SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                   FORM 10-K

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

For the fiscal year ended January 26, 1997

                                      OR

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

For the Transition period from_________________to________________

                         Commission File Number 0-8513

                           CHEFS INTERNATIONAL, INC.
            [Exact name of registrant as specified 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]

Registrant's telephone number, including area code 908-295-0350

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

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

                         Common Stock, $.01 par value
                               (Title of Class)

Indicate by check mark whether the registrant [1] has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months [or for such shorter period that the registrant was
required to file such reports], and [2] has been subject to such filing
requirements for the past ninety days.          YES X       NO___

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

On March 31,  1997,  the  aggregate  market  value of the voting  stock of Chefs
International,  Inc.  (consisting  of  Common  Stock,  $.01 par  value)  held by
non-affiliates  of the Issuer was  approximately  $1,500,000 based upon the last
sale price for such Common Stock on said date in the over-the-counter  market as
reported  by the  National  Quotation  Bureau,  Inc.  On such  date,  there were
4,489,722 shares of Common Stock of the Issuer outstanding.







                                      1

<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 nine restaurants on a year-round basis, eight of
which are  free-standing  seafood  restaurants  in New Jersey (five) and Florida
(three) and one of which is a Mexican theme  restaurant  operated under the name
"Garcia's,"  located  in a shopping  mall in New  Jersey.  Seven of the  seafood
restaurants are operated under the name "Lobster  Shanty" and one under the name
"Baker's Wharfside." The Company opened its first seafood restaurant in November
1978 and opened its Garcia's  restaurant in April 1996. The Company had operated
LaCrepe  restaurants in various  shopping malls in New Jersey,  Pennsylvania and
Florida (the first such  restaurant  opening in November  1975),  but closed its
last La Crepe  restaurant  in December 1995 at its present  Garcia's  restaurant
site.  See "Recent  Developments"  as to the sale by the Company on February 20,
1997 (as of January 26,  1997) of 95% of the common  stock of its Mister  Cookie
Face,  Inc.  subsidiary  ("MCF" or Mr.  Cookie  Face"),  a Lakewood,  New Jersey
producer of ice cream  sandwiches.  (As used herein,  the term the "Company" may
also at times include Chefs and its various subsidiaries.)

      The Company's executive offices are located at 62 Broadway, Point Pleasant
Beach, New Jersey 08742. Its telephone number is (908) 295-0350.

Recent Developments

Reverse Stock Splits

      Effective  June 8, 1993,  the Company  completed a  one-for-three  reverse
stock split of its outstanding  Common Stock.  Subsequent  thereto and effective
November 22, 1996, the Company  completed  another  one-for-three  reverse stock
split of its outstanding Common Stock. Unless otherwise indicated, all share and
per share  information  contained  in this report  gives  effect to the two said
one-for-three  reverse stock splits.  In addition,  unless otherwise  indicated,
actual price quotations for the Common Stock as quoted on the NASDAQ System have
been adjusted  throughout  this report by  multiplying  the actual price for the
Common  Stock  for  periods  up to and  including  June 8,  1993 by nine and for
periods  commencing  June 9, 1993 and prior to November  23,  1996 by three.  No
assurances  can be given that the actual price  quotations  for the Common Stock
during such pre-split  periods would have  approximated  such adjusted prices if
the one-for-three reverse stock splits had been effectuated at such time.

                                      1

<PAGE>



Termination of SEC Investigation

      On August 3, 1993, Chefs filed a Registration Statement on Form SB-2 (File
No. 33-66936) with the Securities and Exchange Commission (the "Commission") for
the purpose of  registering  shares of Common Stock and warrants for sale to the
public in an underwritten public offering. The offering was seeking to raise net
proceeds of approximately  $8,500,000,  approximately $5,000,000 of which was to
be applied to the  expansion of the business of Mr.  Cookie Face and the balance
to  the  acquisition   and/or   construction  by  Chefs  of  additional  seafood
restaurants.

      The  effectiveness  of the  Registration  Statement was held up due to the
conduct  by the  Commission's  staff of a private  investigation  pursuant  to a
formal order of  investigation  (HO-2781)  issued by the  Commission  in October
1993.  See Item 3 herein.  During the more than  two-year  period of the private
investigation,  the market price for Chefs' common stock materially declined. As
a result, the Company's management  determined that the proposed public offering
was no longer viable and on March 28, 1996, the Commission granted the Company's
application to withdraw the Registration Statement.

      By letter dated October 16, 1996, the Staff of the Commission notified the
Company that the "...staff inquiry..." in the matter (the private investigation)
"...has been  terminated and that, at this time, no enforcement  action has been
recommended to the Commission...."

Discontinued Operation

      The failure to  complete  the above  described  proposed  public  offering
prevented  the  Company  from  adequately  funding the growth of MCF's ice cream
operations.  As a result, MCF was unable to expand its markets and product lines
as originally planned. Management determined it was advisable to divest Chefs of
the  bulk of its  100%  ownership  of MCF and to  terminate  its  obligation  to
continue  to fund MCF's  operations.  On  February  20,  1997 (as of January 26,
1997),  Chefs  sold  95% of the  outstanding  capital  stock  of MCF to a Chefs'
director, Frank "Doc" Koenemund.

      At the closing, Chefs received a $500,000 payment which amount was paid to
Chefs' lending bank, First Union National Bank (the "Bank") to extinguish Chefs'
outstanding  indebtedness  under its  revolving  line of  credit  with the Bank.
Borrowings  under the line had been  utilized to fund the  operations of MCF. In
addition,  at the closing,  Chefs  received  three MCF  promissory  notes in the
aggregate  principal  amount  of  $1,100,000.  The  first  note  (Note A) in the
principal  amount of $100,000 was payable on or before  March 24, 1997  together
with interest at an annual rate of 8 1/4% and was secured by a first lien on all
of MCF's assets. Note A was paid in full prior to its due date.

                                      2

<PAGE>




            The second note (Note B) in the principal amount of
$500,000 is payable in the following principal installments:

Principal Payment Due Date                      Principal Payment Amount

March 1, 1998, March 1, 1999,
 March 1, 2000                                        $16,667 each
April 1, 1998, April 1, 1999,
 April 1, 2000                                        $16,667 each
May 1, 1998, May 1, 1999, May 1, 2000                 $16,667 each
June 1, 1998, June 1, 1999, June 1, 2000              $16,667 each
October 1, 1998, October 1, 1999                      $16,667 each
November 1, 1998, November 1, 1999                    $16,667 each
July 1, 1998, July 1, 1999                            $33,333 each
August 1, 1998, August 1, 1999                        $33,333 each
September 1, 1998, September 1, 1999                  $33,333 each
July 1, 2000 (Balance)                                $33,330

together with interest on the unpaid principal balance at the rate of 9 1/4% per
annum payable monthly  commencing  March 1, 1997. Note B, although  secured by a
first lien on all of MCF's assets,  is  subordinated to any liens granted in the
future by MCF to its senior lending bank or institutional lender but solely with
respect to a maximum aggregate $1,750,000 of indebtedness.

            The third  note  (Note C) in the  principal  amount of  $500,000  is
payable together with interest at an annual rate of 8 1/4% on or before February
20, 2004 but is  mandatorily  prepayable on a quarterly  basis from 30% of MCF's
"cash flow" on a consolidated  basis,  commencing  with the quarter ending April
30,  1997.  Note C is also secured by a first lien on all of MCF's assets and is
also  subordinated  to any liens  granted  in the  future  by MCF to its  senior
lending  bank or  institutional  lender  but  solely  with  respect to a maximum
$1,750,000 of indebtedness.

            Notes  B  and  C are  also  required  to be  prepaid  in  full  upon
consummation  of a public  offering of MCF's  securities or of a private sale or
sales of MCF's  securities  for gross  proceeds  aggregating  at least  $100,000
(excluding loans from MCF's senior bank or institutional lender). As part of the
transaction,  Chefs cancelled all prior  indebtedness owed to it by MCF prior to
the  closing  (excluding  the  indebtedness  paid or agreed to be paid by MCF to
Chefs or for its account pursuant to the Stock  Purchase/Sale  Agreement between
the parties).

            MCF also agreed to pay Chefs  certain  monthly  amounts equal to the
monthly  rental  payments being paid by Chefs to the Bank under two Master Lease
Finance  Schedules  with  respect  to  ice  cream  manufacturing  and  packaging
equipment  installed at MCF's  Lakewood,  New Jersey plant.  The payments are as
follows:

            Schedule #1 - $6,214  monthly  commencing  February 24, 1997 through
March 24, 1999 with a final payment of $6,215 on April 30, 1999.

            Schedule #2 - $1,403  monthly  commencing  February 15, 1997 through
April 15, 1999 with a final payment of $1,404 on May 30, 1999.

                                      3

<PAGE>





            MCF had been  acquired  by Chefs in July 1993 (as of June 30,  1993)
from Mr. Koenemund.  In the last three fiscal years (1995,  1996,  1997),  MCF's
sales had declined from approximately $15,873,000 to $14,711,000 to $11,261,000.
Chefs had advanced substantial sums to fund MCF's operations and at the closing,
was indebted to the Bank under a revolving  line of credit,  all of the proceeds
of which had been advanced to or on behalf of MCF, in the approximate  amount of
$500,000.

            In view of the substantial advances made to MCF, the fact that MCF's
operating loss in fiscal 1997 was approximately  $600,000,  the decline in MCF's
sales and other factors,  Chefs' management concluded that it was in Chefs' best
interest to sell MCF. Chefs'  management  examined a number of alternatives  and
the  Board of  Directors  (with Mr.  Koenemund  abstaining)  concluded  that the
transaction  proposed by Mr.  Koenemund  afforded  Chefs with the best chance to
recoup all or a significant  portion of its  substantial  investment in MCF. The
board noted that Chefs also was retaining a 5% equity interest in MCF, protected
by a pre-emptive right until all of the Notes were paid. See Note 16 of Notes to
the Consolidated Financial Statements.

Bank Loans

      On January 19, 1996, the Company's  $2,000,000 line of credit  arrangement
was  replaced  with a Term  Loan  and  Revolving  Credit  Agreement  (the  "Loan
Agreement") with First Fidelity Bank, N.A., subsequently acquired by First Union
National Bank (the "Bank").  Pursuant to the Loan Agreement, the Bank advanced a
$625,000 term loan ("Term Loan A") and a $1,000,000 term loan ("Term Loan B") to
the Company,  and also agreed to extend a $1,000,000 revolving line of credit to
the Company expiring on May 31, 1997.

      Term Loan A  represented  a  consolidation  of  approximately  $175,000 of
outstanding Company indebtedness under a loan previously incurred for renovation
of its Toms River  restaurant,  approximately  $100,000 of  outstanding  Company
indebtedness under a loan previously  incurred for renovation of its Belmar, New
Jersey  restaurant,  and a new  borrowing  of  $350,000  used by the Company for
construction  of its new Garcia's  restaurant at the Monmouth Mall in Eatontown,
New  Jersey  which  opened on April 29,  1996.  Term  Loan A is  evidenced  by a
$625,000 promissory note repayable in principal  installments of $34,000 on June
15,  July 15 and  August  15 of the years  1996  through  1998 and in  principal
installments of $17,750 on March 15, April 15, May 15,  September 15, October 15
and November 15 of each such year (except  that the final  principal  payment on
November  15,  1998  is  only  $17,250).  Approximately  $416,500  in  principal
indebtedness was outstanding under Term Loan A at January 26, 1997.

      Term Loan B, evidenced by a $1,000,000 promissory note, represents a shift
of $1,000,000 of outstanding  indebtedness  under the old line of credit to this
term loan.  Term Loan B is  repayable in  principal  installments  of $16,667 on
March 15,  April 15, May 15,  September  15,  October 15 and  November 15 of the
years 1996  through 2000 and in  principal  installments  of $33,333 on June 15,
July 15 and August 15 of each such year. Approximately $800,000 in

                                      4

<PAGE>



principal indebtedness was outstanding under Term Loan B at January 26, 1997.

      With each  repayment of  principal  under Term Loan A and Term Loan B, the
Company  is  required  to pay  interest  on the  outstanding  principal  balance
computed  at an annual  rate equal to 7.51%.  Advances  under the line of credit
bear interest at LIBOR plus 200 basis points.

      Repayment of the two term loans and of borrowings under the line of credit
is guaranteed by each of the Company's  subsidiaries and is secured by mortgages
on the Company's two Point Pleasant Beach,  New Jersey  restaurants and its Toms
River, New Jersey
restaurant.

