrying  value of goodwill by $430,403,  which is
         reflected  as a  cumulative  effect  of an  accounting  change  in  the
         accompanying  consolidated  statement of operations  for the year ended
         January 26, 2003. The Company's  transitional  testing of impairment of
         the liquor  license  intangible  asset  resulted in no impairment  upon
         adoption.

         The Company  completed  its required  annual  impairment  assessment of
         goodwill and liquor licenses for potential impairment as of October 28,
         2002.  As a  result  of  this  review,  a write  down  of the  goodwill
         associated  with the April 2002  acquisition  of Mr.  Manatee's  Casual
         Grille  resulted.  Again,  the write down  resulted  from the aggregate
         market  capitalization  of the Company  being less than its book value.
         The charge for the write down of goodwill associated with Mr. Manatee's
         of $583,922 is included  as an  operating  expense in the  accompanying
         consolidated  statement of  operations  for the year ended  January 26,
         2003.  The  Company's  annual  impairment  test of the  liquor  license
         intangible  asset  resulted  in no  impairment  during  the year  ended
         January 25, 2004.

         Intangible assets at January 25, 2004 consist of:

                                                 Liquor           Covenant Not
                                                Licenses           to Compete
                                              -------------      ---------------

         Cost                                 $  1,175,998       $       63,126
         Accumulated amortization                 (336,266)             (23,146)
                                              -------------      ---------------

                                              $    839,732       $       39,980
                                              =============      ===============

         In connection with the acquisition of Mr. Manatee's Casual Grille,  the
         Company  entered into a non-compete  agreement  with the prior owner of
         the restaurant.

         Amortization  expense was $12,625 and $10,521 for fiscal 2004 and 2003,
         respectively.


                                      F-12
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5.       INTANGIBLE ASSETS (Continued)

         The estimated  aggregate  amortization  expense for the covenant not to
         compete for each of the next four years is as follows: $12,625 annually
         for  the  fiscal   years  2005   through  2007  and  $2,105  for  2008.
         Amortization of liquor licenses is no longer required (see Note 1).

6.       NOTES AND MORTGAGES PAYABLE

<TABLE>
<CAPTION>
<S>                                                                                  <C>
         Mortgages payable in  various  monthly  installments  to  amortize  the
         mortgages at the rate of $120,000 annually, through September 2011 with
         interest at LIBOR plus 2.00%,  collateralized by real estate located in
         Point Pleasant Beach, New Jersey                                            $   955,000

         Mortgage  payable  in monthly  installments  of  $8,319,  inclusive  of
         interest at LIBOR plus 2.00%, through November 2008,  collateralized by
         real estate located in Vero Beach, Florida                                      690,438

         Mortgage  payable in  various  monthly  installments  to  amortize  the
         mortgage  at the rate of  $100,000  annually,  through  May  2007  with
         interest at LIBOR plus 2.00%,  collateralized by real estate located in
         Toms River, New Jersey                                                          315,000
                                                                                     -----------

                                                                                       1,960,438
         Less: Current maturities                                                        266,346
                                                                                     -----------

                                                                                     $ 1,694,092
                                                                                     ===========
</TABLE>

         Annual  maturities  for fiscal years 2006  through  2009 are  $270,771,
         $274,909, $194,283 and $599,130, respectively.

         At January 25, 2004, the Company has a $500,000 line of credit which is
         collateralized  by real estate located in Toms River,  New Jersey.  The
         line is due June 30, 2005 and bears  interest  at LIBOR plus 2.00%.  At
         January 25, 2004, there were no amounts used under the line of credit.

         LIBOR was 1.1% at January 25, 2004.

         The Company  maintains an interest rate  risk-management  strategy that
         uses  derivative  financial   instruments  to  minimize   unanticipated
         earnings fluctuations caused by interest rate volatility. The Company's
         specific  goal is to lower  (where  possible)  the cost of its borrowed
         funds.


                                      F-13
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6.       NOTES AND MORTGAGES PAYABLE (CONTINUED)



         As of January 25, 2004,  the Company had interest rate swap  agreements
         relating to a portion of the Company's  variable rate debt.  Unrealized
         net  losses   under  the   interest   rate  swap   agreements   totaled
         approximately $149,600 at January 25, 2004. These unrealized net losses
         are  recorded  in  Accumulated  Other   Comprehensive   Income  in  the
         consolidated  balance  sheet.  Since  the  Company  does not  intend to
         terminate the swap  agreements  during the upcoming  year,  the Company
         does  not  anticipate  that  any of  these  unrealized  losses  will be
         reclassified  into earnings in the next twelve  months,  except for the
         amounts that will be realized when periodic settlements of the variable
         interest  liability  are  recorded  in  earnings.  No gain or loss  was
         recognized  in  earnings  during the year ended  January  25, 2004 as a
         result of hedge ineffectiveness.