      Pursuant to the Loan Agreement,  the Company made certain  affirmative and
negative covenants to the Bank (including covenants not to pay dividends, effect
stock  redemptions or incur certain  additional  indebtedness  while the loan is
outstanding, and to maintain on a consolidated basis, minimum working capital of
at least  $600,000 and a current  asset to current  liability  ratio of at least
1.25:1;  tangible net worth of at least  $12,900,000  increasing  by $100,000 at
each subsequent  fiscal  year-end  commencing with fiscal 1997; a debt to equity
ratio of no greater than .55:1; a net income,  depreciation  and amortization to
current  portion of long term debt ratio of not less than  1.25:1;  and cash and
cash equivalents of not less than $750,000). A failure by the Company to satisfy
any such covenant would  constitute an event of default under the Loan Agreement
enabling the Bank to accelerate payment of all outstanding indebtedness.

      At the end of fiscal 1997, the Company was not in compliance  with certain
of its covenants  under the Loan  Agreement by failing to maintain the requisite
Consolidated Working Capital,  Consolidated Current Ratio, Consolidated Tangible
Net Worth and Debt Service Coverage Ratio.  However,  the Company  requested and
the Bank  granted  a waiver  of its  right to  declare  a  default  based on the
Company's failure to comply with these covenants at January 26, 1997.

      At the start of fiscal  1997,  the Company was  indebted to the Bank under
its revolving credit line for  approximately  $125,000.  In the first quarter of
fiscal 1997, the Company borrowed an additional approximately $375,000 under the
line which was used to fund MCF's operations.  The indebtedness  under this line
was retired in February  1997 by applying the $500,000  downpayment  received by
the Company in connection with its sale of 95% of MCF.

      During fiscal 1997, the Company borrowed $100,000 under a maximum $350,000
line of credit  extended by the Bank and expiring on June 30, 1997. The line was
secured by the Company's Toms River  restaurant  property.  The borrowings  were
applied by the Company to purchase  inventory.  This indebtedness was retired in
March 1997 with the  proceeds of Note A received  by the  Company in  connection
with its sale of 95% of MCF.

                                      5

<PAGE>



      In December 1995, the Company closed its last "La Crepe" restaurant at the
Monmouth Mall in Eatontown,  New Jersey. The Company then commenced construction
of a "Garcia's"  restaurant at the site which opened on April 29, 1996. Costs of
the  construction  aggregated  approximately  $720,000  of  which  $350,000  was
furnished out of the proceeds of Term Loan A described  above.  See  "Restaurant
Operations - Garcia's Restaurant" in this Item 1.

      (b)  Business  of Issuer - The  Company is engaged  in one  business;  the
operation of nine restaurants in New Jersey and Florida on a year-round basis.

                             RESTAURANT OPERATIONS

      The Company is principally engaged in the operation of nine restaurants on
a year-round basis, eight of which are free-standing  seafood restaurants in New
Jersey (five) and Florida (three) and one of which is a Mexican theme restaurant
operated  under the name  "Garcia's,"  located in a shopping mall in New Jersey.
Seven of the seafood  restaurants  are operated under the name "Lobster  Shanty"
and one under the name "Baker's Wharfside." The Company opened its first seafood
restaurant  in November  1978 and opened its sole  Garcia's  restaurant in April
1996. The Company had operated La Crepe restaurants in various shopping malls in
New Jersey,  Pennsylvania  and  Florida  (the first such  restaurant  opening in
November 1975),  but closed its last La Crepe restaurant in December 1995 at its
present Garcia's  restaurant site. The Company's  restaurants,  all of which are
operated on a year-round basis, are as follows:


                                    Date of Opening
                                    Under the Company's
      Location                           Management

SEAFOOD RESTAURANTS

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
Belmar, New Jersey                        October 1994

Baker's Wharfside

Pt. Pleasant Beach, New Jersey            October 1980

GARCIA'S RESTAURANT

Monmouth Mall, Eatontown,
  New Jersey                              April 1996

                                      6

<PAGE>




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.

Lobster Shanty Restaurants

      Vero Beach,  Florida - This restaurant,  consisting of approximately 6,900
square feet, is free standing in Vero Beach, Florida approximately 100 yards off
U.S.  Highway #60 on the  intracoastal  waterway.  It opened in  December,  1979
pursuant  to a lease  from  Gourmet  Associates  ("Gourmet")  owned by Robert E.
Brennan,  the  principal  stockholder  of the Company.  The lease is currently a
month to month  "net"  lease at a monthly  rental of  $10,000  with the  Company
paying personal  property taxes and insurance  thereunder.  Management  believes
that the terms of this lease  agreement are at least as favorable as those which
could have been obtained from unaffiliated sources. In view of the fact that Mr.
Brennan  has  filed  a  voluntary  petition  for  relief  in the  United  States
Bankruptcy  Court  for  the  District  of New  Jersey  under  Chapter  11 of the
Bankruptcy Code (which proceedings are currently pending),  no assurances can be
given that the Company will be able to continue to lease this  restaurant on the
current basis or on a modified basis for any substantial future period.

      Gourmet had purchased the property for $700,000 in April, 1979 by making a
$200,000 down payment and issuing its $500,000  promissory note for the balance,
payable with 9 1/2% annual  interest over 18 years secured by a first  mortgage.
Gourmet  expended  approximately  $315,000 in extensions and improvements to the
facility as well as for equipment  therein  prior to leasing this  restaurant to
the Company.

      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
including  personal  property  and  fixtures,  liquor  licenses  and  all of the
outstanding  stock of the four  corporations  operating these  restaurants) from
Robert E. Brennan,  the  principal  stockholder  of the Company,  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 in Toms River,  New
Jersey and seats  approximately  400. 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

                                      7

<PAGE>




the four corporations  operating these restaurants) from Robert E. Brennan,  the
principal  stockholder of the Company, and from three partnerships owned by him,
in  October,  1980  for  an  aggregate  $7,750,000  less a  subsequent  $250,000
prepayment discount.

      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.

      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 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 Robert E. Brennan,
the principal  stockholder of the Company and from three  partnerships  owned by
him, in October,  1980 for an aggregate  $7,750,000  less a subsequent  $250,000
prepayment discount.

      Belmar,  New Jersey - This restaurant,  consisting of approximately  9,000
square  feet,  is free  standing  on Main  Street in  Belmar,  New  Jersey.  The
restaurant  seats  approximately  250  and has  parking  for  approximately  110
automobiles.  The Company purchased the liquor license and trade name for use at
this  restaurant  in October 1994 for  $250,000  from  unaffiliated  parties and
leased the restaurant,  the parking lot and the restaurant  furniture,  fixtures
and  equipment at such time from such parties  pursuant to a five-year  lease in
which the Company was given four consecutive five-

                                      8

<PAGE>





year  options to renew.  The lease  provides  for a monthly  base rent of $8,000
increasing every three years up to a monthly base rent after the eighteenth year
of $12,693 with an additional annual percentage rent equal to 6% of Chefs' gross
receipts at the  restaurant  for such period less the base rent.  The restaurant
opened as a  "Lobster  Shanty"  restaurant  under the  Company's  management  in
October  1994.  In January  1997,  the Company  gave the  Landlord its notice to
terminate  this lease  effective  February  28, 1999  because of  unsatisfactory
operating results at this restaurant.

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
Robert E. Brennan,  the  principal  stockholder  of the Company,  and from three
partnerships owned by him, in October,  1980 for an aggregate  $7,750,000 less a
subsequent $250,000 prepayment discount.

Garcia's Restaurant

      In November 1995, the Company entered into an agreement (the  "Agreement")
with  Garcimex of New Jersey,  Inc.  ("Garcimex"),  the  exclusive  owner of the
"Garcia's"  trade mark,  service mark and trade name along with the goodwill and
recipes of a Mexican restaurant business associated with the marks.  Pursuant to
the Agreement, the Company was granted the exclusive right to establish and open
Mexican  restaurants  using the marks,  goodwill  and  recipes in six New Jersey
counties,  Hunterdon,  Mercer,  Middlesex,  Monmouth,  Ocean and  Somerset  (the
"Territory"). The Company was granted the right but not the obligation to open a
restaurant  utilizing  the marks and goodwill in each of the first five 12-month
periods,  in the Territory,  with a six-month  grace period with respect to each
such 12-month period. If the Company does not open a Garcia's restaurant in each
of the first five 12-month periods (including the grace period) it will lose the
right to develop  additional  restaurants  within the  Territory.  Regardless of
whether the Company opens one Garcia's  restaurant in each such period,  it will
have and retain the exclusive  right to utilize the marks,  goodwill and recipes
at all Garcia's  restaurants opened by the Company pursuant to the Agreement and
Garcimex has agreed not to open  another  Mexican  restaurant  within an 18-mile
radius of any Company operated Garcia's restaurant.

      Assuming the Company opens the requisite number of Garcia's restaurants in
the  initial  five-year  period  in the  Territory,  it has the right to open an
unspecified  number of additional  Garcia's  restaurants in the Territory in the
subsequent five-year period. Such right automatically renews every five years as
long as the Company is in compliance with the Agreement.

                                      9

<PAGE>



      The Agreement is for an initial term of 20 years with additional automatic
ten-year  renewal  periods unless the Company elects not to renew the Agreement.
During the period that the  Agreement  is in effect,  the Company is required to
pay 3% of the gross annual sales from each Garcia's restaurant which it operates
in the Territory,  to Garcimex on a quarterly  basis.  The Company has also been
accorded a right of first  refusal with  respect to offers  received by Garcimex
from third parties  seeking to obtain rights in the marks,  goodwill and recipes
for  restaurants  to be  opened  outside  of  the  Territory.  Furthermore,  the
Agreement  also  provides  the  Company  with  certain  rights  to open  Mexican
restaurants in New Jersey outside the Territory. To date, the Company has opened
one Garcia's restaurant which opened at the Monmouth Mall on April 29, 1996.

      Monmouth  Mall,  Eatontown,  Monmouth  County,  New Jersey - The Company's
Garcia's restaurant at the Monmouth Mall consists of 4,371 square feet of leased
space and is decorated in a bright,  multi-color  Mexican motif.  The restaurant
has a bar and tables and booths which can accommodate approximately 130 patrons.
The  Company  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 restaurant  features  Mexican cuisine  including  fajitas,  tortillas,
burritos and enchiladas with cheese,  beef, chicken,  pork and seafood fillings.
The menu also  includes  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.

      The Company's  lease for this  restaurant is for a 12-year term  providing
for a minimum annual rental of $109,275  during each of the first five years and
a minimum  annual  rental of  $118,017  per annum  thereafter.  The  Company was
granted a $24,000  per year  Construction  Allowance  for the  five-year  period
commencing  January 1, 1997 to be applied on a monthly basis in reduction of the
said minimum annual rental.  The Company is also required to pay additional rent
equal to 5% of the restaurant's annual gross revenues in excess of $2,185,000 in
each of the first  five  years and in excess of  $2,360,340  in each  subsequent
year.  The Company is also required to pay a  proportionate  share of the Mall's
real estate taxes, utility charges and the Landlord's operating costs as well as
certain other charges.

      The restaurant is on the site of the Company's La Crepe  restaurant  which
closed in  December  1995.  The  Company  has spent  approximately  $720,000  to
construct its Garcia's restaurant on this site.

      The  Monmouth  Mall has been in  operation  for  approximately  20  years.
Macy's, J.C. Penny and Stern's are major department stores in the Mall. The Mall
is a large shopping  center with  1,500,000  square feet of shopping area on 105
acres with parking for 7,200 cars.


                                      10

<PAGE>



Sources of Food Products

      The food  products  used by the  Company in the  operation  of its seafood
restaurants and its Garcia's  restaurant are readily available from a variety of
sources including national distributors and local sources on an order basis when
needed. In its last three fiscal years, the Company has not purchased any of its
food  products  from  affiliated  entities  or entities  affiliated  with former
executive officers or directors.

Seasonal Aspects

      To date, the Company's New Jersey  seafood  restaurants  have  experienced
their  greatest  sales  volumes from May through  September  whereas its Florida
seafood  restaurants have experienced  their greatest sales volumes from January
through  April.  As the Company has only  operated its Garcia's  restaurant  for
approximately one year, it is unable to predict at this time the extent to which
its business will be subject to seasonality.

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"R registered for a 20
year period with the U.S. Patent and Trademark Office in February,  1989 and the
rights  purchased  from  Garcimex as  described  above to use of the trade mark,
service mark and trade name "Garcia's."

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.  There are other restaurants in the mall and
in the  vicinity  of the mall  where the  Company  is now  operating  a Garcia's
restaurant,  all of which supply  competition  to the Company's  Garcia's  unit.
Although  there are no Mexican style  restaurants  in the mall,  there are other
Mexican style restaurants in the area. Typical "chain" competitors, all of which
are affiliated with better  established and more prominent  national chains, are
the Friendly Ice Cream chain and  McDonalds.  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



                                      11

<PAGE>



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
cost.

Employees

      The  Company  maintains  its  administrative  employees  at its  executive
offices  including its principal  officers (see "Item 10 Directors and Executive
Officers of the Registrant,") 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  Garcia's  restaurant  when fully
staffed,  will employ approximately 80 employees serving similar functions.  The
Company also presently  employs three area  supervisors,  each  responsible  for
three 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 26, 1997,
the Company had a total of  approximately  450  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

      In August 1993,  the Company filed a  Registration  Statement on Form SB-2
(File  No.  33-66936)  with  respect  to  a  proposed  public  offering  of  its
securities.  In October  1993,  the  Securities  and  Exchange  Commission  (the
"Commission")  issued a formal  order of private  investigation  concerning  the
Company  (HO-2781).  The order  alleged  that  members of the staff had reported
information  to the  Commission  which  tended  to show  that  certain  persons,
including  persons  associated  with Chefs,  and persons  associated with broker
dealer firms who make a market in Chefs'  securities,  may have,  in  connection
with the  offer,  purchase,  or sale of  Chefs'  securities,  employed  devices,
schemes or artifices to defraud;  obtained  money or property by means of untrue
statements of material facts or omissions to state material  facts;  or may have
engaged in  transactions,  practices  or courses of business  which  operated or
would operate as a fraud upon other persons,  including purchasers or sellers of
Chefs' securities, in that, among other things, such persons may have engaged in
a scheme to dominate,  control and manipulate the market for Chefs'  securities,
and that Chefs'

                                      12

<PAGE>



Registration   Statement  (filed  in  August  1993)  may  have  included  untrue
statements of material  facts or omitted to state  material  facts  necessary in
order to make the  statements  therein not  misleading,  concerning  among other
things,  recent activity in the market for Chefs'  securities,  the market price
for  Chefs'  securities,  or the  possible  existence  of a scheme to  dominate,
control and manipulate the market for Chefs' securities.

      The  Commission  deemed that if the alleged acts and practices  were true,
they would constitute  possible violations of the Securities Act of 1933 and the
Securities  Exchange Act of 1934 and be the possible basis for the issuance of a
stop order pursuant to the Securities Act of 1933  suspending the  effectiveness
of the  Registration  Statement and  therefore  issued a formal order of private
investigation with respect to these allegations.

      Chefs' management was unaware of any violations of law concerning activity
in the market for Chefs'  securities,  the market price for Chefs' securities or
the  existence of a scheme to  dominate,  control or  manipulate  the market for
Chefs'  securities.  During the more than  two-year  period of the  Commission's
private  investigation,  the market  price for Chefs'  common  stock  materially
declined.  As a result,  the Company's  management  determined that the proposed
public  offering  was no longer  viable and on March 28,  1996,  the  Commission
granted the Company's application to withdraw the Registration Statement thereby
removing any possibility of the Commission  issuing a stop order  suspending the
effectiveness of the Registration Statement.

      By letter dated October 31, 1996, the Staff of the Commission notified the
Company that the "...staff inquiry..." in the matter (the private investigation)
"...has been  terminated and that, at this time, no enforcement  action has been
recommended to the Commission...."


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

      The Company's Annual Meeting of Stockholders was held on
Thursday, November 7, 1996.  At the meeting, the following five
individuals, namely

                  Anthony Papalia
                  James Fletcher
                  Martin Fletcher
                  Frank Koenemund
                  Jack Mariucci

were each  elected to serve as  directors  of the Company  until the next annual
meeting of stockholders and until their  successors are elected and qualify.  At
said meeting,  10,262,546 shares of Common Stock were voted in favor and 242,684
shares of Common Stock were votes against a proposed  amendment to the Company's
Certificate of  Incorporation  (a) to reduce the number of authorized  shares of
Common Stock from 50,000,000 shares of Common Stock, $.01 par value per share to
15,000,000 shares of Common Stock, $.01 par value per share, and (b) to effect a
one-for-three  reverse  stock split of the  outstanding  shares of Common Stock.
Therefore,  the  proposal  was duly  adopted  in  accordance  with the  Delaware
Corporation Law and the reverse stock split was effective on November 22, 1996.

                                      13

<PAGE>



                           CHEFS INTERNATIONAL, INC.

                                    PART II


Item 5.     Market for the Registrant's Common Stock
            and Related Security Holder Matters


      The Common  Stock is quoted in the  over-the-counter  market on the NASDAQ
Small Cap System  under the symbol  "CHEF." The  following  table sets forth the
range of high and low  closing  bid prices for the Common  Stock for the periods
indicated,  as derived from reports furnished by the National  Quotation Bureau,
Inc.

            Quarter                    Bid Prices
            Ended                    High        Low

            April 28, 1995          $2.82       $1.32
            July 28, 1995           $2.64       $1.14
            October 27, 1995        $1.98       $1.14
            January 28, 1996        $1.14       $ .75

            April 28, 1996          $1.02       $ .84
            July 28, 1996           $1.98       $ .94
            October 27, 1996        $1.98       $ .84
            January 26, 1997        $ .94       $ .50

      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 March 31,  1997,  the number of record  holders of the Common Stock was
7,409.   Such  number  of  record  owners  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.

      Pursuant to the Company's  Term Loan and Revolving  Credit  Agreement with
First Union  National  Bank  entered  into on January 19,  1996,  the Company is
restricted during the period any loans are outstanding under such agreement from
paying dividends on any of its outstanding stock.

                                      14

<PAGE>



Item 6.  Selected Consolidated Financial Data
                                          [In thousands, except per share data]
                                           Y e a r s     e n d e d
<TABLE>
  
                          January 26,January 28,January 29,January 30, January 31,
                              1 9 9 7    1 9 9 6     1 9 9 5   1 9 9 4     1 9 9 3

Operating Data:
<S>                          <C>            <C>            <C>         <C>            <C>    

  Gross Revenues             $ 17,299       $ 16,571       $ 16,044    $ 15,318       $ 15,255

  Operating Expenses         $ 11,
  [Loss] Income from
   Continuing Operations     $   (175)  $   (336)   $    184   $   182     $   252

  [Loss] from Discontinued
   Operations                $ (1,165)  $ (1,848)   $   (441)  $  (359)    $    --

  [Loss] on Disposal of
   Discontinued Operations   $   (573)  $     --    $     --   $    --     $    --

  Net [Loss] Income          $ (1,913)  $ (2,184)   $   (257)  $  (177)    $   252

  [Loss] Income Per Share 
  from Continuing Operations $   (.04)  $   (.07)   $    .04   $   .04     $   .06

  Net [Loss] Income Per
   Common Share              $   (.43)  $   (.49)   $   (.06)  $  (.03)    $   .06

  Cash Dividends Per
   Common Share              $     --   $     --    $     --   $    --     $    --

Balance Sheet Data:

  Cash and Cash Equivalents  $    952   $  1,379    $  1,267   $ 1,043     $ 1,139

  Total Assets *             $ 16,945   $ 18,508    $ 20,945   $19,863     $17,774

  Total Long-Term Liabilities$  1,000   $  1,613    $  1,844   $   540     $ 1,603

  Total Liabilities          $  3,774   $  3,424    $  3,678   $ 2,340     $ 3,225

  Working Capital            $    178   $    957    $    495   $   375     $   489

  Stockholders' Equity       $ 13,171   $ 15,084    $ 17,266   $17,523     $14,549
</TABLE>

*  At fiscal year end 1997, 1996, 1995, 1994 and 1993, includes $557, $1,221,
 $3,529, $3,590, and $645 of goodwill.

                                         15

<PAGE>



Item 7.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations

Results of Operations

      On  February  20,  1997 (as of  January  26,  1997)  Chefs sold 95% of the
outstanding  stock  of  its  wholly-owned   Mister  Cookie  Face,  Inc.  ("MCF")
subsidiary to a Chefs' director, Frank "Doc" Koenemund. MCF had been acquired by
Chefs  in July  1993  (as of June  30,  1993)  from  Mr.  Koenemund.  In view of
declining  sales in the  last  three  fiscal  years  and the  fact  that MCF had
realized losses since the July 1993 purchase,  management  concluded that it was
in Chefs' best interest to sell MCF. At the closing,  Chefs received $500,000 in
cash and notes in the  aggregate  principal  amount  of  $1,100,000  which  were
discounted  to $498,950  based on the  estimated  present value of the payments.
Additionally,  MCF agreed to reimburse  Chefs on a monthly basis for amounts due
on two capital  leases  secured by equipment at MCF which Chefs will continue to
pay. As a result of the sale, the Company recorded a loss of $572,900.

      In fiscal 1997,  the Company  sustained a loss of  $1,912,800  compared to
losses of $2,184,100 in 1996 and $257,100 in 1995. The fiscal 1997 loss includes
a loss from the  discontinued  MCF  operations of $1,165,100 and the loss on the
MCF  sale of  $572,900.  The  1996  and 1995  losses  included  losses  from MCF
operations of $1,847,800 and $441,400  respectively.  Effective for fiscal 1996,
the Company adopted the Statement of Financial  Account  Standards No. 121 (FASB
121),  "Accounting for Impairment of Long-Lived  Assets and Long-Lived Assets To
Be  Disposed  Of."  The MCF  operational  losses  for  1997  and  1996  included
impairment  losses of $565,900  and  $2,024,700  respectively  from writing down
goodwill.  The Company's fiscal 1996 loss from continuing operations included an
impairment loss of $171,000 in connection with restaurant operations. The fiscal
1995 loss included  registration  costs of $270,700  associated  with an aborted
public offering.

      The  Company's  continuing  restaurant  operations  realized a net loss of
$174,700 for fiscal 1997  compared to a loss of $336,300 for fiscal 1996 and net
income of $184,200 in fiscal 1995.  Sales for fiscal 1997 were  $17,298,600,  an
increase of $727,300 over 1996 sales of $16,571,400. While gross sales increased
by 4.4%, the number of customers served increased by 3.5% indicating an increase
of approximately 1% in the average check per customer. The Company operated nine
restaurants during the comparable  periods.  However,  fiscal 1997 sales include
"Garcia's," the Company's  Mexican  restaurant,  which opened in May 1996, while
fiscal 1996 sales included the Eatontown,  New Jersey LaCrepe,  which was closed
in December of 1995. Garcia's had sales of $969,000 in fiscal 1997 while LaCrepe
had sales of  $469,100  in fiscal  1996,  a net  increase  in sales of  $499,900
representing  a majority of the  Company's  1997 sales  increase.  For the eight
restaurants  that operated during the comparative  periods,  sales were $227,400
higher. 1996 sales were $527,700 or 3.3% higher than 1995 sales.

      Gross profit for fiscal 1997 was 67.3% of sales, a slight improvement over
the gross profits of 66.7% and 67% for 1996 and 1995
      respectively.  The  improvement  primarily  resulted  from the addition of
Garcia's which has a lower cost of sales than the seafood restaurants.

      Payroll  and related  expenses  were 30.3% of sales for fiscal 1997 versus
30.40% in 1996 and 29.5% in 1995. Salary increases and higher

                                         16

<PAGE>



health and workers  compensation  insurance costs were offset by the increase in
sales.  The federal  minimum wage increased to $4.75 an hour on October 2, 1996,
and will increase to $5.15 in September 1997. Management  anticipates that these
increases  should have a minimal  impact on the Company's  payroll costs because
the bulk of the  Company's  minimum  wage  earners  work in New Jersey where the
state minimum wage per hour is $5.05  (increasing to $5.15 when the federal rate
goes up in  September  1997) and  because  the new  federal law freezes the cash
wages of tipped  employees (as long as their tips and cash wages  together equal
or exceed the minimum).

      Other  operating  expenses were 22.6% of sales during fiscal 1997 compared
to 21.7% and 21.1% for the two previous  years.  The main components of the 1997
increase were $113,000 of start-up costs associated with the opening of Garcia's
and higher chain wide utility and occupancy costs. Depreciation and amortization
expenses  were slightly  lower in fiscal 1997 despite  capital  expenditures  of
$1,144,000,  $718,000 of which was spent building and outfitting  Garcia's.  The
decrease  resulted  primarily  from the fiscal  1996  write-down  of $171,000 of
long-lived  assets due to the adoption of FASB 121.  General and  administrative
expenses  were  $138,300  higher in fiscal  1997 versus  1996  primarily  due to
increased  salaries  and payroll  taxes of $87,300,  higher  insurance  costs of
$22,200 and $50,000 in expenses  associated  with the  Company's  November  1996
reverse stock split.  General and  administrative  expenses for 1996 were higher
versus  1995  primarily  because  of  higher  health  insurance  costs  and wage
increases.

      The fiscal 1996 loss of $54,300 from the closing of  restaurants  resulted
from the December 1995 closing of the Eatontown,  New Jersey LaCrepe restaurant.
The restaurant  was renovated and re-opened as Garcia's  during fiscal 1997. The
1995 gain of  $76,400 on the sale of  restaurants  resulted  from the  Company's
Quakerbridge, New Jersey LaCrepe liquor license and the early termination of the
lease.

      Interest  expense was  slightly  higher in fiscal 1997 due to the interest
associated with a three-year  bank loan of $350,000  borrowed in January of 1996
to partially finance the Garcia's renovation. Interest expense was $13,100 lower
in 1996 than in 1995 due to debt reduction. Interest income was slightly less in
1997 due to lower rates and less funds available for short-term investments.