         All of the Company's  mortgages  and loans are with the same  financial
         institution. The loan covenants governing the borrowings include, among
         other  items,  requirements  relating  to tangible  net worth,  capital
         expenditures and working capital components.

7.       INVESTMENT INCOME

         The components of investment income are summarized as follows:

                                                              2004        2003
                                                           ---------   ---------

         Interest income                                    $ 13,603    $ 23,697
         Dividends                                           128,481     136,868
         Realized gain on sales of
         available-for-sale securities                        69,175       5,154
                                                           ---------   ---------

                                                            $211,259    $165,719
                                                           =========   =========

8.       RETIREMENT PROGRAMS

         The Company has a non-qualified  supplemental  retirement program which
         provides life insurance to certain eligible  employees.  The Company is
         the owner of all cash  values of the  policies.  The death  benefit  is
         split,  reimbursing the Company for premiums paid with the balance paid
         to the  beneficiary  designated by the employee.  Employees vest in the
         program  after ten  years,  with the  option to take  ownership  of the
         policy at that time or let the Company continue to fund the policy. The
         Company has recorded,  as a long-term asset in the accompanying balance
         sheet,  its equity in life  insurance  for  premiums  advanced  and has
         included  in  other  long-term   liabilities  the  Company's  estimated
         liability  for the  amount of the  equity in life  insurance  which the
         Company will be required to turn over to employees.

         Additionally,   the   Company   has  an   agreement   with   a   former
         director/employee  which  provides  for the payment of $20,000 per year
         through  2007.  The  discounted  present  value  of this  agreement  is
         included in other long-term liabilities.  The amount has been partially
         insured with a life insurance contract owned by the Company.

         The  Company's  expense  for these  plans was  $49,685  and $34,577 for
         fiscal 2004 and 2003, respectively.


                                      F-14
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9.       EXECUTIVE INCENTIVE BONUS PLAN



         The  Company  has an  executive  incentive  bonus plan  which  provides
         eligible employees an annual cash bonus if the Company achieves certain
         financial goals.  The charge to operations  applicable to the incentive
         plan for fiscal 2004 and 2003 was $51,000 and $32,867, respectively.

10.      TRANSACTIONS WITH RELATED PARTIES

         The Company has a lease for Moore's Inn ("Moore's") restaurant property
         with Moore's Realty Associates  ("Moore's Realty"), a partnership owned
         by the  principal  shareholders  of the  Company.  The  lease  requires
         minimum annual rentals of $90,000,  plus percentage rent of 6% of sales
         exceeding  $1.5 million.  The lease contains  three  five-year  renewal
         options.

         The Company  also has a five-year  lease for the  property  adjacent to
         Moore's for the Company's Escondido's Mexican Restaurant (Escondido's).
         The terms of this lease are the same as the lease for Moore's.

         Additionally,  the  Company  has a lease  with  Moore's  Realty  for an
         additional parking lot for Moore's and Escondido's. The initial term of
         the lease expires January 25, 2007, the same expiration date as Moore's
         and  Escondido's.  The lease  also  contains  three  five-year  renewal
         options.  During the initial term of the lease,  minimum annual rentals
         are $40,000, plus percentage rent of 1% of the combined annual sales of
         Moore's and Escondido's exceeding $4million.  The lease also contains a
         provision  whereby  Moore's  Realty agreed to reimburse the Company for
         improvements  made to the parking  lot up to  $150,000.  During  fiscal
         2003, the Company made improvements of approximately $135,000, which is
         being reimbursed by an offset to the monthly rent payment.  Included in
         the accompanying balance sheet is a current receivable of $40,000, with
         the remaining of $38,523 classified as a long-term receivable.

         Rent expense paid pursuant to these leases for fiscal 2004 and 2003 was
         $279,763 and $248,629,  respectively, which included percentage rent of
         $59,763 and $51,963, respectively.

         Moores Realty is not considered a variable  interest entity as there is
         sufficient  equity  investment  by the partners and the partners have a
         controlling financial interest in the partnership.  Additionally, as of
         January 25, 2004 there was no debt on the partnership.

         The Company has a retirement agreement with a former  director/employee
         (see Note 8).

11.      RESTAURANT CLOSING

         In June 2003, the Company closed one of its Mexican theme  restaurants.
         In  connection  with the  closing,  the  Company  wrote  off  leasehold
         improvements  and  other  equipment  of  $230,024  and  entered  into a
         Surrender  Agreement with the restaurant's  landlord which required the
         Company  to pay  $180,000.  The loss of  $410,024  is shown as "Loss on
         closing  restaurant"  in the  accompanying  Consolidated  Statement  of
         Operations for the year ended January 25, 2004.