Liquidity and Capital Resources

      The Company's ratio of current assets to current liabilities was 1.06:1 at
January  26,  1997,  compared to 1.53:1 and 1.27:1 for the two  previous  years.
Working  capital was $177,800 at the end of fiscal 1997 compared to $957,200 and
$494,700 for the two previous years.  Net cash provided by operating  activities
was  $1,062,100.  The primary  asset  change was an increase in  inventories  of
$93,200  reflecting  increased  sales in January 1997 which  continued  into the
first  quarter of the new fiscal year.  Due to the sales  increase,  the primary
change in  liabilities  was a $343,400  increase in accounts  payable.  Net cash
flows from investing  activities were a negative $1,341,600  resulting primarily
from  capital  expenditures  of  $1,144,200  for  restaurant   improvements  and
equipment  of which  $718,000 was spent to build  Garcia's.  Net cash flows from
financing  activities during fiscal 1997 were a negative $181,600 resulting from
new debt  offset by debt  repayment.  The  $100,000 in debt  proceeds  which the
Company  borrowed for  inventory  purposes  was a draw on its  $350,000  line of
credit  secured by the Toms River,  New Jersey  restaurant.  In fiscal 1996, net
cash flows from operations was a

                                         17

<PAGE>



positive  $479,400.  The significant  change in operating assets and liabilities
was a decrease  in accounts  payable of $79,200  due to the poor winter  weather
which resulted in lower sales. Cash outflows from investing activities in fiscal
1996 were $530,400 for capital  expenditures while financing activities resulted
in an increase of $150,400.  1996 financing activities included debt proceeds of
$1,125,000  offset by debt repayment of $976,800.  Borrowings  included $350,000
used to finance a portion of the  Garcia's  renovation.  In  January  1996,  the
Company and its primary bank agreed to restructure its $2,000,000 revolving line
of  credit  into two  parts,  a  $1,000,000  five-year  term  loan at 7.5% and a
$1,000,000  line of credit at LIBOR +2% due in May  1997.  During  fiscal  1995,
operations  generated  $1,282,400 in cash. The changes in assets and liabilities
included  increases of $173,600 in inventories and $263,900 in accounts  payable
and accrued expenses.  Net cash flows from investing  activities were a negative
$588,200 comprised of $419,500 in restaurant  capital  expenditures and $267,000
spent on purchasing the Belmar,  New Jersey restaurant offset by the sale of the
Quakerbridge  LaCrepe  restaurant assets for $211,300.  Financing  activities in
fiscal 1995 netted a cash outflow of $234,600.

      At the end of fiscal 1997, the Company was not in compliance  with certain
of its  covenants  under its Loan  Agreement  with First Union  National Bank by
failing to maintain the requisite  Consolidated  Working  Capital,  Consolidated
Current Ratio,  Consolidated Tangible Net Worth and Debt Service Coverage Ratio.
However,  the Company  requested  and the Bank  granted a waiver of its right to
declare a default under the Loan  Agreement  based on the  Company's  failure to
comply with these covenants at January 26, 1997.

      Subsequent  to the year end January 26, 1997,  the Company sold 95% of the
stock of MCF. At the closing Chefs  received  $500,000 which was used to pay off
Chefs'  outstanding  indebtedness  under its  revolving  line of credit with the
bank. On March 21, 1997,  Chefs  received  $100,000 from MCF as per the terms of
the sale, which was used to pay off the outstanding  balance due on the $350,000
line of credit. Consequently,  the Company has the entire $350,000 available for
future borrowing needs.

      Management  anticipates  that funds from  operations and the $350,000 line
will be sufficient to meet obligations in fiscal 1998, including routine capital
expenditures.

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.  The price of
food is extremely  volatile and  projections as to its performance in the future
vary and are dependent upon a complex set of factors.  The federal  minimum wage
will increase to $5.15 per hour in September 1997.

                                         18

<PAGE>



Item 8.    Financial Statements and Supplementary Data

                            INDEPENDENT AUDITOR'S REPORT


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



            We have  audited the  accompanying  consolidated  balance  sheets of
Chefs  International,  Inc.  and its  subsidiaries  as of January  26,  1997 and
January  28,  1996,  and the  related  consolidated  statements  of  operations,
stockholders'  equity,  and cash flows for each of the three fiscal years in the
period ended January 26, 1997. These consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

            We  conducted  our  audits in  accordance  with  generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to  obtain  reasonable  assurance  about  whether  the  consolidated   financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  consolidated  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  consolidated  financial
position of Chefs  International,  Inc. and its  subsidiaries  as of January 26,
1997 and January 28, 1996, and the consolidated  results of their operations and
their cash flows for each of the three fiscal years in the period ended  January
26, 1997, in conformity with generally accepted accounting principles.

            As discussed in the accompanying notes to the financial  statements,
for the year ended  January  28,  1996,  the  Company  adopted a new  accounting
standard promulgated by the Financial  Accounting Standards Board,  changing its
method of accounting for impairment of long-lived  assets and goodwill  relating
to those assets.







                                          MOORE STEPHENS, P.C.
                          Certified Public Accountants.

Cranford, New Jersey
March 21, 1997

                                         19

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------



                                                        January 26,  January 28,
                                                          1 9 9 7       1 9 9 6

Assets:
Current Assets:
  Cash and Cash Equivalents                             $  951,668   $ 1,378,814
  Investments                                              160,000       350,000
  Miscellaneous Receivables                                147,101       102,714
  Due on Sale of Discontinued Operations - Current         679,154            --
  Inventories                                              925,463       832,243
  Prepaid Expenses                                          88,509       105,054
  Net Assets of Discontinued Operations                         --     2,001,693
                                                        ----------   -----------

  Total Current Assets                                   2,951,895     4,770,518
                                                        ----------   -----------

Property, Plant and Equipment - At Cost                 18,200,415    17,382,920

Less:  Accumulated Depreciation                          6,676,718     6,068,502
                                                        ----------   -----------

  Property, Plant and Equipment - Net                   11,523,697    11,314,418
                                                        ----------   -----------

Other Assets:
  Investments                                              631,000       356,000
  Goodwill - Net                                           557,364     1,221,448
  Liquor Licenses - Net                                    727,663       752,347
  Due on Sale of Discontinued Operations - Long-Term       508,593            --
  Due from Related Parties                                   6,524        11,782
  Other                                                     38,333        81,599
                                                        ----------   -----------

  Total Other Assets                                     2,469,477     2,423,176
                                                        ----------   -----------

  Total Assets                                          $16,945,069  $18,508,112
                                                        ===========  ===========




See Notes to Consolidated Financial Statements.


                                         20

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------


                                                       January 26,  January 28,
                                                         1 9 9 7       1 9 9 6

Liabilities and Stockholders' Equity:
Current Liabilities:
  Accounts Payable                                     $  967,245   $   623,820
  Accrued Payroll                                         134,954       144,487
  Accrued Expenses                                        337,897       333,089
  Notes and Mortgages Payable to Banks                  1,008,500       408,500
  Capital Lease Obligations - Current                      79,154        73,084
  Other Liabilities                                       246,304       228,695
                                                       ----------   -----------

  Total Current Liabilities                             2,774,054     1,811,675
                                                       ----------   -----------

Long-Term Debt:
  Notes and Mortgages Payable to Banks                    807,999     1,341,500
  Capital Lease Obligations - Long-Term                   109,643       188,797
                                                       ----------   -----------

  Total Long-Term Debt                                    917,642     1,530,297
                                                       ----------   -----------

Other Liabilities                                          82,396        82,396
                                                       ----------   -----------
Commitments and Contingencies                                  --            --
                                                       ----------   -----------

Stockholders' Equity:
  Capital Stock - Common, $.01 Par Value, Authorized
   15,000,000 Shares; Issued and Outstanding 4,488,291     44,883        44,883

  Additional Paid-in Capital                           32,304,486    32,304,486

  Accumulated [Deficit]                               (19,178,392)  (17,265,625)
                                                       -----------  -----------

  Total Stockholders' Equity                           13,170,977    15,083,744
                                                       ----------   -----------

  Total Liabilities and Stockholders' Equity          $16,945,069   $18,508,112
                                                      ===========   ===========



See Notes to Consolidated Financial Statements.


                                         21

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------


                                                    For the years ended
                                         January 26,   January 28,  January 29,
                                            1 9 9 7      1 9 9 6       1 9 9 5

Sales                                    $17,298,626   $16,571,357  $16,043,702

Cost of Goods Sold                         5,656,124    5,511,095     5,288,679
                                         -----------   ----------   -----------

  Gross Profit                            11,642,502   11,060,262    10,755,023
                                         -----------   ----------   -----------

Operating Expenses:
  Payroll and Related Expenses             5,238,257    5,037,515     4,734,671
  Other Operating Expenses                 3,910,968    3,593,820     3,382,870
  Depreciation and Amortization              974,758      990,867       940,435
  Suspended Registration Expenses                 --           --       270,750
  General and Administrative Expenses      1,733,963    1,595,644     1,332,296
  Loss [Gain] on Closing and Sale 
   of Restaurants                                 --       54,355       (76,467)
  Impairment Loss of Long-Lived Assets            --      170,867            --
                                         -----------   ----------   -----------

  Total Operating Expenses                11,857,946   11,443,068    10,584,555
                                         -----------   ----------   -----------

  [Loss] Income from Operations             (215,444)    (382,806)      170,468
                                         -----------   ----------   -----------

Other Income [Expense]:
  Interest Expense                           (47,713)     (45,892)      (59,045)
  Interest Income                             88,408       92,373        72,817
                                         -----------   ----------   -----------

  Other Income - Net                          40,695       46,481        13,772
                                         -----------   ----------   -----------

  [Loss] Income from Continuing Operations
   Before Income Taxes                      (174,749)    (336,325)      184,240

Provision for Income Taxes                        --           --            --
                                         -----------   ----------   -----------

  [Loss] Income from Continuing Operations  (174,749)    (336,325)      184,240

[Loss] from Operations of Discontinued
  Ice Cream Business                      (1,165,135)  (1,847,824)     (441,370)

[Loss] on Disposal of Ice Cream Business    (572,883)          --            --
                                         -----------   ----------   -----------

  Net [Loss]                             $(1,912,767)  $(2,184,149) $  (257,130)
                                         ===========   ===========  ===========

  [Loss] Income Per Share from Continuing
   Operations                            $      (.04)  $     (.07)  $       .04
                                         ===========   ==========   ===========

  Net [Loss] Per Share                   $      (.43)  $     (.49)  $      (.06)
                                         ===========   ==========   ===========


See Notes to Consolidated Financial Statements.


                                         22

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------



<TABLE>
                                          Capital Additional                                   Total
                                  Number         Stock       Paid-in        Accumulated                  Stockholders'
                                of Shares       Par Value     Capital        [Deficit]                     Equity

<S>                             <C>            <C>          <C>           <C>             <C>      

Balance - January 30, 1994      4,486,034      $  44,861    $32,302,319   $(14,824,346)   $17,522,834

  Common Stock Issued - 1:3
   Split Fractional Shares             35            --               1            --               1

  Income from Continuing
   Operations                          --            --              --        184,240        184,240

  [Loss] from Discontinued
   Operations                          --            --              --       (441,370)      (441,370)
                                ----------     ---------      ----------    ----------     ----------

Balance - January 29, 1995       4,486,069        44,861      32,302,320  (15,081,476)     17,265,705

  Common Stock Options
   Exercised                         2,222            22           2,166           --           2,188

  [Loss] from Continuing
   Operations                           --            --              --     (336,325)       (336,325)

  [Loss] from Discontinued
   Operations                           --            --              --   (1,847,824)     (1,847,824)
                                ----------     ---------      ----------  -----------      ----------

Balance - January 28, 1996       4,488,291        44,883      32,304,486  (17,265,625)     15,083,744

  [Loss] from Continuing
   Operations                           --            --              --     (174,749)       (174,749)

  [Loss] from Discontinued
   Operations                           --            --              --   (1,165,135)     (1,165,135)

  [Loss] from Sale of
   Discontinued Operations              --            --              --     (572,883)       (572,883)
                                ----------     ---------      ----------  -----------       ---------

Balance - January 26, 1997       4,488,291     $  44,883     $32,304,486 $(19,178,392)    $13,170,977
                                ==========     =========     =========== ============     ===========
</TABLE>



See Notes to Consolidated Financial Statements.


                                          23

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
<TABLE>             
                                                 
                                                                     Y e a r s  e n d e d
 
                                                         January 26,     January 28,     January 29,
                                                           1 9 9 7         1 9 9 6         1 9 9 5

Operating Activities:
<S>                                                     <C>             <C>             <C>    


  [Loss] Income From Continuing Operations              $  (174,749)    $ (336,325)     $   184,240
                                                        -----------     ----------      -----------
  Adjustments to Reconcile Net [Loss] Income to Net
   Cash Provided by Continuing Operating Activities:
   Depreciation and Amortization                            974,758        990,867          940,435
   Loss on Asset Disposals                                    3,293          2,512            3,225
   Loss [Gain] on Closing and Sale of Restaurants                --         54,355          (76,467)

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Inventories                                            (93,220)       (62,843)        (173,574)
     Prepaid Expenses                                        16,545        (40,096)          23,900
     Other Assets                                            48,524        (50,488)         145,325
     Miscellaneous Receivable                               (44,387)        25,961          (28,571)

   Increase [Decrease] in:
     Accounts Payable                                        343,425       (79,219)         142,613
     Accrued Expenses and Other Liabilities                   12,884       (25,350)         121,303
                                                         -----------    ----------      -----------

   Total Adjustments                                       1,261,822       815,699        1,098,189
                                                         -----------    ----------      -----------

  Net Cash - Continuing Operations - Forward               1,087,073       479,374        1,282,429
                                                         -----------    ----------       -----------

Discontinued Operations:
  [Loss] From Discontinued Operations                     (1,738,018)   (1,847,824)        (441,370)
                                                         -----------    ----------      -----------
  Adjustments to Reconcile Net [Loss] to Net Cash
   Provided [Used] by Discontinued Operating Activities:
   Depreciation and Amortization                             293,711       381,959          301,514
   [Gain] on Asset Disposals                                  (7,776)           --               --
   Impairment Loss of Long-Lived Assets                      565,948     2,195,750               --
   Loss on Disposal of Discontinued Operations               572,883            --               --

   [Increase] Decrease in Net Assets of
     Discontinued Operations                                 126,156       (50,195)        (750,876)
                                                         -----------    ----------      -----------

   Total Adjustments                                       1,550,922     2,527,514         (449,362)
                                                         -----------    ----------      -----------

  Net Cash - Discontinued Operations - Forward              (187,096)      679,690         (890,732)
                                                          ----------    ----------      -----------

Investing Activities - Continuing Operations:
  Capital Expenditures                                    (1,144,192)     (530,382)        (419,484)
  Proceeds from Sale of Restaurant Assets                      8,939            --          211,273
  Sale or Redemption of Investments                               --            --          347,000
  Purchase of Investments                                    (50,000)           --         (460,000)
  Acquisition of Restaurant                                       --            --         (267,008)
  Sale of Discontinued Operations - Cash Transferred        (156,384)           --               --

  Net Cash - Investing Activities - Continuing
   Operations - Forward                                  $(1,341,637)   $ (530,382)     $  (588,219)
</TABLE>

See Notes to Consolidated Financial Statements.

                                         24

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
<TABLE>

                                                                Y e a r s  e n d e d

                                                       January 26,     January 28,   January 29,
                                                         1 9 9 7        1 9 9 6       1 9 9 5
<S>                                                   <C>             <C>             <C>    
  Net Cash - Continuing Operations - Forward          $ 1,087,073     $  479,374   $ 1,282,429
                                                      -----------     ----------   -----------

  Net Cash - Discontinued Operations - Forwarded         (187,096)       679,690      (890,732)
                                                         --------     ----------   -----------

  Net Cash - Investing Activities - Continuing
   Operations - Forwarded                              (1,341,637)    (530,382)       (588,219)
                                                      -----------   ----------     -----------

Investing Activities - Discontinued Operations:
  Capital Expenditures                                   (100,574)    (342,571)       (536,418)
  Proceeds from Sale of Restaurant Assets                 140,126           --              --
                                                      -----------   ----------     -----------

  Net Investing Activities - Discontinued Operations       39,552     (342,571)       (536,418)
                                                           ------   ----------     -----------

Financing Activities - Continuing Operations:
  Repayment of Debt                                      (281,585)    (976,785)     (1,175,257)
  Proceeds from Debt                                      100,000    1,125,000         940,618
  Proceeds from Exercise of Stock Options                      --        2,188              --
                                                      -----------   ----------     -----------

  Net Cash - Financing Activities - Continuing
   Operations                                            (181,585)     150,403        (234,639)
                                                      -----------   ----------     -----------

Financing Activities - Discontinued Operations:
  Repayment of Debt                                      (213,260)    (724,501)       (119,013)
  Proceeds from Debt                                      375,000      400,000       1,310,000
  Repayment of Related Party Loan                          (5,193)          --              --
                                                      -----------   ----------     -----------

  Net Cash - Financing Activities - Discontinued
   Operations                                             156,547     (324,501)      1,190,987
                                                      -----------   ----------     -----------

  Net [Decrease] Increase in Cash and Cash
   Equivalents                                           (427,146)     112,013         223,408

Cash and Cash Equivalents - Beginning of Years          1,378,814    1,266,801       1,043,393
                                                       ----------   ----------     -----------

  Cash and Cash Equivalents - End of Years            $   951,668   $1,378,814     $ 1,266,801
                                                      ===========   ==========     ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the years for:
   Interest                                           $   178,777   $  197,752     $   202,400
   Income Taxes                                       $        --   $       --     $        --
</TABLE>

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
  During fiscal 1996, the  discontinued  ice cream business  acquired  equipment
from a director/employee for an interest free note valued at $74,857.


See Notes to Consolidated Financial Statements.

                                         25

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


[1] Nature of Operations and Summary of Significant Accounting Policies

Chefs International and its subsidiaries [the "Company"] operated nine and eight
restaurants at January 26, 1997 and January 28, 1996, respectively. Eight of the
restaurants  are  seafood  restaurants,  operated  in  New  Jersey  and  Florida
generally  under the trade name,  Lobster  Shanty.  The Company also  operated a
Garcia's franchised Mexican restaurant in New Jersey in fiscal 1997.

On January 26,  1997,  the Company  sold 95% of the Mr.  Cookie Face ["MCF"] ice
cream  operation  [See Note 16],  which is treated  as a disposal  of a business
segment.  The  statements of operations for the years ended January 28, 1996 and
January  29,  1995  have  been now  restated  to  reflect  this  transaction  as
discontinued operations for comparative purposes.

Principals 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.  Uninsured  cash
balances  totaled  approximately  $780,000 and  $1,427,000  at the end of fiscal
years 1997 and 1996,  respectively.  The Company does not require  collateral to
support financial instruments subject to credit risk.

The Company also maintains a highly liquid money market account  classified as a
cash  equivalent,  which is uninsured.  Balances in this account totaled $44,916
and $46,602 at the end of fiscal 1997 and 1996, respectively.

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

Investments - Investments  consist of  certificates  of deposit stated at actual
cost, which approximates market value and are classified as current or long-term
based on maturities at the balance sheet date. All  certificates  are considered
as  "held-to-maturity".  At the end of  fiscal  1997,  investments  include  the
estimated  fair  value  of 5% of the  stock of  Mister  Cookie  Face  ice  cream
operation retained by the Company of $35,000.

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.

Property,  Plant and Equipment and Depreciation - Property,  plant and equipment
are carried at cost. Depreciation is computed over the estimated useful lives of
the assets using the straight-line  method. The costs of maintenance and repairs
are  expensed as  incurred,  whereas  significant  betterments  and renewals are
capitalized.

Goodwill - Goodwill represents cost in excess of fair value of property acquired
and is being  amortized over estimated  useful lives ranging from 10 to 40 years
under the straight-line method.

Impairment - Certain long-term assets of the Company,  including  goodwill,  are
reviewed  at least  annually  as to  whether  their  carrying  value has  become
impaired.  This  evaluation is done by comparing the carrying value of the asset
to the value of the projected  discounted net cash flow from related operations.
Impairment,  if any, is measured  by the amount that the  carrying  value of the
asset exceeds the projected discounted net cash flow.

Management also  re-evaluates  the periods of amortization to determine  whether
subsequent events and circumstances warrant revised estimates of useful lives.



                                       26

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
------------------------------------------------------------------------------



[1] Nature of Operations and Summary of Significant Accounting 
    Policies [Continued]

Impairment [Continued] - As of January 26, 1997, management expects these assets
to be fully  recoverable.  For fiscal  1996,  the Company  adopted  Statement of
Financial  Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" [See Note 4].

Liquor  Licenses  -  Liquor  licenses  are  amortized  over 40 years  under  the
straight-line method.

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

Income Taxes - The Company uses the asset and liability method in accounting for
income  taxes.  Under this  method,  deferred  tax assets  and  liabilities  are
determined  based on differences  between  financial  reporting and tax bases of
assets and  liabilities  and are  measured  using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

Advertising - The Company expenses  advertising  costs as incurred.  Advertising
costs for fiscal  1997,  1996 and 1995 were  $455,409,  $466,737  and  $406,617,
respectively.

[2] Inventory

Inventories consist of the following:
                                  January 26,    January 28,
                                    1 9 9 7       1 9 9 6

Food                               $ 479,575     $ 416,763
Beverages                            103,455       117,893
Supplies                             342,493       297,587
                                   ---------     ---------

  Totals                           $ 925,463     $ 832,243
  ------                           =========     =========

[3] Property, Plant and Equipment

The  classification  of  property,  plant  and  equipment  together  with  their
estimated useful lives is as follows:

                                    January 26,  January 28,        Estimated
                                      1 9 9 7      1 9 9 6         Useful Life

Land                                $ 2,335,026 $  2,335,026           N/A
Buildings and Improvements           12,655,064   12,547,356      20 - 40 Years
Leasehold Improvements                  976,123      390,132      Term of Lease
Furniture and Equipment               2,140,220    2,022,259      5 - 10 Years
China, Glassware and Utensils            93,982       88,147            *
                                    ----------- ------------

  Totals                            $18,200,415 $ 17,382,920
  ------                            =========== ============

*  Carried at original cost for each restaurant.  All replacement purchases are
   charged to expense as incurred.
Depreciation  expense was $922,682,  $936,274 and $890,777 for fiscal 1997, 1996
and 1995, respectively.

                                       27

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
------------------------------------------------------------------------------



[4] Intangible Assets

As of the end of fiscal 1997 and 1996, intangible assets consist of:

                                                               Liquor
1997                                             Goodwill     Licenses

Cost                                            $  967,132    $  987,307
Less:  Accumulated Amortization                    409,768       259,644
                                                ----------    ----------

  Net                                           $  557,364    $  727,663
  ---                                           ==========    ==========

1996

Cost                                            $1,998,875    $  987,307
Less:  Accumulated Amortization                    777,427       234,960
                                                ----------    ----------

  Net                                           $1,221,448    $  752,347
  ---                                           ==========    ==========

Amortization expense was $52,076,  $54,593 and $49,658 for fiscal 1997, 1996 and
1995, respectively.

In the fourth quarter of fiscal 1997, goodwill  attributable to the discontinued
operation  of  $565,948  was  written  off  to  the  loss  from   operations  of
discontinued business segment [See Note 16].

During the fourth  quarter of fiscal  1996,  the Company  adopted  SFAS No. 121,
"Accounting for Impairment of Long-Lived  Assets and for Long-Lived Assets to be
Disposed  Of." The Company  recorded an impairment  loss of $2,195,750  from the
write-down of goodwill and property and equipment of which  $2,024,883  was from
the  discontinued  business  segment.  Facts and  circumstances  leading  to the
impairment  loss  consist  primarily  of the  Company's  ice  cream  operation's
inability to expand its markets and products as previously planned. In addition,
there was a write-down of goodwill for approximately $171,000 in connection with
restaurant operations.

Fair values were determined for the ice cream operation  through  estimating the
fair value of ice cream manufacturing equipment,  leasehold improvements and the
product  trade  name  and  trade  mark  using  discounted  cash  flows.  For the
restaurants,  fair value was generally  determined  through  estimating the fair
value of real property and liquor licenses based on the prices of similar assets
and appraisals. The impairment losses recorded are the differences between these
estimated  fair values and the carrying  values of the ice cream  operations and
the individual restaurants. A significant assumption for the cash flows forecast
for fiscal 1996 was a nine year period for ice cream operations.

[5] Notes and Mortgages Payable to Banks

Notes and mortgages payable to banks as of the end of fiscal 1997 and 1996, were
as follows:

                                                            1 9 9 7   1 9 9 6
                                                            -------   -------

Note Payable, Due November 15, 2000, at 7.51% fixed,
  collateralized by real estate                          $  799,999  $1,000,000
Note Payable, Due November 15, 1998, at 7.51% fixed,
  collateralized by real estate                             416,500     625,000
                                                         ----------   ---------

  Totals - Forward                                       $1,216,499  $1,625,000


                                       28

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------


[5] Notes and Mortgages Payable to Banks [Continued]
                                                           1 9 9 7      1 9 9 6
                                                           -------      -------
  Totals - Forwarded                                     $1,216,499  $1,625,000

Revolving Credit, Due May 31, 1997, at LIBOR + 2%,
  collateralized by real estate                             500,000     125,000
Line of credit, Due June 30, 1997, at prime, collateralized
  by real estate                                            100,000         --
                                                         ----------   ---------

Totals                                                    1,816,499   1,750,000
Less:  Current Portion                                    1,008,500     408,500
                                                         ----------   ---------

  Total Long-Term Notes and Mortgages Payable to Banks   $  807,999  $1,341,500
  ----------------------------------------------------   ==========  ==========

At January 26,  1997,  unused  amounts  under the  revolving  line of credit was
$500,000 and under the line of credit was $250,000.