         In  connection  with the  closing  of the  restaurant,  the  Company is
         attempting to sell the liquor license used in that location. The liquor
         license  has  been  classified  as an  "Asset  held  for  sale"  in the
         accompanying balance sheet as of January 25, 2004.


                                      F-15
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12.      COMMITMENTS AND CONTINGENCIES

         Leases:

         The  Company  leases  restaurants,  parking  lots and  equipment  under
         operating leases expiring at various times through fiscal 2009.

         Minimum future rental payments under noncancelable  operating leases as
         of January 25, 2004 are as follows:

                         2005                                 $   365,312
                         2006                                     367,492
                         2007                                     364,661
                         2008                                      53,226
                         2009                                      13,780
                                                              -----------

                                                              $ 1,164,471
                                                              ===========

         Total  rent  expense,  including  rent  paid to  related  parties,  was
         $497,615 and $541,588 for fiscal 2004 and 2003, respectively.

         Employment Agreements:

         The  Company  has  employment  agreements  through  March 2005 with two
         employees for annual  amounts  ranging from  $104,400 to $180,000.  The
         agreements  provide for annual adjustments based on the increase in the
         consumer  price  index.  These  agreements  also  provide  for lump sum
         payments in the event of the termination of the employees without cause
         or a change in control of the Company, as defined, for a portion of the
         unexpired term of the contracts.

         Stock Repurchase Plan:

         On December 24, 2002, the Board of Directors  authorized the Company to
         repurchase  over  a  13-month  period  up  to  100,000  shares  of  its
         outstanding  stock at market  price.  Through  January  25,  2004,  the
         Company  purchased  40,000  shares for $59,200,  all of which have been
         subsequently retired.

13.      EARNINGS PER SHARE

         The weighted average number of shares outstanding used to compute basic
         and diluted  earnings per share for fiscal 2004 and 2003 was  3,926,116
         and 3,969,540, respectively.


                                      F-16
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

14.      INCOME TAXES

         The provision  (credit) for income taxes charged to operations  consist
         of the following:

                                                   2004            2003
                                               ------------    ------------

         Current  --  Federal                   $     --        $  (27,918)
                  --  State                          6,000          25,000
         Deferred                                  (63,000)        191,000
                                               ------------    ------------

                                                $  (57,000)     $  188,082
                                               ============    ============


         The significant components of deferred tax assets and liabilities as of
         January 25, 2004 are as follows:


         Deferred Tax Assets:
           Tax loss carryforwards                                   $    657,000
           Depreciation and amortization                                 360,000
           Other                                                          41,000
                                                                    ------------

             TOTAL DEFERRED TAX ASSETS                                 1,058,000
                                                                    ------------

         Deferred Tax Liability:
           Other comprehensive income                                     14,000
           Other                                                          20,000
                                                                    ------------

             TOTAL DEFERRED TAX LIABILITY                                 34,000
                                                                    ------------

             NET DEFERRED TAX ASSETS                                $  1,024,000
                                                                    ============


         Prior to the fiscal year ended January 25, 2004,  the Company  provided
         valuation allowances because, in the opinion of management, it was more
         likely than not that some  portion of the deferred tax assets would not
         be realized.  For the fiscal year ended  January 25, 2004, no valuation
         allowance was required.  The net change in the valuation  allowance for
         fiscal 2004 was a reduction of  $1,098,000.  The  reduction  for fiscal
         2004 was principally due to the expiration of tax loss carryforwards.


                                      F-17
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

14.      INCOME TAXES (Continued)

         The  Company  has  available  at  January  25,  2004,   operating  loss
         carryforwards as follows:

              Year of Expiration
              ------------------
                     2005                         $    472,000
                     2006                              221,000
                     2007                              215,000
                     2008                              197,000
                     2009                              155,000
                     2010                              104,000
                     2011                              145,000
                     2012                               88,000
                     2024                              166,000
                                                  ------------

                                                  $  1,763,000
                                                  ============

         The  difference  between the tax  provision  at the  statutory  Federal
         income  tax rate and the tax  provision  attributable  to  income  from
         continuing operations before income tax for the years ended January 25,
         2004 and January 26, 2003 are as follows:

<TABLE>
<CAPTION>
                                                                        2004                                    2003
                                                             --------------------------             ----------------------------
                                                                AMOUNT             %                   Amount                %
                                                             ------------      --------             ------------          ------

<S>                                                          <C>               <C>                  <C>                   <C>
Federal statutory rate                                       $     (6,100)        (34.0)            $   (169,000)          (34.0)
State taxes net of Federal benefit                                   (900)         (5.0)                 (24,800)           (5.0)
Valuation allowance change                                     (1,098,000)     (6,099.0)                  36,800             7.4
Non taxable income                                                (42,000)       (233.1)                 (29,918)           (6.1)
Expiration of operating loss carryforwards                      1,090,000       6,054.5                  375,000            75.6
                                                             ------------      --------             ------------          ------

    EFFECTIVE RATE                                           $    (57,000)       (316.6)            $    188,082            37.9
                                                             ============      ========             ============          ======
</TABLE>

15.      FINANCIAL INSTRUMENTS

         The carrying amounts  reflected in the  consolidated  balance sheet for
         cash and cash  equivalents,  investments,  receivables  and  notes  and
         mortgages payable approximate their respective fair values. Fair values
         are based primarily on quoted prices for those or similar instruments.


                                      F-18
<PAGE>

CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

16.      SUBSEQUENT EVENT

         Subsequent to year-end, the Company entered into a contract to sell the
         restaurant and property located in Jensen Beach,  Florida.  The selling
         price is $900,000,  which will result in the Company recognizing a gain
         of approximately $400,000.

17.      OTHER

         On November 21,  2003,  the Company  announced  that it had received an
         offer  from  the  principal   shareholders  of  the  Company,  who  own
         approximate  61% of the Company's  outstanding  common stock,  of their
         intent to acquire  all of the  remaining  outstanding  shares of common
         stock for a cash purchase price of $1.75 per share. The Company's Board
         of Directors has appointed a Special Committee, consisting of the three
         directors  independent  of the  principal  shareholders,  to review and
         analyze the proposal.  The initial purchase price of $1.75 was rejected
         by the  Special  Committee.  A  subsequent  after  $2.50  per  share is
         currently being reviewed by the Special Committee.


                                      F-19
<PAGE>

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


         NONE

ITEM     8A CONTROLS AND PROCEDURES

         (a) EXPLANATION OF DISCLOSURE CONTROLS AND PROCEDURES. Anthony C.
Papalia,  the Company's  principal  executive officer and principal financial
officer, after evaluating the effectiveness of the Company's disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14(c)) and 15-d 14(c) as of
a date within 90 days of the filing date of this Annual Report (the  "Evaluation
Date") has concluded  that as of the Evaluation  Date, the Company's  disclosure
controls and  procedures  were  adequate and  effective to ensure that  material
information  relating to the Company and its consolidated  subsidiaries would be
made  known to him by others  within  those  entities,  particularly  during the
period in which this Annual Report was being prepared.

         (b) CHANGES IN INTERNAL  CONTROLS.  There were no  significant changes
in the Company's internal controls or in other factors that could  significantly
affect  the  Company's  disclosure  controls  and  procedures  subsequent to the
Evaluation Date, nor any significant deficiencies or material weaknesses in such
disclosure  controls and procedures  requiring  corrective  action. As a result,
no corrective actions were taken.


                                       20
<PAGE>

                            CHEFS INTERNATIONAL, INC.

                                    PART III

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

         The following table sets forth certain information with respect to each
of the current directors of the Company:

                                                              Date First
Name                       Age     Position                   Elected a Director
----                       ---     --------                   ------------------

                                   Chairman of
Robert M. Lombardi(a)      52      the Board                  May 1999
Nicholas B. Boxter         56      Director                   December 1999
Kenneth Cubelli            50      Director                   December 1999
Raymond L. Dademo          46      Director                   December 1999
Anthony M. Lombardi(a)     48      Director                   July 1999
Joseph S. Lombardi(a)      53      Director                   July 1999
Michael F. Lombardi(a)     55      Director                   July 1999
Stephen F. Lombardi(a)     48      Director                   July 1999

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

         (a)The five Lombardis who serve as directors are brothers.

         The  following  table  sets forth  certain  information  regarding  the
executive officers of the Company.

Name                            Age       Office
----                            ---       ------

Anthony C. Papalia              46        President, Treasurer, Principal
                                          Executive Officer, Principal Financial
                                          Officer*

Martin W. Fletcher              51        Secretary

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

* See Item 1 --  "Developments  Since the  Beginning  of the Last  Fiscal  Year"
herein as to Mr. Papalia's  resignation,  effective June 28, 2004, as president,
treasurer,  principal  executive officer and principal  financial officer of the
Company.

         The Company  does not have an Executive  Committee or a separate  Audit
Committee.  The  entire  Board  of  Directors  serves  as  the  Company's  Audit
Committee.  The term of office of each  director and executive  officer  expires
when his successor is elected and qualified.  Executive  officers are elected by
and hold office at the discretion of the Board of Directors.

         The  Board of  Directors  intends  to  formally  adopt a code of ethics
applicable  to  the  Company's  principal  executive,  principal  financial  and
principal accounting officer during the second quarter of fiscal 2005.