The weighted average interest rate for short-term  borrowing at January 26, 1997
was 8.25% and at January 28, 1996 was 8.50%.

LIBOR and the prime rate were 5.94% and 8.25%, respectively at January 26, 1997.

The notes payable are due in periodic installments through the due dates.

At January 26, 1997, annual maturities of the above debt are as follows:

1998                                                     $1,008,500
1999                                                        408,000
2000                                                        200,000
2001                                                        199,999
Thereafter                                                       --
                                                         ----------

  Total                                                  $1,816,499

All of the above obligations are due to the same financial institution.

The  loan  covenant  governing  the  borrowings  includes,  among  other  items,
requirements to maintain  certain working capital and tangible net worth amounts
and restrictions on dividends.

[6] Capital Lease Obligations

The Company  leases  equipment  under capital  leases  expiring in 2000.  Future
minimum payments by the Company under capital leases consist of the following at
January 26, 1997:

Payments Due in Fiscal:
  1998                                                   $    91,404
  1999                                                        91,404
  2000                                                        24,254
  Thereafter                                                      --
                                                         -----------

  Total Minimum Lease Payments                               207,062
  Amount Representing Interest                                18,265

  Present Value of Minimum Lease Payment                     188,797
  Less:  Current Portion                                      79,154

    Capital Lease Obligations - Long-Term                $   109,643
    -------------------------------------                ===========

                                       29

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
------------------------------------------------------------------------------



[6] Capital Lease Obligations [Continued]

This equipment was sold as part of the discontinued operation [See Note 16]. The
Company  remains  responsible for the payments,  and as a result,  has created a
receivable  from the sale of the  discontinued  operation for an amount equal to
the lease obligation.

[7] Transactions with Related Parties

A principal  stockholder of the Company is the principal  owner of a partnership
which  leases  the Vero  Beach  Restaurant  to the  Company.  The  lease is on a
month-to-month  basis and  requires  monthly  payments  of  $10,000.  Total rent
expense was $120,000 for fiscal 1997, 1996 and 1995.

A loan has been made to a director  with an  outstanding  balance at January 26,
1997 of $6,515. Principal and interest payments are made on a monthly basis with
interest at 6%.

[8] Commitments

The Company  leases  restaurant,  office and storage  facilities,  and equipment
under operating leases expiring at various times through the year 2008.

Minimum  future  rental  payments  under  noncancelable  operating  leases as of
January 26, 1997, are as follows:

Year ending
 January
  1998                                                   $   207,123
  1999                                                       169,463
  2000                                                        91,203
  2001                                                        86,004
  2002                                                        96,017
  Thereafter                                                 698,267
                                                         -----------

   Total Minimum Future Rentals                          $ 1,348,077
   ----------------------------                          ===========

Rent expense was $383,603, $315,723 and $289,630 for fiscal 1997, 1996 and 1995,
respectively.

The Company has three year employment agreements with two employee/directors for
annual  amounts  ranging  from  $87,000 to $150,000.  Total  payments  under the
agreements over the next five years are $474,000.  These agreements  provide for
lump sum  payments  in the event of the  termination  of the  employee/directors
without cause or a change in control of the Company,  as defined,  for a portion
of the unexpired term of the contracts.

The Company has an agreement  with a  director/employee  which  provides for the
payment of $20,000/year  upon retirement.  The discounted  present value of this
agreement is recorded as a liability. The amount has been partially insured with
a life insurance contract owned by the Company.

In  October  1995,  the  Company  entered  into a  consulting  agreement  with a
corporation  controlled  by a director.  The  original  agreement  calls for the
corporation to provide marketing,  advertising and promotional  services through
January 1999 for a fee of $3,000 per month. The revised  agreement calls for the
same  services  to be  provided  without  payment in return  for the  director's
retention of stock options previously issued to him.

                                       30

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
------------------------------------------------------------------------------



[9] Earnings Per Share

Earnings per share are based on weighted average number of shares outstanding of
4,488,291,  4,487,180  and  4,486,052  for  fiscal  years  1997,  1996 and 1995,
respectively.  The effect of options or  warrants  is  anti-dilutive  for fiscal
years  1997,  1996 and 1995.  On  November  22,  1996,  the  Company  effected a
onefor-three reverse stock split of its outstanding common stock. All share data
has been adjusted retroactively to reflect this change.

[10] Stock Options

In June of 1982,  the Company's  Board of Directors  adopted an incentive  stock
option plan for key employees which was  subsequently  approved by the Company's
stockholders.  All  incentive  options  granted  under the plan were intended to
qualify as incentive  stock options  under Section 422A of the Internal  Revenue
Code.  Under the  plan,  an  aggregate  of 55,556  shares of common  stock  were
reserved for  issuance.  Options may be  exercised  over a period of five or ten
years from the date of grant and expire in 1999 and 2000.

In October 1994, the  stockholders  approved the grant of 216,667  non-qualified
options to four  directors to purchase the  Company's  stock at $3.75 per share.
The options are for five years.

In October 1995, the  stockholders  approved the grant of 300,000  non-qualified
options to two directors to purchase the company  stock at $3.00 per share.  The
options are for five years.

In July 1995, one individual  exercised  options to buy 2,222 shares of stock at
the option price of $.984 per share. An additional  option to buy 556 shares was
canceled during the fiscal year.

As part of the sale of the ice cream  manufacturing  segment  [See  Note 16],  a
director forfeited 304,167 options.

The Company  periodically  awards  stock  options to  employees  and applies the
intrinsic  value method of APB Opinion No. 25,  "Accounting  for Stock Issued to
Employees,"  and related  interpretations  in accounting  for these  awards.  No
compensation  cost has been  recognized.  Had  compensation  cost for the  stock
options awarded been  determined  based on the fair value at the grant dates for
these  awards,  consistent  with the fair value method set forth under SFAS 123,
"Accounting for Stock-Based  Compensation,"  the Company's net loss and net loss
per share would have  increased  in the year of issuance  and  decreased  in the
subsequent year due to forfeitures of a portion of those options.

The pro forma amounts are indicated below:

                                             1 9 9 7       1 9 9 6
                                             -------        -------
Net Loss:
  As Reported                              $(1,912,767)   $(2,184,149)
  Pro Forma                                $(1,687,420)   $(2,454,566)

Net Loss Per Share: 
  As Reported                              $      (.43)   $      (.49)
  Pro Forma                                $      (.38)   $      (.55)

All options are granted at an exercise price in excess of the stock price on the
date of grant.

The fair  value of each stock  option  grant is  estimated  on the date of grant
using the Black-Scholes  optionpricing model with the following assumptions used
for grants in fiscal year 1996:  dividend yields of 0%;  expected  volatility of
116%,  risk-free interest rate of 5.77%; and an expected life of five years. The
weighted  average fair value of options  granted were $-0- and $0.90 in 1997 and
1996, respectively.



                                        31

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
------------------------------------------------------------------------------



[10] Stock Options [Continued]

Summary of stock option activity is as follows:

                                 1 9 9 7           1 9 9 6          1 9 9 5
                            ---------------  ---------------   ----------------
                                   Weighted         Weighted           Weighted
                                    Average          Average            Average
                                   Exercise         Exercise           Exercise
                            Shares   Price    Shares   Price    Shares    Price

Outstanding - Beginning
 of Years                   565,667   $3.11   268,445 $  3.22    52,111  $ 0.984
Granted or Sold During 
the Years                        --      --   300,000    3.00   216,667    3.75
Canceled During the Years  (304,167)   3.13      (556)   0.984     (333)   0.984
Expired During the Years     (4,661)   0.984       --      --       --       --
Exercised During the Years       --      --    (2,222)   0.984      --       --
                            ------- -------    ------  -------  -------  -------

  Outstanding - End 
  of Years                  256,839   $3.13   565,667 $  3.11   268,445  $ 3.22
                            ======= =======   ======= =======   =======  =======

  Exercisable - End 
  of Years                  256,839   $3.13   565,667 $  3.11   268,445  $ 3.22
                            ======= =======   ======= =======   =======  =======

The following table summarizes stock option information as of January 26, 1997:

                                            Weighted
                                             Average       Weighted
                                            Remaining       Average
                                           Contractual     Exercise
Range of Exercise Prices        Shares        Life           Price

     $         0.984          $  44,339      2.8 Years     $   0.984
     $3.00 to $3.75             212,500      3.0 Years          3.57
                              ---------      ---           ---------

                                256,839      3.0 Years     $    3.13
                              =========                    =========

[11] Income Taxes

The  significant  components  of  deferred  tax  assets and  liabilities  are as
follows:

                                           January 26, January 28,
                                              1 9 9 7    1 9 9 6

Deferred Tax Assets:
  U.S. Federal Tax Loss Carryforwards      $ 5,100,000 $5,118,000
  Impairment Loss                              226,400    880,000
                                           ----------- ----------

  Gross Deferred Tax Asset                   5,326,400  5,998,000
  Less:  Valuation Allowance                 4,742,000  5,062,000
                                           ----------- ----------

   Net Deferred Tax Assets                     584,400    936,000

Deferred Tax Liability:
  Depreciation                                 584,400    936,000
                                           ----------- ----------

   Net Deferred Taxes                      $       --  $      --
   ------------------                      =========== ==========




                                       32

<PAGE>




CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
------------------------------------------------------------------------------



[11] Income Taxes [Continued]

For the fiscal years 1997 and 1996,  the valuation  reduces the net deferred tax
asset  to zero.  The net  change  in the  valuation  allowance  of  $320,000  is
primarily due to a decrease in the non-deductible impairment loss in the current
year.

The Company has available at January 26, 1997,  operating loss  carryforwards as
follows:

     Year of                            Unused Operating
   Expiration                          Loss Carryforwards

      1999                                $ 1,170,004
      2000                                  2,341,860
      2001                                  1,838,179
      2002                                  1,509,463
      2003                                  2,072,345
      2004                                  2,942,316
      2005                                    472,062
      2009                                    118,411
      2010                                    285,130
                                          -----------

         Totals                           $12,749,770

[12] Fair Value

The following  table  summarizes the carrying amount and estimated fair value of
the  Company's  significant  financing  instruments,  all of which  are held for
non-trading purposes.

                                     January 26, 1997       January 28, 1996
                                   Carrying    Estimated  Carrying   Estimated
                                    Amount    Fair Value   Amount   Fair Value

Long-Term Debt                    $  807,999 $  807,999  $1,341,500 $1,341,500
Long-Term Notes Receivable        $  508,593 $  508,593  $      --  $       --

In  assessing  the fair value of financial  instruments,  the Company has used a
variety of methods  and  assumptions,  which were based on  estimates  of market
conditions and risks existing at that time. For certain  instruments,  including
cash and cash equivalents,  short-term  receivables and payables,  related party
receivables and payables,  and short-term debt, it was assumed that the carrying
amount  approximated fair value for the majority of these instruments because of
their short maturities.

[13] 52-53 Week Year

The  Company's  year  end is the last  Sunday  in  January.  The  statements  of
operations are comprised of a 52-week year for fiscal 1997, 1996 and 1995.

[14] New Authoritative Pronouncements

The Financial Accounting Standards Board ["FASB"] has issued Statement of 
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and 
Servicing of Financial Assets and Extinguishment of Liabilities."  SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishment 
of liabilities occurring after December 31, 1996.  Earlier application is not 
allowed. The provisions of SFAS No. 125 must be applied prospectively; 
retroactive application is prohibited. Adoption on January 1, 1997 is not 
expected to have a material impact on the Company.  The FASB deferred some 
provisions of SFAS No. 125, which are expected to be relevant to the Company.

                                       33

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
------------------------------------------------------------------------------



[14] New Authoritative Pronouncements [Continued]

FASB has issued SFAS No. 128, "Earnings per Share," and SFAS No. 129, 
"Disclosure of Information about Capital Structure," in February 1997.

SFAS No. 128 simplifies the earnings per share ["EPS"] calculations  required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the  presentation  of primary EPS with a presentation of basic EPS.
SFAS No. 128  requires  dual  presentation  of basic and diluted EPS by entities
with complex capital structures.  Basic EPS includes no dilution and is computed
by dividing  income  available to common  stockholders  by the  weighted-average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution of securities that could share in the earnings of an entity,
similar  to the  fully  diluted  EPS of APB  Opinion  No.  15.  SFAS No.  128 is
effective for financial  statements issued for periods ending after December 15,
1997,  including  interim periods;  earlier  application is not permitted.  When
adopted,  SFAS No. 128 will require  restatement  of all  prior-period  EPS data
presented;  however,  the Company has not sufficiently  analyzed SFAS No. 128 to
determine  what effect SFAS No. 128 will have on its  historically  reported EPS
amounts.