         The  following is a brief  account of the business  experience  of each
director and executive officer of the Company during the past five years.


DIRECTORS

         Robert M. Lombardi,  M.D. is, and for more than the past five years has
been  principally  engaged  as a  physician  and  orthopedic  surgeon  with  the
Edison-Metuchen  Orthopedic  Group, a medical  practice group located in Edison,
New Jersey,  where he also serves as a senior officer.  He is also an officer of
Moore's Inn, Inc. and a partner in Moore's Realty.


                                       21
<PAGE>

         Nicholas B.  Boxter,  C.P.A.  is, and for more than the past five years
has been principally engaged in the practice of accountancy with his own firm in
Whitehouse, New Jersey.

         Kenneth  Cubelli,  M.D.  is,  and for more than the past five years has
been principally  engaged as a physician and orthopedic  surgeon with the Morris
County Orthopedic Group in Denville, New Jersey.

         Raymond L.  Dademo,  Esq. is, and for more than the past five years has
been  principally  engaged  as a  practicing  attorney  with his own law firm in
Brick, New Jersey.

         Anthony M. Lombardi,  D.D.S.  is, and for more than the past five years
has been principally engaged in the practice of dentistry in Edison, New Jersey.
He is also an officer of Moore's Inn, Inc.

         Joseph S. Lombardi,  M.D. is, and for more than the past five years has
been  principally  engaged  as a  physician  and  orthopedic  surgeon  with  the
Edison-Metuchen  Orthopedic Group,  where he is a senior officer.  He is also an
officer of Moore's Inn, Inc. and a partner in Moore's Realty.

         Michael F. Lombardi, Esq. is, and for more than the past five years has
been  principally  engaged  as a  practicing  attorney  and a senior  officer of
Lombardi & Lombardi, P.A., an Edison, New Jersey law firm. He is also an officer
of Moore's Inn, Inc. and a partner in Moore's Realty.

         Stephen F. Lombardi, Esq. is, and for more than the past five years has
been  principally  engaged  as a  practicing  attorney  and a senior  officer of
Lombardi & Lombardi, P.A., an Edison, New Jersey law firm. He is also an officer
of Moore's Inn, Inc. and a partner in Moore's Realty.

EXECUTIVE OFFICERS

         Anthony C.  Papalia has been  continuously  employed by the Company for
the  preceding  five  years.  He has served as a manager  of various  New Jersey
Lobster Shanty  restaurants  and as an area  supervisor.  Mr.  Papalia,  who was
elected  senior vice  president and a director of the Company in September  1985
and  president  and  treasurer in March 1988,  is currently  devoting all of his
working time to the  business of the  Company.  He resigned as a director of the
Company in July 1999. See Item 1 - "Developments Since the Beginning of the Last
Fiscal Year" herein as to Mr. Papalia's resignation, effective June 28, 2004, as
president,  treasurer,  principal  executive  officer  and  principal  financial
officer of the Company.

         Martin W.  Fletcher has been  continuously  employed by the Company for
the preceding five years in various capacities. He has served as general manager
of the Company's Toms River,  New Jersey Lobster Shanty,  as area supervisor for
its Florida west coast  restaurants,  as assistant  controller,  since September
1987 as  controller  and since  March 1988 as  secretary  and a director  of the
Company.  He resigned as a director of the Company in July 1999. He is currently
devoting all of his working time to the business of the Company.

COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

         Based  solely upon a review of Forms 3, 4 and 5, the  Company  believes
that  with  respect  to fiscal  2004,  all  Section  16(a)  filing  requirements
applicable to its officers,  directors and beneficial owners of more than 10% of
its equity securities were timely complied with.

ITEM 10. EXECUTIVE COMPENSATION

         The following table sets forth information  concerning the compensation
paid or accrued by the Company  during the three fiscal years ended  January 25,
2004 to its  Principal  Executive  Officer  as well  as to any  other  executive
officer of the  Company or a  subsidiary  who  earned at least  $100,000  during
fiscal 2004.  During


                                       22
<PAGE>

the  three-year  period ended  January 25,  2004,  the Company did not grant any
restricted  stock awards or have any  long-term  incentive  plan in effect.  The
Company maintains a non-qualified  Supplemental Employee Benefit Program for its
officers, supervisors,  restaurant managers and assistant managers paying annual
contributions  ranging from $1,000 to approximately  $3,000 per individual.  The
Program provides life insurance death benefits,  disability  income benefits and
retirement income benefits. A former officer and director,  James Fletcher,  the
father of Martin W. Fletcher,  is not covered under this Program but the Company
agreed that if he  remained  in its employ  until age 65 and left such employ at
any time thereafter, the Company would pay him $20,000 annually for the ten year
period  following such  termination of employment or until his death, if he dies
prior thereto.  To date, the Company has made annual  payments over a seven year
period pursuant to this agreement.