SFAS No. 129 does not change any previous  disclosure  requirements,  but rather
consolidates existing disclosure requirements for ease of retrieval.

[15] Acquisitions

On July 14, 1993, the Company  acquired Mister Cookie Face for 1,000,000  shares
of its common stock as of June 30, 1993, in a business combination accounted for
as a purchase.  The purchase price of $3,150,000  exceeded the fair value of the
net assets acquired by $3,056,626 [See Notes 4 and 16].

On October 28, 1994, the Company  purchased a liquor license and trade name from
a restaurant  in New Jersey.  The purchase  price of $267,008  exceeded the fair
value of the assets acquired by $117,008,  which is being amortized over 3 years
under the straight-line method, after adjustment for impairment.

In November 1995, the Company licenced the rights to the "Garcia" trade name for
a six county  area in central  New  Jersey.  Consideration  is 3% of gross sales
generated. In April 1996, the Company converted an existing "LaCrepe" restaurant
into a "Garcia's". A loss of $54,355 was recognized on the conversion.

[16] Discontinued Operations

On  February  20,  1997 [as of January 26,  1997],  the Company  sold 95% of the
common  stock of MCF,  its ice cream  production  segment to a  director  for an
aggregate  purchase price of  $1,600,000,  consisting of a $500,000 cash payment
and three notes  totaling  $1,100,000.  The first note is due on or before March
24, 1997, the second note is due in  installments  through July 1, 2000, and the
third note is due on or before  February 20, 2004,  with  mandatory  prepayments
based on MCF's cash flow.  The notes are secured by a first lien on all of MCF's
assets,  however,  the  Company  has  agreed  to  subordinate  the  loans  up to
$1,750,000 for  additional  financing  obtained by the  purchaser.  Based on the
estimated present value of the payments,  management has set the aggregate value
of the  consideration at $998,950.  An additional amount of $188,797 is due from
the  purchaser,  representing  the balance due on two capital  leases  which the
Company will  continue to pay. The purchaser has agreed to reimburse the Company
for the payments.  The  equipment  subject to the lease was  transferred  by the
Company as part of the sale.  The value of the 5% of MCF capital stock  retained
by the company has been valued at $35,000.

                                       34

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------------------



[16] Discontinued Operations [Continued]

On a per share basis,  MCF's losses were $0.26, $0.42 and $0.10 for fiscal years
1997, 1996 and 1995, respectively.

The Company recorded a loss of $572,883 or $0.13 per share on the disposal.  MCF
sales were  $11,260,976,  $14,711,350 and $15,872,555 for the fiscal years 1997,
1996 and 1995, respectively.

The $500,000 down payment from the sale was used to retire bank debt  subsequent
to year end.

[17] Capital Transactions

On June 8, 1993, the Company effected a one-for-three reverse stock split of its
outstanding  common stock, .01 par value,  without changing the par value of the
common stock. All share data has been adjusted to reflect this change.

On November 22, 1996, the Company  effected a one-for-three  reverse stock split
of its outstanding common stock, $.01 par value,  without changing the par value
of the common stock.  All share data has been adjusted  retroactively to reflect
this change.

[18] Registration Statement and SEC Investigation

In  September  1993,  the  Company  filed a  registration  statement  which  was
subsequently  withdrawn on March 28, 1996.  The Company  incurred  approximately
$270,750 in registration costs which were written off in fiscal 1995.




              .   .   .   .   .   .   .   .   .   .   .   .   .   .

                                       35

<PAGE>



              INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL SCHEDULE


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

            Our  report  on  the  consolidated  financial  statements  of  Chefs
International  Inc.  and its  subsidiaries  is included on page F-1 of this Form
10-K. In connection with our audits of such financial  statements,  we have also
audited the related accompanying  financial statement Schedule II -Valuation and
Qualifying Accounts.

            In our opinion,  the financial statement schedule referred to above,
when considered in relation to the basic financial  statements taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.







                                          MOORE STEPHENS, P.C.
                                          Certified Public Accountants.
Cranford, New Jersey
March 21, 1997


                                       36

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------------------------------------



                                                      Additions
<TABLE>

                                               Balance at         Charged     Charged to       Deductions     Balance at
                                                Beginning         Against       Other             from          Close
                                               of Period          Income       Accounts         Reserves[A]   of Period

For the period ended January 26, 1997:
<S>                                            <C>             <C>              <C>          <C>            <C>    

Amortization of Goodwill [See Note]            $ 777,427       $   98,136       $  --        $ (465,795)    $  409,768
                                               =========       ==========       =========    ==========     ==========

Amortization of Other Intangibles
  [See Note 4]                                 $  234,960      $   24,684       $  --        $      --      $  259,644
                                               ==========      ==========       =========    ==========     ==========

</TABLE>


[A] Deduction Due to Sale of Business Segment.

                                            37

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------------------------------------




                                                                       Additions
<TABLE>

                                          Balance at        Charged            Charged to      Deductions    Balance at
                                           Beginning         Against            Other             from          Close
                                           of Period         Income             Accounts        Reserves      of Period

For the period ended January 28, 1996:
<S>                                        <C>               <C>                <C>             <C>          <C>    

Amortization of Goodwill [See Note]        $  594,594        $  182,833         $      --       $       --   $  777,427
                                           ==========        ==========         =========       ==========   ==========

Amortization of Other Intangibles
  [See Note 4]                             $  210,276        $   24,684         $      --       $       --   $  234,960
                                           ==========        ==========         =========       ==========   ==========


</TABLE>




                                            38

<PAGE>



CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------------------------------------



                                                                       Additions
<TABLE>

                                            Balance at         Charged          Charged to     Deductions   Balance at
                                            Beginning           Against            Other          from        Close
                                            of Period            Income          Accounts       Reserves    of Period

For the period ended January 29, 1995:
<S>                                         <C>               <C>               <C>           <C>          <C>    

Amortization of Goodwill [See Note]         $ 416,149         $  178,445        $      --     $       --   $  594,594
                                            =========         ==========        =========     ==========   ==========

Amortization of Other Intangibles           $  218,964        $   24,136        $      --     $   32,824   $  210,276
                                            ==========        ==========        =========     ==========   ==========
</TABLE>

                                            39

<PAGE>






Item 9: Changes in and Disagreement with Accountants on Accounting and Financial
Disclosure

None

                                            40

<PAGE>



                           CHEFS INTERNATIONAL, INC.

                                   PART III


Item 10.                           Directors and Executive Officers of the
Registrant

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

  Name                             Age        Office

Anthony Papalia                   39        President, Treasurer, Chief
                            Executive Officer, Chief
                                 Financial Officer and Director

James Fletcher                    66        Director

Martin W. Fletcher                44        Secretary and Director

Frank Koenemund                   53        Director

Jack Mariucci                     57        Director
------------
   (a) James Fletcher is the father of Martin Fletcher.

 The Company  does not have an Executive  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  following is a brief  account of the business  experience of each director
and executive officer of the Company during the past five years.

 Anthony 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.

 James Fletcher was elected a vice president of the Company on
February 10, 1978 and a director in December, 1978.  In April, 1980
Mr. Fletcher became general manager of the Company's Florida
seafood restaurants.  Mr. Fletcher retired as a vice president and
an employee of the Company at the conclusion of fiscal 1997 but
continues to serve as a director.

                                      41

<PAGE>




 Martin 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 is currently devoting all of his working time to the business of the Company.

 Frank Koenemund was  principally  engaged from 1988 through 1991 as a principal
of Thin's Inn and Thin N'Creamy,  two New Jersey entities  packaging and selling
diet cookies in various United States markets.  Commencing in February 1992, Mr.
Koenemund was principally  engaged as sole owner and as an executive  officer of
Mr.  Cookie Face which was acquired by the Company in July 1993,  at which time,
he was elected a director of the  Company.  On February  20, 1997 (as of January
26, 1997),  the Company sold 95% of the outstanding  capital stock of Mr. Cookie
Face  back to Mr.  Koenemund  who  currently  devotes  substantially  all of his
working time to the business of Mr. Cookie Face as its chief executive  officer.
Mr. Koenemund continues to serve as a director of the Company.

 Jack  Mariucci  was  principally  engaged for more than the past five years and
until October 1994 as Executive Vice President and Executive  Creative  Director
of DDB Needham Worldwide - New York. DDB Needham is a global  advertising agency
with offices in cities  throughout the world.  Mr. Mariucci was also a member of
the New York Management  Board of DDB Needham.  Since October 1994, Mr. Mariucci
has been  principally  engaged as an independent  marketing  consultant.  He was
elected a director of the Company in July 1993.

Compliance with Section 16 (a) of the Exchange Act

 Based  solely  upon a review  of Forms 3 and 4 and on  representations  that no
Forms 5 were  required,  the Company  believes that with respect to fiscal 1997,
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 11.                         Executive Compensation

 The following table sets forth information  concerning the compensation paid or
accrued by the Company  during the three fiscal years ended  January 26, 1997 to
its Chief  Executive  Officer as well as to any other  executive  officer of the
Company or a subsidiary who earned at least $100,000 during fiscal 1997.  During
the  three-year  period ended  January 26,  1997,  the Company did not grant any
restricted  stock awards or have any  long-term  incentive  plan in effect.  The
Company  maintains a  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 (except
that the contribution for Mr. Koenemund who first became covered under the

                                      42

<PAGE>





Program in June 1995 was $8,352 in fiscal 1996 and in fiscal 1997).  The Program
provides  life  insurance  death  benefits,   disability   income  benefits  and
retirement income benefits. James 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.  The Company  partially  funds this obligation with an
insurance policy paying an annual premium of approximately $5,000.

                          SUMMARY COMPENSATION TABLE

                                 Annual Compensation
Name and                         Fiscal                           Other Annual
Principal Position               Year       Salary    Bonus       Compensation

Anthony Papalia                  1997       $150,000   $-0-       $2,088(a)
  President and                  1996       $119,692   $-0-       $2,088(a)
  Chief Executive                1995       $110,600   $-0-       $2,088(a)
  Officer

Frank Koenemund                  1997       $150,000   $-0-       $8,352(a)
  Chief Executive                1996       $111,539   $54,300  $8,352(a)
  Office of MCF                  1995       $100,000   $-0-       $-0-

(a) Represents contributions under the Supplemental Employee Benefit
Program.
                                   Long-Term
                                 Compensation

                                                      Restric-
                                                        ted                All
Name and                         Fiscal     Options    Stock      LTIP    Other
Principal Position               Year       SARs       Awards     Payouts  Comp

Anthony Papalia                  1997       -0-            0        $-0-   $-0-
  President and                  1996       -0-            0        $-0-   $-0-
  Chief Executive                1995     54,167*          0        $-0-   $-0-
  Officer

Frank Koenemund                  1997      -0-             0        $-0-   $-0-
  Chief Executive                1996     250,000**        0        $-0-   $-0-
  Officer of MCF                 1995     54,167*          0        $-0-   $-0-

  *Each exercisable to purchase one share of Common Stock at $3.75 per
share.
 **Each exercisable to purchase one share of Common Stock at $3.00 per
share.


                                         43

<PAGE>



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 chief executive  officer and chief financial  officer and between the
Company  and  Martin  Fletcher  as  controller.  Each  contract  expires  at the
conclusion of the Company's 1999 fiscal year and is  automatically  renewed on a
year by year basis for up to five consecutive  additional  one-year terms unless
either  party  gives at least six  months  prior  notice  that he or it does not
desire such renewal.  Mr. Papalia's annual salary under the contract is $150,000
and Mr. Fletcher's annual salary under the contract is $87,000. Each individuals
salary is subject to automatic  increase in each Renewal Year based on increases
in the  Consumer  Price  Index.  If  the  employment  of  either  individual  is
terminated other than for cause, he will 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.

 In  connection  with  the  Company's  acquisition  of MCF in July  1993,  Frank
Koenemund  executed  an  employment  contract  with  MCF  agreeing  to  serve as
president  and chief  executive  officer at an annual  salary of $100,000 plus a
percentage bonus based upon MCF's pre-tax income.  Pursuant to the contract, Mr.
Koenemund  earned a $54,300  bonus in fiscal 1996 but no bonus in prior years or
in fiscal 1997. In October 1995, the contract term was extended  through January
31, 2001, Mr. Koenemund's salary was increased commencing October 31, 1995 to an
annual rate of $150,000 and the bonus  provision was  retained.  On February 20,
1997 (as of January 26, 1997),  Chefs sold 95% of the outstanding  capital stock
of MCF back to Mr. Koenemund.