                           SUMMARY COMPENSATION TABLE

                                               Annual Compensation
                                               -------------------
Name and                 Fiscal                                  Other Annual
Principal Position       Year          Salary         Bonus(a)   Compensation(b)
------------------       ------        ------         -----      ------------
Anthony Papalia          2004          $179,162       $7,500        $2,088
President and            2003          $174,630       $4,500        $2,088
Principal Executive      2002          $169,497       $8,429        $2,088

Martin Fletcher          2004          $103,915       $9,100        $2,902
Controller and           2003          $101,255       $5,367        $2,902
Secretary                2002           $98,308       $8,500        $2,902

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

(a) In May 2000, the Company's Board of Directors adopted an executive incentive
bonus plan  providing  for an annual cash bonus to be paid to Company  employees
performing executive type functions with respect to each fiscal year (commencing
with fiscal  2001) in which the Company  achieved  certain  specified  levels of
earnings before deducting interest, income taxes, depreciation and amortization.
Extraordinary items are excluded for purposes of the computation. The bonus pool
for fiscal  2004  aggregated  $51,100  and was  distributed  to seven  employees
including  Anthony  Papalia who received $7,500 and Martin Fletcher who received
$9,100.

(b) Represents contributions under the Supplemental Employee Benefit Program.

EMPLOYMENT AGREEMENTS

         At the annual  meeting of the Company's  stockholders  held on December
19, 1995,  stockholders  ratified  employment  contracts between the Company and
Anthony Papalia as principal  executive officer and principal  financial officer
and between the Company and Martin Fletcher as controller. Each contract expired
at the  conclusion  of the  Company's  1999  fiscal  year and was  automatically
renewed on a year by year basis for up to five consecutive  additional  one-year
terms unless  either party gave at least six months'  prior notice that he or it
did not desire such  renewal.  As no such notice was given  during  fiscal 1999,
each contract was extended for a first renewal year. Mr. Papalia's annual salary
under the  contract  was $150,000  and Mr.  Fletcher's  annual  salary under the
contract was $87,000 but each individual's  salary was made subject to automatic
increase in each Renewal Year based on increases in the Consumer Price Index. If
the  employment of either  individual was  terminated  other than for cause,  he
would  become  entitled  to a  Severance  Payment  equal  to the  amount  of his
compensation  over the balance of the contract  term.  Each  individual  is also
entitled to terminate his  employment  and receive a Severance  Payment equal to
six  months'  salary in the  event of a  "change  of  control"  of the  Company.
Amendments  to each  employment  contract  executed in June 1999 and August 1999
extended the first  renewal year through  March 31, 2000,  renewed each contract
for a second renewal year through March 31, 2001 and recast each renewal year so
as to  commence  on  April 1 of each  year  and to  expire  on


                                       23
<PAGE>

March 31 of the  following  year.  Notice of intention  not to renew must now be
given no later than  September  30 of the year  preceding  the year in which the
renewal term commences.  In November 2001, each employment  contract was further
amended to renew the term through March 31, 2005.  The  amendments  retained the
automatic  salary  increase  provision  based on increases in the Consumer Price
Index and  provided  for an  automatic  one year renewal in the absence of prior
notice not to renew.  As a result,  with respect to fiscal 2004,  Mr.  Papalia's
annual  salary was  increased to $179,162 and Mr.  Fletcher's  annual salary was
increased to $103,915.

         See Item 1 --  "Developments  Since the  Beginning  of the Last  Fiscal
Year"  herein as to the release of Mr.  Papalia from his  obligations  under his
employment  contract effective at the close of business on June 28, 2004 and his
resignation,   effective  at  such  date,  as  president,  treasurer,  principal
executive officer and principal financial officer of the Company.





STOCK OPTIONS

         At January 26,  2003 and at January 25, 2004 there were no  outstanding
employee or non-employee stock options  exercisable to purchase shares of Chefs'
Common Stock.

DIRECTORS' COMPENSATION

         During  fiscal 2004, no  compensation  was paid to any of the Company's
directors for serving in such capacity.  Furthermore,  no method of compensation
has been established at this date for the current directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN
         BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth  information  as of March 31, 2004 with
respect to their  ownership  of Chefs'  common stock by (i) each person known by
the  Company to be the  beneficial  owner of more than 5% of Chefs'  outstanding
common stock, (ii) each director of the Company, (iii) each executive officer of
the Company, and (iv) all directors and executive officers as a group.

Name and Address of
Beneficial Owner                  Shares of Common Stock       Percentage
Directors*                          Beneficially Owned         Ownership
----------                          ------------------         ---------

Robert M. Lombardi                      1,335,825(1)               34%
Nicholas B. Boxter                          --                     --
Kenneth Cubelli                           100,000                   3%
Raymond L. Dademo                           2,000                  --
Anthony M. Lombardi                       111,001(1)                3%
Joseph S. Lombardi                        598,633(1)               15%
Michael F. Lombardi                       332,069(1)(2)(3)          8%
Stephen F. Lombardi                       191,669(1)(2)(3)          5%

Executive Officer*
------------------
Anthony C. Papalia                          5,000                  --

All executive officers and
 directors as a group
 (ten persons)                          2,515,528(1)(2)(3)         64%

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

* The address of each  director and  executive  officer is c/o the  Company,  62
Broadway, Point Pleasant Beach, New Jersey 08742.


                                       24
<PAGE>

         (1)  Robert M.  Lombardi,  Anthony  M.  Lombardi,  Joseph S.  Lombardi,
Michael F. Lombardi and Stephen F. Lombardi,  Lombardi & Lombardi,  P.A. and the
Lombardi & Lombardi, P.A. Defined Benefit Pension Plan previously filed a report
on  Schedule  13D and  amendments  thereto  indicating  that  they  were  acting
separately and not as a group but subsequently  filed amendments to the Schedule
13D indicating that they are acting as a "group." The five individual  Lombardis
are brothers and for  purposes of this report,  they and the above  entities are
deemed the "Lombardi Group." See Item 1 -- "Developments  Since the Beginning of
the Last Fiscal Year" as to the proposal by the Lombardi Group to acquire all of
the outstanding shares of Chefs common stock not owned by the Lombardi Group.

         (2) Includes  111,668  shares  owned by the  Lombardi & Lombardi,  P.A.
Defined Benefit  Pension Plan.  Michael F. Lombardi and Stephen F. Lombardi each
have voting and dispositive power with respect to all 111,668 shares.

         (3) Includes 49,000 shares owned by Lombardi & Lombardi,  P.A.  Michael
F.  Lombardi and Stephen  Lombardi each have voting and  dispositive  power with
respect to all 49,000 of such shares.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         See Item 1 -- "Restaurant  Operations  - Mexican  Theme  Restaurants  -
Moore's Tavern and  Restaurant" as to rentals paid in fiscal 2004 by the Company
with respect to its two Freehold, New Jersey restaurants and the "Building Pad C
Parking Lot" to Moore's Realty (whose partners are members of the Lombardi Group
and other members of the Lombardi family).

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS

3.1               Restated Certificate of Incorporation of the Company(A)

3.2               By-Laws of the Company, as amended(B)

4.1               Specimen Common Stock Certificate(C)

10.2              Employment  Agreement  dated as of December  19, 1995  between
                  Chefs and Anthony Papalia(D)

10.3              Employment  Agreement  dated as of December  19, 1995  between
                  Chefs and Martin Fletcher(D)

10.4              Loan Agreement  dated October 30, 1998 between the Company and
                  First Union  National  Bank ("First  Union")and  the Company's
                  $880,000  Promissory Note issued pursuant  thereto for funding
                  utilized by the Company to  purchase  the Vero Beach,  Florida
                  Lobster Shanty Restaurant(A)

10.4.1            Loan Agreement dated September 7, 2001 between the Company and
                  First Union containing the Company's  affirmative and negative
                  covenants(G).

10.5              Lease  Agreement  executed  in January  2000 for  Moore's  Inn
                  facility, between Moore's Realty Associates ("Moore's Realty")
                  as Landlord and the Company as Tenant(B)

10.5.1            Lease  Agreement  dated  October  1,  2001 for  Building  B in
                  Freehold,  New Jersey  between  Moore's Realty as Landlord and
                  the  Company  as  Tenant   (opened  as   Escondido's   Mexican
                  Restaurant)(G).

10.5.2            Lease Agreement dated September  1,2002 for the Building C pad
                  site between Moore's Realty and the Company.


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<PAGE>

10.6              Liquor  License  Sale/Purchase  Agreement  executed in January
                  2000 between  Moore's Inn, Inc. as Transferor  and the Company
                  as Transferee(B)

10.7              Sale/Purchase Agreement for Furniture,  Fixtures and Equipment
                  executed in January 2000 between  Moore's Inn,  Inc. as Seller
                  and the Company as Purchaser(B)

10.9              Chefs International Executive Incentive Bonus Plan(G)

10.10             Asset Purchase  Agreement  dated January 25, 2002 for personal
                  property, furnishings, fixtures and equipment, liquor license,
                  tradename  and goodwill of Mr.  Manatee's  restaurant  in Vero
                  Beach,  Florida between Causeway Foods, Inc. and Mr. Manatee's
                  Franchise Corporation as Sellers and the Company as Buyer. (g)

10.11             Commercial  Lease Option  dated April 1, 2002 between  Stephen
                  Craig  Long as Lessor  and the  Company  as Lessee for the Mr.
                  Manatee's facility.(h)

21                Subsidiaries

31.1              Certification of Principal  Executive and Principal  Financial
                  Officer

32.1              Certification of Principal  Executive and Principal  Financial
                  Officer  of the  Company  pursuant  to 18 United  States  Code
                  Section 1350.