 Effective October 2, 1995, the Company executed a Consulting Agreement with M&M
Creative   Services,   Inc.  ("M&M")  retaining  M&M  as  a  consultant  for  an
approximately  three-year term through the conclusion of fiscal 1999, to provide
marketing, advertising and similar promotional services for a monthly consulting
fee of $3,000.  Jack  Mariucci,  a director  of the  Company,  is the  principal
employee  of M&M and  his  wife  is the  president  and  sole  stockholder.  The
Consulting Agreement required Mr. Mariucci to devote at least 10% of his working
time in each month to providing the consulting  services and  terminated,  among
other reasons, in the event of Mr. Mariucci's death or disability. In connection
with Chefs' sale on February  20, 1997 (as of January 26,  1997) of 95% of MCF's
outstanding capital stock back to Mr. Koenemund,  it was agreed that Chefs would
have no further  payment  obligations  to M&M or to Jack Mariucci for consulting
services provided that if such consulting services continued to be rendered, Mr.
Mariucci's  outstanding  options to purchase shares of Chefs' common stock would
remain in full force and effect until expiration of their term.

Stock Options

 On  November  3,  1989,  the  Company's  Board of  Directors  granted  ten-year
Incentive  Stock Options  ("ISOs)  exercisable  to purchase an aggregate  48,778
shares of Common  Stock at  $.984375  per share  (equal to the mean  between the
closing bid price and the closing asked price for the Common

                                         44

<PAGE>




Stock on NASDAQ on November 2, 1989),  pursuant to the Company's  1982 Incentive
Stock Option Plan (the "ISO Plan"),  to ten employees  including three officers.
Anthony  Papalia,  James  Fletcher and Martin W. Fletcher  were granted  12,223,
6,667  and  11,000  of these  options,  respectively.  To date,  ISOs  have been
exercised to purchase an aggregate  2,222 shares and an aggregate  8,885 of such
options  including the ISOs granted to James Fletcher have been cancelled due to
terminations of employment.

 The Company's ISO Plan terminated in August 1992.

 At Chefs' annual meeting of stockholders held on October 3, 1994,  stockholders
approved  the  grant  to  four  key  members  of  management  of  stock  options
exercisable to purchase an aggregate 216,668 shares of Common Stock. The options
were each  exercisable  over a term of five  years  from  October  3, 1994 at an
exercise  price of $3.75 per share (the last sales price for the Common Stock on
the NASDAQ  Small-Cap System on July 29, 1994, the last trading day prior to the
date of  grant of the  options  by the  Board  of  Directors).  Each  option  is
non-transferable (except on death) and is exercisable by the optionee only while
serving  as an  officer,  director  or  employee  of the  Company  or one of its
subsidiaries.  The optionees and the number of shares  issuable upon exercise of
the options granted to such optionees were as follows:

 Optionee                                              Number of Shares

 Anthony Papalia                                        54,167
  (President, Treasurer, CEO,
   CFO and Director)

 Martin Fletcher                                        54,167
  (Secretary and Director)

 Frank Koenemund                                        54,167
  (President of Mr. Cookie Face
   and Director)

 Jack Mariucci                                          54,167
  (Director)

 At  Chefs'  annual  meeting  of   stockholders   held  on  December  19,  1995,
stockholders  approved  the grant to Messrs.  Koenemund  and  Mariucci  of stock
options exercisable to purchase 250,000 shares and 50,000 shares of Common Stock
respectively.  The options were each  exercisable over a term of five years from
December 19, 1995 at an exercise price of $3.00 per share.  On October 20, 1995,
the last  trading  day prior to the date of grant of the options by the Board of
Directors,  the last sales  price for the Common  Stock on the NASDAQ  Small-Cap
System was $1.22.  Each  option was  non-transferable  (except on death) and was
exercisable,  in the case of Mr.  Koenemund,  only while  serving as an officer,
director  or employee  of the  Company or a  subsidiary,  and in the case of Mr.
Mariucci, only while rendering marketing and advertising services to the Company
or a subsidiary.




                                         45

<PAGE>





 In connection with Chefs' sale on February 20, 1997 (as of January 26, 1997) of
95% of the outstanding  capital stock of MCF back to Mr.  Koenemund,  all of Mr.
Koenemund's options were cancelled.

 The following table sets forth certain information concerning
unexercised options held by Mr. Papalia.  No options were exercised in
fiscal 1997.

                         1997 Fiscal Year-End Option Values

                Number of Unexercised Options at 1997 Fiscal Year-End

                                                          Value of Unexercised
                                                             In-The-Money
 Name             Exercisable             Unexercisable   Options at 1/26/97(1)

Anthony Papalia      12,223                    -0-                -0-
                     54,167                    -0-                -0-
----------
 (1) The option  exercise  price  exceeded  the closing bid price for the Common
Stock in the  over-the-counter  market on the last trading day preceding January
26, 1997.

Directors' Compensation

 During  fiscal 1997 only one  director,  Jack  Mariucci,  was  compensated  for
serving as such. His  compensation  as a director at a monthly rate of $1,500 is
continuing in fiscal 1998. In addition,  James  Fletcher is being paid a monthly
director's fee of $1,250 in fiscal 1998.


                                         46

<PAGE>





Item 12.              Security Ownership of Certain
                     Beneficial Owners and Management

   The following table sets forth  information as of March 21, 1997 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.  The
percentages  have been  calculated on the basis of treating as outstanding for a
particular  holder,  all shares of Chefs' Common Stock  outstanding on said date
and all shares of Common Stock  issuable to such holder in the event of exercise
or conversion of outstanding options,  warrants and convertible securities owned
by such holder at said date which are exercisable or convertible  within 60 days
of such date.
                      Shares of
Name and Address of           Common Stock             Percentage
Beneficial Owner            Beneficially Owned         Ownership
Directors*

Anthony Papalia                   66,390(1)              1%
James Fletcher                       334                 --
Martin Fletcher                   65,167(2)              1%
Frank Koenemund                  333,334                 7%
Jack Mariucci                    104,167(3)              2%
All executive officers
and directors as a group
(five persons)                   569,392(1)(2)(3)       12%

Other

Robert E. Brennan              1,766,557                39%
264 Route 537 East
Colts Neck, New Jersey
  07722

Michael F. Lombardi,             305,667(4)              7%
Robert M. Lombardi,
Stephen F. Lombardi,
Joseph Lombardi,
Joseph S. Lombardi,
December '95 Investment
Club, Lombardi & Lombardi,
P.A., and Lombardi &
Lombardi, P.A. Defined
Benefit Plan c/o
Michael F. Lombardi
1862 Oak Tree Road
Edison, New Jersey 08820


                                         47

<PAGE>



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

 (1) Includes  66,390 shares  issuable upon exercise of stock options granted by
the Company.
 (2) Includes  65,167 shares  issuable upon exercise of stock options granted by
the Company.
 (3) Includes  104,167 shares issuable upon exercise of stock options granted by
the Company.
 (4) The five individuals,  the Investment Club and the firm and Defined Benefit
Plan of Lombardi & Lombardi,  P.A.,  have filed a report on Schedule 13D and two
amendments  thereto  indicating their ownership of the Company's Common Stock as
reflected in the table.  The filing  parties have  indicated in the Schedule 13D
that they are all acting  separately  and not as a group and that the purpose of
their  acquisition of the Common Stock "...is for investment and accumulation of
shares in Chefs International, Inc."

 Robert E. Brennan  through his stock  ownership  may be deemed the  controlling
stockholder of the Company.


Item 13.              Certain Relationships and Related Transactions

 Robert E.  Brennan is a  principal  stockholder  of the  Company as well as the
owner of Gourmet Associates ("Gourmet") which has leased the Vero Beach, Florida
Lobster  Shanty  restaurant to the Company since 1979.  During the Company's two
most  recently  completed  fiscal  years and at present,  the lease has been and
continues to be a month to month "net" lease at a monthly rental of $10,000 with
the Company  also  paying  personal  property  taxes and  insurance  thereunder.
Management  regards this lease to be  advantageous  to the  Company.  See Item 1
herein.

 See Item 1 herein as to the sale by Chefs on  February  20, 1997 (as of January
26, 1997) of 95% of the outstanding capital stock of MCF to Frank Koenemund.

                                         48

<PAGE>



                              CHEFS INTERNATIONAL, INC.

                                       PART IV


Item 14.              Exhibits, Financial Statement
       Schedules and Reports on Form 8-K

 (a)(1)               Financial Statements

       The  consolidated  financial  statements  of  Chefs  International,  Inc.
("Chefs" or the  "Company")  and its wholly owned  subsidiaries  are included in
Part II, Item 8.

    (2)               Financial Statement Schedules

       Schedule II,  Valuation and Qualifying  Accounts is included in this Part
IV. All other  schedules  are omitted  because the required  information  is not
applicable, not material or included in the consolidated financial statements or
notes thereto.

    (3)               Exhibits

3.1           Certificate of Incorporation of the Company, as amended(A)

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

4.1           Specimen Common Stock Certificate(A)

10.1          Monmouth Mall Shopping Center Lease for Garcia's restaurant(B)

10.2          Acquisition Agreement as of June 30, 1993 between the
              Company and Frank Koenemund concerning the acquisition of
              Mr. Cookie Face(C)

10.3          Employment Agreement as of June 30, 1993 between Mr. Cookie
              Face and Frank Koenemund(C)

10.4          Amendment No. 1 dated as of October 30, 1995 to Employment
              Agreement between Mr. Cookie Face and Frank Koenemund(B)

10.5          Term Loan and Revolving Credit Agreement dated January 19,
              1996 between the Company and First Union National Bank(B)

10.6          Acquisition Agreement dated April 8, 1994 between the
              Company and Evelyn's Fish Market, Inc. for the acquisition
              of "Evelyn's" restaurant in Belmar, N.J.(D)

10.7          Lease Agreement dated September 29, 1995 between Evelyn's
              Associates and Chefs International, Inc. for "Lobster
              Shanty" restaurant in Belmar, New Jersey(E)

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

                                         49

<PAGE>




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

10.10         Consulting Agreement dated as of October 2, 1995 between
              Chefs and M&M Creative Services, Inc.(B)

10.11         Stock  Option  Agreement  dated as of  October 3, 1994  between 
              Chefs and Anthony Papalia.  Substantially  similar option  
              agreements were executed by Chefs with Martin Fletcher,  Frank 
              Koenemund and Jack Mariucci as of October 3, 1994 for 162,500  
              shares each at an exercise price of $1.25 per share and as of  
              December  19,  1995 with Frank  Koenemund  (750,000  shares) and 
              Jack Mariucci (150,000 shares) at an exercise price of $1.00 per 
              share(B)

10.12         Stock Purchase/Sale Agreement as of January 26, 1997 between
              Chefs and Frank Koenemund concerning the sale of 95% of MCF
              and the three MCF Promissory Notes (A, B and C) issued
              thereunder(F)

22            Subsidiaries - The following table  indicates the wholly owned  
              subsidiaries of the Company, their respective states of 
              incorporation and the restaurant operated by each State

Name                            Incorporation          Restaurants

Chefs International                Florida             Lobster Shantys -
  Palm Beach, Inc.                                     Vero Beach and Jensen
                                                       Beach, Florida

Kev, Inc.                       New Jersey             Lobster Shanty -
                                                       Pt. Pleasant Beach,
                                                       New Jersey

Robbins Parkway                 New Jersey             Lobster Shanty - Toms
  Realty Co., Inc.                                     River, New Jersey

Hightstown REB, Inc.            New Jersey             Lobster Shanty -
                                                       Hightstown, New Jersey
------------
 (A) Incorporated by reference to exhibit filed with the Company's
Registration Statement on Form SB-2 (File no. 33-66936)
 (B) Incorporated by reference to exhibit filed with the Company's annual report
on Form 10-K for the fiscal year ended January 28, 1996
 (C)  Incorporated  by reference  to exhibit  filed with the  Company's  current
report on Form 8-K for July 23, 1993
 (D) Incorporated by reference to exhibit filed with the Company's annual report
on Form 10-KSB for the fiscal year ended January 30, 1994
 (E) Incorporated by reference to exhibit filed with the Company's annual report
on Form 10-KSB for the fiscal year ended January 29, 1995
 (F)  Incorporated  by reference  to exhibit  filed with the  Company's  current
report on Form 8-K for February 20, 1997

 The Company did not file any reports on Form 8-K during the last quarter of the
fiscal year ended January 26, 1997.

                                         50

<PAGE>


                                     SIGNATURES

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


(Registrant)                                Chefs International, Inc.



By                                          /s/Anthony C. Papalia
                                            Anthony C. Papalia, President


Date                                        April 28, 1997


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



By/s/Anthony C. Papalia                     By/s/Frank Koenemund
  Anthony C. Papalia, Principal               Frank Koenemund, Director
  executive, financial and
  accounting officer and director           Date April 28, 1997

Date April 28, 1997



By/s/Martin Fletcher                        By/s/Jack Mariucci
  Martin Fletcher, Director                   Jack Mariucci, Director

Date April 28, 1997                         Date April 28, 1997
---------------------------                 -------------------------



By/s/James Fletcher
  James Fletcher, Director

Date April 28, 1997

                                         51

<PAGE>