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

         (A)  Incorporated  by  reference  to exhibit  filed with the  Company's
annual report on Form 10-KSB for the fiscal year ended January 31, 1999.

         (B)  Incorporated  by  reference  to exhibit  filed with the  Company's
annual report on Form 10-KSB for the fiscal year ended January 30, 2000.

         (C)  Incorporated  by  reference  to exhibit  filed with the  Company's
Registration Statement on Form SB-2 (File No. 33-66936).

         (D)  Incorporated  by  reference  to exhibit  filed with the  Company's
annual report on Form 10-K for the fiscal year ended January 28, 1996.

         (E)  Incorporated by reference to exhibit filed with Amendment No. 1 to
the Company's current report on Form 8-K/A for April 1, 1999.

         (F)  Incorporated  by  reference  to exhibit  filed with the  Company's
current report on Form 8-K for October 6, 2000.

         (G)  Incorporated  by  reference  to exhibit  filed with the  Company's
annual report on Form 10-KSB for the fiscal year ended January 27, 2002

         (H)  Incorporated  by  reference  to exhibit  filed with the  Company's
annual report on Form 10-KSB for the fiscal year ended January 26, 2003.


                                       26
<PAGE>

         (b)      REPORTS ON FORM 8-K

         During the last quarter of its fiscal year ended January 25, 2004,  the
Company  filed one current  report on Form 8-K.  This  report,  for November 21,
2003,  under  Item 5,  reported  that the  Company  had  issued a press  release
announcing  the offer of the  Lombardi  Group to  purchase  the  shares of Chefs
common stock owned by the Company's  minority  stockholders (at $1.75 per share)
and attached a copy of the press release as an exhibit pursuant to Item 7.

ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The firm of McGladrey & Pullen,  LLP  ("McGladrey  Pullen"),  certified
public  accountants,   audited  the  accounts  of  Chefs  and  its  subsidiaries
(collectively  the  "Company")  for the fiscal years ended  January 25, 2004 and
January 26, 2003.

         (1) AUDIT  FEES. McGladrey  Pullen  billed  the  Company  approximately
$70,000 for professional services rendered for the audit of the Company's annual
consolidated  financial  statements  for its 2004  fiscal year and to review the
financial statements included in its quarterly reports on Form 10-QSB filed with
respect to  quarterly  periods in such fiscal year as compared to  approximately
$58,600 for such services with respect to the Company's 2003 fiscal year.

         (2) AUDIT-RELATED FEES. None.

         (3) TAX FEES. McGladrey Pullen billed the Company approximately $10,000
for tax services for fiscal 2004 and approximately  $15,600 for tax services for
fiscal 2003. The fees were billed for tax return preparation.

         (4) ALL OTHER  FEES.  No other  fees  were  billed  to the  Company  by
McGladrey Pullen with respect to fiscal 2004 and approximately $1,400 was billed
by said firm to the Company for  miscellaneous  professional  services  rendered
with respect to fiscal 2003.

         (5) PRE-APPROVAL AND PROCEDURES.  The engagement of McGladrey Pullen to
render the above audit and tax services was approved by the  Company's  Board of
Directors.


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<PAGE>

                                   SIGNATURES

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

(Registrant)                       CHEFS INTERNATIONAL, INC.



                                   By: /s/ Anthony C. Papalia
                                      ---------------------------------
                                      Anthony C. Papalia, President,
                                        Principal Executive, Financial
                                        and accounting officer


                                               Date: April 26, 2004


         In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the date indicated.



By: /s/ Robert M. Lombardi                  By: /s/ Michael F. Lombardi
    -------------------------------             -------------------------------
    Robert M. Lombardi, Chairman                Michael F. Lombardi,
         Of the Board of Directors                    Director

        Date: April 26, 2004                     Date: April 26, 2004



By: /s/ Anthony Lombardi                     By: /s/ Stephen F. Lombardi
    -------------------------------              -------------------------------
    Anthony Lombardi, Director                   Stephen F. Lombardi,
                                                       Director

       Date: April 26, 2004                      Date: April 26, 2004



By: /s/ Joseph S. Lombardi
    ---------------------------------
    Joseph S. Lombardi, Director

       Date: April 26, 2004


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